Karlstack

EXCLUSIVE: The Man Who May Have Milked $100+ Million from Mango Markets

6 months ago, Karlstack leaked a document written by a group of anonymous whistleblowers summarizing the facts of a scam in which someone exploited $14 million USD…

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4 years ago · 43 likes · 8 comments · Christopher Brunet

Avraham, then living in San Juan, Puerto Rico, fled to Israel the very day I outed him—where he was shielded from extradition to the U.S.

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The very next week, one of Avraham’s associates, Nikolai Mushegian, 29, who also lived in Puerto Rico, tweeted that ‘‘CIA and Mossad and pedo elite are running some kind of sex trafficking entrapment blackmail ring out of Puerto Rico ... They are going to frame me with a laptop planted by my ex [girlfriend] who was a spy. They will torture me to death.’’

A few hours after sending this tweet, Mushegian’s corpse washed up on Condado Beach, fully clothed, face down. No foul play was ever determined in his death.

I share this not for shock value, but to give you a sense of the world Avraham operated in—and the risk I took in going after him. But some things are more important than personal safety.

Two months later, in December 2022, Avraham Eisenberg flew back from Israel to Puerto Rico, at which point he was arrested by the FBI upon stepping foot on American soil. Nobody initially knew why he would foolishly fly back to America, but I heard through the grapevine the the reason he came back to America was to get the last few days of physical presence in Puerto Rico needed for tax residency. Apparently his lawyer told him it would be fine, lol.

Karlstack

BREAKING: FBI Arrests Mango Markets Exploiter Following Karlstack Investigation

Half an hour ago, the news emerged that Avraham Eisenberg, the man who pulled off the biggest bug bounty in the history of cryptocurrency, was arrested by the FBI in Puerto Rico…

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3 years ago · 39 likes · 7 comments · Christopher Brunet

Upon arrest, the FBI discovered 1,274 items of CSAM on his electronics devices, including ‘‘a young corpse.’’

In May 2025—just a few weeks ago—Avraham Eisenberg was sentenced to 52 months in federal prison after pleading guilty to possession of CSAM. This was first reported by Inner City Press, a court reporter in New York who attended the trial.

This post is, in part, a victory lap. Hundreds of my subscribers found my work through that investigation, and you deserve an update on how it ended. I’m immensely proud of the role my reporting played in bringing him down. If I accomplish nothing else in my career, taking down Avi will have been worth it.

If you value this kind of investigative work—work that comes with risk and no institutional backing—I’m asking for your support. Funding this journalism isn’t easy.

I try not to put my reporting behind a paywall.

But journalism like this takes time, courage, and resources.

Please consider becoming a paid subscriber.

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Following my multi-year investigation into Avraham Eisenberg that eventually sent him to jail…

The latest twist is a dark one…

One week after being found guilty on charges of commodities fraud, commodities market manipulation, and wire fraud…

From at least in or about 2017 through at least in or about 2022, in the Southern District of New York and elsewhere, AVRAHAM EISENBERG, the defendant, knowingly possessed and accessed with intent to view a book, magazine, periodical, film, videotape, computer disk, and other material that contained an image of child pornography that had been mailed, shipped and transported using a means and facility of interstate and foreign commerce and in and affecting interstate and foreign commerce by any means, including by computer, and that was produced using materials that had been mailed, shipped and transported in and affecting interstate and foreign commerce by any means, including by computer, to wit, EISENBERG possessed sexually explicit images of minors on his electronic devices, including images of prepubescent minors and minors who had not attained 12 years of age, in Rockland County, New York and in Puerto Rico.

Everyone was expecting this shoe to drop, because it links back to a court document a few months ago which noted that when Avi’s phone and laptop were seized for the market manipulation investigation, the CP was found at that point.

But everyone was confused why those market manipulation documents would mention the existence of CP, but not charge him.

Well, he’s formally charged now.

The United States Penal Code incorporates various mandatory minimum punishments for child pornography offenses. The existence of a mandatory minimum is dictated by the section of 18 U.S.C. § 2252 that is implicated in the conviction. Simple possession of child pornography has no mandatory minimum and a maximum of 10 years imprisonment.

I’ve also obtained a ton of screenshots of Avi talking about children in really disgusting ways, but my better judgement dictates that these conversations are too disgusting to post on Substack. I know you are curious, but sorry, it’s really stomach-turning stuff.

That’s it, today is a short article, because I am rushing to report on this new development before the mainstream outlets do.

My reporting involves taking risks. In this case, there was a good chance that Avi would use his hundreds of millions of crypto to hire an assassin to hunt me down and kill me… That was a very real possibility, and I am only being a tiny bit hyperbolic.

To compensate me for these risks, and if you are happy with the tangible results that my reporting achieves, please consider becoming a paid subscriber.

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Subscribe to his YouTube channels and follow him on Twitter:

• https://www.youtube.com/@coffeezilla

• https://www.youtube.com/@coffeezillaextras

• https://twitter.com/coffeebreak_YT

This video already has 73k views and 337 comments in the first 3 hours, I always forget how much bigger YouTube is than Substack.

This interview was about Avi Eisenberg, who I sent to jail in 2022.

Last week, Eisenberg was convicted by a jury of his peers on charges of commodities fraud, commodities market manipulation, and wire fraud.

This was the first-ever cryptocurrency open-market manipulation case.

Eisenberg’s sentencing is now scheduled for July 29, with ‘‘potential penalties including a maximum of 10 years in prison for commodities fraud and manipulation and up to 20 years for wire fraud.’’

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Some lessons I learned from this interview:

• It went pretty well — not amazing, I could have spoken better — but the main thing for me is that I wasn’t nervous at all. The more I practice, the more comfortable I get with public speaking. So please bear with me as I keep getting my reps in.

• My mic and camera suck. I just bought a new laptop so I assumed because it was a new laptop, the camera/mic would be excellent, but they aren’t.

• My hair was super greasy, lol. I just went swimming in the ocean and then put gel in it, and it hadn’t dried yet.

  

My vanity got the better of me and I checked the comments section to see what they were saying about me, and thankfully there wasn’t very much. 99% of the comments were overwhelmingly about Avi Eisenberg, not on me.

I was too far right for some….

And too far left for others….

When I brought up the concept of IQ, some of them thought the concept of IQ was fake:

Some thought I was hot:

Some thought I was pretentious:

Some thought I was a snitch:

Some thought I was great:

Some thought I was an idiot:

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I tried to transcribe this interview and tried to post the transcript here, but it came out as a jumble of words that was 5,000 words long. So I didn’t have the willpower to spend a couple of hours editing that jumble into a readable interview format.

I put Avi in jail last year.

We all knew Avi was a criminal mastermind for hacking hundreds of millions of dollars worth of crypto.

It turns out he is also into child porn, allegedly.

I knew he made my skin crawl for a reason. Always trust your instincts.

CRTL+F search this document (date filed: Aug 25, 2023) for “child”:

https://www.courtlistener.com/docket/66709457/united-states-v-eisenberg/?order_by=desc#entry-36

I don’t see any new charges against him yet…

…but I expect him to be charged with child porn any minute now, given the new court document.

There is not much to say. I am mostly writing this article so that I am the first one to break this news, it hasn’t even broken on Twitter yet, I am sure the mainstream media will cover it tomorrow. Of course he is innocent until proven guilty, but yeah, this make me want to puke, there is so much evil in the world, it is hard to bear sometimes. I will do my best to keep exposing it.

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As I write these words, 2 days later, the price is $0.207 per token.

There are 1,694,350,159.23 $WOO tokens in circulation.

Market Cap = Token Price * Circulating supply

Market Cap before my article = 0.225 * 1,694,350,159.23 = ~$381 million

Market Cap after my article = 0.207 * 1,694,350,159.23 = ~$350 million

Subscribe to Karlstack to get alpha in your inbox:

The main criticism of my article, which received a nasty backlash from hundreds of WOO cult members on Twitter, was that I was "fudding." I am told that I am intentionally spreading fear and uncertainty in order to profit from the potential decline of the WOO coin. This theory is incorrect. To provide full disclosure: I have no investment or involvement in WOO or any financial products associated with it. In fact, I only ever possessed only one crypto wallet, which was held at FTX. When FTX imploded I never bothered to get a second wallet.

I encourage those who staunchly defend WOO to engage in introspection and critically evaluate their own perspectives. Are you lying to yourself? Are you blinded by your bags?

Even fuller disclosure: I wish I was short $WOO before I published my article.

I wish I had profited off the 10% drop in the token.

Even if I did short this (I didn’t)…. So what?

Hindenberg Research, for example, is a hedge fund that specializes in identifying and exposing instances of corporate fraud and misconduct. I see no moral problems with what they do; if anything, they are safeguarding the interests of investors. Likewise, I am providing a public service by warning you early: WOO is a sketchy exchange with questionable practices, they almost certainly gamble with your money while lying to your face about not gambling with your money.

Yesterday, WOO X addressed the rumor that was causing their market cap to plumment.

Well, kind of.

In the same breath that the brag about transparency, they ignore the top reply to this tweet, and instead reply to other random softball questions in the mentions.

WOO's "brand ambassador" then took to Twitter to assert that depositors must simply trust the company's assurance that speculative activities are not being undertaken with customer deposits.

WOO subsequently issued a statement to Wu Blockchain, intending to refute my article.

Their rebuttal asserts the following:

Both Kronos Ventures and WOO Network are independent business entities. Both parties adhere to compliant corporate governance processes, and strictly control the use of funds through practical financial management and responsible resource allocation. Any other hints and statements lack actual evidence.

Here is my rebuttal to their rebuttal:

Both Alameda Research and FTX are independent business entities. Both parties adhere to compliant corporate governance processes, and strictly control the use of funds through practical financial management and responsible resource allocation. Any other hints and statements lack actual evidence.

In addition to the concerns expressed in my initial article, I would like to address some fundamental issues with WOO's business model. Their claim of being a "zero fee" platform raises sooooo many red flags. Here is an overview of their fee schedule:

While it is apparent that they generate minimal revenue from fees, it is noteworthy that they hold $18 million on Binance alone, engaging in lords-knows-what trading with those funds and incurring fees every step of the way. Every time they participate in a market, they are required to pay fees to Binance.

Considering this disparity between fee collection and fee payment, it becomes evident that WOO would constantly be losing money based on this flow of fees alone. The only way to sustain their operations in the long run and counteract this continuous financial drain would be by recruiting new investors, which is the definition of a Ponzi scheme. Lol.

A new scandal broke today showing that Binance, the platform to which WOO lends the most money, has been caught doing exactly what I am accusing WOO of doing. Good timing, Binance.

In fact, today’s Binance scandal serves as proof that, by lending funds to Binance, WOO has ALREADY gambled with user funds and therefore violated their own terms of service.

WOO lent money to Binance, and then Binance gambled with the money.

Therefore WOO gambled.

Moreover, the fact that WOO has over 100 employees raises questions about how they sustain their workforce. It becomes evident that they are potentially gambling with user funds and using the proceeds from their speculative activities to cover their expenses. The profitability of their gambling endeavors remains uncertain, and if they are not successful, they may already be insolvent, who knows, you would never know until it was too late, as was the case with FTX.

In conclusion, I reiterate my call for current or former WOO/Kronos employees to contact me, anonymously, or on the record, providing any tips or information they may possess. The offer still stands at chrisbrunet@protonmail.com.

I have a proven track record of safeguarding individuals who disclose sensitive information and act as whistleblowers. As an illustration, I recently broke a story based on an anonymous source regarding leaked admissions data and Harvard's affirmative action practices. I can show you a dozen more examples where I have maintained the confidentiality of my sources while delivering impactful stories.

To support my ongoing investigative efforts, I encourage you to subscribe.

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Vagabond Research

Freedom through Mastery

By ℭ𝔥𝔞𝔯𝔩𝔢𝔪𝔞𝔤𝔫𝔢

Karlstack

Opinionated investigative journalism.

By Christopher Brunet

FTX's collapse, which I am sure we are all familiar with, was largely due to them using their hedge fund, Alameda Research, to engage in risky gambling with user deposits. Alas, Alemeda Research turned out to be terrible gamblers, and they gambled away all of their user deposits, leading to FTX’s insolvency.

SBF’s Substack

FTX US Balance Update 2023-01-17

Summary Today (January 17th, 2023), Sullivan & Cromwell (S&C) released some more information about FTX US. Some of this information was extremely helpful. They gave substantially more information on the assets that FTX US holds! Some of what S&C released is extremely misleading. In particular, they…

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3 years ago · 45 likes · SBF

A similar situation may be unfolding with WOO X, a decentralized crypto trading platform based in Taiwan. For those unfamiliar, WOO X can be understood as a smaller and more decentralized version of FTX; please read TechnicalRoundup & WOO X — Deep Dive: A full introduction to WOO Network to get up to speed. WOO Network maintains a market cap of $371 million USD and has nearly 200k followers on Twitter.

Upon visiting WOO X's website, they proudly state that they are "trusted by the best." It is worth noting that FTX also enjoyed a similar level of trust before its downfall.

If I were you, I wouldn't feel comfortable keeping my money in WOO X. I would advise withdrawing my funds as soon as possible. Although the death spiral has not yet materialized, it is highly likely to occur if my analysis is correct.

I want to clarify that the purpose of this article is not to incite a bank run on WOO X, although such an unintended consequence could arise. If a bank run were to occur, it would not be my fault; rather, WOO X would be accountable for its poor risk management practices and lack of transparency. An exchange should possess the resilience to withstand scrutiny from bloggers who notice its vulnerability to a bank run. In my opinion, WOO X has been fortunate thus far to have avoided a fatal bank run. Once the public realizes the extent of its insolvency, the consequences will be dire.

If I am mistaken... if I am wrong… if WOO is completely solvent… with no hidden issues… and absolutely won't enter a death spiral… then they should have no difficulty surviving a bank run, correct? They should have no objections to me writing this article; in fact, they should embrace my scrutiny! If all the funds are accurately documented, they should have the ability to reimburse all depositors without any trouble.

You do have faith in "WOO X," don't you, anon...?

Surely, "WOO X" wouldn't deceive you, would they...?

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Similar to FTX, which had a questionable hedge fund (Alameda Research) linked to it, engaging in risky activities with user deposits, Woo also has a dubious hedge fund attached to it. The name of WOO X's hedge fund is Kronos Research.

My thesis is straightforward: FTX had Alameda Research, and WOO X has Kronos Research. Although I lack concrete evidence, I suspect that Kronos may be employing WOO X's deposits for speculative purposes, which their terms of service forbids. These suspicions are significant enough that I would withdraw my funds from WOO X if I had any, and I would advise my friends and family to do the same.

WOO X openly acknowledges that they have full discretion to lend out user deposits for any purpose they deem appropriate. Therefore, if you deposit $1 million worth of Bitcoin into WOO X, it does not necessarily mean that $1 million worth of Bitcoin is held as backing for your deposit. Anything could be backing your deposit.

If you read WOO X’s terms of service, they explicitly state that they will not use your deposits for speculation.

