Unchained - Is TRM Labs Blocking Addresses From DeFi Protocols? Ari Redbord Says No - Ep.387

Episode Date: August 19, 2022

Ari Redbord, Head of Legal and Government Affairs at TRM Labs, talks about the sanctions on Tornado Cash, and the role of blockchain analytics tools in crypto.    Show highlights: Ari’s background as a federal prosecutor and his work for the US Treasury why regulators sanctioned Tornado Cash, according to Ari why the Ronin hack was important for regulators to start taking DeFi hacks more seriously the fact that for the first time the Treasury Department sanctioned software whether the Office of Foreign Assets Control (OFAC) messed up whether regulators understood the impact on regular users the role of TRM and blockchain analytics tools in mitigating risk how decentralized applications use tools like the ones provided by TRM to comply with regulations and to block addresses why, if Ari were a regulator, he would focus on regulation guidance whether the sanctions on Tornado Cash are unconstitutional what the future of privacy in crypto looks like and whether the government is going after privacy technologies   Thank you to our sponsors!   1inch: https://1inch.io/ Crypto.com: https://crypto.onelink.me/J9Lg/unconfirmedcardearnfeb2021   Ari Twitter: https://twitter.com/ARedbord   Tornado Cash Treasury Press release:  https://home.treasury.gov/news/press-releases/jy0916#:~:text=WASHINGTON%20%E2%80%93%20Today%2C%20the%20U.S.%20Department,since%20its%20creation%20in%202019 Tornado Cash Sanctioned: https://www.coindesk.com/policy/2022/08/08/crypto-mixing-service-tornado-cash-blacklisted-by-us-treasury/ Developer arrested: https://www.fiod.nl/arrest-of-suspected-developer-of-tornado-cash/ TRM Labs blog post:  https://www.trmlabs.com/post/how-defi-platforms-are-using-data-from-trm-labs-to-respond-to-tornado-cash-sanctions Tornado Cash post on compliance: https://tornado-cash.medium.com/tornado-cash-compliance-9abbf254a370 Coin Center’s article authored by Jerry Brito and Peter Van Valkenburgh: https://www.coincenter.org/u-s-treasury-sanction-of-privacy-tools-places-sweeping-restrictions-on-all-americans/ Second Coin Center article authored by Jerry Brito and Peter Van Valkenburgh: https://www.coincenter.org/analysis-what-is-and-what-is-not-a-sanctionable-entity-in-the-tornado-cash-case/ Coin Center may challenge the US Treasury's decision to sanction Tornado Cash: https://decrypt.co/107475/coin-center-tornado-cash-ban-court Circle freezes USDC in sanctioned wallets: https://www.theblock.co/post/162172/circle-freezes-usdc-funds-in-tornado-cashs-us-treasury-sanctioned-wallets  Crypto exchange dYdX blocked accounts that received funds from Tornado Cash: https://www.coindesk.com/business/2022/08/11/crypto-exchange-dydx-blocked-accounts-that-received-even-small-amounts-from-tornado-cash/ The possibility of forking Tornado Cash: https://www.coindesk.com/tech/2022/08/10/cloning-tornado-cash-would-be-easy-but-risky/ What the sanctions mean for privacy coins: https://www.coindesk.com/layer2/2022/08/09/what-the-tornado-cash-sanction-means-for-privacy-coins/ Tornado Cash laundered $1.5 billion, according to Elliptic: https://hub.elliptic.co/analysis/tornado-cash-mixer-sanctioned-after-laundering-over-1-5-billion/ Celebrities get Dusted: https://decrypt.co/es/107090/tornado-cash-dusts-public-wallets-jimmy-fallon-brian-armstrong-steve-aoki-logan-paul Previous Coverage of Unchained: Tornado Cash Sanctioned. Did the Government Overstep Its Bounds?: https://unchainedpodcast.com/tornado-cash-sanctioned-did-the-government-overstep-its-bounds-ep-384/ The Chopping Block: Did OFAC Overstep by Sanctioning Tornado Cash?: https://unchainedpodcast.com/the-chopping-block-did-ofac-overstep-by-sanctioning-tornado-cash-ep-386/  ** For more episode links and details visit the Unchained website **   Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, everyone. Welcome to Unchained, your no-hype resource for all things crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto seven years ago, and as a senior editor, Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. This is the August 19th, 2022 episode of Unchained. Every other week, Unchained hosts the chopping block on YouTube, where Crypto Insiders Haseeb Karushi, Tom Schmidt, Robert Leshner, and Tarun Chitra, chappen up about the latest news in the digital asset industry. Catch the latest episode on YouTube and all podcast platforms. One inch is a top dex aggregator that finds the best rates across multiple networks.

