Bloomberg

(Bloomberg) — If there’s one thing more shocking than the fact that a hacker was able to exploit a software bug and drain some $320 million worth of cryptocurrency from something called Wormhole, it’s this: Backers of the project were able to replace the pilfered tokens in a matter of hours.

In another, not-so-distant era, this was the type of coding bug that could have threatened to put a traditional financial firm out of business. In fact, that almost happened to Knight Capital Group Inc. a decade ago. The electronic market maker was driven to the brink of bankruptcy by some bad code, before a dramatic bailout among many of Wall Street’s best-known shops allowed it to avoid Chapter 11. The firm was later taken over by a rival.

In the case of Wormhole, the problem with the code turned out to be almost as disastrous as the one that forced Knight to seek a $400 million cash infusion to survive. Yet the move-fast-and-break things ethos of the crypto world was met with a startling move-fast-and-fix things response this time. Jump Trading Group, which helped develop Wormhole, put up the money to replace the 120,000 wETH, or “wrapped Ether,” that the hacker was able to create and then abscond with.

And it’s not the only example. Last month, hackers fleeced the exchange BitMart to the tune of $150 million in cryptocurrencies. BitMart, which had just closed a venture-capital funding round, used its own capital to cover the incident.

The incidents highlight just how much cash — both traditional and digital — is sloshing around the crypto world, and how quickly it can be put to work with seemingly little time spent put into thinking about the risks of throwing good money after bad. Wormhole’s savior, Jump Trading Group, has roots that lie in the same high-frequency trading and electronic market making industry where Knight operated. Its quick and expensive response suggests it sees enormous potential profits in crypto despite a nine-figure setback.

Read More: Hackers Steal $320 Million From Wormhole Crypto Project 

Development of Wormhole was originally started by a company called Certus One. Jump acquired Certus One last year and took over development of the Wormhole protocol, which is what’s known as a “bridge” that connects different blockchains, such as Ethereum and Solana, to allow tokens to trade on blockchains other than their home turf.

Such a bridge helps traders avoid the famously slow and expensive transactions on the Ethereum network, which underpins many crypto projects. In this episode, faulty code allowed a hacker to create, or “mint,” a token tracking the cryptocurrency Ether on the Solana blockchain, and then move it back over to the Ethereum network.

Jump’s participation in the project is part of its ambition to be more than just a crypto trading firm. Instead, it aspires to be a major architect and developer of the infrastructure of the next generation of the crypto market as it matures and gains more institutional acceptance. 

“I think it’s because Jump believes bridges are of paramount importance to the long-term success of the crypto ecosystem,” said Kyle Samani, co-founder of Multicoin Capital, which manages a hedge fund and venture fund in the crypto space. “Given Jump’s background in providing liquidity and HFT in traditional markets, they have a unique perspective on how to think about the importance of bridges.”

He added: “Given the size of investment they have and continue to make, and the willingness to cover 100% of this loss, I assume they intend to profit from Wormhole somehow in the long run.”  

Chicago-based Jump’s efforts in crypto partly trace their origins to a group of interns at the University of Illinois, including Kanav Kariya, the head of the company’s crypto division. In an interview last year, Kariya said Wormhole has enormous promise. “I don’t think you can think big enough,” he said.

Dave Olsen, the president of parent company Jump Trading Group, has compared the effort to the earliest American traders who met under a buttonwood tree on Wall Street in the late 1700s to hash out the structure and rules that would govern the New York Stock Exchange. “In a lot of ways, we’re getting back to first principles of trading,” he told Bloomberg Businessweek in an interview published last month.

Read More: Wall Street Traders Muscle Into the Middle of Crypto 

As its crypto project was taking shape, Jump was, to put it generously, effusive in its enthusiasm. In an essay unveiling its approach to the space, the trading firm said it was always asking how it could do more.

“The resounding answer has become a battle cry for our team: to build,” the firm wrote. “To build the plumbing and the railroads, and to build communities. The rhythm of that chant has driven us deeper into the ecosystems we’re involved in and unearth the trove of system design and engineering problems that lie between us and the promised land.”

In this case, a hacker helped them do exactly that. Yet it was a very expensive pit stop on the road to the promised land.

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©2022 Bloomberg L.P.

(Bloomberg) — The Senate Judiciary Committee on Thursday approved legislation that, if passed into law, would force Apple Inc. to let users install apps from outside of the App Store.  

