Multiple DeFi project airdrops fall into insider trading scandal

October 8, encryption Divergence Ventures venture capital institutions accused of unjust enrichment activities in airdrop DeFi Ribbon Finance projects it invests in, the agency’s researchers exploited to profit from RBN 702 tokens drop in the ETH , a time when 2.5 million US dollars. Divergence Ventures returned 702 ETH after being “captured”.

On October 9th, a DeFi user discovered that another DeFi project, Ampleforth, also had a suspicious “airdrop” wallet. An anonymous address created more than 5,000 before the project announced the airdrop governance token FORTH in April this year. Two interactive addresses, after FORTH entered the secondary market, made a profit of 28 million U.S. dollars. Netizens pointed out that “there is insider trading.”

When more and more DeFi projects choose to distribute project tokens by airdrop, users still cannot beat those who know the news in advance, and investors in the secondary market are likely to become receivers. Although DeFi claims to be a “decentralized” on-chain operation method to transform finance, and in the distribution of tokens, “airdrops to users” replaced the past “ICO issuance” layer-by-layer cash-out method, but as long as the project has advance financing , It is difficult not to fall into the scandal of insider trading.

Suspicious airdrops “Giant Whales” appear in DeFi projects one after another

“This bet on the FORTH airdrop address also needs public attention.” On October 9, Sungjae, an analyst at the investment institution GBV, disclosed on overseas social media that an anonymous person had interacted with the DeFi protocol Ampleforth in advance to generate more than 5,000 airdrop addresses. After Ampleforth officially announced the opening of the governance token FORTH airdrop, it made a profit of 28 million U.S. dollars.

According to public information, on April 22 this year, the algorithmic stablecoin project Ampleforth (hereinafter referred to as “AMPL Application”), which was once popular in the DeFi field, announced that it will launch the governance token FORTH. Among the total 15 million FORTH, there will be 67% is given to the AMPL community. All users who have interacted with the AMPL application before March 30, 2021, visit the airdrop application page and link to the ETH wallet, will be eligible for free FORTH tokens.

Multiple DeFi project airdrops fall into insider trading scandal

Researcher exposes suspicious FORTH airdrop address

According to Sungjae’s disclosure, at least 257 days ago, in January-February this year, the anonymous person received 200 ETH through the Tornado Cash, a privacy protocol on Ethereum, and then sent a small amount of AMPL tokens to more than 5,000 addresses. (The accounting token that regulates the operation of the AMPL algorithm stablecoin protocol) interacts with ETH. The anonymous person made a profit 100 days after the AMPL protocol announced the airdrop of the governance token FORTH. Only at the time of the airdrop, it made a profit of 28 million U.S. dollars .

Some netizens suggested that on April 22, just a few hours after the FORTH airdrop, the crypto asset exchange Coinbase launched the token. In the following two days, many exchanges including Binance also listed the token. In other words, not long after the launch of FORTH, there has been a secondary market, which was as high as $59 when it went online. You know, in January and February this year, the price of ETH was still between US$1,200 and US$1,300, and 200 ETH was almost worth between US$240,000 and US$260,000. The anonymous person invested 200 ETH to obtain these airdrops, and the return rate was more than one hundred times.

“This case is particularly interesting because no one might guess that there is an airdrop, but insiders are very sure about the eligibility of the airdrop. Who will it be? A wealthy businessman? Or an intern?” Sungjae announced after exposing the address. A thought-provoking question. Most netizens think this is “insider trading.” Some netizens have pointed the finger at project insiders, and some believe that this is done by the project’s investment institution.

So far, the Ampleforth project party has not responded to this.

Since the ETH address of the anonymous person has been processed by the privacy agreement, it is difficult for the outside world to figure out where the person doing this operation belongs to. The reason why netizens point this to insider trading is that there have been previous investment institutions quietly “airdropping”. Lee’s case.

On October 8, Divergence Ventures, an investor in the DeFi project Ribbon Finance, was accused of exploiting the vulnerability to profit 702 ETH from the airdrop, which was worth 2.5 million US dollars at the time. Compared with the Ampleforth incident, Ribbon Finance’s case has been widely followed by the media, and everyone in the industry is well-known.

The data on the chain shows that the Ethereum wallet associated with Bridget Harris, an analyst at Divergence Ventures, received 702 ETH from other wallets. These wallet addresses associated with the Harris wallet have participated in the airdrop activities of the Ribbon Finance governance token RBN. All wallets replaced RBN with ETH, and finally the funds were collected in Harris’ wallet.

