Speaker 1: This is Bloomberg Crypto, a daily Bloomberg I Heart podcast,
Speaker 1: and I'm Stacy Marie Ishmael, Managing editor of Crypto for
Speaker 1: Bloomberg News. It's Monday, November. Well, now, there's been a
Speaker 1: lot going on in crypto in just the last few days.
Speaker 1: Sam bank Win Freed's global empire has come crumbling down
Speaker 1: around him. Multiple of his companies have filed for bankruptcy protection.
Speaker 1: Various wallets associated with his exchanges were drained of their funds.
Speaker 1: Sam himself was questioned by police and regulators in the Bahamas,
Speaker 1: where FTX was based. How did it all come to this?
Speaker 1: You'll hear more about what's going on and how we
Speaker 1: got here on some special episodes of the Bloomberg Crypto
Speaker 1: podcast this week. On Tuesday, my colleagues Vildanna Harrick and
Speaker 1: Katie Greifeld will discuss the very latest developments in the
Speaker 1: SPF FTX Ala Mina universe. But for today's episode, which
Speaker 1: we recorded before the shenanigans of the last several days,
Speaker 1: we're going to talk about Mango. No, not the fruit,
Speaker 1: the de Fi protocol one that was hit by a
Speaker 1: one hundred million dollar exploit recently. Mango experienced a type
Speaker 1: of exploits that's really raising eyebrows and crypto these days.
Speaker 1: It's called a price manipulation attack, and it involves taking
Speaker 1: advantage of how de fi platforms are supposed to work.
Speaker 1: In this episode, I'll be joined by Bloomberg report to
Speaker 1: Muchen you Never Sleep, and by Evgeny gave a NASA
Speaker 1: experience was a hack back and back in the summer
Speaker 1: is Optimism, the CEO and founder of winter Mute, a
Speaker 1: trading platform that was itself hacked for a hundred and
Speaker 1: sixty million dollars back in September. We are what's been
Speaker 1: going on with DeFi and specifically with Mango that has
Speaker 1: folks a bit stressed right now. I think it's really
Speaker 1: all started of this us being at this stage of
Speaker 1: the market, a lot of tokens are not as liquid
Speaker 1: as used to be, as there's a less retail interest
Speaker 1: in the space and there's also less assuming institutional interests
Speaker 1: in the space. So as a result, a lot of tokens,
Speaker 1: as we know in the past, especially in the bull market,
Speaker 1: there's a hundreds of tokens that's been created now because
Speaker 1: there's less interests, there's less money in the space a
Speaker 1: lot of tokens. They are not as liquid as used
Speaker 1: to be. Therefore, it's easier for people to sort of
Speaker 1: manipulate the prices of these tokens by singlely just like
Speaker 1: a one trade or a few trades, so they can
Speaker 1: move the price either up dramatically or down dramatically easily.
Speaker 1: This doesn't seem to be technically or practically illegal as
Speaker 1: far as any of the various lawyers that we've spoken to,
Speaker 1: just kind of in principle, it's very obsetting, right, you
Speaker 1: are the owner of a platform, or you are people
Speaker 1: who are affected by this thing, and someone comes in
Speaker 1: and is able to take advantage of price movements that
Speaker 1: they may themselves be triggering to you know, buy or sell,
Speaker 1: or both buy and sell in a way that allows
Speaker 1: them to walk away with a significant amount of money.
Speaker 1: But again, as somebody who has been sort of on
Speaker 1: the other side of these kinds of exploits that exist
Speaker 1: in the legal gray area, what is it like to
Speaker 1: go through it? Basically, I was I'm encryptophor over five
Speaker 1: years now, but before that I was in normal traditional finance,
Speaker 1: and I would say those kind of tradings allages, quote unquote,
Speaker 1: it would be very much illegal and traditional markets, like
Speaker 1: if somebody would keeps up like this on I know,
Speaker 1: see me and nicely for examples, they would get into
Speaker 1: a lot of trouble. So to me, it's a very
Speaker 1: very much illegal what happened to be honest people who
Speaker 1: are engaging in these kinds of exploits. And there is
Speaker 1: one in particular as it relates to Mango, who has
Speaker 1: sort of publicly been talking on Twitter on discord saying well,
Speaker 1: you know this isn't illegal. Your contracts allow me to
Speaker 1: do this kind of stuff. I'm going to do this
Speaker 1: kind of stuff. And to our knowledge, he has not
Speaker 1: been charged with any crimes. He's definitely not been arrested.
