Dragonfly Partners Discuss Recent Hot Topics: Bybit Hacked, Presidential Crypto Scandal, End of the Meme Cycle, Regulatory Favorability May Bring Market Turnaround

整理 & 编译：深潮 TechFlow

Hosts:

• Haseeb Qureshi, Managing Partner at Dragonfly

• Robert Leshner, CEO and Co-founder of Superstate

• Tarun Chitra, Managing Partner at Robot Ventures

• Tom Schmidt, General Partner at Dragonfly

Podcast Source: Unchained

Original Title: Crypto Circus Never Ends: Hacks, Grifts, and Kanye's Coin?

Release Date: February 24, 2025

Key Takeaways

This episode's discussion includes:

1. Bybit Hack Incident:

2. Bybit experienced the largest cryptocurrency hack in history, losing $1.5 billion, suspected to be carried out by North Korea's Lazarus Group.

3. The hackers exploited a vulnerability in the multi-signature technology to quickly transfer funds to the Ethereum network.

4. Bybit's CEO responded swiftly, promising to meet user redemption demands and secured bridge loans from Binance and Bitget.

5. Libra Scandal:

6. The Libra Meme, supported by Argentine President Javier Milei, plummeted 95% due to insider trading and market manipulation scandals.

7. Exposed the operational tactics behind the issuance of Meme coins, including KOL private placements and bot sniping.

8. Celebrity Token Controversy:

9. Kanye West initially planned to launch the YZY token but postponed due to sensitive timing.

10. Celebrity tokens have frequently faced issues, such as Dave Portnoy being accused of running away with funds in the Greed and Greed 2 projects, leading to significant losses for investors.

11. The industry's attitude towards celebrity tokens is gradually turning negative.

12. Decline of the Meme Market:

13. Recent sentiment in the Meme market is low, with retail investors gradually realizing its zero-sum game nature.

14. Haseeb believes the Meme cycle has ended.

15. Improvement in Regulatory Environment:

16. The U.S. SEC announced the withdrawal of its lawsuit against Coinbase and restructured its crypto division to focus on combating digital fraud.

17. Hester Peirce proposed regulatory policies in collaboration with the industry, sending positive signals.

18. The nomination of Brian Quintenz as the new head of the CFTC may promote a more favorable cryptocurrency regulatory framework.

19. Infrastructure Development and Ecological Stability

20. The Solana and Ethereum ecosystems remain unaffected by the decline in Meme sentiment, with developers focusing on infrastructure and application innovation.

21. The developer conference on Solana indicates 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, resulting in a loss of $1.5 billion.

Bybit stated that they were attacked while transferring funds from the cold wallet to the hot wallet. This operation is a routine fund transfer that exchanges conduct to meet user withdrawal demands. Although Bybit used multi-signature technology and relied on a multi-signature system provided by Ledger, the transaction content displayed on the front end did not match what the signers saw on their devices during the signing process.

This attack method is very similar to previous hacks on Rexerx and Radiant Capital, leading the industry to widely suspect that this incident may be related to the Lazarus Group. The Lazarus Group is a hacker organization associated with the North Korean government, which has been involved in several large-scale cryptocurrency thefts, including the hack of Axie Infinity a few years ago.

Bybit's Response and Industry Reaction

Haseeb:

Bybit's CEO Ben officially confirmed the hack on Twitter and stated that the company has a sufficient balance sheet to cover this loss and can fully meet all user redemption demands. He went live about 30 minutes after announcing the hack, which is the fastest public response he has made in a similar situation.

In the live stream, he told everyone: "We are completely fine and can still meet all withdrawal requests. Although there is liquidity tightening, we have secured a bridge loan, and on-chain shows that this funding comes from Binance and Bitget."

About 6 hours after the hack, the outflow stabilized, and the market seemed relatively reassured about Bybit's situation. Additionally, we saw many people come out in support of Bybit, including CZ and heads of other exchanges. Many compared this incident to FTX, but unlike FTX, Bybit was able to meet redemption requests this time.

