Logan Paul slapped with a class action lawsuit over CryptoZoo rugpull

A pixel art bear with a duckling(?) headA "Bearling" zoo creature from Paul's promised CryptoZoo game (attribution)
Logan Paul is now facing a class action lawsuit over his CryptoZoo project, a planned NFT game that Paul apparently lost interest in and abandoned — after profiting handsomely, of course, off his fans who put millions into the project.

Scam sleuth CoffeeZilla dug into the project in a multipart YouTube series recently, drawing legal threats from Paul. After plenty of negative publicity, Paul withdrew the legal threats and promised to develop a refund plan for some of the funds that were invested, though it is a small fraction of the money lost in the project.

Rather than wait to see if Paul comes through with refunding only a small portion of their money, a group has formed a class action lawsuit against Paul and others who helped with the project. The lead plaintiff put a total of around $3,000 into the project altogether.

The suit accuses Paul and his team of a whole host of charges including fraud, breach of contract, unjust enrichment, deceptive trade practices, negligence, and fraudulent misrepresentation.

Orion Protocol suffers $2.9 million hack

The decentralized exchange Orion Protocol suffered a loss of 1,757 ETH (about $2.9 million) from the company treasury funds thanks to a reentrancy attack.

Orion Protocol CEO Alexey Koloskov wrote a Twitter thread confirming the attack, but claiming that although they weren't sure how the hack was perpetrated, it wasn't due to the fault of their own code. Koloskov wrote that he thought the issue "might have been caused by a vulnerability in mixing third-party libraries in one of the smart contracts used by our experimental and private brokers."

Bonq defi borrowing project exploited

The Polygon-based defi borrowing protocol Bonq suffered an attack in which 112 million ALBT tokens and around 100 million BEUR tokens were stolen. A flaw in the protocol enabled the attacker to modify oracle prices, allowing them to mint new ALBT and BEUR for significantly less than market price.

The attacker quickly bridged the tokens to the Ethereum chain and swapped them for ETH and USDC, collectively worth around $1.7 million. The price of ALBT plunged around 50%, and the BEUR Euro-pegged stablecoin significantly lost its peg.

Rally sidechain shuts down with under a day's notice, taking users' tokens with it

Rally is an Ethereum sidechain built to support "social tokens" — typically, tokens intended for fans of various celebrities or groups.

Fans of creators including Felicia Day (actress and famous nerd), Brandon Powell (LA Rams wide receiver), and Portugal. The Man (rock band) may be disappointed, however, because Rally announced with under one day of notice that they would be shutting down. "This means that after today, the site will no longer be supported and you may experience a degradation in services or it may simply become inoperable. Additionally, since NFTs on the Rally sidechain are not transferable to mainnet, these will not be accessible once the site shuts down," they wrote in an email. The project also deleted its Twitter account.

The group behind the Rally Network had raised $57 million in funding in 2021, and was backed by VCs including Andreessen Horowitz.

Bankrupt FTX tries to claw back $446 million from bankrupt Voyager

It's no big secret that there's a lot less money actually floating around in crypto than bogus "market caps" and other numbers would have you believe, but it's being put into stark relief as the various bankrupt crypto firms fight tooth and nail over any scrap of cash that may actually remain.

In FTX's ongoing efforts to dig through the proverbial couch cushions in search of any funds that could be used to fill the gaping hole in its balance sheet, the firm has sued Voyager, a crypto broker that filed for bankruptcy in July, to try to recoup $446 million in funds that were "preferentially transferred" to Voyager when it filed for bankruptcy.

The lawsuit alleges that Voyager served as a "feeder fund" that "solicited retail investors and invested their money with little or no due diligence in cryptocurrency investment funds like Alameda and Three Arrows Capital".

