Unchained - What Does the Curve Crisis Say About DeFi? - Ep. 527

Episode Date: August 4, 2023

While it’s now mostly contained, the Curve crisis has exposed some of the systemic risks in the world of DeFi. Sam Kazemian, founder of Frax Finance, joins the show to discuss what DeFi needs to do to get better – and what builders should learn from a novel attack that was ultimately about much more than $50 million in drained funds. Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Stitcher, Castbox, Google Podcasts, Amazon Music, or on your favorite podcast platform. Show highlights: how the Curve exploit occurred and why this hack is different  how the attack triggered a crisis in major lending platforms like Aave, Fraxlend, and Abracadabra what Curve founder Michael Egorov’s solution was to the potential liquidation of his several loans whether this situation proves that DeFi is not as good as promised what can be done to prevent these kinds of issues in the future, particularly with large loans in DeFi that could potentially bring down the ecosystem Thank you to our sponsors! Crypto.com Railgun DAO Arbitrum Foundation Thales DAO Guest Sam Kazemian, founder of Frax Finance Links Previous coverage on the Curve hack: The Chopping Block: Who’s to Blame for the Curve Hack? Unchained:  $52 Million Drained in Curve Finance Pools Exploit Curve Founder’s Liquidation Could Trigger Chaos for DeFi Curve Exploit Results in Largest MEV Block Rewards in Ethereum’s History CoinDesk:  Curve Founder Deploys New Liquidity Pool to Address FRAX Debt Situation Spooked by Curve Liquidation Threat, DeFi Protocols Shore Up Defenses Aave Should Block Curve Token Borrowing, Risk Management Firm Proposes After the Curve Attack: What's Next for DeFi?  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 eight years ago, and as a senior editor at Forbes, was the first Main Tree Meteorporter to cover cryptocurrency full-time. This is the August 4th, 2023 episode of Unchained. Today's episode is brought to you by overtime markets, your premier Web3 sportsbook. The innovative protocol is changing the game one match at a time. Powered by Thales, explore more at overtimemarkets.xyZ. Ever wanted to use Defi without being tracked? Railgun is a leading defy privacy solution on Ethereum, BSC, Arbitrum, and Polygon.

Shield your funds and use them privately in your favorite defy apps, while Railgun's cutting-edge zero-knowledge system encrypts your data from public view. Yes, that includes Dextrating. Visit Railgun.org or use the Railway app at Railway. way.xyz. With the crypto.com app, you can buy, trade, and spend crypto in one place. Download and get $25 with the code Laura. Link in the description.

Arbitrum's leading layer two scaling solution offers you ultra-cheap and lightning-fast transactions, all with security rooted on Ethereum. Visit arbitram.io today. Today's guest is Sam Kasmian, founder of Frax Finance. Welcome, Sam. Hey, Laura. It's good to be with you. This has been quite the week in Defi.

It started with a pretty small hack of some so-called factory pulls on Curve. What happened and how did the exploit work? Yeah, so to kind of give some background here, Curve and kind of Uniswap are probably thought of as like the most blue chip kind of protocols in all of Defi, right? In fact, Brax uses Curve extensively. I'll kind of get into that in a little bit. But one thing that set this kind of exploit apart was that it was a compiler level bug.

And so what that basically means is it was not something typical that you might see where someone who was writing the smart contracts, you know, forgot to check some condition or they, you know, used some kind of poor rounding situation or something like that. The actual contract was coded properly. It had everything written properly the curve core developers who are some of the most veteran and kind of OG in the space. They know what they're doing. There's a specific type of thing called a re-entrancy bug, which a lot of just libraries have reentency guards. It basically allows basically make sure that essentially the token accounting for when you withdraw and deposit tokens is done, properly. And obviously for something like an AMM pool, right, you want to make sure that swapping tokens, LPing tokens, which means depositing two sides or one side of a token is done

properly. That was all coded fine. So just to be clear about this, it was not someone forgot to do some kind of reentrancy check. It was the Viper compiler. And so Viper is a smart contract language that's written in Python. So a lot of people probably know Python if they're developer, everyone's heard of it before, that compiles down to Ethereum EVM bytecode. Most people write things in solidity, so the solidity language as a compiler that compiles to bytecode. All of Curves software is written in Python, other big projects that use it as urine finance. But Vipers not as popular by a long shot, obviously, as solidity. So the Viper-Lang developers who write the compiler and make sure to have keep it well,

