From layoffs to bankruptcies, the blockchain economy is facing a reckoning.
Here’s how the crash has affected consumers, employees and investors.
The crypto market has shed $2 trillion over the past seven months, a stunning meltdown that has upended the once fast-growing industry. The crash has triggered layoffs at exchanges and lenders, account freezes that have left customers in the cold and even bankruptcies at some overleveraged firms.
Here’s how the crash has affected consumers, employees and investors, and gave new energy to efforts by regulators to rein in a digital-assets market that SEC Chair Gary Gensler has called the Wild West.
Consumers feel the sting As crypto prices continued to fall, some companies limited or froze withdrawals and trades, citing conditions they compared to bank runs. Critics and regulators pounced on these moves, saying they showed a lack of protections for investors and a surfeit of risk by some companies that lent out customer assets and promised sky-high rewards. June 12: Celsius halted withdrawals, swaps and transfers after facing a liquidity crisis. The firm was hurt badly by the Terra collapse and a drop in the value of staked ether, or stETH. June 13: Binance, the world’s largest crypto exchange, halted bitcoin withdrawals for several hours. The exchange blamed a “stuck transaction.” June 17: Babel Finance, another cryptocurrency lender, froze withdrawals. The firm blamed the pause on “unusual liquidity pressures.” Also, Finblox tightened withdrawal limits and paused reward distributions. The staking platform is backed by Three Arrows Capital and was impacted by the hedge fund’s liquidity crisis. June 23: Coinflex, a crypto lender and futures platform, paused withdrawals, citing “extreme market conditions.” July 1: Crypto lender Voyager suspended withdrawals, deposits and trading. The firm received a $200 million revolving line of credit and 15,000 bitcoins from FTX CEO Sam Bankman-Fried’s firm Alameda Research. July 4: Vauld, a crypto lender particularly popular in Southeast Asia and India, paused withdrawals. Nexo offered to acquire the company on July 5, saying it would prioritize restarting withdrawal capabilities post-acquisition.July 14: CoinFlex began allowing customers to withdraw 10% of their account balances, excepting the company’s flexUSD stablecoin. July 20: Crypto exchange Zipmex halted withdrawals, citing "volatile market conditions." The company did not say when withdrawals could resume. July 22: Zipmex resumed withdrawals but continued to restrict deposits, transfers and trades. Employees lose jobs Crypto hiring spiked 73% from 2019 to 2021, according to LinkedIn, and well into 2022, some companies maintained aggressive hiring plans. But Coinbase reversed plans to triple its workforce this year, rapidly retrenching and ultimately resorting to layoffs. Not everyone is cutting back: Binance, Kraken and Ripple are among the firms that are still hiring. June 1: Brazilian crypto exchange 2TM laid off more than 80 employees, blaming “rising interest rates and inflation.” June 2: Gemini, the crypto exchange run by brothers Cameron and Tyler Winklevoss, laid off 10% of its staff. In a letter to employees, the brothers said the cuts were due to “turbulent market conditions that are likely to persist.” June 10: Crypto.com cut 5% of its staff, or 260 people. CEO Kris Marszalek said in a tweet that the company needed to “ensure continued and sustainable growth.” June 13: BlockFi said it would cut 20% of its staff, blaming the “dramatic shift in macroeconomic conditions.” June 14: Coinbase announced it would lay off 18% of its workforce to ensure that it stays “healthy during this economic downturn.” The company had previously halted hiring and rescinded job offers. July 3: Celsius cut around 150 employees, or a quarter of its staff. The cuts came three weeks after the lender paused all withdrawals from its platform. July 5: Institutional crypto trading platform Bullish.com cut around 30 staff members. A spokesperson told the Block the company is still hiring for “strategic roles.” Also, eToro slashed 6% of its employees, or around 100 workers. The company also officially called off its SPAC merger with blank-check company FinTech Acquisition Corp. July 14: NFT marketplace OpenSea laid off 20% of its workforce, promising generous severance and benefits. July 21: Cryptocurrency exchange Blockchain.com said it would cut 25% of its workforce. The firm is shuttering its Argentina office and pausing expansion in several other countries. Investors’ losses mount The crypto crash forced a wave of consolidation on the industry, with rapid-fire dealmaking aimed at salvaging weaker firms. The meltdown of Terraform Labs’ UST and luna tokens sent shockwaves through the industry, affecting big firms which had bet on the tokens, including Three Arrows Capital, one of the largest crypto hedge funds. Soon after, stETH, a token on the Lido network that was once considered a safe bet on the new version of Ethereum 2.0, started to lose its peg. That caused further distress in the market. Firms that had reportedly invested in stETH included Three Arrows, Celsius and Alameda Research. After those two events, Three Arrows had a liquidity crunch and stopped answering margin calls. That sent further ripple effects throughout the industry. Three Arrows had borrowed from a number of large players in the crypto industry — and it’s unclear to what extent that borrowing was collateralized. Counterparties of 3AC such as Voyager, prime broker Genesis Trading and BlockFi took heavy losses as a result