31 December

While Eisenberg’s arrest is likely to raise questions around the application of commodities manipulation and fraud laws to crypto, the more important issue raised by this case involves the work of individuals to uncover weaknesses in decentralized protocols, and the impact and utility of these operations for the future of crypto.

Eisenberg is far from the only person who has spent countless hours reviewing a crypto protocol’s code and structure and attempting to attack its weaknesses. These individuals, depending on their perceived and stated intentions, are often met with derision for exploiting these flaws for illicit gain, and celebration for pointing out shortcomings that can be fixed and improve protocol resilience. And while no user wants to lose money, if you are a crypto entity seeking to test the resilience of your protocol, your best option is probably to hope an enterprising hacker will take a deep look and attempt an exploit and return the money.

Many observers, and perhaps a jury, will say Eisenberg is a criminal and thief. And the fact pattern – all visible on the blockchain, detailed by Eisenberg’s own self-congratulatory tweets and described in SDNY’s criminal complaint – indicates he did indeed violate the letter of the law that prohibits market manipulation. However, it’s easy to imagine a scenario where without Eisenberg’s operation, the Mango protocol grows much larger and attracts more retail users, and it is North Korea, not Eisenberg, that exploits the protocol to drain user funds to pay for nuclear weapon development, not just a “highly profitable trading strategy.” In fact, as a result of Eisenberg’s successful Mango operation, other decentralized trading platforms implemented new risk mitigation measures, and when Eisenberg went after Aave a few weeks later, he failed.

What’s clear is that the crypto ecosystem will continue to rely on the ability of enterprising blockchain sleuths to find weaknesses in the system. What’s not clear is what framework makes sense to properly incentivize the time and skill required for such activity and protect user funds from being taken. ImmuneFi has a promising model of offering a bounty to hackers who pledge not to take user funds, similar to how the False Claims Act and various whistleblower statutes incentivize individuals to find wrongdoing in return for financial reward.

But it can be hard for a hacker to know a protocol weakness is real without an attempted exploit, and there is no indication these so-called “white-hat hackers” are immune from market manipulation laws, which they may violate even if user funds are fully returned.

Decentralized finance is poised to play an increasingly important role in the crypto ecosystem after the high profile failures of centralized entities and FTX and Celsius. Until a better model is found to pressure test these decentralized protocols, operations such as the one conducted by Eisenberg with Mango will remain a painful part of the journey to making the industry more resilient.”

See Also: False alarm: DOJ did not classify MNGO as a commodity

“In its proposal, Valkyrie said it wants to facilitate GBTC redemptions at net asset value (NAV) for investors through a Regulation M filing. It also proposes to lower the fees to 75 basis points as opposed to the current 200 basis points, and to offer redemptions in both bitcoin and cash.

Valkyrie, one of Grayscale’s rivals, previously launched a bitcoin trust and a bitcoin-related exchange-traded-fund (ETF) in 2021. As part of their plan to sponsor GBTC, the world’s largest bitcoin fund, the Tennessee-based company also announced the launch of a new fund, the Valkyrie Opportunistic Fund, LP that seeks to take advantage of GBTC’s discount.

Valkyrie’s plan would be a tall order, considering that GBTC alone has over $10 billion in assets and Valkyrie only handles roughly $180 million in total assets.

See Also: BlackRock Gives Bankrupt Bitcoin Miner Core Scientific New $17M Loan

As of Nov. 30, a Financial Times report noted that a traditional portfolio consisting of 60% stocks and 40% bonds will have seen its worst performance since 1932, when the U.S. was in the midst of the Great Depression.

Meanwhile, tech stocks, which some theorize have a correlation with cryptocurrency prices, haven’t had a great year either. An index tracking the performance of U.S. companies in the industry recorded a loss of 35.76% for the year. Household tech giants such as Netflix, Meta, Zoom, Spotify and Tesla have all had particularly difficult years as well with their share prices falling in the range of 51% and 70%.

According to a Dec. 30 tweet by investment analyst Andreas Steno, “every single asset class” is down significantly in 2022, and real estate is soon to follow. The “safe as houses” real estate sector has started to show signs of pain, with the most recent data from the Federal Housing Finance Agency showing that U.S. house prices were stagnant through September and October.”

The FTX founder and former CEO will reportedly enter a not guilty plea to eight charges of fraud from U.S. authorities in person in Manhattan on January 3, according to a report from the Wall Street Journal.

[Bankman-Fried] was charged with: conspiracy to commit wire fraud on customers; wire fraud on customers; conspiracy to commit wire fraud on lenders; wire fraud on lenders; conspiracy to commit commodities fraud; conspiracy to commit securities fraud; conspiracy to commit money laundering; and conspiracy to defraud the United States and violate the campaign finance laws.

The one-time crypto mogul also faces charges from the United States Securities and Exchange Commission (SEC) and a lawsuit from the Commodity Futures Trading Commission (CTFC).”

See Also: Prosecutors unlikely to offer Sam Bankman-Fried a favorable plea deal, says lawyer
See Also: Sam Bankman-Fried Denies Moving Alameda-Linked Funds: ‘None of These Are Me’

“Given media reports of a cyberattack on FTX, and possible looting of FTX-controlled wallets by former employees, the Commission said in its statement it ‘determined that there was a significant risk of imminent dissipation as to the digital assets under the custody or control of [FTX].’

The Commission said that FTX founders Sam Bankman-Fried and Gary Wang no longer had access to the $3.5 billion in tokens that were transferred. Assets will be held until the Bahamas Supreme Court directs the Commission to deliver them to the customers and creditors who own them, the statement says.

In the statement, the Commission reiterated that it didn’t direct FTX to prioritize the withdrawals of Bahamas-based customers.”

“Mr. Park Mo, the vice president of Vidente, the largest shareholder of South Korean Cryptocurrency exchange Bithumb,was reportedly found dead in front of his home at 4 am, on the morning of Dec. 30. Prior to his death, Mr. Mo had been named as a primary suspect in an investigation launched by South Korean prosecutors for his alleged involvement in the embezzling funds at Bithumb-related companies, as well as, manipulating stock prices.

According to Money Today, the vice president of Vidente, the largest shareholder of South Korean cryptocurrency exchange Bithumb, committed suicide by jumping off a building while being investigated by South Korean prosecutors, suspected of corruption and price manipulation.”

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