ICYMI - Last week in crypto: SEC probes Yuga labs, TempleDAO Hacked and Magic Eden launches $1M empowerment scheme
Go Go Magic Eden! 💫
Last week in the Web3 space, the SEC issued a probe against Yuga Labs over issuing “illegal securities”, TempleDAO and STAX Finance were hacked for $2.3 million, and the CEO of Cosmos disclosed a vulnerability in the blockchain similar to the cause of the BNB hack. UniSwap Labs has also raised $165 million for Web3 and NFT development, while Solana NFT marketplace Magic Eden has launched a $1 million Creator empowerment hackathon.
SEC probes Yuga Labs over “Illegal Securities Offerings” - What this means for NFTs
The Securities and Exchange Commission announced last Tuesday that it is looking into Yuga Labs, the creators and distributors of Bored Ape Yacht Club, for making unauthorized securities offerings. This announcement will be seen as a significant escalation in the SEC's crypto enforcement agenda.
The SEC is looking into Yuga Labs to see which of the NFTs it has provided should be regarded as securities. If so, the project would be regulated more like a stock and would be required to adhere to the same disclosure rules.
Though technically unrelated, the Bored Ape Yacht Club (BAYC) NFT collection and its offshoot project ApeCoin are thought to be the focus of the investigation (APE).
The "unaffiliated" ApeCoin DAO, which disavows all formal ties to Yuga Labs, introduced ApeCoin in March 2022. The Otherside ecosystem, which Yuga Labs recently entered, is intended to use ApeCoin as its native currency. Holding APE in your wallet portfolio is the only prerequisite for joining the ApeCoin DAO.
However, the SEC is yet to issue a statement on the subject because this is a private investigation. According to Bloomberg, the source who has knowledge of the investigation has asked to remain anonymous.
In 2021, Yuga Labs began work on the enormously popular avatar project. The ten thousand pieces in the collection, which were initially minted at 0.08 ETH each, represent the most expensive NFTs ever produced. The entire collection would be valued at a minimum of $975 million if we were to value each individual piece, even the rare ones, at the current floor price of 75.6 ETH.
Presently, it appears that the SEC is actively looking into whether either (or both) of these products qualify as securities under the current securities laws. Although no charges have been brought against Yuga Labs, the company has not been accused of any wrongdoing.
What the SEC Investigations means for NFTs
Given that the SEC is currently looking into Yuga Labs, it is obvious that the NFT industry is the next target for the regulator. Anyone who relies on NFTs for their livelihood should be concerned about this. Today's news would not be shocking if it served to deter any number of ambitious projects from beginning their operations for fear of being subjected to harsh scrutiny.
The SEC has shown that it is willing to apply current (even if possibly flawed) laws to the area and that it is ready to present its case before the American judicial system. When combined with other recent enforcement actions, this investigation shows a rise in the SEC's aggressiveness that fits a larger pattern from the previous year. Its lawsuit against Sparkster and Ian Balina (in which it asserted that the United States had jurisdiction over Ethereum transactions) and its settlement with Kim Kardashian for secret promotional payments immediately come to mind.
Additionally, it shows that despite what anyone may say, the SEC appears to view NFTs as securities. The word "security" was mentioned three times in public statements regarding its action against Kardashian last week. Should the Commission decide to file charges, it is very likely that they would succeed on these grounds because, in some cases, works of art are already regarded as securities for regulatory and investment purposes and must be registered as such.
However, it must be emphasized once more that the SEC has not accused Yuga Labs of any wrongdoing, and as of right now, there is no proof that charges are about to be filed. Nevertheless, the news is unsettling a lot of people—possibly for good reason.
TempleDAO, STAX Finance Hacked for $2.3 Million
An estimated $2.3 million was stolen from TempleDAO and its related project STAX Finance in the early hours of Tuesday.
In a maintenance note, STAX acknowledged the attack. On October 11, 321,154 xLP were taken overall, according to the report. For 1.3 million FRAX and 1.4 million TEMPLE, those tokens were exchanged. Then, FRAX was exchanged for the TEMPLE tokens.
The market price of those tokens puts the attack's value above $2.3 million. According to PeckShield, the attack resulted in the theft of 1,831 ETH worth $2.34 million.
STAX further advised users not to add more money to its contracts until the issue has been fixed, noting that the dApp has been frozen to prevent unintentional access.