Bullshit.

I am calling bullshit.

I am a highly skeptical person, and I simply cannot accept their claim that they are NOT speculating with user money at face value. We’ve seen this story play out a million times before in crypto world, it’s always the same story, and my suspicions are further confirmed when we analyze WOO X's balance sheet, which raises serious concerns.

Red Flag #1: Custody Ratio

Highlighted on WOO X’s front page is this:

Even in the most optimistic scenario of a bank run, WOO X can only cover approximately 80% of deposited funds. This is comparable to a bank admitting, "We have $56 in our checking account and $70 in liabilities”, and yet people continue using that bank. The degree of insolvency may be debatable, but the fact remains that WOO X is insolvent. They can’t survive a bank run. Don’t trust them with your money.

It’s just crazy to me; I almost feel like they've ascended as scam artists to a new territory where they can openly state they have less assets than debt, and the crypto world shrugs it off. These are the most transparent scammers I’ve ever seen.

I even saw a private messages from one of WOO X’s “brand ambassadors” who admitted, “the model is controversial, let’s be up front about it.”

Red Flag #2: Backed by a Shitcoin

As per their own proof of reserves…

https://woo.org/proof-of-reserves

… a significant red flag arises from the fact that 45% of WOO X's asset composition consists of their own shitcoin, $WOO, which holds questionable (lol) value.

Take a moment to carefully consider the following: WOO X relies on the public's trust in their shitcoin to back 45% of its operations. If, for any reason, the public loses trust and succumbs to panic, leading to a significant decline in the value of this shitcoin, a perilous death spiral is likely to ensue.

The situation worsens when examining WOO X's reserves through a reliable third-party source, rather than relying solely on WOO X's internal estimates.

https://portfolio.nansen.ai/dashboard/woo-x

This estimate suggests that WOO X is even more heavily reliant on $WOO than they openly acknowledge (are they lying about their $WOO exposure!?). This raises suspicions that the entire operation may be an elaborate confidence scam, wherein once trust in WOO X is lost, the anticipated death spiral will come into effect.

Red Flag #3: Nebulous Slush Fund

It appears that Kronos Research enjoys unrestricted access to user deposits without any clear limitations or justifications. Operating as a proprietary trading firm, Kronos engages in undisclosed trades within a blacK box that lacks transparency and accountability. Moreover, the Proof-of-Reserves (PoR) system employed by WOO X raises concerns due to its allowance of Market Makers (MMs) to trade with client funds on other exchanges. They don't mention who the other exchanges are that MMs trade on with client funds, which is concerning because it could be like a domino effect, 1 of those fails, followed by more, which knocks over WOO X. WOO X claims they are “decentralized”, but are actually exposed to a ton of systemic, centralized risk.

While Kronos Research claims to employ a delta-neutral strategy, doubts persist regarding their credibility. You have to trust their word that are not using their secret, proprietary slush fund to gamble. Lol. Sure. Alameda Reserach made the same claim.

Further cause for alarm arises when observing Kronos' investments in various cryptocurrency firms, as evident on their website. Of course, this is exactly what FTX did — FTX took user deposits and invested in 500 random, shitty illiquid investments split across 10 holding companies — now Kronos is building the same illiquid porftolio (with user deposits??):

Kronos says they don’t speculate with user funds… and then Kronos immediately brags about their venture capital portfolio… are we REALLY supposed to believe that not $1 of user deposits was used to invest in these speculative firms?

Until this secretive trading firm open-sources every single trade they have ever made, we cannot be sure that they are not speculating with user deposits. The burden of proof is on them. The ball is now in their court.

Show me all your trades, and then maybe I will trust you.

The Faces That Would be Crushed by a Death Spiral

Occasionally, my work entails writing articles that may have significant repercussions, such as leading to individuals losing their jobs or facing legal consequences, similar to the case involving Avi Eisenberg.

These situations can weigh heavily on my conscience.

Allow me to present the dedicated staff of WOO X in Taiwan.

In the event of a potential bank run or a subsequent death spiral sparked by this article, they would be among those impacted.

I want to emphasize that I harbor no ill will towards these individuals, as they appear to be pleasant and capable. However, it is crucial to acknowledge the insolvency of the exchange they are associated with. By pointing out this reality, if the exchange ultimately suffers due to being poorly structured or resembling a fraudulent scheme, the responsibility lies with its creators. It is not my fault for identifying these issues; rather, it is their responsibility for establishing such a flawed enterprise. They must accept the consequences of their actions. You made your bed; now lay in it.

If, in the future, sometime next week maybe, news emerges about the collapse of WOO X resulting from an emergency bank run and subsequent $300 million dollar death spiral, remember: you heard it on Karlstack first.

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Karlstack

Issue #2: CBDC is More Dangerous Than AI

Dear readers, I'm here to own up to my misstep in launching a second newsletter alongside the first one. I'm not going to beat around the bush: it was a dumb move. It doesn’t make sense to grow 2 email lists at once, it makes more sense to have 1 big one. Fragmenting viewership is especially pointless since it’s very likely almost all my readers are the …

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3 years ago · 17 likes · 1 comment · Christopher Brunet

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News Roundup

• May 4: North Carolina House passes bill banning CBDC payments to the state (Coin Telegraph)

  

• May 5: BNP Paribas Will Link Digital Yuan to Bank Accounts for Promoting CBDC Use: Report (CoinDesk)

• May 8: Bank of Canada launches public consultations on digital C$ (Reuters)

• May 8: The Future of Central Bank Digital Currency (Ripple)

• May 9: Brazil Central Bank CBDC Pilot Snubs Crypto Firms (CryptoNews)

• May 9: Stablecoins and digital assets unlikely to replace central bank money: Moody’s (Coingeek)

• May 10: Hungarian Central Bank Sees No Imminent Need for e-Forint (Coindesk)

• May 10: Reserve Bank of India’s deputy governor wants to promote CBDCs (CoinGeek)

• May 10: 'Cash Is Independence': Ron DeSantis Slams the Government's Plan for Centrally-Controlled Digital Money (Reason)

• May 11: BIS Tackles Complexities of Offline CBDC Implementation in New Handbook (Blockworks)

• May 11: Project Polaris: BIS explores offline-operating CBDCs (Finbold)

• May 11: Statement on proposals for a Canadian central bank digital currency (Justice Centre for Constitutional Freedoms)

• May 11: CBDC: European banking regulator says current banking model not working (Ledger Insights)

• May 12: Texas Introduces Bill to Ban Central Bank Digital Currency (Guru)

  

• May 12: Zimbabwe's central bank launches digital currency backed by physical gold (Business Insider)

• May 12: Governor DeSantis signs ban on central bank digital currency (Fox)

  

• May 13: China's digital currency raises concern as wages of thousands of public servants moves to e-CNY (ABC.net)

Substack Spotlight

The Dossier

The Great Bank Nationalization era is upon us

The American banking system’s latest round of financial contagion began with the banks that were supposedly engaging in “riskier” practices and partnerships, such as Silvergate Bank and Silicon Valley Bank (SVB). However, it’s now become clear that the entire American regional banking landscape is facing the prospect of complete and total ruination…

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3 years ago · 126 likes · 47 comments · Jordan Schachtel

The Dossier

Independent Investigative Reporting

By Jordan Schachtel

The Dossier

Americans face a rapidly encroaching 'emergency' CBDC power grab

The American financial system is threatening to come apart at the seams, and for the people who control the levers of power, the only way to patch things up may involve the installation of a monetary Social Credit Score system. In recent years, America’s fiat fractional reserve system has transformed into a faith-based credit system, and the people who …

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3 years ago · 323 likes · 202 comments · Jordan Schachtel

Tweet of the Week

Meme of the Week

Sponsor of the Week

This week’s issue is sponsored by Stat Significant a weekly newsletter featuring data-centric essays about culture, economics, sports, statistics, and more.

Subscribe to Stat Significant

Subscribe to Stat Significant

Country Corner: Canada

The Bank of Canada (BoC) initiated a public consultation for a Canadian Central Bank Digital Currency on May 8th.

Here is a BoC video explaining the “digital loonie”:

In a classic passive-aggressive Canadian twist, the BoC has launched this campaign to gather insights from as many Canadians as humanly possible... all while conveniently disabling the comments section of their video. They sure know how to embrace the spirit of democracy, eh?

This is exactly how the Canadian government rolls. They put on a show of seeking public input, but in the end, they don’t care about feedback.

Take last week's incident as a prime example. The city of Guelph, Ontario caused quite the stir on Twitter. They made grand gestures about wanting to hear from you, eager to collect feedback, but while soliciting feedback they turned off the comments to their tweet. The irony is almost too Canadian to handle.

Note that this tweet has 0 replies but 978 mocking QTs.

If you dont restrict comments on your YouTube video, like this video from this week doesn’t…

Your comments section will look like THIS:

That was a conservative YouTube channel, though, so of course the comments are going to be against CBDC.

Liberals love CBD, right?

Surprisingly, no, actually.

Canadian Redditors seem to hate CBDC, which is surprising because Canadian Redditors are as bleeding-heart soyboy as you can get.

While researching today’s article I came across a CBC News article from yesterday titled Does Canada really need a digital loonie? — I was shocked to see that it has thousands of comments:

Just as Canadian redditors tend to lean towards supporting the Liberal/NDP parties, an even more pronounced bias can be observed among CBC News readers; trust me, CBC readers are as shitlib as they get; these people are the polar opposite of right-wing extremists. I will end this article by giving these shitlibs the last word; their combined outrage shows that maybe there is hope for Canada yet… but probably not. If the Bank of Canada refuses to genuinely listen to Canadian voices, Karlstack will step up to elevate them.

I encourage you to go directly to the CBC News article, Does Canada really need a digital loonie?, scroll down to the comments sections, and then sort by “most liked” — thousands of these comments, and NONE of them want CBDC.

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I'm here to own up to my misstep in launching a second newsletter alongside the first one. I'm not going to beat around the bush: it was a dumb move. It doesn’t make sense to grow 2 email lists at once, it makes more sense to have 1 big one. Fragmenting viewership is especially pointless since it’s very likely almost all my readers are the same. After careful consideration, it makes more sense to merge the two newsletters back into the original one. I am going to keep writing the “This Week in CBDC” updates every week, but they will be on Karlstack Crypto, which is what I should have done in the first place.

I thought it made sense to make my new weekly series “opt-in”, but it actually makes more sense to make it “opt-out”. If you don’t care about CBDC, here is a reminder: Karlstack is split up into 5 sections: Economics, Academia, Politics, Crypto and Personal. To opt-out of this “Crypto” section you can click the “Settings” button (at the top right corner of your screen) and then click “Manage Subscriptions.” Thanks for sticking with me through this journey of self-discovery, and I look forward to delivering high-quality content to you in the future.

Chris/Karl

Welcome to Issue #2 of This Week in CBDC, where we're calling out the hypocrisy and deceit of those who claim to have our best interests at heart when it comes to Central Bank Digital Currencies (CBDCs).

News Roundup

• April 24: China’s Changshu city to pay civil servant salaries in digital yuan (Yahoo!)

• April 27: Ted Cruz “Very Concerned” About CBDCs; Believes China Is Out To Destroy Bitcoin (Dales Report)

• April 28: Mauritius planning to launch pilot project for retail digital rupee late this year (Coin Telegraph)

• April 28: ECB Mulls Decentralized Settlement for Wholesale Financial Markets (Coindesk)

• April 28: Visa to Develop Brazilian Blockchain-powered CBDC Project (Crypto News)

• April 29: Why a Bank of Canada digital dollar would put an end to ‘bank run’ crises (Toronto Star)

• April 29: House Majority Whip Tom Emmer: Fed Should Play No Role in Developing a Central Bank Digital Currency (Twitter)

• April 30: Zimbabwe's De-Dollarization: Central Bank to Issue Gold-Backed Digital Currency in Early May (bitcoin.com)

• May 1: More than 110 nations are developing central bank digital currencies, says IMF chief (Twitter)

• May 1: Crypto Will Outperform Gold, Real Estate and Stocks As Central Bank Currency Debasement Accelerates: Raoul Pal (Daily Hodl)

• Future: Central Bank Digital Currency Consultation closes 7th June (Bank of England)

Substack Spotlight

I googled “Substack CBDC” and this is one of the top articles:

Noahpinion

Central Bank Digital Currencies are not very interesting or useful

“I put radio on the internet!” — Russ Hanneman People often ask me to weigh in on the idea of a Central Bank Digital Currency (CBDC). A lot of countries are excited about the possibility. China is already experimenting with a digital renminbi, and the Boston Fed has…

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4 years ago · 49 likes · 32 comments · Noah Smith

As regular Karlstackreaders would know, I don't like Noah Smith.

Karlstack

Send Noah Smith to the Donbas

This tweet explicitly calling for WW3 triggers me bigly…

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4 years ago · 72 likes · 35 comments · Christopher Brunet

The whole point of his article is to downplay the issue — look away, plebes! — the future of money is “not very interesting or useful”! Don’t worry about it! Go back to bickering about how many genders there are, go see the latest Marvel movie. The central bankers have the future of money under control. They know what they’re doing. Trust the experts. Trust the science.

It’s clear that Smith is a shill for CBDCs running cover for an authoritarian nightmare. Those who disagree with him, he suggests, are simply being paranoid. But let's not forget that the power to turn off someone's access to money for "wrongthink" is a very real and frightening possibility. Just ask the Canadian trucker protesters. It’s Noah Smith’s enemies who will need to worry about their money getting turned off.

Smith's main argument is that a CBDC "digital dollar" would be no different from the dollars that exist today, and that it would essentially just be the Fed operating a Venmo/PayPal competitor. While he is not entirely wrong, his omission of any potential downside makes it clear that he is shilling for CBDCs and trying to shove them down our throats. Literally half of his article is dedicated to a section called “Possible benefits of a CBDC”, and then he doesn’t bother to acknowledge a single potential downside? Of course CBDCs are “not very interesting or useful” if you assume no downsides exist! The whole thing that makes them “interesting” is their downside. This is a good example of the evil we are dealing with; as you become enslaved by CBDCs over the next few years, all the mainstream pundits like Noah will tell you the whole time that’s it’s not happening — it’s nothing — it’s not a big deal — okay fine it’s happening but it’s a good thing — don’t worry about it — you’re an extremist if you worry about it — CBDCs are just not very interesting or useful okay? Don’t be a bigot. You’re a terrorist if you oppose CBDCs.

Smith's skewed view of freedom is evident in his recent writings. In 2021, he claimed that vaccines are the key to freedom:

And just a year later he argued that we should be willing to fight World War III to preserve our freedom. It's clear that Smith's definition of freedom is a fluid concept that changes depending on his agenda. I’m 100% positive that he will soon argue CBDCs are good for freedom.

In short, we shouldn't take advice on freedom from someone like Noah Smith, who seems to have a warped view of what it means to be free. Let's not be swayed by his attempts to make us believe that CBDCs are harmless and useless. As we move towards a digital future, we need to be vigilant about protecting our financial freedom and not blindly trust the government to do what's best for us.

