host:
Haseeb Qureshi, Managing Partner, Dragonfly
Robert Leshner, CEO and co-founder of Superstate
Tarun Chitra, Managing Partner, Robot Ventures
Tom Schmidt, General Partner, Dragonfly
Air Date: February 24, 2025
Summary of key points
This issue discusses:
1. Bybit hacking incident:
Bybit suffered the largest cryptocurrency hack in history, with a loss of $1.5 billion, suspected to be carried out by the North Korean Lazarus Group.
Hackers exploited a multi-signature technology vulnerability to quickly transfer funds to the Ethereum network.
· Bybit CEO responded quickly, promising to meet user redemption needs and obtain bridge loan support from Binance and Bitget.
2. Libra Scandal
The Libra meme backed by Argentine President Javier Milei plummeted 95% due to insider trading and market manipulation scandals.
· Exposing the operating methods behind the issuance of Meme Coin, including KOL private placement and robot sniping.
3. Celebrity Token Controversy:
Kanye West originally planned to launch the YZY token, but it was postponed due to sensitive timing.
· Celebrity tokens frequently exploded, such as Dave Portnoy was accused of running away from the Greed and Greed 2 projects, and directly selling them, causing investors to suffer heavy losses.
The industry’s attitude towards celebrity tokens is gradually turning negative.
4. Decline of the Meme Market:
· The meme market sentiment has been low recently, and retail investors are gradually realizing its zero-sum game nature.
· Haseeb believes that the meme cycle is over.
5. Improvement of regulatory environment:
The U.S. SEC announced that it would drop the lawsuit against Coinbase and reorganize its crypto department to focus on combating digital fraud.
Hester Peirce proposed regulatory policies that work with industry, sending a positive signal.
Brian Quintenz, the new head of the CFTC, may promote a more friendly cryptocurrency regulatory framework.
6. Infrastructure construction and ecological stability
Solana and Ethereum ecosystems were not affected by the Meme downturn, and developers focused on infrastructure and application innovation.
The developer conference on Solana showed that there are still long-term builders in the market.
The largest cryptocurrency hack in history
Haseeb:
Last week we just experienced the largest cryptocurrency hack in history, with Bybit's cold wallet being hacked and losing $1.5 billion.
Bybit said that they were attacked while transferring funds from cold wallets to hot wallets. This operation is a routine fund transfer performed by exchanges to meet user withdrawal needs. Although Bybit uses multi-signature technology and relies on the multi-signature system provided by Ledger, when signing transactions, the transaction content displayed on the front end is inconsistent with the actual transaction content seen on the signer's device.
The attack method is very similar to the previous hacking incidents against Rexerx and Radiant Capital, so the industry generally suspects that this incident may be related to the Lazarus Group. The Lazarus Group is a hacker group associated with the North Korean government and has been involved in many large-scale cryptocurrency thefts, including the Axie Infinity hacking incident a few years ago.
Bybit’s countermeasures and industry response
Haseeb:
Bybit CEO Ben officially confirmed the hack on Twitter and said the company has enough balance sheet to cover the loss and is fully capable of meeting all users’ redemption needs. He did a live broadcast about 30 minutes after announcing the hack, which was the first time he responded publicly so quickly in a similar situation.
In the live broadcast, he told everyone: “We are completely fine and can still meet all withdrawal requests. Although there is a liquidity crunch, we have obtained a bridge loan, and the chain shows that the funds come from Binance and Bitget.”
About 6 hours after the hack, outflows have stabilized and the market seems to be relatively comfortable with Bybit's situation. In addition, we have seen a lot of people come out in support of Bybit, including CZ and some other exchange leaders. Many people have compared this incident to FTX, but the difference is that Bybit was able to meet the redemption request this time.
