Dragonfly partners talk about recent hot topics: Bybit hacked, presidential encryption door, Meme cycle ends, and the positive regulatory benefits may bring market turn

Organize & compile: Shenchao TechFlow

host:

• Haseeb Qureshi, Dragonfly Managing Partner

• Robert Leshner, CEO and co-founder of Superstate

• Tarun Chitra, Managing Partner, Robot Ventures

• Tom Schmidt, Dragonfly General Partner

Podcast source: Unchained

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

Broadcast date: February 24, 2025

Summary of key points

The discussions in this issue include:

1. Bybit Hacker Event:

1. Bybit suffered the largest cryptocurrency hack in history, with a loss of $1.5 billion, suspected to be implemented by North Korea\'s Lazarus Group. 

2. Hackers exploited multi-signature technology vulnerabilities to quickly transfer funds to the Ethereum network. 

3. Bybit CEO responded quickly, promising to meet users’ redemption needs and receive bridging loan support from Binance and Bitget.

2. Libra scandal:

1. Libra Meme, supported by Argentina President Javier Milei, plummeted 95% due to insider trading and market manipulation scandal. 

2. Reveal the operational routines behind the issuance of Meme coins, including KOL private placement and robot sniping.

3. Celebrity Token Controversy:

1. Kanye West originally planned to launch the YZY token, but it was delayed due to the sensitivity of timing. 

2. Celebrity tokens have frequently exploded, such as Dave Portnoy, accused of running away in the Greed and Greed 2 projects, and direct selling has caused heavy losses to investors. 

3. The industry\'s attitude towards celebrity tokens has gradually turned to resentment.

4. Meme market recession:

1. Meme has been in a sluggish market recently, and retail investors have gradually realized the nature of its zero-sum game.

2. **Haseeb** believes that the Meme cycle has ended.

5. Improvement of regulatory environment:

1. The US SEC announced the withdrawal of its lawsuit against Coinbase and reorganized its crypto division to focus on combating digital fraud. 

2. Hester Peirce proposes regulatory policies to cooperate with the industry to send positive signals. 

3. The new CFTC chief nominates Brian Quintenz, which may promote a more friendly cryptocurrency regulatory framework.

6. Infrastructure construction and ecological stability

1. The Solana and Ethereum ecosystems are not affected by the Meme downturn, and developers focus on infrastructure and application innovation. 

2. The developer conference on Solana shows that there are still long-term builders in the market. 

The largest cryptocurrency hacker incident in history

Haseeb:

Last week we just experienced the largest cryptocurrency hack in history, with Bybit’s cold wallet losing $1.5 billion.

Bybit said they were attacked in the process of transferring funds from cold wallets to hot wallets. This operation is a regular transfer of funds carried out by the exchange to meet users' withdrawal needs. Although Bybit uses multi-signature technology and relies on the multi-signature system provided by Ledger, when signing a transaction, the transaction content displayed on the front-end is not consistent with the actual transaction content seen on the signer device.

This attack method is very similar to previous hacking incidents against Rexerx and Radiant Capital, so the industry generally suspects that the incident may be related to Lazarus Group. Lazarus Group is a hacker group linked to the North Korean government and has been involved in multiple large-scale cryptocurrency thefts, including a hacker attack on Axie Infinity a few years ago.

Bybit's response and industry response

Haseeb:

Bybit CEO Ben formally confirmed the hacking incident on Twitter and said that the company has enough balance sheet to cover the loss, which is fully capable of meeting the redemption needs of all users . He broadcasted live about 30 minutes after the hack was announced, the first time he had responded publicly so quickly in a similar situation.

During the live broadcast, he told everyone: " We are completely fine and are still able to meet all withdrawal requests. Despite the liquidity crunch, we have obtained a bridge loan, which is shown on the chain to come from Binance and Bitget. ”

About 6 hours after the hacking incident, outflows have stabilized and the market seems to feel relatively at ease about Bybit's situation. In addition, we have also seen many people step up to support Bybit, including CZ and some other exchanges. Many people compare this incident to FTX, but the difference is that Bybit can satisfy the redemption request this time.

The participation of North Korean hacker organizations and the follow-up

of the incident

Haseeb:

This incident can be confirmed to be related to North Korea, which also means we cannot foresee what will happen next. North Korea is unlikely to transfer assets directly to centralized exchanges. These stolen assets are still stored on the Ethereum network and have not been further transferred to mobile operations. Obviously, this is because North Korea knows that the world is closely tracking these assets, and the funding is too large to be effective in laundering through privacy agreements such as Tornado Cash.