of working with Three Arrows, just when those firms needed cash the most. Many in the industry are wondering if other crypto lenders, hedge funds or brokerages will be next. Sam Bankman-Fried’s firms, FTX and Alameda, moved to support companies like BlockFi and Voyager. In some cases the infusions weren’t enough: Voyager filed for bankruptcy despite FTX’s support. June 22: Voyager obtained a revolving credit line from Sam Bankman-Fried’s Alameda group of $200 million and 15,000 bitcoin. June 29: Officials in the British Virgin Islands reportedly ordered crypto hedge fund Three Arrows Capital, which Voyager Digital said defaulted on loans worth more than $600 million, to liquidate. July 1: BlockFi agreed to a deal with FTX that gave the exchange an option to buy the remaining shares of the company for up to $240 million. The crypto lender was once valued by investors at around $5 billion. July 2: Three Arrows filed for Chapter 15 bankruptcy in New York. July 4: CoinShares said it would acquire Napoleon Asset Management for an undisclosed sum. CoinShares acquired Napoleon Group in December. July 5: Crypto lender Nexo agreed to buy fellow lender Vauld after Vauld users withdrew nearly $200 million, causing a liquidity crisis. Nexo hired Citi in June to advise on acquisitions. Also, Uprise reportedly lost 99% of funds shorting luna during its price crash. The firm uses AI-enabled automatic trading strategies, and was hurt by short-lived pumps to luna’s price. July 6: Michael Moro, CEO of Genesis Trading, confirmed the company took major losses after Three Arrows Capital was unable to meet a margin call. The loans had a weighted average margin requirement of more than 80%, and Genesis had to immediately sell collateral. Also, Voyager Digital filed for bankruptcy. FTX is a major creditor. July 8: Blockchain.com told shareholders it faced $270 million in losses from exposure to Three Arrows Capital.July 13: Celsius filed for bankruptcy. July 14: In a bankruptcy court filing, Celsius revealed its liabilities outweighed its assets by $1.2 billion. Regulators move in Regulation is coming down the pike globally, seemingly sooner rather than later. June 7: The highly anticipated Responsible Financial Innovation Act was introduced by U.S. Sens. Cynthia Lummis and Kirsten Gillibrand; it carved out definitions of various digital assets, contained tax provision clarifications and proposed dividing oversight between the CFTC and SEC. June 8: New York’s Department of Financial Services issued new guidelines requiring stablecoins to be backed by reserves. June 16: Multiple states opened investigations into Celsius’ move to freeze withdrawals. June 30: The EU Parliament and Council reached a provisional agreement on the Markets in Crypto-Assets bill, another move toward finalizing it. The bill, known as MiCA, would introduce a clearer regulatory framework for crypto companies, including sustainability disclosures and stablecoin regulation. The EU’s new transfer-of-funds rules are also set to enforce anti-money laundering and know-your-customer requirements, where crypto companies will have to collect information and personal data for all transactions. July 4: Tharman Shanmugaratnam, chair of the Monetary Authority of Singapore, said that the financial watchdog is “carefully considering” some additional safeguards for consumer protection, including “placing limits on retail participation, and rules on the use of leverage when transacting in cryptocurrencies.” July 8: Federal Reserve Vice Chair Lael Brainard urged in a speech in London that the “regulatory perimeter” be extended to include crypto, citing recent market turbulence. July 12: Vermont financial regulators warned Celsius customers that the crypto lender was likely to be “deeply insolvent.” Also, California regulators said they were investigating “crypto-interest account” providers and urged consumers to file complaints.
As crypto prices continued to fall, some companies limited or froze withdrawals and trades, citing conditions they compared to bank runs. Critics and regulators pounced on these moves, saying they showed a lack of protections for investors and a surfeit of risk by some companies that lent out customer assets and promised sky-high rewards.
June 12: Celsius halted withdrawals, swaps and transfers after facing a liquidity crisis. The firm was hurt badly by the Terra collapse and a drop in the value of staked ether, or stETH.
June 13: Binance, the world’s largest crypto exchange, halted bitcoin withdrawals for several hours. The exchange blamed a “stuck transaction.”
June 17: Babel Finance, another cryptocurrency lender, froze withdrawals. The firm blamed the pause on “unusual liquidity pressures.” Also, Finblox tightened withdrawal limits and paused reward distributions. The staking platform is backed by Three Arrows Capital and was impacted by the hedge fund’s liquidity crisis.
June 23: Coinflex, a crypto lender and futures platform, paused withdrawals, citing “extreme market conditions.”
July 1: Crypto lender Voyager suspended withdrawals, deposits and trading. The firm received a $200 million revolving line of credit and 15,000 bitcoins from FTX CEO Sam Bankman-Fried’s firm Alameda Research.
July 4: Vauld, a crypto lender particularly popular in Southeast Asia and India, paused withdrawals. Nexo offered to acquire the company on July 5, saying it would prioritize restarting withdrawal capabilities post-acquisition.
July 20: Crypto exchange Zipmex halted withdrawals, citing "volatile market conditions." The company did not say when withdrawals could resume.
