SBF (Always want to read that as “shitbag fucker”) pleaded not guilty today.
goofy
January 4, 2023, 4:13am
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Today’s Matt Levine (what did I do without him over the holidays!) had a good crapto story, about a guy getting arrested for doing what in any other market would be lolobv criminal market manipulation, but in crapto, the code let him do it!
But let us change the facts slightly. Instead of nickel, let’s do this trade in crypto, on a decentralized finance exchange, and let’s trade the exchange’s own crypto token. We’ll go on Mango Markets, a DeFi trading platform, and trade futures on Mango’s own MNGO token. Here we can, sort of, solve all of these objections:
The market might be constructed poorly enough that you could actually get away with doing this. It might let you open accounts without any know-your-customer checks or any recourse to you, it might let you withdraw money instantly against irrational price moves, it might be illiquid enough that you could trade with yourself and push up prices dramatically without spending much money.
“Ehh it’s on the blockchain, decentralized finance, no laws apply,” you might say to yourself. Not legal advice! We will come back to this one!
Absolutely no one makes any real-world use of MNGO tokens whatsoever; nobody is deprived of batteries or bathroom fixtures because you briefly cornered some token market.
I don’t want to endorse these arguments, but one could. You might say: Look, trading MNGO tokens absolutely is , only, a dumb game. It has no consequences in the real world, and also no constraints from the real world. Mango’s own rules — the code that determines how you set up an account on Mango, how you trade futures, how much money you can take out, etc. — are the only rules that apply to this game, and if those rules allow you to do this thing then you can do it. “That’s market manipulation,” someone might object, but you will reply that that is an irrelevancy, a false analogy to other markets. This market is just a game, and the rules of this game are just what is encoded in the market’s protocols; “market manipulation” is a concept that comes from different markets with other economic purposes. Cornering the nickel market is bad, for people who need nickel for their kitchens; cornering the MNGO market is morally and economically neutral.
One problem with this line of thinking is that … it’s still market manipulation? Like, if you do this, then Mango and its other customers will lose money, and you will be taking it from them, and they will feel aggrieved. Many of the reasons that market manipulation is bad in the real world — it feels unfair, it undermines confidence in markets, it takes advantage of smaller less sophisticated traders — also apply here. will try to put you in jail :
A cryptocurrency trader accused of rigging the Mango Markets exchange and attempting to steal $110 million was arrested in Puerto Rico and charged with fraud by prosecutors in New York.
Avraham Eisenberg allegedly used two Mango Markets accounts he controlled to manipulate the price of Mango perpetual swaps, which are futures that allow traders to keep positions open. All he needed was 20 minutes to push up the price of the swaps by 1,300%, according to a criminal complaint unsealed [last] Tuesday.
Back in October, Eisenberg was quite proud of all this. Before doing the trade, he previewed it in some Discord posts, describing it succinctly as “You take a long position. And then you make numba go up.” After doing the trade, he tweeted a “ statement on recent events ” that I once wrote “might be up there with Satoshi Nakamoto’s Bitcoin white paper as one of the great foundational documents of crypto”:
I was involved with a team that operated a highly profitable trading strategy last week.
I believe all of our actions were legal open market actions, using the protocol as designed, even if the development team did not fully anticipate all the consequences of setting parameters the way they are.
Unfortunately, the exchange this took place on, Mango Markets, became insolvent as a result, with the insurance fund being insufficient to cover all liquidations.
“Using the protocol as designed” just meant that the code let him do that, so he did. “All of our actions were legal open market actions” apparently meant that he hadn’t been arrested yet. Now he has been.
You are trading Mango tokens on Mango Markets! Doesn’t that sound fake? If you find a cool button to press to “make numba go up,” doesn’t it seem like you could press it? Like it would just be fun and consequence-free? And yet the people who did that keep ending up in real jail.
Levine GOAT
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goofy
January 5, 2023, 7:15pm
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Crapto update! If you deposit your hard-earned crypto into a “bank” with an “earn” product promising 18% returns, and that “bank” has a CEO who says things like this:
Mashinsky told Bloomberg Businessweek that Celsius is able to pay such high yields because it passes along most of its earnings to its users. He said it’s the traditional financial system that’s ripping people off by taking their deposits, using them to make money, and then claiming it can only pay tiny interest rates. “Somebody is lying,” Mashinsky said. “Either the bank is lying or Celsius is lying.”
…and that “bank” ends up bankrupt and owing its remaining assets to creditors, then whose property were the deposits? Were they the property of the depositors, or the property of Celsius?