These assets originally exist in the form of mETH and stETH, which is the staking Ethereum (stETH) and other related assets provided by Lido. However, they quickly exchanged all of these assets for Ethereum through the DeFi platform. I guess this is because Ethereum is the most liquid asset and is also 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 there is almost no such possibility in Ethereum.

Although this is the largest hacker incident in cryptocurrency history in USD, no one has proposed to solve it through hard forks, etc. From these hacking incidents, we can find that a rule is that when the amount of stolen money is very large, it is even more difficult to escape . Ironically, if you steal 20 million or 30 million dollars, it may be easier to hide; but if you steal a billion dollars, where will that money end up going? Who can help you deal with it?

Robert:

I don't know how they handle these huge hacker proceeds either. I believe there are some online analysts who have been tracking these events for years, but I guess they may end up trying to swap those funds for commodities like Russell.

Tarun:

I remember Richard Heart was sued by an institution, 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 these Ethereums for DAI. I wonder if we'll see a similar situation this time, which will be a good test to see if the attacker trusts decentralized stablecoins.

Haseeb:

I don't think they'll transfer all their funds at once. Richard Heart’s operation is a slow process, not done in one go.

Robert:

This ultimately depends on the hacker's risk tolerance and tolerance for financial volatility. Richard Heart exchanges Ethereum because it needs stablecoins to pay for US dollar spending.

Haseeb:

If I were North Korea, I would think about how to use the money and try to transfer it to a place like Russia.

Robert:

They used to try to bridge some assets to Bitcoin, but now there are not many decentralized ways to move from Ethereum to Bitcoin.

Haseeb:

If these assets are secured through multiple signatures, if someone finds that their agreement is used to process $1 billion worth of Ethereum, many may choose to actively report the funds, thinking they should be confiscated and through governance structures. Leave it to law enforcement. In this case, almost no one will support North Korea.

Tarun:

We may see some very crazy on-chain operations because they have no choice. What makes me interesting is the situation with Thorchain. In the past, many hackers would use Thorchain to borrow or bridge to Bitcoin, but now validators of third-party chains have been evacuated, so it has become impractical to transfer large amounts of funds through it. Bitcoin’s cross-chain bridge technology is now less perfect than ever, which may put them in trouble.

Robert:

I imagine this as a scene where ancient pirates buried gold nuggets. They buried the nuggets somewhere, drew a treasure map, and then came back to search for them after thirty years. North Korea may regard these stolen cryptocurrencies as "treasures" and use them again sometime in the future.

Haseeb :

This is an interesting assumption. Perhaps they would come up with some kind of agreement, such as the person who returns the assets can receive a 10% reward. But I don't know how to whitewash these stolen assets. North Korea, as an isolated country, makes any form of agreement negotiation very difficult, which is a very bad situation for both clients and Bybit. While I believe Bybit’s financial situation is solid enough, it would be a big problem if they can’t raise enough Ethereum to meet redemption needs.

Many people speculate that Ben mentioned in the live broadcast whether Bybit will satisfy all redemption requests by purchasing Ethereum. Currently, they have obtained a bridge loan through Biget and Binance, which is a positive signal in stark contrast to the FTX crash. But if it is assumed that no one is willing to do business with North Korea and there is no possibility of any agreement, then Bybit may indeed need to buy Ethereum in the market. If this is the case, this could be a good deal for Ethereum prices, as this would bring about a net purchase demand of about $1.5 billion, while the market liquidity is limited and the price will naturally rise.

Tom: I noticed that the community has shown high praise for Ben’s communication style. He quickly and directly conveys information to the public through live streaming, 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 that's how it is." This transparency is impressive.

Haseeb:

That's true. If you compare this incident with FTX, Bybit's handling is exemplary, and FTX's live broadcast is a complete farce.

Robert:

The fundamental difference is that FTX is a malicious player who conducts large-scale fraud activities, which is why they lack funds, while Bybit is a trusted victim who has been hacked.

Haseeb:

Totally agree. Usually in hacking incidents, we will see that the victim's first reaction is to blur the problem, not directly face the problem, and let the information spread through various channels. Bybit responded quickly within just 30 minutes after the incident, clearly explained the process of the incident, and actively communicated with customers to ensure that everyone understands the situation.

