The industry's attitude towards celebrity tokens is gradually turning negative.

Compiled & Edited by: Deep Tide TechFlow

Hosts:

• Haseeb Qureshi, Managing Partner at Dragonfly

• Robert Leshner, CEO and Co-founder of Superstate

• Tarun Chitra, Managing Partner at Robot Ventures

• Tom Schmidt, General Partner at Dragonfly

Podcast Source: Unchained

Original Title: Crypto Circus Never Ends: Hacks, Grifts, and Kanye’s Coin?

Release Date: February 24, 2025

Key Takeaways

This episode's discussion includes:

1. Bybit Hack Incident:

   1. Bybit experienced the largest cryptocurrency hack in history, losing $1.5 billion, suspected to be carried out by North Korea's Lazarus Group.

   2. The hackers exploited a vulnerability in the multi-signature technology to quickly transfer funds to the Ethereum network.

   3. Bybit's CEO responded swiftly, promising to meet user redemption demands and secured bridge loans from Binance and Bitget.

2. Libra Scandal:

   1. The Libra Meme, supported by Argentine President Javier Milei, plummeted 95% due to insider trading and market manipulation scandals.

   2. Exposed the operational tricks behind the issuance of Meme coins, including KOL private placements and bot sniping.

3. Celebrity Token Controversy:

   1. Kanye West initially planned to launch the YZY token but postponed it due to sensitive timing.

   2. Celebrity tokens have frequently faced scandals, such as Dave Portnoy being accused of running away with funds in the Greed and Greed 2 projects, leading to significant losses for investors.

   3. The industry's attitude towards celebrity tokens is gradually turning negative.

4. Decline of the Meme Market:

   1. Recently, the Meme market sentiment has been low, with retail investors gradually realizing its zero-sum game nature.

   2. Haseeb believes the Meme cycle has ended.

5. Improvement in Regulatory Environment:

   1. The U.S. SEC announced the withdrawal of its lawsuit against Coinbase and restructured its crypto division to focus on combating digital fraud.

   2. Hester Peirce proposed regulatory policies in collaboration with the industry, sending positive signals.

   3. The new CFTC head nominee Brian Quintenz may promote a more crypto-friendly regulatory framework.

6. Infrastructure Development and Ecological Stability

   1. The Solana and Ethereum ecosystems have not been affected by the Meme downturn, with developers focusing on infrastructure and application innovation.

   2. The developer conference on Solana indicates that there are still long-term builders in the market.

The Largest Cryptocurrency Hack in History

Haseeb:

Last week, we just experienced the largest cryptocurrency hack in history, with Bybit's cold wallet being hacked, resulting in a loss of $1.5 billion.

Bybit stated that they were attacked while transferring funds from the cold wallet to the hot wallet. This operation is a routine fund transfer that exchanges perform to meet user withdrawal demands. Although Bybit used multi-signature technology and relied on a multi-signature system provided by Ledger, the transaction content displayed on the front end did not match what the signer's device showed during the signing process.

This attack method is very similar to previous hacks targeting Rexerx and Radiant Capital, leading the industry to suspect that this incident may be related to the Lazarus Group. The Lazarus Group is a hacker organization associated with the North Korean government, which has been involved in several large-scale cryptocurrency thefts, including the hack of Axie Infinity a few years ago.

Bybit's Response and Industry Reaction

Haseeb:

Bybit's CEO Ben officially confirmed the hack on Twitter, stating that the company has a sufficient balance sheet to cover this loss and can fully meet all user redemption demands. He went live about 30 minutes after announcing the hack, which is the fastest public response he has made in such a situation.

In the live stream, he told everyone: “We are completely fine and can still meet all withdrawal requests. Although there is liquidity tightening, we have secured a bridge loan, and on-chain shows that this funding comes from Binance and Bitget.”

About 6 hours after the hack, the outflow had stabilized, and the market seemed relatively reassured about Bybit's situation. Additionally, we saw many people come out in support of Bybit, including CZ and other exchange leaders. Many compared this incident to FTX, but unlike FTX, Bybit was able to meet redemption requests this time.