July 22: Zipmex resumed withdrawals but continued to restrict deposits, transfers and trades.
Crypto hiring spiked 73% from 2019 to 2021, according to LinkedIn, and well into 2022, some companies maintained aggressive hiring plans. But Coinbase reversed plans to triple its workforce this year, rapidly retrenching and ultimately resorting to layoffs. Not everyone is cutting back: Binance, Kraken and Ripple are among the firms that are still hiring.
June 1: Brazilian crypto exchange 2TM laid off more than 80 employees, blaming “rising interest rates and inflation.”
June 2: Gemini, the crypto exchange run by brothers Cameron and Tyler Winklevoss, laid off 10% of its staff. In a letter to employees, the brothers said the cuts were due to “turbulent market conditions that are likely to persist.”
June 10: Crypto.com cut 5% of its staff, or 260 people. CEO Kris Marszalek said in a tweet that the company needed to “ensure continued and sustainable growth.”
June 13: BlockFi said it would cut 20% of its staff, blaming the “dramatic shift in macroeconomic conditions.”
June 14: Coinbase announced it would lay off 18% of its workforce to ensure that it stays “healthy during this economic downturn.” The company had previously halted hiring and rescinded job offers.
July 3: Celsius cut around 150 employees, or a quarter of its staff. The cuts came three weeks after the lender paused all withdrawals from its platform.
July 5: Institutional crypto trading platform Bullish.com cut around 30 staff members. A spokesperson told the Block the company is still hiring for “strategic roles.” Also, eToro slashed 6% of its employees, or around 100 workers. The company also officially called off its SPAC merger with blank-check company FinTech Acquisition Corp.
July 14: NFT marketplace OpenSea laid off 20% of its workforce, promising generous severance and benefits.
July 21: Cryptocurrency exchange Blockchain.com said it would cut 25% of its workforce. The firm is shuttering its Argentina office and pausing expansion in several other countries.
The crypto crash forced a wave of consolidation on the industry, with rapid-fire dealmaking aimed at salvaging weaker firms.
The meltdown of Terraform Labs’ UST and luna tokens sent shockwaves through the industry, affecting big firms which had bet on the tokens, including Three Arrows Capital, one of the largest crypto hedge funds.
Soon after, stETH, a token on the Lido network that was once considered a safe bet on the new version of Ethereum 2.0, started to lose its peg. That caused further distress in the market. Firms that had reportedly invested in stETH included Three Arrows, Celsius and Alameda Research.
After those two events, Three Arrows had a liquidity crunch and stopped answering margin calls. That sent further ripple effects throughout the industry. Three Arrows had borrowed from a number of large players in the crypto industry — and it’s unclear to what extent that borrowing was collateralized.
Counterparties of 3AC such as Voyager, prime broker Genesis Trading and BlockFi took heavy losses as a result of working with Three Arrows, just when those firms needed cash the most. Many in the industry are wondering if other crypto lenders, hedge funds or brokerages will be next.
Sam Bankman-Fried’s firms, FTX and Alameda, moved to support companies like BlockFi and Voyager. In some cases the infusions weren’t enough: Voyager filed for bankruptcy despite FTX’s support.
June 22: Voyager obtained a revolving credit line from Sam Bankman-Fried’s Alameda group of $200 million and 15,000 bitcoin.
June 29: Officials in the British Virgin Islands reportedly ordered crypto hedge fund Three Arrows Capital, which Voyager Digital said defaulted on loans worth more than $600 million, to liquidate.
July 1: BlockFi agreed to a deal with FTX that gave the exchange an option to buy the remaining shares of the company for up to $240 million. The crypto lender was once valued by investors at around $5 billion.
July 2: Three Arrows filed for Chapter 15 bankruptcy in New York.
July 4: CoinShares said it would acquire Napoleon Asset Management for an undisclosed sum. CoinShares acquired Napoleon Group in December.
July 5: Crypto lender Nexo agreed to buy fellow lender Vauld after Vauld users withdrew nearly $200 million, causing a liquidity crisis. Nexo hired Citi in June to advise on acquisitions. Also, Uprise reportedly lost 99% of funds shorting luna during its price crash. The firm uses AI-enabled automatic trading strategies, and was hurt by short-lived pumps to luna’s price.
July 6: Michael Moro, CEO of Genesis Trading, confirmed the company took major losses after Three Arrows Capital was unable to meet a margin call. The loans had a weighted average margin requirement of more than 80%, and Genesis had to immediately sell collateral. Also, Voyager Digital filed for bankruptcy. FTX is a major creditor.
July 8: Blockchain.com told shareholders it faced $270 million in losses from exposure to Three Arrows Capital.
July 14: In a bankruptcy court filing, Celsius revealed its liabilities outweighed its assets by $1.2 billion.
Regulation is coming down the pike globally, seemingly sooner rather than later.
June 7: The highly anticipated Responsible Financial Innovation Act was introduced by U.S. Sens. Cynthia Lummis and Kirsten Gillibrand; it carved out definitions of various digital assets, contained tax provision clarifications and proposed dividing oversight between the CFTC and SEC.