Why use a single decks when you can use them all? Get one inch on your phone now or swap on one inch.io. With the crypto.com app, you can buy, earn, and spend crypto in one place. Download and get $25 with the code, Laura. Link in the description. Today's guest is Ari Redboard, head of legal and government affairs at TRM Labs. Welcome, Ari. Laura, thank you so much for having me.

You see, I wanted to be with you so much today that I did it from the middle of the woods. So really nice to join you. And again, thank you so much for having me. Well, I think the crypto community is going to be very interested in what you have to say. So I'm glad we could make it happen. As you very well know, the community has been up in arms about the sanctions on tornado cash. And I imagine you will have quite a different take to give listeners a sense of why. Why don't you start by giving your work background, especially as it would pertain to these recent events.

Yeah, no, thank you so much. So prior to joining TRM Labs about two years ago, I was a lot of, a federal prosecutor. I was an AUSA for the District of Columbia for about 11 years. During that time, I focused on threat finance. So that intersection between money laundering and national security, terrorist financing, export control, sanctions criminal prosecutions as well. I then went over to U.S. Treasury Department, where I was the senior advisor to the Undersecretary for Terrorism and Financial Intelligence, which is essentially the role that oversees the national security apparatus within the U.S. Treasury Department. So OFAC, which is the sanctions regulator, FinCEN,

which is the anti-money laundering regulator for the U.S., the Financial Intelligence Unit. So, yeah, joined TRM about two years ago and really work on a lot of these same issues. And just for people, AUSA is assistant U.S. attorney? That's right. It's really, you know, DOJ has local prosecutors. It's a, it's part of the Department of Justice. Okay. So since you have this background at Treasury and DOJ, why do you believe regulators sanctioned tornado cash. Yeah, you know, it's interesting. I think it's important when you're discussing this latest sanction to really understand some of the context in the background here. You know, I'd say over the last, let's say, 18 months or so, we've really seen Treasury take sort of

a targeted approach to going after what they consider bad actors in the cryptocurrency space. So we really saw, you know, a targeted approach to what I'd call dark net advertising mixing services, right? Helix and Bitcoin fog. And these were really, These were criminal charges brought by the Department of Justice against Larry Harmon, the administrator of Helix, Sterlingov from Bitcoin Fogg. And the idea there was they were conspiring with dark net markets like Alpha Bay to launder funds because they were actually advertising that you should use our service to launder the proceeds of criminal activity. That was a crime. Those were the kinds of places then, right? Treasury sanctioned its first ever crypto business was a non-compliant.

Russia-based exchange called Suex. And then the next one was Chattex and Garantex, all Russia-based cryptocurrency exchanges that were essentially laundering funds because they didn't have any compliance controls in place. So ransomware payments and other types of illicit proceeds were flowing through these exchanges. Darknet markets, starting with Silk Road and then Alpha Bay and then Hydra just a few months ago. So really sort of going after what I've heard Treasury call the illicit underbelly of the sort of growing crypto economy. And I will tell you just sort of for context, Ronan, the attack on the Ronan blockchain, in my mind, was a true watershed for the shift in the way regulators, law enforcement, were thinking about these types of cases because

this huge hack, $620 million, became associated with North Korea. And it really took sort of hacks from fraud and financial crime, you know, to be investigated by law enforcement, to major national security issues involving North Korea. Because when North Korea is involved, the hack isn't just the loss of funds, which is a problem enough, right? But it's the loss of funds to be used for weapons proliferation, ballistic missile systems, other destabilizing activity. And there really became a shift where it wasn't just the FBI that was worried about investigating these cases. It was the National Security Council and the Treasury Department. And that's really the first time we saw OFAC used targeted sanctions in this way. So the first ever cryptocurrency address

that was sanctioned associated with Lazarus Group was the address where the funds from the Ronan attack went into. And then we started to see them use more. Yeah. I feel like what you're not addressing is what the community is upset about, which is the fact that, you know, an identifiable entity, a person or an organization. And this time, it's a series of smart contracts. There's no entity. There's no organization or person that can defend themselves and apply to be removed from the SDN list, the specially designated nationals or whatever. Absolutely. So let's get right to it.