Tweet of the Week

In a recent poll I conducted among my followers, it was revealed that more people were concerned about the risks of CBDCs compared to those of AI.

This is a surprising finding, given that just in terms of Google Trends, CBDC isn’t even 1% popular as AI.

On a related note, I highly recommend subscribing to AI Supremacy. This is not a paid advertisement, but rather a genuine recommendation for a newsletter I personally subscribe to and find valuable.

AI Supremacy

News at the intersection of Artificial Intelligence, technology and business including Op-Eds, paper summaries and A.I. startups.

By Michael Spencer

While there are several prominent organizations dedicated to addressing the risks associated with AI, there is no equivalent support for CBDCs. The Future of Humanity Institute, run by Bostrom, the Future of Life Institute, set up by the MIT physicist Max Tegmark, Elon Musk's OpenAI nonprofit, and the Open Philanthropy Project, part-funded by Facebook founder Dustin Moskovitz, all dedicate huge resources to addressing the risks associated with AI. CBDCs don't have analogous support, only greedy central bankers.

Unlike the existential risk of AI, which could materialize in the short-to-medium term future, with current estimates putting the arrival of AGI as far away as 2031, CBDCs are being implemented right now. It isn’t a hypothetical risk, it’s a risk that is already here. Almost every central bank in the world is getting ready to roll them out, with proof of concepts and pilot programs already deployed, and many already fully launched. There is no stopping them.

The most obvious risk of CBDCs is a loss of privacy and total death of anonymity — they will be used as tools of surveillance and control by governments, it’s just a matter of when (China is already doing it), and to what extent. The whole point of CBDCs is for the government to track every transaction of every citizen; this built-in surveillance & censorship of CBDCs directly threatens democracy by targeting civil rights advocates, political dissidents, whistleblowers, minorities, journalists and ordinary citizens.

CBDCs are the end of free speech. If you say something the government disagrees with, they will turn your money off. Noah Smith wants to turn your money off if you disagree with him. I promise you, he does. CBDCs will do untold damage in the hands of people like Noah Smith, who run the central banks. In addition to turning your money off whenever they want, they will have the ability to burn your money, make your money expire (you are literally prevented from saving and potentially exiting the rat race), impose direct haircuts on it, repossess it for whatever reason they want (e.g. social credit, carbon credit, money with expiration date, location-based restrictions, wealth tax), whenever they want. There is no limit to the level of control that the government could exert over people, there are no guardrails on this thing. It’s going to turn you into a slave. With CBDC, your money isn’t really your money; your property rights are subservient to the “public good” — there are no property rights — IT’S COMMUNISM.

Meme of the Week

Country Corner: Zimbabwe

Zimbabwe is a failed state.

In a desperate move to address some of their many issues, the Reserve Bank of Zimbabwe is set to introduce a gold-backed digital currency on May 8, 2023… This week!

While the idea of a gold-backed digital currency may sound exciting, it won’t fix anything — just look at their GDP per capita, which has been hovering around $1,000 per year for about 30 years now.

This isn’t a fiat currency problem, this is a human capital problem.

The average IQ in Zimbabwe is 74.

When the term “retarded” was still used by medical doctors, more than 30 years ago, IQ scores between 70 and 79 were classified in the borderline mentally retarded range. This means that mote than half of the country of Zimbabwe would fall under the bellcurve as borderline mentally retarded under these old standards, with millions more classified as “severely retarded.”

It’s really, really hard to manage a modern, thriving economy when literally half your population is retarded and 11% of all adults have AIDS. I am not saying all of this to be cruel…. it’s just the sad reality: IQ is the main thing holding Africa back, and sticking your head in the sand and ignoring it won’t change the reality.

With an average IQ of 74, is it any wonder that the country suffers chronic hyperinflation? Everyone knows the stories from 2008 about the wheelbarrows full of cash, and the government printing 100 trillion dollar notes, etc.

The macroeconomic situation in Zimbabwe in 2022 is as dire as ever. The inflation rate reached a staggering 417.25% in October 2020 before marginally improving to 236% in 2022, still the highest in the world.

To put it in perspective, just 12 months ago, one US dollar would have netted you around 150 Zim dollars. Today, you would need nearly 1,000 Zim dollars to make the same exchange.

Reserve Bank of Zimbabwe Governor John Mangudya said the exchange rate volatility has been caused by “expectations of increased foreign currency supply” due to “the tobacco season”. Okay. The reason this chart looks so weird (see that square block?) is that the government relaunched the Zimbabwean dollar in 2019 after a decade of dollarisation, and, well, you can see how that went. In 2019 the entire country actually used the new Zimbabwe dollar, but then quickly switched back to US dollars.

The failure of the Zimbabwean dollar, coupled with the world's highest inflation, has left the country in dire straits. With no other options, they are grasping at straws and hoping that a gold-backed CBDC will provide a solution. However, I remain skeptical that this will work. Zimbabwe's fundamental issues with corruption and lack of human capital cannot be fixed by tinkering with their currency. Unfortunately, Zimbabwe has a track record of turning everything they touch into garbage, and I fear this will be no exception.

Moreover, the only other attempt at a CBDC in Africa was a dismal failure. Nigeria launched its eNaira in October 2021, but a year later, less than 0.5% of Nigerians were using it, according to Bloomberg. By August 2022, the eNaira had only been used for transactions worth $9.3 million. Given this track record, it is hard to imagine that Zimbabwe's gold-backed CBDC will fare any better.

I don’t see any reason why Zimbabwe’s attempt will fare better than Nigeria’s.

The lack of transparency surrounding the technical details of the CBDC is also concerning, with no documentation, math, or code provided to back up the vague promise of a "gold-backed token." This has SHITCOIN written all over it.

Here is the entire documentation:

In the end, this is another example of a developing country butchering the potential of crypto. While some may believe that "gold on a blockchain" is a solution, the need to trust another party ultimately undermines the trustless nature of cryptocurrencies. The whole point of crypto is that it is supposed to be trustless, which is why Bitcoin remains a better option for those seeking a decentralized and transparent monetary system.

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Karlstack

EXCLUSIVE: The Man Who May Have Milked $100+ Million from Mango Markets

6 months ago, Karlstack leaked a document written by a group of anonymous whistleblowers summarizing the facts of a scam in which someone exploited $14 million USD. That was a small-scale enough heist, apparently, to fly under law enforcement’s radar, because Avraham Eisenberg was seemingly never investigated at all, let alone punished. That lack of puni…

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4 years ago · 40 likes · 7 comments · Christopher Brunet

I didn’t really expect it would bring the full force of the FBI, CFTC, SEC, DOJ, and US District Court for the Southern District of New York crashing down upon him.

Karlstack

BREAKING: FBI Arrests Mango Markets Exploiter Following Karlstack Investigation

Half an hour ago, the news emerged that Avraham Eisenberg, the man who pulled off the biggest bug bounty in the history of cryptocurrency, was arrested by the FBI in Puerto Rico. Here is the court document which states, “the defendant, did knowingly and intentionally manipulate and attempt to manipulate the price of a commodity in interstate commerce … t…

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3 years ago · 37 likes · 5 comments · Christopher Brunet

Avraham is now facing decades behind bars.

In today’s article, I will dive into each of Avi’s numerous legal battles, many of which have wider implications for the nascent crypto legal landscape. Eisenberg's case marks a pivotal moment as he is the first individual to be incarcerated for exploiting a decentralized platform and/or manipulating a smart contract.

Avraham’s legal saga will establish whether code equates to law, whether DAO votes are legally binding contracts, and whether tokens are securities or commodities.

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Today’s issue of Karlstack is sponsored by The Digital Asset Investor Newsletter

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I get paid $4.13 for everyone who clicks on this button — so if you click this link, you are sending me a $4 tip, basically. Plus it is a legit crypto newsletter if you are trying to stay up to date on NFTs and crypto, obviously. I subscribed myself.

But First, Every Villain Has an Origin Story

Every good villain needs a backstory, and Avi fits the bill. This 27-year-old from New York is a coding, trading, and hacking genius, with an IQ in the 99.99th percentile. Plus, he's got that extra edge of being on the autism spectrum.

He dropped out of high school as a teenager because he was viciously bullied.

Bypassing highschool, Avi went to the library and got his GED instead, and made money by selling candy to the teens who had to go to school; he lent them candy on credit.

After obtaining his GED, he attended Yeshiva University, a private Orthodox Jewish university, where he obtained a bachelor’s degree in math in 2019. I had never heard of Yeshiva before, but Wikipedia tells me it is over 137 years old and has an endowment of nearly $1 billion dollars. While an undergrad, Avi was “a member of the debate team and occasionally wrote for the school paper. In what appears to be ironic foreshadowing, Avi listed his intellectual interests on a Yeshiva profile as "epistemology," "philosophy of science," and "applied ethics”. He also likes chess, here is his profile with 4500 games played.

While an undergrad at Yeshiva, Avi slipped and fell on some ice. Allegedly. He sued the town of Clarkstown, New York (population of 86,329) for this slip-and-fall.

says that " his personal injury case [against the town of Clarkston, NY] was eventually discontinued with prejudice in 2019. "

Dirty Bubble Media

The Ballad of Risk-Free Avi

There can be a thin line between trading and stealing. A trader’s goal is to exchange something for more than what they paid for it. In a ruthlessly efficient market, a trader has to capitalize on asymmetries between the information they possess and the information available to their counterparties. The greater the asymmetry, the greater the trader's op…

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3 years ago · 78 likes · 8 comments · Dirty Bubble Media

I am pretty sure this analysis is wrong. Yes, the lawsuit was originally dismissed with prejudice, but later Avi appealed and dragged it all the way to the Supreme Court of New York, where the dismissal was overturned. The case was settled in August 2019 for an unknown amount.

After his slip-and-fall lawsuit, Avi tried his hand at running a dropshipping company on Amazon for three years. But, as luck would have it, his company found itself knee-deep in legal trouble when a Chinese firm sued him for selling counterfeit goods in 2020. The Chinese firm won the initial lawsuit, and Avi was banned from selling on Amazon.

Like a phoenix rising from the ashes, Avi refused to accept defeat and appealed the decision all the way up to the 9th Circuit Court of Appeals. And would you believe it? He actually won the appeal! Just like he won the appeal against Clarkstown, NY. The court ruled that Avi was selling legitimate merchandise and didn't commit any counterfeit crime.

Unfortunately, this victory came a little too late for poor Avi. Despite the court's ruling, Amazon refused to lift the lifetime ban they'd imposed on him. Avi lamented on Twitter, "It would have likely continued to grow rapidly, but it was viciously [attacked] by a competitor upset about our lower prices and shut down...I gave the building path a fair shot and got told by the system not to bother."

Avi had to slink away from the dropshipping business with his tail between his legs, but not before pocketing hundreds of thousands, or maybe even millions, of dollars in profit. Court documents from the counterfeit goods lawsuit showed that Avi's business was wildly profitable, earning a whopping $300,000 in just a six-month span in 2019. "My first company grew to about a $5M run rate selling goods online," he boasted.

After the slip-and-fall and dropshipping debacles, Avi decided to ditch the physical world altogether and spend the next few years glued to a computer screen, growing his pile of cash into a bigger pile by trading, hacking, scheming, plotting, scamming, exploiting, and manipulating various coins, tokens, protocols, markets, derivatives, stocks, and ponzi schemes.

What's frustrating is that Avi was actually a talented guy. He didn't need to cheat to make millions. He could have easily gone to work for a hedge fund on Wall Street and played by the rules.

Case in point, Avraham is the 3rd most profitable trader in the history of PolyMarket. When you sort by PnL on Polmarket Whales it shows that he has made $350,000+ in the last couple years just by predicting the future accurately, sans cheating. And if that wasn't enough to stroke his ego, Avi even created his own Substack account in July 2021 to brag about his "risk-free" crypto gains.

His big break came in February 2022 when he leveraged the pile of cash he had built to extract $14 million from FortressDAO. Word on the street is that the CFTC is currently investigating his involvement with FortressDAO, but of course, Karlstack broke the story first.

Karlstack

Anatomy of an Alleged DAO Scam

**Note: If you don’t know what a DAO is, I would advise you to google “Decentralized Autonomous Organization” to find out for yourself, since I use plenty of DAO jargon in this article. Don’t get caught up in the jargon. There is a swell of grassroots anger building in the crypto world over…

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4 years ago · 5 likes · Christopher Brunet

One court document footnote gives credit to Karlstack:

Avi used this $14 million of capital acquired from FortressDAO to buy and sell large positions to manipulate Mango Markets; that’s how he stole the $100+ million dollars, by risking millions of his own dollars that he had built up from slip and fall settlement --> counterfeit Amazon dropshipping -- > dominate PolyMarket --> FortressDAO rug --> Mango Markets. I am sure I am missing dozens of other schemes. So there you have it, folks. The incredible story of how a kid from New York went from selling candy bars on credit in high school to becoming a mastermind thief in the world of crypto and stealing $100+ million dollars.

Despite his enormous wealth, Avi lives like a monk, or maybe even more frugally than a monk. He moved to Puerto Rico just to avoid taxes and doesn't even own a car because he's too cheap to pay for gas. He’s not really in it for the money, I don’t think. But why risk everything just for the thrill of it? Maybe he's a mad scientist, pushing the boundaries of what's possible just to see how far he can go. Or maybe he's just bored and disaffected and edgy, trying to make a name for himself in a world that doesn't understand him. He seemed to enjoy his twitter followers more than he enjoyed his $100 million dollars.

How do I know all this? How can I guess at his deepest motivations? Well, I actually know Avi pretty well — you might even call me the world’s foremost Avraham Eisenberg expert, since he doesn’t really have any friends. Friends is a strong word for our relationship, I would call it frenemies, since I have written 5 articles about his exploits and I have hung out with him in a Discord server for 2 years, where I observed him in his natural habitat. Here is a link to that Discord server:

If you join and search “Avi” you can even read all 40,000+ of his messages.

You will find such gems as:

• A reminder to anyone in this chat whomst this message may concern: you can just commit more crimes. You don't have to stop, out of fear of the consequences.

• good morning fellow gay felons

• Gm fellow people who love to do crimes over the interstate wires

• Gm fellow felons and Seychelles entities

• good morning fellow felons

• Gm fellow felons

• be gay do crimes

• I had steak with Peter Thiel the other month … Thiel told us that when Trump wins they're going after Gates as a Chinese asset … Peter Thiel told me tether CEO is a criminal … Thiel is the only billionaire that has had success suing people that said annoying things about him

• The death penalty is more humane than prison

• time to sue the blockchain

• time to do a lil insider trading

• can I sue

• I should sue them

• Im gonna sue them

• should I sue them

• time to sue

• if I had more time I'd sue

• if you don't sue them after they sue me I will sue you for not suing them for suing me

• time to … sue

• the best people to sue are those with lots of money you can seize but who won't respond in court

• Time to sue vapesters

• who do I sue

• I'm gonna sue kalshi to recover my ftx funds

• Wait you're telling me this isn't legal?