June 8: New York’s Department of Financial Services issued new guidelines requiring stablecoins to be backed by reserves.
June 16: Multiple states opened investigations into Celsius’ move to freeze withdrawals.
June 30: The EU Parliament and Council reached a provisional agreement on the Markets in Crypto-Assets bill, another move toward finalizing it. The bill, known as MiCA, would introduce a clearer regulatory framework for crypto companies, including sustainability disclosures and stablecoin regulation. The EU’s new transfer-of-funds rules are also set to enforce anti-money laundering and know-your-customer requirements, where crypto companies will have to collect information and personal data for all transactions.
July 4: Tharman Shanmugaratnam, chair of the Monetary Authority of Singapore, said that the financial watchdog is “carefully considering” some additional safeguards for consumer protection, including “placing limits on retail participation, and rules on the use of leverage when transacting in cryptocurrencies.”
July 8: Federal Reserve Vice Chair Lael Brainard urged in a speech in London that the “regulatory perimeter” be extended to include crypto, citing recent market turbulence.
July 12: Vermont financial regulators warned Celsius customers that the crypto lender was likely to be “deeply insolvent.” Also, California regulators said they were investigating “crypto-interest account” providers and urged consumers to file complaints.
Nat Rubio-Licht is a Los Angeles-based news writer at Protocol. They graduated from Syracuse University with a degree in newspaper and online journalism in May 2020. Prior to joining the team, they worked at the Los Angeles Business Journal as a technology and aerospace reporter.
Don’t know what to do this weekend? We’ve got you covered.
Our recommendations for your weekend.
Nick Statt is Protocol's video game reporter. Prior to joining Protocol, he was news editor at The Verge covering the gaming industry, mobile apps and antitrust out of San Francisco, in addition to managing coverage of Silicon Valley tech giants and startups. He now resides in Rochester, New York, home of the garbage plate and, completely coincidentally, the World Video Game Hall of Fame. He can be reached at nstatt@protocol.com.
Summer’s almost over, but there’s still time to check out some content. This week we’re excited to play Fortnite’s Dragon Ball Z event; “Prey” on Hulu includes some award-winning performances; and we can’t wait to spend the weekend with the comically sinister Cult of the Lamb.
Fortnite’s latest anime collab is really too good to miss. Following a successful crossover with the Naruto universe earlier this summer, Akira Toriyama’s “Dragon Ball Z” has finally landed in Epic’s battle royale, and it's even better than we could have imagined. There are of course skins for purchase featuring protagonists Goku and Vegeta, and a quest tracker to unlock some other nice cosmetics for free. But it’s all the small touches — the in-game Kamehameha energy blast item and the ability to “power up” and transform your hair color, to name a few — that really push it over the edge and prove why Fortnite is truly at the forefront of the metaverse.
The story of the so-called crypto geniuses behind crypto hedge fund Three Arrows Capital — Kyle Davies and Su Zhu — is almost too unbelievable, and you can already sense the limited-time HBO series or feature film Hollywood producers might try to cook up from these details. By far the best accounting yet of what exactly happened with TAC comes from Jen Wieczner at New York Magazine, who chronicled the rise and fall of the fund in a new feature this week, dishing out some hilarious new details, including the name of the duo’s $50 million super yacht that now sits vacant in Italy while Davies and Zhu remain in hiding.
The Predator franchise isn’t exactly known for its sensitive portrayal of indigenous cultures. Yet, inexplicably, the new entry in the series about head-hunting alien assassins manages to accomplish many different things at once — including an award-worthy performance of a Comanche warrior from Sioux actress Amber Midthunder. The film features stellar action sequences and a refreshingly deep exploration of native gender roles as Midthunder’s Naru is pitted against a technologically advanced adversary.
Devolver Digital’s latest indie hit is Massive Monster’s Cult of the Lamb, an action-sim hybrid that blends elements of Animal Crossing with roguelike dungeon crawling. One part of the game involves growing a religious cult of followers through often vicious and manipulative means as part of a vengeful plot to strike back at the gods of old who sent you to be sacrificed. The other involves venturing into randomized dungeons to grow your following and strike your enemies down, all while providing for your growing religious order. The game’s comically sinister overtones mixed with its cartoony art style keep the overall tone light, but with enough depth to say something meaningful about the perils of organized religion.
A version of this story also appeared in today’s Entertainment newsletter; subscribe here.
Nick Statt is Protocol's video game reporter. Prior to joining Protocol, he was news editor at The Verge covering the gaming industry, mobile apps and antitrust out of San Francisco, in addition to managing coverage of Silicon Valley tech giants and startups. He now resides in Rochester, New York, home of the garbage plate and, completely coincidentally, the World Video Game Hall of Fame. He can be reached at nstatt@protocol.com.
As management teams at financial institutions look for best practices to make part of their regular toolkit, they are reaching most for the ones that increase the speed and reduce the risk of large-scale change.
That forward-thinking approach can lead financial institutions to leverage AI technology, which can help give decision-makers trusted tools to solve integral challenges vital to the health of the business. One of the leading providers of AI and machine-learning software, DataRobot continues to attract clients in financial services who want to de-risk their AI investments and rapidly scale AI to almost every part of their operations, resulting in improved productivity and higher customer satisfaction.
