Molly White's Citation Needed - Issue 60 – Raging in favor of the machine

Episode Date: June 24, 2024

The crypto industry jumps on the Trump train. Originally published on June 24, 2024.

I'm Molly White, and you're listening to the audio feed for the Citation Needed Newsletter. You can see the text version of the newsletter online at citation needed.news. Issue 60, Raging in Favor of the Machine. The crypto industry jumps on the Trump train. This issue was originally published on June 24, 2024. I am back stateside after a quick jaunt to Switzerland for the This Next Thing conference, where I was honored to speak as Anil Dash's reciprocal pair. We both spoke about the technology industry's growing resistance to criticism,

and I tried to end on an optimistic note by highlighting the opportunity I truly believe exists for those who want to build technology that serves people, not the other way around. I'll share the recording if and when I'm able to. In the meantime, I've included in the email and web versions of this newsletter some photos of beautiful Pontresena, Switzerland. They don't make mountains this big where I come from, so I spent most of the time they are staring upwards, trying to shake the feeling that someone had stood up a gigantic, two-dimensional movie backdrop just beyond the hills. This was the first conference I've attended in a while, where something massive didn't happen while I was away.

After FTX exploded while I was at Web Summit in 2022, and Silicon Valley Bank melted down while I was at South by Southwest in 2023. Apparently, I am losing my touch as a sort of human EMP weapon that gets fired off in the general direction of the FinTech industry whenever I attend a conference. Shame. In the courts, Terraform Labs and Doe Kwan have reached a $4.5 billion settlement with the SEC, with Kwan personally on the hook for $200 million of it, and Terraform responsible for the rest. The SEC will see very little, if any, of this fine, though.

Terraform Labs claim to have around $150 million in assets when they filed for bankruptcy, and that's going to go to creditors before it goes to fines. Kwan will be banned from trading securities in the United States, although that's among the least of his worries, as he faces criminal trials in both the U.S. and South Korea. Court filings in the SEC case against Terraform Labs and Doquan have revealed that Montenegrin Prime Minister Maloico Spich had personally invested $75,000 in Terraform Labs' Luna tokens in April 2018, leading to questions over whether Doquan perhaps fled to Montenegro for this reason. Spich, a former banker, had invested prior to his appointment as prime minister. According to a local Montenegrin newspaper, his holdings at one point had grown to almost $90 million. Kwan is still in Montenegro, as ever, awaiting extradition.

Gemini has been forced by the New York Attorney General to return $50 million to its customers of its failed Earn Program, and they're prohibited from offering crypto lending in New York State. This amount is on top of the $2 billion settlement, the New Yorker, Attorney General and the bankrupt Genesis platform reached in mid-May, which will go towards Genesis' creditors. Gemini earned customers are among the Genesis creditors as the two firms partnered on the program. Thanks to the two settlements, the New York Attorney General has said that Gemini's defrauded investors will be fully reimbursed on an in-kind coin-for-coin basis. Nigeria has dropped the tax evasion charges they had originally brought against the

finance executives Tigran Gambarian and Nadim Andjurwala, though the country is still pursuing the company on that basis. Gambarian and Andurwala still face money laundering charges. Meanwhile, a high court in the country has dismissed a human rights lawsuit brought by Androhawala over his detention due to lack of legal representation. Undriwala had escaped his Nigerian captors in March, but was detained in Kenya in April and is awaiting extra. tradition back to Nigeria. Gambarian has also filed a human rights case, which is ongoing. Meanwhile, Gambarion has been diagnosed with malaria and pneumonia after collapsing during a court hearing. His lawyers and family have expressed concern that he is not receiving adequate

