When Jump Jumped In …

Jump Trading Group Saves Wormhole from $320M Loss

Wormhole – a popular cross-chain crypto “bridge” between Solana, Ethereum, and Avalanche – lost more than $326 million in a monster-sized DeFi exploit. The hack is ranked at #2 on the Rekt News Leaderboard, which ranks the highest-value crypto hacks. 

But before anybody could properly panic, the Wormhole team announced that it would replace the lost funds. It was made possible thanks to a major bailout by Jump Trading Group. The firm acquired Certus One, the developer of Wormhole, last year.

The incident started on Feb. 2 after a hacker exploited a software bug in Wormhole, allowing them to steal 120,000 Ethereum ($ETH.X). For that, the hacker minted 120,000 Wrapped Ethereum (wETH) by forging a valid signature for a transaction on the Solana blockchain. In doing so, a large portion of Ethereum funds held as collateral for transactions on the Solana blockchain were liquidated. The remaining stolen funds were converted to Solana.

The reason why the hacker stole Wrapped Ethereum is that it has a 1:1 peg (and backing) to Ethereum’s price and can be integrated with many Wormhole-compatible networks, including Ethereum, Solana, Polygon, and more.

The way hackers took large chunks of Ethereum highlights that existing wETH was not backed by Ethereum. It’s not surprising that the attacker was able to mint the asset without staking the underlying token. Blockchain analytics site Elliptic said that the exploit was due to Wormhole’s failure to validate “guardian” accounts.

Wormhole confirmed the hack and later offered a $10 million bounty to the hacker to return the funds. So far, the hacker has not reached out to the Wormhole team to reimburse the lost funds.

Instead, a lesser-known high-frequency trading “crypto trading house” called Jump Crypto fully refunded the losses. It is also interesting to find out how it was able to do this since it is reported that the firm likes to keep a low profile.

Bloomberg wrote that the crypto trading house built its empire using Robinhood, the popular trading platform. Jump pays Robinhood, which in turn transfers its clients’ crypto trades to Jump, per report. Those payments to Robinhood accounted for 17% of the broker’s revenue during the first nine months of last year. Jump paid Robinhood about $247 million for the right to get orders through them, according to the report.

The journey of Jump Trading Group became a trending topic on Twitter, with some offering praise for how the firm rescued one of DeFi’s biggest protocols. Kanav Kariya, the 25-year-old head of the firm, expressed his gratitude, saying he would try to maintain the trust.

The Wormhole hack is the third prominent hack on a DeFi bridge, which exists to help investors take their beloved assets from one blockchain to another. Last week, DeFi protocol Qubit was hacked for $80 million. Before that, Multichain was hacked for $3 million. 

LunarCrush Is the Social Intelligence Tool for Crypto

Jon Farjo’s love for crypto started in an unconventional way – trading baseball cards in the 1980s. And when he discovered the Business section in The New York Times, he learned to pair a love for trading with a love for numbers.

Nearly three decades later, that’s what Farjo, now the Co-Founder and Chief Product Officer of LunarCrush, is still doing. 

“Back in 2013, I was getting into Bitcoin and soon I was asking stuff like, ‘What is Ethereum?’ and ‘What is Monero?’” Farjo said. “I was going through all those motions and learning about crypto on social, and one day my friends – Joe, Dan, and Issac – got together and said ‘‘I feel like there’s something there.”

Farjo and his friends founded the social intelligence tool for the crypto markets with humble beginnings in 2018 – and since then, it has grown into a tool used by millions. The site scrapes social conversations and media chatter to capture insights for investors’ favorite coins and cryptos, in the hope that social insights might turn into financial gains.

“Everyone has their own opinion,” Farjo said. “Everybody would’ve said to stay away from Dogecoin or Shiba Inu or Floki because they’re ‘garbage’, but when you look at the community, there were signs that a tidal wave of activity was coming.”

Farjo says that LunarCrush helps people unearth what’s coming up before it blows up – citing examples like Solana, Dogecoin, and Chainlink. The site’s market leaderboard ranks cryptos by social volume, engagement, and dominance of discussions. They even have something called the Galaxy Score, which scores price action, social engagement, sentiment, and correlation with those activities. The higher the Galaxy Score, the better those figures are looking.

