2022 Week 29 — Bisonai Brief

The latest developments in the DeFi space

Hey all 👋

Welcome back to another DeFi Digest update! We have picked out some of the most newsworthy pieces for you. You can find this newsletter on both LinkedIn and our Medium.

Brace yourself for a potentially bumpy week with the US Federal Reserve expected to hike interest rates by 75 basis points, and the release of the Q2 US Gross Domestic Product figures potentially showing a recession (two-quarters of negative growth). Perhaps in expectation of possible bad news, everything has fallen considerably in the last few days. After a record 73 days at Extreme Fear, the Crypto Fear and Greed Index returned to simply Fear this week, and it’s currently at 30 (Fear).

What else has happened this week? The founders of failed hedge fund 3AC travelled to Dubai in order to orderly settle their bankruptcy proceedings. The creators of the mega-popular sandbox-style game, Minecraft, went out and said that NFTs would not be a part of the Minecraft world. This was met with criticism from Animoca Brands co-founder Yat Siu who said that this move is counterproductive and stifles growth.

DeFi hacks have been getting worse and worse, with no clear solutions in sight and remain one of the most troublesome topics in the space. Cognisant that there are and will be many more hacks, we are introducing our ‘Hack of the Week’ section where we detail one of the latest hacks and what we can learn from it. In this week’s spotlight is Audius — a Solana deployed crypto-powered music streaming app that’s giving power back to artists. Hackers got away with over US$6 million worth of their (AUDIO) token.

In the Korea Corner, FTX is in talks to buy the second largest CEX in South Korea: Bithumb. In Terra news, cofounder Daniel Shin’s house was raided by the police, as were the major exchanges. Finally, the South Korean government decided to delay its 20% tax on cryptocurrencies to 2025.

This newsletter is a summary of a number of largely unrelated news pieces from the crypto-verse that might be crypto/DeFi/NFTs/VCs/Macro but touch upon DeFi. It is aimed at people who want to stay abreast of some of the news but are not following along too closely. It is put together by Bisonai — a DeFi company in Seoul that bridges together AI + Blockchain.

If you’d like to get in touch, ping us at business@bisonai.com. ✉️ Previous newsletters can be found here.

[tl;dr]

  • Report: 3AC Co-Founders Are Traveling to Dubai and Want an Orderly
  • NFTs are inclusive and the ban on Minecraft is “hypocritical,” says Yat Siu of Animoca
  • Hack of the Week: “Audits Are Not Bulletproof”: Audius’s $6 million in Ethereum tokens was stolen by hackers

Korea Corner

  • FTX is allegedly in talks to acquire the South Korean exchange Bithumb.
  • Daniel Shin, a co-founder of Terra, has his home raided by South Korean prosecutors: report
  • South Korea pushes back its 20% cryptocurrency tax until 2025.

Report: 3AC Co-Founders Are Traveling to Dubai and Want an Orderly

According to Blockworks, Su Zhu and Kyle Davies have finally spoken out about the failure of their hedge fund Three Arrows Capital (3ac) following accusations from the liquidators that they were unwilling to engage with creditors.

The 35-year-olds, who started the business in 2012 at their kitchen table, spoke extensively with Bloomberg about the fund’s failure to meet margin calls on loans that they later regretted.

Three Arrows Capital logo

Both emphasized their significant losses and refrained from withdrawing funds from the fund before to its collapse. Zhu asserted that shortly before the fund collapsed, he added more funds.

In a filing dated July 8, liquidators acting on behalf of 3AC’s creditors claimed that both co-founders were not meaningfully collaborating and remained silent when questioned during a Zoom call. According to court documents, their lawyers from Solitaire and Advocatus spoke in their place.

Due in part to the collapse of crypto lenders brought on by 3AC’s bankruptcy, other companies, including Voyager and Celsius, had a liquidity crisis. The money of the fund’s numerous counter-parties depended on its capacity to survive.

Following the abrupt collapse of TerraUSD and its sister token LUNA, which destroyed the savings of thousands of investors, 3AC’s problems surfaced. Due to this, the fund, which had around $200 million invested in LUNA, sustained significant losses.

Su Zhu (left) and Kyle Davies (right)

When Do Kwon, the founder of Terra, relocated to Singapore, Zhu told Bloomberg that 3AC may have been too close to him since he thought the initiative would accomplish “extremely huge things.” He called it a “Long Term Capital period” during which 3AC experimented with different kinds of deals.

He claimed that the industry’s lenders as well as the fund’s own errors were caused by overconfidence in the protracted bull market. He continued that the partners of 3AC were well aware of the risks involved and that the company never presented itself as risk-free.