The bipartisan 21-1 vote is a strong endorsement for the bill from Connecticut Democrat Richard Blumenthal, Minnesota Democrat Amy Klobuchar, Tennessee Republican Marsha Blackburn and eight other cosponsors, but it still faces a long road to get a vote in the full Senate. 

The bill seeks to loosen the duopoly that Apple and Alphabet Inc.’s Google have over mobile app distribution, part of Congress’s push to curb the power of U.S. technology giants.

“Google and Apple own the rails of the ap economy, much as the railroad companies did at the start of the last century, said Blumenthal, who estimated the value of the app store market at about $100 billion a year.

The measure, S. 2710, would require Apple to let users install apps on their phones and other devices from sources on the web or alternative app stores, a process that’s called sideloading. 

This provision would most impact Apple. While Google offers its Play Store on mobile devices, it doesn’t bar users from downloading Android apps elsewhere. Sideloading, which Apple has said poses security risks for consumers, would allow apps to avoid Apple’s commissions, which range from 15% to 30%. 

The bill also would force app marketplaces to allow third-party app developers to communicate with customers outside the platforms about cheaper ways to subscribe and alternative ways to pay for services. Last year, Apple said it will allow this as part of a class action settlement in the U.S. with app developers. 

Read More: Apple, Google Tell Senate That Tech Bills Will Harm Privacy

The committee adopted an amendment addressing security concerns put forth by tech companies that would allow platforms to actively manage their systems to oversee cyber security and privacy. The second amendment that was adopted requires the Federal Trade Commission, Justice Department, and Government Accountability Office to submit an impact report three years after enactment of the statute.

Apple has lobbied hard against this bill, arguing that it would make the iPhone ecosystem more similar to Android, limiting consumer choice for what it calls a more secure and closed environment. 

Apple and Google urged the panel to reject the bill in separate letters obtained by Bloomberg, both sent on Wednesday to Senate Judiciary Chair Dick Durbin and ranking Republican Chuck Grassley.

Apple’s Chief Executive Officer Tim Cook personally met with several senators in December, including Klobuchar, Durbin and Grassley, about this bill and other antitrust proposals, according to a person familiar with the meetings. Cook was set to speak with Blackburn Wednesday before the committee hearing, but the meeting was re-scheduled, according to a Senate aide. 

The bill “amounts to Congress trying to artificially pick winners and losers in a highly competitive marketplace,” said Mark Isakowitz, head of Google’s government affairs and public policy. 

Companies like Spotify Technology SA, Tile and Match Group Inc. support the changes in the proposal, which they say would leave them less dependent on Apple and Google to reach customers. Microsoft has also thrown its weight behind the bill, according to a person familiar with the company’s position.

Some of the app-store practices addressed by Thursday’s bill were also challenged by Epic Games Inc. in the video game-maker’s lawsuit against Apple. The judge in that case found that Apple has engaged in some anticompetitive conduct and ordered the iPhone maker stop preventing developers from steering users to alternative payment methods. 

Apple has appealed the ruling and an appeals court stayed the decision. 

The judge in the original Epic case also found that Apple’s dominance of the market for mobile apps doesn’t violate U.S. antitrust law. Epic is appealing that part of the decision with the support of 35 states, civil society groups and Microsoft Corp. 

(Updates with Google letter to committee in ninth paragraph)

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©2022 Bloomberg L.P.

(Bloomberg) — The winter storm battering Texas is expected to intensify overnight, bringing more snow, ice and frigid temperatures nearly one year after an Arctic blast overwhelmed the state’s power grid and triggered deadly blackouts.

State officials say the electrical system will hold this time, but the big test will come Friday morning when power demand is expected to peak. So far there’s no sign of the type of system-wide failure that triggered rolling blackouts last year after power plants went down across the state. 

“The power grid is performing very well at this time,” Texas Governor Greg Abbott said during a Thursday news conference. “The Texas power grid is the most reliable and resilient it’s ever been.”

This is a crucial moment for Texas, where last year’s cold snap led to blackouts that left more than 200 people dead. This current storm is testing whether Abbott and lawmakers have done enough to bolster the electrical system, including new rules requiring generating plants to winterize. Critics, however, say the reforms didn’t do enough to ensure the natural gas-fueled system doesn’t freeze up again in the cold, choking off fuel to power plants.

See: Texas Had All Year to Prep for Cold, and It’s Not Ready  

Still, about 47,000 homes and businesses were without power at 2:30 p.m. local time, according to PowerOutage.us, which tracks outages reported on utility websites. 

