Unchained - The Department of Justice Goes After Its First NFT Insider Trading Case - Ep 359

Starting point is 00:00:00 Hi, everyone. Welcome to Unchained. You're a no-hike 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 at Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. This is the June 3rd, 2022 episode of Unchained. Hey, Builders, looking for one of the best scaling solutions in crypto? That's easy. I'm a very. I'm a very big. Avalanche's breakthrough subnet design lets you minimize transaction costs and maximize your speed, consistency, and user experience. To experience Web3 like never before, head to avox.network to learn more. 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.

Starting point is 00:00:54 Today's guest is Jason Gottlieb, partner at Morrison Cohen and chair of its regulatory enforcement and white collar practice. Welcome, Jason. Hi, Laura. It's great to be on with you. Quick note for all listeners, I do not have my nice mic with me here in Europe. And also, I am stuck here in Europe because I have COVID.

Starting point is 00:01:15 So I will try to mute myself, but I may cough during the episode. Listeners may recall that last fall, the then head of product at OpenC, Nathaniel Chastain, was alleged to have bought numerous NFTs that he later found. featured on the OpenC homepage, then turning a quick profit. At the time, he was asked to and resigned immediately.

Starting point is 00:01:37 This Wednesday, the Department of Justice arrested Chastain. Jason, can you explain what the charges were? Sure, absolutely. So as you noted, Chastain was arrested and he was charged in an indictment with two counts. Now, there is no such thing as a federal charge for insider trading general. So the charges against him are wire fraud and money laundering. The core allegations are that by misappropriating confidential information from his employer, from OpenC, and using that confidential information in order to make a profit,

Starting point is 00:02:18 he was committing a fraudulent scheme, and because he was doing so over the internet, that satisfies the wire part of the wire fraud. The money laundering charge is a little bit strange. We can talk about that more if you'd like. The money laundering charge charges that he was using proceeds in a way to conceal the profits of a crime or in some way in furtherance of the crime. But it's a little bit of a more awkward fit than the wire fraud charge. So as you mentioned, the exact charges are not insider trading. But last fall, when the crypto community discovered that this is what Chastain was doing, that term insider trading was used frequently. And it's kind of, you know, I guess the behavior that people would associate with that term.

Starting point is 00:03:11 But why is it that there are questions about applying it here? Well, it's funny, right? Because if you think about insider trading, it seems to fit what's going on here. He is an insider. He was trading on that inside information. So it seems like that should fit. But insider trading, as I mentioned, is not its own cause of action, either under the civil rules or the criminal law. The most common kind of insider trading we see is in the securities world where somebody gets a confidential hot tip, either because they work at a company or because they overhear it or get it from someone, they obtain it in confidentiality, and then they go and trade in the stock on that hot tip.

Starting point is 00:03:53 So that's what we think of as sort of classical insider trading. But that's covered under Section 10B, and particularly 10B5 there under, of the Securities Exchange Act of 1934. And the theory there is you are committing fraud. It is some sort of fraud on someone. Generally, the person who doesn't have that information that you're trading against, although nobody has to plead who that person is or what damages they've suffered, all the SEC would have to show. show in an SEC case is that you got information that you were supposed to have kept confidential, and you didn't. Instead, you traded on that information. So when we think about insider trading, that's sort of the classic insider trading. We think about it in securities. The CFTC also has

Starting point is 00:04:41 authority to go after insider trading in the civil context under a couple of sections from the Dodd-Frank Act, 180.1 and 180.2, which are generally co-extension. with 10b-5 and would allow the CFTC to go after insider trading in commodities. In this case, a criminal case brought by the Department of Justice, not the SEC, not the CFTC. It is a criminal case, and it has the same sort of flavors. You got confidential information from your employer. You had a duty to keep it confidential, and instead you used it to profit for your own game. So it sounds a lot like those. other cases. But because this is brought by the Department of Justice as a wire fraud case,

Starting point is 00:05:29 the DOJ doesn't have to say whether the MFT is in question or securities or commodities or anything else. They just have to show that there was a scheme to defraud over which the defendant used the internet. And I should say that all of the allegations in the DOJ's indictment, they're just allegations, right? We're going to take them as they are written for the purposes of this call today. but he is innocent until proven guilty, and that will come out later. So as you mentioned, typically when people hear that term insider trading, it does typically apply to something like a security. And in this case, we have no statement by the prosecutor about what the status of these

Starting point is 00:06:12 NFTs were. So what was interesting to me is when you read the complaint by, it was the Southern District of New York, this case or... classifying his behavior as insider trading stems from the employer agreement. So can you talk about, you know, why that is and how applicable that really is here? Sure. And it's actually very important because that duty of confidentiality in insider trading cases is core to those cases. For example, in a typical stock tip case, right, let's say you're the CFO of a company and you're the CEO of a company.