The involvement of North Korean hacker groups and the aftermath of the incident
Haseeb:
The fact that this incident is confirmed to be related to North Korea also means that we cannot foresee what will happen next. It is unlikely that North Korea will transfer assets directly to centralized exchanges. The stolen assets are still stored on the Ethereum network and have not been transferred further. Obviously, this is because North Korea knows that the world is closely tracking these assets, and the scale of this amount of funds is too large to be effectively laundered through privacy protocols such as Tornado Cash.
These assets originally existed in the form of mETH and stETH, which is the collateralized Ethereum (stETH) and other related assets provided by Lido. However, they quickly converted all of these assets into Ethereum through the DeFi platform. I guess this is because Ethereum is the most liquid asset and the least likely to be frozen. If you hold certain small currencies, you may face the risk of asset freezing due to governance issues, but this possibility is almost non-existent with Ethereum.
Although this is the largest hack in the history of cryptocurrency in terms of US dollars, no one has proposed a solution such as a hard fork. From these hacks, we can find a pattern that when the amount stolen is very large, it is more difficult to escape. The irony is that if you steal $20 million or $30 million, it may be easier to hide; but if you steal $1 billion, where does the money end up? Who can help you deal with it?
Robert:
I also don’t know what they are doing with all the huge hacked proceeds. I’m sure there are some online analysts who have been tracking these events for years, but my guess is that they will eventually try to convert the funds into commodities like Russian oil.
Tarun:
I remember Richard Heart was sued by some agency, he was the largest DAI holder, because he got a lot of Ethereum from Pulse Chain, but because he was blacklisted by many exchanges, he exchanged all of it for DAI. I wonder if we will see something similar this time, it will be a good test to see if the attacker will trust decentralized stablecoins.
Haseeb:
I don't think they moved all the money at once. Richard Heart's operation was a slow process, not a one-time event.
Robert:
It ultimately depends on the hacker’s risk tolerance and tolerance for financial volatility. Richard Heart exchanged Ethereum because he needed stablecoins to pay for his USD expenditures.
Haseeb:
If I were North Korea, I would be thinking about how to take advantage of that money and try to move it to somewhere like Russia.
Robert:
They have tried to bridge some assets to Bitcoin, but there aren’t many decentralized ways to go from Ethereum to Bitcoin right now.
Haseeb:
If these assets are secured via multi-signature security, then if someone discovers that their protocol is being used to process $1 billion worth of Ethereum, many people may choose to proactively report these funds as funds that should be confiscated and handed over to law enforcement through the governance structure. In this case, almost no one would support North Korea.
Tarun:
We may see some really crazy on-chain manipulation because they have no choice. What I find interesting is the Thorchain situation. In the past, many hackers would use Thorchain to borrow or bridge to Bitcoin, but now that the validators of the third-party chain have withdrawn, it has become impractical to move large amounts of funds through it. Bitcoin cross-chain bridge technology is more imperfect than ever, which may put them in trouble.
Robert:
I imagine this like ancient pirates burying gold nuggets. They buried the nuggets somewhere, drew a treasure map, and then came back thirty years later to find them. North Korea may consider these stolen cryptocurrencies as "treasures" and use them at some point in the future.
Haseeb:
This is an interesting hypothesis. Perhaps they will come up with some kind of agreement, such as a 10% reward for those who return the assets. But I don't know how these stolen assets can be laundered, and North Korea, as an isolated country, makes it very difficult to negotiate any kind of agreement, which is a very bad situation for customers and Bybit. Although I believe Bybit's financial situation is strong enough, it will be a big problem if they can't raise enough Ethereum to meet the redemption demand.
Many people speculated whether Bybit would meet all redemption requests by purchasing Ethereum, as Ben mentioned in the live broadcast. At present, they have obtained a bridge loan through Biget and Binance, which is a positive sign and in stark contrast to the collapse of FTX. But if it is assumed that no one wants to do business with North Korea and no agreement is possible, then Bybit may indeed need to buy Ethereum in the market. If this is the case, this may be a positive for the price of Ethereum, because it will bring about a net purchase demand of about $1.5 billion, and the market liquidity is limited, and the price will naturally rise.
