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A crypto wallet maker's warning about an iMessage bug sounds like a false alarm | TechCrunch

A crypto wallet maker claimed this week that hackers may be targeting people with an iMessage “zero-day” exploit — but all signs point to an exaggerated threat, if not a downright scam.

Trust Wallet’s official X (previously Twitter) account wrote that “we have credible intel regarding a high-risk zero-day exploit targeting iMessage on the Dark Web. This can infiltrate your iPhone without clicking any link. High-value targets are likely. Each use raises detection risk.”

The wallet maker recommended iPhone users to turn off iMessage completely “until Apple patches this,” even though no evidence shows that “this” exists at all.

The tweet went viral, and has been viewed over 3.6 million times as of our publication. Because of the attention the post received, Trust Wallet hours later wrote a follow-up post. The wallet maker doubled down on its decision to go public, saying that it “actively communicates any potential threats and risks to the community.”

Trust Wallet, which is owned by crypto exchange Binance, did not respond to TechCrunch’s request for comment. Apple spokesperson Scott Radcliffe declined to comment when reached Tuesday.

As it turns out, according to Trust Wallet’s CEO Eowyn Chen, the “intel” is an advertisement on a dark web site called CodeBreach Lab, where someone is offering said alleged exploit for $2 million in bitcoin cryptocurrency. The advert titled “iMessage Exploit” claims the vulnerability is a remote code execution (or RCE) exploit that requires no interaction from the target — commonly known as “zero-click” exploit — and works on the latest version of iOS. Some bugs are called zero-days because the vendor has no time, or zero days, to fix the vulnerability. In this case, there is no evidence of an exploit to begin with.

A screenshot of the dark web ad claiming to sell an alleged iMessage exploit. Image Credits: TechCrunch

RCEs are some of the most powerful exploits because they allow hackers to remotely take control of their target devices over the internet. An exploit like an RCE coupled with a zero-click capability is incredibly valuable because those attacks can be conducted invisibly without the device owner knowing. In fact, a company that acquires and resells zero-days is currently offering between $3 to $5 million for that kind of zero-click zero-day, which is also a sign of how hard it is to find and develop these types of exploits.

Contact Us

Do you have any information about actual zero-days? Or about spyware providers? From a non-work device, you can contact Lorenzo Franceschi-Bicchierai securely on Signal at +1 917 257 1382, or via Telegram, Keybase and Wire @lorenzofb, or email. You also can contact TechCrunch via SecureDrop.

Given the circumstances of how and where this zero-day is being sold, it’s very likely that it is all just a scam, and that Trust Wallet fell for it, spreading what people in the cybersecurity industry would call FUD, or “fear uncertainty and doubt.”

Zero-days do exist, and have been used by government hacking units for years. But in reality, you probably don’t need to turn off iMessage unless you are a high-risk user, such as a journalist or dissident under an oppressive government, for example.

It’s better advice to suggest people turn on Lockdown Mode, a special mode that disables certain Apple device features and functionalities with the goal of reducing the avenues hackers can use to attack iPhones and Macs.

According to Apple, there is no evidence anyone has successfully hacked someone’s Apple device while using Lockdown Mode. Several cybersecurity experts like Runa Sandvik and the researchers who work at Citizen Lab, who have investigated dozens of cases of iPhone hacks, recommend using Lockdown Mode.

For its part, CodeBreach Lab appears to be a new website with no track record. When we checked, a search on Google returned only seven results, one of which is a post on a well-known hacking forum asking if anyone had previously heard of CodeBreach Lab.

On its homepage — with typos — CodeBreach Lab claims to offer several types of exploits other than for iMessage, but provides no further evidence.

The owners describe CodeBreach Lab as “the nexus of cyber disruption.” But it would probably be more fitting to call it the nexus of braggadocio and naivety.

TechCrunch could not reach CodeBreach Lab for comment because there is no way to contact the alleged company. When we attempted to buy the alleged exploit — because why not — the website asked for the buyer’s name, email address, and then to send $2 million in bitcoin to a specific wallet address on the public blockchain. When we checked, nobody has so far.

In other words, if someone wants this alleged zero-day, they have to send $2 million to a wallet that, at this point, there is no way to know who it belongs to, nor — again — any way to contact.

And there is a very good chance that it will remain that way.

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How Ukraine’s cyber police fights back against Russia's hackers | TechCrunch

On February 24, 2022, Russian forces invaded Ukraine. Since then, life in the country has changed for everyone.

For the Ukrainian forces who had to defend their country, for the regular citizens who had to withstand invading forces and constant shelling, and for the Cyberpolice of Ukraine, which had to shift its focus and priorities.

“Our responsibility changed after the full scale war started,” said Yevhenii Panchenko, the chief of division of the Cyberpolice Department of the National Police of Ukraine, during a talk on Tuesday in New York City. “New directives were put under our responsibility.”

During the talk at the Chainalysis LINKS conference, Panchenko said that the Cyberpolice is comprised of around a thousand employees, of which about forty track crypto-related crimes. The Cyberpolice’s responsibility is to combat “all manifestations of cyber crime in cyberspace,” said Panchenko. And after the war started, he said, “we were also responsible for the active struggle against the aggression in cyberspace.”

Panchenko sat down for a wide-ranging interview with TechCrunch on Wednesday, where he spoke about the Cyberpolice’s new responsibilities in wartime Ukraine. That includes tracking what war crimes Russian soldiers are committing in the country, which they sometimes post on social media; monitoring the flow of cryptocurrency funding the war; exposing disinformation campaigns; investigating ransomware attacks; and training citizens on good cybersecurity practices.