North Korean Hacker Group's Involvement and Aftermath

Haseeb:

This incident can be confirmed to be related to North Korea, which means we cannot foresee what will happen next. North Korea is unlikely to transfer assets directly to centralized exchanges. The stolen assets are currently still stored on the Ethereum network, with no further transfer actions. Clearly, this is because North Korea knows that the world is closely tracking these assets, and the scale of this funding is too large to effectively launder through privacy protocols like Tornado Cash.

These assets initially existed in the form of mETH and stETH, which are Lido's staked Ethereum (stETH) and other related assets. However, they quickly exchanged all these assets for Ethereum through DeFi platforms. I suspect this is because Ethereum is the most liquid asset and is also the least likely to be frozen. If you hold certain small tokens, you might face the risk of asset freezing due to governance issues, but this is almost non-existent with Ethereum.

Although this is the largest hack in cryptocurrency history in terms of dollars, no one has proposed solutions like hard forks. From these hacking incidents, we can observe a pattern that when the amount stolen is very large, it becomes even harder to escape. Ironically, if you stole $20 million or $30 million, it might be easier to hide; but if you stole a billion dollars, where will this money ultimately go? Who can help you handle it?

Robert:

I also don't know how they will handle these massive hacking proceeds. I believe there are some online analysts who have been tracking these incidents for years, but I suspect they will ultimately try to convert these funds into commodities like Russian oil.

Tarun:

I remember Richard Heart was sued by some agency; he was the largest holder of DAI because he obtained a large amount of Ethereum from Pulse Chain, but he exchanged all this Ethereum for DAI because he was blacklisted by many exchanges. I wonder if we will see a similar situation this time; it would be a good test to see if the attackers will trust decentralized stablecoins.

Haseeb:

I don't think they will transfer all the funds at once. Richard Heart's operation is a slow process rather than a one-time completion.

Robert:

It ultimately depends on the hacker's risk tolerance and their tolerance for financial volatility. Richard Heart exchanged Ethereum because he needed stablecoins to cover dollar expenses.

Haseeb:

If I were North Korea, I would consider how to utilize this money and try to transfer it to a place like Russia.

Robert:

They once tried to bridge some assets to Bitcoin, but now there are not many decentralized ways to transfer from Ethereum to Bitcoin.

Haseeb:

If these assets are secured by multi-signature, if someone discovers that their protocol is being used to handle $1 billion worth of Ethereum, many people might choose to report these funds, believing they should be confiscated and handed over to law enforcement through governance structures. In this case, almost no one would support North Korea.

Tarun:

We might see some very crazy on-chain operations because they have no other choice. What I find interesting is the situation with Thorchain. In the past, many hackers would use Thorchain to lend or bridge to Bitcoin, but now the validators of third-party chains have withdrawn, making it impractical to transfer large amounts of funds through it. The cross-chain bridge technology for Bitcoin is less developed than ever, which may put them in a difficult position.

Robert:

I imagine this like ancient pirates burying gold bars. They bury the gold somewhere, draw a treasure map, and then come back thirty years later to find it. North Korea might see these stolen cryptocurrencies as "treasure" and come back to use them at some point in the future.

Haseeb:

That's an interesting hypothesis. Perhaps they will propose some kind of protocol where those who return the assets can receive a 10% reward. But I don't know how to launder these stolen assets; North Korea, as an isolated country, makes any form of negotiation extremely difficult, which is a very bad situation for both customers and Bybit. While I believe Bybit's financial situation is robust enough, if they cannot raise enough Ethereum to meet redemption demands, that would be a big problem.

Many people speculate that Ben mentioned in the live stream whether Bybit would buy Ethereum to meet all redemption requests. Currently, they have secured a bridge loan from Biget and Binance, which is a positive signal, contrasting sharply with the collapse of FTX. But if we assume that no one is willing to do business with North Korea and there is no possibility of reaching any agreement, then Bybit may indeed need to buy Ethereum on the market. If that is the case, it could be a bullish signal for Ethereum's price, as this would bring about $1.5 billion in net buying demand, and with limited market liquidity, the price would naturally rise.