medical care and have pled with the U.S. government to do more to secure his freedom. Two U.S. representatives, French Hill, a Republican from Arkansas, and Chrissy Hulahan, a Democrat from Pennsylvania, have since visited Gambarian in prison and urged the U.S. Embassy in Nigeria to advocate for his release. Two men were charged with operating the Empire Market Dark Web Marketplace, which prosecutors say processed more than $430 million in transactions by people purchasing drugs, hacking, and counterfeiting services, and other illicit goods and services. Law enforcement seized $75 million in cryptocurrency, as well as cash and precious metals. The two face up to life in prison. Ripple's CEO Brad Garlinghouse will go to trial in a civil lawsuit

from a customer who alleges he violated California securities laws by making misleading statements when he said in a 2017 interview that he was, quote, very, very long, end quote, XRP, despite having reportedly sold millions of the tokens that year. Garlinghouse has publicly claimed that the plaintiff didn't buy XRP from Ripple, can't say if he heard the interview before purchasing the tokens, and only owned a few hundred XRP, which currently trade for around 50 cents each. Quote, this was a clear example of the trolls that unsuccessfully tried to take advantage of

the U.S. legal system and distort statements to seek hundreds of, of millions in class action settlements, said Garlinghouse on Twitter. Four other class action complaints in the case against Garlinghouse were dismissed. In bankruptcies, FTCS customers are continuing their fight to get their bankruptcy claims paid out in crypto rather than in U.S. dollars. The FTX customer ad hoc committee is urging the court to reject the bankruptcy plan, or if it goes to a vote, for creditors to vote against it. Ad hoc committee members to Neil Cavuri said of the proposed plan, quote,

you can't just say, oh, it's stolen and it's gone. I mean, that's not how the law works. You can't be like, we don't have it, so we're just going to give you back the price at which we stole your coins, and we're going to keep that extra profit for ourselves, using it to pay themselves and also pay Alameda lenders and also government fines. Many FTCS customers feel similarly to Cavori and have been particularly annoyed at claims from the FTC's bankruptcy estate, widely repeated in the media, that FTCS creditors are getting their money back plus interest. However, other creditors are satisfied with a proposed plan, hoping to get some assets return to them sooner than later. Quote, I still fail to understand how you want them to return

one-to-one cryptos when they simply don't have them. There is no money to return one-to-one crypto. there wasn't even 1% of BTC deposits in BTC, wrote one person on Twitter. Another agreed, quote, Yeah, I'm going to be so angry if the deal falls through and we get nothing, because these guys are trying to get money that doesn't exist. In governments and regulators. Many folks were delighted by an announcement from consensus that the SEC had informed them that the agency had completed its investigation

into whether sales of ether might themselves be securities transactions, and that they would not be bringing charges against consensus. This investigation had prompted a lawsuit from consensus against the SEC in April, which is still ongoing. Despite the news about the ETH investigation, it seems likely that the SEC is still planning to bring action against consensus pertaining to their popular metamask wallet software, and Consensus' lawsuit is going on the offensive.

Though some have interpreted this as a decree by the SEC that Ether is not a security, full stop, that seems a bit of a broad interpretation of a decision by the SEC not to pursue an enforcement action specifically against consensus and against their sales of ETH. Some lawyers interviewed by the Block noted that the SEC could still bring a case against other ETH issuers, and also raised the possibility that the SEC only decided against pursuing the case because they didn't want to take on the litigation risk. Elsewhere, Consensus has joined the blockchain lobbying group Chamber of Digital Commerce in urging the IRS to change their proposed digital asset reporting form, which Consensus says,

quote, would single-handedly destroy U.S. companies that publish blockchain user interfaces like self-custody wallets, due to onerous reporting. requirements. The Chamber of Digital Commerce focused more heavily on concerns that the form requests too much information, including transaction IDs and asset addresses, which they say is overly broad if there is no suspicion of criminal activity. After the excitement over the House's passage of Fit 21 wore off, some industry players are beginning to oppose the bill's passage in the Senate, realizing it may not be as friendly to them as the oversimplified. discourse around it had made it seem. For one, the bill may increase the SEC's ability to determine

whether a crypto token is a security by delegating to it the decision over whether a token is sufficiently decentralized. But also, even if a token is deemed to meet that threshold, it would be placed under the CFTC's jurisdiction in a way that's somewhat unusual for commodities and might increase the compliance burden on companies offering those assets. Finally, the bill may introduce challenges for decentralized finance products, which don't meet the regulated status or do the reporting required by the CFTC. The CFTC is reportedly investigating jump crypto, the Chicago-based trading firm that seems to pop up a lot in the vicinity of other shady business, like propping up the Terra token while