The project team stated that "remediations will be made for all affected users" and that the problem is "now under control and the exploiter can do no further harm."
STAX further stated that it is "following up with Binance" regarding the situation. It must be attempting to monitor or restrict the flow of funds through the exchange. Several reports claim that the attacker first transferred money from a Binance account.
STAX also announced that it will increase the bounty it already offers through Hats Finance and establish a "white hat" bounty to encourage the return of stolen funds.
Albeit, inadequate access control in a smart contract related to staking made the attack possible. The attacker was able to create a fake smart contract that called a specific function and asked for the transfer of funds.
By stating that its "vault contracts share no common code with STAX, have been audited by PeckShield, and remain secure," TempleDAO has highlighted the attack's narrow scope.
According to reports, the core contracts of TempleDAO contain stablecoins worth $100 million. Additionally, it currently has a total value locked of about $56 million.
Cosmos’ $8B Ecosystem Endangered by Critical Vulnerability - Similar to the BNB bug
Ethan Buchman, the co-founder of Cosmos, warned last Thursday that a "critical security vulnerability" could be used against any IBC-enabled blockchain.
The BNB Chain attack from last week prompted Cosmos developers to review their IBC code. They discovered a serious security flaw that put every IBC-enabled blockchain in danger.
It appears that a single vulnerability puts the entire Cosmos ecosystem in danger.
Co-founder Ethan Buchman posted an announcement about a "critical security vulnerability that affects all IBC-enabled Cosmos chains, for all versions of IBC" on Thursday in the Cosmos Hub governance forum.
Users are allowed to seamlessly switch between Cosmos blockchains thanks to the Inter-Blockchain Communication protocol (IBC), which connects the decentralized network of blockchains. As of this writing, there are 42 blockchains that support the IBC, including Cronos, Evmos, Cosmos Hub, and Osmosis. The market capitalization of all IBC-enabled chains combined is $8.18 billion, according to the project's website.
IBC has also been integrated in the past by other significant blockchains like OKX Chain, Luna Classic, and Thorchain. But for a variety of reasons, they've either turned the feature off or never fully activated it. One of these initiatives is the BNB Chain. The most recent attack on it, in which a hacker stole $566 million from the bridge of the blockchain, encouraged Cosmos developers to investigate whether other IBC blockchains might be susceptible to the same exploit.
According to Buchman, steps have already been taken to patch important IBC blockchains. Before the vulnerability was made public, the patch was initially made available only to developers and validators, giving them time to update their chains. He claims that for a project to be secure, a patch needs to be applied by more than one-third of the voting power on a blockchain. On October 14 at 14:00 UTC, the Cosmos SDK will make the patch available to the general public. Even if they had already incorporated the private patch, Buchman advised all Cosmos chains and validators to update to the public patch as soon as possible.
Uniswap Labs raises $165M as attention shifts to NFTs, Web3
Decentralized exchange Uniswap Labs has raised $165 million in a Series B funding round, which included some of the biggest venture capital firms in the blockchain industry. This puts the business on track to expand into other crypto-focused domains. The founder and CEO, Hayden Adams, claims that the decentralized exchange has supported a total trading volume of $1.2 trillion since its inception.
A number of current investors, including Andreessen Horowitz, Paradigm, Variant, and SV Angel, also participated in the funding round, which was led by Polychain Capital. Uniswap's intention was to raise between $100 million and $200 million, and the funding round supports that information.
According to Uniswap, the funding will be used to increase the product offerings for its current customers and enhance their user experience through the development of new web applications, developer tools, and a move toward mobile. In the future, the company also intends to start nonfungible token (NFT) projects.
The title of the official announcement, "Bringing Web3 to Everyone," suggested that Uniswap was aiming to include many of the fundamental concepts that distinguish Web3 from the current Web2 environment.
Uniswap gained popularity when traders started searching exchanges for low-cap DeFi projects during the decentralized finance frenzy of 2020. Uniswap's total trade volume had surpassed $100 billion by February 2021, marking a first. According to founder Hayden Adams, the total trading volume of Uniswap has increased to $1.2 trillion since its inception.
Ukrainian art museum to preserve art and cultural heritage through NFT auction
In an effort to raise money for operations and the preservation of cultural heritage, the Kharkiv Art Museum introduced a new NFT collection on the Binance NFT marketplace.
