The DOJ Doesn't Like a $25M MEV Exploit
Weekly News Recap: 🏛️ Senate votes to overturn SEC rule, 🚀 Wisconsin's big Bitcoin ETF buy, 🎮 Roaring Kitty's return boosts Solana GME, and more!
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In this episode, Evan Zinaman, founder and principal at Trailbreak, delves into the first-of-its-kind case of the Bueno brothers, who face Department of Justice charges for exploiting Maximal Extractable Value (MEV) in a cryptocurrency scheme. Accused of manipulating transaction ordering to create an arbitrage opportunity, the brothers are charged with conspiracy to commit wire fraud as well as wire fraud itself.
Zinaman explores the broader implications of MEV exploitation, and addresses critics who say that the MEV exploiters just got a taste of their own medicine, and the need for block building participants to consider their legal and compliance responsibilities.
Listen to the episode on Apple Podcasts, Spotify, Pods, Fountain, Overcast, Podcast Addict, Pocket Casts, Castbox, Amazon Music, or on your favorite podcast platform. Or watch it on YouTube.
Weekly News Recap
Tornado Cash Developer Sentenced to 64 Months in Prison for Money Laundering
A Dutch court has convicted Alexey Pertsev, a developer of Tornado Cash, for laundering $2.2 billion through the crypto mixer platform. Pertsev, a 31-year-old Russian living in the Netherlands, received a sentence of five years and four months. The court ruled that Tornado Cash was primarily a tool for criminals, facilitating illicit activities.
Judge Henrieke Slaar said of Tornado Cash that "the criminal user is fully facilitated." Pertsev's defense argued that as an open-source developer, he couldn't control how Tornado Cash was used. However, this argument was rejected.
The verdict is expected to significantly impact the development of privacy-focused DeFi tools, creating a "chilling effect" on open-source projects. Tornado Cash was sanctioned by the U.S. Treasury in August 2022 for its role in laundering funds stolen by North Korean hackers.
On Thursday, Pertsev appealed his conviction, seeking to challenge the guilty verdict and potentially serve his sentence at home during the appeal process.
Senate Votes to Overturn SEC's Crypto Accounting Rule
The U.S. Senate voted 60-38 on Thursday to overturn the SEC's Staff Accounting Bulletin (SAB) 121, which sets accounting standards for firms that custody cryptocurrency. This decision follows a similar vote in the House, but the latest resolution is expected to be vetoed by President Joe Biden.
SAB 121, introduced in 2022, mandates that firms holding crypto must list customer holdings as liabilities. Critics argue that this rule could hinder banks from managing digital assets.
The White House maintains that rescinding the bulletin would destabilize financial markets. The Blockchain Association wrote on X, “The threat of a presidential veto denies the fact that there is a growing awareness among the voting public, particularly young people, that crypto is something our elected officials should care about.”
President Biden’s veto would require a two-thirds majority in both chambers to be overridden, a challenging feat given the current vote counts.
Wisconsin Makes Historic Bitcoin ETF Investment
The State of Wisconsin Investment Board (SWIB) has made a groundbreaking purchase of nearly $100 million worth of BlackRock’s spot Bitcoin ETF (iShares Bitcoin Trust) in the first quarter of the year. This acquisition of 94,562 shares marks the first instance of a state-level institution publicly declaring such a significant investment in bitcoin ETFs.
In addition to BlackRock's ETF, SWIB also acquired shares of Grayscale's Bitcoin Trust (GBTC) valued at around $64 million. Together, these investments total over $162 million, underscoring the growing institutional interest in bitcoin as a viable asset.
"Normally you don't see large institutions like state pensions investing in new ETFs so quickly, but these are exceptional launches," wrote Eric Balchunas, Senior ETF Analyst at Bloomberg, on X. "Expect more institutions to follow suit as they often move in herds."