Levine has the answer:
A lot of crypto shadow banks went bankrupt last year, and people did storm in to demand that they open the vaults and give the money back, due to a series of misconceptions that we also talked about last month. (The main ones: That the crypto was in a vault, or that a crypto shadow bank is somehow a bank backed by regulation or deposit insurance or whatever.) We talked about this because some customers of Celsius Network LLC, a bankrupt crypto shadow bank, had filed a motion in bankruptcy court arguing that they owned the crypto that they had deposited with Celsius as part of its “Earn” program, where Celsius took their crypto and invested it and paid high returns for a while and then lost the crypto and went bankrupt.
Celsius still has some crypto left, and those customers want a declaration that it belongs to them, somehow, rather than being part of the bankruptcy estate that can be used to pay them and any other Celsius creditors. This struck me as a crazy argument, and I guess I was right? Yesterday the judge in the bankruptcy case ruled against the customers :
If the cryptocurrency assets in the Earn Accounts are owned by the Debtors, the Account Holders are unsecured creditors and their recovery depends on the distributions to unsecured creditors under a confirmed chapter 11 plan, or under the Bankruptcy Code’s priority rules in the event of liquidation. A fundamental principle of the Bankruptcy Code is equality of distribution. There simply will not be enough value available to repay all Account Holders in full. If only some Account Holders prevail with their arguments that they own the cryptocurrency assets in their accounts, they hope to recover 100% of their claims, while most of the Account Holders are left as unsecured creditors and may recover only a small percentage of their claims. …
The crux of many objections to the Amended Motion is that Celsius’s ubiquitous use [in the terms of use that its customers agreed to] of the word “loan,” “lending,” and other variations sits in direct conflict with the singular clause transferring all title and rights of ownership to the Debtors. These responses argue that this creates an ambiguity within the four corners of the contract. But the use of the term “loan,” or variations of that term, do not contradict transfer of ownership of cryptocurrency assets to Celsius. The Account Holders argue that a layperson’s understanding of the term “loan” means the Account Holder retains ownership of their Earn Assets but temporarily allows the use of the assets by the Debtors —but the Court cannot ignore the plain and clear language in the Transfer of Title Clause.
Further, even if the Court found that Account Holders loaned digital assets to Celsius, Account Holders would still be unsecured creditors. It is blackletter law that a loan of money or property to another creates a debtor-creditor relationship. … And absent a perfected security interest in tangible or intangible property, in the event of the debtor’s bankruptcy, the creditor holds only an unsecured claim.
I don’t know what to say except “yes, obviously, of course.” If you lend money to a crypto firm that promises you an 18% return, and it goes bankrupt, you don’t get your money back! That’s why it promised you an 18% return! What else could possibly have been going on here?
This isn’t nearly the best part of today’s newsletter.
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Some people are saying, up only in 23.
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Don’t call it a comeback…
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goofy
January 10, 2023, 6:23pm
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Coinbase cutting 20% of their workforce, after already cutting 18% last year (combined, that’s about 1/3 of their workforce axed in about 7 months):
could coinbase go busto? seems impossible
goofy
January 10, 2023, 6:43pm
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They shouldn’t, as afaik they don’t do the kinds of financial-house-of-cards trading (or any trading at all?) that other busto firms did, but certainly their ability to make money goes up in
pvn
January 10, 2023, 10:32pm
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zero chance, they’re feeding data to the feds so they’ll get a bailout just to keep the info flowing
ICE is now able to track transactions made through nearly a dozen different digital currencies, including bitcoin, ether, and tether.
Est. reading time: 4 minutes
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Jman220
January 12, 2023, 4:22pm
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Lol. He’s a fucking idiot. But also it looks like he’s trying to set the stage for a defense of blaming Ellison (which is probably the only real defense he has). Holy shit at speaking publicly that much though when you have those kind of charges pending.
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Their entire business model relies on the premiums they charge to those who are willing to trade crypto. Coinbase needs a certain trading volume in order to cover operating costs.
Their margins shrink when crypto drops so their financial statements dont mean as much when they cant control their fate.
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goofy
January 12, 2023, 11:20pm
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Winklevii gonna go to jail
The Securities and Exchange Commission on Thursday charged crypto firms Genesis and Gemini with allegedly selling unregistered securities in connection with a high-yield product offered to depositors.
Gemini, a crypto exchange, and Genesis, a crypto lender, partnered in February 2021 on a Gemini product called Earn, which touted yields of up to 8% for customers.
According to the SEC, Genesis loaned Gemini users’ crypto and sent a portion of the profits back to Gemini, which then deducted an agent fee, sometimes over 4%, and returned the remaining profit to its users. Genesis should have registered that product as a securities offering, SEC officials said in a complaint filed in the Southern District of New York.
Jman220
January 12, 2023, 11:25pm
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I think this is a civil complaint. They should go to jail, but color me skeptical that it comes to that.
when people can’t make money in crypto, so it’s not surprising to see them acting like most other tech companies (albeit jumping to round 2 of layoffs a bit faster than others).
