Caught in the fallout from FTX: how a cryptocurrency high-flyer fell to Earth

Alex Grebnev wanted people to buy into his vision of a new financial world. But Mastercard has cut ties with the Maps payments app run by the British-educated cryptocurrency tycoon, who was backed by Sam Bankman-Fried, amid a row over Russian users.

As western brands began the stampede out of Russia a year ago, its citizens found themselves unable to pay for the international goods and services with which they had become so familiar. Among the first firms to sever ties were the credit card companies Visa and Mastercard: this left Russians struggling to spend their cash on services from Netflix to Amazon.

But as the country was isolated, sources claim that some enterprising Russians discovered a loophole – by using some technological knowhow and a particular mobile phone app they could sidestep those restrictions and continue to stream movies and shop online.

The app in question can be traced back to the second floor of an office in London’s wealthy Knightsbridge district, where the Russian-born, British-educated tech entrepreneur Alex Grebnev runs his ventures, including Maps, a payments, mapping and cryptocurrency app.

But Russian users of Maps have cast a shadow over the business, sparking concerns from partners that it may have breached EU sanctions imposed after Russia’s invasion of Ukraine. This also resulted in an important partnership with Mastercard being terminated.

And the reason? The discovery late last year that at least 111 Russian users were signed up for its app-based payment card, allowing them to use Maps to spend their cash, despite western efforts to isolate the country.

Those revelations represent the latest setback for Grebnev, one of a breed of tech entrepreneurs whose fortune has followed the boom and bust of cryptocurrencies. The former Goldman Sachs banker, who went to school with Rishi Sunak, has been caught in the fallout from the collapse of FTX, the failed crypto exchange run by Sam Bankman-Fried.

Grebnev’s ventures, which received millions of dollars of investment from Bankman-Fried, were among a group of “Samcoins” that benefited from an endorsement by the Icarus of the crypto world. As FTX’s smouldering ruins are picked over and BankmanFried fights lawsuits, the spotlight is turning towards his followers, including Grebnev.

His story is one of wealth, ambition, the allure of the cryptocurrency world and the ethical questions thrown up since the invasion of Ukraine for western companies which have interests in Russia.

Cypto crusader

Grebnev rose to prominence in the tech world through a series of ventures spawned by the blockchain technology that underpins cryptocurrency. His two main businesses would between them go on to command more than $100m (£81m) of investment and see the value of their tokens soar as the crypto hype exploded. Grebnev and his peers hoped to get people to buy into a vision of a new financial world without the need for traditional financial institutions and reliant entirely on digital currencies exchanged between individuals. These include Maps.me, which started out as a competitor to Google Maps, but became a multifunctional app with services such a pre-paid card.

Grebnev, 43, lives near his office in a £2.7m Kensington home which he shares with his wife and children. The teetotal businessman is described as an “obsessive, archetypal tech geek” by associates, who note his “wild hours”, 5am judo sessions and love of chess.

Grebnev arrived in Britain as a teenager, attending the exclusive 600-year-old Winchester College boarding school alongside the future prime minister. A maths degree at Cambridge followed, then nine years at Goldman Sachs, developing trading strategies. Grebnev clocked up nearly six more years in the City, at Merrill Lynch, aiding sovereign wealth funds and corporates in developing markets.

He left to found his firm, Moonshot Capital, and in 2018 Grebnev partnered with a crypto exchange, Changelly, to launch Oxygen, a platform that allowed investors to earn money by lending out their cryptocurrencies, for a fee. Oxygen also later launched an eponymous crypto token.

He could see a route to riches. “We are at the very beginning of the

journey, but the journey is happening very fast,” he said of the development of crypto as an asset class.

An associate describes him as “very sharp, quirky and funny – there’s a lot going on behind his eyes”. But another says he has a darker side. “He gets angry quickly – he has the emotional responses of a toddler.” Grebnev is understood to dispute that characterisation.

A Google Maps rival?

Grebnev also had big plans for Maps. me, a digital mapping tool that launched in 2012. The app uses satellite technology (GPS) to pinpoint a user’s exact location on a map and can be used offline to avoid costly data roaming charges when abroad.

He had bought Maps.me from Mail.ru Group, a London-listed Russian internet firm, for about $20m in 2020. Mail.ru had previously said 18% of its users were Russian. By the time Grebnev bought it, the app had been used by 60 million people in 195 countries.

He wanted to monetise those users by adding digital payments to the app, allowing them to transfer money while travelling abroad, in return for a fee. Oxygen would provide the payments infrastructure.

By March 2021, the company trumpeted the launch of Maps.me 2.0 as the “financial services of the future” and 140,000 users were signed up to the waiting list for the launch of its digital wallet.

By adding payment services to Maps, the company said it would “enrich the lives of hundreds of millions of people around the world by providing them with an easier way to pay, transfer, earn passive income and invest”. Users were promised yields of as much as 8% on the value of funds stored in the wallet, which could handle 35 currencies. The company said value in Maps.me wallets would be invested in assets with the gold standard AAA rating and held in a Swiss trust structure. An accompanying Maps crypto token was launched.