realistically don't have a lot of resources compared to kind of the solidity compiler, right? And this bug essentially for specific versions of Viper, just to kind of simplify things down, made it so even though if you write the correct code, right, you write, you know, ad re-entroncy guard or lock the actual slot that checks the balance of tokens, when it actually compiles, it does not compile into that, which is very, very scary, right? You write the code as like a developer and then you compile it. It does not actually do what it's written. And by compile, it's sort of like taking the kind of human readable developer language

into something that's like machine readable and can be executed. Is that sort of how to do it? When you compile it into op codes that the Ethereum virtual machine executes. And then that's basically what is running. the EVM on chain, right? Like people execute transactions that basically run a bunch of op codes, right? And that's not human readable, but they write code exactly, as you said, it's human readable. So the crazy thing is, I think this was July 30th, yeah.

And I was traveling, so it was a little bit hectic. Basically, I think it was the curve devs and some other guys. They found the issue, right? And I think the pools that were affected were Alchemics pools and a few other ones. And they were trying to save them because anyone that could actually come and knew what was going on, they could just drain all the money from the pools because the accounting wasn't right. The way that it was compiled, you can just basically, for example, send one token, take two out, something like that, right?

And I think the issue at hand was they weren't fast enough to actually do it before the, the attacker or attackers managed to actually hit some of these pools. I believe some of the funds were returned by different addresses that were able to essentially white hat and remove the value there, right? And what's important to note is only specific versions of a viper that were used in some of these contracts, as you said, factory pools of a specific version of a factory deployer were vulnerable. So none of the, you know, the frax pools or other pools or even the pools that have USD stable coins were affected. The type of contract that was affected was one that had ETH in it, the actual L1 token of the Ethereum blockchain, because the way that it actually

checks for reentrency is slightly different than ERC20 tokens. And that was where the actual compiler level bug was. And so that was kind of what started the whole thing. So what would you say that said about the security of defy generally, you know, we had these multiple protocols that were hit. I think it was about more than 50 million that had been stolen. Interestingly, it wasn't even

just that white hats rescued some of the money, but MEV bot operators also stepped in to kind of take money from the hackers as this was going on. But what would you say, you know, this says about defy?

Yeah, I mean, what's kind of crazy, right, is that it was obvious. There was just value there. Obviously, it was value that was not supposed to be leaked in that way. So there was a lot of both MEV happening as well as just people racing to save or other people raising to steal value and stuff like that. But overall, I think the main thing here is that we've never seen, at least I haven't seen, and I've been in kind of the Ethereum Web3 space for a really long time, a major compiler level bug, which means that the code was written correctly, it was just not compiled correctly. That is different than 99% of issues that you might see where value gets stolen, whether it's anything, right?

Whether it's, for example, a bridge hack, where like the actual solidity code, you know, didn't check something properly. Like the person writing it forgot to check something. Or like the classical stuff, you know, like the Ronan Bridge hack, right, where the keys from some employee or something that was running the bridge were compromised from some fishing attack or something like that or they got access to their servers that validated transactions or whatever. This was much more different. I think this is just a different class of vulnerability and in a different situation. So obviously, I think there's a lot of, you know, people shocked about it.

But thankfully, it didn't basically empty all of all of Curves, TVL and not all of the pools are or were vulnerable. And I think obviously the thing afterwards that I think you might possibly ask about is the ensuing situation in terms of the value of the CRV token, how this affects TVL and just the overall defy landscape, right? And because the hack was kind of the prelude to some stuff like that. But let's talk about that in conjunction with the fact that her founder Michael Igorov had taken out really large loans on obviously. on fax. I mean, this just generally created this issue that he might get liquidated once the price of curve started dropping. So talk a little bit about, you know, how all that played out.

Yeah, for sure. And so one thing I want to point out before all of this hacking stuff, which is where we started and stuff, is the loans themselves were taken out a long time ago. So basically, Michael Agarov, which I think is probably one of the smartest people in the entire space, very long-term oriented. He's actually, I think, embodies a lot of the ethos of what people think in terms of what founders should be like. For example, I try to spend, for example, all the time in the community on Telegram channels, on Twitter, answering everything I can.