Now that their fund’s assets are now being liquidated, Zhu and Davies both want to retain their privacy.

NFTs are inclusive and the ban on Minecraft is “hypocritical,” says Yat Siu of Animoca

“They did not cite evidence, they didn’t even correctly point out what NFTs are, nor did they talk to NFT Worlds,” noted Animoca Brands co-founder Yat Siu.

Animoca Brands co-founder Yat Siu called the latest Minecraft NFT ban “hypocritical” and underlined that nonfungible tokens (NFT) can be inclusive despite arguments to the contrary. Siu is also the co-founder of the massive crypto/NFT venture fund.

As was previously mentioned, on Wednesday, the makers of the game Minecraft, Mojang Studios, placed a ban on all NFT integrations. The company claimed that NFTs went against its core principles since they encourage price speculation, scarcity, exclusion, and the possibility of rug pulls.

Minecraft

Siu expressed his displeasure with Mojang Studios in an interview with Cointelegraph, given the situation surrounding the integration of NFTs with Minecraft prior to the ban.

Projects like NFT Worlds were using open source Minecraft servers to run a metaverse platform with ecosystems for NFT and cryptocurrency developed around it. Given that it generated more than $80 million in NFT trading volume and claims to have about 100,000 players, the project seems to be rather well-liked.

“The general perspective is that this is hypocritical, NFTs have not hurt anyone at Minecraft, it’s very clearly a minority. This was not a decision of actual evidence of harm, this was a preference decision, purely based on an opinion.” He added, “They did not cite evidence, they didn’t even correctly point out what NFTs are, nor did they talk to NFT Worlds,” he added.

Animoca Brands co-founder Yat Siu

Siu stressed that excluding minority views means “you actually hurt the whole community, and you stifle its growth.”

When it comes to whether NFTs are inclusive, Siu contends that it depends entirely on how the technology is used to create community value rather than whether NFT technology or the digital property itself promotes inclusion or exclusion.

“Property rights and freedoms are intertwined, the next natural evolution is digital property rights to either enhance or actually produce true digital freedom,” he added.

Hack of the Week 🚨 “Audits Are Not Bulletproof”: Audius’s $6 million in Ethereum tokens was stolen by hackers

An attacker took over 18.6 million AUDIO tokens from the Web3 streaming music service using a long-ignored vulnerability, according to Decrypt.

Over the weekend, the governance smart contract of decentralized streaming music service Audius was breached, allowing the attacker to steal AUDIO tokens valued at more than $6 million. The service described the attack and its countermeasures in a postmortem report that was made public late on Sunday. It also revealed that, despite prior security checks, an exploitable issue was used.

Audius

The report claims that the hacker took advantage of a flaw in the initialization code for smart contracts to change the service’s Ethereum-based delegation, staking, and governance contracts. The software that runs Web3’s decentralized applications (dapps), which allow programs, games, and protocols to function without centralized middlemen, is known as a smart contract.

Due to its decentralized structure, Audius uses ERC-20 tokens (AUDIO) based on Ethereum to support community governance. On Saturday, however, this model was ultimately abused. The attacker used the flaw to change the Audius voting system and twice tried to transfer 10 trillion AUDIO tokens to their wallet in an effort to pass governance proposals.

Only the platform’s own token staking system was impacted by these changes; the supply of AUDIO tokens was unaffected. The attacker was nevertheless able to get a governance proposal approved, which transferred almost 18.6 million AUDIO tokens, the entire community token pool, to an external Ethereum wallet. At the time of the crime, the value of the tokens as a whole was close to $6.1 million.

Tweet from Audius

The Audius team was open about any flaws or oversights that might have allowed the heist and/or hampered its response in the postmortem report.

For instance, the team’s Solidity/Ethereum Virtual Machine (EVM) code hadn’t been actively worked on in almost two years. The team noted that it would continue to be “more in-tune with the latest state of the art of dev/debugging tooling” moving ahead, adding that “it took folks time to get back up to speed on all things here.”

The Audius smart contracts, however, had already undergone security group audits: OpenZeppelin in August 2020, followed by Kudelski in October 2021 for additional contract additions. Even so, since the contracts were initially implemented in October 2020, that vulnerability remained accessible to the general public for almost two years.

Korea Corner

Autumn of Seoul. Deoksugung Palace. — Photo by SeongPhil Jang on Unsplash

FTX is allegedly in talks to acquire the South Korean exchange Bithumb.