The following transcript has been edited for brevity and clarity.

TechCrunch: How did your job and that of the police change after the invasion?

It almost totally changed. Because we still have some regular tasks that we always do, we’re responsible for all the spheres of cyber investigation.

We needed to relocate some of our units in different places, of course, to some difficult organizations because now we need to work separately. And also we added some new tasks and new areas for us of responsibilities when the war started.

From the list of the new tasks that we have, we crave information about Russian soldiers. We never did that. We don’t have any experience before February 2022. And now we try to collect all the evidence that we have because they also adapted and started to hide, like their social media pages that we used for recognizing people who were taking part in the larger invading forces that Russians used to get our cities and kill our people.

Also, we are responsible for identifying and investigating the cases where Russian hackers do attacks against Ukraine. They attack our infrastructure, sometimes DDoS [distributed denial-of-service attacks], sometimes they make defacements, and also try to disrupt our information in general. So, it’s quite a different sphere.

Because we don’t have any cooperation with Russian law enforcement, that’s why it’s not easy to sometimes identify or search information about IP addresses or other things. We need to find new ways to cooperate on how to exchange data with our intelligence services.

Some units are also responsible for defending the critical infrastructure in the cyber sphere. It’s also an important task. And today, many attacks also target critical infrastructure. Not only missiles, but hackers also try to get the data and destroy some resources like electricity, and other things.

When we think about soldiers, we think about real world actions. But are there any crimes that Russian soldiers are committing online?

[Russia] uses social media to sometimes take pictures and publish them on the internet, as it was usual in the first stage of the war. When the war first started, probably for three or four months [Russian soldiers] published everything: videos and photos from the cities that were occupied temporarily. That was evidence that we collected.

And sometimes they also make videos when they shoot in a city, or use tanks or other vehicles with really big guns. There’s some evidence that they don’t choose the target, they just randomly shoot around. It’s the video that we also collected and included in investigations that our office is doing against the Russians.

In other words, looking for evidence of war crimes?


How has the ransomware landscape in Ukraine changed after the invasion?

It’s changed because Russia is now not only focused on the money side; their main target is to show citizens and probably some public sector that [Russia] is really effective and strong. If they have any access on a first level, they don’t deep dive, they just destroy the resources and try to deface just to show that they are really strong. They have really effective hackers and groups who are responsible for that. Now, we don’t have so many cases related to ransom, we have many cases related to disruption attacks. It has changed in that way.

Has it been more difficult to distinguish between pro-Russian criminals and Russian government hackers?

Really difficult, because they don’t like to look like a government structure or some units in the military. They always find a really fancy name like, I don’t know, ‘Fancy Bear’ again. They try to hide their real nature.

Contact Us

Do you have information about cyberattacks in Ukraine? From a non-work device, you can contact Lorenzo Franceschi-Bicchierai securely on Signal at +1 917 257 1382, or via Telegram, Keybase and Wire @lorenzofb, or email. You also can contact TechCrunch via SecureDrop.

But we see that after the war started, their militaries and intelligence services started to organize groups — maybe they’re not so effective and not so professional as some groups that worked before the war started. But they organize the groups in a massive [scale]. They start from growing new partners, they give them some small tasks, then see if they are effective and truly succeed in a small portion of IT knowledge. Then they move forward and do some new tasks. Now we can see many of the applications they also publish on the internet about the results. Some are not related to what governments or intelligence groups did, but they publish that intelligence. They also use their own media resources to raise the impact of the attack.

What are pro-Russian hacking groups doing these days? What activities are they focused on? You mentioned critical infrastructure defacements; is there anything else that you’re tracking?

It starts from basic attacks like DDoS to destroy communications and try to destroy the channels that we use to communicate. Then, of course, defacements. Also, they collect data. Sometimes they publish that in open sources. And sometimes they probably collect but not use it in disruption, or in a way to show that they already have the access.

Sometimes we know about the situation when we prevent a crime, but also attacks. We have some signs of compromise that were probably used on one government, and then we share with others.

[Russia] also creates many psyops channels. Sometimes the attack did not succeed. And even if they don’t have any evidence, they’ll say “we have access to the system of military structures of Ukraine.”

How are you going after these hackers? Some are not inside the country, and some are inside the country.

That’s the worst thing that we have now, but it’s a situation that could change. We just need to collect all the evidence and also provide investigation as we can. And also, we inform other law enforcement agencies in countries who cooperate with us about the actors who we identify as part of the groups that committed attacks on Ukrainian territory or to our critical infrastructure.

Why is it important? Because if you talk about some regular soldier from the Russian army, he will probably never come to the European Union and other countries. But if we talk about some smart guys who already have a lot of knowledge in offensive hacking, he prefers to move to warmer places and not work from Russia. Because he could be recruited to the army, other things could happen. That’s why it’s so important to collect all evidence and all information about the person, then also prove that he was involved in some attacks and share that with our partners.

Also because you have a long memory, you can wait and maybe identify this hacker, where they are in Russia. You have all the information, and then when they are in Thailand or somewhere, then you can move in on them. You’re not in a rush necessarily?

They attack a lot of our civil infrastructure. That war crime has no time expiration. That’s why it’s so important. We can wait 10 years and then arrest him in Spain or other countries.

Who are the cyber volunteers doing and what is their role?

We don’t have many people today who are volunteers. But they are really smart people from around the world — the United States and the European Union. They also have some knowledge in IT, sometimes in blockchain analysis. They help us to provide analysis against the Russians, collect data about the wallets that they use for fundraising campaigns, and sometimes they also inform us about the new form or new group that the Russians create to coordinate their activities.

