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The math prodigy whose hack upended DeFi won’t return funds

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Re: The math prodigy whose hack upended DeFi won’t return funds

#191

Post by c3534l »

SamBam wrote: post #50

> But in our email exchanges, he argued that he'd executed a perfectly legal series of trades. In real finance, there is an understanding that technical loopholes can exist, since not every outcome can be foreseen when writing laws, but the legal system can frequently prosecute against a series of actions which are, individually, legal, but which together are taken in order to achieve something illegal. That is, mode…

Yes, but the I believe similar cases have appeared where the courts have found against the objectivity of smart contracts. I think, ultimately, the point of regulating the financial markets is not to protect investors, but to protect the economy. And if a smart contract undermines the security of our financial system, then that smart contract may simply be illegal.

Re: The math prodigy whose hack upended DeFi won’t return funds

#192

Post by blitzar »

bombcar wrote: post #80
criddell wrote: post #26

Earlier quoted context omitted.

There are lots of stories lately about stolen NFTs. The podcast ReplyAll did an episode where they tracked down the current owner of a stolen NFT. He had sympathy for the original owner but he had no intention of turning it over. I don’t get why purchasing a stolen NFT is different than purchasing a stolen guitar from a pawn shop. Shouldn’t the previous owner be able to use the courts to demand the return of the item…

The whole point of an NFT is that the ownership is on the blockchain and guaranteed by said blockchain - if the courts can "force" return of the NFT than the NFT isn't actually synonymous with the ownership, and so then is kinda pointless.

Nothing in crypto belongs to you. It belongs to the private key or whomever holds that.

Re: The math prodigy whose hack upended DeFi won’t return funds

#193

Post by thrwy_918 »

Ajedi32 wrote: post #65
SamBam wrote: post #50

> But in our email exchanges, he argued that he'd executed a perfectly legal series of trades. In real finance, there is an understanding that technical loopholes can exist, since not every outcome can be foreseen when writing laws, but the legal system can frequently prosecute against a series of actions which are, individually, legal, but which together are taken in order to achieve something illegal. That is, mode…

I've seen this argument regarding smart contracts several times now, and I don't think it makes any sense. It's like robbing someone in real life, then claiming you did nothing wrong because you didn't violate the "laws" of physics. Those are two entirely separate things. In the world of smart contracts code is indeed law, but that doesn't change the fact that in the real world law is law, and the fact that you used…

>In the world of smart contracts code is indeed law, but that doesn't change the fact that in the real world law is law

I think some confusion arises because that "smart contracts" only make sense if code really is law, in the sense that any transaction executed by the contract -- even unexpected, surprising transactions -- is considered to be fully consented to by all parties interacting with the contract.

I agree that that's a terrible idea - bugs can always exist, and having no recourse when millions of dollars are lost due to a coding error is a huge and unreasonable risk.

But otherwise -- if, ultimately, courts can force "smart contract" transactions to be unwound if they are found to be exploitative, unintended or otherwise invalid -- then what's the point of having smart contracts in the first place? What's the value proposition? Why not just use regular contracts?

Re: The math prodigy whose hack upended DeFi won’t return funds

#194

Post by moneywoes »

paulpauper wrote: post #39

Yeah, the attacker resides in Canada, so even if found guilty he's looking at easy jail time at the worst. All he has to do is wait a few years and the $ is his. not like in the US in which feds hand out decade+ sentences like candy on Halloween.

Can’t he be extradited

Re: The math prodigy whose hack upended DeFi won’t return funds

#195

Post by ac29 »

glerk wrote: post #141
woojoo666 wrote: post #131

Earlier quoted context omitted.

By that token, wouldn't rugpulls be legal too?

Probably? A priori there is nothing wrong with someone who owns a large amount of a certain asset transferring it into a liquidity pool in exchange for a different asset. It gets more murky if a founder explicitly lies to investors in order to get them to buy their token. Fraudulent misrepresentation is problematic in most jurisdictions, but this has nothing to do with the mechanics of the "rugpull" itself.

Here's a recent case where the SEC litigated misappropriation of funds among other things:

"According to the SEC's complaint, the defendants misappropriated nearly $4 million of investor funds. The SEC also alleges that Chiang and Tippetts misused additional Sharenode investor funds by spending at least 133 bitcoin to list NSG tokens on an unregistered trading platform and to fund a team of captive traders to trade NSG tokens amongst themselves to create the false appearance of a robust market with increasing prices. These traders allegedly created the false impression that more than $2.5 million worth of NSGs were traded daily on BitForex during the first 60 days and that the price of NSGs was steadily increasing due to investor demand. According to the complaint, however, the manipulation scheme collapsed when investors tried to sell their NSG tokens, because there were no actual buyers, causing the token's trading price and volume to fall precipitously."

This isnt exactly a classic "rugpull", but it does make it fairly clear that you cant just take customer funds and use them however you'd like just because its a cryptotoken and you have access to the smart contracts controlling it. You really shouldnt use customer funds in furtherance of additional frauds, like these people did here.

https://www.sec.gov/litigation/litreleases/2022/lr25377.htm

Re: The math prodigy whose hack upended DeFi won’t return funds

#196

Post by xur17 »

faeriechangling wrote: post #24
iak8god wrote: post #18

Earlier quoted context omitted.