Roaring Kitty’s Return Fuels Solana GME Surge
Keith Gill, also known as Roaring Kitty, has made a dramatic return to social media, igniting a massive rally in Solana’s GME memecoin. Gill, famous for his role in the GameStop trading frenzy of 2021, posted a meme on X after nearly three years of silence, sending the GME token soaring by 1,418% within 24 hours.
GME on Solana, inspired by GameStop’s stock ticker, surged from $0.001 to a high of $0.015 before stabilizing around $0.0074. The token saw a trading volume of over $101 million, making it the fourth most-traded asset on the Solana network, according to blockchain analytics firm Birdeye.
Gill’s post, a meme of a gamer getting serious, symbolized his return and quickly went viral, attracting over 26 million views. This resurgence of activity also lifted other related tokens, such as GaemStap and GME on the Base network.
Gill’s reappearance has not only influenced the crypto market but also led to significant gains in traditional finance. GameStop’s stock jumped 74% to $30.47, reflecting the widespread impact of his online presence.
Roaring Kitty’s enigmatic posts, featuring scenes from popular movies and TV shows suggesting that more activity could be on the horizon, have left his followers eager for what’s next.
Biden Shuts Down Chinese Crypto Mining Near U.S. Missile Base
President Joe Biden has ordered the shutdown of a Chinese-owned cryptocurrency mining operation situated near Warren Air Force Base in Wyoming, citing national security concerns. The MineOne facility, located within a mile of the base housing Minuteman III nuclear missiles, was found to be using foreign-sourced technology, raising significant security issues.
The White House stated that the British Virgin Islands-registered company, predominantly owned by Chinese nationals, initiated operations without proper clearance from the Committee on Foreign Investment in the United States (CFIUS). This oversight triggered an investigation following a tip-off.
Secretary of the Treasury Janet Yellen said, "This action underscores our commitment to ensuring foreign investments do not compromise sensitive U.S. military sites or involve critical technologies."
The president's order mandates the removal of all mining equipment from the site and authorizes the attorney general to enforce this directive.
Meanwhile, the U.S. Commodity Futures Trading Commission initiated a proposal to ban trading on political events, reflecting a lengthy legal battle to protect the public interest against prediction market trading.
In regulation-related news, the SEC refuted Coinbase's demand for completely new crypto regulations, arguing the existing rules are workable and don't need an overhaul. In this same week, which has been packed with controversy around crypto and political issues, Coinbase-initiated nonprofit Stand With Crypto launched a PAC to support political candidates favorable to the crypto community, with plans to back five congressional races.
Former FTX Executive Ryan Salame Seeks 18-Month Sentence
Ryan Salame, a former executive at FTX Digital Markets, has requested a sentence of no more than 18 months in prison. Salame pleaded guilty to conspiracy charges related to illegal political contributions and operating an unlicensed money transmission business.
Despite not being required to cooperate as part of his plea deal, Salame provided assistance to prosecutors in the case against former FTX CEO Sam Bankman-Fried, who was sentenced to 25 years. Salame's lawyers emphasized his lack of involvement in the misappropriation of customer funds and his belief in the legitimacy of FTX.
Salame's legal team presented over two dozen letters of support, including testimonies from former colleagues. His sentencing hearing is scheduled for May 28.
On Thursday, former Alameda Research co-CEO Sam Trabucco submitted a character reference for Ryan Salame ahead of his trial. Trabucco, who described Salame as his best friend, acknowledged Salame's illicit activities but called for fair consequences. Highlighting their deep and unlikely friendship, Trabucco emphasized Salame's positive qualities and significant impact on his life, urging the court to consider Salame's character in addition to his actions when determining his punishment.
Pump.Fun Exploited Through Flash Loan Attack
Pump.Fun, a Solana-based memecoin launchpad, suffered a significant exploit by a former employee who used flash loans to manipulate bonding curves for new tokens. The attacker, identified as "Stacc," publicly claimed responsibility, citing personal distress as motivation.
