Metaverse Highlights: Week of January 10, 2023

This week, we open the year with two trends – one positive, one negative. 

On the negative side, several web3 firms are following FTX’s footsteps in facing legal troubles. First, Coinbase was forced to pay $100 million in penalties for failing to vet users before opening an account, leading to criminal activity on the exchange. Second, Celsius Network founder Alex Mashinsky has been hit with a civil lawsuit from the New York attorney-general, which accuses the former head of the bankrupt crypto lender of defrauding hundreds of thousands of investors and flouting the state’s securities laws. Third, a Brooklyn-based federal court indicted Aurelien Michel for allegedly swindling users of the "Mutant Ape Planet" NFT project of $2.9 million. This news all points in the same direction. As Tezos cofounder Kathleen Breitman said in an interview with Fortune, “a series of blunders from well-capitalized projects has proven that… crypto often is still an exercise in building narrative rather than displaying technical acumen.”

On the positive side, non-Western countries are paying closer attention to web3. A few days ago, the Central Bank of Morocco announced a crypto bill to regulate the use of cryptocurrencies. Despite the fact that the Moroccan government considers crypto illegal, Morocco has the highest number of crypto owners within the Arab region. Second, Chinese residents can now trade digital collectibles using a state-backed blockchain platform – this is welcome news for residents who were previously banned from engaging with NFTs. Both these announcements point to greater willingness, even on the part of skeptical governments, to engage with web3. Should more governments follow, non-Western countries may become important players in the construction of tomorrow’s internet. 

Lara On the Block, Central Bank of Morocco announces crypto bill

• The Central Bank of Morocco, represented by its governor Abdellatif Jouahri, announced that its draft crypto bill to regulate the use of cryptocurrencies is ready. Jouahri stated, "We proceeded to a specific definition of the cryptocurrency and prepared a general public survey that details the specifics and use of this virtual currency in Morocco." 

• He noted that the crypto bill is being benchmarked against global experiences with the IMF and World Bank. He also noted that this regulatory framework would update the legislation on the fight against money laundering and terrorist financing.

• Despite the fact that the Moroccan government considers crypto illegal, Morocco has the highest number of crypto owners within the Arab region, followed closely by Egypt. 2.38 percent of the Moroccan population own crypto.

Gizmodo, Coinbase Hit With $100 Million in Penalties for Lackluster Background Checks

• Cryptocurrency exchange Coinbase has reached a $100 million settlement with the New York State Department of Financial Services after the investigation revealed that Coinbase failed to properly vet users before opening an account, leading to criminal activity on the exchange. “Coinbase failed to build and maintain a functional compliance program that could keep pace with its growth,” said Superintendent of Financial Services Adrienne A. Harris.

• The $100 million settlement comes as two payments of $50 million each—one is a fine for failing to conduct appropriate background checks (referred to as a “compliance program”) on users opening accounts. The other $50 million is an investment in bolstering their compliance program over the next two years. NYDFS found that Coinbase’s lackluster compliance program led to criminal activity on the exchange “including, among other things, examples of fraud, possible money laundering, suspected child sexual abuse material-related activity, and potential narcotics trafficking,” as outlined in the department’s press release.

Fortune, Kathleen Breitman of Tezos on 5 crypto trends that need to die

• Market downturns are a time for rebuilding and reevaluating popular assumptions. Heading into 2023, here are some trends that need to go away—and one positive trend worth keeping.

• Total value locked, which became the default metric for evaluating DeFi ecosystems in 2021, is the amount of locked funds—tokens an owner can’t withdraw until the expiration of a smart contract—pledged on a decentralized exchange. In 2022, however, we saw that the “L” allegedly locked in a specific TVL was too often fiction. According to DefiLlama, the metric fell from $175 billion to $35 billion in 2022. That’s not very sticky, is it?

• There hasn’t been a market for good technology in the cryptocurrency space. A series of blunders from well-capitalized projects proved that there are no consequences for poor implementation. Crypto often is still an exercise in building a narrative rather than displaying technical acumen.

NFT News Today, China Launches State-backed Digital Collectibles Platform

• Starting January 1, 2023, Chinese residents can trade digital collectibles using a state-backed blockchain platform. This is welcome news for residents who were previously banned from engaging with NFTs. However, as is the norm in China, every activity has to be closely watched by the government.

• The exchange, dubbed “China Digital Asset Trading Platform,” will be unveiled on the first day of 2023. And there will be an official ceremony to celebrate the marketplace launch in Beijing.