Tom: I noticed that the community has highly praised Ben's communication style. He conveyed information to the public quickly and directly through the live stream, which is very rare in the industry. He did not use vague official language but clearly told everyone, "We are fine, we will solve the problem, that's just how it is." This transparency is impressive.

Haseeb:

Indeed. If we compare this incident with FTX, Bybit's handling can be considered exemplary, while FTX's live stream was a complete farce.

Robert:

The fundamental difference is that FTX was a malicious participant engaged in large-scale fraud, which is also the reason for their funding shortfall, while Bybit is a trustworthy victim that suffered a hacking attack.

Haseeb:

I completely agree. Typically, in hacking incidents, we see the victims' first response is to obfuscate the situation, not directly face the problem, allowing information to spread through various channels. However, Bybit responded swiftly within just 30 minutes after the incident, clearly explaining what happened and proactively communicating with customers to ensure everyone is informed.

This should become the standard practice for every company when facing a hacking attack. The first step is to control the communication pace. Of course, the scale of this hacking incident is indeed unprecedented, but compared to Bybit's balance sheet, this loss is not catastrophic. The current scale of the cryptocurrency market far exceeds the past; although this is the largest hacking incident in history, the loss only accounts for a few percentage points of Bybit's total assets.

Tom:

After the FTX incident, Bybit launched a proof of reserves system, allowing users to see in real-time whether their assets are included in the reserves, which greatly enhances transparency. This incident did not involve any fraudulent behavior, so users do not need to worry about a significant gap in the balance sheet.

Haseeb:

I actually hope to find some evidence indicating this was an insider attack. Because if it was an insider attack, the chances of recovering the assets would be greater. However, it is fortunate that the industry's foundation is solid enough for them to weather this crisis and ensure that all customers' interests are not affected.

Hayden Davis & The Libra Scandal

Haseeb:

Another major news story is a coin called Libra. This project was supported by Argentina's new president, Javier Milei, who is himself a controversial figure. This incident has been dubbed the largest insider trading scandal since the collapse of FTX. So, what exactly happened with Libra?

Javier Milei publicly promoted the Libra token through a tweet. Everything happened very suddenly, with almost no warning. Subsequently, the market cap of this Meme coin skyrocketed to $4 billion, only to plummet 95% shortly thereafter. During the collapse, Milei deleted his tweet. Meanwhile, reports surfaced that insiders sold tokens while the market was in a frenzy, estimating that they profited nearly $200 million from this operation. As the incident unfolded, more chaotic details gradually came to light.

The controversy surrounding this project is perplexing. What is Milei's main stance? What is the Argentine government's view on this? Later, we learned that Milei himself did not directly profit from this Meme coin; rather, it was launched by a private company in Argentina, which claimed it was for the benefit of the Argentine people or community, but the entire process was very opaque.

The central figure in this incident is a white male named Hayden Davis. After returning to Argentina, he became a businessman focused on Memes. He is more of a "coordinator" 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 the funds or own these assets.

In Argentina's crypto circle, Hayden Davis is considered an insider. In leaked private information, he boasted about paying money to Milei's sister, Karina Milei. Karina is a prominent figure in Argentine politics. Hayden even mentioned in a tweet his influence over Javier Milei, claiming: "I control that guy. I give money to his sister, and he will sign anything I say."

Hayden controls over $100 million in funds extracted from internal wallets. He later gave a series of interviews attempting to explain the entire operation. In a Twitter live stream, he directly admitted to "sniping" during the collapse of Libra, which means manipulating the market through bot trading. His statement was: "I don't know the true ownership of this money. I think it might belong to Argentina or the KIP Protocol company that launched this project. I don't know whose money it is, and I don't want it. You tell me how to handle this money, and if you don't tell me, I will throw it back into the market."