Based in Boston and operating since 2012, DataRobot allows its clients to systematically create, deploy, manage, and govern AI at global scale. Work that used to take weeks now transpires within hours, allowing employees to focus on their immediate tasks while letting DataRobot manage areas such as compliance automation, fraud detection, and dynamic pricing of assets.
Financial institutions are increasingly seeing AI technology as a competitive advantage, said Jay Schuren, chief customer officer at DataRobot. “AI empowers the financial services industry because it not only helps them save money and mitigate fraud but also improves job satisfaction and the rigor of documentation.”
A McKinsey report argues that linking AI and banking is a savvy strategic decision that benefits the bottom line: “The potential for value creation is one of the largest across industries, as AI can potentially unlock $1 trillion of incremental value for banks, annually.”
The interest in ushering AI into business sectors isn’t abating any time soon either. Global spending on AI is forecast to double over the next four years, growing from $50 billion in 2020 to more than $110 billion in 2024, as an OECD report found.
What AI does best is parse through Big Data to speed up laborious processes and uncover patterns that the human eye can’t track easily. That same report cited above goes on to say how, for the investment community, “information has always been key and data has been the cornerstone of many investment strategies, from fundamental analysis to systematic trading and quantitative strategies alike.”
In 2021, worldwide banking and securities industry IT spend was more than $200 billion, Schuren said. “DataRobot believes every penny of that should deliver value. DataRobot does this by providing decision-makers across the financial services industry with trusted AI solutions to solve mission-critical problems.”
DataRobot can handle a variety of tasks, Schuren said, such as setting prices in advance for assets, whether those are bonds or currency exchanges. The unique aspect of the DataRobot AI Cloud platform is the granularity of answers you can get, and the speed at which you can get those answers. “For example, how do you determine customer churn? Instead of answering that question for a subset of clients within a set timeframe, you can take a look at every single customer and see what their propensity to churn is in a month or two or three months. You can ask the question by geography, time frame, or any other characteristics. DataRobot will automatically try various models across all of those different characteristics at scale, and then we can find the ones that work and can cast a wide net. Instead of spending a month to ask one question, we can ask several hundred and determine the ones that are really robust, and it’s about getting high-quality answers as fast as possible.”
For areas such as lending, DataRobot automated the process to eliminate bias in models. Since there are many ways to determine fairness, it provides an outline that helps organizations align values that matter to them, all centered on predictive analytics. Schuren said, “When it comes to algorithms and models, you can ask it questions on where it’s biased, and when you think about getting rid of bias within lending strategies, it’s done much easier with DataRobot.”
Addressing fraud continues to be top of mind for financial institutions: Banks faced more monthly fraud attacks in 2021 than the year prior, according to a study from LexisNexis Risk Solutions. The study also found the average volume of monthly fraud attacks for banks earning more than $10 million in annual revenue has increased since 2020 from 1,977 to 2,320.
Schuren explained that most fraud systems are driven by rule-based systems that evolve over time and could become as simple as identifying if a transaction is above a certain threshold. “Those rules can number in the thousands, and we’ve implemented a workflow that can be very useful where, within that process, if the transaction is safe, it goes right through, or a transaction can be flagged for review thanks to adding different machine-learning models along the way.”
The fraud team at a bank doesn’t have to invest extensive time and resources when an AI system such as DataRobot can train the models to reduce false positives. It all comes back to efficiency and saving time in the right places.
A real-life example showcases the technology in action. When Valley Bank’s anti-money laundering team sought to reduce the manual work involved in predictive modeling related to money laundering, it used DataRobot AI Cloud to optimize the AI life cycle. The result was decreasing total alert volume by 22% and increasing escalation to case by three percentage points.
“From ingesting the data to performing data quality to developing and testing models to deploying them … the platform does everything for us with minimal manual intervention. I haven’t found another tool that does that,” Chris Mendoza, director of financial crimes technology at Valley Bank, said in a statement.
Banks need to secure a competitive advantage in an increasingly tight race to harness best-in-breed technology. Decision makers need to not just plan a future-ready strategy, but also recognize the value of AI that could boost not just their performance in-house but also their reputation among their global customers.
Advocates are asking the federal government to block the plan so Indiana will come back to the bargaining table.
Indiana's EV plan might not benefit all its citizens.
Kwasi (kway-see) is a fellow at Protocol with an interest in tech policy and climate. Previously, he covered global religion news at the Associated Press in New York. Before that, he was a freelance journalist based out of Accra, Ghana, covering social justice, health, and environment stories. His reporting has been published in The New York Times, Quartz, CNN, The Guardian, and Public Radio International. He can be reached at kasiedu@protocol.com.
Thanks to the Bipartisan Infrastructure Law, the state of Indiana is set to receive $100 million to build out a network of electric vehicle charging stations by 2025. But local officials and leaders of the NAACP in the state are calling on the Biden administration to reject the state’s plan, arguing that communities of color have been left out of the planning process, leading to a proposal that could entrench the racist transportation policies that both President Biden and Transportation Secretary Pete Buttigieg have vowed to address with these new federal funds.