Tom:
I noticed that the community showed high praise for Ben's communication style. He delivered information to the public quickly and directly through live broadcasts, which is very rare in the industry. Instead of using those vague official terms, he clearly told everyone, "We have no problem, we will solve the problem, and this is how it is." This transparency is impressive.
Haseeb:
Indeed, if we compare this incident to FTX, Bybit’s handling was exemplary, while FTX’s live broadcast was a complete farce.
Robert:
The fundamental difference is that FTX was a malicious actor running a massive fraud operation which is why they were out of funds, whereas Bybit was a trusted victim who got hacked.
Haseeb:
Absolutely agree. Usually in hacking incidents, we see that the first reaction of victims is to obfuscate the situation, not confront the problem directly, and let the information spread through various channels. However, Bybit responded quickly within only 30 minutes of the incident, clearly explained what happened, and proactively communicated with customers to ensure that everyone understood the situation.
This should become standard practice for every company when they are hacked. The first thing to do is to control the rhythm of communication. Of course, the scale of this hack is unprecedented, but compared to Bybit's balance sheet, the losses are not devastating. The crypto market is much larger today than it was in the past, and although this is the largest hack in history, the losses only account for a few percentage points of Bybit's total assets.
Tom:
After the FTX incident, Bybit launched a reserve proof system, which allows users to check in real time whether their assets are included in the reserves, which greatly improves transparency. There was no fraud involved in this incident, so users do not have to worry about major gaps in their balance sheets.
Haseeb:
I actually hope to find some evidence that this was an insider attack. Because if it was an insider attack, the possibility of recovering assets would be greater. However, the good news is that the industry's foundation is strong enough that they can survive this crisis and ensure that the interests of all customers are not affected.
Hayden Davis & Libra Scandal
Haseeb:
The other big news is a coin called Libra. The project has the backing of Argentina’s new president, Javier Milei, a controversial figure in his own right. The affair has been called the biggest insider trading scandal since the FTX debacle. So, what exactly happened to Libra?
Javier Milei publicly promoted the Libra token with a tweet. It all happened very suddenly, with almost no warning. Subsequently, the market value of the meme coin quickly soared to $4 billion, but then plummeted 95% in a short period of time. During the crash, Milei deleted his tweet. At the same time, there were reports that insiders sold the tokens while the market was crazy, and they were estimated to have made nearly $200 million in profits through this wave of operations. As the incident fermented, more confusing details gradually surfaced.
The whole controversy surrounding this project was confusing. What was Milei’s main stance? What did the Argentine government think about it? Later we learned that Milei himself did not directly profit from this Meme coin, but that a private Argentinian company launched this project, which they claimed was for the benefit of the Argentinian people or community, but the whole process was very opaque.
The central figure in this incident is a white man named Hayden Davis. After returning to Argentina, he became a businessman focusing on Meme. He is more like a "coordinator" rather than the initiator or direct promoter of the project. In an interview, he mentioned that launching a Meme involves multiple roles, and his main role is to bring all parties together. He emphasized that he does not directly operate funds and does not own these assets.
Hayden Davis is considered an insider in Argentina’s crypto community. He bragged in leaked private messages about paying funds to Milei’s sister, Karina Milei, a prominent figure in Argentine politics. Hayden even tweeted about his influence over Javier Milei, claiming: “I control that guy. I send money to his sister and he signs anything I say.”
Hayden controlled more than $100 million in funds withdrawn from internal wallets. He later gave a series of interviews trying to explain the entire operation. In a Twitter live broadcast, he directly admitted that he had "sniped" when Libra collapsed, that is, manipulated the market through robot trading. His statement was: "I don't know the real ownership of this money. I think it may belong to Argentina, or Keep Protocol, the company that launched this project. I don't know who the money belongs to, and I don't want it. You tell me what to do with the money, and if you don't tell me, I will throw it back into the market."