This should become the standard practice for every company when it encounters hacking. First of all, you must control the rhythm of communication. Of course, the scale of this hack is indeed unprecedented, but compared to Bybit's balance sheet, the losses this time are not devastating. Today's crypto market is much larger than it has, and although this is the largest hacker in history, the losses account for only a few percentage points of Bybit's total assets.

Tom:

After the FTX event, Bybit launched a proof of reserve system, where users can check in real time whether their assets are included in the reserve, which greatly improves transparency. This incident did not involve any fraud, so users don’t have to worry about a significant gap in their balance sheets.

Haseeb:

I actually hope to find some evidence that this is an internal attack. Because if it is an internal attack, the possibility of recovering assets will be greater. Thankfully, however, the industry has a solid foundation that they can survive the crisis and ensure that the interests of all customers are not affected.

Hayden Davis & Libra Scandal

Haseeb:

Another big news is a coin called Libra. The project has been supported by Argentina’s new president, Javier Milei, who is a controversial figure in his own right. This incident is called the biggest insider trading scandal since the FTX crash. So, what exactly happened to Libra?

Javier Milei publicly promoted Libra tokens through a tweet. This happened very suddenly, with almost no warning. Subsequently, the market value of this Meme coin soared rapidly to US$4 billion, but plummeted by 95% in a short period of time. During the crash, Milei deleted his tweet. At the same time, there were reports that insiders took advantage of the market's crazy tokens, and they estimated that they made a profit of nearly US$200 million through this wave of operations. As the incident ferments, more chaotic details gradually emerge.

The controversy surrounding the entire incident is confusing. What is Milei’s main position? What does the Argentine government think about this? We later learned that Milei himself did not profit directly from this Meme currency, but instead launched the project by an Argentine private company, who claimed that it was for the benefit of the Argentine people or communities, but the whole 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 Meme. He is more of a "coordinator" than a project's initiator or direct promoter. In an interview he mentioned that starting a Meme involves multiple roles, and his main role is to bring parties together, and he emphasizes that he does not directly operate the funds and does not own these assets.

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

Hayden controls over $100 million withdrawn from his internal wallet. He then gave a series of interviews to try to explain the entire operation. During a live Twitter stream, he directly admitted that he had "sniped" when Libra collapsed, that is, manipulating the market through robot trading. His statement was: "I don't know what the money really belongs. I think it might belong to Argentina, or the KIP Protocol company that launched the project. I don't know who the money really belongs to, nor do you want it. You tell me How should I deal with the money, if you don't tell me, I'll throw it back to the market”.

In the interview, he also explained in detail the working mechanism of Meme, revealing inside stories that many people have never known. He mentioned that most large Memes will sell most of the tokens to KOLs and other institutional investors through private transactions before launching. For example, like Melania, Libra, and even TRUMP, he claimed that these projects had been privately offered up to $500 million at an internal meeting in Washington, D.C.

Information about these private placement transactions is usually spread among insiders, but it can also be leaked to others who are not involved in the transaction. These people use this information to make money by sniping when the token is officially launched.

Here we need to explain the meaning of "sniper". Sniper refers to the fact that when the token is first launched, some robots can quickly buy tokens before ordinary investors react, thereby pushing up prices. This is because they know in advance that the token will be online soon. When retail investors start to pour in to buy, people's reaction speed is much slower than machines, and these snipers will take the opportunity to sell tokens at high prices and make profits from it. This operation becomes very common since Meme coins are usually issued at low market capitalization and there is no auction or initial price clearing mechanism.

According to Hayden Davis, "How else can you make money without sniping your tokens? Do you think there is any other way?" He felt that all teams involved in the token supply chain believed that the only way to make a profit is to become an internal one. Controller . These teams hope Meme’s popularity lasts for one to two years, but the reality is that almost all Memes will not have a life cycle of more than a few days. There is a cynical attitude in these circles that the entire crypto industry is nothing more than a zero-sum game . In order to avoid retail investors being sniped by external snipers, they believe that the best way is to the team snipe the tokens first. In this way, they can use the benefits obtained from sniping to protect the stability of the tokens and buy back the tokens after completing the sniping.

On the day of the incident, Argentina stock market fell by more than 5%. At present, the opposition has filed formal charges against Javier Milei. The incident, known as the "cryptogate", was a major political and financial scandal. I think this has done serious damage to Argentina's reputation internationally and domestically.

Robert:

I've seen clips of Hayden's interview, and it's simply outrageous. Each of his clips is more ridiculous than the previous one. He actually publicly said on the show that "crime is good."