Tesla lost $140 million trading Bitcoin in 2022

Elon Musk's $1.5 billion Bitcoin bet at Tesla turned out to be a bad deal. He sunk the funds into Bitcoin in January 2021, when Bitcoin was trading between $30,000 and $40,000. Simultaneously, he announced that Tesla would begin accepting Bitcoin — an announcement that was quickly reversed when someone apparently pointed out to Musk that Bitcoin is an environmental nightmare.

Tesla sold most of its Bitcoin in Q2 2022, following the grand crypto tradition of buying high and selling low.

Now, according to SEC filings, Tesla suffered a net loss of $140 million in 2022 thanks to the gamble. Their reported $64 million in trading profits were eclipsed by their $204 million loss. Tesla still holds somewhere around 11,000 BTC.

New York regulator investigates Gemini over FDIC claims

The embattled Gemini crypto exchange, which is has $900 million of customer funds locked up in the Genesis bankruptcy and has been charged by the SEC for offering unregistered securities, now has another problem to add to its list. The New York State Department of Financial Services, which is responsible for regulating the exchange portion of Gemini's business, is reportedly looking into whether Gemini misled customers that their funds were protected by FDIC insurance — that is, the insurance typically known for protecting funds placed into accounts with actual banks.

When concerned customers contacted Gemini customer support to ask if their funds were safe at Gemini, in the wake of the collapses throughout the crypto industry, they were reassured by customer support that the fiat currency held by Gemini to back their GUSD stablecoin was held in accounts that were eligible for FDIC insurance. Some customers took this to mean that their holdings with Gemini were safe and protected from the possibility of trouble at Gemini: something they've now discovered was not the case, as customers of Gemini's Earn program cannot withdraw their funds.

Cryptocurrency companies misleading or outright lying to customers about FDIC insurance has been something of a trend this year. In July, the Federal Reserve and FDIC sent a cease-and-desist letter to the bankrupt Voyager cryptocurrency broker, demanding they stop claiming that their USD-denominated funds at the company were protected by FDIC insurance (they weren't). Several weeks later, the FDIC sent a similar letter to FTX US, also demanding they stop making misleading statements about deposit insurance.

Hacked Azuki Twitter account enables theft of pricey NFTs and crypto priced at more than $1.74 million

A green zombie-looking ape with a red warty mouth and sharp teeth, with a turquoise hachimaki and a tie-dye shirtMutant Ape #16924, which most recently sold for ~$23,400 (attribution)
Hackers were able to compromise the Twitter account belonging to the popular Azuki NFT project, which they then used to promote a fake NFT drop to its 334,000 followers. Users who tried to mint the NFTs instead had their wallets emptied of pricey NFTs and cryptocurrencies.

Stolen NFTs included 74 Otherdeeds (floor price ~$2,700 each), 3 Porsche NFTs (floor ~$3,100), 57 Beanz (floor ~$2,600), 12 Doodles (floor ~$10,600), 2 Mutant Apes (floor ~$24,300), and 49 Pudgy Penguins (floor ~$9,200) to the attacker. Altogether, those stolen NFTs could fetch almost ~$1 million if sold at floor price.

One single wallet transferred 750,000 of the USDC stablecoin to the attacker, resulting in a particularly brutal loss for one individual.

Coinbase fined $3.6 million by Dutch central bank

The Dutch central bank levied a €3.3 million ($3.6 million) fine against Coinbase, who began operating in the Netherlands without properly registering. The fine is reportedly unusually large, because of Coinbase's prominence and because it had accumulated a significant number of Dutch customers without the proper registration. Coinbase had been noncompliant from November 2020 to August 2022.

Bithumb executives charged with embezzlement

South Korean prosecutors filed charges against several executives of the Korean cryptocurrency exchange Bithumb. Those charged included its owner, Kang Jong-Hyun, and his sister Kang Ji-Yeon, who rurns Bithumb affiliates Inbiogen and Bucket Studio. The charges included embezzlement, breach of trust, and fraudulent illegal transactions. The charges follow reports that Bithumb and affiliated companies were being investigated for possible tax evasion, though those investigations are a separate matter unrelated to these charges.

