A crypto trader named Avraham Eisenberg, currently in prison, will go on trial this week for allegedly changing the landscape of Decentralized Finance (DeFi) by manipulating Mango Markets, a DeFI platform, to obtain $110 million. However, Eisenberg claims his actions were just taking advantage of a coding flaw rather than breaking the law embedded in DeFi’s core principle – “code is law”. In simpler terms, a jailed man, Avraham Eisenberg, goes on trial this week for accusedly manipulating Mango Markets in DeFi to gain $110 million. He defends his actions as exploiting a coding error instead of violating the fundamental rule that “code governs” in DeFi.
Beginning on April 8, 2024, at a federal court in New York, the process of choosing the jurors for this significant trial commences. Notably, this particular court has previously dealt with notable cryptocurrency cases. For instance, the sentencing of Sam Bankman-Fried from FTX to a quarter-century imprisonment recently took place here. Moreover, there’s an ongoing case against Terraform Labs and its founder Do Kwon, regarding the 2022 collapse of TerraUSD which resulted in approximately $40 billion worth of investor funds being erased.
Alleged Crypto Trader Inflates Contract by 1,300%
Prosecutors revealed the manipulation tactics of the crypto trader. They assert Eisenberg used two anonymous accounts to drastically inflate Mango Markets’ futures contracts value by 1,300% within a brief 20-minute span. This allowed him to acquire an immense $110 million in cryptocurrencies through “borrowing”, with an alleged lack of intent to repay the sum.
Eiseberg insists on his not-guilty plea, asserting that his actions adhered to the Defi platform’s guidelines. Transactions in Defi primarily function through smart contracts – automated programs detailing the platform’s regulations. Defi proponents argue that this self-governing aspect sets it apart from conventional finance, fostering transparency and trust.
In this situation, an essential concern arises: Is it lawful for an action to go unexplictedly regulated in a Decentralized Finance (DeFi) protocol? Prosecutors argue that existing laws against market manipulation and fraud remain applicable, regardless of the platform’s usage.
Chris Janczewski, TRM Labs’ head of global investigations, expressed his perspective on the ongoing debate in crypto: “The code raises the question of whether it governs the larger dispute in crypto – does code equal law? If a code permits an action, is it legally acceptable? However, governments have taken a stance that code is not law. Even if there’s an opportunity to exploit a loophole, it doesn’t automatically make it legal.”
$67 Million Return Deal
An intriguing development: Eisenberg allegedly tried to resolve the issue with Mango DAO, the organization managing the platform, proposing a deal where he would return $67 million of the funds in exchange for withdrawn lawsuits. However, this proposed settlement is now being disputed by both Mango Labs LLC and regulatory bodies.
An ongoing legal dispute involving Eisenberg extends past the courtroom, with the SEC, CFTC, and Mango Labs LLC filing civil complaints. This adds complexity to the situation, as the outcome will shape DeFi’s future – a financial system that aspires to grow within legal frameworks.
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2024-04-08 17:15