Speaker 1: But what has been happening is a sort of how
Speaker 1: shall I say, rage from from folks in the defied
Speaker 1: community that he does have this degree of impunity to
Speaker 1: sort of say well, yeah, I'm going to do this
Speaker 1: thing and you can't do anything about it. And specifically
Speaker 1: when he was first able to do this exploit with Mango,
Speaker 1: and the initial amounts that he was able to, you know,
Speaker 1: manipulate in his favor was a hundred million. Eventually it
Speaker 1: was cut to about half. We are what happened between
Speaker 1: that hundred million and that fifty million, Like, what were
Speaker 1: the conversations between Mango and this person that reduced the
Speaker 1: amounts that was lost? I mean, correct me if I
Speaker 1: were on what I was hurt? Is that what happens
Speaker 1: they he posed a statement about what happened, and again
Speaker 1: he says everything he did was totally illegal, But he
Speaker 1: had a conversation with the Mango team. Eventually they made
Speaker 1: a deal that he would have returned part of the
Speaker 1: money back to the Mango Markets team just because what
Speaker 1: happens Mango as a result is that the whole project
Speaker 1: we can't sort of insolvent and they had no money,
Speaker 1: low liquidity, and a lot of users are trapped with
Speaker 1: the fact that there's no money left there now. If Geinny,
Speaker 1: I've got to ask you this question, right like winter,
Speaker 1: you was affected by an exploit in September to the
Speaker 1: tune of sixty million dollars. What did you learn going
Speaker 1: through that and what are you doing? How are you
Speaker 1: thinking about the space differently as a result. Honestly, not
Speaker 1: much changed, I guess in my in my thinking like
Speaker 1: it's I see those hacks exploits as basical cost of
Speaker 1: doing business in a way. But it's I wouldn't say
Speaker 1: it's inevitable, but it's something well. As an operator in
Speaker 1: the space, you basically have to accept that's that's a
Speaker 1: possibility for in the training strategies you do that as
Speaker 1: there is a possibility of a hack of exploit, of
Speaker 1: something going wrong with the protocol, you own no productol
Speaker 1: your trade off. So for us as a firm, nothing
Speaker 1: changed in terms of a strategy. Like we obviously learned
Speaker 1: quite a bit on this event, we will we will
Speaker 1: approach trading going forward in a much safer way, But
Speaker 1: nothing changed in terms of our well, in terms of
Speaker 1: us being really interested in the space, in terms so
Speaker 1: far as being really invested in the space and basically
Speaker 1: asked continuously working too, Yeah, continue trading, continue moving the
Speaker 1: space forward. Is there actually a way to design a seatbelt?
Speaker 1: Is there a way to get this be from a
Speaker 1: cost of doing business to something that is unattractive to
Speaker 1: potential exploits. Look, it's it's always possible to make it
Speaker 1: super safe, and I guess that's that's what the whole
Speaker 1: ecosystem defied community is working towards and ultimately as they
Speaker 1: will arrive, like if you look at battle tested protocols
Speaker 1: like Halba for example, it looks like it's it's pretty
Speaker 1: safe to use and there are like billions of assets
Speaker 1: and in protocols like this, but it does take time
Speaker 1: to arrive to the stage where like protocols like Holbor
Speaker 1: like unit small for example, are pattal tested and it's
Speaker 1: basically as a run or exploits possible like for those
Speaker 1: particular protocols, but the main challenge always arises when there
Speaker 1: is an interception between different protocols, which is the coolest
Speaker 1: thing about defining general when when the protocols can coexist
Speaker 1: with each other and like built on top of each other,
Speaker 1: and like in case of Manga specifically as the oracles,
Speaker 1: and from what we saw from a lot of exploits
Speaker 1: in the space, and not not just Maga but but
Speaker 1: other ones, oracles are typically is the most vulnerable vulnerable
Speaker 1: point because like that's that's where the manipulation can potentially happen.