Haseeb:

He is a typical "crypto boy" with no moral concept at all.

Robert:

Do you remember the “Contrast of Reason vs. Crazy” we discussed about nine months ago? Hayden is probably one of the craziest figures in the history of the crypto industry.

Tom:

I agree, I think Hayden seems very ignorant when he speaks. Last week I went skiing and met some Argentinians but were very excited about it. Because in their opinion, this may be a TRUMP-like situation. They thought it was a huge opportunity, and when they saw Milei promote the project, they might think, “Oh, this is our TRUMP moment”, which turned out to be a huge scandal. In fact, it 's a bit like if you lose money in a casino, who can you blame? The rule of casinos is to be at your own risk.

Haseeb:

This statement is so vivid. A ridiculous Meme can trigger such a big chain reaction, even causing the entire country to be affected. The impact of this scandal has also affected the entire crypto industry. It was later discovered that the team behind Kelsier Ventures was not only responsible for Libra tokens, but also Melania. They also did sniping when Melania was launched, which is actually a routine they used repeatedly.

Latest updates on 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 attracted attention due to some investigations and it seems that some people related to the platform are controversial.

I need to explain that Meteora is a competitive product from Jupiter. Jupiter is Solana's large DeFi aggregator, while Meteora focuses on launching new tokens. Meteora's lead developer Ben was investigated for being accused of having been involved in certain violations, such as insider trading, and then resigned. However, I'm not sure if the allegations 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 and said he had violated securities laws several times in the past. Is this true?

Tarun:

I'm not sure if the allegations are true. Ben is one of the co-founders of Meteora, the project originally belonged to Jupiter. I actually knew Ben before the crypto industry was on the rise, when he was running a startup in the insurance sector. I also interviewed him in 2012. He has not been involved in the crypto space until 2021. Meteora has been around for a while, but has not found a suitable market positioning. Later, with FTX crashing, Jupiter began to rise rapidly as it became the main platform for trading Solana tokens. At that time, except for FTX, most other exchanges did not support the transaction of SPL tokens. Meteora, on the other hand, gradually developed into a platform focused on early project launches.

Unlike Pump.Fun, the Meteora platform allows project issuers to manage and control fund pools and liquidity. This design does make sniping easier to some extent. However, I think the situation for Ben is more like the founder being kicked out of the board than the average developer being fired. If you see this as a case of corporate governance, the founder being kicked out often involves a more complex power struggle.

Meme's recession trend

Haseeb:

I think this story has brought a shadow to the entire Meme. After the Libra incident, the launch of TRUMP and Melania has given people a bad impression of Meme coins. After these events, people seem to realize the nature of Meme promoters revealed by Hayden in the interview and how these large-scale Meme coins issued games are unfavorable to retail investors. This change has changed the atmosphere in the crypto field and has made people doubt the way Meme coins work, and it has become less certain whether retail investors can continue to participate in this so-called "casino".

Robert: Everyone once thought that Meme games could be won, but now that the truth is revealed, everyone saw the ugly truth behind them and realized that this was a completely manipulated game. They were the victims and could not win at all.

Haseeb: From the absolute figures, Pump.Fun's trading volume is still very strong, but overall, the market volatility is declining. Now the mood has completely turned to the disgust of Meme. People used to say that tech coins and venture capital coins are actually Memes. Now this view seems to have lost its effectiveness and everyone is beginning to realize the need to rebuild the real project.

Tarun:

I think this shows that Memes with less control seem 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, Meme coins attract a lot of money, and now Meme coins are declining, and these funds will flow to other verticals in the crypto space.

Tom:

I agree with Tarun. People love fair and transparent games, and when they feel they can no longer make money from it, the market will naturally collapse. Just like the previous ICO and NFT boom, if people are no longer excited and think there is no chance, the entire market will be affected.

Haseeb:

Indeed, the difference between Pump.Fun and some managed distributions is interesting. Libra is a celebrity coin, and although not in form, its relationship with Milei actually makes it a celebrity coin.

Controversy and hypocrisy of celebrity token projects

Haseeb:

I think it 's certain that this craze for celebrity tokens has passed, or has cooled down rapidly. Recently I heard that Kanye West also seems to have planned to launch a Meme , aka Celebrity Token, but he seems to realize that now is not a good time to launch it.

I heard that he had originally planned to launch on Monday, but it was postponed to Friday. The team is said to be discussing whether it is too close to the time point of the Milei incident, and apparently they are adjusting to the news cycle to some extent. What makes me funny is that this new token is called YZY Token.