In the interview, he also detailed the operational mechanisms of Memes, revealing many insights that most people had never understood. He mentioned that most large Memes are sold privately to KOLs and other institutional investors at prices below market value before their launch. For example, projects like Melania, Libra, and even TRUMP, he claimed, had conducted private placements of up to $500 million at an internal meeting in Washington, D.C.

The information about these private placement transactions usually spreads among insiders but can also leak to others who did not participate in the transactions. These individuals use this information to profit from sniping when the tokens officially launch.

Here, it is necessary to explain the meaning of "sniping." Sniping refers to when some bots can quickly buy tokens as soon as they go live, pushing up the price before ordinary investors can react. This is because they know in advance that the token is about to launch. When retail investors start rushing in to buy, human reaction times are far slower than machines, allowing these snipers to sell the tokens at high prices and profit. Since Meme coins are usually issued at low market caps without auction or initial price clearing mechanisms, this operation becomes very common.

According to Hayden Davis, "If you don't snipe your own tokens, how else can you make money? Do you think there are other ways?" He believes that all teams involved in the token supply chain believe that the only way to profit is to become an insider manipulator. These teams hope that the hype around Memes can last for one to two years, but the reality is that almost all Memes have lifespans of no more than a few days. In these circles, there is a pervasive cynical attitude that the entire crypto industry is just a zero-sum game. To prevent retail investors from being sniped by outsiders, they believe the best way is for the team to snipe the tokens themselves first. In this way, they can use the profits from sniping to protect the token's stability and buy back the tokens after completing the sniping.

On the day of the incident, the Argentine stock market fell by over 5%. Currently, the opposition has formally charged Javier Milei. This incident has been dubbed "Cryptogate," a major political and financial scandal. I believe this has caused serious damage to Argentina's reputation both internationally and domestically.

Robert:

I saw clips of Hayden's interviews; they are simply outrageous. Each segment is more absurd than the last, and he even openly said on the show, "Crime is good."

Haseeb:

He is a typical "crypto kid," completely lacking in moral values.

Robert:

Do you remember our discussion about the "contrast between rationality and madness" about nine months ago? Hayden might be one of the craziest figures in the history of the crypto industry.

Tom:

I agree; I think Hayden comes across as very ignorant when he speaks. Last week, I went skiing and encountered some Argentinians who were very excited about this. Because in their view, this might be similar to the TRUMP situation. They see it as a huge opportunity, and when they saw Milei promoting this project, they might have thought, "Oh, this is our TRUMP moment," but it turned into a massive scandal. In reality, it's a bit like going to a casino and losing money; who can you blame? The rules of the casino are that you win or lose at your own risk.

Haseeb:

That analogy is very vivid. Such an absurd Meme could trigger such a large chain reaction, even impacting an entire country. The influence of this scandal has also spilled over into the entire crypto industry. It was later discovered that the team behind Kelsier Ventures was not only responsible for the Libra token but also for Melania. They also engaged in sniping operations when Melania was launched, which is actually a tactic they repeatedly use.

Latest Developments in Meteora and the Solana Ecosystem

Haseeb:

One interesting aspect of this story is that it has also affected some people in the Solana ecosystem. Meteora is the launch platform for TRUMP and Melania. Recently, Meteora has come under scrutiny due to some investigations, as it seems that some people associated with the platform are controversial.

I need to explain that Meteora is a competing product to Jupiter. Jupiter is a large DeFi aggregator on Solana, while Meteora focuses on providing launch services for new tokens. The chief developer of Meteora, Ben, resigned after being accused of possibly engaging in certain violations (such as insider trading). However, I am not sure whether these accusations are true or if they are 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 that true?