"The state of Indiana has created a plan that is not equitable for communities of color, Black and brown,” said Henry Davis Jr., a city council member in South Bend, where Buttigieg was mayor. “We want to be included in that plan. It is kind of hard to be included on a plan when you are not even at the table.”
Davis is part of an alliance that includes the Indiana NAACP, Black Lives Matter South Bend and local Black business leaders. Among its top concerns is the fact that the Indiana Department of Transportation held just three in-person public meetings to accept input on the plan, all of which were located in predominantly white neighborhoods. There were no meetings in historically Black cities such as Gary, for instance. Instead, the meeting for the northern section of the state was held in the much smaller city of Plymouth, where the population is 90% white. These meetings were also scheduled from 3 p.m. to 5 p.m., making it difficult — if not impossible — for many working people to attend.
But arguably the bigger issue, alliance members say, is the plan itself, which makes fleeting mention of the state’s commitment to equitable distribution of charging stations but is light on details about how exactly the state plans to go about achieving those goals. “There are these systems that need to be changed, that need to include us in this green economic transition,” said Denise Abdul-Rahman, state chair of environmental and climate justice for the Indiana NAACP.
Expanding access to electric vehicle infrastructure in communities of color has been top of mind for policymakers. The Biden administration has committed to ensuring that 40% of all federal climate and energy investments benefit disadvantaged communities. Buttigieg has spoken at length about the need to correct the racist history of transportation in America. And Indiana’s own state law also requires electric vehicle charging infrastructure “to be located in an equitable manner” and to be convenient for people living in areas that are “economically [distressed] or racially or ethnically diverse.”
But the standoff in Indiana over charging stations reflects a pervasive concern in communities of color that the EV transition will leave them out. Racial disparities in access to charging stations are already apparent in cities across the country. The new federal funding presents an opportunity to close the gap and encourage greater adoption of electric vehicles in communities of color. That’s crucial, given that they’re disproportionately impacted by the climate crisis. “There has to be an intentional effort to support the discussion about Black and brown communities receiving the investment,” Davis Jr. said. “We just can't keep giving lip service.”
Scott Manning, Indiana’s deputy chief of staff for the Department of Transportation, acknowledged that while the in-person meetings may have been difficult for many to attend, the state did provide other avenues for public comments, including two virtual meetings and an online survey. According to the draft report, about 2,300 people responded, with comments coming from all but one county in the state.
The department also noted in its EV plan that it consulted with groups including the NAACP and the South Bend chapter of Black Lives Matter, but those meetings were not open to the public.
The plan has already been submitted for federal approval, but Manning emphasized that it is a “living document,” and that there will be further community outreach. “We do have the opportunity to be flexible with where the charging stations are ultimately located, provided that we are locating in sites that meet [the National Electric Vehicle Infrastructure program] requirements,” he said.
But local advocates say the NEVI requirements may wind up hurting rather than helping their cause. Under the $5 billion program, through which Indiana will get its $100 million, states are required to prioritize placement of charging stations along highways before local roads.
That, Abdul-Rahman worries, could mean chargers winding up in areas that aren’t convenient to the local community and don’t ultimately benefit local businesses. Her organization is looking for assurances that charging stations will not only be located in communities of color, but that Black-owned businesses will be included in procurement contracts and job programs related to the new technology.
The federal government now has until Sept. 30 to consider the state’s plan. According to Manning, there are no signs yet the plan will be rejected. But Abdul-Rahman, Davis and others are still hoping it will be, forcing decision-makers in Indiana to come back to the bargaining table — with more seats around it this time.
Kwasi (kway-see) is a fellow at Protocol with an interest in tech policy and climate. Previously, he covered global religion news at the Associated Press in New York. Before that, he was a freelance journalist based out of Accra, Ghana, covering social justice, health, and environment stories. His reporting has been published in The New York Times, Quartz, CNN, The Guardian, and Public Radio International. He can be reached at kasiedu@protocol.com.
The corporate minimum tax law passed, but the battle of some key provisions is just getting started.
The long-awaited corporate tax reform should in theory be a big deal, but markets hardly flinched after it became clear the Inflation Reduction Act would pass.
Hirsh Chitkara ( @HirshChitkara) is a reporter at Protocol focused on the intersection of politics, technology and society. Before joining Protocol, he helped write a daily newsletter at Insider that covered all things Big Tech. He's based in New York and can be reached at hchitkara@protocol.com.
When President Biden signed the Inflation Reduction Act into law on Wednesday, he put in place a 15% minimum tax rate for all large U.S. corporations.
The long-awaited corporate tax reform should in theory be a big deal, but markets hardly flinched after it became clear the legislation would pass. And tech companies — which pulled out all the stops to hinder Sen. Amy Klobuchar’s antitrust bill — hardly resisted the measure, even if their interest groups dutifully issued statements of opposition. Tim Cook didn’t swing by D.C., there were no mass fly-ins and no casting calls went out for the part of Joe America in stilted political attack ads.
