The indictment of Tornado Cash's cofounders by the U.S. Government has sent shockwaves through the DeFi community, with allegations of a $1 billion conspiracy tied to North Korean hackers.

The charges claim that Tornado's technology facilitated criminal activities, but is this a fair assessment? Amanda Tuminelli, chief legal officer of the DeFi Education Fund, offers a different perspective: “The US Government should be making a distinction between software development alone and doing more than that.”

Weekly News Recap

Tornado Cash Cofounder Released on Bail

Just after Laura finished recording the podcast, news broke that Tornado Cash cofounder Roman Storm had gotten out on bail, according to his lawyer Brian Klein, who added: “I remain very disappointed that the prosecutors charged him because he helped develop software - their novel legal theory has dangerous implications for all software developers.”

Bankman-Fried Faces Court

In other legal issues this week, the Former FTX CEO Sam Bankman-Fried's legal saga continues to unfold.

On Wednesday, U.S. federal judge Lewis Kaplan granted Bankman-Fried's lawyers permission to visit their client at the Metropolitan Detention Center in Brooklyn, New York, in preparation for his trial starting on Oct. 3, according to a Coindesk report. However, the FTX founder's request for daily meetings at his lawyers' office or to transfer to a lower-security prison was denied. 

Elsewhere, prosecutors at the U.S. Department of Justice filed a proposed set of jury instructions for Bankman-Fried’s trial commencing in October, detailing the seven counts against him, including wire fraud and money laundering. Bankman-Fried's legal team's strategy and the court's decisions this week set the stage for a highly anticipated legal battle in the crypto space.

Judge Kaplan granted Bankman-Fried permission to meet with his counsel in a cell block attorney room, allowing access to an internet-enabled laptop where he can view documents previously loaded as part of defense. His lawyers have expressed concerns over delays and the voluminous discovery, including a list written by former Alameda Research CEO Caroline Ellison titled “Things Sam is Freaking Out About,” including Alameda’s trading hedges, and—ironically for a man widely described by reporters as “the White Knight of crypto”—negative press coverage. Bankman-Fried's trial is scheduled to begin on Oct. 1, and he faces a maximum of over 100 years in prison if convicted of all charges. 

In a court appearance Tuesday, Bankman-Fried pleaded not guilty to all charges. His lawyers sent a letter to Judge Kaplan, explaining how they planned to use the October trial to show that Bankman-Fried was acting in good faith when he followed previous legal counsel to auto-delete some information and to make loans to FTX.

Moreover, FTX is seeking to sell, stake, and hedge its $3 billion crypto holdings, using Mike Novogratz's Galaxy empire to advise and assist in maximizing value from the sales, according to recent court filings.

Balancer Users Withdraw Funds Amid Vulnerability Alert

OG DeFi liquidity protocol Balancer faced what appears to be a critical vulnerability affecting the latest version of the software that defines the liquidity pools behind much of the global crypto trading activity.

After the Balancer team experienced the undisclosed problem it sent an urgent Twitter warning urging users to withdraw funds from the affected pools, including on the Ethereum Mainnet, Polygon, Arbitrum, and others. In the tweet the team claimed it secured most of the Total Value Locked (TVL) in the protocol, but some funds remained at risk. In spite of being partially decentralized, Balancer users last year voted to give a small group, called the Balancer Emergency SubDAO, the power to “kill” vulnerable pools, enabling a proportional exit from the affected pools.

Although Balancer estimated that just $10 million was still at risk, data shows that over $200 million has been withdrawn, with TVL falling 25% to around $544 million. The team plans to provide additional details through a post-mortem report at a later time, reflecting what appears to be a swift and coordinated response to a potentially significant weakness in the DeFi space.

Ex-OpenSea Manager Sentenced in Landmark Conviction

U.S. District Judge Jesse Furman sentenced a former product manager at NFT marketplace OpenSea, Nate Chastain, to three months in prison for insider trading in Non-Fungible Tokens (NFTs), marking the first-ever digital asset insider trading conviction.