Tarun:

I'm also not sure whether these accusations are true. Ben is one of the co-founders of Meteora, which was initially part of Jupiter. I actually knew Ben before the crypto industry took off; he was running a startup in the insurance field. I interviewed him back in 2012. He did not enter the crypto space until 2021. The Meteora platform has existed for a while but has struggled to find a suitable market position. 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 exchanges, except for FTX, did not support trading SPL tokens. Meteora gradually evolved into a platform focused on launching early projects.

Unlike Pump.Fun, the Meteora platform allows project issuers to manage and control the liquidity pool to some extent. This design does make sniping operations easier to some degree. However, I think Ben's situation is more like a founder being kicked out by the board rather than an ordinary developer being fired. If you view this as a case of corporate governance, the removal of a founder usually involves more complex power struggles.

The Decline of Memes

Haseeb:

I think this story casts a shadow over the entire Meme landscape. After the Libra incident, the launches of TRUMP and Melania have left people with a bad impression of Meme coins. After these events, people seem to realize the essence of the Meme promoters revealed by Hayden in the interview and how these large-scale Meme coin issuances are detrimental to retail investors. This change has altered the atmosphere in the crypto space, making people question whether retail investors can continue to participate in this so-called "casino."

Robert:

People once thought the Meme game was winnable, but now the truth is out, and they see the ugly reality behind it, realizing that this is a completely manipulated game, and they are the victims who cannot win.

Haseeb: In absolute numbers, Pump.Fun's trading volume remains strong, but overall, market volatility is decreasing. The sentiment has completely turned against Memes; previously, people would say that tech coins and venture coins are actually Memes, but now that viewpoint seems to have lost its effectiveness, and people are starting to realize the need to rebuild real projects.

Tarun:

I think this indicates 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 significantly decreased.

Robert:

I think this is a turning point; Meme coins attracted a lot of capital, and now that the appeal of Meme coins is declining, this capital will flow into other vertical markets in the crypto space.

Tom:

I agree with Tarun's view. 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 booms, if people no longer feel excited and see no opportunities, then the entire market will be affected.

Haseeb:

Indeed, the distinction between Pump.Fun and some managed issuances is quite interesting. Libra can be considered a type of celebrity coin; although it does not formally appear as such, its relationship with Milei effectively makes it a celebrity coin.

Controversy and Hypocrisy of Celebrity Token Projects

Haseeb:

I think it is safe to say that the wave of celebrity tokens has passed or rapidly cooled down. Recently, I heard that Kanye West seems to be planning to launch a Meme , which is a celebrity token, but he seems to realize that now is not a good time to launch.

I heard he originally planned to launch it on Monday but then postponed it to Friday. It is said that the team is discussing whether it is too close to the Milei incident, and clearly, they are adjusting based on the news cycle. What I find amusing is that this new token is called YZY Token.

Even more ridiculous is that Yeezy's CFO accidentally leaked this plan to CoinDesk. He sent an email using Yeezy's official email, detailing the token's plan and requesting CoinDesk to keep it confidential, but CoinDesk refused the request and published the report directly.

Regarding the tokenomics, 70% of the tokens will be held by Kanye himself, 10% for liquidity, and 20% for investors, and this 20% has already been sold to investors.

Robert:

Just a few days ago, he tweeted that celebrity coins are an exploitation of the community and worthless. Yet just days later, news broke that he was going to launch his own token, which is incredibly hypocritical.

Haseeb:

As an industry, we must unite and not support such tokens. As long as everyone refrains from buying, we can completely end this phenomenon.

Robert:

The problem is that once the token is released, it will be snatched up, and then someone will sell it off, ultimately resulting in profits for only a few.

Haseeb:

We have already seen similar cases, like Dave Portnoy launching a token called Greed, holding 35% of the supply, and then selling it all at once, leading to a price crash.

He then launched Greed 2. After the collapse of Greed, the market cap of this new token once reached $20 million, but it quickly crashed again, and he sold off again, stating in a Twitter Spaces that this process was a lesson for his followers, Meme is purely exploitation, and criticized those trading as lazy, only wanting to make quick money without seeking real work.