In the interview, he also explained in detail how Meme works, revealing insider information that many people have never known. He mentioned that most large Memes sell most of their tokens to KOLs and other institutional investors at below-market prices through private transactions before they are launched. For example, projects like Melania, Libra, and even TRUMP, he claimed, had raised up to $500 million in private placements at an internal meeting in Washington, DC.
Information about these private placements is often spread among insiders, but it can also leak to others who were not involved in the deal, who use the information to profit from sniping when the tokens are officially launched.
Here we need to explain the meaning of "sniping". Sniping refers to the fact that when a token is first launched, some robots are able to quickly buy tokens before ordinary investors react, thereby pushing up the price. This is because they know in advance that the token is about to be launched. When retail investors begin to rush in to buy, people react much slower than machines, and these snipers will take the opportunity to sell the tokens at a high price and profit from it. Since Meme coins are usually issued at a low market value and there is no auction or initial price clearing mechanism, this operation has become very common.
According to Hayden Davis, "How else can you make money if you don't snipe your own tokens? Do you think there are other ways?" He feels that all teams involved in the token supply chain believe that the only way to make money is to become insiders. These teams hope that the popularity of Memes will last for one to two years, but the reality is that the life cycle of almost all Memes will not exceed a few days. In these circles, there is a general cynicism that the entire crypto industry is nothing more than a zero-sum game. In order to prevent retail investors from being sniped by external snipers, they believe that the best way is for the team to snipe the tokens themselves first. In this way, they can use the proceeds from the sniping to protect the stability of the tokens and buy back the tokens after the sniping is completed.
On the day of the incident, the Argentine stock market fell by more than 5%. At present, the opposition has filed formal charges against Javier Milei. This incident is called "cryptogate" and is a major political and financial scandal. I think it has caused serious damage to Argentina's reputation both internationally and domestically.
Robert:
I have seen clips of Hayden's interview, it is outrageous, each clip is more ridiculous than the previous one, he actually said publicly on the show that "crime is good".
Haseeb:
He is a typical "crypto kid" with no moral sense at all.
Robert:
Do you remember the “sanity vs. madness” discussion we had about nine months ago? Hayden is probably one of the craziest people in the history of the crypto industry.
Tom:
I agree, I think Hayden is being very ignorant when he's talking. I was skiing last week and I met some Argentinians who were very excited about this. Because in their mind, this could be a Trump-like situation. They see this as a huge opportunity, and when they see Milei promoting this project, they probably think "Oh, this is our Trump moment", and it turns into a huge scandal. In fact, it's a bit like if you go to a casino and lose money, who can you blame? The rule of the casino is that you win or lose at your own risk.
Haseeb:
This statement is too vivid. Such an absurd meme can actually trigger such a huge chain reaction, even shocking the entire country. The impact of this scandal has also spread to the entire crypto industry. Later it was discovered that the team behind Kelsier Ventures was not only responsible for the Libra token, but also for Melania. They also carried out sniping operations when Melania was launched, which is actually a routine they use repeatedly.
Latest updates on the Meteora and Solana ecosystems
Haseeb:
What’s interesting about this story is that it also affects some people in the Solana ecosystem. Meteora is the launch platform for Trump and Melania. Recently, Meteora has been in the spotlight because of some investigations that seem to be controversial with some people associated with the platform.
I need to explain that Meteora is a competing product of Jupiter. Jupiter is a large DeFi aggregator on Solana, while Meteora focuses on providing launch services for new tokens. Ben, the lead developer of Meteora, resigned after being investigated for possible involvement in some irregularities (such as insider trading). However, I am not sure whether these allegations are true or just suspicions raised by someone.
Robert:
I saw on Twitter that someone dug up some of Ben’s history, saying he had violated securities laws multiple times in the past. Is this true?
Tarun:
I'm not sure if these allegations are true. Ben is one of the co-founders of Meteora, which was originally part of Jupiter. I actually knew Ben before the rise of the crypto industry when he was running a startup in the insurance field. I also interviewed him in 2012. He was not involved in the crypto field before 2021. Meteora has been around for a while, but it has never found the right market positioning. Later, with the collapse of FTX, Jupiter began to rise rapidly as it became the main platform for trading Solana tokens. At that time, most other exchanges except FTX did not support the trading of SPL tokens. Meteora gradually evolved into a platform focused on early project launches.