Enthusiasts speculate that Divergence Ventures is an investor in Ribbon, and its researchers are likely to use internal information to successfully operate the issuance of RBN. But Ribbon’s community leader denied these allegations.

The public can locate Harris because she publicly released her Ethereum service domain name last month, which makes it easier for the outside world to identify her wallet.

After the incident was exposed, Divergence Ventures stated on official social channels that it had only invested $25,000 in Ribbon. The agency admitted that it used a witch attack (imitating a variety of identity swipe attacks), and apologized for “crossing the border”, and decided to return 702 ETH to Ribbon’s DAO organization.

DeFi insider trading can only be reduced to “moral hazard”

Encrypted asset enthusiasts are angry about the “airdrop” of investment institutions and insiders, in the final analysis, because they are more capable of acquiring news than ordinary users.

Since DeFi has taken the market by storm, “free distribution” of project governance tokens to user addresses who have interacted with the application is called “airdrop”. This method has always been regarded by the market as more fair than ICO public offerings.

In the past, the business model of ICO was to use conceptual projects to raise funds from unspecified investors, requiring ordinary investors to exchange “hard currencies” in the crypto asset market, such as BTC , ETH, and USDT, for project tokens, and wait for the project tokens to go online. Cashing out after the market, this investment method is risky because it is doubtful whether the concept project can be implemented, and the return on investment depends purely on secondary market speculation. Whether it can go online on an exchange has become one of the bargaining chips for ICO returns.

In the currency circle, there were countless ICO projects that were popular in 2017 and died in 2018. Chinese regulation finally classified ICO as illegal financing. Regulators in the United States, South Korea and other overseas countries are also cracking down on false ICO scams.

When the crypto asset industry entered the DeFi era, project airdrops replaced the ICO token distribution method. Users who have used DeFi applications on the blockchain seem to be more qualified to obtain project governance tokens, forming a community atmosphere. Users can also obtain corresponding returns by governing the secondary market value of tokens.

Beginning in June last year, decentralized lending agreement Compound, decentralized exchange Uniswap and other ace DeFi projects have taken the lead in creating two rounds of governance token price carnivals under the frenzy of liquid mining. Since then, DeFi users have begun. Pay attention to those DeFi applications that have not yet issued governance tokens, and have invested money to leave traces of interaction in these applications, hoping to get airdrop rewards after the project is issued.

Starting this year, the methods of creating addresses for interacting with applications, using funds to leave marks, and project airdrops have even become streamlined operations for some DeFi players. Players with technical capabilities are using scripts to scan interactive addresses, and players who lack technical means are also In manual operation. The original intention of the DeFi project to unite the community with airdrop rewards has changed amidst the frenzy of the market.

The occurrence of the Ribbon Finance and Ampleforth incidents has made airdrops no longer a mere grab-and-run game among users. This is because no matter whether it is a technology flow or a manual party, it is not as fast as inside information from insiders. Some netizens ridicule, do insiders who have the advantage of obtaining information still lack technical means and scripts? “If you swipe 1,000 addresses 5 days in advance, people may have swiped 10,000 addresses 3 months ago.”

And if these people are the project owner, or the institutional investor of the project, then “distributing to the community for free” becomes a “goathead” for fooling users. In essence, they sell the “dog meat” of ICO. The number of investors who bought these tokens at high prices in the secondary market.

The more problematic is that the on-chain deployment properties of DeFi may make this kind of insider trading more concealed. Divergence Ventures is a researcher who revealed that the information was “captured” by others, and even more cunning anonymous individuals who used Ampleforth in advance can find it difficult to locate personal information.

ICO has been defined as illegal, illegal or even fraudulent by the regulatory agencies of many sovereign countries, but once insider trading occurs in DeFi that has not yet been regulated, it can only be regarded as a “moral hazard.”

Does this “moral hazard” only hurt investors? The reality tells you, it’s not.

Last week, the decentralized lending application Compound misdivided nearly $150 million in tokens due to an error in the code, which was originally used as a reward for community liquidity mining. The creator of the app, Robert Leshner, called accidental distribution a “moral dilemma” and called on users to return the funds. So far, users have returned more than 163,000 COMP tokens worth $53 million, which is only 1/3 of the invested capital.

When such a problem occurs, the DeFi project parties who believe in “Code is law” may not have the position of “reporting officials”, and all they can do is appeal. On the contrary, look at people or organizations that “have news, airdrops,” and the same is true. No one can resort to the real law for their actions.

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