That's exactly right. So the only reason to provide that background is because you're absolutely right, Lord. Tornado was exceptional, right? All these other entities that I just described were different. They were centralized. It was used primarily by illicit actors. But here you have the first time that the Treasury Department designated software, sanctioned software, smart contracts that are not just used by illicit actors, but are used by, you know, a community of

regular cryptocurrency users. And it has definitely created, you know, significant collateral damage. Now, on the one hand, Treasury looked at tornado cash and said, look, this is the primary money laundering concern for North Korea state-sponsored cyber criminals. You know, they, according to TRM, they've moved, you know, about a billion dollars through tornado cash. It's been used in the 10 largest hacks that North Korea has ever perpetrated. But then at the same time, you have a situation where regular users are having, there are sanctions exposure from regular users. And I think what you're seeing now is, you know, DFI front ends, other cryptocurrency businesses trying to figure out how to manage risk in the wake of these sanctions. Right. And so that, for that very reason,

a lot of people in the crypto community are saying that OFAC message, up, they must not have realized just what, you know, what kind of consequences there would be and how messy it would be. And so do you think they intentionally did this, that they understood what the fallout would be? Or do you think that they did indeed mess up as people seem to believe? I think it's a mix. Look, I think OFAC, it was primarily thinking, look, we need to take out this entity, for lack of a better description, that is being used, that is being utilized by North Korea. I think that was the primary focus here. And I think that what needs to happen now is there needs to be guidance to the community, including all these defy front ends that are figuring out they're

using TRM, they're using other services to try to figure out how to manage risk and guidance to these entities on how to think about addresses that have sanctions exposure now, regular users. And I think that's something that we're working with clients on today, you know, just kind of digging into that. But do you believe what OFAC did here was kind of right or wrong? Look, I think it's interesting. Like, you know, having sat in meetings for years on sort of how, you know, how you think about sanctions, right? You talk about targeting. You figure out, all right, where are the targets?

And understanding sort of, you know, tornado was a, you know, an obvious target after all that other sort of description, right? They watched where the funds went from the Ronan attack, went through Blender, right? they designated Blender. And then I think the idea was like, well, so much more illicit activity is going through tornado cash, we need to sort of take out that capability. Now, did they fully understand the sort of the impact on regular users? I don't know. I know that when I was a treasury, this idea of an impact assessment was something that was done in sort of every case. What are the humanitarian impacts of Iranian sanctions or Venezuelan sanctions? I hope that was done. I believe that was done. I think what is needed now, more than anything else from regulators from

OFAC, are FAQs and guidance on how to deal with this issue of regular users who now have sanctions exposure. And I will tell you, like, I think there are a number of different ways that DFI front ends in particular are using tools to try to mitigate some of that risk. Okay. And you did say that a number of these are using TRM to help comply with that. So what is your role exactly. Yeah, no, that's really helpful. And I think there's a lot of misunderstanding around sort of what are the role of blockchain analytics here, blockchain intelligence tools like TRM. And we're working with a lot of those major D5 front ends on sort of how to mitigate this risk. We don't block addresses. Blockchain analytics tools do not block addresses. We provide data

to these D5 front ends for them to make decisions on how to mitigate risk. And what's so interesting about this issue is that, look, sanctions was always pretty black and white, It was actually pretty simple. And that if an address is sanctioned, okay, you block it. And if an address transact with a sanctioned entity, you block it because it's probably a bad actor, right? If you're transacting with a terrorist financier who's on this OFAC sanctions list, then you probably yourself are a bad actor.