When is SBF Not in the news? According to Bloomberg, Sam Bankman-FTX Fried’s is looking to acquire South Korean cryptocurrency exchange Bithumb.

According to a source with knowledge of the situation, acquisition conversations have been going on for a while. Regarding Bithumb’s possible valuation, nothing is known.

Companies with greater cash reserves now have the ideal opportunity to buy faltering rivals as a result of the bear market in cryptocurrencies. Recently, FTX agreed to buy struggling lender BlockFi for up to $240 million, and earlier in June, the company also decided to buy Bitvo and Embed Financial.

Along with Upbit, Coinone, and Korbit, Bithumb was established in South Korea in 2014 and has since developed into one of the country’s “big four” cryptocurrency exchanges. Since 2020, there have been rumors that Bithumb is for sale; according to one estimate, the company was worth $1.27 trillion ($969 million) last year.

The FTX founder has his finger in a lot of pies

In July of last year, Lee Jung-hoon, the former chairman of Bithumb, was charged with stealing $100 million from Kim Byung Gun, the chairman of BK Group. Bithumb was one of several South Korean cryptocurrency exchanges that were searched by local law enforcement last week as a result of inquiries into the failure of TerraUSD.

Daniel Shin, a co-founder of Terra, has his home raided by South Korean prosecutors: report

According to a story in the local media, South Korean prosecutors on Wednesday searched the Seoul house of Daniel Shin, the co-founder of Terraform Lab.

The raid was carried out as part of a larger inquiry into claims that fraud contributed to the demise of the algorithmic stablecoin terraUSD (UST), according to the report.

Terraform Labs co-founders Daniel Shin (left) and Do Kwon (right)

Several hedge funds and exchanges experienced overexposure as a result of the industry-wide repercussions brought on by terraUSD’s precipitous detachment from its U.S. dollar peg in May. Investors in the Luna (LUNA) token from South Korea filed a complaint against Terraform Labs and co-founder Do Kwon in the same month, accusing them of fraud and breaking regional securities laws.

The most recent target of a raid by Korean authorities is Shin. Authorities raided a number of significant South Korean cryptocurrency exchanges earlier this week, including Bithumb and Upbit.

South Korean police cars

Prosecutors are also looking into claims that Do Kwon, the founder of Terraform Labs, committed tax evasion. Although it’s unknown whether Shin and Kwon live there permanently, both of them have addresses in Singapore.

South Korea pushes back its 20% cryptocurrency tax until 2025

The 2022 tax reform plan, which was unveiled on Thursday by government officials, postpones the introduction of South Korea’s anticipated taxes on cryptocurrency revenues by an additional two years.

Government Announces Tax Reform Plan for 2022
  • The declaration follows a decision by the nation’s lawmakers in December to postpone the beginning taxation on virtual assets until 2023.
  • The taxation of revenue from virtual assets as well as income from the “transfer or loan of virtual assets” will be postponed until 2025, according to the tax reform plan examined by CoinDesk.
  • The original intention was to impose an additional 20% tax on cryptocurrency gains surpassing KRW 2.5 million ($1,900) in a calendar year.

Well, that wraps it up for another week! If you’d like to get in touch, email us at business@bisonai.com. 📧 Previous newsletters can be found here. Until next time, have a great week ahead!

About Bisonai

Bisonai Technology Group focuses on solving hard technical problems using Blockchain and Artificial Intelligence. We believe in a future of Decentralized Finance (DeFi) and we work on services that bring all benefits of DeFi closer to our lives.

Website | Twitter |LinkedIn | Instagram | GitHub | LinkTree | Discord |

About Kayne

Kayne is DeFi Analyst working for Bisonai, a DeFi Tech company in Seoul, South Korea. He has a prior background in law and education in Australia and Japan before he was lured into the exciting world of crypto. Recognising that South Korea had emerged as an exciting, crypto-friendly base, he relocated to Seoul. He has a passion for investing and technology, loves to dig into the latest Blockchain and DeFi developments and enjoys keeping an eye on the latest trends in the crypto-verse.

LinkedIn | Twitter | Seoul DeFi

Survey regarding attitudes towards cryptocurrency and investing

As a DeFi startup creating better services and products, we’re hoping to learn more about people’s attitudes towards crypto and investing. If you have 1–2 minutes, please feel free to complete it anonymously. It would really help our team to do our best to understand what you think and what you want! https://forms.gle/oXK1wNfTyDGdV6276

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Bisonai

Bisonai Technology Group focuses on solving hard technical problems with the use of Blockchain and Artificial Intelligence. https://bisonai.com/