• Very legal and very cool

• We should … sue

• I would sue if I had time

• How do I sue

• you can't sue an idea

• You should sue

• sue me

• They need to sue starlink

• they should sue the marketwatch guy

• I should sue just to find out

• you should sue

• Should I sue opensea

• All you need is one of the victims to sue

• time to sue Jason Stone?

• well if I sue and nobody else does

• Oh nice I want to sue FTX

• Should I sue on behalf of labor laws

• Might sue for declaratory judgement on that

• guys I need to sue more people

• What if we sued God

• I'm better at suing people

• suing as a jew is very encouraged

• if you don't sue them after they sue me I will sue you for not suing them for suing me

• I've been manipulating … markets since 2014

• the trick to suing is finding a counterparty that can afford a judgement

• I'm suing them

• I feel like I'm not suing enough people

• who hasn't been sued civilly tbh

• hey it me I sued the goberment

• Should I … sue citadel

• I might be suing him for unrelated events soon

• Scamming people … is good and based

• I should sue Celsius

• my advice: find someone that's harmed you and sue them for cash moneys

• maybe I should buy up tokens and sue

• It's called we do a lil scamming

• It's gonna be funny in like a year when I win all my lawsuits

• I love reading lawsuits

• lawsuits incredibly +EV if you know what you're doing like me

• Nice thing about wire fraud is it has a much shorter statute of limitations than rape

• Don't let being literally incarcerated stop you from doing a lil fraud

• Stealing is such a harsh word, I haven't done that since I was a kid and wanted some gum

• What's the new scam? As a scam enthusiast I'd like to know

• ur honor I was violating the security laws ironically

• Ok who wanna do a lil criming

• More women should dabble in the criminal arts

• How do we get more womxn into the criminal arts

His big mouth and flashy style is what got him caught, honestly. If only he had kept quiet and refrained from bragging about his schemes on Discord, he could've made off with a cool $100+ million. But no, he just had to be a Twitter celebrity, didn't he?

Just look at this excerpt from an official court document:

That’s where his autism comes in. He’s a genius, but he is very stupid.

He had gotten away! He pulled it off! He successfully fled to Israel with 100+ million dollars — he fled the country the day I doxxed him, which is probably why he was denied bail, he’s a flight risk — and was living in Israel for several months before, for some inexplicable reason, he flew back to US territory, at which point he was arrested by the FBI. One of the all time stupid miscalculations.

Now he's up to his eyeballs in at least four court cases.

Let's walk through each one, shall we?

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Avraham Eisenberg vs. Mango Labs

This first civil suit is the least of Avi’s problems, because losing this suit would just mean losing some of his millions, but at least he gets to keep his freedom.

When Mango and Avi went to court in March 2023, just last month, Avi kicked Mango’s ass, or at least that is what it seemed like according to a veteran court reporter in New York City who sat through the Eisenberg trial (no cameras allowed, sadly) and livetweeted it.

The most shocking part of the verdict, in my opinion, was that the judge ruled duress did not apply. Wow.

I got it wrong. I guess my amateur lawyer skills aren’t what I thought they were.

What I predicted in my initial article: “Basically what we have here is Avi successfully robbing a jewelry store and then smirking, pointing a gun at the owner and saying, I’ll return half the jewelry if you agree not to press charges. This “agreement” between Mango Markets and Eisenberg is especially non-binding because not only was it agreed to under duress.”

Here is what the judge had to say about duress:

Duress is dismissed as an argument because Mango negotiated with Avraham and cut a deal with him. Too bad. If only Mango had listened to me as this negotiation was playing out in real time when I barged into their Discord server like a crazy person and told them not to negotiate with the terrorist holding them hostage under duress!

If Mango leadership had “spit in Avi’s face” and refused to negotiate with him (as I advised) they would have successfully been able to argue that duress applies, but they didn’t, so they can’t. They panicked and chose to negotiate with Avi, and in doing so shot themselves in the foot and dug their own grave. In the end, they only have themselves to blame. Watching this happen, for me, was like watching a train wreck in slow motion, but instead of being a bystander, Mango’s crappy lawyers are the ones driving the train.

On top of this dumb decision to negotiate with the terrorist, after they negotiated with him, they sat around for 3 months with their thumb up their ass instead of suing him immediately. When asked by the judge to explain this three month delay, they did not have an answer, which was apparently reason enough to deny the motion because it indicates “no true urgency” and no “irreparable hurt”.

It is no surprise that Mango lost what looked like a very winnable case, since in their opening argument, Mangos’s crappy lawyers made a glaring typo, which I have circled.

Avi’s winning argument, in contrast, had no typos, and boiled down to five main points:

1. Plaintiff Fails to Establish a Likelihood of Success on The Merits

2. The Facts Omitted by Mango Labs Confirms There Was No Duress

3. Mango Labs’ Fails to Establish Irreparable Harm

4. Mango Labs’ Delay in Seeking a Preliminary Injunction Confirms that there is No Irreparable Harm

5. The Public Interest Is Not Served by Voiding Negotiated Settlements

Avi finishes his argument by demanding that in order for Mango Labs to be allowed to sue him for the $45 million that he took from them, Mangolabs must put up a $45 million bond, which he knows they don’t have, because he just took it from them.

Mango Labs never ended up needing to put up this $45 million dollar bond, though, because their case was dead before it even got to that stage. The judge ruled:

Wow — this is a major win for the “code is law” camp — the judge is saying the settlement where Avi repaid a portion of the Mango exploit was legitimate because it was accepted by the DAO.

This settles it… DAO votes are now law.

Amazingly, Avi somehow walks away from this civil lawsuit with $45 million still in his pocket, which a court has now ruled is legally his money.

One lawsuit down, three to go.

Avraham Eisenberg vs. CFTC

After being arrested by the FBI on December 27th, on January 2nd Avi was charged with the CFTC’s “ first enforcement action for a fraudulent or manipulative scheme involving trading on a decentralized digital asset platform and its first involving an oracle manipulation scheme”.

The CFTC is charging Avi with 4 specific violations:

• The CFTC alleges that the MNGO-USDC swaps meet the definition of “swaps” under 7 U.S.C. § 1a(47) and 17 C.F.R. § 1.3 and are thus are subject to Commodity Exchange Act

• Section 6(c)(3), 6(c)(1) and Regulation 180.2 of the Commodity Exchange Act.

• Regulation 180.1(a) for manipulative or fraudulent conduct

• Section 9(a)(2) of the the Commodity Exchange Act

“This is a novel prosecution involving very complex facts,” said Brian Klein, a lawyer with Waymaker LLP who represents Mr. Eisenberg. “Mr. Eisenberg looks forward to his day in court.”

Avi is currently sitting in a jail cell in New Jersey waiting for his day in court.

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Avraham Eisenberg vs. SEC

The next shoe to drop was the SEC announcing charges of fraud, manipulation, and wire fraud on January 20th.

As we allege, Eisenberg engaged in a manipulative and deceptive scheme to artificially inflate the price of the MNGO token, which was purchased and sold as a crypto asset security, in order to borrow and then withdraw nearly all available assets from Mango Markets, which left the platform at a deficit when the security price returned to its pre-manipulation level … As our action shows, the SEC remains committed to rooting out market manipulation, regardless of the type of security involved.

— David Hirsch, Chief of the SEC’s Crypto Assets and Cyber Unit

It should be noted that the charging document gives a shoutout to Karlstack’s reporting:

The SEC is seeking 4 penalties:

1. Permanently enjoining Avi from engaging in acts, practices, and courses of business alleged herein.

2. Ordering him to disgorge his ill-gotten gains.

3. Imposing civil money penalties on him pursuant.

4. Permanently enjoining Eisenberg from participating, directly or indirectly, in the purchase, offer, or sale of any security.

So, it seems like they want to claw back all the money he took, then claw back some extra as a punishment, and then ban him from trading for life.

Seems fair enough.

The much bigger deal here is that this SEC complaint details how the Mango token passes the Howey Test, so they call Mango a security… which is in direct conflict with the CFTC calling Mango a commodity earlier.

The SEC will gain more power if tokens are classified as securities, and the CFTC will gain more power if tokens are classified as commodities, so I am getting the impression that the CFTC and SEC are in a power struggle with Avi caught in the middle.

Can a token be both a security and a commodity at the same time? Nobody really knows, this is evolving crypto case law, which is what makes this case so important.

I think that Avi has a strong case to argue here that it’s bullshit that he is being charged with both commodities and security fraud. Even if it is unfair, I guess the lesson here is that if you fuck around with crypto and steal $100+ million dollars, expect to get fucked back by Uncle Sam from every angle, even if the way in which you are fucked is slightly incoherent, it will still be brutal.

I think the likely outcome in this SEC case is that Avi pays a huge fine and is banned from trading for life. There is a chance he somehow magically takes the SEC to court and proves that Mango is not a security — THAT would really be groundbreaking, because it would fly in the face of Gensler’s “everything other than Bitcoin is a security” thesis. If anyone can magically beat the SEC and re-define the definition of what a security is, it’s Avraham.

Avraham Eisenberg vs. DOJ

The next domino to fall, after the CFTC and SEC, was the DOJ on February 2nd, 2023.

U.S. Attorney Damian Williams said: “As alleged, Avraham Eisenberg manipulated the Mango Markets cryptocurrency exchange in order to obtain over $100 million in illicit profits for himself. Through his scheme, Eisenberg left others holding the bag. Market manipulation is illegal in all of its forms, and this Office is committed to prosecuting such schemes wherever they occur – including in the cryptocurrency markets.”

Assistant Attorney General Kenneth A. Polite, Jr. said: “Exploiting decentralized finance platforms is the new frontier of old school financial crimes in which criminals abuse emerging technologies for their own personal gain. With this prosecution, the Criminal Division is sending the message that no matter the mechanism used to commit market manipulation and fraud, we will work to hold those responsible to account.”

FBI Assistant Director Michael J. Driscoll said: “The defendant is alleged to have executed a scheme through which he fraudulently acquired over $100 million worth of cryptocurrency. The FBI is dedicated to safeguarding the integrity of all financial markets and will ensure any individual willing to exploit one be held responsible in the criminal justice system.” 

The three DOJ charges are:

1. Commodities fraud, which carries a maximum sentence of 10 years in prison.

2. Commodities manipulation, which carries a maximum sentence of 10 years in prison.

3. Wire fraud, which carries a maximum sentence of 20 years in prison.

This is the scariest lawsuit of all, the one he is most likely to go to jail for.

How much jail time will he actually serve? This is anecdotal, but I have spoken to a bunch of people, and most are generally expecting 5-10 years. Metaculus has a market on this, lol — they are estimating 54 months in jail, or roughly 4.5 years:

Manifold Markets has a funny market: “Will Avraham Eisenberg be freed from incarcaration before the development of AGI?”

For context, Metaculus is currently predicing that AGI will arrive by 2030. So, the above Manifold market is pricing in a 57% chance that Avi will be free before 2030, meaning they are pricing in a 57% chance that his sentence is less than 7 years in duration.

These are all guesses… so take them with a grain of salt… 2 years, 3 years, 4 years, 5 years, 7 years, 10 years, at the extreme I’ve seen some people guessing 10-20 years. At the other extreme Protoss staff say, " Eisenberg is expecting to make a plea and do two years or less in prison overall." I am not sure where they got that “two years or less” estimate from, I am guessing they made it up.

Overall, it’s safe to say that people are expecting 2-15 years in prison for Avi… it seems like he is screwed, especially considering that federal prosecutors have a 99.6% conviction rate.

I am bearish on Avi’s sentence length — I think it will be on the higher end, because he stole sooooo much money, it’s hard to escape accountability. According to federal sentencing guidelines, the amount he stole exacerbates his crime by 24 “levels”:

What does increasing by 24 levels mean? I have no clue. The guidelines are confusing. For context, the entire sentencing guidelines is a scale of 43 levels of offense seriousness in which a “trespass” has a base offense level of “4”, while “kidnapping” has a base offense level of “32”, so Avi stealing $100 million rather than, say, $10,000, is equivalent to the difference between a trespass and a kidnapping.

If you really want to know how much time he will serve, look to history as a guide. This chart says that for people who steal $100 million, the average actual sentence handed down was 210 months — otherwise known as 17.5 years.

Noteable, the DOJ explicitly made no comment on whether Mango is a commodity or a security. However… the DOJ relied on the Commodity Exchange Act as the basis for prosecuting him, which is a pretty strong indicator that in the SEC vs. CFTC power struggle, the DOJ sides with the CFTC.

Conclusion

Hopefully you now understand why Avraham’s case are so important, and why I’ve written 5 articles about his exploits — this saga will determine if DAO votes are legally binding, and whether a crypto token is a “security” or a “commodity”.

Like Jesus Christ himself, Avraham Eisenberg sacrificed himself so that we may have regulatory clarity. Sadly, though, the clarity that we got here is that crypto assets may be regulated by both the CFTC and the SEC for the same activity and/or different aspects of the activity, and that crypto assets are both commodities and securities at the same time.

Great clarity, guys. Real coherent regulatory regime.

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As the name implies, ElonJet is a robot that posts the publicly available location of Elon Musk’s private jet — when it lands, when it takes off — and has garnered over half a million followers in doing so. This account was created in June 2020, and was first targeted by Musk in 2021; he offered to pay Sweeney $5,000 to take it down.

In November 2022, as Musk purchased Twitter, he assured everyone that he would not ban ElonJet.

In December 2022, Musk banned ElonJet, as well as banned Sweeney’s personal account.

This sparked a global debate on free speech.

I’m not going to dig into this can of freezepeach worms, because this isn’t an article about freezepeache. The point of this article is that I have uncovered dirt on ElonJet.

Normally I wouldn’t care about dirt on some random university student in Florida, but he’s a media darling who has single-handedly shaped the policies concerning what you are, or are not, allowed to write on Twitter.

As a prediction market aficionado, I take great umbrage when ElonJet leverages this fame to cheat, manipulate, and corrupt the integrity of the prediction market ecosystem... these scams happen all the time in this space, and it drives me crazy; the last thing we need is one more scumbag intent on rigging the markets. Whenever I can expose the lies of bad actors in the prediction market world, I consider that a public service.

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The “dirt” in question involves the Polymarket market Will the Twitter profile @ElonJet remain active through September 1?.

The rules of this betting market were as follows:

The resolution source https://twitter.com/ElonJet will be checked daily at 12 PM ET, with the last check being performed on the resolution time of September 1, 2022, 12:00:00 PM ET. If upon any of these checks the @ElonJet profile is found to be deactivated, deleted, banned or suspended in any form, while the Twitter platform is operating normally, this market will resolve to "No". Otherwise, this market will resolve to "Yes".

In the months leading up to the September 1st deadline, ElongJet was active.

6 minutes before noon on September 1st, the ElonJet account suddenly disappeared from Twitter. Here are traders reacting in real time:

23 minutes after noon, the account popped back up.

For good measure, here is a video of the account being deactivated at noon on the dot.