Starting point is 00:06:51 know that your company's stock is about to go down because you'll release disappointing results. You can't go and sell all your stock in advance of that news because you have a duty to your company to keep that information confidential. Now, what happens if you're the CFO and you're walking on the street and you see your friend and you tell your friend, hey, don't tell anyone, this is super secret and confidential and definitely don't trade on it, but our stock's going to go down tomorrow. If your friend goes and trades on it, your friend's in trouble and the CFO is also in trouble. But what happens if the CFO is walking on the street, talking on a cell phone and saying, yeah, you know, our company's stock is going to take a nosedive tomorrow?

Starting point is 00:07:33 If you are happening to be behind the person and you hear the CFO talking about it, there's no duty of confidentiality that attaches. Weirdly enough, there's no law against you going out and trading on that information. The insider trading law, as it's constructed, doesn't not reach that behavior. Now, maybe it should, maybe it shouldn't, and maybe we have, we should have an insider trading statute that reaches that kind of behavior. But because there is no duty of confidentiality that attaches, courts have pretty consistently held that that person is not going to be in trouble if they didn't receive it in confidence and if they didn't know that it was in confidence. There are some other nuances to the law, but that's, that's, that's,

Starting point is 00:08:18 the essential part of it. And, you know, we've seen this before. There was a Second Circuit case who was decided on bank back in 1991, US v. Chestman, where a person was convicted of wire fraud, as well as violating 10b-5 of the 1934 Act by misappropriating information. The Second Circuit held that there was no duty for the person who traded to keep that information confidential, it vacated the 10b-5 charges, and it also vacated the wire fraud charges, holding that they were effectively the same theory as the 10b-5. Yeah, and I think that Mark Cuban famously was, I guess the word is exonerated in a case where he had been told confidential information and traded on it but did not agree to keep it

Starting point is 00:09:17 confidential. And so, you know, eventually, you know, I think he spent a lot on court peace, but eventually he was vindicated. It's actually, do you want to go back also to the money laundering charge, which you said the government had kind of a strange fit for its case there. So can you describe how it is that they're, why it is that they made this charge? Yeah. You know, in some ways money laundering charge, and this is specifically under 18 U.S.C. 15. is an add-on charge. It sort of says, if you knew that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, then you can be guilty of laundering that

Starting point is 00:10:02 money. And this is a sort of time-honored tradition in our criminal justice system of following the money, right? We all sort of famously, we had a prohibition gangsters who were busted on tax evasion, Al Capone, rather than the crimes that he had allegedly been committing. We follow the money, and if you can find that you were using the proceeds of a crime and trying to hide that or use that

Starting point is 00:10:31 or using it to conceal what you had done, that can be money laundering. It fits very strangely here. According to the DOJ's criminal resource manual, to be criminally culpable under this part of, the money laundering statutes, 1956A1, a defendant has to conduct or try to conduct a financial transaction, knowing that the property involved in the financial transaction represents the proceeds of some unlawful activity. So hold on, let's compare that to what's alleged in the indictment.

Starting point is 00:11:07 The indictment alleges that Mr. Chastain concealed the purchases by starting fresh accounts with no wallet history by separating it from his name so it was allegedly or purportedly going to be anonymous. So the government is saying, well, hang on, maybe this is money laundering, right? You're trying to hide the tracks of what you're doing. But interestingly, that's all hiding the tracks on the government's theory of committing the crime. This doesn't have to do with what happened afterwards. Now, as I read the indictment, there's nothing after that saying he took the proceeds that he earned from the alleged insider trading and try to hide them in some way, right? Put them through a mixer, tornado cash, or into some foreign exchange, and then took it out

Starting point is 00:11:56 later. There's no allegations of what he did with the money afterwards. What you did with the money afterwards is a more classic money laundering charge, but obscuring the trail of the money as you're going into the crime, it's a little bit of an awkward fit on these facts. And I do wonder about how the DOJ is going to prove up those elements. And of course, there may be other things that we don't know right now. All we have is a very brief indictment.

