Highly regrettable trading strategy

Code is not law.

Avraham Eisenberg, the market manipulator behind the $115M Mango Markets case, has been arrested in Puerto Rico.

In October, Eisenberg manipulated the price of Mango’s governance token, MNGO, before using the unrealised profit to drain the protocol’s lending pools.

After he was exposed, Eisenberg bragged about his “highly profitable trading strategy”, apparently believing that “all of our actions were legal open market actions, using the protocol as designed”.

However, the day after his “strategy” was carried out, Eisenberg flew from the United States to Israel.

As written in the complaint:

“Based on the timing of the flight, the travel appears to have been an effort to avoid apprehension by law enforcement in the immediate aftermath of the Market Manipulation Scheme.”

So even Avi didn’t believe his own bullshit.

Looks like governance proposals don’t carry much weight with the FBI.

We wrote in October:

Despite the satisfaction of seeing this arrogant aggressor finally arrested, the consequences of his case do not look good for DeFi.

Eisenberg faces charges for Commodities Fraud and Commodities Manipulation.

The complaint describes the exploit of Mango Markets in detail. Funds were traced from Avi’s doxxed Circle account through linked exchange accounts and on-chain addresses.

His half-hearted approach to OPSEC, combined with his attention-seeking admittance to all his crimes, has made it easy for authorities to mount a case against him.

However, this presumably open-and-shut case may be the chance they need to strike at the wider DeFi ecosystem.

While the DoJ’s implicit definition of a DeFi governance token as a commodity rather than a security may come as a relief to some, this could be a sign that US regulators are being intentionally vague, and retrofitting definitions on a case by case basis, depending on which suits the prosecution.

Additionally, US authorities going after price manipulation in DeFi could have consequences for many other elements of our industry’s infrastructure. As Gabriel Shapiro points out:

”algo stables, synths, MEV, white hat hacking, even custodial stable pegs involve "manipulation" and other market conduct no-nos....

there's a lot of nuance here and ultimately we need to expand the frontiers of consent to risk…”

Many may feel unequivocally that parasitic actors such as Avi should face consequences for their actions.

But perhaps he, and others like him, are a necessary evil, crucial to building a truly robust alternative financial system.

For now, though, this case will likely be an important chapter in DeFi history.

Forcing decisions on nuanced threshold issues could be very bad for the future of our industry, especially in the context of a nine figure exploit.

Any hasty legal precedents set by this dramatic case would be trivially easy to prosecute given the open ledger on which our industry is built.

Applying existing law to smart contract code in an unregulated and experimental sector may suddenly open up many individuals and organisations to legal risks as a result.

And now there’s nowhere to hide.

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