Centralization Strikes Again - June 2022 Edition
“That’s the promise of regenerative cryptoeconomics. Like renewable energy of the nuclear variety, it helps make crypto sustainable. It’s not zero-sum gambling, or negative-sum hacking. It’s positive-sum wealth creation. And it’s the win and help win of web3.” — Balaji Srinivasan
Timeline
Jun 2 - Chipotle announces acceptance of crypto payments through centralized custodial platform Flexa Spedn, which prevents users from withdrawing once deposited. Source Source 2
Jun 2 - Centralized Exchange (CEX) Binance delays crediting Optimism token deposits, citing failure to capture unique event log records. Source
Jun 4 - The Discord servers for NFT collections ‘Bored Ape Yacht Club’ and ‘Otherside Metaverse’ is compromised by phishing links. Source
Jun 4 - Attackers gain control of an Optimism (L2 rollup) wallet address corresponding to various Gnosis Safe multisigs on Ethereum. Source
Jun 6 - WSJ reports that SEC is considering changing market structure to prevent companies from frontrunning retail orders. Source Source 2
Jun 7 - US bi-partisan legislation is introduced to create a regulatory framework for crypto that will see digital assets treated as commodities Source
Jun 7 - Conservative columnist Phil Kerpen’s access to a Google Sheet on “Nursing Home COVID Deaths by State” is restricted by Google for violating “Malware and Similar Malicious Content” policy. Source
Jun 10 - Former Twitter CEO Jack Dorsey introduces “Web5”, to be built on the Bitcoin network, using a set of Google Slides. Source
June 8 - Cloud-based software company SalesForce launches a pilot program called ‘NFT Cloud’ for its corporate clients to create and trade NFTs. Source
Jun 13 - Centralized crypto-lending platform Celsius pauses all withdrawals, swaps, and transfers amidst “extreme” market conditions, leaving 1.7m users unable to access their assets. Not your keys, not your crypto. Source
Jun 14 - A protest planned by bank depositors unable to withdraw their funds in central China is thwarted by city authorities by using red codes from mobile COVID health tracking apps. It is reported codes were green when protestors left but turned red as they entered the main city. Source
Jun 14 - Federal Aviation Administration declares that SpaceX must adopt an ocelot, amongst other strange requirements, before given approval to launch Starship. Source
Jun 14 - Merit Circle DAO votes to “refund” an investor that is owed a 30x return on a simple agreement for future tokens (SAFT) in a unique case study for decentralized governance. Source
Jun 16 - Centralized crypto staking and yield generation platform Finblox imposes $1.5k monthly withdrawal limit amidst Three Arrow Capital (3AC) and Celsius liquidity crisis. Source
Jun 18 - SEC subpoenas Rari Capital over possible past exploits of 2600 ETH and 100 ETH. Forces CryptoTwitter personality @Tetranode to disable account. Source
Jun 19 - Centralized crypto lending platform BlockFi, previously valued at $1.2b, faces insolvency issues amidst market conditions and 3AC and Celsius liquidity crisis. Source
Jun 19 - Users of Solana DeFi lending platform Solend votes (via decentralized governance) to take control over an account with a large margin position to prevent cascading liquidations. Action faces condemnation from DeFi community and a new vote overrules the earlier one. Source
Jun 20 - DeFi trading and staking protocol Bancor halts Impermanent Loss Protection amidst 3AC and Celsius liquidity crisis. Source
Jun 20 - Leaked audio reveals popular social media platform TikTok and parent company ByteDance has been sharing US user data with China. Source
Jun 21 - An issue with Cloudflare takes down a large chunk of the internet, including Discord, Substack, AWS, Google, Zoom, etc. Source
Jun 23 - Reports surface that developer platform GitHub scrapes open source code for the paid GitHub Copilot AI pair programming service. Source
Jun 24 - Harmony blockchain’s Horizon Bridge is hacked for $100m in a multisig compromise. Source
Jun 24 - Man from Amagasaki, Japan loses USB stick with entire city's sensitive personal details after a night of drinking. Source
Jun 24 - Multiple Ethereum DeFi projects experience DNS hijack attacks related to Namecheap. Source
Jun 24 - Canadian COVID tracking app ArriveCAN releases statement on improving its service. Internet sleuths reveal in fine prints ability for ArriveCAN to monitor, access, and share your data liberally. Source
ArriveCAN monitors your movements at all times and takes all the data off your phone, giving it to the UN. They admit it. They also admit they don’t need your consent to steal all your info. Not only that, they can just isolate you if you don’t behave. These people are fucked https://t.co/kjG8FeTQbAWe are making improvements to ArriveCAN, in order to make it faster and easier for travellers to submit their customs and immigration declaration in advance of arrival. Details👇 https://t.co/4OmBoCKOzbOmar Alghabra @OmarAlghabraJun 29 - Reports surface that centralized exchange Coinbase is selling geo tracking data to Immigrations and Customs Enforcement (ICE). Source
Op-Ed
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The views expressed are those of the author’s and do not reflect those of ChainSafe’s.
