The Information's TITV
00:35:29 · Akash Pasricha, Nikhil Raghuveera
[00:35:29] S0: Right. So you guys were maybe texting each other. So tell me, Nikhil, what's been the reaction from the rest of crypto sector? How have the stablecoin companies reacted? How have other exchanges reacted? Walk walk me through it. [00:35:45] S4: Yeah. I mean, this is pretty unprecedented in terms of both, obviously, the size and scale of the hack, but then also the response by industry, I would say. So in the past, you've seen... Like earlier this year, there were some large hacks as well, but the stablecoin issuers sometimes took time to respond or they didn't do much at all. And that was a pretty big frustration across the industry around should they do something? Should they not do something? This time around, you saw basically Circle and Tether very quickly within a span of, I believe, around forty minutes or so start freezing those wallet addresses so that those funds couldn't be moved. That's one of the fastest response times we've seen for any type of case of an exploit. And then you saw other issues as well. So the big ones, of course, were Circle and Tether. That was... They were the largest the largest assets, but there were other asset issuers as well who went and froze funds. And then, of course, you had some of the exchanges also responding and saying they're investigating, making sure that they don't receive those funds. And then I think you saw a few of the crypto protocols as well start executing various types of actions, including Aave and Arbitrum.
00:36:48 · Akash Pasricha, Yueqi Yang
[00:36:48] S0: Yueqi, I wonder if you can explain to us with the frozen funds here the part of the stablecoin. I mean, again, people have varying levels of sophistication with the crypto ecosystem. So when Circle decides or when Tether decides to freeze some amount of, I guess, is it redemptions? What exactly is happening here with these frozen assets? How does it sort of help prevent the issue from spreading? [00:37:19] S5: So Circle and Tether are able to freeze the asset on the blockchain level, and that means they will blacklist the tokens. And that's one way to prevent the hackers from continuing moving the tokens and turning them into other crypto tokens like Ethereum or Bitcoin that cannot be frozen by a centralized entity. And Nikhil can weigh in more on this, but it seems to me that typically, at least in the case of Circle, they will prefer to wait for a court order before taking this action, which can delay how quickly they will respond and act. But Circle CEO Jeremy earlier yesterday put out a tweet pretty quickly after the hack and said they have already frozen the assets that are encircled stablecoins in coordination with law enforcement. [00:38:16] S0: Nikhil, what do you make of... I mean, you were just saying that they've been... I guess the communities have wanted them to freeze assets earlier. So was this a direct response to that? And also, when do the assets become unfrozen, I guess, is the next question.
00:38:31 · Nikhil Raghuveera
[00:38:31] S4: Yeah. So to your first question around them executing a freeze, this is something that Circle has oftentimes been hesitant to go and take direct action without a court order. And the reason for that is the legal exposure. Right? So if the Clarity Act had passed, within the Clarity Act, there was actually a provision that provided a safe harbor for issuers to be able to execute some of this without concerns around potential legal implications. Circle, as a result, clarity didn't pass, and so Circle, as a result, doesn't usually execute any type of freeze unless there is an explicit court order. As you can imagine, court orders can take time. They're not responsive enough. They don't move fast enough in in the case of a major exploit. In this case, it looks like... I would imagine, and I can speculate here a little bit, it would be that Circle felt comfortable enough and confident enough that by executing a freeze here was directly related to North Korea, and so they don't face the same type of legal exposure of an incorrect freeze. Tether operates outside of The United States, and so they have slightly different approach and... Because of their jurisdictional requirements. So, yeah, that freeze speed is really fast. And usually how it's done is you need information on it, then you have to go and oftentimes an issuer has to go to their operations team and their engineering team to go and execute that for you. So there is a full process that happens here. It's usually not something that is quickly done while it can be done faster. And then, yeah, now on the question on what to do with those frozen funds, I think we'll have to see. We've actually never seen us... An instance this large, and so it'll be likely working across law enforcement with exchange, with regulators to kind of navigate that process. So we'll have to actually see how they how they go about it. And I think even a lot of the... Some of the crypto protocols that have also frozen are gonna have to navigate the same question too.