But that's why Tornado is so exceptional because it's the first time ever where that changes, that you have regular users, innocent people who have transacted with a sanctioned entity and you've got to figure out how to treat them. And I think what we've seen is there's really two ways to think about this today. The first is, you know, D5 frontends, use TRM to say, hey, we're going to block all the sanctioned addresses, right? There's some risk there because if you're only blocking those sanction addresses, you're not as sure about sort of what are the addresses that they're transacting with, right? You leave, you leave some risk open there. But that's one way to handle it. And that ensures that you don't touch any of those, those regular users, right?

The other way to do this is try to look at it a little bit more granularly. And in TRM, we surface data on time, right? When did the transaction happen? How much? So you have a sense. Is this just one of these dusting attacks that has come out over the last week? Or is this something more significant? Is it a, are you receiving funds or are you sending funds, right?

Like dig in a little bit more granularly. And that wouldn't be so extraordinary because banks and other financial institutions have been doing this for years when it comes to risk mitigation. right like there's investigation involved they're digging in a little bit deeper i will say sort of one thing that is different is that even d5 front ends which are more centralized than the rest of the the rest of the protocol right want to be as decentralized as possible so historically a lot of this has been automated and that's why we've had the issues we've had over the last week or a few days because the automated nature of sanction screening has has cast a net that has entrapped a lot of regular

users. And I think what we're seeing now is sort of a move towards maybe more granular screening. I hope some of this makes sense because I know it's complicated, but it's really important to understand that like the real key here is that what we do at TRM is we provide data to our clients, many of whom are D5 front ends in this situation. And what they're doing is they're, they're deciding, hey, look, what is our risk appetite here? And how can we create the best user experience possible and not have any of the fallout, right, of the last few days, but at the same time also stop bad actors from using our interface. All right.

So in a moment, I'm going to dig into more details on how exactly this works. But first a quick word from the sponsors who make this show possible. To swap crypto, a user has to choose among hundreds of dexes on multiple networks, all offering different rates and fees. Do you want to avoid that hassle? Swap on one inch. a top dex aggregator built to get you better rates than any single decks. Enjoy unlimited liquidity across multiple networks and top level security.

Get one inch on your phone now or swap on one inch.io. Back to my conversation with Ari. So it seemed like you were saying that actually TRM only provides information to defy protocols such as uniswap and AVE. And then their compliance departments or teams are deciding, what to do with that information and who to block. And so TRM isn't actually making those decisions. Is that a fair characterization? That's absolutely correct. We can't block addresses. That is something that can only be done by the entity, the client, the company that we're working with.

So what we do is we provide data. We say, hey, these addresses are on OFAC sanctions list. They're actually on there, right? They're part of the 45, in the tornado cash scenario, they're part of the 45 addresses that were on OFAC sanctions list. And then a defy company says, hey, we're going to block those, which you really have to do. Because I'd say one thing that's really important to understand is we talk about oftentimes sanctions and AML, anti-money laundering. But they're very different, right? Every U.S. entity, every U.S. person has an obligation. They are prohibited from interacting with sanctioned entities.

So you have to block those addresses. The real interesting questions come from these regular users that have been affected, right? And I think that's when you really started want to dig into sort of more granular data. But the reality is those are decisions that are being made by these defy front ends. And are you advising them on any level about how it seems like you're implying that in this case, the way to go would be that more granular level, meaning, I guess, identifying kind of When the tornado cash transaction happened, I'm supposing transactions maybe afterward would be ones, sorry, I hope you understand what I'm saying. I hope you know me well enough to know now that

I am not a cop out kind of guy, but I will say that the one thing we don't do, right, is like we, you know, every defy entity, but really it's not just defy, it's financial institutions, cryptocurrency businesses, exchanges, they have, they sort of take, they have their own risk appetite. And they're all different. You can imagine when you're talking about financial institutions, institutions, traditional financial institutions, they might have less of a risk appetite than sort of a startup in the DFI space. And they are all, now, we work very closely with them on sort of how to configure risk, how to sort of understand, you know, how to use the tool. But really at the end of the day, we're software that is providing data to allow them and whether they have lawyers or,