I'm actually in our Telegram, which is the main place everyone asks questions. And I'm right there, both working on the protocol, design, code, everything, as well as just always conversing with, you know, the greater fractical. community. Michael is exactly the same way. He's a developer. He writes the code. He designed stuff. He wrote the original curve white paper. He's also arguably one of the few people that I would say is as active as I am. And so I don't know, when I kind of think about people who embody, you know, the founder mentality in crypto, right? You think of Stani from Avey. You think of Robert Leshner from compound. Think of Michael Igraw from Curve. And I like to, you know, embody that as much as I can.

There's a lot of people that say, for example, oh, like, it's so refreshing, Sam is always here and everyone can talk to him and stuff. And I always think, isn't that how it's always supposed to be? But it seems like it's not, right? It seems like there's kind of a lot of the CEO mentality, which is like you're kind of off in like your own kind of higher place. And then you have like community managers or something that are supposed to take care of everything for you. And I never really bought this. I never thought about anything like that. I always wanted to be part of the actual action on the ground floor, both building, talking, being a part of everything, right? And so I think Michael is exactly one of those guys, like technical, social, and everything. And kind of

the prelude to this, obviously, was he did not want to sell his CRV tokens, right? He took large loans on AVE Fraxland as well, which is a lending platform on Frax Finance. And then also, I think MIM, Abercadabra, and maybe a few other places that I might be, be forgetting. And what's kind of extra painful here is a lot of the on-chain CRV token liquidity was on curve. And it was against ETH. And like I said, before, the primary thing that was vulnerable and this compiler hack was ETH token reentrancy, the token that if it's paired against Ethereum itself. And so part of the hack not only drained all of the liquidity on chain of the CRV token, it actually gave a large amount of CRV tokens to the exploiter address, whoever the hacker might be, right?

And it also drained the liquidity. So it's like almost a double whammy, right? The liquidity is gone and the curve tokens now are in an address that presumably wants to dump them and sell them for ether something and try to get away, right? And so all in this chaos in this situation, right, you have these loans that before the exploit might have been a little bit eyebrow raising. I know there was a lot of kind of a few AVE threads on their governance forum and things like that that talked about, oh, is this too big of a loan? Is it all right? Should we change the parameters and stuff? But nothing brutal, right?

Nothing like, holy crap, this is like an implosion waiting to happen, right? but then precipitated with this, you know, extraordinary situation, the liquidity is gone. It was drained. The curve tokens, not only is the liquidity gone, but now the curve tokens are in some unknown entities hands, right? Presumably very malicious entities, right? And so this became very critical and different lending protocols work slightly differently. So one of the things with FRAXLAND that we designed, it's very unique to FRAXLEN's system, is that instead of the protocol having some fixed interest rate based on how much utilization is used in a lending pool. It also is time dependent as well. So for example, if the utilization is above 85%, for example, if that's the

equation, then every 12 hours or every half-life is what it's called, the interest rate will double, or it'll 1.5x or it'll 2.5x or whatever. And the idea behind that is the interest rate's dynamic, and it'll fluctuate based on time so that it's reactive. Both the borrower will think, okay, this is too much interest. I'm going to repay some of the loans. Or lenders will see, oh, wow, I get a lot of interest for depositing in and being a lender here, right? It's not like AVE or compound or other places where some of them have fixed interest

rates and others have linear interest rates on. So like, for example, if 90% of the assets are utilized, it's like a 6% interest rate. And it doesn't double 12, 24, 48, you know, and Fraxland is different in that way. And so what happened was, obviously, as this situation basically kind of spun out of control, everyone that was a lender and the CRV Frax lend pair, they rushed to grab their FRAX stable coins. They didn't want to lend in this situation, right? They didn't want potentially there to be a liquidation of CRV that wasn't enough to buy back enough of the dollar-frax-packed stable coin. And so what does that do? That starts doubling the interest rate of the CRV borrowers,

predominantly Michael, every 12 hours, right? So it started out as a, yeah, relatively like at 10%, then I think it got like 20, 30. And every hour it goes up, right? Because every 12 hours has to double. So everyone was just kind of refreshing the page. You know, it was 60, 70, 80. I think it got over to like 120 or something percent at the peak or obviously some good things happen. Wow. So in a moment, we're going to talk about how this all got resolved. But first, a quick word from the sponsors who make this show possible. Overtime Markets is your premier Web3 sports book. Overtime is an industry leading Web3 protocol where users can immerse themselves in the thrilling world of sports. Leveraging the benefits of decentralization and blockchain technology, overtime leads the charge in innovation, all the while offering