Ensnared In His Own Web of Lies

I reached out to Sweeney, inquiring whether he took a bribe to rig this market.

The statement is a lie.

You lose all your “superfollowers” when you deactivate your own account... and ElonJet lost all its superfollowers when it went down for those fateful 29 minutes. Losing your superfollowers does not occur when you are suspended for “bots mass reporting.”

I asked ElonJet to explain this superfollower discrepancy.

Despite answering my first question, he did not reply to my follow-up.

He responded by saying “God that ass came back” and deleting my messages. He has repeatedly deleted and/or banned anyone in his discord server who asks about this scam. Wait, I thought he was a warrior for free speech?

I repeatedly offered him the chance to review this article in its entirety before publishing it, so that he could point out any factual inaccuracies. He did not take me up on the offer.

Who Had an Incentive to Offer a Bribe?

This was an extremely lopsided market — $14,200 was wagered in total, but $9,230 of that was by a single whale betting that ElonJet would have his account deactivated by the market deadline. The next biggest position was a paltry $259.

Who owns the 0xd1fed9399b076e7a79bc9dbcb93cc57af824b06d wallet? Who would score a $9,230 payday when ElonJet was deactivated at noon, for 29 minutes?

Update: after publishing this article, someone sent me this tweet.

Fingers were pointed at a well-known trader in the community going by the pseudonymous handle “Gaeten Dugas,” a glowing tribute to the Typhoid Mary of AIDS.

Here is what Gaeten Dugas had to say about these allegations.

“My friend worked with the owner of [ElonJet] to deactivate it on the last day.”

This claim directly contradicts ElonJet’s claim that the account was taken down as a result of mass bot reports.

Dugas could be pulling some elaborate troll here, making up a fake story, but I don’t think so. What incentive does he have to to fabricate a friend that worked with ElonJet to rig the market?

One incentive would be to throw the heat off himself. It’s possible he made up a fake “friend” and is blaming it on him, but that is unknowable. No way to prove it. The wallet is anonymous, and no one can hack into the relevant private messages.

I conclude that even if he wasn’t directly involved in rigging the market, Dugas bears at least passing moral responsibility because he knew about it way ahead of time and let it happen.

On the other hand… What was he supposed to do? Is Dugas supposed to ride into every Discord server like Paul Revere, yelling that his friend had rigged the market? Go public on Twitter? He owes no fiduciary duty to other traders, nor to the Polymarket leadership team.

“Spirit of the Market” vs. "Literalist Interpretation”

Maybe this was all perfectly legal.

After all, Polymarket created this market without Sweeney’s consent.

The idea that Jack Sweeney is bound in any way by some crypto fuqtard creating an unregulated prediction market is rather insane.

— Anonymous trader

That being said, taking bribes to engage in corruption is generally frowned upon, and often illegal. The SEC/CFTC does not take kindly to a participant in a market colluding with the source of that market, with a secret exchange of funds.

*That* being said, the exact laws which might apply here are… unclear. It’s an unregulated/offshore market. Maybe it’s insider trading. Maybe it’s market manipulation. Maybe it’s corruption. Maybe it’s wire fraud; a strong case can be made that this scheme satisfies of all 4 of these criteria:

Pragmatically speaking, it’s too small for the Feds to care about. It is not worth the federal government’s time & manpower to go after teenagers that are scamming $9,230 of crypto from gamblers on an offshore, unregulated prediction market. This will go down as yet just another small-time scam in a long line of small-time scams permeating the crypto ecosystem since forever. Statistically speaking, everyone involved will get away with it.

When a sum of over $100 million USD is stolen, on the other hand, as was the case with Avi Eisenberg, they have no choice but to drop the hammer.

Karlstack

BREAKING: FBI Arrests Mango Markets Exploiter Following Karlstack Investigation

Half an hour ago, the news emerged that Avraham Eisenberg, the man who pulled off the biggest bug bounty in the history of cryptocurrency, was arrested by the FBI in Puerto Rico. Here is the court document which states, “the defendant, did knowingly and intentionally manipulate and attempt to manipulate the price of a commodity in interstate commerce … t…

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3 years ago · 34 likes · 5 comments · Karlstack

What many ElonJet defenders say is that this may have been corrupt, but that corruption doesn’t matter because it was done so incompetently as to have been unsuccessful… Sweeney and the briber didn’t even pull it off.

The reason their attack failed is that this market was resolved not by Polymarket, but by UMA. UMA is a system know as a “human oracle”… Think of it as a council of crypto elders who assemble to vote on ruling disputes.

The flaws in the UMA protocol are legion; the main problem is that it’s not decentralized enough; the top 10 biggest UMA wallets control 64% of the votes.

In practice this means that whenever 1 or 2 UMA whales make their voting decision public, all the small wallets mindlessly agree with him to be on the winning side of the trade. The plebs just look at the big fish and follow… and the big fish aren’t the smartest fish in the ocean. These fish are known for making schizophrenic, capricious, and/or illogical decisions.

It’s a total shitshow. Whoever owns UMA tokens can vote, and every voter has a different interpretation of the rules of each market. Is the purpose of UMA to report the actual state of the world or not?

A large (but unquantifiable) chunk of UMA voters, for example, were duped by a brigade of Polymarket trolls with a financial stake in the outcome. These trolls invaded the UMA discord and argued that the ElonJet account never actually went down, although they knew it did. This is blatantly false, but they were so loud in their kvetching that many UMA voters only gave this dispute a cursory glance before voting, so this coordinated disinformation campaign tricked them low-information-voter into voting the wrong way.

The pearl-clutching about scamming really falls flat when you consider that every single person … is fully aware that the account was inactive at noon, but decided to lie about that because they thought that UMA would be easy to game.

— Anonymous trader

The decision making process of the more highly-informed-voters, the ones who paid more attention to this case, was a little more sophisticated. Their decision boiled down to whether UMA’s role as an oracle is to interpret the rules as they are plainly written, or if they should take an activist role and stamp out any rigging of markets.

Here are the rules of the market again. This is all we have to go on:

The resolution source https://twitter.com/ElonJet will be checked daily at 12 PM ET, with the last check being performed on the resolution time of September 1, 2022, 12:00:00 PM ET. If upon any of these checks the @ElonJet profile is found to be deactivated, deleted, banned or suspended in any form, while the Twitter platform is operating normally, this market will resolve to "No". Otherwise, this market will resolve to "Yes".

A literalist reading of the rules is fairly straightforward: there was no caveat in the rules that prohibits market manipulation, and there was no caveat that dictated the account had to be down for some minimum amount of time. As such, the fact that the account was deactivated at resolution time is all that matters. Checkmate.

To deviate away from truth-finding would be to embrace corruption and resolutions based entirely on politics - a lot of people predicted Jack would not deactivate the Twitter account - WHY? Why did they feel so confident this would not happen? Why should they get to steal the money of people who saw that Jack was getting ready to deactivate the account? … To vote against the Truth in favor of a political resolution is CORRUPT behavior. It is against the ethos of crypto.

— Anonymous trader

It just seems to me like if the oracle wants to be broadly useful, it should be neutral to the "intended" purpose of any given market, and instead report the reality of what actually happened (and allow things like "fraud" to be considered at the application layer)

— Anonymous trader

The majority of UMA voters felt empowered to decide that the “spirit of the market” in this was violated by the occurrence of a bribe. They ignored the fact that the motivations of Jack Sweeney aren't what the prediction market is supposed to be resolved on, but rather on the status of Jack's ElonJet account.

Here is the only UMA documentation that at first blush supports this “spirit of the market” interpretation:

The key words here are “incorrect data can be disputed.” I am of the mind that ElonJet being down is not “incorrect data,” it is correctly reflecting the state of the world. An example of incorrect data would be a glitch in the Twitter API, not in ElonJet willfully taking his account down.

The majority of UMA voters, however, took this “incorrect data can be disputed” clause to mean that ElonJet being down was “incorrect data '' because it had been rigged. This is a gigantic cope. This market, in my opinion, should clearly have resolved the “Yes, the ElonJet account was deactivated at the deadline.” The rules are based on reality, and the riggers succeeded in changing reality.

UMA has one job as a truth oracle - to resolve markets accurately. They chose not to do so to protect the financial interests of bad predictors.

— Anonymous trader

We can't act as judges to resolve things based on our wisdom. The rules of the game are clear even if they are written poorly and even if the system is manipulated. The only question there is, Was the account active or not active at the time of resolution? And the evidence provided proves it wasn't. So the way I see it, P1 - No (0) seems to be the correct answer if the account was not active at the time. And the evidence presented does confirm that.

— Anonymous trader

The account was clearly deactivated before noon vote P1(0). Plenty of us saw it … He had an explicit price to be paid to shut it down for good, so it is not like him being paid to shut it down is somehow counter to what this market was about. People should take legal action against the scammers if they want, but the oracle should be about accurately reporting on the world, not making ethical/legal judgments on if the resolution is good.

— Anonymous trader

I also have no position in the market. Match fixing is fraud, and should be punished, not rewarded. There are two dangerous outcomes of letting match fixing stand: 1. It damages the integrity of the site. No one can have faith in the fair outcome of markets any longer. What game are we playing here? Who can predict events better or who can cheat better? 2. It invites further chicanery and possibly brings unwanted attention to the site. Think about the PredictIt user who made the news for sending death threats to Andrew Yang in order to prevent him from tweeting. We can't normalize this sort of thing. Vote YES

— Anonymous trader

Vote

The UMA voters resolved this market in favor of “the unwritten spirit of the market” rather than according to a literalist reading of the rules.

Conclusion

What lessons have we learned today?

1. ElonJet is really stupid & corrupt.

2. This was a bad market and the Polymarket platform bears responsibility for creating it; regulated markets (e.g. Kalshi) would never allow a market to be created that depends on the whims of a single college student. In fact this market was so bad that most traders weren’t surprised that an easily riggable market was rigged.

   Frankly, if the dumbass Polymarket employee who came up with this market had any foresight to prohibit market manipulation, they would have had the brains to simply not put up the market in the first place.

   — Anonymous trader

3. We are still so, so, so early in crypto.

My opinion is that crypto prediction markets won’t be a mature technology for at least 5 more years. Until then, more painful lessons like this will continue to be learned.

Don’t deposit any money on unregulated, offshore prediction markets unless you are comfortably losing all of it on a whim. This is financial advice.

Karlstack

Opinionated investigative journalism.

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Here is the court document which states, “the defendant, did knowingly and intentionally manipulate and attempt to manipulate the price of a commodity in interstate commerce … to wit, EISENBERG engaged in a scheme involving the intentional and artificial manipulation of the price of perpetual futures contracts on a cryptocurrency exchange called Mango Markets.”

Karlstack’s exclusive investigative reporting broke this story wide open, and the blockchain proof provided by my scoop was doubtlessly used by the feds in their investigation.

Karlstack

EXCLUSIVE: The Man Who May Have Milked $100+ Million from Mango Markets

6 months ago, Karlstack leaked a document written by a group of anonymous whistleblowers summarizing the facts of a scam in which someone exploited $14 million USD. That was a small-scale enough heist, apparently, to fly under law enforcement’s radar, because Avraham Eisenberg was seemingly never investigated at all, let alone punished. That lack of puni…

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4 years ago · 36 likes · 7 comments · Karlstack

Karlstack

The Largest Bug Bounty in Crypto History

Welcome to the ~200 new subscribers from my last article, A Legislative Onslaught Against Freedom! Sometimes I write about crypto. If you don’t care about crypto, you should know that Karlstack is split up into 5 sections: Economics, Academia, Politics…

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3 years ago · 15 likes · 21 comments · Karlstack

More details will surely emerge in the days to come, but until then, this 14-page court document is all we have to go on.

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Hilariously, the court document shows that Avraham fled to Israel on the day that I doxxed him. He then flew back to Puerto Rico, presumably thinking he was safe, where he was arrested.

Sometimes I write about crypto. If you don’t care about crypto, you should know that Karlstack is split up into 5 sections: Economics, Academia, Politics, Crypto and Personal. To opt-out of this “Crypto” section you can click the “Settings” button (at the top right corner of your screen) and then click “Manage Subscriptions.”

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I have a confession — when I published this exclusive scoop in October, I was only 98% sure it was correct. There was a 2% sliver of uncertainty that I doxxed the wrong person and therefore I would be sued into oblivion.

I published it anyway.

Karlstack

EXCLUSIVE: The Man Who May Have Milked $100+ Million from Mango Markets

6 months ago, Karlstack leaked a document written by a group of anonymous whistleblowers summarizing the facts of a scam in which someone exploited $14 million USD. That was a small-scale enough heist, apparently, to fly under law enforcement’s radar, because Avraham Eisenberg was seemingly never investigated at all, let alone punished. That lack of puni…

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4 years ago · 35 likes · 7 comments · Chris Brunet

2 days later, I was proven right.

Phew.

Let’s catch up on the timeline, and then we will dive into the legal nuance.

This isn’t over… the Avraham Eisenberg saga has just begun.

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The Blackmail Timeline

On the afternoon of October 11th, roughly $114 million USD went missing from Mango Markets.

That same night, whoever took the money (Avraham was still anonymous at this point) offered to return ~half the money in exchange for the Mango team agreeing to “not pursue any criminal investigations or freezing of funds once the tokens are sent back.”

On the morning of October 12th, less than 24 hours after the hack occured, I doxxed the hacker as Avraham Eisenberg, and my article went viral.

On October 15th, knowing that he was already doxxed by Karlstack, Eisenberg doxxed himself in public by announcing that he hadn’t stolen the money, he had merely “operated a highly profitable trading strategy.”

A few hours later, Eisenberg graciously returned $67 million dollars to Mango Markets, keeping roughly $45 million for himself as a “bounty.”

5 days later, by October 20th, every user who had deposited money on Mango Markets was made whole.

Whew, what a whirlwind!

What you just witnessed was the biggest bug bounty in history — I think? I haven’t been able to find any bigger ones. Leave a comment if you can find one bigger:

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How it Happened

In this twitter thread, Joshua Lim, Head of Derivatives at Genesis Global Trading, explains the logistics of the Mango exploit better than I could.

Who Lost Money?

If Eisenberg escaped with $45 million… and every user on Mango Markets was made whole... then where did the $45 million come from? Who lost money?

The answer is that while the Mango *treasury* had their money returned, the holders of the Mango *token* got fucked.

It’s hard to know the exact breakdown of who owns these tokens — many were in hands of the Mango developers, team members, founders, and other contributors, while many were owned by venture capital and retail investors.

The Mango token sale was public and there were no pre-sales to VCs.

Duress

Avi returned the $67 million to users on the condition that Mango does “not pursue any criminal investigations or freezing of funds once the tokens are sent back.”

Let’s get this out of the way: this is not a legally binding contract.

Duress, in a contractual context, refers to “a situation where a person is pressured into signing a document they would not have signed without that pressure.”

Basically what we have here is Avi successfully robbing a jewelry store and then smirking, pointing a gun at the owner and saying, “I’ll return half the jewelry if you agree not to press charges.”