What's even more outrageous is that Yeezy's CFO accidentally leaked this plan to CoinDesk. He sent an email using Yeezy's official email address, describing the token's plan in detail and requesting CoinDesk to keep it confidential, but CoinDesk rejected the request and posted the report directly.

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

Robert:

Just a few days ago, he tweeted that celebrity coins were exploiting the community and were worthless. As a result, a few days later, it was reported that he was going to issue his tokens. This behavior was extremely hypocritical.

Haseeb:

As an industry, we must unite and not support this token. As long as everyone doesn’t buy it, we can completely end this phenomenon.

Robert:

The problem is that once the token is released, it will be snapped up, and then someone will sell it, and in the end only a few people will make 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 all of them all at once, causing the price to plummet.

He then launched Greed 2. After Greed's collapse, the new token's market value once reached $20 million, but soon collapsed again. He sold it again and said on Twitter Spaces that the process was a lesson for followers, and Meme was just a simple exploitation. They also criticize those who trade for being lazy and want to make quick money and are unwilling to find real jobs.

Tarun: This is actually financial domination, which is more obvious than what we discussed before.

Haseeb:

I've posted similar views on Twitter recently, I think **** The Meme cycle has ended . I mentioned on the show that it's like a casino where every slot machine is owned by a different person, and this model is simply not sustainable, and every slot machine owner will do everything possible to squeeze profits from the player.

Regulatory dynamics and the future of the cryptocurrency industry

Haseeb:

The recent negative news has made me feel very tired, people are tired of Memes with no real value and are starting to look at projects with more potential, which may be one of the reasons for the cryptocurrency market rebound last week. However, the decline in the market today has also had a certain impact on cryptocurrencies. Despite this, good news came from regulatory issues .

We have been saying this year could be a year for the reversal of the cryptocurrency regulatory environment, and now there is finally substantial progress. The biggest news this morning is that the Securities and Exchange Commission (SEC) is revoking the lawsuit against Coinbase. This is undoubtedly a major benefit to the entire industry and shows that the changes we are looking forward to are happening.

The SEC's previous lawsuit against Coinbase was accused of alleging that it was an unregistered securities broker and exchange for allegedly promoting the transaction of unregistered securities. However, now that these allegations are being dropped, we may also see other similar cases filed by the SEC being dropped one after another. Previously speculated that cases might be resolved by narrowing the scope or reaching a settlement, but the complete revocation 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.

Additionally, we see Brian Quintenz being nominated as the new head of the Commodity Futures Trading Commission (CFTC). The CFTC may become the main regulator of cryptocurrencies in the future. Quintenz, former head of crypto policy at A16Z Crypto, has been committed to opposing excessive administrative regulation for the past four years, which is undoubtedly an exciting day and also heralds more positive in the crypto industry in the future. change.

Robert:

First, the SEC reorganized the crypto division that was originally targeted at benign participants and transformed it into a team focused on combating digital fraud. This means that the SEC will focus more on combating real wrongdoing rather than continuing to pursue businesses that follow the rules. This is the change that the industry has been looking forward to over the past four years.

Second, SEC Commissioner Hester Peirce issued a statement detailing the changes they hope to drive. We 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 formulate effective policies. This constructive attitude contrasts sharply with the rigid stance a few weeks ago.

Haseeb:

Hopefully, in this context, we can see more favorable policies that will prevent benign participants like Coinbase from being subject to unnecessary attacks. At the same time, regulators can also use more resources to combat real wrongdoing. We were trapped in Meme in the past, in large part because under Gary Gensler, regulators spent all their time and resources on the fight against the biggest market participants through case law, ignoring public wrongdoing supervision.

Tarun:

I attended a Solana Developer Conference this week and the participants had little talk about Meme . This shows that there are still some people in the ecosystem who focus on infrastructure and application development, and they do not care much about short-term market fluctuations. I think any successful ecosystem needs such a builder to exist.

Haseeb:

At present, sentiment in the infrastructure field is still relatively stable. We have not seen a large-scale capital outflow in Solana, nor have we found that there is a significant difference in transaction volume on DEX between Ethereum and Solana. The volatility performance of the two is relatively consistent. .

Tom:

I think this situation may be like when the last Meme was launched, and no one wants to pay. This downturn in market sentiment may discourage others. But if Yeezy is really the last celebrity coin, I can accept it.