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Back to my conversation with Sam. So what was the resolution to this situation? Well, so far the resolution was that obviously Michael had to repay some of the debt, right, on Fraxland, at least in other places too, but predominantly the time sensitive one was Fraxland. And so, which you might have noticed, there was a large OTC deal, right, over the counter for Michael selling some of his CRV tokens to predominant people in the space like Justin. son like Machi, I believe C2TP, the founder of Convex also bought some and a few others. I believe today was also said that the CEO of Hobi Exchange also bought some. I'm not sure, but I'm trying to keep up with it. And then a lot of the debt was paid down so that the utilization rate on the FRAXLIN

pair was not something so high that it would double. In fact, the opposite happens where it slowly halves instead, because it's, it's, it's, a mirror image, the equation. So actually now the interest rate is going down, which is very manageable, right? Obviously, the entire situation is a little bit concerning, right? Because I think AVE is also thinking about what they can do. Overall, I just want to also say, for example, these loans obviously were not like something that was like nefarious. It's just that this unexpected, absolutely crazy situation with the compiler bug, in Viper, basically not only shook confidence in curve and also the CRV token, obviously,

it also took away the liquidity of the CRV token on chain and gave an unknown entity a bunch of CRV tokens, the entity that drained the pool, right? So it was almost like a triple, quadruple whammy all on top of each other, and that's really unfortunate. So what does it say that a large part of the solution here was these OTC deals? Like, what does it say about defy or do you not you know agree with how i just you know phrase that i mean yeah so i'm sure a lot of people feel this way and uh personally um i obviously as like like a founder and stuff i feel i understand both sides i feel slightly differently and and the reason for that is as as a founder i i always have this viewpoint that you know it's it's it's always the founder's role to take things

and like all the all the bad stuff that happens is is kind of the responsibility of the founder and all the good stuff that happens is everyone else and belongs to the community and that sounds really unfair but it's almost kind of like and i'm not religious or anything but it's almost kind of like a christian like a like a jesus way of thinking about it where it's your responsibility to kind of suffer the consequences if you're a founder but if you succeed it belongs to the token holders the community and just everything that kind of the world has accomplished, so to speak, but all the bad stuff is kind of your fault. And I actually think that that's just the territory with playing the role as like the creator of something. And the first

thing is like I think what would have happened otherwise, right? Like first of all, people would have said if he sold CRV tokens, he's a scam, right? And then he's just dumping on everyone. If he takes out a bunch of big loans, he's secretly just a scammer. He wants to sell a bunch of CRV tokens. If he locks them and participates in governance, he's a scammer taking control of the protocol, right? If you think about it, there's just no way out of just being labeled as kind of the bad person in like a situation when you're a founder. And I don't even say that in terms of in a bitter way. I just say that in terms of that's just the responsibility. That's what you're signing up for, right? And so, for example, in this situation, the loans were fine

overall. Obviously, maybe some of the sizes were big, but they were overall fine before this whole situation. Obviously, no one thought, what if a compiler level bug happens, then we're all in trouble, right? And so I think that the fact that there's still a lot of OTC demand and a lot of people that want to participate in the curve ecosystem is actually a good thing to actually highlight and the fact that Curve is one of the large backbones of Defi, right? I think overall the situation will be fine.

Obviously there's people that say, well, this proves like you're saying, this proves that Defi doesn't work or this proves that there's just a bunch of stuff that has to happen behind the scenes for it to work. And first of all, I think that if the lending systems other than

Fraxlan, for example, incorporated more things like FraxLen's innovations, like, like time-dependent interest rates and actually were more autonomous, this whole thing would overall just kind of fix itself, right? It would oscillate to the right kind of market system. And a lot of it was just because, for example, MIM has fixed rate interest rates. They have to just actually go in and change interest rates.