Involvement of North Korean Hacker Organizations and Aftermath

Haseeb:

This incident can be confirmed to be related to North Korea, which means we cannot foresee what will happen next. North Korea is unlikely to directly transfer assets to centralized exchanges. The stolen assets are currently still stored on the Ethereum network, with no further transfer actions. Clearly, this is because North Korea knows that the world is closely tracking these assets, and the scale of this funding is too large to be effectively laundered through privacy protocols like Tornado Cash.

These assets initially existed in the form of mETH and stETH, which are staked Ethereum (stETH) and other related assets provided by Lido. However, they quickly exchanged all these assets for Ethereum through DeFi platforms. I suspect this is because Ethereum is the most liquid asset and is also the least likely to be frozen. If you hold certain small tokens, you might face the risk of asset freezing due to governance issues, but this is almost non-existent with Ethereum.

Although this is the largest hack in cryptocurrency history in terms of dollars, no one has proposed solutions like hard forks. From these hacking incidents, we can observe a pattern that when the amount stolen is very large, it becomes even harder to escape. Ironically, if you steal $20 million or $30 million, it might be easier to hide; but if you steal a billion dollars, where will that money ultimately go? Who can help you handle it?

Robert:

I also don't know how they will handle these massive hacking proceeds. I believe there are some online analysts who have been tracking these incidents for years, but I suspect they will ultimately try to convert these funds into commodities like Russian oil.

Tarun:

I remember Richard Heart was sued by some organization; he was the largest DAI holder because he obtained a large amount of Ethereum from Pulse Chain, but due to being blacklisted by many exchanges, he converted all that Ethereum into DAI. I wonder if we will see a similar situation this time; it would be a good test to see if the attackers will trust decentralized stablecoins.

Haseeb:

I don't think they will transfer all the funds at once. Richard Heart's operation is a slow process, not a one-time completion.

Robert:

It ultimately depends on the hacker's risk tolerance and their tolerance for financial volatility. Richard Heart exchanged Ethereum because he needed stablecoins to cover USD expenses.

Haseeb:

If I were North Korea, I would consider how to utilize this money and try to transfer it to a place like Russia.

Robert:

They once tried to bridge some assets to Bitcoin, but now there aren't many decentralized ways to transfer from Ethereum to Bitcoin.

Haseeb:

If these assets are secured by multi-signature, then if someone discovers that their protocol is being used to handle $1 billion worth of Ethereum, many people might choose to report these funds, believing they should be confiscated and handed over to law enforcement through governance structures. In this case, almost no one would support North Korea.

Tarun:

We might see some very crazy on-chain operations because they have no other choice. What I find interesting is the situation with Thorchain. In the past, many hackers would use Thorchain to lend or bridge to Bitcoin, but now the validators of third-party chains have withdrawn, making it impractical to transfer large amounts of funds through it. Nowadays, Bitcoin cross-chain bridge technology is less developed than ever, which could put them in a bind.

Robert:

I imagine this like ancient pirates burying gold bars. They bury the gold somewhere, draw a treasure map, and then come back thirty years later to find it. North Korea might view these stolen cryptocurrencies as “treasure” and come back to use them at some point in the future.

Haseeb:

That's an interesting hypothesis. Perhaps they will propose some kind of protocol where those who return the assets can receive a 10% reward. But I don't know how they can launder these stolen assets; North Korea, as an isolated country, makes any form of negotiation very difficult, which is a very bad situation for both clients and Bybit. While I believe Bybit's financial situation is robust enough, it would be a big problem if they cannot raise enough Ethereum to meet redemption demands.

Many people speculate whether Ben mentioned in the live stream that Bybit would purchase Ethereum to meet all redemption requests. Currently, they have secured a bridge loan from Bitget and Binance, which is a positive signal, contrasting sharply with the collapse of FTX. However, if we assume that no one is willing to do business with North Korea and that no agreements can be reached, then Bybit may indeed need to purchase Ethereum on the market. If that is the case, it could be bullish for Ethereum's price, as this would create a net buying demand of about $1.5 billion, and with limited market liquidity, the price would naturally rise.