Speaker 1: And if you design your protocol as something that has
Speaker 1: to rely on oracle, yes, that's that's that's ultimately can
Speaker 1: be a point of failure. Now, when we talk about
Speaker 1: oracles and defy, we don't just mean some like all
Speaker 1: seeing entity. We what we're describing are the pricing systems
Speaker 1: that folks use to say, oh, yes, this token is
Speaker 1: actually treading at x y z price. And it sounds
Speaker 1: like what you're describing is the fact that these automated
Speaker 1: systems that assume a price that exists is valid is
Speaker 1: point of vulnerability because that price might have been manipulated
Speaker 1: five seconds before exactly and basically, in traditional finance as
Speaker 1: price manipulation would be illegal, while encrypto at the moment,
Speaker 1: it's not. Well, you started by saying, you know, one
Speaker 1: of the reasons this type of exploit has been possible
Speaker 1: is because of the relative lack of liquidity. In an
Speaker 1: environment with less liquidity, it's a lot easier to make
Speaker 1: these sorts of dramatic price moves that allow the sorts
Speaker 1: of trading strategies that folks are using to make these
Speaker 1: kinds of profits. There have been a couple of platforms
Speaker 1: and thinking and protocols I'm thinking about, like Compound and
Speaker 1: a couple of others that said, okay, for like less
Speaker 1: liquid tokens, we're going to take certain types of steps
Speaker 1: to make them less prone to this kind of manipulation.
Speaker 1: What other things have you seen or are you talking
Speaker 1: to people about that they're also considering as a way
Speaker 1: to mitigate the risks here. A big part of of
Speaker 1: what happened with the Mango markets and the similar attacks
Speaker 1: was what kind of collaterals you can use to borrow
Speaker 1: money in the space. I think when projects in general
Speaker 1: consider what are the tokens that we except as collateral
Speaker 1: is very important. I think sort of due diligence around
Speaker 1: each token and about technical details and and everything else
Speaker 1: around the token and the project is very important, you know,
Speaker 1: like as Crypto seven it never sleeps. It's also very
Speaker 1: important to having established or integrate sort of own chair
Speaker 1: analysis and monitor around your project, just to make sure
Speaker 1: that you know, if something bad happens, you can detect
Speaker 1: it early on and being able at least having time
Speaker 1: to fix it or or to save it. Afghani as
Speaker 1: somebody who is in the position of having to convince
Speaker 1: borrowers lenders that they should continue to be using you know,
Speaker 1: not just like your protocol, your platform, but like defy
Speaker 1: in general. What are you saying to folks out there
Speaker 1: who are looking at this under the like is my
Speaker 1: money at risk? If I am you know investing or
Speaker 1: in any way involved in defy. Right now, I think
Speaker 1: one once something to considers just hot transparent it is.
Speaker 1: And I think, like I'm coming from, like very basic
Speaker 1: example is lending protocols. We've seen this here is that
Speaker 1: well Salsus collapsed companies like Block Fine, Voyager or head Issues,
Speaker 1: and like one unified seam around all of those is
Speaker 1: like you could put your money in Celsius, but you
Speaker 1: would have no idea where as a where as a
Speaker 1: yield that's coming from defied, it's very much transparent to
Speaker 1: clear whereas the yield is coming from, like whether you
Speaker 1: put it on another or you put it on on
Speaker 1: Maple for example, you know exactly where as the yield
Speaker 1: is coun from. And that's that's a very big shift
Speaker 1: from very intransparent like traditional centralized player. That's a centralized
Speaker 1: kind of place. Coming up more from Bloomberg report of
Speaker 1: Muyashen and from Winter Mute CEO of Guinea, Guy Avoid
Speaker 1: on how the recent attack on Mango is shaking up
Speaker 1: the crypto industry. Now, in the immediate aftermath of the
Speaker 1: hack that affected Winter Mute, you know, you tweeted that
Speaker 1: you were willing to offer a ten percent bounty to
Speaker 1: the hacker if they returned the funds. How have your
Speaker 1: feelings on bounties evolved over time? Do you think that
Speaker 1: these are effective? Do you think that something like a
Speaker 1: cap makes sense? I think it's ultimately up to every
Speaker 1: protocol what to do with it or every company what
Speaker 1: to do with it. To me, something between like five
Speaker 1: to generally makes sense. Put in a cap one might
Speaker 1: make sense as well, like we had. Another another experience
Speaker 1: was a hack back back in the summer with with Optimism,
Speaker 1: where it ended up successfully where hacker did accept and bounty.
