Did the Curve Hack Expose DeFi's Achilles Heel? 👀
Weekly news recap: 🔓 Bitfinex hacker confesses, 🔄 FTX's restructuring plan, ⚖️ Binance may face fraud charges, and more!
On this Friday episode of Unchained, Laura talks with Frax Finance founder Sam Kazemian.
In the aftermath of the shocking $50 million Curve exploit, Sam examines the systemic vulnerabilities exposed by this event. He delves into the unique aspects of the hack, the cascading effects it had on major lending platforms, and the proposed solutions to mitigate future crises.
“I think DeFi could just be a little bit more autonomous,” he said.
Will this experience drive significant changes in DeFi or prove it flawed?
Weekly News Recap
Razzlekhan’s Husband Says He Hacked Bitfinex
Ilya "Dutch" Lichtenstein admitted to being the original hacker behind the 2016 Bitfinex cyberattack, a theft that grew to a worth of $4.5 billion. The confession came during a plea hearing in Washington, D.C. on Thursday, where Lichtenstein pleaded guilty to laundering the stolen Bitcoin.
His wife, Heather Morgan, also known as the social media rapper "Razzlekahn," is set to enter her own guilty plea. The couple had been arrested in February 2022, with the Department of Justice seizing more than 94,000 of the hacked Bitcoin, marking the largest seizure in DOJ history.
The couple's cooperation with authorities, including providing additional wallet addresses holding more stolen funds, could potentially influence their sentencing.
DOJ Looks to Cancel SBF’s Bail
The U.S. Department of Justice this week sought to revoke the bail of former FTX CEO Sam Bankman-Fried amid allegations of witness tampering and leaking confidential information.
The DOJ claims that SBF attempted to undermine the upcoming testimony of former Alameda CEO Caroline Ellison by leaking her private diary entries to a New York Times reporter.
SBF's legal team has countered these allegations, arguing that their client's contact with the reporter was a legitimate exercise of his First Amendment rights. They maintain that the information shared was already known to the reporter and was not produced in discovery.
John Reed Stark, former chief of the U.S. Securities and Exchange Commission’s Office of Internet Enforcement, commented on the situation, saying that Judge Lewis Kaplan faces a tough decision.
He could view SBF's actions as an effort to improperly influence witnesses and choose to either modify his bail conditions or revoke his bail entirely.
FTX Unveils Restructuring Plan
The bankruptcy estate of crypto exchange FTX has unveiled a draft reorganization plan that includes a potential restart of the crypto exchange for non-U.S. customers.
The plan proposes to categorize claimants into specific groups, with offshore exchange users classified as "dot-com customers" and U.S. users as "U.S. customers". Non-U.S. users could potentially receive non-cash consideration in the form of equity or tokens in a new offshore exchange.
However, the plan has been met with criticism from the official committee of unsecured creditors. They expressed disappointment at not being consulted on the plan, saying that the proposal was more a collection of ideas than a concrete plan. They have called for control of any post-reorganization company to be placed in the hands of "qualified parties" selected by the creditors.
The committee also criticized the high professional fees incurred during the bankruptcy process, which have already exceeded $330 million, making it one of the most expensive corporate bankruptcies in history.
Judge Disagrees With Ripple Ruling
In a significant development this week, a U.S. District Judge denied a motion to dismiss the case against Terraform Labs, brought by the SEC, which alleges that TFL’s crypto assets qualify as securities. Judge Jed Rakoff rejected Terraform's argument that a recent decision in the SEC's case against Ripple Labs invalidated the agency's case against them.
In his order, Judge Jed Ray-koff disagreed with the Ripple decision, stating that he declines to draw a distinction between tokens sold directly to institutional investors and those sold through secondary market transactions to retail investors. This stance contradicts the Ripple ruling, where Judge Analisa Torres deemed that XRP sold to retail investors on exchanges did not qualify as securities transactions.
Justin Browder, a partner at Willkie Farr & Gallagher, commented on Twitter that Judge Ray-koff’s opinion in the Terra case is "far from a complete departure from the Ripple holding." adding… “He agrees with the fundamental premise in Judge Torres’s decision—that tokens themselves are not investment contracts.”
In related news, Terraform Labs was granted permission by a U.S. federal judge to subpoena FTX for information pertinent to its defense against the SEC enforcement action.
Binance May Be Charged With Fraud
Binance, the world's largest cryptocurrency exchange by volume, may face U.S. Department of Justice fraud charges, according to a Semafor report. However, officials are reportedly cautious due to the potential for widespread industry disruption, similar to the aftermath of the FTX collapse. To avoid such a scenario, other options are under consideration.