you know, compliance professionals or anyone else to kind of make those decisions. I think the problem that we ran into over the last few days is that this has always been automated primarily because a small defy entity doesn't have the same compliance function that a coinbase right has you don't have teams of compliance officers so this has always been automated and that automation has cast a very wide net because traditionally it made sense to right because anyone who's transacting with a sanction address is probably not someone you want on your platform. That's why tornado cash changed everything. Okay, yeah, this probably explains. I saw a tweet and, you know, it was actually a newsletter. I don't know, you know, whether I certainly didn't get to verify this with the person,

but they were saying that they were the victim of a hack and the, you know, the hacked funds were sent to tornado cash. And now their ETH wallet is being blocked by Oveh and Uniswap, even though their address hasn't been sanctioned. So this sort of explains it, this sort of kind of blanket software that's being applied that hasn't been tailored to the events of tornado cash affecting someone who's innocent and in fact, just because they were the victim of a hack now is being blocked. Does that sound like a reasonable? Okay. Yeah, it does. And it's just like these dusting attacks, right? Like, you know, people, it is a terrible thing to use sanctions offensively like this, even to make a statement, but at the same time, it's like, now it's up to us to figure out

how to take a more granular approach to risk management to ensure that regular users have good experiences. And I can tell you, working really closely with AVE and Uniswap, as you mentioned, and other sort of defy front ends, they want to do that, right? Comply with sanctions, but also ensure that their users have a good experience and are not regular users are not blocked. And that is the focus right now. And that is, you know, why I don't sleep anymore. But like, it is, I think the reality is that like everyone in this space wants to do the right thing. It's, it's all very new. And like, Laura, you've been in this space for so long, but still things that happen every day are brand new and have never happened before. And you have a

regulator, you have a regulator here who did this thing that now I'm sure they're trying to sort of figure out how to provide guidance, right? Like, don't we need guidance from OFAC that as essentially, you know, hey, if you are the victim, if you will, of a dusting attack, that you don't have actual sanctions exposure. Right. I mean, of course you don't. But the reality is we need guidance that says that. And I think that's coming. And I know it's sort of like it's not helpful to anyone who has their funds blocked or they can't move funds today. But I think that like the defy companies are working on it. And I'm very hopeful that OFAC is going to provide guidance as well that we'll speak to this. And if you were writing that guidance, what else would be some of the

principles you would put in there? You know, I think one thing that's really important is sort of what is the expectations for defy entities today in the space. And it, you know, I know I said that like AML and sanctions are very, very different. But there is also sort of a need for more guidance on sort of what the expectations are from building an anti-money laundering program. You know, is defy expected in the anti-money laundering space to have the same types of compliance controls that a, more centralized entity would have. And then it becomes complicated as you started the questioning, you know, of entities like tornado cash that, you know, how do you implement those types of control?

So I think just really understanding what are the expectations? What are the expectations from regular users? What are the expectations from the, from the defy companies? And also, look, I mean, something that like, so in order to solve for this, right, TRM, I think we were the first to come out with this idea of a timestamp. So you really understood, you know, look. sanctions happened at 10.30 a.m. on August 8th, I believe. Any activity with tornado cash prior to that was not in violation of sanctions, right? So it's really important to understand as we're thinking

through this sort of things like, you know, timestamp, understanding sort of when things happened. And that's the type of granular detail that I think is really necessary to have in the tools like TRM when you're using them, but also guidance from regulators about how they're thinking about this. So as I'm sure you're aware, a number of entities in the crypto community are also saying that they believe that what OFAC did here was unconstitutional. And I was interested in your opinion on that. Yeah, you know, I think it's really, look, I think it's really interesting. And, you know, I've spent a lot of time reading really the great content that's been put out by Jerry Brito, a coin center and the blockchain association, other places. And actually, I've had amazing conversations with them on these issues.

You know, I know, again, like, I don't know. I don't know. I think that, you know, typically there is a lot of deference to national security issues, Laura, you know, it is one of those areas when you're talking about sort of, because right, even, you know, even like fundamental constitutional rights, there are, there's a balancing. And I think that while the right to privacy, the right to, you know, speech, really these fundamental issues. I mean, you know, these are the reasons you, you know, become a lawyer. These are the reasons you work for the Department of Justice. These are the reasons you do what you do.