“These are localized outages that are not related to system-wide reliability issues,” Peter Lake, chairman of the Public Utility Commission of Texas, said Thursday in a media briefing. “The grid remains strong, reliable, and it is performing well in this winter-weather event.”

While it’s cold in Texas now, the worst will come overnight, according to William Iwasko, a meteorologist with the National Weather Service’s Lubbock office. The Panhandle region could fall to -3 degrees Fahrenheit (-19 Celsius) and Dallas may get down to 13 degrees. However, the storm is moving through fairly quickly, and temperatures could be close to normal on Saturday. That’s a key difference from last year’s storm, which lingered for days.

“It’s obviously quite cold, but the duration of that cold won’t be very long,” Iwasko said.

Texas has been bracing for the worst in this latest storm, which is part of a massive cold front that stretches to Maine. Many schools, universities and churches across the state have closed. Grocery stores have been left depleted as residents stocked up on food this week. Even sea turtles off the Texas coast are under threat from the cold.

Winter storm warnings and advisories span almost the entire state. Temperatures in Amarillo were at 8 degrees Fahrenheit on Thursday, while Dallas was 23 degrees and Midland, the business heart of the oil- and natural gas-rich Permian Basin, was 9 degrees.

“It’s not looking like a repeat of what happened last year, but the cold temperatures will certainly have some impact on the power situation,” said Andrew Orrison, a meteorologist with the National Weather Prediction Center.

Airlines canceled almost 4,800 flights on Thursday as ice and snow advanced on a swath of the U.S. from Texas to the Northeast for a second day. About two-thirds of the flights were canceled at Dallas-Fort Worth International Airport, while more than 80% were scrubbed at Dallas Love Field and 79% in Austin, according to FlightAware.com.

Some natural gas wells have frozen in places like Texas and neighboring Oklahoma, shutting about 5% of overall domestic output during the peak demand season for the furnace and power-plant fuel, according to Jade Patterson, an analyst at BloombergNEF. The interruptions will take as long as five days to restore once temperatures moderate, he said.

The Texas Oil & Gas Association said natural gas production will continue sliding as the storm freezes wells and other equipment in the biggest gas-producing state. Early indicators “suggest production declines will increase throughout the day,” the industry group said in a Thursday statement. 

Meanwhile, wind is providing an unexpected benefit to the state’s electrical grid. Wind farms were producing about 17.5 gigawatts at 9:55 a.m. local time, well above prior forecasts, to account for about 30% of the grid’s electricity supply, according to the Electric Reliability Council of Texas. A gigawatt is enough to power about 200,000 Texas homes.

“We expected significant icing in the western part of the state,” Ercot Interim Chief Executive Officer Brad Jones said in the briefing. “That has not occurred as severely as expected.”

Ercot expects electricity demand to approach a record high on Friday morning as frigid weather spurs heating needs, with power consumption peaking at around 74.7 gigawatts.

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(Bloomberg) — BT Group Plc had been trying to find a buyer or partner for its pay-TV unit BT Sport for at least 10 months, with rivals including DAZN, Walt Disney Co., Amazon.com Inc. and Discovery Inc. all sizing up potential offers. 

For much of the bidding process, billionaire Len Blavatnik’s streaming service DAZN, known as the “Netflix of Sports”, was widely reported as the likely winner. 

Such was the confidence within the DAZN camp, one executive was even spotted playing Township, a farming simulation game, on his smartphone during a meeting with BT at Goldman Sachs Group Inc., according to people familiar with the matter, who asked not to be named because the discussions were private.

In the end, BT lost confidence in DAZN’s bid, the people said. After a bout of last minute negotiations, BT revealed on Thursday that it would pursue a joint venture with a rival bidder, U.S. entertainment group Discovery, which would combine it with Eurosport UK. 

Representatives for BT and DAZN declined to comment. 

Deal Breaker

Success would have won DAZN rights to the U.K. Premier League and Champions League soccer, crown jewels that would have granted a splashy entrance to the region’s biggest live sport broadcast market. It recently won major sports rights deals in Germany, Italy and Spain.

Deliberations continued until late on Wednesday, the people familiar with the matter said. Following Discovery’s offer, DAZN considered raising its bid in the final stages of negotiations, in an effort to save the deal, they said. 

Ultimately BT’s Chairman Adam Crozier, Chief Executive Officer Philip Jansen and consumer division chief Marc Allera opted for the longer-term value presented by Discovery’s proposals. 

Mike Darcey, a former COO at Sky, said an important factor in any decision would have been the level of security being demanded by the leagues that owned the sports rights being broadcast on BT Sport. The English Premier League has just signed a new three-year deal with BT.