So why didn't the tech sector fight harder against a law that Democrats say hits them where it hurts? Mitchell Kane, a tax professor at New York University Law School, gave Protocol three possible explanations: First, the deal came together too quickly for corporations to react. Second, the incremental tax cost could be little to nothing. And third, corporations may have preferred the 15% plan to something worse.
The deal did indeed come together quickly, as Sens. Joe Manchin and Kyrsten Sinema decided at the last minute to support a bill that many had already written off as dead. This timing played in corporations’ favor in some ways, since it forced progressives to give up on more ambitious plans to raise the corporate tax rate to 28%.
It’s also true that many tech companies will feel no impact from the new minimum. An analysis from the Joint Committee on Taxation found that only around 30% of the Fortune 500 will be impacted by the new minimum tax, and those companies are concentrated in industries such as manufacturing. Meta, Microsoft and Apple all paid more than 15% cash effective tax rates last year, according to a Washington Post analysis. Overall, the new minimum is expected to raise corporate tax revenue by less than 5% within the next decade.
Companies make two calculations under the new minimum tax system. The first is the standard taxable income calculation that allows for all the existing deductions. The second calculation, which sets the new minimum, starts with the financial statement income — what a company reports to the SEC and investors — and allows for adjustments including research and development costs, accelerated depreciation and climate investments. If 15% of the second calculation isn’t larger than the original tax calculation, then corporations must pay a top-up tax to ensure they’re meeting the minimum threshold.
Even tech companies currently paying tax rates below 15% could be in the clear. The allowances have the potential to give considerable offsets to tech companies, especially for R&D. Companies such as Nvidia and Intel both paid estimated cash effective tax rates below 15% in recent years, but their businesses also require exceptionally high R&D costs. Those costs can still be deducted under the new plan.
R&D deductions are particularly beneficial for companies since the benefits last a long time and the resulting intellectual property can often be transferred offshore to avoid U.S. taxes. It is precisely this upside that many critics say is unfair: To put it simply, the U.S. tax policy allows companies to deduct R&D expenses and also later to shield much of the subsequent revenue.
Nixing the R&D deduction was never under consideration, according to Reuven S. Avi-Yonah, a law professor at the University of Michigan who advised Sen. Elizabeth Warren on the Real Corporate Profits Tax Act introduced last year.
“It’s the international part that I find interesting,” Avi-Yonah told Protocol. “What we have here is essentially a tax on their global profits at 15% because for book [accounting] purposes you include all their foreign operations in one big pile with their domestic ones.”
The biggest open question for tech companies is whether stock-based compensation will be allowed as an offset for the minimum tax calculation. In 2021, for example, Amazon paid out $12.8 billion in stock-based compensation, allowing the company to reap $2.7 billion in tax benefits.
“The biggest difference for many tech companies between their taxable income and their book income is stock option gain,” Peter Barnes, counsel to D.C. law firm Caplin & Drysdale, told Protocol. The stock option gain can be deducted from taxable income, Barnes explained, even as it doesn’t count against book income. Corporations have long argued that the government should support the deduction because it encourages good corporate behavior, aligning the interests of employees and owners.
The Inflation Reduction Act contains no mention of stock-based compensation, but that doesn’t necessarily mean it won’t be included. The IRS and Department of Treasury’s Office of Tax Policy will likely spend several years translating the legislation written by Congress into the tax code.
“They changed the law significantly in 2017, and it took the IRS three [or] four years to come out with the detailed regulations on most of these things,” Avi-Yonah told Protocol. “For this one, I think it will take at least as long because, conceptually, it’s a really different kind of tax.”
This lengthy process gives tech companies ample opportunity to make their voices heard. There will likely even be several rounds of solicitation periods in which the IRS will ask for public comment, present drafts and then solicit more comments. By the time this process gets into full swing, companies may very well be dealing with a Republican-led House and Senate, in turn creating an easier path for winning additional concessions. At the end of the day, though, the new rules only set the minimum — the old rules still matter.
Hirsh Chitkara ( @HirshChitkara) is a reporter at Protocol focused on the intersection of politics, technology and society. Before joining Protocol, he helped write a daily newsletter at Insider that covered all things Big Tech. He's based in New York and can be reached at hchitkara@protocol.com.
The automaker's chief sustainability officer is optimistic that GM is well-positioned to rapidly scale up the EV side of its business.
"I think everything that’s been put in place to support the transition will be a real positive for the industry and for the country."
Lisa Martine Jenkins is a senior reporter at Protocol covering climate. Lisa previously wrote for Morning Consult, Chemical Watch and the Associated Press. Lisa is currently based in Brooklyn, and is originally from the Bay Area. Find her on Twitter ( @l_m_j_) or reach out via email (ljenkins@protocol.com).
Automakers are on the cusp of an entirely new era.
The transition to electric vehicles is quickly becoming more than just theoretical: More models are coming onto the scene every day. This week, the Inflation Reduction Act was signed into law, enshrining a new structure for EV tax credits and offering a boost to domestic critical mineral mining. The transition isn’t coming a moment too soon, given that the transportation sector makes up the largest share of greenhouse gas emissions in the U.S.