In December, the largest Bithumb shareholder, Park Mo, was found dead outside his home in an apparent suicide after he was named as a suspect by prosecutors in an investigation into embezzlement and stock manipulation.

Korean prosecutors had previously charged the former chairman of Bithumb over an alleged $100 million in fraud, though he was acquitted for lack of proof.

Kevin Rose loses pricey NFTs to wallet hack

A rainbow scribble, with a filter applied to make it appear somewhat blurryChromie Squiggle #9639, which Rose bought for 16 ETH (~$26,000) in August 2022 (attribution)
Kevin Rose, perhaps best known as the founder of Digg, but also a prominent crypto investor and entrepreneur, lost a substantial number of pricey NFTs when he apparently signed a malicious transaction. The hacker stole 25 Squiggles NFTs, which are trading at a floor price of 13.3 ETH, putting the estimated price based on the floor price at around 332.5 ETH (~$519,000). Rose acquired the Squiggles for between 6.3 and 16 ETH each (~$10,000 to $25,000).

The thief also stole an Autoglyph NFT, which rarely change hands, but which have most recently sold for around 200 ETH ($312,000). Rose had been offering his Autoglyph for sale for 345 ETH ($539,000), but had yet to find a buyer.

Fortunately for Rose, the hacker was apparently unable to steal a CryptoPunk NFT he owned that resembles a zombie. The rare zombie variant of the already pricey NFT have fetched millions — albeit in periods of stronger interest in NFTs.

FBI pins the Harmony Bridge hack on North Korea

A June 2022 hack saw cryptocurrency notionally worth $100 million stolen from Harmony's Horizon Bridge. At the time, blockchain research firm Ellipsis concluded that there were "strong indications" that the hack had been perpetrated by the North Korea state-sponsored Lazarus hacking group. Lazarus has been responsible for several major crypto hacks before this one, including the massive Axie Infinity hack in March 2022.

Now, the FBI has accused two groups of North Korean hackers — Lazarus and APT38 — of perpetrating the Harmony hack. The groups then used Tornado Cash and RAILGUN to launder the funds.

Porsche bungles NFT roll-out

A photo of a white Porsche 911, pictured from the front onPorsche NFT (attribution)
For some reason, Porsche decided they needed to release a set of Porsche 911 NFTs so that customers could buy "the opportunity to co-create Porsche's future in the Web3 universe" (whatever that means). The set of 7,500 NFTs were available to mint for 0.911 ETH apiece, or around $1,490. If the project sold out, Porsche would have been looking at a windfall of more than $11 million.

Unfortunately for them, things didn't quite go as planned, with collectors balking at the high pricetag. Mints slowed to a crawl far before the 7,500 limit was reached, and the NFTs quickly began trading at a discount on secondary markets (meaning it was cheaper to buy a resold NFT than mint a new one).

Porsche decided to pump the brakes on the mint when fewer than 2,000 had sold. However, they botched that too — they announced they had stopped the mint before they actually did so, which caused the collection's secondary floor price to rise back above the mint price in anticipation of higher scarcity. Observant traders who noticed this were able to arbitrage the price difference, minting new NFTs and immediately flipping them for a profit on secondary markets.

NFT collectors criticized Porsche for appearing to try to jump into web3 without knowing the space, and asking for an exorbitant mint price without a clear plan.

Wormhole hacker becomes the third largest holder of stETH

After the $320 million hack of the Wormhole blockchain bridge in February 2022, much of the funds remained dormant. Now, however, the hacker seems to have returned. On January 23, they took 95,360 ETH (~$157 million) of the 120,000 ETH they stole (now worth substantially less) and used it to lever up a position in stETH. stETH is Lido-staked Ether, an asset representing ETH that has been staked on Ethereum since it moved to the proof-of-stake model.

Ultimately, the Wormhole hacker became the third-largest holder of stETH as a result. The size of the swaps was so large that it moved the stETH market, increasing trading volume by 3000% and temporarily causing the asset to move above its usual 1:1 peg with Ethereum.