Unlike Pump.Fun, the Meteora platform allows project issuers to exercise certain management and control over the funding pool and liquidity. This design does make sniping operations easier to some extent. However, I think Ben's situation is more like a founder being kicked out by the board of directors than an ordinary developer being fired. If you look at this as a case of corporate governance, founders being kicked out usually involve more complex power struggles.
The Decline of Memes
Haseeb:
I think this story casts a shadow on the entire Meme. After the Libra incident, the launch of TRUMP and Melania gave people a bad impression of Meme coins. After these events, people seem to realize the nature of the Meme promoters revealed by Hayden in the interview and how these large-scale Meme coin issuance games are disadvantageous to retail investors. This change has changed the atmosphere in the crypto field, making people doubtful about how Meme coins work, and whether retail investors can continue to participate in this so-called "casino" has become less certain.
Robert:
Everyone once thought that the Meme Game was winnable, but now that the truth has come out, everyone sees the ugly truth behind it and realizes that it is a completely manipulated game, they are victims, and there is no way they can win.
Haseeb:
From an absolute perspective, the trading volume of Pump.Fun is still strong, but overall, the volatility of the market is declining. The current sentiment has completely turned to aversion to Meme. Before, people would say that technology coins and venture capital coins are actually Meme, but now this view seems to have lost its effectiveness, and everyone has begun to realize that they need to rebuild real projects.
Tarun:
I think this shows that memes with less control seem to be able to survive, while meme coins that require a lot of liquidity management face more challenges. Therefore, we see that Pump.Fun's trading volume has not dropped significantly.
Robert:
I think this is a turning point where meme coins attracted a lot of money, and now that meme coins are less attractive, that money will flow into other verticals in the crypto space.
Tom:
I agree with Tarun. People like fair and transparent games, and when they feel they can no longer profit from them, the market will naturally collapse. Just like the previous ICO and NFT craze, if people are no longer excited and think there is no opportunity, then the entire market will be affected.
Haseeb:
Indeed, the distinction between Pump.Fun and some managed offerings is interesting. Libra is arguably a celebrity coin, and while not formally so, its relationship to Milei makes it a celebrity coin in practice.
Controversy and hypocrisy in celebrity token projects
Haseeb:
I think it is safe to say that the craze for celebrity tokens has passed, or has cooled down rapidly. Recently, I heard that Kanye West also seemed to be planning to launch a Meme, that is, a celebrity token, but he seemed to realize that now is not a good time to launch it.
I heard that it was originally planned to launch on Monday, but it was later postponed to Friday. The team is said to be discussing whether it is too close to the Milei incident, and they are obviously adjusted to the news cycle to some extent. What makes me laugh is that this new token is called YZY Token.
What’s even more outrageous is that Yeezy’s CFO accidentally leaked the plan to CoinDesk. He sent an email using Yeezy’s official email address, detailing the token plan and asking CoinDesk to keep it confidential, but CoinDesk rejected the request and published the report directly.
Regarding token economics, 70% of the tokens will be held by Kanye himself, 10% will be used for liquidity, and 20% will be used for investors. Now this 20% has been sold to investors.
Robert:
Just a few days ago, he tweeted that Celebrity Coin was an exploitation of the community and had no value. Then within a few days, it was reported that he was going to launch his own token. This behavior is extremely hypocritical.
Haseeb:
As an industry we must come together and not support this token. If everyone doesn’t buy it, we can put an end to it once and for all.
Robert:
The problem is that once the tokens are released, they are snapped up, then sold, and only a few people end up making a profit.
Haseeb:
We have seen similar cases, such as Dave Portnoy who launched a token called Greed, held 35% of the supply himself, and then sold it all at once, causing the price to plummet.