Starting point is 00:12:26 But on the language of the indictment, it's an uncomfortable fit for that statute. In a moment, we'll dive further into some of these questions. But first, a quick word from the sponsors who make this show possible. Join over 10 million people using crypto.com. The easiest place to buy, earn, and spend over 150 cryptocurrencies. Spend your crypto anywhere using the crypto.com visa card. Get up to 8% cash back instantly. Plus, 100% rebates for your Netflix, Spotify, and Amazon Prime subscriptions.

Starting point is 00:12:57 Download the crypto.com app now and get $25 with the code Laura. Link in the description. In just a year and a half since launching on Mainnet, Avalanche has built a vibrant community. of builders, leaders, and innovators, expanding what's possible in Web3. And the real superpower of Avalanche is in its groundbreaking scaling design, subnets. Subnets are the future of Web3 scaling, empowering anyone to build custom, app-specific blockchains, optimized to fit the needs of any builder and user.

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Starting point is 00:14:03 Well, statistically speaking. Nah, no more statistically speaking. I want hot takes. I want knee-jerk reality. actions. That's not really what I do. Is that because you don't have any knees? Or? The score bet. Trusted sports content, seamless sports betting. Download today. 19 plus, Ontario only. If you have questions or concerns about your gambling or the gambling of someone close to you, please go to conixonterio.ca. Back to my conversation with Jason. When you talk about how the money laundering charge is sort of a strange fit, one other question I did see raised on.

Starting point is 00:14:38 Twitter was that Chastain had been moving money between self-hosted wallets. And some people wondered, does that mean that that behavior is classified as money laundering? Or is it just in this case because of the intent of what he was doing? What's your take on that question? I think it's an excellent question. And I guess shout out to crypto Twitter for raising the good ones. Moving something between unhosted wallets or self-hosted wallets itself seems hard to say is money laundering. I mean, this is the same thing as using tornado cash. If I took all of my crypto right now, put it into tornado cash and brought it back, not doing anything else remotely illegal, that in and of itself is not illegal. If you committed a crime and then tried to obscure

Starting point is 00:15:29 were the trail of that money by putting it through tornado cash or other means that could arguably, arguably be money laundering. So again, we come up to the question that we talked about before. If he had the proceeds of the crime and he was moving them from wallet to wallet to wallet in some attempt to hide his trail, one could make an argument that that would be money laundering. Now, I don't think it's a very strong argument, right? This isn't legal advice, but if you're going to commit crimes. It's usually not a good idea to do it, you know, on public blockchains that leave an immutable, permanent trace of your activity. That's not legal advice. The legal advice is like don't commit crime. But if you're going to do it, leaving a trace like that doesn't strike

Starting point is 00:16:14 me as as very effective money laundering. Now, of course, ineffective criminals are punished all the time, right? If you try something and you do it in a stupid way and you are caught, you can't say what I did was so stupid you couldn't possibly have believed I was trying to rob the store. Like, no, that doesn't work. But there really is a good question about whether moving money from one self-hosted wallet to another could really count as trying to hide a trail of money when the trail of money is all going to be right there for everyone to see. And of course, that's even before we get to the questions that we raised earlier about doing

Starting point is 00:16:55 that in advance of a kind of purchase that would be allegedly illegal. So overall, this case just raises a lot of interesting questions, but what would you say could be the ramifications for the wider NFT space, if any? I think that the prosecutors in the Southern District charged this one, at least on the wire fraud, in a very smart way for a couple of reasons. one, they're not taking any position on whether an NFT or an NFT drop or drop many NFTs is or isn't a securities offering. They're not taking any position on whether an NFT itself is a commodity, which is a position that the CFTC would almost certainly take. So they're avoiding the questions of what is this thing exactly?

