Crypto World: 3AC Demands $1 Billion from Terraform Labs, Coinbase Urges SEC to Rethink DeFi Rules
New York, NY – The crypto market experienced a rollercoaster ride today, with Bitcoin fluctuating around the $60,000 mark and Ethereum edging towards $2,700. While the market grappled with price volatility, the news cycle saw continued fallout from the collapse of Three Arrows Capital (3AC), as well as a push from Coinbase for increased regulatory clarity for decentralized finance (DeFi).
The embattled hedge fund 3AC, now in liquidation, filed a claim against Terraform Labs, the creator of TerraUSD and Luna, in Delaware Bankruptcy Court. 3AC’s liquidators accuse Terraform Labs of manipulating the market to inflate the price of Luna and TerraUSD, which they claim induced 3AC to invest in the assets. The liquidators are demanding over $1.3 billion in damages, attributing the collapse of 3AC directly to what they call "fraud" perpetrated by Terraform Labs. This follows an earlier settlement in June where Terraform Labs and its co-founder Do Kwon agreed to pay $4.5 billion to the SEC after a jury found them liable for fraud.
Meanwhile, Coinbase is urging the Securities and Exchange Commission (SEC) to reconsider a recent rule change that expands the SEC’s regulatory purview to include DeFi. The SEC adopted a revision to the Securities Exchange Act of 1934 in March, which redefined "exchange" to encompass more assets and institutions, including decentralized finance. Coinbase, in a letter to the SEC, expressed concern about the expanded definition, arguing it’s unrealistic to expect decentralized exchanges (DEXs) to comply with the new regulations and calling for the SEC to "repose" the rule and decline to extend the guidelines to DeFi. The SEC has responded by stating that they benefit from public engagement and will review all comments submitted before finalizing the rule.
In other regulatory news, the SEC filed fraud charges against Novatech, alleging its operation as a multi-level marketing scheme defrauded over 200,000 investors globally. The SEC claims Novatech, through deceptive promises of investment in crypto and foreign markets, raked in over $650 million. The SEC also filed charges against top promoters of the platform, claiming they were paid large sums to promote Novatech despite being made aware of regulatory concerns. One promoter, Martin Zezy, agreed to settle the SEC’s charges by paying a $100,000 civil penalty, pending court approval.
Rounding out the day’s news, blockchain security firm Halborn released a report detailing the top 100 DeFi hacks between 2016 and 2023, revealing a staggering total loss of over $7 billion. The report found that direct contract exploitation was the most common hack type, accounting for 33% of incidents, followed by compromised private keys and price manipulation at 27%.
The report also highlighted a significant increase in DeFi hacks during 2021, with 38% of the top 100 occurring that year. While the number of attacks saw a slight decrease in 2022 and 2023, the amount of money lost per year remained elevated, reflecting the growing scale of DeFi and the associated financial risks. The report noted that Ethereum, the most popular platform for building decentralized applications, was the most targeted blockchain, accounting for nearly 50% of the attacks and losses.
Peter Chelas, VP of Enterprise Security at Halborn, emphasized the critical importance of adopting a proactive approach to security, integrating it into every stage of the development process. He stressed that while the number of DeFi hacks may have declined recently, the potential for large-scale attacks remains a concern, particularly as the DeFi sector continues to grow.
The latest developments in the crypto space emphasize the ongoing challenges of navigating the evolving regulatory landscape, ensuring security in a rapidly growing ecosystem, and mitigating the risks associated with DeFi. As the crypto markets continue to mature, investors and participants must remain vigilant and informed about the latest security threats, regulatory changes, and emerging trends.
Crypto Markets in the Red as 3AC Demands Over $1 Billion from Terraform Labs, Coinbase Urges SEC to Rethink DeFi Rule, and Halborn’s Report Reveals Massive DeFi Hack Losses
Crypto markets saw a dip this morning, with Bitcoin oscillating around the $60,000 level. Although the Producer Price Index came in cooler than expected, offering some positive news for the market, Bitcoin dropped by 1.2% to $59,400 before rebounding to $61,000 an hour later. Ethereum dipped by over 1% to above $2,600, while Solana slipped by 1% to $146, but the market saw some recovery in the afternoon, with Ethereum rallying to $2,700 and Solana jumping to $149.