He then launched Greed 2. After Greed collapsed, the market value of this new token once reached 20 million US dollars, but soon collapsed again. He sold it again and said on Twitter Spaces that this process was a lesson to his followers. Meme is just pure exploitation. He also criticized those who traded it as lazy and just wanted to make quick money without looking for real jobs.
Tarun:
This is actually financial dominance, even more obvious than what we have discussed before.
Haseeb:
I recently tweeted something similar, saying that I think the meme cycle is over. I mentioned on the show that it's like a casino where each slot machine is owned by a different person, and that this model is simply not sustainable, and each slot machine owner will do everything they can to squeeze profits out of the players.
Regulatory developments and the future of the cryptocurrency industry
Haseeb:
I feel very tired of the recent negative news. People are tired of those memes with no real value and start to look at more promising projects. This may be one of the reasons why the cryptocurrency market rebounded last week. However, today's market fell, which also had a certain impact on cryptocurrencies. Nevertheless, there is good news on the regulatory front.
We have been saying that this year could be the year of a reversal in the cryptocurrency regulatory environment, and now there is finally substantial progress. The biggest news this morning is that the U.S. Securities and Exchange Commission (SEC) is dropping its lawsuit against Coinbase. This is undoubtedly a major positive for the entire industry, indicating that the changes we expect are happening.
The SEC previously sued Coinbase for allegedly acting as an unregistered securities broker and exchange and facilitating the trading of unregistered securities. However, now that those charges are being dropped, we may also see other similar cases filed by the SEC being dropped. Previously, people speculated that the case might be resolved through a narrowing of the scope or a settlement, but the complete withdrawal of the case is clearly a more positive signal. This shows that the SEC is beginning to support the development of benign participants and is willing to work with them to create a healthy digital asset ecosystem.
In addition, we also saw Brian Quintenz nominated as the new head of the U.S. Commodity Futures Trading Commission (CFTC). The CFTC may become the main regulator of cryptocurrencies in the future. Quintenz was the head of crypto policy at A16Z Crypto. For the past four years, he has been committed to opposing excessive administrative regulation. This is undoubtedly an exciting day and also indicates that the crypto industry may usher in more positive changes in the future.
Robert:
First, the SEC reorganized its crypto unit, which originally targeted benign players, into a team focused on combating digital fraud. This means the SEC will focus more on combating real wrongdoing rather than continuing to go after companies that play by the rules. This is a change the industry has been waiting for for the past four years.
Secondly, SEC Commissioner Hester Peirce released a statement detailing the changes they hope to promote. They hope to work with the policy team in the crypto industry to promote the healthy development of the entire industry. The document covers multiple areas such as broker-dealer rules, custody rules, trading rules, and safe harbor rules. They expressed their hope to engage in dialogue with the industry and jointly develop effective policies. This constructive attitude is in stark contrast to the rigid stance a few weeks ago.
Haseeb:
Hopefully, in this context, we will see more favorable policies introduced so that benign participants like Coinbase will no longer be attacked unnecessarily. At the same time, regulators can also devote more resources to combating real illegal activities. The reason why we have been stuck in the quagmire of memes in the past is largely because under the leadership of Gary Gensler, regulators have spent all their time and resources on combating the largest market participants through case law, while ignoring the regulation of illegal activities in public.
Tarun:
I attended a Solana developer conference this week, and the participants barely talked about Meme. This shows that there are still some people in the ecosystem who are focused on infrastructure and application development, and they don’t care too much about short-term market fluctuations. I think any successful ecosystem needs such builders.
Haseeb:
Currently, sentiment in the infrastructure field is relatively stable. We have not seen large-scale capital outflows from Solana, nor have we found any significant difference in trading volume on DEX between Ethereum and Solana. The volatility of the two is relatively consistent.
Tom:
I think this situation may be like when the last meme was launched, no one is willing to buy it. This depressed market sentiment may deter others. But if Yeezy is really the last celebrity coin, I can accept it.
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