Starting point is 00:17:48 and they're focusing more on the nature of a fraudulent scheme, right? It doesn't matter in this case whether it was an NFT or whether Mr. Chastain was an employee at Foot Locker, right? And in the back of the store for two weeks, they had a pair of Air Jordans that weren't selling. So he found out that they were going to put them in the front window the next day. So he purchases them himself without telling anyone, they go into the front window and all of a sudden, because of their featured placement, they're much more expensive, and he plays middleman and gets to take that, skim that profit off the top for himself.

Starting point is 00:18:26 That's effectively exactly what's happened here. And in that case, it doesn't matter whether the Air Jordans or securities or commodities or anything else. They're just sneakers. So it doesn't matter in that case what this is. So to answer your question, I'm not actually sure this case has a lot of deeper ramifications for the NFT space if it plays out exactly as alleged. A lot of us in the space, the crypto space, have been warning literally for years

Starting point is 00:18:57 that insider trading charges are coming at some point. But you don't really have to get to these notions of whether there's securities, whether they're commodities. If it's a criminal action, it can be brought under wire fraud. Of course, there's a higher burden. The burden of proof is higher, right? It's innocence until proven guilty. You have to prove that he's guilty beyond a reasonable doubt, whereas the SEC and CFTC have

Starting point is 00:19:22 just preponderance of the evidence standards. So we've got an easier time. That said, the DOJ doesn't have to show what the NFT or any other coin or token or anything is. The SEC and CFTC would have to show those. However, the CFTC should probably have a fairly easy job of showing that any token is. a commodity. We've already seen two federal judges in Brooklyn and then in Massachusetts hold that the CFTC has broad anti-fraud and anti-manipulation authority over cryptocurrency. Whether the courts would extend that to NFTs as well is an open question. It's an interesting

Starting point is 00:20:05 one we can get into. But on the rationale of those cases, it seems a very short step to conclude that a court could conclude or would conclude that the NFTs or commodities that are protected under the CFDC's anti-fraud rules. One other instance, I think that this is quite reminiscent of are how when coins are about to be listed at Coinbase or when there's about to be an announcement that they'll be listed, the price of those coins has seemed to be moving up in the days ahead of those kinds of things happening. So how do you think this case might affect policies at places like Coinbase? Any platform that is listing tokens should have for its own employees an insider trading policy,

Starting point is 00:20:59 a policy that spells out for employees what they can be doing and what they can't be doing, what they should be doing, what they shouldn't be doing. And among those rules really has to be the sort of core rule here. If you have information about a particular coin or token, you should not be trading on that. These rules are very familiar in the corporate world. Most companies, law firms have insider trading policies where if the law firm, for example, is representing a publicly traded company, people have a law firm who may be in possession of confidential information about the client. They shouldn't be trading that. Crypto companies need to adopt these kinds of policies and enforce these kinds of policies. Otherwise, I've been saying

Starting point is 00:21:46 for years, there are going to be issues where, as you said, the price starts creeping up before something is publicly offered or publicly listed. And inevitably, we're going to find that there were people on the inside. Maybe it was some insiders who were buying up the coin because they knew the price was about to pop. So folks in the crypto world, my friends, if you're working for her project and you know that your coin is about to pop because of an imminent listing or something else, please don't trade. Talk to a lawyer. Don't get yourself in trouble here. Going back to the Chastain case from a legal process standpoint, what happens from here on out? So Mr. Chastain has been indicted. I believe that he has been released on bail. And, you know,

Starting point is 00:22:34 in the coming days, we're going to see a process where the prosecutors have to turn over all the they have to Mr. Chastain and his counsel. There may be some procedural wrangling about, for example, whether the evidence is admissible, whether any of the evidence should be suppressed. But ultimately, unless there is a plea agreement, there will be a trial. And the government will put on its case. Mr. Chastain has a right to remain silent so we can testify or not as he and his lawyers decide. And it's possible that we'll have a jury decide. If there's no plea agreement, then it will go to a jury. But even then, that's not necessarily the end of the analysis, because some of the key cases that have been decided in wire fraud and insider trading

Starting point is 00:23:24 have gone up through the trial courts and to the appellate courts. So we talked earlier about the Chastman case on which there was a conviction at the district court, an appeal to the second Circuit and then a reappeal it was heard on bond the entire Second Circuit heard the appeal and vacated the convictions going even further there was a case back in in the 1980s where a report called carpenter where a reporter at the wall street journal was writing an article where he would talk about you know what what stocks are are hot or what things are being considered and he saw pretty reliably that when they published the information about these stocks, the prices would go up. So he was tipping that he was going to be writing about those stocks.