It’s important because we can’t cover all the things that are happening. Russia is a really big country, they have many groups, they have many people involved in the war. That type of cooperation with volunteers is really important now, especially because they also have a better knowledge of local languages.

Sometimes we have volunteers who are really close to Russian-speaking countries. That helps us understand what exactly they are doing. There is also a community of IT guys that’s also communicating with our volunteers directly. It’s important and we really like to invite other people to that activity. It’s not illegal or something like that. They just provide the information and they can tell us what they can do.

What about pro-Ukrainian hackers like the Ukraine IT Army. Do you just let them do what they want or are they also potential targets for investigation?

No, we don’t cooperate directly with them.

We have another project that also involves many subscribers. I also talked about it during my presentation: it’s called BRAMA. It’s a gateway and we coordinate and gather people. One thing that we propose is to block and destroy Russian propaganda and psyops on the internet. We have really been effective and have had really big results. We blocked more than 27,000 resources that belong to Russia. They publish their narratives, they publish many of psyops materials. And today, we also added some new functions in our community. We not only fight against propaganda, we also fight against fraud, because a lot of fraud today represented in the territory of Ukraine is also created by the Russians.

They also have a lot of impact with that, because if they launder and take money from our citizens, we could help. And that’s why we include those activities, so we proactively react to stories that we received from our citizens, from our partners about new types of fraud that could be happening on the internet.

And also we provide some training for our citizens about cyber hygiene and cybersecurity. It’s also important today because the Russians hackers not only target the critical infrastructure or government structures, they also try to get some data of our people.

For example, Telegram. Now it’s not a big problem but it’s a new challenge for us, because they first send interesting material, and ask people to communicate or interact with bots. On Telegram, you can create bots. And if you just type twice, they get access to your account, and change the number, change two-factor authentication, and you will lose your account.

Is fraud done to raise funds for the war?


Can you tell me more about Russian fundraising? Where are they doing it, and who is giving them money? Are they using the blockchain?

There are some benefits and also disadvantages that crypto could give them. First of all, [Russians] use crypto a lot. They create almost all kinds of wallets. It starts from Bitcoin to Monero. Now they understand that some types of crypto are really dangerous for them because many of the exchanges cooperate and also confiscate the funds that they collect to help their military.

How are you going after this type of fundraising?

If they use crypto, we label the addresses, we make some attribution. It’s our main goal. That’s also the type of activities that our volunteers help us to do. We are really effective at that. But if they use some banks, we only could collect the data and understand who exactly is responsible for that campaign. Sanctions are the only good way to do that.

What is cyber resistance?

Cyber resistance is the big challenge for us. We wanted to play that cyber resistance in cyberspace for our users, for our resources. First of all, if we talk about users, we start from training and also sharing some advice and knowledge with our citizens. The idea is how you could react to the attacks that are expected in the future.

How is the Russian government using crypto after the invasion?

Russia didn’t change everything in crypto. But they adapted because they saw that there were many sanctions. They create new ways to launder money to prevent attribution of the addresses that they used for their infrastructures, and to pay or receive funds. It’s really easy in crypto to create many addresses. Previously they didn’t do that as much, but now they use it often.

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SBF sentenced, Worldcoin hit with another ban order and big web3 pre-seed rounds are back | TechCrunch

Welcome to TechCrunch Crypto, formerly known as Chain Reaction.

This is the last edition of this newsletter. I want to personally thank each of you for reading this and if you would like to stay in touch, you can follow me on X here for future updates.

With that said, the show goes on. This week, Sam Bankman-Fried, the former FTX CEO who was found guilty on seven counts related to money laundering and fraud in November, was sentenced, Borderless Capital acquired CFT Capital, Worldcoin faces another ban in Europe and more.

Details below.

This week in web3

  1. Sam Bankman-Fried gets 25 years in prison for fraud and money-laundering at FTX
  2. Web3 investment firm Borderless Capital acquires CTF Capital to bring AI and quant expertise
  3. Worldcoin hit with another ban order in Europe citing risks to kids
  4. A new web3 network is being built right now that wants to end Big Tech’s control of your data
  5. 0G Labs launches with whopping $35M pre-seed to build a modular AI blockchain

Crunching numbers

This week the crypto market prices were a bit more chipper, with the top cryptocurrencies being green on the week.

Bitcoin was up 7.4% on the week, around $71,300 at the time of publication. The second-largest crypto, ether, increased 2.6% on the week to $3,550, according to CoinMarketCap data. The total crypto market cap increased 6.4% during the same time frame to $2.67 trillion.

The latest pod

Chain Reaction is doing a monthly series diving into different topics and themes in crypto. This month we’re focusing on blockchain and AI integrations.

For this week’s episode, I interviewed Scott Dykstra, CTO and co-founder of Space and Time.

Before diving into web3, Scott spent almost eight years at the cloud analytics and data platform Teradata where he held roles of senior architect, director of cloud solutions and worked his way up to VP of the firm’s global cloud.

As for Space and Time, the company aims to be a verifiable compute layer for web3 that scales zero-knowledge proofs, or ZK proofs, on a decentralized data warehouse. Zero-knowledge proofs are a cryptographic action used to prove something about a piece of data, without revealing the origin data itself.

Space and Time has indexed data both off-chain and on-chain from Ethereum, Bitcoin, Polygon, Sui, Avalanche, Sei and Aptos and is adding support for more chains to power the future of AI x blockchain.

This episode is wrapping up Chain Reaction’s monthly series diving into different topics and themes in crypto. This month’s focused on blockchain and AI integrations.

Scott and I discuss Space and Time’s origin story, how data warehouses work in Web 2.0 versus web3 and the importance of data transparency.