Nonfungible token (NFT) use cases are evolving past the glitzy days of stale digital art collections as the Web3 space matures. Nevertheless, NFT utility is being reimagined even in the world of art, as is the case with a Ukrainian art museum.
The Art without Borders NFT collection from the Kharkiv Art Museum is now accessible on the Binance NFT market, the institution announced on October 13.
According to the official announcement, 15 works of art from the museum's collection are included in Art without Borders, with the money raised going to support the institution's operations and "save the cultural heritage of Ukraine."
Director of Binance NFT Lisa He explained that NFTs offer assurance to donors seeking a safe and sure way to make a donation during a time of conflict:
“[NFTs] offer peace of mind and security for donors because all transactions are registered on blockchain technology. All donations to causes via NFTs are tracked and can’t be altered or deleted."
The Binance executive went on to say that because of the blockchain's transparency, donors can also track when and whether their donations made it to their intended recipient.
Nearly 25,000 works of fine art by Ukrainian and international artists are housed in one of Ukraine's oldest museums. The NFT collection includes works of art by Albrecht Dürer, Georg Jacob Johann van Os, Ivan Aivazovsky, Simon de Vlieger, and other artists.
In the past, museums have used NFTs to digitize artwork. One institution is the Royal Museum of Fine Arts in Antwerp, which tokenized an expensive work of art from its collection.
Even in metaverse museums, art has been NFT-ized, as when Frida Khalo's family brought a piece from their personal collection into Decentraland that had never been seen before.
Magic Eden Announces $1M Creator Monetization Hackathon And Royalty Tools
The Solana-based NFT marketplace Magic Eden has announced the start of a Creator Monetization Hackathon with an estimated $1 million investment. This is done to promote the development of pro-NFT royalties and the establishment of alternative forms of monetization on the high throughput smart contracting platform.
Magic Eden empowering Creators
The popular NFT marketplace, Magic Eden is prepared to assist both creators and collectors. In order to help creators stay competitive in the ever-evolving NFT market, the market is happy to offer resources.
Magic Eden will collaborate with partners to provide tools that support a sustainable creator environment and will use the Creator Monetization Hackathon to encourage the creation of new innovative business models.
The co-founder and CEO of Magic Eden, Jack Lu, offered his thoughts on the platform's most recent change. According to him, recent seismic changes have occurred in the NFT ecology.
Lu added that it is disappointing that creator royalties have recently changed. Despite this, it seems inevitable given that no payments are required during the protocol stage. He claimed that Magic Eden wants to stop this current trend.
The CEO announced that Magic Eden will host a hackathon to aid in the development of fresh royalties tools and creator-protecting technologies. Magic Eden wants to make sure that it keeps running as a creator-focused company that generates steady income.
However, a significant factor has prompted hundreds of talented creatives to enter the web3 market. This refers to the recurring royalties that NFT creators earn on each sale of their works.
Unfortunately, a lot of NFT buyers decide to buy NFTs through methods that let them avoid paying royalties. Because royalties are not enforced on the blockchain, it is possible to avoid paying them. In reality, they are only payable at the collector's or NFT platform's discretion.
Magic Eden Adds Optional Royalty Fee On Its Platform
Following a tweet from Magic Eden, the platform reportedly added royalty charges. Although it will be optional to pay the royalty fee. Because of this, customers who buy NFTs on the open market have the option of paying full, half, or no royalties.
Additionally, the Creative Monetization Hackathon will help to lessen the negative effects on business of the switch to a voluntary creator royalty model, as well as incubate technologies to protect royalty revenue and research alternative monetization strategies.
Artists also need different ways to make money. The Creator Monetization Workshop's second part will help creators pay for the upfront costs related to experimenting with new monetization methods.
This might suggest that content creators might have to look into alternatives to royalties, such as creating their own liquidity pools or holding back some of their supply to resell to the market later.
Top creators can also experiment with using current NFTs and Boots revenue generation. Users of the Boots system can customize trait- and skin-based SFTs (also known as semi-fungible tokens).
Top projects can use this system to examine the likelihood of developing additional revenue sources. Application to the hackathon is open to creators who already have a compelling monetization plan in place or are looking into solutions for royalties protection.
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