However, the site’s “holy grail” might be the AltRank, which the company describes as a ranking of “community traction and performance across the crypto marketplace relative to Bitcoin.” Farjo says that AltRank tells you not just what’s hot on the way up – but on the way down.

Some days, like ones we’ve seen recently, it’s not uncommon to see stablecoins and other “safer” assets trending in lieu of riskier, lesser-known cryptos. Farjo calls that a “massive bottom signal” because “nobody leaves crypto.” Instead, they just swap into stables from the traditionally volatile names.

Ultimately, Farjo and Co. are optimistic that social will play an even bigger role in crypto in the future – as millions more join the crypto space. “It’s exponentially growing,” Farjo said. “It indicates we’re still in the early stages.” 

In October 2021, LunarCrush launched its own token – which rewards users for being active on their site and in their community. The $LUNR.X token then will unlock the proprietary indicators that LunarCrush has pioneered – and give users a stake in what they’re using everyday.

IRS Refunds For Token Rewards, But Policy Has Not Changed Yet

Now the Internal Revenue Service (IRS) might not tax your unstaked crypto – at least, that’s what a recent decision by a U.S. federal court implies. In order to resolve an ongoing legal dispute, the IRS has decided to refund income taxes to a Tennessee couple for staking rewards they did not sell. The decision demonstrates a shift in the IRS’s stance on crypto staking. Still, it does not mean that tax policies have changed for stakeholders.

In the crypto world, staking means holding cryptocurrency to earn interest or rewards. It’s a way of earning passive income for many people. In the most simple sense, staking helps keep blockchain networks secure and efficient. While the IRS mentions taxing income from mining, nothing is said about staking.

People should pay taxes when they receive rewards from staking or when they sell it – that was the question in the mind of a Tennessee couple who were denied a refund request from the IRS on taxes owed for earning staking rewards. It is similar to asking whether a paddy farmer should file taxes when the crop grows or when he sells them.

Through staking, Jessica and Joshua Jarret gained 8,876 Tezos tokens ($XTZ.X) in 2019. They requested a refund of their income tax of $3,293 from the IRS in May 2021. When the IRS denied their claim, they filed a lawsuit with the U.S. District Court for the Middle District of Tennessee. They argued to the court that any tokens gained through proof-of-stake should be considered “new property” created by the taxpayer. They said that the Tezos tokens ($XTZ.X) obtained should not be taxed until sold or exchanged. According to the complaint, there is no provision in United States law or IRS regulations that allow taxpayer-created property to be taxed as income.

Now that the court has ruled in favor of the couple, some believe that it will have huge implications for how proof-of-stake miners and stakers will be taxed in the future. 

However, it won’t be easy, as the ruling has raised questions over the IRS’s stance. The reason being the IRS has only agreed that it would refund plaintiffs Joshua and Jessica Jarrett. The agency has declined to publish any formal policy statement regarding the staking taxation, which the couple was seeking so that the same thing doesn’t happen to others in the future. In other words, the favorable ruling to the couple does not mean it is applicable to all investors – so it’s best to wait and see if it changes the policy.

Bullets For The Day

• Convert tax refunds into crypto: Coinbase and TurboTax have partnered to allow users the option to convert their state and federal tax refunds into cryptocurrency. With a direct deposit program with the software company, Coinbase can automatically convert dollars to cryptocurrency whenever tax refunds are received. Read more in Decrypt.
• Don’t click on fake Binance SMS: If you’re a Binance customer and receive an SMS advising that a withdrawal was made from your account with a link, do not click on it. Binance CEO Changpeng “CZ” Zhao warned today of a massive phishing scam via SMS that takes users to a fake website that harvests their credentials. Read more in CoinDesk.
• Nike sues over NFTs: Nike has taken the online marketplace StockX to court for selling its sneakers as unauthorized digital products. The sportswear giant sued the seller on Thursday in a federal court in New York for trademark infringement and sale of nonfungible token (NFT) sneakers. Read more in WSJ.