Ethereum Ponzi Scheme Was Drained, EOS Maker to Pay Just $24m for $4b Sale

Hello defiers! here’s what’s going on in decentralized finance:

• FairWin Ponzi-scheme gas guzzler is gone
• Block.one’s paltry $25 million settlement with the SEC

Ethereum Ponzi Scheme Was Emptied

FairWin was an actual Ponzi scheme running on Ethereum, which accounted for one third of total transactions and was driving up gas prices. Unsurprisingly (as at least two people loudly warned that investors’ money was at risk), the smart contract wallet was emptied.

Like in any classic Ponzi scheme, the system depended on an endless stream of “investors” to pay for returns of previous participants. Rather than money being stolen by FairWin, it appears the contract was emptied when users making withdrawals overtook those making deposits.

Image source: Etherscan

Bad news:

Smart contract wallet drained to $0 yesterday from $3.3 million Sunday. Wallet held as much as $10.6 million but funds started to decline when developers pointed to vulnerabilities. Not all users were able to retrieve their funds.

Silver Lining 1:

Ethereum average gas prices are declining from the highest since March, according to CoinMetrics, which means interacting with the network is cheaper.

Silver Lining 2:

It sucks that scammers continue to use cryptocurrencies for their scheme, but at least researchers like Philippe Castonguay and Clément Lesaege were able to warn users because FairWin’s code was open and free for anyone to see.

SEC Settles With Architects of Biggest ICO Ever

There’s a big sigh of relief reverberating through ICO Land as one of the most (in)famous crowdsales in history got away with paying just a tiny fraction of what it raised and no jail time.

The Securities and Exchange Commission settled charges against Block.one of EOS for conducting an unregistered ICO, which raised $4 billion in a year-long sale. The company agreed to pay a $24 million civil penalty and didn’t admit or deny charges.

Take aways:

• The SEC considered the ERC20 tokens sold were securities because a purchaser would have the reasonable expectation of profit from the efforts of Block.one
• “Geoblocking” U.S investors isn’t enough to ease SEC’s concerns as they didn’t do KYC and promoted the ICO everywhere.
• The SEC doesn’t say whether the EOS token is a security.
• This settlement shows it really pays $$$ to cooperate with the SEC.
• Will this spur a new ICO bonanza? Probably not.

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About the author: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.