FTX folds

But 2022 would prove to be Grebnev’s annus horribilis, as FTX’s demise crashed the value of crypto and the war in Ukraine raised questions over Maps’s use by Russians.

Grebnev and BankmanFried’s fortunes were interlinked. Bankman-Fried, 31, was an MIT physics graduate and former currencies trader at rapid trading outfit Jane Street Capital, before efore founding Alameda Research, and nd then FTX. FTX would go on to become one of the world’s largest cryptocurrency yptocurrency exchanges, before its collapse last year. Grebnev and Bankman- ankman-Fried connected online and d had a rapport.

In late 2020, Bankman- man-Fried was listed as an adviser to o Oxygen in a document about its business model. By early 2021, Alameda da – which traded crypto and also so had a venad venture capital arm – had made two big bets on Grebnev. It led a $50m funding round into Maps.me, then spearheaded a $40m m round for Oxygen, joined by investment vestment firms Multicoin, Genesis and nd CMS.

Last April, Grebnev v met BankmanBankmannfamous Fried at FTX’s now infamous crypto gathering in the Bahamas, amas, where the latter shared a stage with Tony Blair and Bill Clinton. Bankman- kman-Fried gave Oxygen credibility ity in the industry. indusokens The value of its tokens reached $4 in 2021, valuing the he currency at a total of $189m, according rding to the CoinMarketCap website, - while Maps tokens ns were worth $118m at t their peak.

This was allegedly part of Bankmanno Fried’s masterplan: to use his clout to push up the price of “Samcoins” ns” in a strategy with FTX sister company Alameda Research. esearch. Developers behind crypto rypto prod projects were persuaded to make their trading debuts on his FTX exchange. Alameda would then buy the newly listed coins – which included Maps, Oxygen, gen, Serum, Bonfida and Solana – to increase their scarcity and push sh up their value, according to the he New York Times. There is no suggestion ggestion that Grebnev or those e behind the other Samcoins would ld have been aware of this strategy. y.

But in November, as BankmanFried’s $16bn fortune evaporated along with FTX’s collapse, crypto publication CoinDesk reported that a leaked Alameda balance sheet showed FTX’s assets consisted largely of FTT, Maps, Oxygen, Serum and other cryptocurrencies – difficult holdings to convert into cash. It has been estimated that the value of Maps, Oxygen, Serum and Bonfida – which made up a third of FTX’s assets – more than halved to $2.9bn on the day before the bankruptcy.

In the aftermath, Oxygen tweeted that the “Maps and Oxygen teams are shocked by events relating to FTX Group’s bankruptcy proceedings. While FTX Group did not hold any equity in the Maps or Oxygen businesses, it did hold a significant proportion of Maps/Oxy tokens.” It also acted as a “cu custodian” for more than 95% of the supply su of its tokens, it admitted. Both tokens t have crashed from their highs.

Lawyers for FTX claim to have located more than $5bn in assets as creditors aim to re recoup their losses.

Russian roulettroulette

Since Putin’s invasion invas of Ukraine last February, the use u of Maps by Russians has come com under scrutiny. Grebnev had scored score a coup by teaming ing up with finte ntech Monavate to add prepa prepaid Mastercards to Maps. B By knitting this card with wit its digital wallet, let, Ma Maps’s users would be able ab to “enjoy cashback, back discounts, and othe other rewards when trav travelling, anywhere whe Mastercard is accepted”. acce Users would pay $ 10 for the card and be b charged $0.50 per transaction, tra meaning ing potentially pot huge rewards for Grebnev. The Maps M Mastercard and wallet walle launched in October. Maps M also offered physical cards, c which sources say were distributed uted in Eu Europe and Dubai. Questions soon emerged about whether whe Russians were using usin the cards.

A Maps ch channel on the Telegram messaging platform form included inc many users with Russian Ru phone numbers, bers, w who appeared to be located in Russia. The ABOVE Maps wallet included includ Alex Grebnev a virtual has sim function funct been described that would let people peopl as an use ‘obsessisve their mobile phones phone tech abroad geek’. without incurring incurrin Stephen hefty Lovekin/ roaming charges, Rex by b buying a data bundle. Sources claimed the virtual sim allowed Russians to exploit a loophole: users would appear to be in the country they were buying the data from, so could disguise the fact that they were in Russia.

An article on the Russian version of AppleInsider in November even claimed to show how to use Maps to pay for purchases on foreign websites such as Airbnb. The author said they had used an image of a non-Russian passport to pass ID checks.

By October, Monavate had suspicions that Russians were using Maps cards. In November, Monavate audited Grebnev’s Swiss company, N2, which runs his operations, and found that 111 cards were issued to Russian users, contravening Mastercard and Monavate’s policies not to operate in the country.

N2 blocked these users and Maps posted a Telegram message stating: “We had to stop all transactions made only from the territory of the Russian Federation, as well as limit the process of issuing cards to new users located in the Russian Federation.” But N2 said it expected this to be a “temporary ban” until mechanisms to ensure registrations were not from restricted countries were improved. N2 declined to comment on the message.