We also dive into:

  • Blockchain and AI potential
  • Its OpenAI and blockchain data developments
  • Future use cases for data and on-chain AI
  • Advice throughout the bull and bear markets

Subscribe to Chain Reaction on Apple Podcasts, Spotify or your favorite pod platform, and please leave us a review if you like what you hear!

Follow the money

  1. web3 gaming-focused startup Illuvium raised $12 million in a Series A round to expand its offerings
  2. Avalanche-based Gunzilla raised $30 million to help release its new game, Off The Grid
  3. OrdinalsBot raised over $3 million to build out its Bitcoin blockchain-focused data layer
  4. Reya Network raised $10 million for its trading-centric modular layer-2 blockchain
  5. Crypto-powered online casino MyPrize raised $13 million

This list was compiled with information from Messari as well as TechCrunch’s own reporting.

What else we’re writing

Want to branch out from the world of web3? Here are some articles on TechCrunch that caught our attention this week.

  1. Liquid Death is just one of many VC-backed beverage startups ready to disrupt Coke and Pepsi
  2. New study of unicorn founders finds most are ‘underdogs,’ and female founders are rising
  3. Facebook snooped on users’ Snapchat traffic in secret project, documents reveal
  4. Nvidia could be primed to be the next AWS
  5. New Summit is raising a new $100 million fund to back climate tech and underrepresented fund managers

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Sam Bankman-Fried gets 25 years in prison for fraud and money laundering at FTX, ordered to pay $11B in forfeiture | TechCrunch

Sam Bankman-Fried, the co-founder and former CEO of crypto exchange FTX and trading firm Alameda Research, was sentenced to 25 years in prison by Southern District of New York (SDNY) Judge Lewis Kaplan, about five months after he was found guilty on all seven counts related to fraud and money laundering during his trial.

“When not lying, he was evasive, hair splitting, trying to get the prosecutors to rephrase questions for him,” Kaplan said on Thursday, according to Inner City Press. “I’ve been doing this job for close to 30 years. I’ve never seen a performance like that.”

Before sentencing, Bankman-Fried acknowledged in court that he made a “series of bad decisions,” but argued they were not “selfish” ones.

His possible total sentence for the seven counts — two fraud charges and five conspiracy charges — was a maximum of 110 years. Bankman-Fried was also ordered during the sentencing to pay forfeiture of $11 billion to the U.S. government. Kaplan said that the “punishment,” or sentencing, was to fit the seriousness of the crime.

Earlier this month, U.S. prosecutors from the Department of Justice called for a “necessary” 40- to 50-year sentence for him. “The sheer scale of Bankman-Fried’s fraud calls for severe punishment,” the notice stated. “The amount of loss—at least $10 billion—makes this one of the largest financial frauds of all time.” On Thursday, Kaplan said that range “would be more than necessary.” In late February, Bankman-Fried’s attorneys filed a notice suggesting their client gets 63 to 78 months, citing his “caring for individuals,” “remorse,” “low-level culpability” and more.

Regardless of what both parties wanted, this decades-long sentencing is a result of Bankman-Fried’s five-week trial, which dove deep into how one of the once-biggest crypto exchanges globally, and its sister trading company, collapsed in November 2022.

His sentence could also send a signal to the crypto industry at large. As Judge Kaplan is required to consider the “need for the sentence to afford adequate deterrence,” aka to discourage other white-collar defendants and for bad actors in the crypto space more generally, Josh Naftalis, a former federal prosecutor now with Pallas Partners in New York, told TechCrunch. “In other words, the court is permitted to consider how the sentence it imposes on SBF will send a message to the crypto asset industry.”

Mark Bini, who’s also a former federal and state prosecutor and now a partner at Reed Smith’s On Chain digital asset group, agrees. The sentence will be a “real marker in the crypto arena,” he said, adding that this outcome “may be a measuring stick for future sentencings involving crypto fraud.” 

And in the federal system, there’s no parole. But, defendants like Bankman-Fried can earn “good time” credit, under the First Step Act, which could reduce their sentence for good behavior while incarcerated, both lawyers noted. There’s a number of opportunities for first-time non-violent offenders to earn reductions in their sentences, Bini said. This can result in a defendant’s sentence being reduced by up to 15% of the initial sentence imposed,” Naftalis added.

Bankman-Fried has been residing in the Metropolitan Detention Center in Brooklyn, New York, ever since he lost his bail prior to his trial. Other notorious past inmates of the correctional facility include Jeffery Epstein’s accomplice Ghislaine Maxwell and “pharma bro” Martin Shkreli. 

Looking back on SBF and FTX

Before prison, Bankman-Fried was once on top of the crypto world, hanging with celebrities like Katy Perry and trophy-winning athletes like Tom Brady and putting his company name on Major League Baseball umpires’ shirts and the Miami Heat arena. Prior to its collapse, FTX was one of the top crypto exchanges by volume, behind Coinbase and Binance.

FTX grew its users into the “millions” before its collapse, and revenue expanded from $10 million to $20 million in 2019, to $80 million in 2020 and to $1 billion in 2021; and daily revenue in 2021 was $3 million, Bankman-Fried said during his testimony.

But Bankman-Fried quickly dwindled in popularity and trust across the crypto community after a faulty balance sheet from Alameda was unveiled by crypto media publication CoinDesk in November 2022, causing industry-wide ripple effects and concern around FTX and its liquidity. Within days, the exchange filed for bankruptcy and Bankman-Fried stepped down from his role as CEO.

His trial, and the months leading up to it, uncovered that the problem was much larger than originally thought as Bankman-Fried and other executives misused over $8 billion in customer funds. Bankman-Fried testified that he didn’t defraud FTX customers or use their funds, but that Alameda “borrowed” that capital from the exchange.