These allegations have caused a drop in the value of Bitcoin and Binance's BNB token. The development adds to Binance's existing legal woes, as it was previously sued by the CFTC and the SEC for allegedly evading U.S. laws.
CZ Nearly Shut Down Binance.US
In other Binance news, reports emerged this week that Binance CEO CZ considered shutting down the company's U.S. subsidiary to protect its global operations. The decision was reportedly put to a vote by the board of directors, but Binance.US CEO Brian Shroder opposed the move, fearing the impact on customers.
Meanwhile, Binance has denied allegations of conducting billions of dollars worth of transactions in China, where cryptocurrencies are banned. The company stated following a Wall Street Journal report that… "The Binance.com website is blocked in China and is not accessible to China-based users."
3AC Cofounder Challenges US Court
In a surprising turn of events, Kyle Davies, cofounder of the collapsed crypto hedge fund Three Arrows Capital, renounced his US citizenship and declared himself a full citizen of Singapore. The move by Davies is seen as an attempt to distance himself from the jurisdiction of US courts amid ongoing legal proceedings.
A subpoena was recently issued by 3AC's liquidators, who are seeking information about the fund's collapse. As a non-US citizen, Davies and his legal team argue that he is not subject to the authority of US courts.
This development adds another layer of complexity to the legal proceedings around 3AC's bankruptcy, with the fund owing creditors an estimated $3.5 billion. The next hearing in the 3AC bankruptcy case is scheduled for Aug. 8.
BALD Token Sparks Controversy and Speculation
The BALD token, a new meme coin launched on Coinbase's Layer 2 network Base, saw a dramatic fall of 90% in value, after a meteoric rise in the preceding days. The plunge followed allegations of a 'rug pull' by the token's developer, who reportedly removed a significant portion of its liquidity from the decentralized exchange LeetSwap.
The developer, who remains pseudonymous, denied selling any tokens, stating that they only added and removed two-sided liquidity. However, this explanation did not quell the concerns of investors, with some arguing that adding two-sided liquidity when the price increases is effectively the same as selling tokens.
The BALD developer replied to this claim on Twitter with only one word - correct.
BALD’s sudden rise and fall has sparked a wave of speculation, with some pointing fingers at wallet activity linked to Sam Bankman-Fried’s Alameda Research and a halt in said activity during Bankman-Fried's recent incarceration.
On Thursday, Crypto sleuth zachXBT said he potentially found the person behind BALD. In a series of tweets, he showed evidence that the BALD deployer address was linked to crypto Twitter influencer Milkyway, who earlier this year had written: “Part of me wants to do an experiment which wouldn’t be a rug, but I won’t because in the eyes of some it would make similar things which are definitely rugs seem more legit.”
Despite the controversy, the Base network itself saw a surge in Total Value Locked, reaching over $60 million ahead of its upcoming public launch.
SEC Charges HEX Kingpin Richard Heart
The SEC filed charges against Richard Heart, the founder of Hex, PulseChain, and PulseX. The SEC says Heart raised over $1 billion through unregistered crypto offerings and defrauded investors out of $12.1 million to fund a lavish lifestyle, including purchasing the world's largest black diamond.
Heart, a US citizen believed to be residing in Helsinki, Finland, is accused of promoting his offerings as a "pathway to grandiose wealth" on YouTube and other platforms. The SEC claims that Heart's disclaimers that his offerings were NOT securities were false, including his assertion that Hex was capable of 38% annual returns.
The SEC lawsuit seeks civil fines and the clawback of gains from alleged wrongdoing that began in late 2019.
Consensys Faces Legal Challenge Over MetaMask
In a recent lawsuit, entrepreneur Joel Dietz accused blockchain software firm Consensys of appropriating the idea for MetaMask, the most popular web-based crypto wallet.
Dietz claims he initially developed the intellectual property for an in-browser crypto wallet in a project called Vapor in 2014. He alleges that Aaron Davis, whom he recruited for coding help, went on to found MetaMask with Dan Finlay.
Consensys, however, refutes the allegations. A spokesperson said: "Joel Dietz is not a founder of MetaMask, has no relation to MetaMask or any of its technology and we look forward to the court promptly disposing of these frivolous claims."
FUN BITS 😁
A New York Times report revealed that besieged US Congressman George Santos used his political connections to promote an alleged crypto scam. It’s better if you hear it from comedian Ginny Hogan.
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