Avey has to vote on them per recommendations of like their, I think it's gauntlets, safety reports and these kinds of things. I think defy could just be a little bit more autonomous. It would be better. But I don't think there's anything wrong with a founder trying to, you know, take out some loans. Obviously, there's the meme that I think a lot of people were fixating on. I think Michael had bought some large properties in Australia, right? And regardless of what you do, forget about the specific thing, like I said, you're always playing the role as the founder of it's your fault if something happens.

if something good happens, it's not really, you can't use it as a defense when something bad happens. You're always supposed to take kind of the beating, so to speak, right? And at least that's how I view it. A lot of founders think that's unfair. A lot of people think, well, that's not right. They're treating you wrongly or they're doing this or that. I try to make sure my own view is just, it is what it is. Right. But so going forward, like, what do you think the defy community will do differently to prevent this type of situation in the future? And, you know, really what I'm talking about is two things. It's the compiler level type bugs.

And then, you know, what happened with Michael's loan situation? Yeah, the compiler stuff is just very scary because it basically makes it so that people, for example, don't want to try any different kinds of things other than solidity. I personally don't code in Viper. I think overall the Viper language will be stronger, you know, with more security audits and more attention paid to it after this situation. But obviously, that's a very tough question, and I'm not sure. In terms of loans, I think lending markets haven't had a lot of innovation to come to them.

And so, for example, FRAX, we're trying to do our part with FRAX lend in terms of how everything works there. Everything is isolated. There's new types of interest rates. There's actually something called dynamic debt restructuring, which means there can't be bad debt. Everyone just gets socialized. if there's a liquidation that doesn't cover everyone's dead.

So no one needs to run towards whatever's left and then kind of brick the pool for what's remaining for everyone that doesn't act fast enough. And I think this kind of innovation and just new features are very important to make it so that this kind of stuff doesn't really happen again. And I know there's a lot of oracle-less lending protocols, some of them you might have had on your show

or other shows. And these are supposed to be the new generation of DFI that's even more autonomous. That doesn't actually require meeting on Zoom or putting a governance vote on a forum to fix the, you know, the Kerr Founders loan situation and like convening like a risk council or something like that, right? And so we kind of need more defy stuff that's similar to UNISWOP, right, both in terms of the lending side and kind of the stable coin side where they're just autonomous and they work. All right. Well, this has been a really fascinating discussion. I mean,

there's just so many issues we could have touched on because I feel like there's even more stuff in there. But this was a really good primer. Thank you so much for explaining it all. Sure. Thanks for having me. Don't forget, next up is the weekly news recap, which this week will be presented by Unchained Contributing Editor Zach Seward. Stick around for this week in Crypto after this short break. Join over 80 million people using Crypto.com, one of the easiest places to buy, trade, and spend over 250 cryptocurrencies. Spend your crypto anywhere using the Crypto.com visa card. Get up to 5% cash back instantly, plus 100% rebates for your Netflix and Spotify subscriptions, and zero annual fees. Download the Crypto.com app now and get $25 with the code Laura. Link in the description.

Thanks for tuning in to this week's news recap. I'm Unchained Contributing Editor Zach Seward. Rosalcon's husband says he hacked Bitfinex. Ilya Dutch Liechtenstein admitted to being the original hacker behind the 2016 Bitfinex cyber attack, a theft that grew to a worth of $4.5 billion. The bombshell confession came during a plea hearing in Washington, D.C. on Thursday, where Lichtenstein pleaded guilty to laundering the stolen Bitcoin. His wife, Heather Morgan, also known as the social media rapper Rosal Khan, is set to enter her own guilty plea.

The couple had been arrested in February 2022, with the Department of Justice seizing more than 94,000 of the hacked bitcoins, marking the largest seizure in DOJ history. The couple's cooperation with authorities, including providing additional wallet addresses, holding more stolen funds, could potentially influence their sentencing. DOJ looks to cancel SBF's bail. The U.S. Department of Justice this week sought to revoke the bail of former FTX CEO Sam Bankman-Fried amid allegations of witness tampering and leaking confidential information. The DOJ claims that SBF attempted to undermine the upcoming testimony of former Alameda CEO Caroline Ellison by leaking her private diary entries to a New York Times reporter. SBF's legal team has countered these allegations,

arguing that their client's contact with the reporter was a legitimate exercise of his First Amendment rights. They maintain that the information shared was already necessary. known to the reporter and was not produced in discovery. John Reed Stark, former chief of the U.S. Securities and Exchange Commission's Office of Internet Enforcement, comments on the situation, saying that Judge Lewis Kaplan faces a tough decision. He could view SBF's actions as an effort to improperly influence witnesses and choose to either modify his bail conditions or revoke his bail entirely. FTX unveils restructuring plan. The bankruptcy estate of Crypto Exchange FTCS has unveiled a draft your organization plan that includes a potential restart of the crypto exchange for non-U.S.