Tarun: This is essentially financial domination (fin dom), even more obvious than what we discussed before.

Haseeb:

I recently expressed similar views on Twitter, and I believe the Meme cycle has ended. I mentioned in the show that it is like a casino where each slot machine is owned by different people, and this model is simply unsustainable; each slot machine owner will do everything possible to extract profits from the players.

Regulatory Dynamics and the Future of the Cryptocurrency Industry

Haseeb:

The recent negative news has left me feeling very fatigued; people are tired of those Memes that have no real value and are starting to look towards more promising projects, which may be one reason for the rebound in the cryptocurrency market last week. However, the market has seen a decline today, which has also impacted cryptocurrencies. Nevertheless, there is good news on the regulatory front.

We have been saying that this year could be a turning point for the cryptocurrency regulatory environment, and now we finally have substantial progress. The biggest news this morning is that the U.S. Securities and Exchange Commission (SEC) is withdrawing its lawsuit against Coinbase. This is undoubtedly a significant positive for the entire industry, indicating that the changes we have been anticipating are happening.

The SEC previously sued Coinbase on the grounds of alleging it acted as an unregistered securities broker and exchange, facilitating the trading of unregistered securities. However, these allegations are now being withdrawn, and we may also see other similar cases brought by the SEC being withdrawn in succession. Previously, it was speculated that cases might be resolved by narrowing the scope or reaching settlements, but the complete withdrawal of cases is clearly a more positive signal. This indicates that the SEC is beginning to support the development of good-faith participants and is willing to collaborate with them to create a healthy digital asset ecosystem.

Additionally, we have seen Brian Quintenz nominated as the new head of the Commodity Futures Trading Commission (CFTC). The CFTC may become the primary regulatory body for cryptocurrencies in the future. Quintenz was the head of crypto policy at A16Z Crypto and has been dedicated to opposing excessive administrative regulation over the past four years, which is undoubtedly an exciting day and signals that the crypto industry may welcome more positive changes in the future.

Robert:

First of all, the SEC has restructured its crypto division, which was originally targeting good-faith participants, transforming it into a team focused on combating digital fraud. This means that the SEC will concentrate more on combating real wrongdoing rather than continuing to pursue rule-abiding companies relentlessly. This is the change the industry has been eagerly anticipating for the past four years.

Secondly, SEC Commissioner Hester Peirce issued a statement detailing the changes they hope to promote. They hope to collaborate with the crypto industry's policy teams to promote the healthy development of the entire industry. The document covers various areas, including broker-dealer rules, custody rules, trading rules, and safe harbor rules. They expressed a desire to engage in dialogue with the industry to jointly formulate effective policies. This constructive attitude stands in stark contrast to the rigid stance from a few weeks ago.

Haseeb:

I hope that in this context, we can see more favorable policies being introduced, allowing good-faith participants like Coinbase to no longer face unnecessary attacks. At the same time, regulatory agencies can allocate more resources to combat real wrongdoing. The reason we fell into the quagmire of Memes in the past was largely due to the fact that under Gary Gensler's leadership, regulatory agencies devoted all their time and resources to attacking the largest market participants through case law, neglecting the regulation of wrongdoing in public settings.

Tarun:

This week, I attended a Solana developer conference, and participants hardly talked about Memes. This indicates that there is still a portion of people in the ecosystem focused on infrastructure and application development, and they do not care much about short-term market fluctuations. I believe that any successful ecosystem needs such builders to exist.

Haseeb:

Currently, the sentiment in the infrastructure sector remains relatively stable; we have not seen a large outflow of funds from Solana, nor have we observed significant differences in trading volumes between DEXs on Ethereum and Solana; both exhibit relatively consistent volatility.

Tom:

I think this situation might be similar to when the last Meme was launched, where no one is willing to buy in. This low market sentiment might deter others. But if Yeezy truly is the last celebrity coin, I could accept that.