Mark Cohen, Bankman-Fried’s lead attorney, also said the government made a Hallmark movie–like case against Bankman-Fried and while he made “bad business judgments” the government has “tried to paint Sam into some sort of villain, some sort of monster.”

In the end, the jury didn’t buy that narrative. Prosecutors strongly argued Bankman-Fried made a number of false promises internally and externally and was responsible for the loss of billions of dollars for thousands of FTX investors. They emphasized how it was wrong to use FTX customers’ funds without their knowledge or approval.

And as a result, Bankman-Fried will be spending quite some time behind bars.

The article has been updated to include additional details in the third and forth paragraphs.

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Nine crypto VCs on why Q1 investments were so hot and how it compares to previous bull market | TechCrunch

If the 2023 crypto venture landscape was an ice-cold pot of water, the first quarter of 2024 is the part where the bubbles start to form right before water boils, Tom Schmidt, a partner at Dragonfly Capital, said to TechCrunch.

And he’s not wrong: $2.52 billion in total capital has been raised across the crypto and blockchain sectors in Q1 2024, according to PitchBook data. That’s about 25% higher than $2.02 billion in the fourth quarter of 2023.

“It’s been an extraordinarily busy time. It has 2021 feels to it,” said David Nage, portfolio manager at Arca. “Deals in 2021 felt like you had a gun to the back of your head; that feeling has kind of returned to the market a bit.” Nage said his firm has tracked over 690 deals across stages that have transpired during Q1, about 30 to 40% more than the lows in 2023.

“In Q1, the crypto venture capital funding landscape was cautiously optimistic, rebounding from a challenging two-year period of fundraising difficulties for both companies and managers,” said Alex Felix, co-founder and chief investment officer at CoinFund.

Despite a significant year-over-year decrease in both VC and crypto funding in 2023, around 65%, there is a noticeable uptick in deal-making activity, Felix added.

But why now?

The crypto VC landscape has heated up in part because of positive effects from legal wins last year from Ripple and Grayscale, as well as positive sentiments around decentralized finance (DeFi) on Solana. There’s also demand increasing for the biggest cryptocurrency post SEC spot bitcoin ETF approvals in the U.S.

“Another thing that affected the market is we didn’t die,” Nage said. “I know it’s funny to say this, but after the [collapse of] LUNA, BlockFi, FTX, the banking crisis, the thought was that we would die and we didn’t.”

And it may not stop anytime soon, thanks to macro validation from crypto. “Crypto venture will continue to heat up on the back of a bullish macro backdrop fueled by the launch of crypto ETF products, the BTC halving, projected rate cuts in the U.S. ahead of the upcoming presidential election,” said Mike Giampapa, general partner at Galaxy Ventures. “We’re also seeing institutional interest start to convert into real budgets and products.”

For example, BlackRock is launching its tokenized money market fund on the Ethereum blockchain, which could lead to heightened competitive pressure from traditional financial institutions and more adoptions.

Where deals are flowin’ in

In general, the crypto startup deal flow has picked up in areas ranging from DeFi to SocialFi to Bitcoin layer-2 growth. “We see 30 to 40 deals on a weekly basis, that’s increased 10% to 20% over the last quarter. It’s getting harder to keep up with the pace of that,” Nage said.

There has been an uptick in both new companies coming to market and existing companies that remained lean throughout the bear market that are revisiting fundraising, Giampapa said. “The market in 2024 will be a tale of the ‘haves’ and ‘have nots,’ with newer companies building along popular narratives getting funded at rich valuations and many other companies going out of business,” he added.

Right now, SocialFi, which in web3 world refers mainly to decentralized social media, is very hot. recently closed a $3 million round and decentralized social network protocol Mask Network hit $100 million for its fund to further support other similar applications. Some success in this sector can be thanks to decentralized social app networks like Farcaster, which is using Web 2.0 techniques to adopt new audiences. Web3 gaming is also rapidly expanding, with hundreds of new games expected to go to market later this year.

Crypto and AI, blockchains and anything zero-knowledge related are “red-hot right now,” Schmidt said.

“Given the grandiose expectations for AI’s potential to impact the global economy, we expect this trend to continue for the foreseeable future,” Tekin Salimi, founder of dao5, said.

For example, modular and AI-integrated blockchains, like 0G labs, which launched with a $35 million pre-seed round, are also attracting the attention of venture capitalists.

Founder-friendly market is spiking valuations

Competitiveness among VCs is creating an environment in which founders have greater leverage in fundraising, Salimi said. There’s “no shortage of hungry money as of recently,” said Michael Anderson, co-founder of Framework Ventures.

“This is founder-friendly in the sense that, in oversubscribed rounds, investors are now reverse-pitching their value,” said Marthe Naudts, associate at White Star Capital’s Digital Asset Fund, meaning that some investors have to show founders why they should choose them. “Founders now have optionality and the ability to set terms, with competitive rounds filling out before investors have time for intensive due diligence.”

But Felix says that the power hasn’t really shifted from investors to founders but is “perfectly balanced” for both parties. “Founders are benefiting from rounds catalyzed with more urgency and valuations ticking up slightly from their recent trough, and VCs are winning more protective and advantageous deal structures.”

It’s worth noting that there’s a massive dispersion based on the quality of the team and sector, Schmidt said. Some startups that previously raised during the last market cycle are working through a re-pricing through a down round or extension, while others are fresh faces.

