Web3 is Going Just Great

November 30, 2023

DraftKings was secretly paid to run a Polygon network validator

In March 2022, Polygon boasted about how "The decision by DraftKings, a NASDAQ-listed company, to take an active role in day-to-day operations of a major network is an important adoption milestone for the blockchain industry." The company had agreed to run a validator on the network, and Polygon claimed in a press release at the time that DraftKings would be "an equal community member" among other validators.

However, it turns out that Polygon allocated tens of millions of tokens to the DraftKings validator — far more than they allocated to other validators — on which DraftKings earned a highly unusual 100% of staking rewards. Polygon also sent the company 2.5 million of their MATIC tokens (priced at just over $1.5 million at the time), and it's unclear if this was a purchase by DraftKings or a transfer as a part of the deal.

In October 2023, Polygon kicked DraftKings off the network as the validator had failed to maintain performance standards. Throughout the period that the DraftKings maintained the validator, they earned millions of dollars through the undisclosed partnership.

"Polygon Gave DraftKings Multimillion-Dollar Edge in Special Staking Relationship", CoinDesk [archive]

November 20, 2023

DOJ cracks down on $225 million crypto romance scam

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At least according to the rather shady Tether stablecoin provider, the U.S. Department of Justice has been working on an investigation into a massive "pig butchering" romance scam and human trafficking operation based out of Southeast Asia.

According to Tether, they "voluntarily fr[oze] approximately 225 million in USDT tokens" in connection to the investigation.

Some romance scammers hoping to lure victims into sending them cryptocurrencies are themselves victims of human trafficking operations, where they are held victim and forced to send such messages.

"Following Investigations by Tether, OKX, and the U.S. Department of Justice, Tether Voluntarily Freezes 225M in Stolen USDT Linked to International Crime Syndicate", Tether [archive]

November 7, 2023

Wintermute declares friendship over with Near Foundation and Aurora Labs after they refuse to send $11 million

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"Public service announcement or 'how we are not really friends with Near Foundation and Aurora Labs going forward'", wrote Wintermute CEO Evgeny Gaevoy on Twitter. He launched into a thread accusing Near and Aurora of refusing to honor a previous agreement to facilitate the redemption of around 11.2 million USN, the de-pegged stablecoin of the Near network. Wintermute said they had helped FTX to sell that quantity of the USN tokens, providing them with dollars to disburse to creditors, under the belief that Near and Aurora would help them honor the USN redemptions at $1.

However, Near later decided it would not honor the redemption, accusing Wintermute of trying to pull off an arbitrage trade with the distressed asset. They also, somewhat curiously, claimed that the funds that were provided to Wintermute by the FTX estate may have been the tied to illegal activities. Aurora also described Wintermute's claims as "unfounded", and accused Wntermute of "tr[ying] to exploit the programme to profit from the purchase of distressed assets from the Alameda estate".

Wintermute has promised to "pursue all legal avenues" against the Near Foundation and Aurora Labs.

"Wintermute claims Near backed out of $11M stablecoin redemption deal", CoinTelegraph [archive]
Tweet thread by Evgeny Gaevoy [archive]
"Our Response to Wintermute's claim", Aurora Labs [archive]

October 19, 2023

Gemini, Genesis, and DCG sued over $1 billion alleged fraud

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The New York Attorney General filed suit against Gemini, Genesis, and Digital Currency Group (DCG), a group of companies that have been involved in a bitter feud amongst themselves. As Genesis undergoes bankrutpcy proceedings, Gemini and its Winklevoss twin cofounders have been firing accusations of fraud at them as they try to recover around $900 million of their customer funds that were with Genesis when it collapsed.

Now, the New York Attorney General is alleging that Gemini repeatedly lied to investors about its Gemini Earn program, assuring them that it was low-risk when internal analysis had revealed Genesis' loans to in fact be quite risky. Some personnel involved in evaluating this risk even withdrew their own funds from the program in the summer of 2022.

Genesis, DCG, and DCG CEO Barry Silbert are charged with defrauding both investors and the public when they tried to cover up $1.1 billion in losses. The lawsuit alleges that Genesis had not properly audited its borrowers, and lied to Gemini about regular reviews of borrowers' financial conditions.

In a press release, the AG claims that the companies' actions resulted in around $1 billion in losses, including in some cases their customers' entire life savings.

"Attorney General James Sues Cryptocurrency Companies Gemini, Genesis, and DCG for Defrauding Investors", press release from the Office of the New York State Attorney General [archive]

October 16, 2023

TrueUSD tries to claim no affiliation with tokens created by its deployer address, raising further questions

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A new, Euro-pegged stablecoin called $TEURO emerged on October 13, with an initial supply of around €70 million. However, TrueUSD subsequently tweeted that "we have zero affiliation with it". The post warned people to "step back and refrain from risky investments".

However, the post raised only more questions, as the $TEURO token had been deployed by the address that deployed the primary TrueUSD token. This means that either TrueUSD is lying when they claim they're unaffiliated with $TEURO, or some of their private keys were compromised, allowing an unrelated party to deploy a contract appearing to belong to them.