Here are the key takeaways from today’s crypto news:
- Collapsed Crypto Hedge Fund 3AC is Going After Terraform Labs: The liquidators for Three Arrows Capital (3AC), a bankrupt crypto hedge fund, are seeking over $1.3 billion in damages from Terraform Labs in Delaware Bankruptcy Court. The filing alleges Terraform Labs and its co-founder, Do Kwon, engaged in a "scheme to manipulate the open market for Luna and UST [Terra USD]," which inflated the price and convinced 3AC to invest in the assets. The liquidators maintain that 3AC’s collapse is directly attributable to Terraform Labs’ fraud. It’s worth noting that Terraform Labs and Do Kwon already agreed to pay $4.5 billion to the SEC after a jury found them liable for fraud.
- Coinbase Wants the SEC to Reconsider DeFi Rule Change: Coinbase, the leading cryptocurrency exchange, has called on the SEC to rethink its proposed rule that would bring decentralized finance (DeFi) under the agency’s purview. In March, the SEC amended the Securities Exchange Act of 1934, expanding the definition of an exchange to encompass DeFi platforms. This amendment drew significant backlash from the crypto community, prompting the SEC to reopen the comment period. In a letter submitted to the SEC, Coinbase voiced concerns over the expanded definition, stating it “irrationally” assumes decentralized exchanges can comply with the proposed regulations. Coinbase suggests the SEC reconsider the rule and decline to extend its guidelines to DeFi platforms. The SEC responded by stating it benefits from public engagement and will review all submitted comments before making a final decision.
- SEC Targets Alleged Crypto Marketing Scheme: The SEC announced fraud charges against Novatech and its principals for running a multi-level marketing scheme that allegedly defrauded over 200,000 investors globally. The SEC claims that Novatech raised over $650 million by promising to invest the funds in crypto and foreign markets. The agency charged top promoters of the platform, alleging they were paid significant sums to promote Novatech, even after they were made aware of several red flags. One of these promoters, Martin Zezy, has agreed to a settlement involving a $100,000 civil penalty pending court approval.
- Halborn Report Highlights $7 Billion in DeFi Hack Losses: Halborn, a blockchain security firm, released a report highlighting the top 100 DeFi hacks between 2016 and 2023, revealing over $7 billion in total losses during that period. The report, authored by Mara Mendez and featuring insights from Halborn’s VP of Enterprise Security Peter Chelas, reveals that the Ronin Network exploit in 2022 stands as the largest hack during this time, responsible for $624 million in losses.
Key Findings from Halborn’s Report
- The Top 100 DeFi hacks resulted in $7.35 billion in losses between 2016 and 2023.
- Direct contract exploitation contributed to 33% of the hacks, followed by compromised private keys and price manipulation at 27%.
- The number of attacks peaked in 2021, with 38% of the top 100 hacks occurring that year.
- The amount of money lost per year also reached peak levels in 2021 and 2022, highlighting the increased scale of DeFi and the growing stakes involved.
- Ethereum was the most targeted chain, accounting for nearly 50% of total value lost, followed by Binance Smart Chain at 16% and Polygon at nearly 8%.
- Input validation flaws and logic errors are the most common vulnerabilities in DeFi protocols, although less common proof verification errors can also lead to significant losses.
Mitigating DeFi Hack Risk
Peter Chelas, Halborn’s VP of Enterprise Security, emphasizes that security is an ongoing process, beginning with the initial conceptualization of a project or service. He highlights the need to involve security expertise throughout all stages of a project’s life cycle, from initial development to public launch. By incorporating security practices early on, teams can better mitigate threats and vulnerabilities, ensuring a more secure future for their projects.
The recent developments in the crypto world underscore the importance of security in the DeFi space. As DeFi continues to grow and evolve, tackling these vulnerabilities and implementing robust security measures will be crucial for fostering a safer and more resilient ecosystem.