With pre-seed rounds, there are under $10 million valuations in crypto consumer, but there are also $300 million or higher valuations for sectors like crypto and AI, Schmidt noted. For instance, PredX, an AI-enabled prediction market, raised $500,000 and was valued at $20 million post-money valuation, according to Messari data. Separately, CharacterX, a web3 AI social network, raised $2.8 million in a seed round at a $30 million post-money valuation.

For seed rounds, Nage is seeing $25 million to $40 million pre-money valuations, with several startups pricing in at the $80 million market on seed rounds. Schmidt said the average seed round is in a similar range of $30 million to $60 million post-valuation.

“Valuations are up significantly, and even when larger, more established firms pass on a deal, founders still have plenty of options with others,” Anderson said. “Some of the valuation we’re seeing are already a bit outlandish given how early we are in this cycle.”

Because fundraise announcements are often delayed by many months to a year after the actual raise, there are misperceptions around where the private market is if participants are basing their expectations purely off headlines, Schmidt said.

“Raises that would have taken months or not happened at all last year, even for high-quality teams, are now happening in weeks or less with better terms for founders,” Schmidt said. “Teams that squandered time and money during the bear market are still raising bridge rounds, but new teams are able to come out of the gate strong with larger raises and higher valuations.”

The valuation shift is also driven by sentiment around cryptocurrency prices, so bitcoin reaching all-time highs, Solana surpassing $200 and ether near $4,000 is a “massive sentiment shift,” Nage said.

For founders, seed rounds remain easiest to raise, as many small funds and angel investors are willing to write the first check at the lowest entry points, Felix said. “However, I do not anticipate an immediate improvement in the Series A graduation rate, which has declined from the upper 20% range to the mid-teens. Raising a round of more than $10 million will continue to be appropriately challenging.”

Many venture capitalists are still trying to be mindful of not getting trapped into higher valuations by FOMO’ing into the hype, while also realizing that they can’t just sit on their hands and knees and wait it out. “It is common to see rounds get oversubscribed within days of coming to market and allocations being denied or shifted to subsequent rounds at higher valuations,” said Thomas Tang, VP of investments at Ryze Labs.

The tokenomic come back

Since the end of 2023, Nage said he’s been hearing from companies and peers that they’re looking at tokenomic designs for 2024. So there’s a new rise of token issuance and there’s a number of Arca’s portfolio companies that are working through building that out for this year. This is a shift from the mid-2022 post-Terra/LUNA collapse era, when most seed deals were funded with Simple Agreement for Future Equity (SAFE) or warrants, he added.

“This new issuance phase we’re entering into is that valuations have shifted violently,” Nage said.

This dynamic has driven VCs to accept “lofty valuations in private rounds since they expect that the tokens will be traded publicly at a significant markup,” Tang said.

That’s not to say there aren’t SAFE rounds still happening, but Schmidt said the market has congealed around those alongside priced equity rounds and token structures “as a way to give investors protection, but also give teams flexibility.”

And it’s tougher for teams raising around traditional business models, said Clay Robbins, co-founder of accelerator and venture capital fund Colosseum. Crypto-native VCs see token trades and early liquidity behind it, so they’re heavily biased that way, while generalist investors don’t quite believe in that market yet, he added.

On that point, Naudts said the long-term performance of these tokens is yet to be seen. Her firm, White Star, is cautious of tokens intended both as a speculative asset and a means of payment. “But we’re seeing lots more experimentation with tokenomics models here and it’s certainly a space where we are excited by the innovation at play.”

Looking to the rest of 2024

The early-stage funding space will continue to heat up throughout the remainder of the year, Robbins said. Given the “relatively anemic IPO market, lack of fundamentals-based underwriting of growth-stage crypto companies and a (now confirmed) trial between the SEC and Coinbase, I anticipate it will be inconsistent at the growth stage.”

And April will be a big month for crypto market sentiment. As the Bitcoin Halving is coming up, which only occurs once every four years, there’s a lot of uncertainty on how that will affect the industry. Past halving events have propelled the price of bitcoin, but historical data doesn’t always predict the future.

“While short-term market corrections may be on the horizon, we expect the next three quarters of 2024 to be very bullish,” Salimi said. “Historically, financial markets make positive gains during election years. Additionally, we anticipate the macro environment to begin improving later this year, manifesting first in interest rate cuts.”

And relative to last year, many venture capitalists are certain — if there aren’t any massive fraud cases, lawsuits or negative regulatory effects — that the market will continue to see hyper VC activity in the coming quarters that it saw in Q1. “Regulation continues to be the wild card here and could serve as a catalyst for either another leg higher or a brake on growth,” Giampapa said.

If there’s positive progress on the regulatory front, real on-chain momentum, more institutional-based products being launched and continued overall improved macroenvironment, there could be “frenzy levels of deployment,” Robbins said.

“There will be more activity, more deal flow and one thing above everything else is funds are raising capital,” Nage said. Many firms weren’t able to raise from LPs last year because the industry “was a death knell and no interest was out there from LPs.”

As the industry moves on from FTX, LPs are also warming back up to the space, but some are also beginning to differentiate between “crypto” and “crypto venture,” which may lead to some choosing to just allocate to Bitcoin and leave it at that for their crypto exposure, Schmidt said.

However, traditional VCs or crossover funds haven’t “plunged head-first back into crypto, but they’re slowly dipping their toes into a few more deals,” Schmidt said. “I would not be surprised if things get frothier as those bigger market participants come back, crypto funds go back out to the market to reload on capital from LPs, and the space overall becomes more institutionally attractive again.”

Regardless, the sentiment has shifted dramatically over the last quarter, so as that continues to improve, it should also create positive effects on the venture market, Nage added. “If [firms] can raise funds in the next two to three quarters, they won’t hold on to their past dry powder as aggressively as they did the past year. As that eases, you’ll see more checks.”