Doquan claimed it was, quote, self-healing, or counter-hacking a hacker in a way. way that rubbed much of the crypto world the wrong way. According to Fortune, who cite a person familiar with the matter, the CFTC is looking into the firm's trading and investments. Days after the news of the investigation broke, Jump Crypto's president, Kanaev Karea, announced he had left the company. How's that for timing? Binance has been fined $2.2 million in India for serving residents without adhering to the country's anti-money laundering rules. Noticing a pattern? This penalty, however, is a minuscule 0.05% of the $4.3 billion fine the company earned in the United States. A report on encryption out of the EU has highlighted concerns

with layer two blockchains, cryptocurrency mixers, and privacy coins, all of which make it more challenging for law enforcement to trace on-chain activities. Personally, I think the more noteworthy takeaway is that the group that prepared the report has no such issue with regular old layer one blockchains, for example, Bitcoin or Ethereum, because in many ways they are a dream come true for law enforcement. Switzerland has shut down Flowbank, a neobank that was partially owned by the CoinShare's cryptocurrency asset management firm. Flowbank had also offered customers exposure to various crypto-based exchange-traded products, and had partnered with Binance to custody some customers' funds. Now, however, the Swiss financial

regulator FINMA has closed up the bank, announcing, quote, this measure became necessary as the bank no longer has the minimum capital required for its business operations. There are also fears that the bank is over-indebted. Finma began the first of what would become multiple enforcement actions against Flowbank as far back as October 2021 and installed a monitor in June 23. Throughout that period, Finma identified, quote, serious malpractice, including poor bookkeeping and financial reporting, failures in reporting to FINMA, and failure to perform money laundering due diligence. In June 24, after FINMA received FlowBank's financial statements for the previous year, they discovered that the firm's, quote, financial situation is much worse than the bank

originally reported. Finma determined that there was no possibility of restructuring, and so have appointed a liquidator to wind up the company and complete bankruptcy proceedings. A ban on using cryptocurrency for online gambling has come into effect in Australia. The same ban also prohibits gamblers from using credit cards and is aimed at preventing people from gambling with money they don't have. In elections and political influence, FEC filings for May show that cryptocurrency companies have poured another $85 million into the Fair Shake super PAC. Coinbase, Ripple, and Andreessen Horowitz each dumped another $25 million apiece into the committee, and Jump Crypto pitched in another $10 million. May's donations alone amount to 50% of the funds the committee, the committee

has raised this cycle, totaling to $177 million and putting them at a neck-and-neck second place on the list of super PACs by total receipts. They're holding on to most of it, with $100 million still sitting in their war chest waiting to be deployed. However, they have certainly not been shy about spending in various congressional primaries. In addition to the whopping $10 million they poured into opposing Katie Porter's primary candidacy in the California Senate race, they've also just deployed $2 million to oppose incumbent Jamal Bowman in what is becoming an incredibly heated Democratic House primary race against George Latimer. Fairshake hasn't quite reached the same degree of anti-Bowman spending as A PAC's United Democracy