customers. The plan proposes to categorize claimants into specific groups with offshore exchange users classified as dot-com customers and U.S. users as U.S. customers. Non-U.S. users could potentially receive non-cash consideration in the form of equity or tokens in a new offshore exchange. However, the plan has been met with criticism from the official committee of unsecured creditors. They expressed disappointment and not being consulted on the plan, saying that the proposal was more a collection of ideas than a concrete plant. They have called for control of any post-reorganization company to be placed in the hands of qualified parties selected by the creditors. The committee also criticized the high professional fees incurred during the bankruptcy process, which have already exceeded $330 million, making it one of the most expensive corporate bankruptcies in history. Judge disagrees with Ripple ruling. In a significant development this week, a U.S. District Judge

denied a motion to dismiss the case against Terraform Labs brought by the SEC, which alleges that TFL's crypto assets qualify as securities. Judge Jed Rakoff rejected Terraform's argument that a recent decision in the SEC's case against Ripple Labs invalidated the agency's case against them. In his order, Judge Rakeoff disagreed with the Ripple decision, stating that he did declines to draw a distinction between tokens sold directly to an institutional investor and those sold through secondary market transactions to a retail investor. This stance contradicts the Ripple ruling, where Judge Annalisa Torres deemed that XRP sold to retail investors on exchanges did not qualify as securities transactions. Justin Browder, a partner at Wilkie Far and Gallagher,

commented on Twitter that Judge Rakoff's opinion in the Terra case is, quote, far from a complete departure from the ripple holding, end quote, adding, quote, he agrees with the fundamental premise in Judge Torres' decision that tokens themselves are not investment contracts, end quote. In related news, Terraform Labs was granted permission by a U.S. federal judge to subpoena FTX for information pertinent to its defense against the SEC enforcement action.

Binance may be charged with fraud. Binance, the world's largest cryptocurrency exchange by volume, may face U.S. Department of Justice fraud charges, according to reporting by Semaphore. However, officials are reportedly cautious due to the potential for widespread industry disruption similar to the aftermath of the FDX collapse. To avoid such a scenario for commonplace investors, other options are under consideration, according to the Semaphore report. These allegations have caused a drop in the value of Bitcoin and Binance's BNB token. The development adds to Binance's existing legal,

as it was previously sued by the CFTC and the SEC for allegedly evading U.S. laws. CZ nearly shut down Binance U.S. In other Binance news, reports emerged this week that Binance CEO, CZ, considered shutting down the company's U.S. subsidiary to protect its global operations. The decision was reportedly put to a vote by the board of directors, but Binance U.S. CEO Brian Schroeder opposed the move, fearing the impact on customers. Meanwhile, Binance has denied allegations of conducting billions of dollars worth of transactions in mainland China, where cryptocurrencies are banned.

The company stated following a Wall Street Journal reports that, quote, the Binance.com website is blocked in China and is not accessible to China-based users, end quote. 3AC co-founder challenges U.S. court. In a surprising turn of events, Kyle Davies, co-founder of the collapsed crypto hedge fund Three Arrows Capital, renounced his U.S. citizenship and to conclude, declared himself a full citizen of Singapore. The move by Davies is seen as an attempt to distance himself from the jurisdiction of U.S. courts amid ongoing legal proceedings. A subpoena was recently issued by 3A.C's liquidators who are seeking information about the funds collapse. As a non-U.S.