October 16, 2023

South Korean regulators allege Sui Foundation manipulated markets

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A lawmaker in South Korea has alleged that the Sui Foundation has engaged in market manipulation to enrich themselves. The South Korean Financial Supervisory Service reportedly launched an investigation into the distribution of the SUI token following Representative Min Byeong-deok's allegations, intending to determine whether there was truth to his claims that they had paid themselves interest by staking tokens that should have been left untouched in the non-circulating supply.

The Sui Foundation has disputed the allegations on Twitter, calling them "unfounded and materially false".

September 11, 2023

Banana Gun bot launches token, sparks rug pull fears as they disclose a bug

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The team behind Banana Gun, a Telegram bot to help "snipe" token launches, launched a token associated with the project on September 11. Only hours later, they announced in a tweet that they'd uncovered a bug in their smart contract that meant that when people sold tokens, the 4% tax that was meant to go to the project was also kept in individuals' wallets.

The team wrote in an announcement that they had no choice but to sell the treasury wallet to drain the liquidity pool, which is locked to... well, stop the project team from draining the project and rug-pulling. At the time of announcement, the project team had around 950 ETH (~$1.5 million) in the treasury wallet.

Some pointed out that they could simply set the tax to 0% and carry on without the hefty sales tax, but that didn't seem to appeal to the project's creators. Some also speculated that the team might just take the money and run after draining the LP.

September 11, 2023

Fortress Trust hit by "security incident", bailed out by Ripple

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Fortress Trust is a crypto custody and blockchain infrastructure company, founded by Scott Purcell. Purcell is also known for founding Prime Trust, which later lost over $75 million in customer funds, squandered another $8 million gambling on Terra/Luna just before its collapse, and then filed for bankruptcy in August 2023. Purcell is also embroiled in a lawsuit from former company Banq, now also bankrupt, which alleges he stole trade secrets and other valuable material to start Fortress.

On September 7, Fortress Trust disclosed that several customers had been "impacted by a third-party vendor" compromise. On September 8, Fortress Trust announced they had been acquired by Ripple. On September 11, The Block reported that Ripple had covered undisclosed losses to customers as a part of the acquisition deal. The losses were later disclosed to be around $15 million, and the third-party vendor was said to be a company called Retool, who blamed the compromise on a social engineering attack against one of their employees.

Tweet thread by Fortress Trust [archive]
"Ripple Acquires Crypto-Focused Chartered Trust Company Fortress Trust", CoinDesk [archive]
"Ripple made Fortress customers hit by security incident whole as part of acquisition", The Block [archive]
"Episode 125 – How to Steal Almost $100 Million: Prime Trust goes Bust", Crypto Critics' Corner [archive]

September 6, 2023

High-profile streamers bail on MrBeast-promoted Creator League after learning there are blockchains involved

Promo image for the Creator League (attribution)

A group of high-profile streamers and social media influencers agreed to join eFuse's "Creator League", where they would lead community e-sports teams. The project was announced on September 2, and was promoted by mega-influencer MrBeast. Only days later, the project has been put on hold after some of those influencers balked once they learned blockchains were involved.

YouTuber CDawgVA publicly withdrew from the project on September 3, writing, "I was not told or made aware at any point that there was Blockchain technology and was only made aware of that information when the event went live. I was given assurances that it had nothing to do with NFT's. Given my vocal hatred of such tech, I would never agree to join had I known that."

The creator of the OTK Network, which had agreed to participate in the League, wrote: "We were told there was no NFT/crypto component but looks like that may not be the case."

Creator League issued a statement attempting to downplay its blockchain usage, emphasizing that people who purchased "Creator Passes" were not buying cryptocurrency or NFTs. "The Creator League is not an NFT project and we have never sold tokens," they insisted. "Those buyers who remain uncomfortable with the blockchain technology can request a refund," they continued.

Now, Creator League has been postponed. eFuse, the company behind it, has also just announced a 30% layoff amid company restructuring.

"MrBeast-Promoted 'Creator League' Postponed After Gamers Bail Amid NFT Backlash", Decrypt [archive]
"eFuse lays off 30% of workforce, postpones Creator League", Esports Insider [archive]
Tweet by CDawgVA [archive]
Tweet by TipsOut [archive]

July 31, 2023

SEC goes after Richard Heart and his projects Hex, PulseChain, and PulseX

Richard Heart (attribution)

The SEC filed charges against Richard Heart, the operator of Hex, PulseChain, and PulseX. Despite Heart's best attempts at evading securities laws — including by asking people to "sacrifice" tokens in exchange for PLS and PLSX to avoid using the term "invest" — the SEC says he's been conducting unregistered securities offerings amounting to more than $1 billion.

In addition to the unregistered offerings charge, the SEC alleges Heart and PulseChain misappropriated $12.1 million to fund Heart's lavish lifestyle. Among other things, he purchased a McLaren sports car, five luxury watches, and a $4.3 million 555-carat black diamond called "Enigma", allegedly using funds from the sale.

"SEC Charges Hex Founder Richard Heart with Misappropriating Millions of Dollars of Investor Funds from Unregistered Crypto Asset Securities Offerings that Raised more than $1 Billion", press release

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