This “agreement” between Mango Markets and Eisenberg is especially non-binding because not only was it agreed to under duress, it isn’t even up to the Mango Markets team to decide to press charges. The FBI (or other law enforcement agencies) don’t ask for anyone’s permission before they decide to prosecute crime.

Was it a “Hack”?

Many people refer to this Mango Markets debacle as a “hack” — the exact definition of which is difficult to pin down, because all 50 states have different computer laws, and I am an expert in precisely zero of them.

It’s useful, then, to start by googling the generic definition of “hack.”

Here are the first 3 results:

1. Computer hacking is the unauthorized act of accessing computer systems to steal, modify, or destroy data.

2. Hacking is the act of identifying and then exploiting weaknesses in a computer system or network, usually to gain unauthorized access to personal or organizational data.

3. A hack is Computer trespass, unauthorized access (or access exceeding permission that was granted to a user), or hacking is breaking into computer systems, frequently with intentions to alter, disable or modify existing settings.

It seems an integral part of what constitutes a “hack” is unauthorized access.

That isn’t just my assessment, though, that is SCOTUS’s decision in Van Buren, which ruled that you have to explicitly touch a part of the system that is off-limits.

Based on this criteria, everything Avraham did was technically “authorized” by the code; hence, Avraham will argue that “code is law,” and that this is not a hack.

“Code is Law” is a catchphrase (often affectionately referred to as “codeslaw”) stemming from a 1999 sci-fi book Code and Other Laws of Cyberspace, but today has evolved into a meme that crypto nerds spout when they have acted badly.

“Code is law” purists argue that Avi is using the immutable rules of the game to outsmart others and obtain outcomes that others did not believe could, or would, occur. Basically, Eisenvergh outsmarted whoever wrote the Mango Market code — he took their code and used it in a clever way that backfired on them. He didn’t break into an unauthorized space.

Avi argues that it’s not a crime to be smarter than whoever designed the Mango Markets exchange.

He’s right, he is smarter than them — I would place his IQ at easily >130, and beyond that threshhold, I am too stupid and incapable of discerning a 140 from a 150 from a 160 etc… suffice it to say that everyone agrees he is in the right tail of the IQ bell curve.

Being smarter than other people doesn’t make it okay to steal.

Imagine, for example, that a burglar breaks into a casino, cracks open the casino vault, and empties the vault. Do you think the casino owner would throw up his hands and say, “Oh well he is smarter than whoever designed the vault”? Of course not… looting the vault would be illegal even if the vault door were left wide open.

So, it wasn't a hack (in my judgment, at least), but at the same time, the “code-is-law” excuse isn’t a real thing.

What is the appropriate classification for this incident, then?

The Market Manipulation Argument

Speaking on CoinDesk TV about the Mango Markets exploit, Chris Tarbell, who previously worked at the FBI's cybercrime squad, argues that Mango Market was “more of a market manipulation.”

Michael Bacina, partner at Australian law firm Piper Alderman, told Cointelegraph, “If this had occurred in a regulated financial market, it would be likely seen as market manipulation.”

This is a common sentiment.

Just like we started our exploration of “hacking” by looking up the definition, let’s Google the definition of “market manipulation”:

1. The US Securities Exchange Act defines market manipulation as "transactions which create an artificial price or maintain an artificial price for a tradable security".

2. Market manipulation is conduct designed to deceive investors by controlling or artificially affecting the price of securities

3. Market manipulation is when someone artificially affects the supply or demand for a security

Just like a key part of what constitutes a hack is “unauthorized access”, it seems a key part of what constitutes market manipulation is that it must be a “security”.

Just like that… poof! The market manipulation argument falls apart, because the Mango token is not a security.

The Mango token almost certainly *should* be classified as a security (it satisfies all criteria of the Howey Test) but rather than register with the proper authorities, the Mango Markets leadership team went with the strategy of being a renegade, offshore, and unregulated exchange.

Mango therefore has no recourse with US regulators, because it failed to register with them. Pretty straightforward. Everyone wants all the benefits of decentralization with none of the risks… but the reality of situation is that those who live by the sword, must die by the sword. If Mango Markets wanted the feds help, they should have set up a regulated exchange.

Targeting Mango is particularly clever on Avi’s part because not only does their “pirate” status clear him of criminal charges with respect to market manipulation, it essentially absolves him of civil charges, too.

For the Mango team to sue Avi, they’d have to allege that the Mango token is a security. If they allege it is a security, they would be arguing in court that they sold an unregistered security to the public, thus opening themselves up to prosecution. It is therefore in Mango Market’s best interest to avoid suing Avi; both Mango and Avi need each other. Them both avoiding prosecution is in the best interest of both parties.

I’m sure Avi gamed this all out ahead of time.

It’s an Exploit

If it isn’t a “hack”... and it isn’t “market manipulation”… what’s the proper terminology?

The correct word, as Alan Path, COO of Path Crypto, points out, is “exploit.”

There is no such crime as “exploit”, though, leading me to conclude that Avi did not break any codified laws. He did, in fact, pull off a highly profitable trading strategy; a master class in finessing $45 million dollars from people dumber than him.

For example, having a U.S. company registered in Belize to avoid taxes can be seen as a legal tax “exploit,” though it isn’t considered explicitly illegal… just a clever loophole in a gray area.

In other words: don’t hate the player, hate the game.

Luckily in my original article reporting on the exploit, I refrained from making any value judgements — I did not cry “illegal hack! arrest him!” I simply laid out what happened, judgment free. If I am being 100% honest, I went into this article with the bias that I was going to find him guilty of some crime, and crucify him for it… but I am unable to come to that conclusion in good faith.

Still... I have a hard time believing that if you hauled Avi in front of a judge, that the judge would look at this $100m being taken from thousands of people by an American, on US territory, under his own name, flaunting US authority, and conclude that he did nothing wrong… but I guess in a post-FTX world that’s just par for the course? Who cares! Nothing matters anymore!

Karlstack

FTX as a Controlled Demolition

This is my FTX article. There have been a million FTX articles over the past week; my challenge is to add value somehow; to do something different. No point reiterating what has been said ad nauseam. What I am not going to do in this article, then, is explain the logistics of the collapse, why it matters, how it happened etc… here are a good few Substac…

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3 years ago · 30 likes · 16 comments · Karlstack

That being said, the SEC/DOJ/FBI isn’t going to bring legal action on the off-chance that the presiding judge will be able to find a broken law somewhere. Either they go all-in and drop the hammer on something concrete, or they don’t go at all. They aren’t going to prosecute a marginal case and then cross their fingers and hope for the best. That’s not how the feds roll.

If you think Avraham Eisenberg committed a crime by exploiting Mango, I would love to hear which one. Please leave a comment.

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What are prediction markets pricing in?

The first thing that the prediction market community did upon witnessing this attack on the integrity of their community was… to bet on the outcome. Of course. Everyone in this community is a degenerate gambler. I love it.

Manifold Markets is currently pricing in an 18% chance that Avraham will spend at least 6 months in jail before the end of 2030:

Compare this with a 28% chance that he will be a billionaire before the end of 2030:

Honestly, these 18%-chance-of-going-to-jail risks are the types of risks you need to take if you want to be a billionaire. Very few billionaires became billionaires without operating in the grey areas and without taking money from others by force, trickery, loopholes, and legal ratfuckery. This is how the game is played at the top. It’s not like George Soros created billions of dollars worth of value for people; he just took it from them.

One well-known member of the forecasting community, AG123, stands to profit $4,875 USD in peer-to-peer wagers if Avraham is charged with a crime within the next 12 months. He’s the Avraham whale.

Ever the rationalist, Avraham unsuccessfully tried to use this bookie as a chance to hedge the risk of himself going to jail.

Did Mango Markets Deserve it?

Here is one of the cofounders of Mango Market claiming that Avi that will face divine judgment from Hashem:

The other co-founder of Mango Markets promises that Mango Markets will return better than ever:

While the version of Mango Markets that was exploited by Avi was “V3”, what Daffy is referring to here is the fact that “V4” is set to launch any week now.

Despite V3 getting exploited and losing all their money, users are excited to give Mango a second chance!

I don’t know enough about the supposed upgrades to V4 to know whether it will be safe and secure, but presumably it will fix the Avraham exploit. Who knows what other exploits there may or may not be. Finding out is half the fun!

Everybody blames Avraham, but nobody talks about the fact that the Mango Market developers left a huge, gaping security vulnerability in their V3 code; Avi’s exploit wouldn’t have been possible if the V3 developers had simply been smarter & more competent than Avi.

Even worse than writing and deploying bad code, everyone *knew* about their bad code! The exact vulnerability that Avi exploited was posted in their public Discord server in March 2022… and the Mango team chose to sit on it for 7 entire months.

Are you starting to see how badly the Mango Markets team fucked up?

Their strategy for securing $100+ million in customer deposits was simply to count on the goodwill of the community not to take it. What was Avi supposed to do… when he sees $100+ million laying on the ground… pretend like he doesn’t see it, out of some unspoken gentleman’s agreement? Or is it rational for him to pick up the money laying on the ground?

I spoke to Mango Market directly and they confirmed they knew about the vulnerability but were simply waiting until the V4 update to fix it. It is unclear if this is true, as it is unknowable if this would’ve been fixed in v4 without the attack.

I've therefore come around to the view the Mango team mostly deserved it.

Still, that doesn't change the fact that they were trying to build something for others to enjoy, Avraham will NEVER do that; he only destroys. Even if he destroys in a technically “legal” manner, he is still purely a destroyer. This destruction may technically be 'legal’, but it doesn’t necessarily make it right. What the Nazis did do the Jews was considered legal in Germany at the time, for example, but that doesn’t make it morally right.

The Adversarial Hardening Argument

I just argued that while what Avi did (destroying the work of others) was legal, it may have been immoral. I could just as easily argue the opposite however; that not only was it okay to destroy the work of others, but it is necessary and a good thing.

This philosophy is laid out in a blogpost by renowned crypto-blogger “FBI Femboy” titled, On the supposed “nihilism” of the Mango Markets arbitrageur.

Keep in mind that “FBI Femboy” may-or-may-not be-but-definitely-is an accomplice of Avi on other exploits, so his analysis is extremely biased and self-serving.

Still, he makes some salient points. In this post, FBI Femboy argues that in order for crypto to build a “a new financial system” it must subject itself to “adversarial hardening.” This is the view that holding the builders accountable for bad security and bad code is the only rational solution — if people lost money, too bad, so sad, such is the price worth paying to learn a valuable lesson and to make the future of finance more resilient.

In this interpretation, Avraham’s actions act to strengthen the system in the long run. Of course, some people have a vision of web3 where everyone gets along and voluntarily plays nice, but frankly, this is just a stupid, moronic vision which seems fundamentally incompatible with the idea of decentralized, permissionless networks. It is hard to fault someone for taking actions that are incompatible with idiotic worldviews.

— FBI Femboy

The Waves Argument

One thing that undermines the “he’s a whitehat with a heart of gold who is engaging in adversarial hardening!” argument about Avi’s intentions is that Eisenberg made the exact opposite argument a few months ago, crying to the judicial system about one of his trades that lost money. He’s a hypocrite.

Avi’s trade goes bad and he loses money? Everyone else is manipulating the market! Sue them for market manipulation!

Avi’’s trade goes well? It isn’t market manipulation, merely a profitable trade. Better luck next time ;)

I reached out to Avi and showed him this article before publishing it. He strongly denies any parallels between Waves and Mango.

Avi’s e-Boy Arc

When I doxxed Avi in my original article, he had roughly 1,000 Twitter followers.

He now has 37,000+ followers and has become one of crypto-Twitter’s premier villains.

He seemingly loves this newfound Twitter attention more than he loves his hundreds of millions of newfound dollars, he’s leaned into his role as a heel and has exponentially increased his rate of tweeting to entertain his exponentially larger crowd.

He’s putting on a show.

He’s even doing the crypto podcast circuit:

After doing the podcast circuit, he then started a new scam dubbed “Mango Inu”, the name of which is a blatant attempt to rub the Mango Market’s community’s face in it.

He’s tea-bagging them.

After the “Mango Inu” scam, he allegedly attacked the AAVE protocol:

Just like he allegedly unsuccessfully attacked the Kleros protocol:

Avi strongly denies that he attacked Kleros, and even wrote an entire Substack article about it:

My assessment is that Avi may be getting a little too cocky for his own good.. he’s flying too close to the sun. If I were his lawyer I would advise him to lay low for a few months rather than grandstand.

, for example, went to jail not for committing crimes, per se, but for trolling. Sure, what garnered him the attention in the first place was the price gouging, but his autistic/sociopathic approach to trolling the public is really what did him in. He drew too much bad attention to himself and to the space he was operating in, just like Avi is doing now. The feds did not take kindly to to him flaunting it in their faces.

Dear Feds, I understand that you are, like, a decade behind this crypto legislation, and it’s a gray area to figure out whether the Mango Market exploit broke any laws. Surely there’s some poor boomer fed out there right now, googling what an “oracle” is.

Here’s what the Avraham Eisenberg story boils down to: it’s a pattern of attacks. He’s not going to stop attacking protocols until he is stopped — he’s only going to get more brazen, more aggressive, and more public now that he has hundreds of millions of dollars at his disposal and an audience to perform for. He’s insatiable and going to keep hurting the defi system, going to keep destroying the “average Joe” crypto investor.

Perhaps that is what you want, dear Feds, to damage trust in the crypto ecosystem. If so, bravo! Keep doing what you are doing. Avi is the perfect weapon; a human wrecking ball.

If you want well-functioning markets, though, here is my advice: you should know that Avi only got his capital to attack Mango Markets in the first place by defrauding around 14 million USD from Fortress DAO. While the Mango Markets stuff is gray territory, the Fortress DAO stuff is black and white fraud.

I laid it all out for you neatly in this article.

Karlstack

Anatomy of an Alleged DAO Scam

**Note: If you don’t know what a DAO is, I would advise you to google “Decentralized Autonomous Organization” to find out for yourself, since I use plenty of DAO jargon in this article. Don’t get caught up in the jargon. There is a swell of grassroots anger building in the crypto world over…

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4 years ago · 5 likes · Karlstack

Good luck, Fedbros!

Karlstack

Guerilla gonzo journalism.

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DISCLAIMER: I am not a lawyer, nor am I a defi expert. I am a washed-up economist turned investigative journalist who moonlights as an amateur defi enthusiast, who in turn LARPs as an legal analyst. This is not legal or financial advice.

There have been a million FTX articles over the past week; my challenge is to add value somehow; to do something different. No point reiterating what has been said ad nauseam.

What I am not going to do in this article, then, is explain the logistics of the collapse, why it matters, how it happened etc… here are a good few Substack articles in that vein:

Economic Forces

What is an FTX?