Starting point is 00:24:14 And that case went all the way to the Supreme Court. And the Supreme Court unanimously held that that could be wire fraud and in insider trading. And so one other thing that I wanted to ask about was I noticed a lot of people commenting on how the charges each potentially could be, you know, for sentences of 20 years each, so 40 years total. And I saw some people wondering why it is that the potential sentence for each charge is so long and also what the odds were that you thought he might have to serve some jail time if convicted. Right. Well, there's a long time between here and any jail time. I mean, obviously, first you would have to be convicted. But the maximum sentences are just that. They're statutory maximums. There are

Starting point is 00:25:03 is a complicated federal sentencing guideline system that deals with the severity of the crimes, how much money he made in these instances. And there are statutory ranges that can be calculated from the guidelines that after conviction, if he were convicted here, or if he pled guilty, the prosecutors would argue for what they thought was appropriate within the guidelines. they might even argue for an upward or a downward departure. Usually the prosecutors argue for upward if they're going to argue at all. The defense can argue within those guidelines as well and argue for the lower end of the range or a downward departure.

Starting point is 00:25:43 And then ultimately the judge would hand down whatever the sentence is. And we can see that those very wildly. So for example, in the Bitmex case with Arthur Hayes and his compatriots, they eventually pled guilty. and the crimes that Mr. Hayes was alleged to have committed were, in addition to other things, money laundering or evasion of the Bank Secrecy Act, a violation of the Bank Secrecy Act. The statutory maximums for those are also very high, but at the end of the day, he got a few months of house arrest and no time actually behind bars. This is something that we see very often. These statutory maxims can be very, very high.

Starting point is 00:26:29 And the unfortunate effect, in my view, is it gets defendants to plea because nobody wants to go to trial and potentially face that, even though it's very rare for someone to actually be sentenced to the full amount of those sentences. All right. Well, we will have to see what happens. I'm sure a lot of people will be watching this case. Thank you so much for coming on Unchained. Great to be with you. Don't forget, next up is the weekly news recap. Stick around for this week in crypto after this short break. Hey, builders, looking for one of the best scaling solutions in crypto? That's easy. Avalanche's breakthrough subnet design

Starting point is 00:27:08 lets you minimize transaction costs and maximize your speed, consistency, and user experience. To experience Web3 like never before, head to avox.network to learn more. Investing is all about the future. So what do you think is going to happen? Bitcoin is sort of inevitable at this point. I think it would come down to precious metals. I hope we don't go cashless. I would say land is a safe investment.

Starting point is 00:27:40 Technology companies. Solar energy. Robotic pollinators might be a thing. A wrestler to face a robot, that will have to happen. So whatever you think is going to happen in the future, you can invest in it at Wealth Simple. Start now at WealthSimple.com. Thanks for tuning in to this week's news recap.

Starting point is 00:28:00 Ethereum's big dress rehearsal for The Merge is underway. Ethereum's oldest proof-of-work TestNet has begun its transition to proof of stake, according to Ethereum core developer Tim Beko, who described the event as the network's first dress rehearsal for minors. The transition, better known as the Merge, is scheduled to occur on the Robson TestNet, around June 8th, about 10 days after new Robson beacon chain was launched on May 30th. Rovston must activate its Belatrix upgrade to make the proof of work chain merge compatible

Starting point is 00:28:35 and trigger a terminal total difficulty or TTD hash rate number on the proof of work chain. Once both of those occur, which is estimated to be around June 8th, the merge should occur in two epochs, or approximately 13 minutes. This is the final testing state. for Ethereum. Previously, testing had been implemented on clients and shadow forks. Robsden is the first public test net to undergo the merge. After Robsden, Gorley and Spolia will also be put to the test. The Robson news comes just a week after Ethereum's beacon chain experienced a seven-block reorg, meaning two beacon chains were briefly running in parallel as nodes attempted to find consensus due to some validators running updated software, which process blocks faster than others.