Speaker 1: I personally think tund sounds fine. Limited to five million
Speaker 1: dollars can also work, I guess yes, but in general
Speaker 1: like it. I think it's it's a great saying if
Speaker 1: we have some kind of standard sets in place so that,
Speaker 1: like every protocol or every company doesn't have to keep
Speaker 1: reinventing it every time something like this happens. The thing
Speaker 1: is that every time you like, at least what I
Speaker 1: talked to somebody in defy and I start saying where
Speaker 1: it's like agreed standards, They're like, no, that is the
Speaker 1: opposite of decentralization. You know this, How how do you
Speaker 1: square those things. Yes, I think that there was actually
Speaker 1: a recently debate between SBF and Erica or HISS and
Speaker 1: Eric and his post. He basically like there is a
Speaker 1: difference between regulation and standards, and regulation is like close
Speaker 1: and post on you and standards the sumpthing, Well, you
Speaker 1: can agree to follow basically, and you follow the standards,
Speaker 1: people will television more likely, but you don't have to,
Speaker 1: Like you can say, yeah, I'm not gonna divide by
Speaker 1: the standards. I'm gonna do my own saying. And that's fine.
Speaker 1: We all you talked to a lot of folks and
Speaker 1: defy kind of all day long. We've said on this
Speaker 1: podcast over and over that one of the it's almost
Speaker 1: like a meme at this point. If you are the
Speaker 1: CEO of a big crypto exchange, you're like, we just
Speaker 1: want regulatory clarity, like like we just want to know
Speaker 1: what's going to happen. What is the vibe among the
Speaker 1: other DeFi executives that you that you speak to as
Speaker 1: it relates to this regulation and enforcement piece. I think
Speaker 1: it's funny. I think when I first started covering crypt
Speaker 1: or way back then, I mean saying way back then,
Speaker 1: it's a little bit a little bit exaggerated because just
Speaker 1: deify as being existing only for this this few years
Speaker 1: in the past. You know, in the beginning when we
Speaker 1: talked to Defy folks, and it's usually just those DJs,
Speaker 1: you know, anymalous people on discord and trying to find
Speaker 1: the alpha. Like now, like I think people are becoming
Speaker 1: more realistic. Like a lot of folks when I talk
Speaker 1: to them, they understand, you know, like for Defied two
Speaker 1: really to grow, to really go bigger, you need bigger
Speaker 1: money coming into the space. You need people to use
Speaker 1: it for real life application, and you know, people can
Speaker 1: borrow and landing like even real world assets in the space,
Speaker 1: and you have to have regulations on that. I think
Speaker 1: that's the sort of a general consensus as as I'm
Speaker 1: getting from from people these days. But I think as
Speaker 1: we just discussed it, it's really hard to tell how
Speaker 1: we can get everyone together to have some sort of
Speaker 1: agreement on how to regulate it and how can sort
Speaker 1: of enforce people to follow the rules. Again, from your perspective,
Speaker 1: what is kind of your ideal version of something like
Speaker 1: that for Defy, Like if we ever get to this
Speaker 1: sort of scale for Defy where the applications are things
Speaker 1: like you know, widespread availability of mortgages or you know
Speaker 1: what our sorts of consumer finance people might need. What
Speaker 1: does that look like for you? To me, the ideal
Speaker 1: regulation aroundefined and maybe not maybe regulations not even the
Speaker 1: right world worked here, But to me, the ideal would be,
Speaker 1: for example, with SEC not saying the security is not security,
Speaker 1: which they're not even saying to be honest, but it
Speaker 1: would be saying, okay, guys, we looked into a syrium.
Speaker 1: It can be like risky, but it's definitely not a
Speaker 1: scamp something like this. So basically, instead of prosecuting protocols
Speaker 1: for potentially being securities or not, basically making a list
Speaker 1: of safe things to invest it, that to me would
Speaker 1: be ideal because the world where like what especially American
Speaker 1: investors are running into now or ordinary people really is well,
Speaker 1: they cannot legally use a big portion of defied protocols
Speaker 1: like divid X for example, because the ideas just IP
Speaker 1: blocks US people because it doesn't want to deal with
Speaker 1: the FTC or SEC because it doesn't want to break
Speaker 1: the lot, which is very understandable, but it also means
Speaker 1: that basically, big chunk of the market, big big chunk
Speaker 1: of opportunity, which is open for the rest of the world,
Speaker 1: is just really closed for normal retail people in Yes, well,
Speaker 1: a pleasure to have you both on the show. Thank
Speaker 1: you again for taking the time. Thank you, Thank you.
Speaker 1: You can find more of Mooshan's repausing on the Bloomberg terminal,
Speaker 1: on Bloomberg dot com and on Twitter. This is Bloomberg Crypto,
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Speaker 1: I'm Stacy Maria Schmall. We'll be back tomorrow.