You are reading Economic Forces, a free weekly newsletter on economics, especially price theory, without the politics. You can support our newsletter by signing up here…

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4 years ago · 14 likes · 1 comment · Josh Hendrickson

The Dossier

The True Believer: how Sam Bankman-Fried's worldview facilitated the creation and destruction of a crypto Ponzi empire

Sam Bankman-Fried is a true believer. Bankman-Fried, or SBF, as he’s referred to in the domain he once ruled, has dedicated his life to the philosophy of effective altruism (EA). He has spent his entire adult life surrounding himself with his ideological comrades, and only his ideological comrades. SBF’s friends believe in effective altruism. His lovers…

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4 years ago · 16 likes · 8 comments · Jordan Schachtel

Qluster Research

The Revenge of the Nerds - How Ivy League Amateurs Fumbled a 10 Billion Dollar Bag

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3 years ago · 2 likes · Qluster

What I am going to do in this article is approach this story from a “tinfoil-hat“ angle.

Despite this conspiracy theory going mainstream on Twitter, no journalist has yet looked into it in a rigorous way — mainstream journos are all sycophantically treating Sam Bankman-Fried (SBF), the founder of FTX, with kid gloves. Odd case.

Hence, the value of Substack. I can write a 8,000-word screed about this popular conspiracy theory if I feel like it, whereas mainstream media, in contrast, typically keeps their articles under 1,000 word, meaning they couldn’t do a proper deep-dive even if they wanted to (they don’t, their entire mandate is to manufacture your consent.)

The future of media is not legacy/mainstream media. The future of media is Substack.

Karlstack

Opinionated investigative journalism

By Chris Brunet

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The people involved in this conspiracy are coastal, elitist, globalist, Democrat ghouls who work hand-in-glove with the CIA/FBI/SEC/CFTC/Mossad and use wokeness as a smokescreen to shield themselves from criticism. These woke footsoldiers aren’t “liberals” in the classical sense of the word; their only ideology is censorious neofascism and their only allegiance is to power. These are corrupt pigs feeding at a trough; greedy kids with their hands caught in the cookie jar.

These people hate you. They want to control you.

They hate crypto (i.e. private currencies) because crypto can’t be controlled.

Hence, they plot to destroy crypto.

Is that really so far-fetched? I don’t think so.

Much of this article is a highly speculative: the overarching thesis is that the-powers-that-be astroturfed FTX as yet other intelligence agency proxy in order to rug billions of dollars, ruining the crypto industry’s reputation & facilitating the path towards a CBDC & social credit scores… and eventually, towards a one-world government.

I can’t prove that Sam Bankman-Fried is a CIA or Mossad asset.

I reached out to both the CIA and Mossad for comment before publishing this article, and did not receive a response.

All I can do is lay out the puzzle pieces in a convincing way, but I think you will find that it is downright plausible — if not highly likely! — that intel agencies would work with private intelligence and woke capital to create narratives that drive their power and control.

Speaking of woke capital…

I am not the first to put forward the theory that SBF is a fed.

I would point you towards this prophetic thread (written 2 months ago, before any of the FTX chaos!) by the CEO of ScienceIO:

Since then, this theory has only picked up steam, e.g.:

SBF is a 30-year old MIT graduate whose net worth peaked at 26 billion USD last year, but this week became negative; making this the most dramatic / swift collapse of any billionaire in history.

He’s built his image around being a quirky eccentric genius who sleeps on a beanbag.

Before this week, he was widely seen as the “face of crypto.”

A modern day JP Morgan.

@echodatruthWhen your homie ditches you! #echodatruth #ftx #sbf #tombrady #crypto #cryptocurrency #blockchain

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In retrospect it was totally obvious he was a pure scammer, for example, while speaking to Forbes last year he cryptically hinted that “some Crypto exchanges are already secretly insolvent”… little did anyone know at the time, he was referring to himself.

The first thing you need to about SBF is that his parents are both lawyers/academics/professors at Stanford who specialize in the study of ethics, morality and logistics as they relate to tax shelters, insider trading and corporate fraud.

https://law.stanford.edu/directory/barbara-fried/

https://law.stanford.edu/directory/joseph-bankman/

His mother Barbara is co-founder of Leftist super PAC “Mind the Gap,” which led the Democrat charge for the widespread adoption of untraceable “mail-in ballots” AKA ballot harvesting.

Some say the parents should take zero blame for how their son turned out.

I disagree!

The most important part of understanding SBF and his motives is how his parents’ utilitarian philosophy drove him to become a radical “ends justify the means” scammer. No different than parents raising their children to become any other form of extremist.

Of course parents aren’t always to blame for their children’s actions; however, in this case, his actions seem to be a direct result of their extreme beliefs. And Sam decided the ends justified stealing deposits, knowing that the personal cost was the potential for disgracing his family. Parents provide foundational values for their children, which the children may accept, or not. In this case SBF exhibits exactly the same ethics as his parents, so let's proceed from there.

In any case, that’s his origin story.

He was born and bred for this moment.

The second thing you need to know about SBF is that he ran a meth-fueled polyamorous sex cult in the Bahamas, where he lived and worked in a luxury penthouse with the rest of his FTX polycule.

Here is an (alleged) insider describing the living situation and power dynamics of the Bahamas polycule:

Despite the fact that she was a novice trader with only 19 months of trading experience, SBF placed his on-and-off girlfriend, Caroline Ellison, as CEO of Alameda Research. She was in charge of billions of dollars.

Alameda was FTX’s sister company; a hedge fund that gambled/siphoned all of FTX users’ money away.

Here is CEO Caroline speaking cryptically about “trades where she’s lost a bunch of money” before realizing that “she probably doesn’t want to get into specifics.”

Here she is blogging about her polyamorous lifestyle:

Here she is blogging about her meth addiction.

Everyone at FTX was reportedly addicted to meth.

In fact stimulant abuse was so rampant that they held orientation for stimulants for new hires:

It’s worth noting that Caroline Ellison’s father is Glenn Ellison, an economics professor at MIT. So, Stanford professors (SBF’s parents) send their kids to MIT, and MIT professors (Caroline’s parents) send their kids to Stanford.

There’s a huge web of nepotism/corruption in this story, and I am only able to scratch the surface. Just watching the wealth, neptosim, greed etc. behind this story is a small peek behind the veil of meritocracy that has a huge impact on the moral of common workers; it weighs on, subverts, and demoralizes the psychology of regular people.

Maybe that’s the point.

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Of course, the New York Times ran cover for this scam.

Yesterday, rather than seriously & solemnly covering the most important financial scandal in several years, they ran a puffpiece:

This NYT piece is probably the worst piece of journalism I've seen in my life… disgusting. It's especially weird because it is SUCH a huge story and they assigned a new/junior reporter to cover it… he only graduated in 2019. Methinks this junior reporter had the mandate from editors to butcher it on purpose. They threw the young guy to the wolves.

Rather than, say, mention the fact that SBF is the most well-connected person in the world:

What the NYT did is provide free advertising for “Storybook Brawl,” a random video game that SBF owned:

It really is kinda funny.

NYT just got done tearing apart Facebook for fiddling with its feed algo, then they turn around and paint this total fraudster (“worse than Theranos, worse than Madoff”, according to a former SEC official) as an innocent guy who merely got too overwhelmed but is otherwise totally chill and likes playing video games (download StoryBook Brawl today!).

I hate to mention this next aspect, but I would be doing a disservice to my readers if I pretended not to notice: pretty much every single person implicated in the FTX fraud (including the NYT owners, editors and reporter who let him off the hook) is extremely Jewish.

In fact it’s hard to find anyone involved in this scam who isn’t Jewish, maybe there are one or two, a token asian guy here or there, but yeah, the deeper you dig in this story, the more Jewish people you will find.

People have noticed, and this has resulted in a huge anti-Semitic backlash online.

I reached out to my Jewish friend for permission to broach this sensitive topic, and he gave me his blessing:

Anyways, consider this me mentioning it.

Moving on.

Up until yesterday, FTX was an official partner of the World Economic Forum (WEF).

Yesterday, the WEF scrubbed this from their website.

As luck would have it, SBF’s aunt works for the WEF.

This same dear ol’ aunt Linda also sits on the Council on Foreign Relations, a well-known CIA/Mossad front where Jeffrey Epstein (PBUH) served dutifully for 15 years.

SBF’s brother is a Democrat operative:

This is where the Democrat party comes in.

You see, SBF just happened to be the 2nd biggest donor to the party, second only to George Soros.

Basically what we have here is that SBF stole hundreds of millions of other people’s money and donated it directly to the Democrat party, right ahead of the midterms.

That means Democrat PACs are presently in possession of stolen money that needs to be returned to FTX clients. Will they return it? Haha. Don’t hold your breath.

SBF then pleged $1 billion to the blue team.

Not hard to work out that if he got the right exchange licenses and regulations passed he would give them the full billion and would have continued donating large sums long after. Straight up political quid pro quo.

He was speed-running his way to becoming Soros 2.0.

One of the most prominent officials who appears to be bought off by SBF is Gary Gensler, who Bill Clinton (who flew on Jeffrey Epstein’s plane 26+ times) appointed to be Assistant Secretary of the Treasury in 1997, Obama appointed as head of the CFTC, and more recently President Joe Biden appointed to be in charge of the SEC — the organization tasked with overseeing crypto.

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The general counsel of FTX used to be the lead counsel to Gensler when he was CFTC chair.

As head of the SEC, Gary Gensler met regularly with SBF in an official capacity.

How did he not know what was going on?

If he didn’t know what was going on, he’s incredibly incompetent and should be fired.

If he did know what was going on, he’s incredibly corrupt and should be fired and jailed.

There is no middle ground.

Whether or not this was planned or not, though, is irrelevant. What matters is that the SEC literally caused (either through corruption or incompetence) this crash and are using it as an argument to give them greater regulation and control of crypto.

Never waste a crisis, regardless of whether that crisis was manufactured or just a happy accident.

Where do We Go From Here?

In the years leading up to this moment, I had naively hoped that I would be long dead before CBDC’s went mainstream. Any such optimism is now crushed.

The timeline has accelerated.

I now don’t see any road forward that does not end in a central bank digital currency within the next couple of years.

It’s gg.

The Pomp Letter

Central Bank Digital Currencies Are Coming Fast

To investors, Central bank digital currencies are coming whether we like it or not. In the last few days, we have seen India’s central bank confirm a pilot among nine banks to trade bonds that are settled in the e-rupee. Additionally, they have plans to roll out a retail version of the CBDC within the coming months…

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4 years ago · 8 likes · Anthony Pompliano

The Economics Hub

Central Bank Digital Currency and the Dystopian World of Cashless Economy

Assume that you and I are two random people from the Stone Age era that had begun roughly 2.6 million years ago. I require some stones and hunting tools from you in exchange for some meat that I possess. We both mutually and voluntarily decide to trade and exchange. This direct exchange of goods and services was the essence of the barter system that pre…

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5 years ago · 8 likes · 5 comments · Shreyas Urgunde

In order to usher in CBDCs, the-powers-that-be will have to first crackdown on “legacy crypto”; can’t have any workarounds or alternatives to your new regime! The government must be the only provider of crypto.

Just this week, senators decided to move forward with SBF-backed crypto regulation bill.

If there were any justice in the world, this is what would happen to SBF:

What will happen to SBF in reality? I don’t know. I don’t even know what country he is in right now.

Settle in for years of investigations and legal fights; this is our generation’s Enron, except on a bigger scale; they even brought in the exact same lawyer who cleaned up Enron to be the new CEO of FTX to unwind the carnage:

I can only hope that Republicans will use their newfound control of congress to launch a full-frontal investigation into Gensler's FTX links. Subpoena everyone. Drag everything into the sunlight.

I am sure Republicans will be interested in the Ukraine angle.

The Ukraine Angle

There is a popular conspiracy theory floating around the internet that the Democrats used FTX to launder money sent to Ukraine, but I don’t buy it.

I also don’t *not* buy it.

There isn’t really any proof to substantiate this claim one way or the other.

I unironically suspect all of these popular memes were made by Russian disinformation agents, or some other shady disinformation group like that.

Apart from these memes, there is no evidence showing that money laundering between USA —> Ukraine —> FTX—> USA occurred.

Some in the conservative media ran with this angle nonetheless, such as The Gateway Pundit and The Post Millenial, who each ran articles stating unequivocally that Dems laundered donations to Ukraine through FTX.

Shocking how irresponsible they are to print these stories with no proof. Speaking as someone who used to work at the Daily Caller News Foundation, I 100% would’ve been fired if I published these stories. A gross failure of conservative media.

Where is the evidence that Ukraine sent US tax dollars to FTX?

It might eventially turn out to be true, but as of now, it isn’t.

Pizzagate 2.0

There is one final twist in this story that REALLY gets into tinfoil hat territory.

Over the past few days, amateur sleuths have started to notice that Alameda Research’s logo — the hedge fund attached to FTX, remember — looks suspiciously like the symbol used by pedophiles to identify other pedophiles.

This symbology comes straight from an official FBI guide:

If you’ll recall, this same symbology was at the crux of the Pizzagate scandal of yesteryear, where the pizza parlor in question used a variant of the same suspicious logo:

It goes one level deeper, because sleuths realized that SBF’s shirt in his twitter avatar is suspiciously like another pedophile symbol from the same official FBI guide.

Crazy… impossible… right?

Well, let me ask you this. Do you think Jeffrey Epstein was an isolated case that was nipped in the bud, or do you think there are dozens/hundreds of “Epstein’s Islands” scattered across the world? After all, the Bahamas where Alameda Research & FTX are located is a well-known sex trafficking hub. These FTX scammers all ran in the same circles as Jeffrey Epstein— MIT, Council on Foreign Relations, Mossad, etc. Is it really so crazy to think they pulled off the same scam twice?

This is all still pretty tenuous.

Here is where the meat of the pizzagate twist comes into play.

Two weeks ago, the body of Nikolai Mushegian, 29, was found floating in the ocean in Puerto Rico, fully clothed and carrying his wallet. How many surfers do you know that go surfing with a wallet?

In a tweet hours before he died, he wrote: 'CIA and Mossad and pedo elite are running some kind of sex trafficking entrapment blackmail ring out of Puerto Rico and Caribbean islands. They are going to frame me with a laptop planted by my ex [girlfriend] who was a spy. They will torture me to death.”

This wasn’t just some random guy, this was a big-named crypto developer/influencer who lived in Caribbean and was trying to sound the alarm on the CIA and mossad running a pedo elite cult in the Caribbean.

Rest in peace, Nikolai Mushegian.

Disclaimer: investigative journalists who mention elite CIA/Mossad pedophile rings have a tendency to wind up dead, or in prison. This is especially true because the last guy who tried to expose this specific pedophile ring ended up dead, just a couple of weeks ago.

Even though I am not adding anything “new” to the story — I am not breaking any news, and this conspiracy is already mainstream on Twitter anyways — just the fact that I am putting the puzzle pieces together and elevating it from the Twittersphere to the blogosphere is often enough to warrant getting snuffed out.

If I wind up floating facedown in the ocean, or “caught” with a kilogram of heroin, or “caught” with a trove of child porn (as Nikolai Mushegian explicitly feared would happen to him), or hanging from a doorknob, I didn’t do it.