Starting point is 00:29:26 Eventually, after seven blocks, the validators agreed on the correct chain, resolving the discrepancy. The core issue of the reorg was validators not running upgraded software. It will be mandatory to upgrade before the merge occurs. Speaking of Ethereum and the merge, a recent report from Ethereum researcher Danny Ryan noted that liquid staking services like Lido, where users can earn proof of stake yield without locking their tokens into the beacon chain, pose significant risks to Ethereum. Notably, Ryan suggests that liquid staking protocols should self-limit the amount of ETH they stake to avoid centralization and overall system risk. For example, Ryan wrote, if pooled stake under one liquid staking

Starting point is 00:30:14 derivatives protocol exceeds 50%, this pooled stake gains the ability to sensor blocks. In a regulatory censorship attack, we now have a distinct entity, the governance token holders, that a regulator can make requests of censorship. Depending on the token distribution, this is likely a much simpler regulatory target than the Ethereum network as a whole. Roll-up token OP stumbles upon rollout. Optimism, the system is, second largest Ethereum roll-up by total value locked, officially launched its governance token OP on Tuesday via an air drop that saw 50% of OP's supply released. However, the token drop was not without its issues as OP started trading hours before the official Optimism website was ready

Starting point is 00:31:04 to go due to traders claiming OP tokens directly from Optimism's smart contracts. The early OP trading took the optimism team by surprise. We have not officially announced yet, but we're already experiencing an all-time high demand, the team tweeted on Tuesday afternoon. We're working to heavily provision more capacity before our official announcement. In the meantime, the public RPC may respond slowly. During the time OPE became available via smart contract and the optimism front end was ready, the token dropped from a high of $4.40 to around $1, giving the highly skilled web-through users interacting directly with the smart contracts a huge advantage in trading the airdrop. At 11 a.m. we deployed and loaded our smart contract

Starting point is 00:31:53 with the OP tokens for drop number one, optimism explained. Our biggest mistake here was failing to make this contract possible. Claims were open and we had no way to stop them. OPE is trading at $1.29, giving optimism a fully diluted market capitalization of $5.4 billion. This comes in a bit lower than Masari's projection of a launch market cap of roughly $9 billion. The OP token will be used in the Optimism Collective Token House, one of two entities that will help govern the optimism treasury and network over the coming years. The CFTC goes after Gemini. The US Commodities Futures Training Commission is reportedly suing the crypto exchange, Gemini. On Thursday, Bloomberg revealed the regulator is accusing Gemini of having,

Starting point is 00:32:41 misled the CFTC in answers to questions about the trading of a potential futures contract pegged to the price of VTC on Gemini's platform in 2017 and is alleging that the Winkle Vosslet Exchange has violated the Commoddity Exchange Act along with various regulations. Solana goes down again. According to data from Salana's status page, the main net blockchain went down for four hours and ten minutes on Wednesday. The network was restarted late, Wednesday afternoon after coordination by Salana validators on a Google Doc. Based on a report from Solana, the network was taken down due to a durable non-spug that led to non-determinism in the blockchain where nodes generated different results for the same block.

Starting point is 00:33:28 Notably, this affected withdrawals from major exchanges, as explained by stakewiz.com, a Salana validator on Twitter. A durable nonce is a way in which a transaction can be signed offline. ahead of time without requiring a recent block hash, which expires after two minutes. Usage has recently increased, particularly by exchanges, possibly due to their cold storage setups. Network outages are becoming a trend for Solana. The network also faced two hours and five hours of downtime, respectively, on April 30th and May 1st of this year. Salana also experienced downtimes of 16, 8, and 10 hours in January 2022. and 17 hours in September 2021.

Starting point is 00:34:15 Furthermore, Salana recently lost track of real-world time and is currently 30 minutes behind schedule due to slot times executing at a slower than expected pace. While this does not have any real effect on the network, it does hold economic consequences for the sole stakers as slower slot times mean less staking rewards. Tara suffered a $90 million hack months ago and nobody noticed until now.