In early 2021, General Motors became the first conventional car company to pledge to sell only zero-emission cars and trucks by 2035. And GM chair and CEO Mary Barra said the company’s goal is winning the “long game” when it comes to EV sales. To meet it, though, will require playing a bit of catchup.
In the last few years, a number of GM’s competitors have made ambitious pledges of their own, though the legacy automakers as a group have continued to lag behind EV-only stalwart Tesla in EV sales. Tesla delivered 254,695 new vehicles to customers in the second quarter of 2022, whereas GM’s Chevrolet and GMC brands together delivered just 7,217 plug-in EVs. Meanwhile, Ford’s EV second-quarter sales numbers are more than double GM’s, and the company has at least 200,000 pre-reservations for the electric version of its F-150 truck, the best-selling vehicle in the U.S.
Even so, GM feels its strategy is a winning one, targeting affordability via options like the Chevy Bolt — hovering above $25,000 for the 2023 model, after a dramatic $6,000 price cut — even as its competitors peddle flashier and pricier vehicles. And as the race for materials to build this wave of new EV models heats up, GM is prioritizing the longevity of its battery supply and manufacturing resources both in the U.S. and abroad.
Speaking with Protocol in the wake of the Inflation Reduction Act becoming law, the company’s vice president and chief sustainability officer Kristen Siemen’s outlook was positive: “We’re well on our way,” she said.
This conversation has been edited for clarity and brevity.
Do you anticipate that the IRA might make GM’s transition to EVs more challenging? While some of the provisions are certainly challenging and won't be achieved overnight, we're confident that the investments that GM has been making in manufacturing and our workforce infrastructure are really going to enable the U.S. to be a global leader in electrification both today and in the future. We're excited about the provisions that will accelerate the adoption of EVs and strengthen American manufacturing and jobs: everything from the customer purchase incentives to tax credits and support for domestic mining and battery production. I think everything that’s been put in place to support the transition will be a real positive for the industry and for the country.
There have been a number of announcements from GM and its competitors in recent months about securing agreements for battery materials. What is GM’s approach, especially given the domestic sourcing requirements instituted by the IRA? We have binding agreements for all of the battery raw materials that support our goal of a million units in North America by 2025; that includes lithium, nickel and cobalt. And we have agreements to supply the cathode active materials. [The Korean chemical giant] LG Chem has been a great partner with us for a number of years, and to have those battery assembly plants for cell manufacturing here in the U.S. is a true sign of how far we are on this transition to EVs. I've toured a few of those facilities, and things are really humming.
We're very committed to U.S. manufacturing and production. About 50% of our U.S. production will be converted to EVs by 2025, and we've announced four battery plants here in the U.S. We're well on our way to converting our entire portfolio and shifting into an all-EV future, and I think that innovation is going to continue to spur innovation.
How are you guaranteeing that your partners are sourcing their materials responsibly? Are you independently verifying the responsibility of their sourcing practices? Earlier this year, GM issued an ESG pledge to our suppliers, which includes both human rights protections and fair operating practices, as well as our suppliers’ own carbon neutral goals. As we progress with our carbon neutral goals, we're looking for our suppliers to be there with us as well. [Editor’s note: GM has committed to invest $35 billion in its transition to selling only EVs by 2035, and is aiming for carbon neutrality by 2040.] This pledge asked our suppliers to set their own carbon neutrality commitments, as well as their participation and a minimum score with ESG ratings platform EcoVadis to really demonstrate their attention to everything from ensuring employee health and safety to avoiding corruption or forced labor. If any violations of those commitments came to light, they would be addressed immediately, no question.
We're really comfortable and confident in our supply chain and what we've already been able to secure for the portfolio in the near future, and coupled with our ESG pledge from our suppliers, we’re really confident in what that future looks like.
One other important piece of the puzzle when it comes to the transition to EVs is charging. Is having an open network a part of GM’s strategy? This is an area where I feel that GM has really made a significant investment. We believe strongly in ubiquitous charging. One main pillar of equitable climate action is infrastructure access and that there aren’t charging deserts in communities that are disproportionately affected by climate change. Our partnership with Pilot and Flying J will accelerate the expansion of charging infrastructure and enable long-distance electric travel via a network of 2,000 chargers.
I’m also really excited about our partnership with our own dealers. They are extremely integrated into their communities. Over 90% of the population in the U.S. is no more than 5 to 10 miles from a GM dealership. So we've committed to install 30,000 charging outlets and to allow the dealers themselves to decide where they should be in their communities. So that may be a local community center or maybe it’s a collection of 10 soccer fields. We want to make sure that charging is available for everybody.
Lisa Martine Jenkins is a senior reporter at Protocol covering climate. Lisa previously wrote for Morning Consult, Chemical Watch and the Associated Press. Lisa is currently based in Brooklyn, and is originally from the Bay Area. Find her on Twitter ( @l_m_j_) or reach out via email (ljenkins@protocol.com).
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