Swaprum decentralized exchange rug pulls for almost $3 million

Decentralized exchange Swaprum, a project on the Arbitrum layer-2 network, suddenly disappeared with around 1,628 ETH (~$2.96 million) in an apparent rug pull. The thieves then mixed the money through Tornado Cash.

The project had been audited by blockchain security firm CertiK, and displayed the "audited by CertiK" badge on their website. This added to criticisms of CertiK, who have come under fire for auditing multiple projects that later turned out to be scams. CertiK defended themselves, writing that, "As an auditor, we cannot force projects to implement our recommendations, but we can clearly and publicly call out vulnerabilities where we find them". They argued that they had identified vulnerabilities within their audit that ultimately allowed for the exploit, including the high degree of centralization and the upgradability of the smart contracts.

Sam Altman's Worldcoin project incentivizes a black market for biometric data taken from people in developing nations

"Show me the incentive and I will show you the outcome."

Sam Altman's Worldcoin project, a dystopian effort to use chrome orbs to scan the irises of people (often in developing nations) in exchange for vague promises of crypto compensation, is encountering even more difficulties. In April 2022, BuzzFeed News and MIT Technology Review both published in-depth reporting on some of the technical and ethical issues the project has run up against.

Now, the project is facing reports that people in China, who are not allowed to sign up legitimately, have been purchasing iris scans from individuals in Africa and Southeast Asia in order to circumvent the restriction. According to the news outlet BlockBeats, Chinese individuals have been engaging in "eyeball speculation": buying biometric data scanned en masse from villagers in Cambodia, Kenya, and elsewhere by people who then sell it for $30 or less, allowing the buyer to receive the associated Worldcoin payout (currently ~$20).

Worldcoin has said they are rolling out various measures to try to discourage this activity, including changing the in-person sign-up process. However, the project acknowledged that they have not figured out how to prevent this, writing: "Despite these precautions, it is important to acknowledge that they do not entirely safeguard against collusion or other attempts to bypass the one-person-one-proof principle. To address these challenges, innovative ideas in mechanism design and the attribution of social relationships will be necessary."

Former Fabric CFO accused of siphoning $35 million into his crypto startup and losing it all

Black and white headshot of Nevin ShettyNevin Shetty (attribution)
Nevin Shetty, the former chief financial officer of the Fabric e-commerce platform, was federally indicted for wire fraud after allegedly misappropriating $35 million from Fabric to put into his cryptocurrency platform HighTower. Shetty stole the money in April 2022, shortly after being told he would be fired from Fabric for performance reasons.

According to the grand jury indictment, Shetty planned to put the funds into cryptocurrency positions that "could have yielded returns of 20 percent or more annually", and planned to return 6% to Fabric, keeping the difference. This so-called "investment" contradicted the conservative investment strategy that Shetty had helped to draft for Fabric, and he concealed both the existence of the transfer and his involvement with HighTower.

Shetty "lost virtually all of [Fabric's] money" "within a matter of weeks", at which point he fessed up to Fabric. Shetty had placed all of the funds into protocols based around the Terra stablecoin, which collapsed dramatically only a month later.

Shetty has pled not guilty, and has been released on bond.

Traders lose more than $15 million to phishing website impersonating crypto exchange HitBTC

Blockchain security firm SlowMist has reported that a phishing website appearing to be the real cryptocurrency exchange HitBTC has stolen more than $15 million worth of Bitcoin, Tether, and Ether from users believing it to be the real thing. Users who didn't notice they were accessing a site with the URL hitbt2c.lol instead of hitbtc.com approved transactions to swap their crypto assets, only to find the site drained their wallets.

South Korean legislator Kim Nam-kuk resigns over allegations of improper crypto dealings

Photograph of Kim Nam-kukKim Nam-kuk (attribution)
South Korean lawmaker Kim Nam-kuk has resigned over a cryptocurrency scandal. On May 8, 2023, The Korea Times reported that Kim cashed out around 800,000 Wemix tokens priced at around ₩6 billion (~$4.5 million) in previously unreported cryptocurrency assets shortly before Korea's March 2022 imposition of the travel rule, which requires disclosures around the identities of those involved in large crypto transactions. Kim denied the allegations, claiming he had simply moved the assets to another exchange. Other legislators and citizens expressed shock at Kim's apparent crypto wealth, as he had portrayed himself as someone who was not affluent.

Other concerns arose regarding the discovery of the assets. Some were worried about possible conflicts of interest, particularly in relation to Kim's 2021 proposal of a bill that would delay taxation of crypto profits. Others were worried about the source of the funds used by Kim for crypto trading; Kim claims he did not receive money from anyone to use for trading, and obtained the money through the sale of stocks.

On May 10, the Democratic Party recommended Kim sell his crypto holdings, and launched an investigation. Kim said later that day that he would perform the sales, and "transparently disclose data to the investigation team and undergo the inquiry faithfully".

On May 14, Kim resigned from the Democratic Party "for a while", continuing to deny the allegations but expressing wishes to not burden the party and its members over the controversy.