Starting point is 00:34:42 A $90 million exploit from October on Mirror Protocol, a synthetic asset platform on Terra, was discovered this week by a blockchain analyst who goes by the moniker Fat Man. BlockSec, a blockchain security firm, also confirmed the exploit. Due to buggy code, a hacker was able to drain $90 million from Mirror due to a flaw that allowed an attacker

Starting point is 00:35:04 to use a list of duplicate IDs to unlock more collateral than they had. had. The bug has since been rectified, though it is unclear whether Mirror developers were aware of the hack when fixing it. Mirror joins Ronan as the second time a significant hack when unnoticed for a substantial period despite the public on-chain nature of the exploits. In addition to the $90 million hack, Fat Man also pointed out another mirror attack that allegedly happened this week, which saw over $2 million drained from the protocol due to a bug in a lunaclassian. pricing oracle. As a press time, this has yet to be confirmed. Tech experts criticize crypto.

Starting point is 00:35:47 A group of 26 tech experts in academics published a letter to U.S. lawmakers that took aim at the crypto industry. The group included the principal engineer at Google Cloud, Kelsey Hightower, Harvard lecturer Bruce Schneier, along with noted crypto critics David Gerard, Molly White, and Stephen Deal. The group urged pro-crypto lawmakers such as Senators Ron Wyden, Patrick Toomey and Maxine Waters to take a skeptical approach towards crypto assets and to resist pressure from crypto lobbyists because blockchain technology will remain forever unsuitable as a foundation for a large-scale economic activity. Five on-chain stats to summarize May. The first stat, three. Through the end of May, only three tokens in the top 100 by market cap, BitFinex as Leo, Tron's TRX,

Starting point is 00:36:41 M. Paxos's Pax Gold are up year-to-date. Notably, Terra Classic is down 100% year-to-date, but is still the 82nd largest asset by market capitalization. The second stat, 53,000. On May 31st, optimism saw 53,000 unique addresses do something on its blockchain. Its previous all-time high, 13,300. The third stat, 228.2,000. Bitcoin's hash rate hit an all-time high on May 6th at 228.51 terra-hashes. Fourth stat, 51.75. Ethereum NFT sales volume more than halved in May compared to April, according to data from Cryptoslam.

Starting point is 00:37:30 Interestingly, Salana NFT volume only decreased by 18.43%. And finally, $105.52 billion. The difference between the Defi market cap on May 1st and May 31st, total value locked across the DeFi ecosystem fell from $247 billion to $142 billion in May, as data from Defi Lama shows. Time for Fun Bids! If Kobe were in charge, nobody would get an airdrop. Optimism's airdrop, as explained above, was somewhat controversial this week due to a messy rollout. The air drop became even more contentious this week when Zero X-Drop. John posted on Optimism's governance forum, calling for all OP sellers to be cut off from future

Starting point is 00:38:16 OP air drops. Kobe, a pseudo-famous crypto expert, took umbrage with the idea in his troll-centric way. I was extremely pleased to see this proposal. Cancelling the future airdrops of those who have sold their initial OP air drop seems sensible, well-considered, and targets the heart of any crypto protocol. The price of its token, wrote Kobe in his parody governance proposal, He went on to propose exceedingly sarcastic ideas, like canceling the OP air drop for addresses that sold any tokens in the past six months, physically beating up any O.P. sellers. And my favorite, considering issuing debt tokens that are acceptable by local debt collection agencies as an added revenue stream for optimism. Seems like the optimism governance structure

Starting point is 00:39:06 is off to a good start. This week in crypto adoption, space burritos, and Kanye. Despite a downmarket, C, Gemini laying off 10% of its staff due to a crypto winter, there was still a wide variety of big names announcing crypto adoption. Elon Musk announced last Friday that SpaceX merchandise will soon be purchasable with Doge. So if you've been dying to buy that $45Kids SpaceX spacesuit 1Z but haven't wanted to transact with Fiat, then your time is coming. Chipotle, the popular burrito-based restaurant chain, is now accepting BTC and ETH as payment through Flexa, a digital payments platform. And finally, Kanye West's Yeez's brand filed 17 trademark applications for blockchain-based assets, including collectibles, currencies, and tokens. Thanks so much for joining us today.

Starting point is 00:40:06 To learn more about Jason and the Nate Chastain case, check out the show notes for this episode. Unchained is produced by me, Laura Shin, without from Anthony Youne, Daniel Nuss, Mark Murdoch, Shashonk, and CLK transcription. Thanks for listening.

Unchained - The Department of Justice Goes After Its First NFT Insider Trading Case - Ep 359

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