Pack, which has spent more than $9.8 million to oppose him and about 4.75. million dollars to support Latimer, but they're certainly pitching in a substantial amount. As usual, a fair shake advertisement opposing Bowman makes no mention of cryptocurrencies, blockchains, or technology at all. What happened to decency? It's gone in Jamal Bowman's New York. Jamal Bowman put a cop killer up on a middle school's wall of honor, calling the killer a tremendous figure. It's the same Bowman who spent his career. Pursing dangerous conspiracy theories, praising unknown anti-Semite who claimed Jews were responsible

for 9-11. New York deserves better than Jamal Bowman. Fair Shake is responsible for the content of this ad. Outside of Packland, even more crypto folks are jumping on the Trump train. Ark Invest's Kathy Wood has said she's voting for Trump, recounting how she explained this decision to her grown children, she said in an interview, quote, as I've said to them, look, I'm going to vote for the person who's going to do the best job for our economy. She went on, quote, I am a voter when it comes to economics, and on that basis, Trump,

the candidate who was just convicted on 34 counts of falsifying business records. Gemini founders Cameron and Tyler Winklevoss, who've also put $5 million into Fair Shake and smaller amounts into other committees and campaigns, each triumphantly announced they'd donated $1 million in Bitcoin to Donald Trump and would be voting for him. In an extremely long tweet, Tyler wrote that he would be voting for Trump solely because of his perceived pro-crypto attitude and made no mention of any of Trump's other political activities or promises. He also effusively praised capitalism and condemned the Biden administration and the SEC's stance on crypto. The River Twins apparently didn't bother to look up campaign contribution limits,

because the Trump campaign was forced to refund each brother the roughly $150,000 they'd contributed above the $844,600 cap. You might think they'd have someone look into such things, especially after another prominent crypto figure just earned more than seven years in prison for campaign finance violations. The Winklevosses are about the only ones donating crypto to Trump, though. Despite the splashy announcement in May that his campaign would begin accepting cryptocurrency donations, besides the Winklevosses, a little less than $60,000 has been donated via that route thus far, though some more may have been sent directly via Coinbase and can't be traced publicly.

I've discovered that while cryptocurrency advocates like to promise that accepting cryptocurrency will enable a flood of donations from people who would otherwise not donate, this doesn't actually tend to be true once the pathway is open. This was certainly the case when advocates pushed the Wikimedia Foundation to open a cryptocurrency donations channel, but in fiscal year 2020 to 2021, back when they still accepted crypto donations, they amounted to only about 0.08% of their annual revenue. Biden also recently announced that his campaign, would be accepting donations and cryptocurrency.

The crypto world mostly reacted to this with eye-rolling, broadly seeming to believe that any softening towards crypto that this might signal is just lip service to try to help his campaign. That that was not the reaction to Trump's announcement, despite his also unfriendly stance towards the industry prior to this campaign, suggests to me that perhaps there is more to the crypto industry's broad Trump support than him just being the pro-crypto candidate. it. Meanwhile, Coinbase CEO Brian Armstrong has been rubbing elbows in Congress, much as Sam Bankman

Fried was doing this time two years ago. I drew a comparison between the two on Twitter and was immediately met with some outraged replies of, it's different because Brian Armstrong isn't a criminal, which makes me wonder if these people think that Bankman Fried strolled into Congress to try to influence policy, only after it was revealed he'd stolen billions of dollars. in customer funds. Some also tried to argue that it's different because Bankman-Fried was only there to try to push for regulations that would benefit his business, which again makes me wonder why they think Armstrong is there. The Web 3 is going just great recap. There were 12 entries between June 7 and June 23, averaging 0.82 entries per day. 108.51 million dollars was added to the

grift counter. Uwu Lend gets hacked, then gets hacked again. The defy lending protocol, Uw Lend, yes, really, was hacked for around $20 million on June 10. The project was created by Michael Patrin, aka Omar Donani, aka Zero X-C-Foo, a co-founder of the ill-fated Quadriga CX Exchange and Excon. He also pseudonymously ran the DeFi cryptocurrency Project Wonderland until his identity was revealed after the project suffered a meltdown. The Ulu-Lend project paused while they investigated the theft, then re-enabled transactions on June 12th after claiming to have identified and resolved the vulnerability. The project was then immediately hacked again for an additional $3.7 million by the same attacker.