citizen, Davies and his legal team now argue that he is not subject to the authority of U.S. courts. This development adds another layer of complexity to the legal proceedings around 3AC's bankruptcy, with the Fondo and creditors an estimated $3.5 billion. The next hearing in 3AC bankruptcy case is scheduled for August 8th. Bald token sparks controversy and speculation. The bald token, a new meme coin launched on Coinbase's Layer 2 network base, saw a dramatic fall of 90% in value after a meteoric rise in the preceding days. The plunge followed allegations of a, quote, rug pull by the token's developer,

who reportedly removed a significant portion of its liquidity from the decentralized, centralized exchange, leit swap. The developer, who remained pseudonymous, denied selling any tokens, stating that they only added and removed two-sided liquidity. However, this explanation did not quell the concerns of investors, with some arguing that adding two-sided liquidity when the price increases is effectively the same thing as selling tokens. The bald developer replied to this claim on on Twitter with only one word. Correct. Bald's sudden rise and fall has sparked a wave of speculation, with some pointing fingers at wallet activity linked to Sam Bankman-Freed's Alameda research and a halt in said activity during Bankman-Freed's recent incarceration.

On Thursday, Crypto-Slooth Zach XBT said he potentially found the person behind Bald. In a series of tweets, he showed evidence that the Bald Deployer address was linked to crypto- Twitter influencer Milky Way, who earlier this year had written, quote, part of me wants to do an experiment which wouldn't be a rug, but I won't, because in the eyes of some, it would make similar things which are definitely rugs seem more legit. End quote. Despite the controversy, the base network itself saw a surge in total value locked or TVL, reaching over $60 million ahead of its upcoming public launch. SEC charges Hex Kingpin Richard Hart. The SEC filed charges against Richard Hart this week,

the founder of Hex, Pulse Chain, and PulseX. The SEC says Hart raised over $1 billion through unregistered crypto offerings and defrauded investors out of $12.1 million to fund a famously lavish lifestyle, including purchasing the world's largest black diamond. Hart, a U.S. citizen, believed to be residing in Helsinki, Finland, is accused of promoting his offerings as a, quote, pathway to grandiose wealth, end quote, on YouTube and other platforms. The SEC claims that Hart's disclaimers that his offerings were not securities were false, including his assertion that Hex was capable of 38% annual returns. The SEC seeks civil fines, and the clawback of gains from alleged wrongdoing that began in late 2019.

Consensus faces legal challenge over Metamask. In a recent lawsuit, entrepreneur Joel Dietz accused blockchain software firm consensus of appropriating the idea for Metamask, the most popular web-based crypto wallet. Deets claims he initially developed the intellectual property for an in-browser crypto wallet in a project called Vapor in 2014. He alleges that Aaron Davis, whom he recruited for quoting help, went on to found Meta Mask with Dan Finlay. Consensus, however, refutes the allegations.

A spokesperson said, quote, Joel Dietz is not a founder of Metamask, has no relation to Metamask or any of its technology, and we look forward to the court promptly disposing of these frivolous claims, end quote. And one last fun bit for you. A New York Times report revealed that besieged U.S. Congressman George Santos used his political connections to promote an alleged crypto scam.

It's better if you hear it from comedian Ginny Hogan. There's some sort of law in physics that all things that are inevitable must come to pass and everything that must be will one day be, all of which is to say, yes, of course, George Santos is now involved in a crypto scandal. A campaign donor told the New York Times that Santos and two others tried a Nigerian prince-type scam on him. They approached him saying that there was a wealthy Polish citizen who wanted to buy crypto but couldn't because his assets were frozen and then asked this donor to start an LLC to gain

access to the funds. In Santos' defense, the intersection of the Venn diagram of people whose assets are frozen and people who want to buy crypto is pretty big. The donor didn't go through with it, but I do believe his story because it's honestly really, really, really, really vulnerable to admit that you donated to George Santos. You wouldn't just make something like that up. I don't understand why George Santos can't just get into insider trading like a normal politician. At least then, he'd still be welcome in the Hamptons.

But honestly, I've always believed that if George Santos wants people to believe he's innocent, he should just say he's guilty. And that is a wrap. Thanks so much for joining us today. To learn more about the stories mentioned here, check out the show notes for this episode. If you'd like to read the weekly recap, you can subscribe to our substack

and receive it in your email every Friday for free. You can find the link in the show notes as well. Unchained is produced by Laura Shin with help from myself, Kevin Fuchs, Matt Pilcher, Juan Aronovich, Sam Shri-Rom, Ginny Hogan, Leandro Camino, Pam Majumdharamadar, Shashank and Margaret Correa. Thanks so much for listening.