Tom: I noticed that the community has highly praised Ben's communication style. He conveyed information to the public quickly and directly through the live stream, which is very rare in the industry. He did not use vague official language but clearly told everyone, **“We are fine, we will solve the problem, that’s how it is.” This kind of *transparency* is impressive.**

Haseeb:

Indeed. If we compare this incident with FTX, Bybit's handling of the situation is exemplary, while FTX's live stream was a complete farce.

Robert:

The fundamental difference is that FTX was a malicious participant engaged in large-scale fraud, which is why they faced a funding shortfall, while Bybit is a trustworthy victim that suffered a hacking attack.

Haseeb:

I completely agree. Typically, in hacking incidents, we see the victim's first response is to obfuscate the situation, not directly address the issue, allowing information to spread through various channels. However, Bybit responded swiftly within 30 minutes of the incident, clearly explaining what happened and proactively communicating with customers to ensure everyone was informed.

This should become the standard practice for every company facing a hacking attack. First, they need to control the communication pace. Of course, the scale of this hacking incident is indeed unprecedented, but compared to Bybit's balance sheet, the loss is not catastrophic. The current scale of the crypto market far exceeds the past, and although this is the largest hack in history, the loss only accounts for a few percentage points of Bybit's total assets.

Tom:

After the FTX incident, Bybit launched a proof of reserves system, allowing users to see in real-time whether their assets are included in the reserves, greatly enhancing transparency. This incident did not involve any fraudulent activities, so users do not need to worry about significant gaps in the balance sheet.

Haseeb:

I actually hope to find some evidence indicating this was an internal attack. Because if it were an internal attack, the chances of recovering the assets would be greater. Fortunately, the industry's foundation is solid enough that they can weather this crisis and ensure that all customers' interests are protected.

Hayden Davis & Libra Scandal

Haseeb:

Another major news item is a coin called Libra. This project is supported by Argentina's new president, Javier Milei, who is himself a controversial figure. This incident has been dubbed the largest insider trading scandal since the collapse of FTX. So, what exactly happened with Libra?

Javier Milei publicly promoted the Libra token through a tweet. Everything happened very suddenly, with almost no warning. Subsequently, the market cap of this Meme coin skyrocketed to $4 billion but then plummeted 95% in a short time. During the collapse, Milei deleted his tweet. At the same time, reports emerged that insiders sold off tokens while the market was in a frenzy, estimating that they profited nearly $200 million from this operation. As the incident unfolded, more chaotic details gradually came to light.

The controversy surrounding this project is perplexing. What is Milei's main stance? What is the Argentine government's view on this? Later, we learned that Milei himself did not directly profit from this Meme coin; rather, it was launched by a private company in Argentina, which claimed it was for the benefit of the Argentine people or community, but the entire process was very opaque.

The central figure in this incident is a white male named Hayden Davis. After returning to Argentina, he became a businessman focused on Memes. He is more of a "coordinator" than the initiator or direct promoter of the project. In an interview, he mentioned that launching a Meme involves multiple roles, and his main role is to bring various parties together, emphasizing that he does not directly operate the funds or own these assets.

In Argentina's crypto circle, Hayden Davis is considered an insider. He boasted in leaked private information that he paid funds to Milei's sister, Karina Milei. Karina is a prominent figure in Argentine politics. Hayden even mentioned in a tweet his influence over Javier Milei, claiming: “I control that guy. I give money to his sister, and he will sign anything I say.”

Hayden controls over $100 million extracted from internal wallets. He later gave a series of interviews trying to explain the entire operation process. In a Twitter live stream, he directly admitted to "sniping" during the collapse of Libra, which means manipulating the market through bot trading. His statement was: “I don’t know the true ownership of this money. I think it might belong to Argentina or the Keep Protocol company that launched this project. I don’t know whose money it is, and I don’t want it. You tell me how to handle this money; if you don’t tell me, I will throw it back into the market.”

In the interview, he also detailed the operational mechanisms of Memes, revealing many insights that most people had never understood. He mentioned that most large Memes are sold to KOLs and other institutional investors at prices below market value through private transactions before their launch. For example, projects like Melania, Libra, and even TRUMP, he claimed, had conducted private placements of up to $500 million at an internal meeting in Washington, D.C.