The subsequent day, Korean authorities raided the offices of Korean crypto exchanges Bithumb and Upbit in connection to the scandal, seeking transaction records and other information. Kim was reported to use those services for his crypto wallets.

a16z-backed Mecha Fight Club NFT robot cockfighting game put on ice as maker pivots to AI

A robotic chicken with a white and blue chassisMechaFightClub #6185 "Jacques Strap" (attribution)
A year ago, Andreessen Horowitz general partner Arianna Simpson wrote about the firm's investment into Irreverent Labs. Simpson had joined their first $5 million funding round, and Andreessen Horowitz led their $40 million Series A. The company had yet to produce any product, but successfully pitched Simpson on what she described as "some sort of chicken game".

Now, the company has announced that the project will be paused "for the indefinite future", blaming "lack of clarity" and "regulatory confusion" in the United States. The company simultaneously announced "SOL 4 Cocks", in which they will repurchase the Mecha Fight Club NFTs for 18 SOL (~$380). The NFTs had originally minted for 6.969 SOL (~$290 on mint date).

Irreverent Labs' website and social media now describe the company as an AI firm building "text to 3D and video prediction tools that facilitate the creation of AI-generated 3D content".

Fractional NFT ownership platform Tessera shuts down

If you've found yourself thinking "man, I wish I could buy a hundredth of an NFT", you now have one fewer options. Andy Chorlian, co-founder and CEO of fractional NFT platform Tessera — originally called Fractional — announced that it and its sibling company Escher will be winding down. In the announcement, he wrote that it was related to their "financial situation", and that "we wanted to make this decision while we're still in a financial position to do this responsibly".

The decision was announced only a few weeks after the US Department of Justice announced charges against a group of individuals including Chorlian. Chorlian was charged with conspiracy to commit securities price manipulation and wire fraud in connection to an alleged scheme to manipulate the market for the HYDRO crypto token. If convicted, Chorlian faces a maximum of five years in prison.

Citing regulatory concerns, Bakkt delists 25 of 36 crypto tokens on newly acquired Apex Crypto

The American corporation Bakkt recently acquired Apex Crypto, a Chicago-based crypto trading service. Bakkt shares a majority owner with the New York Stock Exchange. Shortly after the deal closed, Bakkt delisted 70% of the tokens on the platform, including major tokens Aave (AAVE), ApeCoin (APE), Avalanche (AVAX), Chainlink (LINK), Fantom (FTM), Filecoin (FIL),[d] Maker DAO (MKR), Stellar (XLM), and others.

A spokesperson stated that the delisting was a reaction to "the most up-to-date regulatory guidance and the latest industry developments". The decision is likely related to mounting industry pressure, and statements from SEC Chair Gary Gensler that most crypto assets are securities.

Binance exits Canada

Binance announced they would be exiting Canada, "proactively withdrawing" ahead of stablecoin regulation and crypto investment limits. As is becoming a trend in the industry, crypto exchanges and other platforms appear to be finding investor protection to be fundamentally incompatible with their business model.

This is only the latest in a string of events involving regulatory pressure on Binance. In April, Binance canceled the acquisition of the bankrupt Voyager platform by its Binance.US arm, citing a "hostile and uncertain regulatory climate in the US". This move came shortly after a March lawsuit from the US CFTC against Binance and its CEO. Elsewhere, Binance closed its derivatives arm in Australia in April, citing issues with the Australian securities regulator.

Aragon DAO faces governance crisis

As the Aragon Association took steps to "progressively decentralize" their centralized project by assigning more control to the Aragon DAO, they encountered some challenges. Aragon, somewhat ironically, is a platform for creating and running DAOs that has been "stewarded" by the Aragon Association, a non-profit run by a small committee.

In June and October 2022, the Aragon DAO — that is, all holders of the $ANT token or (later) their delegates — voted on several proposals supporting a move to place the Aragon treasury under DAO control. The treasury is a pool of crypto assets currently priced at around $174 million. However, the tokens continued to remain under control of the Aragon Association.

On May 9, 2023, the Aragon Association announced that they would not be following through with the treasury change, and instead would be "repurposing the Aragon DAO into a grants program". They attributed the decision to "coordinated social engineering and 51% attack" on the DAO that began shortly after a small portion of the treasury assets were transferred.

A week before the announcement, Aragon also banned a group of token holders from the group's Discord channel. Aragon characterized the group as appearing "coordinated" and alleged the group was "engaging in harassment". They claimed the group were members of the "Risk Free Value Raiders", which they described as "a sophisticated, well-resourced, and coordinated group of actors that target crypto projects with an imbalance between the value of their token and treasury". They also accused the group and its members of coordinating governance attacks on other DAOs, including Invictus DAO and Mango Markets. Aragon wrote that they believed the RFV Raiders were aiming to "[extract] value from Aragon for financial profit" rather than pursue the DAO's goals of supporting developers building DAO infrastructure.

One of the banned members told a different story, publishing and later taking down a statement in which he claimed that they were trying to get answers to questions about why the Aragon team was so slow to enact the DAO vote. "We find these bans, failure to empower the community with treasury transfers, and overall lack of transparency to be frustrating and against the ethos of both what DAOs are meant to be and what Aragon team members have repeatedly said they stood for. However, these actions have become a common pattern for Aragon," he wrote.

On May 11, Aragon apologized for how they handled the crisis, unbanned the banned Discord members, and announced that they would "keep following a gradual [treasury] transfer approach, making sure it aligns with the mission of the project", but continued to characterize the members as attackers and reiterated that "we won’t stand for hostile and coordinated attacks".

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