Issue 25 – Taking time to be with my remaining apes
Legislators in the US and EU are paying more attention to crypto, and two projects get exploited for the second and third times.
Is it just me or has it felt like a weird week? I can’t quite put my finger on it, but it feels like the vibes are off somehow. The crypto world was relatively quiet, though governmental bodies in both the US and the EU were busy sifting through the crypto fallout of the past year and trying to figure out what on earth to do about it.
In the US
Congress has been busy talking about crypto lately, holding two crypto-related hearings this week and scheduling a third.
In the first, titled “Oversight of the Securities and Exchange Commission“, Congresspeople on the Financial Services Committee spent the better part of a day grilling SEC Chairman Gary Gensler. Broadly speaking, Republicans were livid with Gensler for both being too aggressive with regulation by introducing too many rules (“stifling innovation”), and also not doing enough to regulate the crypto industry and protect consumers from events like the FTX collapse. Democrats were more positive towards Gensler, thanking him for his work thus far and asking him to restate his position that the SEC has the authority (if not the resources) it needs to regulate the crypto industry.
Among the Congresspeople who came out swinging at Gensler was Representative Tom Emmer (R-MN), who has slammed Gensler repeatedly in the past, and who at the hearing accused him of being “an incompetent cop on the beat” who is “pushing American firms into the hands of the [Chinese Communist Party]".Notably, Emmer was one of a group of eight Congressmembers who sent a letter to the SEC pressuring them to back off on crypto investigations in March 2022 (pre-FTX collapse). He also benefited substantially from FTX donations. Emmer observed during the hearing that if blockchain-based companies complied with SEC rules, it would “kill these businesses”. This is one of the few places where I agree with Emmer, though he sees this as a flaw of SEC regulations whereas I see this as a clear issue with the industry.
I livetweeted (and livetooted) the hearing, if you want a play-by-play.
The following day, the House Financial Services Committee’s Subcommittee on Digital Assets, Financial Technology and Inclusion held a hearing titled “Understanding Stablecoins’ Role in Payments and the Need for Legislation“. The hearing was ostensibly supposed to discuss the draft stablecoin bill posted in mid-April, but Representative Maxine Waters (D-CA) delivered an opening statement in which she explained that the posted bill was not a product of the bipartisan discussions that were happening last fall, and instead reflected only the Republican position. “A lot has happened” since the fall, including FTX’s collapse, she said, and though she agreed stablecoin regulation was needed, she stated, “I think we’re starting from scratch… Disregard the bill that has been posted altogether.”
Next week, Congress will be holding yet another hearing, this time titled “The Future of Digital Assets: Identifying the Regulatory Gaps in Spot Market Regulation”.
In the EU
The European Parliament passed the Markets in Crypto Assets bill, known as MiCA, with a strong majority. This will unify crypto markets in the EU, making it easier for firms to operate in multiple EU countries. Among other things, it requires crypto companies to disclose various details about their token offerings, and sets requirements for stablecoin operators around reserves. The bill is fairly meek in its requirements of crypto companies, which of course means it has been embraced by the crypto industry. It will be interesting to see how this bill changes the crypto landscape in the EU, though we will have to wait some time: the rules don’t come into force for another year or so.
Separately, Parliament passed the Transfer of Funds regulation, which will require crypto companies to identify their customers for anti-money laundering purposes. It also subjects crypto companies to the Travel Rule, meaning crypto companies will need to capture identifying information about and potentially report transfers to self-hosted crypto wallets if they exceed €1,000.
In the courts
Reggie Fowler, the one-time football businessman who a year ago pled guilty to running money for Crypto Capital Corp beginning in 2018, is only now being sentenced. His charges include bank fraud, wire fraud, and operating an unlicensed money transmitting business in connection to CCC and the fraudulent transactions it processed for various cryptocurrency exchanges. Fowler also pled guilty to defrauding the Alliance of American Football. Although the last minute request from his lawyer to delay the sentencing a week was denied, only one victim ended up testifying at the hearing on April 21, and the sentencing was ultimately postponed to May. The 64-year-old Fowler faces up to 90 years in prison; his lawyers submitted a letter urging the judge to “not only spare Reggie Fowler the kind of sentence that, at his age, will result in him dying in prison, but also to spare him a prison sentence all together”. The government, on the other hand, has asked that he be sentenced to at least seven years imprisonment, and also want to see him forfeit over $740 million and pay $53 million in restitution.
Meanwhile, Yuga Labs (creators of the Bored Ape Yacht Club NFTs) have scored a big win in their ongoing trademark infringement lawsuit against Ryder Ripps. Ripps created an NFT project called RR/BAYC which uses the identical images used by the BAYC project. He has claimed that the collection is an “appropriation art” project to criticize and bring attention to alt-right and neo-Nazi dogwhistles in the BAYC artwork. However, the judge has just rejected most of those arguments, granting Yuga Labs’ motion for summary judgment as to its causes of action for false designation of origin and for cybersquatting. The judge also found that the Rogers test did not apply in the case of RR/BAYC and that Ripps’ usage of the trademarks was not protected under fair use. He rejected Ripps’ “unclean hands” argument, and also dismissed Ripps’ arguments that Yuga sent DMCA takedown requests in violation of the DMCA. The question of damages will be handled at trial, but things aren’t looking great for Ripps. I did a tweet thread going through the order in a little more detail.