The information about these private placement transactions usually spreads among insiders but can also leak to others who are not involved in the transactions. These individuals use this information to profit by sniping when the token officially launches.

Here, it is necessary to explain the meaning of "sniping." Sniping refers to when some bots can quickly buy tokens as soon as they go live, before ordinary investors can react, thus driving up the price. This is because they know in advance that the token is about to launch. When retail investors start to rush in to buy, human reaction times are far slower than machines, and these snipers take the opportunity to sell the tokens at a high price for profit. Since Meme coins are usually issued with low market caps and lack auction or initial price clearing mechanisms, this operation becomes very common.

According to Hayden Davis, he once asked: “If you don’t snipe your own tokens, how else can you make money? Do you think there are other ways?” He believes that all teams involved in the token supply chain believe that the only way to profit is to become an internal manipulator. These teams hope that the hype around Memes can last for one to two years, but the reality is that almost all Memes have lifespans of no more than a few days. In these circles, there is a widespread cynical attitude that the entire crypto industry is just a zero-sum game. To prevent retail investors from being externally sniped, they believe the best way is for the team to snipe the tokens themselves first. In this way, they can use the profits from sniping to protect the token's stability and buy back the tokens after completing the sniping.

On the day of the incident, the Argentine stock market fell by more than 5%. Currently, the opposition has formally charged Javier Milei. This incident has been dubbed "Cryptogate," a significant political and financial scandal. I believe this has caused serious damage to Argentina's reputation both internationally and domestically.

Robert:

I saw clips of Hayden's interview, and it was absurd; each segment was more ridiculous than the last, and he even openly said on the show, “Crime is good.”

Haseeb:

He is a typical "crypto kid" with no moral compass whatsoever.

Robert:

Do you remember our discussion about the "contrast between rationality and madness" about nine months ago? Hayden might be one of the craziest figures in the history of the crypto industry.

Tom:

I agree; I think Hayden comes across as very ignorant when he speaks. Last week, I went skiing and encountered some Argentinians who were very excited about this. Because in their view, this could be similar to the TRUMP situation. They see it as a huge opportunity, and when they saw Milei promoting this project, they might have thought, “Oh, this is our TRUMP moment,” but it turned into a massive scandal. In reality, it’s a bit like going to a casino and losing money; who can you blame? The rules of the casino are that you win or lose at your own risk.

Haseeb:

That analogy is very vivid; such an absurd Meme could trigger such a large chain reaction, even impacting an entire country. The repercussions of this scandal have also affected the entire crypto industry. It was later discovered that the team behind Kelsier Ventures was not only responsible for the Libra token but also for Melania. They also engaged in sniping operations when Melania was launched, which is essentially a tactic they repeatedly use.

Latest Developments in Meteora and the Solana Ecosystem

Haseeb:

One interesting aspect of this story is that it has also affected some people in the Solana ecosystem. Meteora is the launch platform for TRUMP and Melania. Recently, Meteora has drawn attention due to some investigations, as it seems that some individuals associated with the platform are embroiled in controversy.

I need to explain that Meteora is a competing product to Jupiter. Jupiter is a large DeFi aggregator on Solana, while Meteora focuses on providing launch services for new tokens. The chief developer of Meteora, Ben, has resigned after being accused of possibly participating in certain violations (such as insider trading). However, I am not sure whether these accusations are true or if they are merely suspicions raised by others.

Robert: I saw on Twitter that someone dug up some of Ben's history, saying he had previously violated securities laws multiple times. Is that true?

Tarun:

I'm not sure whether these accusations are true. Ben is one of the co-founders of Meteora, which was originally part of Jupiter. I actually knew Ben before the rise of the crypto industry when he was running a startup in the insurance sector. I interviewed him back in 2012. He didn't get involved in the crypto space until 2021. The Meteora platform has been around for a while but struggled to find a suitable market position. Later, with the collapse of FTX, Jupiter began to rise rapidly as it became the main platform for trading Solana tokens. At that time, most exchanges, except for FTX, did not support the trading of SPL tokens. Meteora gradually evolved into a platform focused on launching early projects.