Oftentimes, if you look at the case law, there's so much deference to national security. And even the way, even the way, if you recall, FinCEN wrote its NPRM on unhugusted wallets, right? They couched it in a national security context. And we would see the same thing here, right? This is not fraud and financial crime. This is national security. You know, this is a missile being sent to Guam, right, by North Korea or Hawaii or wherever else. And I think that's the way you'd see this couched.

And when you do that balancing, typically, right, courts come out on the side of a deference to national security. I will also say that, like, tornado cash, you know, is a harder one because of the volume of illicit activity that was flowing through there, you know, upwards of 30 or 40 percent. As I said, about a billion dollars just on being used by North Korea alone. And I think that that's the balancing that you'd see. And just typically, I can tell you what courts come out on the side. of sort of, you know, giving the executive a lot of leeway when it comes to national security issues. And out of curiosity, I also heard that it was only blocked on Ethereum, but not on, like, other chains. So do you think, is it just because what most of the hacks are on Ethereum, DFI protocols?

Say that one more time. Yeah. Oh, like tornado cash on BSC, for instance, wasn't blocked. I see. So people were saying that there was like another way they seemed to have messed up. I didn't know. That's so interesting. I actually, I don't, I don't know the answer to that. What I will say that just like, again, like you raised it in your first question.

I didn't get there fast enough. But, you know, it's exceptional because it is just software. Right. And like you go, you know, you go take a look at it. You could copy paste and create cyclone cash. I mean, the reality is that, you know, right, it is, it is just software. And I think really one of the challenges is, you know, when I was a prosecutor, we talked about shell companies as a whack-a-ball game. right or Iran would create Iranians would create a shell company we would take it down and then

another one would pop up this is the ultimate game of whackamol right I mean you literally can go in and copy paste the code and create another mark contract and recreate this so really look I think what what OFAC must have said to themselves is this is a giant game of whackamol but this is a big enough mall to to attempt this with and you know and we understand that there's it could be easily recreated, but I guess we'd go after that mall too. And what do you think this potentially says about the future of privacy in crypto? Yeah, look, I mean, I think it's more important than ever. And quite frankly, as we do more, I mean, you and I believe very strongly in the future of

this new financial system. And as there's more and more transactions on open public ledgers, people are going to have more of a desire for privacy. Quite frankly, this dusting thing was a little bit of a like a wake-up call even for me. Because what I think I learned there is there are a lot of people with public addresses who actually need some level of privacy in order to transact. Do you feel the government is going to keep going after privacy technologies? Yeah, I think that the government is going to try to strike a balance, and it is hard. Like, this is very hard stuff.

I think the need is to strike a balance between ensuring that illicit actors are not taking advantage of this technology, but also allowing regular users. to have a degree of privacy. Look, in the age of crypto, a hack, you know, doesn't just mean the loss of, you know, PII and usernames and passwords. It means the loss of people's life savings, right? Like, you know, even take Lazarus Group out of this for a second, national security.

Like, you know, no one is going to engage with the crypto economy if they're worried about having their funds hacked or stolen on a regular basis. And if you want this to succeed, which I desperately do, and really fundamentally believe in it, We have to stop bad guys from continuing to hack, you know, defy protocols, bridges, exchanges. So I think that's what's really so important here. It's not just the government, right? We need to stop this from happening as a crypto community because we want people to engage with these services.

And I think it's just so I think it's so critical that we have to stop these hacks. And I think the Treasury at least said, hey, one way to stop this is to stop the ability to launder the funds from the hacks. Will it work? You know, I think that's a very big TBD. But I think today, I think we need to continue to strike that balance. All right. Well, we will see how it all works out for them. We will definitely see. Yeah. Okay. Well, this has been extremely illuminating. Thank you so much, Ari. Laura, thank you so much for having me. I really appreciate the time. Don't forget, next up is the weekly news recap. Stick around for this week in crypto after this short break.

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Conditions apply. Thanks for tuning in to this week's news recap. Galaxy drops Bicco acquisition, Bicco to Sue Galaxy. On Monday, Galaxy Digital announced the termination of its $1.2 billion acquisition of Bicke the CryptoCustodian. According to its press release, Galaxy is not going through with the deal because Bicco failed to deliver audited financial statements for 2021 that comply with their agreement. However, Bickgo is pushing back against its much bigger counterparty.