Finally, the SEC has sued the Seattle-based Bittrex exchange. [W3IGG]. Several weeks prior, Bittrex had announced it would be closing up shop in the US by the end of April, citing a hostile “regulatory and economic environment”. [W3IGG]. That “hostility” apparently referred to the ongoing SEC investigation that has now culminated in a lawsuit alleging that Bittrex failed to register as a national securities exchange. Furthermore, the SEC alleges that Bittrex and its former CEO knowingly tried to dodge regulatory action by having the issuers of tokens listed on Bittrex scrub any references to investment activity or expectation of profit that might draw the attention of securities regulators.
The Web3 is Going Just Great recap
There were 8 entries between April 13 and April 21, averaging 0.9 entries per day. $44.51 million was added to the grift counter.
Taking time to be with my remaining apes
One of the most prolific Bored Ape collectors, Franklin, at one point owned more than 60 of the ape NFTs. However, he recently sold a significant number of them, explaining that he needed to pay off loans. He later explained, "I got rug pulled on an investment I put almost 2000 ETH into, thinking it was credible due to who else invested (not naming anyone for privacy reasons). Someone used our $$ as a casino gambling Ponzi and flushed it down the drain. Please learn any lessons possible from this." 2,000 ETH is worth around $4.23 million at today's ETH prices.
Some began to speculate that Franklin was trying to cover up gambling losses, as he was previously known to use the Rollbit crypto casino, and blockchain transactions revealed he had deposited more than 6,000 ETH (~$12.7 million) since the beginning of the year alone. Later in the day, he wrote another tweet: "For partial transparency: My personal PnL [profit and loss] of my Rollbit gambles is about -650 ETH total. So yes I lost a lot of money myself on Rollbit, but that didn’t require me to sell off today." At today's prices, 650 ETH is around $1.375 million.
Franklin expressed that he would be taking a break from NFT trading and social media following the incident: "I won't get involved in NFT trading/twitter for a while, and will just focus on my private life for the time being with my remaining apes." He later deleted his Twitter account.
Yearn suffers third million+ dollar loss
Exactly a month after Yearn Finance lost around $1.4 million due to ripple effects from the Euler Finance hack, the platform has again suffered a loss: this time for $11 million. An attacker was able to exploit a bug in older versions of the Yearn protocol to mint 1.2 quadrillion yUDST, a wrapped version of the Tether stablecoin. They then swapped the tokens for various other stablecoins worth $11 million.
Yearn Finance was hacked for $11 million once before, in February 2021 when one of their vaults was exploited.
Hundred Finance suffers second multimillion dollar hack
Yearn Finance was in good company this week with another project suffering a repeat attack. In March 2022, both Hundred Finance and Agave Finance were targeted with a flash loan attack by a hacker who stole a total of $12 million from the two projects.
Now, about a year after that incident, Hundred was again exploited. This time, they suffered a $7.4 million loss when an exploiter was able to manipulate the exchange rate between tokens and their interest-bearing equivalents on the Hundred Finance protocol.
Hundred later announced that the flaw seemed to come from the Compound Finance code they had forked, which contained a rounding issue. They warned that other projects using the Compound v2 codebase could be similarly vulnerable.
Hundred Finance attempted twice to contact the exploiter to negotiate a return of some of the funds, but went ignored. They have said they are now working with law enforcement to try to track down the attacker, and have offered a reward for information.
Blur NFT platform bug allows old bids to be accepted [link]
Crypto researcher identifies massive wallet draining operation [link]
Co-founders of company best known for Bella Hadid NFTs begin $77 million court battle against each other [link]
SEC charges Bittrex with operating an unregistered exchange [link]
Bitrue crypto exchange hacked for $23 million [link]
Worth a read
Wired, “Inside the Suspicion Machine" (archive) and This Machine Kills, “Automated Welfare – the Simple Violence of Complex Machines” (podcast)
An excellent piece of reporting out of Wired shines the spotlight on the AI system driving Rotterdam’s welfare system, and the absolute nightmare of discrimination-meets-arbitrary decisionmaking that it appears to be. I would also consider Jathan Sadowski’s and Ed Ongweso Jr’s discussion of the piece on their podcast to be required reading on this topic, because they do an incredible job of framing it in today’s political and technological context.
Al Jazeera. “‘Criminalising journalism’: Famous Salvadoran outlet to relocate”.
I know of Salvadoran newspaper El Faro primarily through its impressive coverage of Nayib Bukele’s regime (including the disastrous Bitcoin rollout), but the newspaper has been around for 25 years and is well known for its investigative journalism. Now it’s relocating to Costa Rica after it’s found itself in the crosshairs of the Bukele regime. “The dismantling of democracy, the lack of checks and balances on the exercise of power of a small group of people, the attacks against press freedom, and the shuttering of all transparency and accountability mechanisms gravely threaten Salvadorans’ right to be informed while considerable public resources are allotted to disseminating propaganda and disinformation,” wrote El Faro in an editorial statement explaining the move.
That’s all for now, folks. Until next time,
– Molly White
You know, that historically crypto-friendly CCP.
Incredible newsletter title this week.
I’m worried that the EU may end up legitimizing a bunch of pyramid and Ponzi schemes. It’ll be Albania all over again, just on a continental scale. I’d hope they’ll be like the UK and only approve a minority of companies and tokens but the problem is they’re only going to be as protected as their weakest jurisdiction due to “passporting”. Malta and the Baltic states will get most of the applications and approvals while very well resourced companies will go to France and Germany. And of course they have reverse solicitation so the Malta/Baltic crypto registrants will still get French and German customers. I cautioned someone who messaged me to celebrate the passage that the law is just a stamp of approval - the outcomes with crypto still remain to be seen.