Last year, most funds were doing about one to two deals a month, or a few a quarter, Nage said. “That has dramatically changed. In December alone, we’ve done half a dozen, if not more.” All the deals Nage is in talks with this most recent quarter were time constrained.

By comparison, Felix shared that CoinFund closed 17 deals in 2023 and four deals in the first quarter of 2024.

Last year, a total of $10.18 billion in capital was raised across the crypto and blockchain industry, PitchBook data showed. I asked each firm how much capital they expect to be raised by the end of 2024 and most estimated above that $10 billion range, but some went as high as the $20 billion range.

Felix believes that VC funding to web3 could be more than 10% of global dollars raised so that could be as much as $16.2 billion at year end based on PitchBook’s 2023 fundraising figures. Either way, it’s expected to be short of the nearly $30 billion that crypto startups raised in 2022, and the more than $33 billion they raised back in 2021.

“This market falls somewhere between the mania of 2021, 2022 and the muted market of last year,” Robbins said.

While Giampapa also thinks many managers will accelerate deployments and go out to fundraise in the next six to 12 months, there’s a caveat. In the previous bull market, some of the large deployers of capital were firms like FTX and Three Arrows Capital, which are no longer in business. “Without these pools of capital, I struggle to see how dollars deployed into crypto VC get back to the 2021 to 2022 levels.”

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Security engineer jailed for 3 years for $12M crypto hacks | TechCrunch

Shakeeb Ahmed, a cybersecurity engineer convicted of stealing around $12 million in crypto, was sentenced on Friday to three years in prison.

In a press release, the U.S. Attorney for the Southern District of New York announced the sentence. Ahmed was accused of hacking into two cryptocurrency exchanges, and stealing around $12 million in crypto, according to prosecutors.

Adam Schwartz and Bradley Bondi, the lawyers representing Ahmed, did not immediately respond to a request for comment.

When Ahmed was arrested last year, the authorities described him as “a senior security engineer for an international technology company.” His Linkedin profile said he previously worked at Amazon. But he wasn’t working there at the time of his arrest, an Amazon spokesperson told TechCrunch.

While the name of one of his victims was never disclosed, Ahmed reportedly hacked into Crema Finance, a Solana-based crypto exchange, in early July 2022.

Then, weeks later, he hacked into Nirvana Finance. Ahmed stole $9 million and $3.6 million in those two hacks, respectively. In the case of Nirvana Finance, the stolen funds “represented approximately all the funds possessed by Nirvana,” which led Nirvana Finance to shut down, according to the press release.

Ahmed pleaded guilty to having carried out both cyberattacks.

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After he hacked Crema, Ahmed contacted the company in an attempt to return the stolen funds, except for a fee of $1.5 million — a sort of unofficial finder’s fee — and a promise that Crema wouldn’t report the attack to the authorities. Crema declined, and Ahmed was eventually apprehended.

While this type of deal is unusual in the cybersecurity world, it has become normalized in the crypto world. These deals are often referred to as “white hatting,” even though it involves hacking a target and stealing a victim’s funds without their consent, which is more akin to what a “black hat” hacker would typically do. Ahmed’s case shows that while the crypto industry has accepted that this type of deals are sometimes the cost of doing business, law enforcement doesn’t see it the same way.

Apart from three years in prison, Ahmed was also sentenced to three years of supervised release, and ordered to forfeit $12.4 million “and a significant quantity of cryptocurrency and pay restitution to the Crypto Exchange and Nirvana in the amount of over $5 million,” according to the prosecutors’ press release.

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The AI world needs more data transparency and web3 startup Space and Time says it can help | TechCrunch

As AI proliferates and things on the internet are easier to manipulate, there’s a need more than ever to make sure data and brands are verifiable, said Scott Dykstra, CTO and co-founder of Space and Time, on TechCrunch’s Chain Reaction podcast.

“Not to get too cryptographically religious here, but we saw that during the FTX collapse,” Dykstra said. “We had an organization that had some brand trust, like I had my personal life savings in FTX. I trusted them as a brand.”

But the now-defunct crypto exchange FTX was manipulating its books internally and misleading investors. Dykstra sees that as akin to making a query to a database for financial records, but manipulating it inside their own database.

And this transcends beyond FTX, into other industries, too. “There’s an incentive for financial institutions to want to manipulate their records … so we see it all the time and it becomes more problematic,” Dykstra said.

But what is the best solution to this? Dykstra thinks the answer is through verification of data and zero-knowledge proofs (ZK proofs), which are cryptographic actions used to prove something about a piece of information — without revealing the origin data itself.

“It has a lot to do with whether there’s an incentive for bad actors to want to manipulate things,” Dykstra said. Anytime there’s a higher incentive, where people would want to manipulate data, prices, the books, finances or more, ZK proofs can be used to verify and retrieve the data.

At a high level, ZK proofs work by having two parties, the prover and the verifier, that confirm a statement is true without conveying any information more than whether it’s correct. For example, if I wanted to know whether someone’s credit score was above 700, if there’s one in place, a ZK proof — prover — can confirm that to the verifier, without actually disclosing the exact number.

Space and Time aims to be that verifiable computing layer for web3 by indexing data both off-chain and on-chain, but Dykstra sees it expanding beyond the industry and into others. As it stands, the startup has indexed from major blockchains like Ethereum, Bitcoin, Polygon, Sui, Avalanche, Sei and Aptos and is adding support for more chains to power the future of AI and blockchain technology.