Bicko said that the termination of the deal is improper and that the company is going to seek a $100 million termination fee. The attempt by Mike Novagrats and Galaxy Digital to blame the termination on Bicco is absurd. R. Brian Timmons, partner at Bicko's legal firm, told the block. Galaxy CEO Mike Novagrats has not yet commented on Bicko's plans. Alex Mishinsky made some bad trades prior to Celsius's bankruptcy. The Financial Times reports that Alex Mishinsky, CEO of bankrupt crypto lender, Celsius, took control of the company's trading strategy in January, days before a U.S. Federal Reserve

meeting. Mishinsky was apparently convinced that the Fed would raise interest rates and started overruling experienced financial professionals within his company. According to the article, Mishinsky sold millions of dollars worth of BTC, only to buy it at a loss on the following day. Some people were outraged by his behavior, especially since just months later,

Celsius halted withdrawals from the platform and filed for bankruptcy. This is not normal degenning. It's not his money he was gambling with. This is a concoction of ridiculous arrogance, sociopathie, and a heavy sprinkling of scam salt, said Jordy Alexander, CIO of Salini Capital. Meanwhile, Celsius's current financial situation does not look promising. This week, a new court filing from Celsius's law firm Kirkland-Den Ellis revealed that the crypto exchange would run out of cash by October.

The company did receive some good news this week, as it was allowed by the court to sell some of its mined BTC in order to meet operational expenses. Lastly, CDPQ, one of the largest pension funds in Canada, announced that it had to write off a $150 million investment in Celsius. Coinbase CEO hints that the exchange won't censor Ethereum. Brian Armstrong, Coinbase CEO, said on Twitter that he'd rather shut down the exchange as staking service than censor transactions to comply with OFAC sanctions.

Armstrong's tweet came in response to a question from Latteras Carapetis, founder of portfolio management tool, Rockie, who tweeted, if regulators ask you to censor at the Ethereum protocol level with your validators, will you, A, comply and censor at the protocol level, B, shut down the staking service and preserve network integrity. What kickstarted this discussion was the concern that centralized staking services needing to comply with sanctions would lead to compliance at the protocol level after the merge.

Once Ethereum moves to ProVos stake, Coinbase is expected to be one of the largest. validators in the ecosystem. Michael Morrow resigns as Genesis CEO. Michael Morrow stepped down as Genesis Global Trading CEO as the company announced other changes in the leadership team. Genesis was one of the many companies that suffered from exposure to bankrupt crypto hedge fund Three Arrows Capital. In July, Genesis filed a $1.2 billion claim against 3A.C after the latter failed to meet a margin call. Morrow served as chief executive of the crypto broker for more than six years and will be be replaced temporarily by C.O. Doar Islam. It has been an honor to lead Genesis for nearly a

decade, and I look forward to supporting the company's next phase of growth, said Morrow. In addition, Genesis is laying off 20% of its employees in an attempt to navigate through the crypto winter. 3AC was all over the news this week as well. On Monday, New York Magazine published an excellent article by Jen Vietchner, exposing the history of the hedge fund and its two co-founders, Sue Zhu and Kyle Davies. Here are some highlights. 3AC did not want to put up collateral for its loans. It was supposed to be reputation-based. Matt Walsh, co-founder of Castle Island Ventures, started suspecting 3AC when the latter seemed to be desperate about a $20 million deal, signaling that it might be insolvent. The Terra blowout meant half a billion dollars loss for 3AC,

and it kickstarted the collapse of the fund. Castleman chief business officer at blockchain.com said, we firmly believe they committed fraud. It became clear that they were insolvent but were continuing to borrow, which really just looks like a classic Ponzi scheme. Zhuen Davies intended to buy a yacht, which was the subject of numerous memes on Twitter and name it much wow. Add more unstable coins to the list. Akala dollar, or AUSD, the stable coin built on Akala network, suffered a major DPEG on Monday, but it later recovered almost completely after a governance vote. The reason for the exploit was a configuration mistake on a liquidity pool, which resulted in error mints of AUSD. After the hackers exploited the bug, AUSD lost 99% of its value, reaching a low of

$0.009, or 0.9, according to Coin Gecko. However, the team in a column was able to fix the liquidity pool issue and AUSD pumped more than 10,000% from its lows reaching a high of 92 cents. The recovery came after a proposal was passed, in which the Akala community voted to burn the 1.29 billion AUSD tokens held by 16 wallet addresses involved in the exploit. In another related event, HUSD, the stable coin issued by Stable Universal, also lost its peg after an imbalance on the curve pool and is now trading at 99 cents. Speaking of stable coins, Tether, the company behind USDT, announced a partnership with accounting firm BDO to issue assurance and attestation reports of its reserves.