Great work team! Martin Schrelli claims credit for Trump-themed meme coin and implicates Baron Trump in its creation. After being identified by blockchain sleuth, Zach XBT, as the creator of a meme coin called DJT, Martin Schrelli admitted his involvement and came out with his own claims that he had collaborated with Baron Trump to create the token, and with Andrew Tate to pump its price. However, fellow felon and meme coin pumper Roger Stone subsequently crawled out of the woodwork to claim that neither Barron nor Donald Trump was involved with DJT.

For those not familiar with Schrelli, he's also been called Farmerbrough for shamelessly hiking the price of an anti-malaria drug by 56 times, before spending years in federal prison for financial fraud. This isn't Schrelly's first foray into the blockchain world, after he launched a so-called Web3 drug discovery platform, despite being banned from the pharmaceutical and securities industries. And then he later dubiously claimed to have been hacked for over $450,000 after his computer was infected by a Trojan after he torrented a porn video. If it's true that he's behind this token, this seems like it could spell legal

trouble for him, given both the aforementioned securities industry ban and terms of his parole that prohibit him from, quote, engaging in self-employment, which involves access to clients' assets, investments, or money, or solicitation of assets, investments, or money. Everything else. The FARCANA token plummeted 60% amid murky explanations. A victim lost $11 million to permit fishing. Sportsbet.io was likely hacked for $3.5 million. dollars. The so-called read-only coin-stats crypto application still enabled a wallet breach.

50 Cent claimed his accounts were compromised to promote a meme coin. The BTC Turk Exchange was exploited for at least $55 million. The blockchain security firm Sertik and the Krakken cryptocurrency exchange accused each other of misconduct over a bug report and $3 million in so-called testing. The holograph protocol was exploited for more than $1.2 million. Fishing scammers impersonated an Andresen Horowitz employee to drain crypto wallets, and LoopRing's self-described most secure wallet was hacked for at least $5 million. Worth a read. If you're really sick of hearing people promise that generative artificial intelligence is the next big thing that will solve every problem a tech bro can think of,

you will really enjoy this rage-fuelled piece by Ludicity titled I Will Fucking Pile Drive You if you mention AI again. Despite the Fury, they've actually got a pretty similar take on LLMs to me. They can be kind of useful, but have spawned a hype cycle that far outstrips their abilities. Corey Doctor-O has written a thoughtful, though perhaps controversial, peace warning against trying to use copyright law as a cudgel by which to achieve fairer outcomes when it comes to artificial intelligence. In a piece titled, Neither the Devil You Know nor the Devil You Don't, he writes, quote, here's a rule of thumb for tech policy prescriptions. Anytime you find yourself, as a worker, rooting for the same policy as your boss,

you should check and make sure you're on the right side of history. In the news, Daniel Kuhn, over at Coin Desk, wanted to know if I thought the crypto industry would be better off if it remained small and niche. I told him, in so many words, oh honey, that ship sailed a long time ago, before Black Rock and Fidelity started offering Bitcoin ETPs, and before Sam Bankman-Fried and Brian Armstrong adopted the habit of cozying up with politicians. That piece is titled, Mass Adoption Would Ruin Crypto, Keep It a Neesh. Every once in a while, a mainstream news outlet tries to cover the nitty-gritty of how editing disputes, naming conflicts, naming conflicts, and breaking news works out over on Wikipedia, and this time it was Al Jazeera.

I did my best to explain it to them, although I think some of the more important bits didn't really make it into this article. They're working on another one, I guess, so hopefully some of it will be incorporated there. The article is titled Wikipedia War. Fierce row erupts over Israel's deadly newserat assault. Back in January 21, I did a Twitter thread about the process of editing the article on the January 6 attack on the U.S. Capitol as it was happening, which you might find interesting if this general topic piques your interest. That's all for now, folks. Until next time, this has been Molly White. Thanks for listening to this issue of the citation needed newsletter. To learn how to support my work, visit mollywhite.net.com. If you'd like to read the text

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