Unlike Pump.Fun, the Meteora platform allows project issuers to manage and control the liquidity pool to some extent. This design does make sniping operations somewhat easier. However, I think Ben's situation is more like a founder being ousted by the board rather than a regular developer being fired. If you view this as a case of corporate governance, the ousting of a founder usually involves more complex power struggles.

Decline of Memes

Haseeb:

I think this story casts a shadow over the entire Meme space. After the Libra incident, the launches of TRUMP and Melania left people with a negative impression of Meme coins. Following these events, it seems people have realized the nature of the Meme promoters revealed by Hayden in the interview and how these large-scale Meme coin issuances are detrimental to retail investors. This shift has changed the atmosphere in the crypto space, leading to doubts about the operation of Meme coins and whether retail investors can continue to participate in this so-called "casino."

Robert: People once thought the Meme game was winnable, but now that the truth is out, they see the ugly reality behind it and realize it's a completely controlled game where they are the victims and cannot win.

Haseeb: In absolute numbers, Pump.Fun's trading volume remains strong, but overall, market volatility is decreasing. The sentiment has completely shifted to a dislike of Memes; previously, people would say tech coins and venture coins are actually Memes, but now that viewpoint seems to have lost its effectiveness, and people are starting to realize the need to rebuild real projects.

Tarun:

I think this indicates that Memes with less control seem to survive, while those requiring significant liquidity management face more challenges. Therefore, we see that Pump.Fun's trading volume has not significantly decreased.

Robert:

I believe this is a turning point; Meme coins attracted a lot of funds, and now that their appeal is declining, those funds will flow into other vertical markets in the crypto space.

Tom:

I agree with Tarun. People like fair and transparent games, and when they feel they can no longer profit from them, the market will naturally collapse. Just like the previous ICO and NFT booms, if people no longer feel excited and see no opportunities, the entire market will be affected.

Haseeb:

Indeed, the distinction between Pump.Fun and some managed launches is interesting. Libra can be considered a celebrity coin; although it doesn't formally appear as such, its relationship with Milei effectively makes it a celebrity coin.

Controversy and Hypocrisy of Celebrity Token Projects

Haseeb:

I think it's safe to say that the craze for celebrity tokens has passed or rapidly cooled down. Recently, I heard that Kanye West seems to be planning to launch a Meme , which is a celebrity token. But he seems to realize that now is not a good time to launch.

I heard he originally planned to launch on Monday but then postponed it to Friday. It is said that the team is discussing whether it is "too close" to the Melania incident, and clearly, they are adjusting based on the news cycle. What I find amusing is that this new token is called YZY Token.

Even more ridiculous is that Yeezy's CFO accidentally leaked this plan to CoinDesk. He sent an email using Yeezy's official email address, detailing the token's plan and requesting CoinDesk to keep it confidential. But CoinDesk refused this request and published the report directly. This operation is simply amateurish. Regarding the tokenomics, 70% of the tokens will be held by Ye himself, 10% for liquidity, and 20% for investors. Now, this 20% has already been sold to investors.

Just a few days ago, he tweeted that celebrity coins are an exploitation of the community and worthless. Yet, just a few days later, news broke that he was going to launch his own token, which is incredibly hypocritical.

As an industry, we must unite and not support such tokens. As long as everyone refrains from buying, we can completely end this phenomenon.

Robert:

The problem is that once a token is released, it is usually snatched up, and then someone sells it off, ultimately resulting in only a few people profiting.

Haseeb:

We've seen similar cases, like Dave Portnoy launching a token called Greed, holding 35% of the supply, and then selling it all at once, causing the price to plummet.

He then launched Greed 2. After the collapse of Greed, the market cap of this new token briefly reached $20 million but quickly collapsed again. He sold off again and stated in a Twitter Spaces that this process was a lesson for his followers, claiming that Meme is merely exploitation, and criticized those trading as lazy, only wanting to make quick money without seeking real work.

Tarun: This is essentially financial domination (fin** dom), even more blatant than what we discussed before.