Doe Kwan's first interview wasn't well received. Do Kwan, founder of Layer 1 Terra, broke a long silence in an interview given to coinage media months after the collapse of the ecosystem. Here are some highlights from the interview. Juan stated that Tara was never intended as a fraud and that he didn't think the blockchain would collapse. Tara and Luna were essentially my life. I bet big and I lost. I alone am responsible.

In response to questions about his hubristic comments on Twitter, he responded, I developed an entertaining alter ego to match the community. Kwan confirmed that investigators have not reached out and haven't charged him with anything. The interview sparked criticism on crypto Twitter, as people wondered why the interviewer didn't ask harder questions. I wonder why Do Kwan chose you over all those media titans. Could it be perhaps that TFL is an investor in coinage? asked Fatman Tara, a crypto influencer.

Zero percent royalties for creators? Psewop, a decentralized NFT marketplace on Ethereum, launched an automated marketmaker that set artist royalties at 0%, which sparked a heated debate on crypto Twitter. The pseudo-AMM allows anyone to mint an NFT on the marketplace without having to pay a percentage in royalties to the creator. The biggest NFT marketplaces, such as OpenC, Magic Eden, and Looks Rare, do honor the royalties set by creators.

but it has become clear that this is social convention, as the royalties cannot be enforced on chain. I think the creator royalty argument is actually a lot simpler than people make it out to be. There is zero way to force royalties technologically, so creators will have to build a collector base that want to honor those royalties. It's really that simple, said NFT artist people. Yeah, a marketplace built on Solana, was the first to offer this feature earlier this year.

In addition, Salonar allows sellers to choose whether they want to pay, pay the royalty fees to creators, and if so, how much? As a creator myself, I had a heated debate about this topic with Haseeb, Tarun, and Tom on this week's The Chopping Block, so be sure to take a listen. Miners are at a loss. After a very profitable 2021, Bitcoin mining companies are taking big losses this year. This week, several firms reported their second quarter earnings showing big red numbers. BitFarm, a publicly traded Bitcoin mining company, reported a $142 million loss,

in Q2. The Quebec-based companies' stock plummeted over 20% after the release. Greenidge announced it will be halting its plans to expand its operations into Texas due to a sudden change in mining economics. The company also reported a $108 million net loss in the second quarter of the year. Riot posted a $366 million net loss for the quarter. However, CEO Jason Less remains optimistic. We are extremely encouraged by Riot's financial resilience and, obviously, operational achievements this quarter, he said. Stronghold restructured its debt and changed his focus to selling power rather than mining BTC after reporting a $40 million net loss in the quarter.

Meanwhile, Bitcoin's hash rate, a measure of the computing power of the network, has been experiencing a decline since June and now sits at 200 million tarahashes per second. Time for fun bits. Poop to earn. Cho J. Wan, South Korean professor, invented a toilet that turns human waste into energy and pays people in digital currency. The energy is used to power the building of the Ulsan National Institute of Science and Technology. Students who use the toilet earn 10 G-Goole a day, which can be used to buy goods on the campus, such as snacks and books.

Toilet users earn G-Goole, a literal shit coin, joked Brian Rommel on Twitter. All right, thanks so much for joining us today. To learn more about Airy and Tornado Cash, check out the show notes for this episode. miss the Unchained Daily newsletter, which features a round above the biggest news in crypto every weekday morning. Visit Unchainedpodcast.com to subscribe. Unchained is produced by me, Laura Shin, with all from Anthony Yun, Matt Pilcher, Juan Armanovich, Pamajimdar, Shashank, and CLK transcription. Thanks for listening.