Are hacks and exploits in crypto considered legal?
Eisenberg, the person behind the Mango Markets exploit claimed that his actions were legal. Here's the current state of crypto laws.
Eisenberg, the person behind the Mango Markets exploit claimed that his actions were legal. Are hacks and exploits now considered legal? Here's the current state of crypto laws ⚖️
Recently, there was a $114M exploit on Mango Markets
Avraham Eisenberg was a part of the team that is responsible for the exploit. He confessed that he was involved with a team that operated a highly profitable "trading strategy".
He also believes that all of their actions were legal open market actions, using the protocol as designed. Even if the development team did not fully anticipate all the consequences of setting parameters the way they are.
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They manipulated the price oracle to increase the $MNGO price from $0.30 to $0.90. This allowed Eisenberg and the team to boost the value of their collateral and borrow more funds from the protocol. Eisenberg had a stake of $10M.
As a result, Mango Markets became insolvent with the insurance fund being insufficient to cover all liquidations. Eisenberg decided to negotiate a settlement agreement with the insurance fund.
With the help of the Mango community voting process, Eisenberg returned $67M to the project while keeping $47M. Eisenberg also made an agreement with the Mango community that they won't pursue legal action. Is all of this legal? What does the law say about these crimes?
The current state of crypto laws
According to the World Economic Forum’s Global Future Council on Cryptocurrencies: Regulation of blockchain and cryptocurrencies has lagged behind, as regulators globally have found it difficult to regulate a technology that is borderless. To date, there has been no internationally coordinated regulation of blockchain & cryptocurrencies. Globally, there has been a spectrum of responses to cryptocurrencies. Some have banned it entirely, some are adopting novel models to understand the technology to regulate it.
Cryptocurrencies are not considered legal tender in the States
The IRS has defined it as “a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value". A cryptocurrency regulation was imposed that required data collection from cryptocurrency exchanges and wallets. This would require exchanges to submit suspicious activity reports for transactions over $10k and require KYC for wallet owners sending more than $3k in a single transaction.
The Biden administration focused on stablecoins in 2021 in an effort to manage the risk posed by the tokens' value appreciation. However, no laws or regulations have been established as of yet.
Crypto exchanges are considered legal, and they are known as "money transmitters". US has regulations that differ from state to state for money transmitters.
Example:
New York requires companies to seek a license from the New York State Department of Financial Services to hold, buy, and sell crypto. In 2018, Wyoming State exempted cryptocurrency sellers and developers from securities regulations.
The U.S administration also sees huge advantages in developing a central bank digital currency (CBDC) or digital dollar. According to Jerome Powell, the main rationale for releasing a CBDC would be to eliminate the necessity for alternative coin use in the country.
Powell said: “You wouldn’t need stablecoins; you wouldn’t need cryptocurrencies if you had a digital U.S. currency, I think that’s one of the stronger arguments in its favor.”
So, even though there have been many laws and regulations in place for specific fields like taxes, stablecoins, and crypto exchanges, there are numerous potholes that need to be filled. For one, there are no specific laws and regulations for on-chain activity.
These potholes can't be discovered until the crypto markets mature and the regulators have a far better understanding of the technology. Until then, scammers can theoretically claim that their acts are legal b/c there is no law that says that they have committed a crime.
The European Union announced its Markets in Crypto Assets (MiCa) proposal
The EU is examining the effect of blockchain in financial markets & assessing how to mitigate typical #crypto risks such as fraud, cyberattacks, and market manipulation.
This type of cross-border regulation is positive reinforcement of the potential of cryptocurrencies.
India has both legalized cryptocurrency and made its cryptocurrency tax clear
The legal actions that would be taken against Indian individuals who are guilty of exploits and hacks have not yet been published.
China has banned initial coin offerings (ICOs) in its country. It's also developing a digital version of its fiat currency - Digital Yuan
China banned crypto mining, which knocked off 40% of total crypto mining operations.
Globally, central banks and regulators share a common objective
To promote innovation and economic growth while stabilizing their monetary system, to prevent illegal funding, and maintain market integrity. However, each country has a different approach to achieving it!
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