I am not suicidal.

Leak me documents or tips: chrisbrunet@protonmail.com

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Karlstack

Anatomy of an Alleged DAO Scam

**Note: If you don’t know what a DAO is, I would advise you to google “Decentralized Autonomous Organization” to find out for yourself, since I use plenty of DAO jargon in this article. Don’t get caught up in the jargon. There is a swell of grassroots anger building in the crypto world over…

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4 years ago · 4 likes · Chris Brunet

That was a small-scale enough heist, apparently, to fly under law enforcement’s radar, because Avraham Eisenberg was seemingly never investigated at all, let alone punished. That lack of punishment seems to have emboldened him.

Karlstack

Opinionated investigative journalism

By Chris Brunet

This latest scheme happened just last night — this is breaking news! — when it emerged that someone took roughly $114 million USD from “Mango Markets,” whose website describes themselves as “Decentralised, cross-margin trading up to 20x leverage with lightning speed and near-zero fees.”

CoinDesk and BlockWorks are probably the most reputable 2 outlets in this space. Rather than walk through the extremely convoluted/sophisticated/complex facts of this case, I will refer you to their reporting from last night which gives an authoritative summary.

This was an extremely sophisticated/complex attack, and I am not going to get lost in the weeds explaining the technical details to my readers.

TLDR: Mango markets were exploited via manipulation of the spot price of Mango token. The hacker took a large, long position using mango markets, allowing him access to a high amount of leverage. Then he proceeded to prop up the spot market increasing the theoretical value of his long position. With a newfound account value of over 400 million he was able to borrow solid assets from the protocol and exit. This made him a net profit of 100 million dollars.

I know something CoinDesk and BlockWorks don’t know, however, because, well, I am in a private Discord server with the alleged hacker, where nerds of all stripes meet to discuss crypto/stocks/prediction market trading strategy.

In fact, I have screenshots showing him plotting and bragging about his latest coup.

This is Eisenberg’s discord account. He goes by the username “Vires Creditor and Honest Person”:

Here he is on October 5th, 2022 bragging about “I’m investigating a platform that could maybe lead to a 9 figure payday” and then explaining the logistics of how he planned to pull this off on the “minecraft chain”.

Here is musing on how he will spend the money. He is planning to “leave it to my kids… when I die.”

This screenshot shows $7,500,000 going from the Mango exploiter’s address on Solana, through Circle, to Eisenberg’s ponzishorter.eth ethereum address

This one shows him covering the capital used in the market back to his address.

https://solscan.io/tx/5BxPxnby7tTrFnoy6LjpNTGxoUmBvFD3cAdUuozRdwESwxR8Vpj1Ph5t4wfYAh5Gjyx3hAN5PBXjbJtZ4Hw5qtg3

https://etherscan.io/tx/0xdd9cc9178e326c3678c49fac4aeab9deb4ed058dec0f907d5b8562f24c0f5c04

So… that’s pretty much that.

I reached out to Eisenberg for comment, asking him to explain these screenshots. This was his official, on the record response:

I've been exploring a number of lending platforms with exposure to low-cap coins. So far I've run analyses on AAVE (BAL and REN) and Justlend (SUN/SUNOLD), as a heavy user of both protocols myself. The ones I've looked at tend to require very high initial capital - high 8 or low 9 figures - a fund might be able to do it, similar to how Alameda took advantage of Voyager lending against illiquid tokens. For justlend another issue is the oracle only moves 10% maximum per half hour, and additionally the SUNOLD oracle has been significantly off recently, as it seems to track the SUN market instead. This has led to some minor arbs. I reported this to the winklink team the other week. I haven't yet done a report for aave and may not, since it requires substantially more capital. If you're interested I can write up a guest post on this general kind of trade, how sensitive it is to the various LTV parameters and liquidity, etc. Might do that tomorrow since it seems there'd be general interest now. Anyway, the justlend scenario I gamed out can technically work but it would take way too long for the price to move enough with the oracle anchor, which makes it not viable outside simulations in my opinion. The general idea is not new or unique to me - the final Cream Finance drain last year used multiple accounts with opposing positions and a large price increase. Venus finance had a similar one last year - see https://thedefiant.io/bscs-venus-protocol-left-with-bad-debt-after-liquidations

— Avraham Eisenberg

I will leave it up to the reader to decide how credible that is.

To me, this essentially reads as:

I sent Eisenberg the draft of this article before it was published and offered him the opportunity to point out any factual inaccuracies.

I also reached out to Mango Markets for comment but did not receive a response.

If you feel that Avraham Eisenberg has stolen from you, it is recommended to file a complaint with the following regulatory bodies:

• SEC

• FTC

• FBI

• CFTC

• New York State Department of Financial Services

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Normally I don’t include my personal crypto wallet in my articles, but if you feel like donating to support my investigative journalism, please feel free.

Bitcoin: 3F9bmuaoihVKkjQZeXQVAfogjPJzs9s2YB

Ethereum: karlstack.eth

Solana: 3zqELZ36cQbqWhxgHjRwLTAFAGEgrxdimbxrdme3ZzYV

“Terra” and “Luna” are the latin words for “earth“ and “moon.” I am not going to get into the details of algorithmic stablecoins, but just know that they are supposed to balance each other out — users can burn Luna to mint Terra, and burn Terra to mint Luna. They work in harmony like the earth and the moon which gravitate around each other to provide stability, thus keeping TerraUSD balanced at $1 USD.

When this harmony was broken a couple of months ago, and TerraUSD lost its peg, it crashed the crypto ecosystem in spectacular fashion and hundreds of billions of dollars were wiped out overnight. TerraUSD turned out to be nothing more than a huge Ponzi scheme.

In the aftermath of the Terra crash, a multitude of articles were written about Do Kwon, the eccentric evil genius behind it. And rightfully so. He was primarily responsible. Part of what makes Kwon such an attractive figure to write about is that he is larger than life — a rich whizz kid with a big mouth and bigger balls.

What zero articles have focused on, however, is a stuffy old professor of finance at boring ol’ Harvard Business school (HBS). Enter Marco Di Maggio.

Marco was instrumental in the collapse of Terra and yet has walked away seemingly unscathed & unnoticed (so far) thanks to some slick Harvard-esque damage control and blame deflection. It is not known how many tens or hundreds of millions of dollars he pocketed at the expense of those who fell for his Ponzi scheme.

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Just how central was Marco to Terra? Well, let’s take a look at the foundational Terra whitepapers, the very bedrock upon which Terra is outlined. His name is on all the founding documents:

Suicides

To give you a sense of the scale of this crash and the impact it had on regular people, I recommend you visit the /r/terraluna subreddit and filter by top posts all time.

Here are the top posts of all time:

I am not saying Marco is responsible for these suicides, but I am not not saying that either. Grazzie Marco!

The reason this crash was so devastating is that the whole point of a stablecoin is that it is supposed to be a safe, stable asset that always maintained a peg. So people had their life savings parked in TerraUSD with the promise that it would always be stable. It wasn’t supposed to be a speculative asset; it was supposed to be a safe harbor where you could park your cash to achieve peace of mind. And then it went to zero.

Marco even assured everyone that he ran one million years of simulation! He writes:

"Our findings, based on 1 million years’ worth of simulation data, indicate that Terra’s peg is highly robust under both forms of stress."

Don't blame him. It's a once-in-a-million-year unlucky event!

OK, Marco.

As an EJMR user writes:

This is the type of insight you can hope for after 5 years of intense PhD training and exposure to elite research minds of academia. It's the usual: Make a simplified model of reality. Use a simplified model to make bold predictions. Bold predictions are falsified by reality. Marco, next time before you hype up your paper take a deep breath and assume your paper is pure bs.

The question is not "do you have a better model". The question is you wrote a model to peg a currency without any underlying physical assets. The peg then got attacked and destroyed as everyone had literally predicted would happen since the protocol had been released.

The Anchor Mechanism

The very first thing you will learn in your very first economics class in college is the maxim that “there is no free lunch.” Greg Mankiw, a tenured professor of economics at Harvard, describes the concept of no free lunch as follows: "To get one thing that we like, we usually have to give up another thing that we like. Making decisions requires trading off one goal against another.”

In the case of crypto, what we want is yield, and what we have to give up to get that yield is risk. People don’t enjoy taking risk, but are willing to do so if they are sufficiently compensated. This is why any self-respecting economist — let alone a finance professor at Harvard! — should instinctively raise their eyebrows, if not outright reject, ridicule, and denigrate any investment that purports to offer a 20% annual return with no risk. 20% return for no risk is unthinkable.

And yet that is exactly what Anchor was. It offered a 20% annual return for no risk, and rather than ring the alarm bells, Di Maggio repeatedly touted Anchor as the "Gold Standard for Passive Income."

To nobody’s surprise, the 20% “risk-free” yield turned out to be unsustainable. Funds from new investors were being used to pay off old investors, thus initiating a Ponzi death spiral. If you can't figure out what is generating yield, you are the yield. There is not a single financial economist who would see the project and not immediately know it is a scam.

Crazy that a HBS Professor would put his face on it, and even crazier that he has received no media scrutiny and gone back to teaching and partying at academic conferenecs. At the very best — my most charitable assessment — is that Marco wrote a marketing paper for bloodmoney similar to scientists funded by cigarette companies.

The Whitewash

As far as I can tell, Marco has only commented once on the collapse of Terra, in a carefully curated piece in the Financial Times that was doubtlessly arranged by the Harvard communications department. He says:

Di Maggio told FT that the terra he once knew was no more. The terra he wrote about planned to peg a stablecoin to the Korean won. His analysis of how that system might fare under strain was therefore no longer relevant, he argued.

Do Kwon decided to introduce a borrowing and lending protocol called Anchor — Terra’s first attempt to enter the market of decentralised finance. The initial idea was to allow users to borrow the terra stablecoin for other transactions within the ecosystem. In the original design, the interest rate paid to lenders should have been a market rate determined by the borrowing demand. This would have made it sustainable without posing any risk to the overall design. Instead, to attract attention and grow the company, Do Kwon decided to subsidise and fix the deposit returns for lenders at 20% APY. All of us on the research team knew this would create an unstable system with unsustainable growth of supply. With such a high rate, Anchor attracted about $15 billion worth of capital. But the growth of the underlying capital, now decoupled from the borrowing demand, made the whole system very fragile. Depositors could withdraw large amounts of capital, sell it on the market, and cause the stablecoin to lose its peg to the US dollar. We tried to explain the risk and instability of these proposed fixed returns to Terra leadership. But with no decision-making power in the company, our words were ignored.

— Marco Di Maggio on the collapse of terra

One paragraph of contrition and Marco is let off the hook? It wasn’t even contrition… there was no apology. Just pointing the finger and deflecting accountability. Very sick and twisted.

Should Law Enforcement Accept Marco’s Excuse?

This all boils down to whether or not Marco knew that Terra was a front for massive fraud, or if he was simply a useful idiot who sold out the HBS brand name for a buck. To me, it is clearly the former.

I mean, Marco’s only excuse is that he knew it was a scam so he quit in disgust before it blew up. Okay… but.. if he knew it was a scam that was inevitably going to blow up and was so indignant that he quit…… didn’t he have a moral responsibility to blow the whistle?

Instead of saying anything, he was content to sit back and count his bloodmoney and watch the Ponzi grow and grow and grow; then sat back and watched bagholders kill themselves.

I know in academia there are no consequences for bad ideas but in the real world that is called investment fraud. The idea was fundamentally wrong, people told them it was wrong, but they went ahead and took billions from investors anyway. Marco didn’t just fake some regressions — we are talking about a gigantic Ponzi scheme that wiped out billions of dollars and damaged public trust in crypto, with Marco's happy face attached to it saying, "This is not going to crash in literally a million years. Trust me, I teach at Harvard."

Marco seems to have gotten away with it, the media has ignored him, which is the purpose of writing this article. He deserves more media scrutiny. I’m surprised that Marco’s involvement hasn’t become a bigger story yet. He deserves to be put on trial, and the public deserves the right to read emails produced in court filings to see who knew what and when did they know it.

Don’t take Marco’s word for his involvement. It needs to be proven in court.

I still think Marco’s involvement in Terra will become a bigger story. This isn’t over yet.

Given the amount of money lost and people affected in multiple countries, everyone involved in Terra can expect to be sued for the next decade in every jurisdiction possible. Unfortunately for lil’ Marco, all the other Terra devs are in countries with no extradition — Do Kwon fled to Singapore — but Marco is still on US soil. I, therefore, suspect that Marco and Harvard will ultimately end up being the American face for the mountain of Terra lawsuits.

Beyond the forthcoming lawsuits, I think Marco should be fired from Harvard and sent to jail. At the very least he should be denied tenure and blackballed from the academic community. How can any scholar trust any of his research ever again? The academic finance community is OK with him showing up to their conferences and partying with them? Seriously? What a cesspool.

When the dust settles, maybe Harvard Business School can write a case study about this imbroglio. It is a textbook example of unethical behavior and deserves to be written in textbooks as a warning to all future MBA students on how not to act.

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There is a swell of grassroots anger building in the crypto world over $FORT, a mostly dead shitcoin:

As far as I can tell, I am the second person to write about Fortress DAO. The saga was first summarized by Brady Dale of The Defiant in his article Another Fork Bites the Dust: The Looming Fall of Fortress DAO and the Perils of Off-Chain Governance in which he proclaims “fortress Dao is doomed. The question is how it dies.”

After that first article was written, many in the Fortress community expected a swift and brutal crackdown from US authorities and widespread media attention. Neither materialized. Perplexed at the lack of action from law enforcement, a small group of anonymous whistleblowers compiled a 13-page document to summarize the facts of the alleged scam and approached my Substack as a platform to get their message out to the world. Click this button to download their report:

DOWNLOAD the whistleblower report

Rather than discuss the logistics of the alleged scam myself, I will simply copy-paste the executive summary from that document:

I sent this paragraph directly to Avraham Eisenberg, and he responded to me, “The DAO overwhelmingly voted for converting the treasury into FUSD, and this was done after FUSD was launched and it was made clear that I was running the FUSD project. This can easily be seen from the timeline. The claim that it was done without approval is blatantly false. It's also false that I'm a NY resident.”

I then sent Eisenberg’s response back to the whistleblower group, who rebutted, “The conversion of FUSD was done in two tranches: one as a bribe attached to redemption, and one that was done in response to ‘MIM depeg fears.’ The MIM depeg one was not voted on, it was just done overnight.”

Anyways, I am not here to debate the facts of this case, or to dive into the minutiea of each individual wallet (or network of wallets). That is the government’s job. I am simply here to spread this document to the world, and maybe if we are lucky we can achieve the critical mass of attention needed to trigger a formal investigation.

Hopefully, crypto Twitter reads this article. If they do, please share it with other crypto influencers:

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If you feel that Avraham Eisenberg has stolen from you, it is recommended to file a complaint with the following regulatory bodies:

• SEC

• FTC

• FBI

• CFTC

• New York State Department of Financial Services

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