The exploit involved using flash loans to quickly buy out bonding curves and repay the loans before the tokens launched on Raydium, causing Pump.Fun to lose around 12,000 SOL (over $2 million). In response, Pump.Fun paused trading and upgraded its contracts to prevent similar attacks.
Despite the attack, the team assured users that bonding curve contracts with locked LPs on Raydium remain secure, and all connected wallets are safe.
Degen Chain Suffers Two-Day Outage
Degen Chain, an Ethereum Layer-3 blockchain, experienced a 53-hour outage that halted block production and rendered decentralized applications and bridges unusable. The interruption began on May 12 when Conduit, a rollup infrastructure platform, made a custom configuration change that caused disruptions.
The network is back online as Conduit resynchronized its nodes from the genesis block. Conduit filtered transactions from five addresses with millions of failed transactions to expedite the network's recovery.
A detailed post-mortem of the incident will be provided by Conduit, which acknowledged support from Offchain Labs and Syndicate in resolving the issues.
BlockTower Capital Hit by Major Hack, Funds Missing
BlockTower Capital, a prominent crypto investment firm managing $1.7 billion in assets, has fallen victim to a significant hack, resulting in substantial losses from its main hedge fund. According to sources familiar with the situation, the firm has yet to recover the stolen funds, and the perpetrator remains unidentified.
In response, BlockTower has enlisted blockchain forensics experts to investigate the breach and trace the stolen assets. The firm recently informed its limited partners about the incident but declined to comment publicly.
In related news, Sonne Finance on Optimism was exploited for $20 million due to a vulnerability in forks of Compound Finance. All markets on Optimism were paused. A list of exploiter wallet addresses was published, and efforts are underway to recover the funds.
Cypher Protocol Insider Admits to $300K Theft
The Solana-based decentralized exchange Cypher Protocol is grappling with internal betrayal, as a core contributor, known pseudonymously as Hoak, confessed to stealing approximately $300,000 from a fund established to recover from a prior exploit. Hoak, who had stayed on to help rebuild the project after a $1 million hack in August, admitted to taking the funds and gambling them away.
Hoak executed 36 withdrawals from the recovery wallet, converting assets such as ETH, RLB, BONK, ORCA, and wrapped SOL into USDT, USDC, and SOL before transferring them to Binance. "I know likely nothing I say or do will make things better — perhaps other than rotting in jail," Hoak stated, citing a "crippling gambling addiction" as the motive behind his actions.
"This is incredibly saddening to me," said Barrett, another core contributor who disclosed the theft on social media and has reported Hoak to law enforcement. "I never thought this would be a possibility, having a core contributor who stayed on after the exploit to try and rebuild the project be the one who rugged funds from the redemption contract."
The Cypher Protocol team is now working with authorities to address the theft and ensure justice is served.
Circle Moves Legal Base to U.S. Ahead of Planned IPO
Circle, the issuer of the USDC stablecoin, has filed to relocate its legal domicile from Ireland to the United States, as first reported by Bloomberg. This move comes ahead of Circle's planned initial public offering (IPO) in the U.S.
The company's spokesperson confirmed the filing but declined to provide further details on the decision. Circle CEO Jeremy Allaire emphasized the strategic importance of this shift. "Positioning ourselves in the U.S. aligns with our long-term vision for growth and regulatory clarity," Allaire said.
USDC, Circle's stablecoin, holds the position of the second-largest in the market, with a market cap of approximately $33 billion, trailing behind Tether's USDT.
Binance Monitorship Assigned to Forensic Risk Alliance
The U.S. Department of Justice (DOJ) has appointed Forensic Risk Alliance (FRA) to monitor Binance Holdings Ltd. for three years following its plea deal for violating money-laundering regulations and trade sanctions. Binance agreed to pay $4.3 billion in penalties and CEO Changpeng Zhao stepped down, receiving a four-month prison sentence.
FRA was chosen over Sullivan & Cromwell, which faced criticism for its handling of the FTX bankruptcy. As monitor, FRA will ensure Binance complies with the plea agreement, accessing internal records and reporting to the government.