“There are iron clad change of control clause in broadcast contracts,” he said. “Some will remember what happened to the Football League when OnDigital walked away from its contract and the EPL also had issues with Setanta. The leagues would have seen that DAZN is a significant loss-making entity and they would have presumably wanted a chunk of the three-year deal paid upfront or maybe a big guarantee from Blavatnik.”

Inside DAZN

DAZN’s Chairman Kevin Mayer, a former Disney executive and briefly TikTok CEO who also launched several blank-check companies, said the group maintained its plans for growth in the U.K., where it streams boxing rights and Champions League womens’ football, as well as sporting documentaries. 

“We remain fully committed to growing our business and investing in the U.K., as you will see in the near future,” Mayer said in an emailed statement.

In the past year or so, DAZN has shifted strategy from pursuing secondary sports rights in a handful of markets, to launching in around 200 territories and focusing on blockbuster football rights in three markets: Italy, Spain and Germany. 

DAZN’s financial accounts for the year up to 31 December 2020 are overdue, according to a note at London’s Companies House, where they have to be registered. The company’s last set of published results, for the year to 2019, show a loss of $1.3 billion for continuing operations. The directors at the time concluded that the company had sufficient funds to continue given the support of the principal shareholder, Blavatnik’s Access Industries.

(Updates paragraph 7 regarding bidding process.)

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(Bloomberg) — The work of creating a possible U.S. digital dollar inched ahead Thursday with research by the Federal Reserve Bank of Boston into the code that eventually could support such a currency.

The Boston Fed, in collaboration with the Massachusetts Institute of Technology’s Digital Currency Initiative, released a 35-page white paper on the findings of its technological research, which focused on developing software to process transactions. The researchers examined two possible code bases, including one that was capable of handling 1.7 million transactions per second. 

“Both architectures met and exceeded out speed and throughput requirements,” the central bank branch said in an executive summary of the report. The researchers wanted to be able to process 100,000 transactions per second and settle them in less than 5 seconds. Both code bases beat those projections.

The joint research project is separate from the work being conducted by the Federal Reserve Board in Washington to study the possible benefits and risks of a U.S. central bank digital currency, or CBDC. The Fed, led by Chair Jerome Powell, has indicated it doesn’t plan to move forward with a government-backed coin unless it has the support of the White House and Congress. 

The MIT and Boston Fed researchers released their transaction processing software, OpenCBDC, under an open-source license, allowing anyone to inspect, modify, and enhance the code. 

“Open-source software provides an important way to collaborate, experiment, and implement,” Neha Narula, director of the MIT Digital Currency Initiative, said in a news release Thursday. 

Thursday’s release concludes the first phase of the multiyear research initiative, known as “Project Hamilton,” that was first announced in August 2020. A second phase will explore more complex capabilities and will examine key issues, such as user privacy and cybersecurity. 

Moving forward with a U.S. CBDC could help ensure the U.S. dollar’s dominance, especially as other countries like China move forward with their own digital currencies. But the Federal Reserve has also pointed out a range of potential risks, including possible runs on financial firms and a reduction in the amount of deposits in the traditional banking system. 

Strategists at Bank of America Corp. have said they think a U.S. digital dollar is inevitable, predicting that issuance would likely occur between 2025 and 2030. 

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(Bloomberg) — A group led by CC Capital Partners, the investment firm run by former Blackstone Inc. dealmaker Chinh Chu, is in talks to acquire market-research firm Information Resources Inc., according to people with knowledge of the matter. 

A deal could value Chicago-based IRI at more than $5 billion including debt, said the people, asking not to be identified discussing information that is private. IRI is owned by private equity firms Vestar Capital Partners and New Mountain Capital. No transaction has been finalized and it’s possible talks could collapse or terms could change.

Representatives for CC Capital, IRI, New Mountain and Vestar declined to comment.

IRI provides data, analytics and other insights to companies in a variety of sectors. Led by Chief Executive Officer Kirk Perry, it has more than 5,000 clients globally and says its services helps those companies capture market share and “remain relentlessly relevant.” IRI has about $1.6 billion in outstanding debt, according to data compiled by Bloomberg.

New Mountain acquired IRI in 2011 and sold a stake to Vestar in 2018. Both firms would “jointly govern” the company, they said in a statement when Vestar made its investment.

CC Capital has led large buyouts in the past, including the take-private of Dun & Bradstreet. In that transaction, CC worked with investors including Cannae Holdings and funds affiliated with Thomas H. Lee Partners. 

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