The move, which many crypto enthusiasts took as an indication that the Wormhole hacker was a "crypto degen", is unlike the activities of many crypto hackers, who typically try to launder the money and exit into fiat rather than keep it within the crypto ecosystem.

Gemini lays off 10% of staff amid troubles

Gemini performed a 10% layoff, cutting roughly 100 positions. This move followed a 7% layoff in July 2022, and a 10% reduction just a month prior to that.

Gemini has been having a rough time lately, trying to recoup $900 million of their customers' funds from Genesis, and facing charges from the SEC that their Earn product was an unregistered securities offering.

Binance announces that users won't be able to use SWIFT for transfers below $100,000

Binance informed its users that they would no longer be able to perform transactions below $100,000 via the SWIFT financial network. According to Binance, this was because their banking partner, Signature Bank, had announced they were implementing that floor for all cryptocurrency exchange clients.

Signature Bank has suggested it intends to step back somewhat from the crypto industry. It is one of the relatively few US banks that services crypto clients, and provided services to FTX among others.

Patrick McKenzie speculated that the change might have been related to AML/KYC, and Binance's "Bond villain compliance strategy".

Nexo fined $45 million by US SEC

More bad news for Nexo, whose Bulgarian offices were raided a week prior amidst allegations of organized financial crime. Now, the United States SEC and state securities regulators have fined the company a total of $45 million for violations of securities law — only the latest in a string of regulatory enforcement actions against companies offering interest-earning cryptocurrency accounts or lending services.

In a spin attempt rivaling those of Olympic gymnasts, Nexo wrote that the large fine was good, actually: "Nexo believes that the company has been recognized for what it truly is - a pioneer, like Uber and Airbnb, providing disruptive solutions in a fast-paced environment," they wrote.

In February, following similar action against BlockFi, Nexo stopped offering their interest program to new customers in the US. Now, Nexo will also stop offering its lending product to US customers as part of the settlement agreement.

Genesis files for bankruptcy

The Genesis cryptocurrency lending platform filed for bankruptcy, following weeks of turmoil after the FTX collapse. Genesis halted withdrawals shortly after FTX's failure, and shortly afterwards warned of possible bankruptcy if they couldn't raise at least $1 billion in new capital. The past few months have also featured a public conflict between Genesis, along with its parent company DCG and DCG's CEO and founder Barry Silbert, and the Winklevoss twins behind the Gemini crypto exchange.

It remains to be seen what the impact of a Genesis bankruptcy may have on its parent company, Digital Currency Group (DCG). DCG owes Genesis more than $1.65 billion, according to bankruptcy filings, including a $1.1 billion promissory note created to absorb Genesis losses in the Three Arrows Capital collapse.

Founder of Bitzlato crypto exchange charged for processing more than $700 million in illicit funds

US authorities arrested and charged Anatoly Legkodymov, the founder of the Bitzlato cryptocurrency exchange. Although the exchange is relatively unknown, the justice department alleges that it was instrumental to darknet criminal marketplaces, including Hydra Market. The DOJ alleges that users of Hydra Market processed more than $700 million in cryptocurrency through Bitzlato, which also helped to facilitate more than $15 million in ransomware proceeds. Although Bitzlato claimed not to serve users in the United States, the DOJ claims that the exchange "did substantial business with U.S.-based customers".

Three Arrows Capital founders seek funding for an exchange to enable customers to trade claims against firms 3AC helped to bankrupt

Kyle Davies and Su Zhu, the founders of the bankrupt Three Arrows Capital crypto hedge fund, have joined forces with Mark Lamb and Sudhu Arumugam, the founders of the CoinFLEX platform, which is undergoing restructuring due to its own solvency issues. Davies and Zhu are still on the run from liquidators. What a dream team.

The group is seeking $25 million to create a cryptocurrency exchange they're calling "GTX" for now — which they write in the pitch deck is "because G comes after F".

