Eqonex closes crypto exchange as market woes prompt cost-cutting

From the Editor’s Desk

Dear Reader,

What’s on your list of must-have accessories for the upcoming fall season? If a 30ETH (US$58,556) Tiffany CryptoPunks pendant tops your list, you’re not thinking big enough.

The most influential players in the crypto space aren’t looking for baubles — they’re buying up bigger trophies like nobody’s business, and in their sights are struggling crypto companies.

One of the most talked-about people in the crypto asset shopping universe is, of course, FTX founder Sam Bankman-Fried. SBF, as he’s widely known, has been in the spotlight again recently thanks to a report that his crypto exchange — one of the world’s biggest, and whose holdings are only getting bigger — was among the rumored buyers of a majority stake in China-founded exchange Huobi.

Huobi has since strenuously denied that report, but the affair serves to underline the acquisitive attitude of the crypto winter’s survivors in the currently consolidating market.

Speaking of survivors, Singapore-headquartered blockchain firm Eqonex has shuttered its exchange business, presumably to avoid becoming a casualty of the chill that has swept through the industry.

Running an exchange isn’t cheap, and doing so during an extended period of falling trading volumes, slumping values and cutthroat competition seems to have been a sufficiently unrewarding prospect to prompt Eqonex’s management to amputate a limb to save their patient’s life.

On the face of it, it’s a discouraging development, but in the current context, it’s also a welcome recognition by a digital asset company of its own vulnerability to forces bigger than it can control. As such, it’s another sign, amid the growing pains of the space, that maturity may in some parts of it be in short supply, but that it is increasing.

And that’s not something you can just hang around your neck.

Until the next time,

Angie Lau,Founder and Editor-in-ChiefForkast

Forkast.Insights | What does it mean?

The crypto winter has hit exchanges particularly hard. Although Eqonex was among the smaller exchange operators, bigger companies have also suffered. Coinbase suffered a 30% decline in trading volume between the first and second quarters of 2022 alone, according to a shareholder letter, and it posted a net loss of US$1.1 billion during the second quarter, dramatically up from a US$430 million loss in the first quarter.

Binance had to suspend Bitcoin withdrawals earlier this year as investors tried to pull out record sums, and decentralized finance traders are actively pushing exchanges to their limits in a quest for liquidation bonuses.

But the bigger and more worrying trend is how little actual fallback crypto exchanges have in place in the event that they go bust. Neither Coinbase, Binance, FTX nor Gate.io — the top four spot exchanges by volume — have safeguards to ringfence customers’ funds in the event of a collapse. 

That was discovered the hard way after Canadian exchange QuadrigaCX filed for bankruptcy in 2019, taking US$200 million in customer’s money with it. If exchanges want to avoid the sort of runs that have led to the collapse of Terra, Three Arrows Capital and Celsius, providing adequate insolvency protection should be high on the list for all awaiting the crypto thaw. 

Forkast.Insights | What does it mean?

When organic growth stops, markets typically enter a consolidation phase as bigger players snap up smaller ones. Although the rumors surrounding Huobi’s stake sale have been denied, they come at a time when market growth for crypto exchanges has all but dried up.

Huobi, once a top-rank exchange in Asia, has struggled to deliver significant growth since China made cryptocurrency transactions illegal last year. It has lost ground to Coinbase and Binance, and languishes in ninth place ranked by trading volume. At the time of writing, Binance’s 24-hour volume was 20 times that of Huobi. Unsurprisingly, the suitors rumored to be in talks over Huobi have all bought exchanges in the past.  

FTX founder and Chief Executive Sam Bankman-Fried is currently around halfway through a US$1 billion spending spree. Meanwhile, Tron’s Justin Sun bought Poloniex in 2019 and has since made several sizable investments in other companies. 

While it remains to be seen if anything will come of the rumors swirling around Huobi, the whiff of a deal signifies a change in the broader crypto market. 

Merger and acquisition activity is on the rise. In the first six months of 2022, 92 crypto M&A deals were completed, surpassing a previous record set in 2021, according to data from M&A advisory firm Architect Partners. 

If the rumors turn out to be true, the Huobi stake sale will be one of the biggest deals in crypto history. With the crypto winter dragging on, consolidations are one way to survive and show growth. 

Forkast.Insights | What does it mean?

Audrey Tang Feng has been at the forefront of Taiwan’s digital transformation, and now she’s using her Web3 know-how to fight against China’s cyberattacks.

The information war between China and Taiwan appears to have expanded to the Web3 space, in which decentralized networks such as the InterPlanetary File System have offered a useful means of combating distributed denial-of-service attacks. Tang is working to build the ministry’s website on the InterPlanetary File System, which comes with an unusual URL — “ipns://moda.gov.tw” — that feeds snapshots of the site to regular content delivery networks using the HTTPS protocol.

The InterPlanetary File System has also been put to use in the past to get around censorship. For example, in April, many residents of Shanghai uploaded videos and writing onto Matters, a content-sharing platform built with the InterPlanetary File System, during lengthy Covid-19 lockdowns. A user said in a post on Matters: “Indeed, the 25 million people in Shanghai have taught the authorities a Web 3.0 lesson.”

Taiwan’s technological prowess has never been so important amid the current information war, especially when Beijing has repeatedly reiterated its hopes to convince Taiwan to willingly unite with China. As Taiwan parries China’s cyberattacks and sorts out ways to identify misinformation, Web3 and other emerging technologies will undoubtedly play a growing role.