00:40:12 · Akash Pasricha, Yueqi Yang
[00:40:12] S0: Yueqi, I I haven't looked at the markets broadly, but how are the crypto markets responding? Is this a major sell off event right now? [00:40:21] S5: The major tokens, Bitcoin, Ease, Solana, BNB token included, all dropped after the hack. I think Bitcoin now is trading around $77,000 Earlier, a few days ago, it was trading at above $80,000 So it is a drop, but not by too much. I think the market is currently, broadly speaking, relatively confident that Binance as the biggest crypto exchange is able to weather this storm just because of how much money the company has already made. And CZ, which is the co founder of Binance, former CEO, largest shareholder of Binance, he has been putting out tweets basically saying that they are able to pay customers back. And that's because the hack amount was about $6,000,000,000 and then about half of them had already been frozen. So that reduced their exposure to around $3,000,000,000 And they currently have a $1,000,000,000 emergency reserve fund that they can tap into to make up for this gap. And then for the rest of the money, which is around $2,000,000,000 gap, they believe that they can use their own company fund to pay customers back. And of course, the exchange right now has halted withdrawal. They promised that they're hoping to reopen withdrawal in about forty eight hours from this morning. And so we'll need to see what the outflow will look like once the exchange resume processing withdrawal and whether there will be a wrong on the bank situation where customers are rushing to pull their assets off the exchange.
00:40:21 · Yueqi Yang, Akash Pasricha, Nikhil Raghuveera
[00:40:21] S5: The major tokens, Bitcoin, Ease, Solana, BNB token included, all dropped after the hack. I think Bitcoin now is trading around $77,000 Earlier, a few days ago, it was trading at above $80,000 So it is a drop, but not by too much. I think the market is currently, broadly speaking, relatively confident that Binance as the biggest crypto exchange is able to weather this storm just because of how much money the company has already made. And CZ, which is the co founder of Binance, former CEO, largest shareholder of Binance, he has been putting out tweets basically saying that they are able to pay customers back. And that's because the hack amount was about $6,000,000,000 and then about half of them had already been frozen. So that reduced their exposure to around $3,000,000,000 And they currently have a $1,000,000,000 emergency reserve fund that they can tap into to make up for this gap. And then for the rest of the money, which is around $2,000,000,000 gap, they believe that they can use their own company fund to pay customers back. And of course, the exchange right now has halted withdrawal. They promised that they're hoping to reopen withdrawal in about forty eight hours from this morning. And so we'll need to see what the outflow will look like once the exchange resume processing withdrawal and whether there will be a wrong on the bank situation where customers are rushing to pull their assets off the exchange. [00:42:05] S0: Nikhil, do you think that that happens? [00:42:11] S4: I think it will happen. I think... Wait. Sorry. My my mind is
00:42:11 · Nikhil Raghuveera, Akash Pasricha
[00:42:11] S4: I think it will happen. I think... Wait. Sorry. My my mind is [00:42:14] S0: The the raw... I mean, I'm I'm saying when when withdrawals open. Yeah. Is this gonna be a a run on the bank situation? [00:42:21] S4: I see. I don't think it's gonna be a run on the banks. I think exactly what Yueqi was saying. I think the industry has, I think, a good bit of confidence on the operations of Binance. I think they have been around for a while. They do have a lot of capital. I think the the more important question that will... And from a longer term perspective, again, is there's just been a lot of exploits and hacks. And so there's going to be... There's kind of this perpetual concern and challenge around if an organization is planning to deploy or launch a digital asset product, how do you ensure security? How do you have protection around that? And that's really the bigger problem. Right? It's not so much a draw out of capital right now or people saying, wait. This... Like, I need to move my money out. It's more so the scaling of the industry and the deployment of new assets. What are the concerns there? And when you see an exploit like this, if you're a larger financial institution, you might pause or you might take a moment to say, wait. We don't need... We shouldn't rush this. We need to make sure everything is really, really secure. So I think that's really the part that we'll have to navigate.