Haseeb:

I recently expressed similar views on Twitter, stating that the cycle of Memes has ended. I mentioned in a show that it's like a casino where each slot machine is owned by different people, and this model is simply unsustainable. Each slot machine owner will do everything possible to extract profits from the players.

Regulatory Dynamics and the Future of the Cryptocurrency Industry

Haseeb:

The recent negative news has left me feeling very fatigued; people are tired of those Meme coins with no real value and are starting to look towards more promising projects. This might be one of the reasons for the rebound in the cryptocurrency market last week. However, the market has seen a decline today, which has also impacted cryptocurrencies. Nevertheless, there is good news on the regulatory front. We have been discussing that this year could be a turning point for the cryptocurrency regulatory environment, and now there has finally been substantial progress. The biggest news this morning is that the U.S. Securities and Exchange Commission (SEC) is withdrawing its lawsuit against Coinbase. Although this news has not been fully officially announced, Coinbase's announcement almost confirms it. This is undoubtedly a significant positive for the entire industry, indicating that the changes we have been anticipating are happening.

The SEC previously sued Coinbase on the grounds of accusing it of acting as an unregistered securities broker and exchange, allegedly facilitating the trading of unregistered securities. However, these accusations are now being withdrawn. We may see other similar cases brought by the SEC also being withdrawn in succession. Previously, it was speculated that the cases might be resolved by narrowing their scope or reaching settlements, but the complete withdrawal of the cases is clearly a more positive signal. This indicates that the SEC is beginning to support the development of good-faith participants and is willing to work with them to create a healthy digital asset ecosystem. This is great news.

Additionally, we have seen Brian Quintenz nominated as the new head of the U.S. Commodity Futures Trading Commission (CFTC). The CFTC may become the primary regulatory body for cryptocurrencies in the future. Quintenz was the head of crypto policy at A16Z Crypto and has spent the last four years opposing excessive administrative regulation. In the regulatory realm, this is undoubtedly an exciting day and suggests that the crypto industry may see more positive changes in the future.

Robert:

First, the SEC has restructured its crypto division, which was originally aimed at good-faith participants, transforming it into a team focused on combating digital fraud. This means the SEC will concentrate more on tackling real wrongdoing rather than continuing to relentlessly pursue companies that comply with the rules. This is the change the industry has been anticipating for the past four years.

Secondly, SEC Commissioner Hester Peirce issued a statement detailing the changes they hope to promote. They hope to collaborate with the crypto industry's policy teams to foster the healthy development of the entire industry. The document covers various areas, including broker-dealer rules, custody rules, trading rules, and safe harbor rules. They expressed a desire to engage in dialogue with the industry to jointly develop effective policies. This constructive attitude stands in stark contrast to the rigid stance from a few weeks ago.

Haseeb:

Hopefully, in this context, we can see more favorable policies emerge that allow good-faith participants like Coinbase to no longer face unnecessary attacks. At the same time, regulatory bodies can allocate more resources to combat real wrongdoing. The reason we fell into the quagmire of Memes in the past was largely due to the fact that under Gary Gensler's leadership, regulatory agencies devoted all their time and resources to attacking the largest market participants through case law, neglecting the regulation of wrongdoing in public spaces.

Tarun:

This week, I attended a Solana developer conference, and participants hardly discussed Meme issues. This indicates that there are still some people in the ecosystem focused on infrastructure and application development, and they are not overly concerned with short-term market fluctuations. I believe any successful ecosystem needs such builders to exist.

Haseeb:

It seems that the sentiment in the infrastructure sector is still relatively stable. We have not seen a massive outflow of funds from Solana, nor have we found significant differences in the decentralized trading volume between Ethereum and Solana; both exhibit relatively consistent volatility. However, today's situation is somewhat special, as attackers are transferring assets worth about $40 million from Solana to Ethereum, which may have led to a temporary increase in trading volume.

Tom:

I feel this situation might be like the last Meme launch, where no one is willing to buy in. This sluggish market sentiment could deter others. If YEEZY truly is the last celebrity coin, I could accept that.

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