This Is Not the Future I Am Fighting For
If you’ve read through every news bulletin from this month’s Timeline section above, you will have undoubtedly seen a nefarious, recurring pattern. It honestly felt like every two to three news items, I was reporting on something to do with the collective meltdown of the crypto markets. This is due in no small part thanks to ponzinomic games, decentralization theatre, and CeDeFi. I enjoyed putting together this newsletter a lot more when the culprits for centralization were big [brother] tech companies like FAANG. Thanks to our friends in pretend-DeFi, this month became a slog to report on. This is everything I had hoped web3 would not fall prey to.
Obviously, a lot of the current issues we are seeing in the crypto markets can be attributed beginning with last month’s UST/Luna crash, which itself is deeply intertwined with the meltdowns from Three Arrows Capital (3AC), Celsius, BlockFi, Bancor, plus many more. Some were lucky to have escaped relatively unscathed (with exception to massive draw downs to their networth) — but many more weren’t so lucky. There were innumerous reports of users either finding their access to funds throttled by centralized decision makers, or completely left unable to access their savings. The damage from the fallout is still to be finalized in a calculation. It is sure to be immeasurable in many ways.
Teams that promised a "DeFi” product returned its users something far worse than what you would ever find in TradFi. Namely because here, not only were investors exposed to the outsized risk and greed of myopic protocol founders and megalomaniac margin traders, they were also left unprotected by regulation. This is the wild, wild west of crypto after all. Now think about what just happened there. Here I am, offering a case for regulation — as an absolute web3/crypto/self-regulation maxi.
This is not the future I am fighting for.
Rather than strive for the idealisms of financial self-sovereignty, a large part of the community succumbed to the pitfalls of forgoing self-custody. Instead, we fell in punch-drunk love with unsustainable yield via centralized lending platforms. Guess what they did with our funds? Use it like fractional reserves to play the same behind-closed-door games they play in TradFi — “You are not privy to that. You are not accredited enough to understand.” Rather than strive for openness and transparency, we looked on, asleep at the wheel, as OTC deals happened between large firms to serve more liquidity to “make it back in one trade”. Rather than uphold the values of immutability to some degree, any degree, we chose to sacrifice protocol so we can save our asses from liquidation.
Congratulations. We literally replicated TradFi. As ChainlinkGod said earlier this month, “Fate loves irony.”
So where do we go from here? How do we begin the process of healing? I don’t have great answers to that. For one, it seems to me that the masses must *necessarily* become educated on self-custody of their digital assets. If something sounds too good to be true, it probably is. Failing to understand this principle means we get back on the same merry-go-fuck-round the next time. Same product, different package.
Second, is perhaps we must teach the masses to see web3 technologies beyond the casino they perceive it to be. I subscribe to the idealisms of regenerative cryptoeconomics — the possibility for win-win-win options to exist. For this to happen, a very fundamental cultural shift in attitude and perception towards public goods must take place. But many are working towards this goal. The memes are only now starting to take root.
I still believe in web3. It will take some time for nature to heal, for sure. But we have the tools in place to launch human coordination into the stratosphere in the coming century. We just need to educate the masses, and perhaps help a few egomaniacs see themselves for what they really are.
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