Monavate continued to have concerns that Russians might be using the app, and that N2 had not carried out sufficient checks to ensure that sanctions on Russia had not been breached. The EU had tightened sanctions on Russia in October, banning all crypto-asset wallets, accounts and custody services.

It has emerged that some users – who appeared to be in Russia – were later unblocked and remained on the platform into early 2023. It is understood N2 has blamed this on a technical fault, and said no sanctions were breached.

In early February, Monavate terminated its deal amid concerns over checks on users’ locations. It is understood that N2 has accused Monavate of misrepresenting events to Mastercard, disputed how many Russian cardholders were using Maps and said it had not made a concerted effort to build up a business in Russia. N2 said the virtual sim was in a “testing phase” and had “never offered any service or product designed to disguise a user’s true location”.

It added: “N2 does not accept and, indeed, refutes the claims and allegations being made. The company has taken careful steps to ensure its compliance with applicable laws and sanctions. The company operates robust compliance procedures in line with all applicable laws and has at all times set and adhered to high standards.”

Mastercard said: “The standards and principles that govern our network help to deliver a consistent, secure experience and compliance with legal requirements. We continually work with our customers to ensure these standards are met.” Monavate declined to comment. Bankman-Fried did not respond to a request for comment.

In late February, Mastercard and Visa halted a push into crypto in the wake of FTX’s collapse.

‘We are at the very beginning of the [crypto] journey but the journey is happening very fast’ Alex Grebnev

From the fog of contradictory economic data over recent months comes a sense of direction. Suddenly, there is no more talk of recession, even as business surveys show firms doing OK. Instead, the picture is clear and there is no doubt the economy is growing again.

A slump that was supposed send the economy backwards in the first half of this year has vanished, notwithstanding worries about a global banking meltdown and credit crunch. That leaves predictions of a decline in economic activity being replaced by an expansion during the second, third and fourth quarters of 2023. It’s quite a turnaround.

On Friday, surveys of manufacturing and services companies found a surge in demand for new work in February was exceeded in March, making the latest upturn “the fastest since April 2022”. There was a drag from the 14th consecutive month of falling goods exports – the Brexit effect – but otherwise, businesses reported improving sales and orders.

Bank of England governor Andrew Bailey was until a few weeks ago among the gloomiest of forecasters. Last November he predicted the longest recession since the 1930s. As recently as last month he was holding on to the prospect of a short though painful recession lasting six months. On Friday he swapped his frown for a twisted smile that said yes, the economy was resilient, and much more so than he had previously estimated, but this strength could force him to nudge interest rates higher than he has already. It was a message that said whichever path we take – growth or no growth – we lose.

It follows that the UK is a stagnation nation – a stuck-in-the-mud, going-nowhere economy spluttering into life after the pandemic and still weighed down by privations from the Ukraine war that most of Europe weathered better than we did.

It means the UK is still in the fog, with contradictory data telling us the situation is improving, but also just as tough as it was when Bank of England forecasters were putting a finger in the air last year.

Bailey explained his stance with a glance at the labour market, where the number of vacancies remains above a million, just as it did throughout 2022. In the five years before the Covid-19 pandemic, the number of vacancies averaged 800,000. A tight labour market must mean that employers are competing for workers and, in this environment, wages are escalating.

The evidence, though, points in the opposite direction. Official figures show private sector wages growth, which covers more than 27 million of the UK’s almost 33-million-strong workforce, stalled at 7% last November and is now going backwards. The central bank’s own regional agents say in their latest report that private sector employers are paying 6% extra, even though inflation has remained stubbornly above 10% since last October.

In addition, some analysts warn that the economy will struggle to get going while interest rates are at 4.25%. They say a recent rise in core inflation – which strips out volatile elements like food and energy – may continue for many more months, handing Bailey another reason to increase borrowing costs.

But core inflation can be blamed to a large extent on multinational corporations jacking up prices to make hay during a crisis. These companies have kept wages growth low, just as the Bank’s agents have reported, only to find they can impose stellar price rises anyway.

Dubbed greedflation, this phenomenon is an indictment of modern capitalism and the way it protects shareholders over consumers, eating into the disposable incomes of millions. Yet for the purposes of setting interest rates, its effects may be in the past.

Even companies that restricted themselves to passing on higher raw materials and energy costs to customers are beginning to cut prices in response to the easing of supplychain bottlenecks, lower shipping costs and falling oil and gas costs.

Put together falling wages growth, tumbling wholesale prices and declining disposable incomes and there will be few reasons to keep rates at 4.25%, even if the economy does start to grow as now expected.

Workers have tightened their belts, downgraded their shopping habits, spent their savings and if they don’t have any cash stashed away, have borrowed from a credit card provider to keep some semblance of their pre-pandemic standard of living. They are not waiting, poised to energetically consume, just because Bailey says a recession was avoided.

Jeremy Hunt talks of putting rocket boosters on the economy. At best he will get lower inflation, a bit of growth and maybe slightly lower interest rates by the end of the year. It’s called muddling through.