Not only that, but the exchange plans to focus on claims trading — that is, the trading of claims held by creditors against debtors who are undergoing bankruptcy proceedings, like FTX, Celsius, BlockFi, or Mt. Gox (throwback!). The fact that 3AC was a major catalyst in kicking off the string of bankruptcies we saw throughout 2022 was not lost on observers, with Nic Carter of the Castle Island venture capital firm commenting that the endeavor "is akin to arsonists returning to the scene of the crime and offering to charge their victims for buckets of water".

NFT GOD's wallet drained, accounts used to phish others after malware infection

A Mutant Ape with x-ed out eyes, snot on its face, and a green fur coat with skulls sticking out of itMAYC #22284 (attribution)
According to NFT GOD, his computer was infected with malware when he clicked a sponsored link in a Google search when he went to download the streaming software OBS. This is similar to an attack in April 2022 where scammers stole millions using malicious Google ads.

According to NFT GOD, not only did the hackers drain his crypto wallet of his NFTs and crypto, including his beloved Mutant Ape, but they also hijacked his accounts to send out phishing links to his substantial followers.

The person who purchased the stolen ape (for 16.65 ETH, ~$25,800) said he was willing to sell the ape back to NFT GOD for the same price they paid for it, which seemed to be taken as good news by NFT GOD.

LendHub reports $6 million hack

In a Twitter thread, LendHub published a message stating that "hackers stole about 6 million US dollars of assets from Lendhub". They wrote that they had "locked the hacker's attack address", but whatever they meant by this was not enough to stop the thief from transferring 1,100 ETH (~$1,562,000) to Tornado Cash to tumble.

Security firm SlowMist attributed the attack to a token that had been replaced with a new version, but whose original version remained active on the platform. The attacker was able to mint and redeem tokens in the old market, while borrowing against them in the new one, ultimately making off with the majority of the assets on the platform.

Nexo raided by Bulgarian authorities

Bulgarian prosecutors raided more than 15 locations in Sofia, Bulgaria in relation to the Nexo cryptocurrency lender. A spokesperson for the prosecutors has said that the raids are "part of a pre-trial investigation aimed at neutralising an illegal criminal activity of crypto lender Nexo". These activities reportedly include setting up of an organized crime group, tax crimes, money laundering, banking activity without a license and computer fraud. Bulgarian authorities allege that Nexo has processed $94 billion through its platform over the past five years.

Authorities charged four individuals with various crimes shortly after the raid. Two were arrested and released on bail; authorities are still looking for the other two. Police have also confiscated money, computers, and crypto assets.

Within a 24-hour period after the raid was announced, Nexo experienced $45 million in withdrawals — about the same amount they normally process in an entire week — as customers rushed to get their money off the platform.

FTX liquidators get liquidated

As they tried to close an Alameda position on the Aave defi lending project, liquidators in charge of recovering customer funds lost $72,000 due to an error in their approach. The liquidators first removed extra collateral that was supporting the position, which resulted in two liquidations in nine days. The total loss was 4.05 aWBTC, which is priced at around $75,000 based on prices at the time of the transactions.

This SNAFU unfortunately means that those assets won't be available to be repaid to FTX customers, although this loss is relatively small compared to the total amount owed.

SEC charges Gemini and Genesis for allegedly offering unregistered securities

The SEC filed charges against Genesis Global Capital and Gemini, two crypto firms that collaborated to create Gemini's embattled Earn lending program. According to the SEC, their lending program constitutes an offer and sale of securities and, as such, should have been registered. Other companies, such as (now bankrupt) Celsius, have in the past shut down similar products in the US due to concerns over regulatory action; it's not clear why Gemini thought their product would pass muster.

On November 16, Gemini halted withdrawals from Earn after Genesis halted withdrawals after FTX collapsed. Since then, Gemini and Genesis have been engaged in a very public battle, with Gemini's founders accusing Genesis and its parent company of misconduct and demanding the return of the $900 million in Gemini customer funds.