FTA: > In their complaint, lawyers for Kellar and Day argued that two particular steps of the attack violated statutes against market manipulation and computer hacking. One was swapping almost all the UNI tokens out of the DEFI5 pool, the otherwise irrational trade that distorted the pricing such that Medjedovic could buy tokens out from under Indexed users, who were forced by the algorithm to sell. “The only purpose…

If the law is held to have supremacy over “smart contracts” and implicit intent is held to be more important than explicit terms, than this undermines not just a major argument for smart contracts but a major argument as to why crypto as a whole is valuable. Enforcing a contract through a written contract & traditional finance vs a smart contract becomes a mere implementation detail since in either case somebody can…

> If the law is held to have supremacy over “smart contracts” and implicit intent is held to be more important than explicit terms, than this undermines not just a major argument for smart contracts but a major argument as to why crypto as a whole is valuable.

No, it really doesn't. There are 2 questions that you are conflating here:

1. Can the courts force a user to return funds made via a valid smart contract transaction?

2. Can the courts force a blockchain to reverse a transaction that was made.

> Enforcing a contract through a written contract & traditional finance vs a smart contract becomes a mere implementation detail since in either case somebody can come crying to the courts when they lose money. Smart contracts are only interesting if they’re a form of binding arbitration. If smart contracts are not binding, they just become poorly written contracts.

Can you elaborate on why this would be the case? To me there is a large difference between a system (like credit card settlement) that can have transactions revoked easily after settlement, and one that can only be revoked by another separate transaction that the sender makes. To me it comes down to a mix of probability of reversal, and who can actually do the reversal (only the sender in the case of a blockchain system).

Re: The math prodigy whose hack upended DeFi won’t return funds

#197

Post by pohl »

caymanjim wrote: post #187

Forget about the exploit itself. Why are people trusting two young nobodies (Day and Kellar of Indexed Finance) with so much money in the first place? Ok, so Day has some decent academic credentials, but he's just one person. Who was doing risk analysis? Which independent experts analyzed their algorithms? Which accounting firm audited them? Where's the oversight? These two guys whipped something up, threw it out in…

Haven't people who are attracted to crypto, for the most part, already decided that oversight is bad because something something decentralization?

Re: The math prodigy whose hack upended DeFi won’t return funds

#198

Post by er4hn »

glerk wrote: post #132
toomuchtodo wrote: post #103

Earlier quoted context omitted.

Good luck making that argument in court. Intent is key, and if this is not the intent of the "smart" (lol) contract, "finder's keeper's" is not a legal defense. The legal system doesn't care about your blockchain arguments.

A smart contract deployed on a public permissionless blockchain is not owned by anyone. Only the contract's logic determines how one can interact with it. This is a fact. It doesn't matter who can make the best argument in court. A good enough lawyer can convince a stupid enough jury of pretty much anything.

Let's say that I place a vending machine in a public space, such as a street or a park. The public is able to interact with it by inserting FIAT coins to purchase DRNK. Someone clever figures out a way to interact with the vending machine to extract DRNK at less than it's intended FIAT price. Two questions at this point:

(a) Is this a theft from the person who placed the vending machine? Why or why not?

(b) How is this different from a smart contract on a blockchain?

Re: The math prodigy whose hack upended DeFi won’t return funds

#199

Post by paulmd »

ac29 wrote: post #195
glerk wrote: post #141

Earlier quoted context omitted.

Probably? A priori there is nothing wrong with someone who owns a large amount of a certain asset transferring it into a liquidity pool in exchange for a different asset. It gets more murky if a founder explicitly lies to investors in order to get them to buy their token. Fraudulent misrepresentation is problematic in most jurisdictions, but this has nothing to do with the mechanics of the "rugpull" itself.

Here's a recent case where the SEC litigated misappropriation of funds among other things: "According to the SEC's complaint, the defendants misappropriated nearly $4 million of investor funds. The SEC also alleges that Chiang and Tippetts misused additional Sharenode investor funds by spending at least 133 bitcoin to list NSG tokens on an unregistered trading platform and to fund a team of captive traders to trade N…

That doesn't really turn on any crypto-related concepts at all, but rather false/deceptive disclosures about the security itself. That actually would be equally illegal to do with regular securities too - you don't fuck around with disclosure documents, that's an absurdly easy way to go straight to jail.

> These traders allegedly created the false impression that more than $2.5 million worth of NSGs were traded daily on BitForex during the first 60 days and that the price of NSGs was steadily increasing due to investor demand. According to the complaint, however, the manipulation scheme collapsed when investors tried to sell their NSG tokens, because there were no actual buyers, causing the token's trading price and volume to fall precipitously."

This is also the fund owners doing something nefarious - that doesn't mean that somebody else executing a transaction according to the contract and the market could be held accountable because the fund's customers lost money. Someone has to be on the other end of every transaction, that is how a market works.

Re: The math prodigy whose hack upended DeFi won’t return funds

#200

Post by Red_Leaves_Flyy »

pohl wrote: post #197
caymanjim wrote: post #187

Forget about the exploit itself. Why are people trusting two young nobodies (Day and Kellar of Indexed Finance) with so much money in the first place? Ok, so Day has some decent academic credentials, but he's just one person. Who was doing risk analysis? Which independent experts analyzed their algorithms? Which accounting firm audited them? Where's the oversight? These two guys whipped something up, threw it out in…

Haven't people who are attracted to crypto, for the most part, already decided that oversight is bad because something something decentralization?

It’s the Libertarian fantasy. Crypto bros, many VCs, angels, and other mini napoleons think they can solve the world’s problems without addressing any of their personal problems, studying history, taking responsibility for their actions, engaging in community building, or hiring people with spines. Which is why crypto and ilk keep reinventing every scam and repeating the mistakes of the past that directly led to regulation.
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