• According to people in the know, the marketplace will be fully compliant with the necessary government laws. To oversee its operations, three institutions have been tasked with the responsibility. There is the China Technology Exchange and the China Cultural Relics Exchange Center, both of which are stage-backed. And the other is a private corporation known as Huaban Digital Copyright Service Center.

Financial Times, Celsius founder Mashinsky sued for fraud by New York attorney-general

• Celsius Network founder Alex Mashinsky has been hit with a civil lawsuit from the New York attorney-general, which accuses the former head of the bankrupt crypto lender of defrauding hundreds of thousands of investors and flouting the state’s securities laws.

• The 57-year-old, who established Celsius in 2017 and was running the business when it dramatically collapsed in July, had promoted the company “as a safe alternative to banks while concealing that [it] was actually engaged in risky investment strategies,” the lawsuit said.

• In a complaint filed on Thursday, the attorney-general’s office claimed Mashinsky acted as a “modern-day Robin Hood,” promising customers returns of up to 17 percent via its Earn program — which paid interest on cryptocurrency deposits — and urged users to stay invested even as the hole in the platform’s balance sheet grew larger. They said Mashinsky had also failed to register as a salesperson for Celsius and as a securities and commodities dealer under New York law.

Interesting Engineering, The Lotte Metaverse allows you to buy online products in the real world

• Korean ICT company Lotte Data Communications (LDCC) is participating at CES 2023 by introducing its latest metaverse technology called Lotte Metaverse, according to a press release by the company published on Thursday.

• “The final version that Lotte Metaverse aims for is a world where online and offline worlds are integrated, just like the movie 'Ready Player One.' Products purchased within the metaverse can be used in the virtual world and also be delivered in the real world,” noted the statement.

• Lotte Metaverse combines real-life characters with graphic backgrounds created with a graphic engine called 'Unreal Engine 5.’ It uses cutting-edge technologies such as three-dimensional real-time rendering, live-action VR shooting, and 'deep-interactive' patents, allowing users to interact realistically with objects or real-life characters in VR content.

Benzinga Crypto, Mutant Ape Planet NFT Founder Arrested For Swindling $3M In User Funds

• A Brooklyn-based federal court indicted Aurelien Michel for allegedly swindling users of the "Mutant Ape Planet" non-fungible token (NFT) project of $2.9 million. 

• What Happened: Michel is accused of assuring purchasers that their NFTs would gain greater worth, plus incentive rewards for holding them. In reality, it appears Michel misused the $2.9 million in user funds for his own benefit.

• During subsequent talks with customers on social media, Michel confessed to "rugging" — an expression used when a programmer raises finances for a venture and then disappears with those assets — but insisted that it was caused by the divisive NFT community.

• People who bought Mutant Ape Planet NFTs believed they were investing in a trendsetting collectible item, yet they had been tricked and did not gain any anticipated benefits. 

Decrypt, Mastercard Taps Polygon for Web3 Artist Accelerator

• Mastercard announced Friday at the Consumer Electronics Show in Las Vegas, Nevada, that it will use the Polygon blockchain to launch its Mastercard Artist Accelerator.

• The program is designed to help musical artists learn how to expand their brands through minting NFTs, building an online presence, and establishing a community. While Mastercard has not yet said who will participate in the accelerator, the company said the accelerator will end later this year with a live-streamed artist showcase.

• Mastercard says the aim is to create a space for music content creation, collaboration, and ownership, using the accelerator to connect artists worldwide with mentors in Web3.

• "Kicking off in spring 2023, the Mastercard Artist Accelerator will prepare five emerging artists—such as musicians, DJs, producers—with the tools, skills, and access to forge their own musical paths in the digital economy," Mastercard said in a press release.

Robb Report, Following 2022’s Crypto Crash, the Future of NFTs Seems Banal — Here’s Why

• The greater promise of NFTs was that the technology could create a fairer economy for digital creators. The internet is built off digital content most often created without compensation to the creators who produced it. 

• While popular creators can sometimes make a living selling merch or advertising products, they need help to make money off their primary product: digital content. NFTs, according to web3 proponents, would change that by providing a medium of digital exchange and ownership that could also provide royalties on resale. For the first time, digital content would be the primary product, so the story went. Digital ownership had arrived.

• But, as the crypto market has tanked, some uncomfortable truths have been revealed: when the unexpectedly crypto-rich are taken out of the dataset, there are not actually that many people who are ready to buy digital assets that they’re used to getting for free. Worse, it’s become obvious that NFT tech could not live up to its promises of permanence, royalties, and user-friendly trading. Artists have discovered that their supposedly blockchain-enforced royalties aren’t being honored and traders have found themselves repeatedly scammed and stolen from.