Chastain was found guilty of exploiting confidential information about upcoming NFTs on OpenSea's homepage, making profits of over $50,000. U.S. Attorney Damian Williams said in a statement that the sentence should serve as a “warning to other corporate insiders that insider trading – in any marketplace – will not be tolerated.” In addition to the prison term, Chastain was sentenced to home confinement, supervised release, and a $50,000 fine.

Binance Faces Challenges and Changes

Binance, one of the leading crypto exchanges, has faced a turbulent week marked by regulatory scrutiny, market fluctuations, and strategic partnerships. Binance's native token, BNB, stumbled to a one-year low, reaching $204 on Tuesday, reflecting a 14% drop over the past week. This decline comes amid mounting scrutiny over Binance's operations, which increased this week following a Wall Street Journal report about the exchange letting Russian users circumvent sanctions and move money.

Additionally, a $30 million hack against Venus, a decentralized marketplace, highlighted the potential risks associated with the liquidation of a large portion of BNB, which could cause cascading liquidations and damage to the market. Or to put it another way, poorly written code could result in lost investor funds.

In a strategic move, Binance’s U.S. subsidiary, Binance.US, partnered with crypto payments firm MoonPay to introduce a new U.S. dollar on-ramp. This partnership allows users to exchange dollars for the tether stablecoin (USDT), which will be the new "base asset" for transactions. Users can buy USDT using debit or credit cards and payment services like Apple Pay and Google Pay. However, some expressed frustration with the high fees incurred while using MoonPay.

Speaking of regulatory challenges for exchanges, Luxembourg-based cryptocurrency exchange Bitstamp will end its ether staking services for U.S. users starting Sept. 25, according to a statement provided by Bitstamp U.S.’s CEO to news site, The Block. The decision follows recent actions from the SEC that targeted similar staking services seen as investment contracts.

Coinbase Acquires Stake in Circle

Coinbase acquired an equity stake in Circle, marking a significant partnership development amid challenges for USD Coin (USDC). The joint announcement also detailed the expansion of USDC to six new blockchains, increasing the total number of chains supporting USDC to 15. This move comes after a turbulent period for the stablecoin, with its market cap falling from $55 billion in July 2022 to $25 billion at press time.

The two companies will continue to generate revenue from USDC reserves' interest income, sharing it based on the amount of USDC held on each platform. In a potentially important shift in strategy, Circle will assume full control over USDC issuance and governance. In 2018 Coinbase and Circle co-launched the Centre Consortium to jointly manage USDC, and planned to onboard additional members as the asset expanded its reach. In spite of the shuttering of the Centre Consortium and the shift of power, Circle CEO Jeremy Allaire emphasized his commitment to make USDC the "most widely used digital dollar in the world," in a tweet.

FBI Warns of North Korean Hackers

The U.S. Federal Bureau of Investigation (FBI) issued an alert regarding the activities alleged of North Korean hackers, warning cryptocurrency companies of a potential cash-out attempt involving stolen bitcoin worth over $40 million. The alert focuses on hackers belonging to the TraderTraitor group believed by the FBI to be associated with the Democratic People's Republic of Korea (DPRK).

The group is also believed to be the latest incarnation of a team of hackers identified separately as both the Lazarus Group and APT38, known for spearphishing methods where counterfeit emails are used to trick readers into clicking on links that introduce software that steals money and data, locks out authorized users, or any number of illicit actions. The FBI's investigation has tracked approximately 1,580 bitcoin stolen by the group from several significant heists, including thefts from payment processor Alphapo, and others. The agency has urged private sector entities to closely examine blockchain data associated with bitcoin addresses its agents suspect of being involved, and called for increased vigilance against transactions involving these addresses.

In a related note, the FBI on Thursday announced it has seized nearly $1.7 million in cryptocurrency between March and July 2023, with the majority of the seizures coming from Binance accounts.

FUN BITS 😁

On a more light-hearted note, Bitcoin, as you probably know, is not performing so well. Hear your market update from standup comedian Ginny Hogan.

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