Dykstra’s most recent concern is that AI data isn’t really verifiable. “I’m pretty concerned that we’re not really efficiently ever going to be able to verify that an LLM was executed correctly.”

There are teams today that are working on solving that issue by building ZK proofs for machine learning or large language models (LLMs), but it can take years to try and create that, Dykstra said. This means that the model operator can tamper with the system or LLM to do things that are problematic.

There needs to be a “decentralized, but globally, always available database” that can be created through blockchains, Dykstra said. “Everyone needs to access it, it can’t be a monopoly.”

For example, in a hypothetical scenario, Dykstra said OpenAI itself can’t be the proprietor of a database of a journal, for which journalists are creating content. Instead, it has to be something that’s owned by the community and operated by the community in a way that’s readily available and uncensorable. “It has to be decentralized, it’s going to have to be on-chain, there’s no way around it,” Dykstra said.

This story was inspired by an episode of TechCrunch’s podcast Chain Reaction. Subscribe to Chain Reaction on Apple Podcasts, Spotify or your favorite pod platform to hear more stories and tips from the entrepreneurs building today’s most innovative companies.

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SBF's prison sentence marks the end of the crypto grift era — so what's next? | TechCrunch

On Thursday, a federal judge sentenced former FTX CEO Sam Bankman-Fried to 25 years in prison after he was found guilty on seven charges of wire fraud and money-laundering.

The scam he pulled was fairly simple: He and his partners created an exchange, FTX, that took customer deposits to invest in and trade cryptocurrencies. Some of those deposits were secretly funneled to his other company, hedge fund Alameda Research, which he’d originally created to arbitrage differences among crypto prices in various countries. According to the government’s case, which it won, Alameda used that money for various things it shouldn’t have, like investing in other crypto startups, buying some very nice real estate, supporting political campaigns and — most important for purposes of the scam — propping up FTX’s proprietary crypto token, FTT.

A few document leaks and some clever work by journalists at Coindesk, combined with a well-timed tweet by Changpeng “CZ” Zhao, who ran rival crypto exchange Binance, caused a run on FTX. The scheme unraveled in a matter of days, wiping out billions in customer money (although, apparently, they may get a fair portion of that money back). CZ himself is no longer running Binance, having pleaded guilty to money-laundering violations related to insufficient controls.

The sentencing brings to an end the most recent era of crypto, which was characterized by greater-fool get-rich-quick schemes on the way up — investors were lured in with promises of impossibly high returns on everything from digitally watermarked images to simple interest payments on the token of the week — and fraud investigations and indictments on the way down.

Crypto optimists like Andreessen-Horowitz’s Chris Dixon suggest that we’re now entering a more sober phase of crypto, where software developers will finally build useful applications on one of the many blockchains that have emerged since the original blockchain — the one underlying bitcoin — was first proposed by the pseudonymous Satoshi Nakamoto and distributed on Halloween 2008.

The problem with this point of view is that developers have been building a wide variety of applications on top of Ethereum and Solana and other Layer-1 blockchains for years now, and the only economically viable purpose any of them have served is speculation. Yes, it’s possible to create a digitally authenticated piece of art, but the value of that art isn’t in the aesthetic pleasure it brings, but rather in the possibility that somebody else will buy it for more money later.

Nearly everything else that’s being built on or enabled by blockchains replaces something that’s already being done fairly well. Self-executing smart contracts replace — you know, regular contracts. Which aren’t perfect, but aren’t so ridiculously inefficient that they grind the economy to a halt. Decentralized autonomous organizations, or DAOs, where decision-making is shared equally among all participants, replaces other decentralized organizational schemes characterized by hours of debate and few concrete decisions, like holacracy or San Francisco Board of Supervisors’ meetings. Jokes aside, where is the clear killer app for blockchains? Where’s the runaway success story?

Forget runaway success: There hasn’t even been a single blockchain-based startup with enough cashflow or profitability to go public. Yes, there are bitcoin mining companies like Riot. Yes, there are companies that facilitate crypto trades like Coinbase and Block (formerly Square). But there’s no actual company that’s developed economic value by doing something brand new or better on a blockchain.

I’m open to persuasion — pitch me, blockchain geniuses, with incredible value-creating startups! — but my view right now is that crypto will revert to the original function of Bitcoin as an alternative to nation-based currencies for storing and exchanging value. Its volatility may not make sense to people living in relatively stable economies, but in countries with runaway inflation, corrupt governance, civil unrest or war, the method of converting collapsing local currency to bitcoin to stablecoin to a stable national currency like the U.S. dollar will remain a reasonable and in-demand way for people with some means to preserve those means. It’s also useful for sending remittances without having to pay outrageous fees for international money changers, and — sometimes — as a digital replacement for suitcases of cash for all kinds of underground economic activity.

Why bitcoin instead of one of the newer coins? Because those other coins are almost universally based on faith, trust and pixie dust; the main value they have is the value they’re assigned by the people who hold and trade them. You can make a college sophomore bong hit argument that all money is that way, man, but in fact the U.S. dollar is backed by the massive economic and military power of the United States: actual control over actual resources that people actually want and need.

Bitcoin is similarly backed by something real and tangible: energy. Because of its proof-of-work model, the only way to make and validate new bitcoins is by consuming energy, whether it’s burning natural gas or hooking up to a nearby nuclear plant. Energy drives the real-world economy, and unless Sam Altman or somebody successfully unlocks fusion and delivers energy that’s truly “too cheap to meter,” it’s going to remain a real asset with real value for some time. If demand for bitcoin were to stabilize, the price should theoretically track to the price of electricity. In fact, it wouldn’t surprise me in the least if Satoshi had some kind of connection to the energy industry.

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