Faces of Crypto World - Villains

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27 Jul 2023

As in any environment, especially when big money comes into question, some very nasty guys could appear, I'd like to introduce some of them (though I believe many of them are pretty well known by you)
At least, this one is known for sure.

Scumbag No.1
Sam Bankman-Fried
Founder and CEO of Alameda Research and FTX

Sam Bankman-Fried was born in 1992, in Stanford, California.
After finishing his physics degree at MIT in 2014, Bankman-Fried spent three years as a trader at the quantitative trading firm Jane Street Capital before founding his trading firm and liquidity provider, Alameda Research, in 2017.

In 2019he founded the cryptocurrency and derivatives exchange FTX, which has grown quickly to become the sixth-largest exchange by volume.

In 2020, he decided to try his luck with the DEFI market, built his decentralized exchange, Serum, on Solana, and launched its namesake token in August.

Bankman-Fried was named to Forbes’ 2021 ”30 Under 30” list in the finance category, emphasizing his contribution to the crypto industry.

Seems impressive... but our dear Sam has also a much darker side.

Bankman-Fried is believed by many to have played a big role in crashing the price of Yearn. finance’s YFI in October by shorting it. He was also unexpectedly handed control of SushiSwap by Chef Nomi in September following the uproar over Chef Nomi selling 38,000 Ether and crashing the price of SUSHI.

But, its nothing in comparison to the main event:
FTX exchange crash.
FTX collapsed in early November 2022 due to potential leverage and solvency concerns involving FTX-affiliated trading firm Alameda Research (according to Coindesk report)

I think the best presentation of the following event can be put below:

FTX COLLAPSE TIMELINE—2022
(Found on: https://www.investopedia.com/what-went-wrong-with-ftx-6828447)

• Nov. 6: Rival exchange Binance sells all FTT tokens.

• Nov. 7: FTX announces liquidity crisis, seeks bailout from venture capitalists, then Binance.

• Nov. 8: Binance says it will buy FTX’s non-U.S. business.

• Nov. 9: Binance walks away from FTX acquisition after conducting due diligence.

• Nov. 10: The Bahamas freezes assets of FTX’s subsidiary there; Bankman-Fried admits non-U.S. businesses’ liquidity crisis, says affiliate Alameda Research to wind down.

• Nov. 11: Bankman-Fried steps down as FTX CEO, is replaced by a court-appointed CEO with restructuring experience. FTX files for Chapter 11 bankruptcy protection.

• Nov. 12: FTX reports an alleged hack, suspected to be up to $477 million, and moves its digital assets to cold storage for security reasons.

• Nov. 18: The Bahamas takes control of FTX assets held there.

• Dec. 12: Bankman-Fried is arrested by Bahamian authorities. He was later extradited to the U.S.

• Dec. 22: Bankman-Fried is released on a $250 million bond, the largest in history, by a federal judge.

The list of Bankman-Fried's sins is pretty long and it includes leveraging customer assets — specifically, customers’ cryptocurrency deposits — for Alameda’s bets, or losing over $3.7 billion over its ( Alameda) lifetime, despite public statements by FTX leaders touting how profitable the trading arm was.

Kwon Do-Hyung[2] (Korean: 권도형),
also known as Do Kwon
According to his tweet, Do Kwon was born in Seoul, South Korea, on the 6th of September 1991. He attended high school at Daewon Foreign Language High School in South
Korea. After receiving his BS in computer science in 2015 at Stanford University, he transitioned to work briefly as a software engineer for both Microsoft and Apple.
After coming back to South Korea to develop and found his startup, Anyfi… this was the beginning of his adventures with cryptocurrencies and the CEFI/DEFI market, did it go well?
…there is a story:
The year 2018:
Do Kwon and Daniel Shin launch the Terra network (in January) and plan to develop Chai, an e-commerce payments application, also they are going to create a price-stable cryptocurrency against major fiat currencies to execute transactions. It is supported by the Terra Alliance, 15 large e-commerce companies in Asia. Terraform Labs, the firm that develops the Terra blockchain, is incorporated in Singapore (in April).
The year 2019:
The Terra Money white paper is published by Do Kwon and co-authors. According to the white paper, the founders’ goal was to fulfill what Bitcoin originally set out to be: a peer-to-peer electronic cash system, to achieve that, Terra implements a system of stablecoins – cryptocurrencies whose value is pegged to different assets like commodities or fiat currencies.
LUNA launch an initial coin offering to investors (January).
The year 2020:
Introduction of the Anchor protocol, a platform built on Terra that lets investors earn a high yield on their deposits and also borrow against their crypto holdings. (in July)
An UST, the Terra blockchain’s stablecoin, is publicly announced, with plans to launch on Ethereum and Solana. The UST stablecoin used an algorithm linked to the Luna supply to maintain a value of around $1, unlike other coins that are pegged to cash.
Terra launches synthetic stock protocol - Mirror (in December).
Year 2021:
LUNA’s price nearly doubles to record highs above $90 and is up 58% this month. This hype is taking place, despite previous SEC (The U.S. Securities and Exchange Commission) concerns that Mirror protocol may violate federal securities law.
The year 2022 - seems to be very busy:
Luna Foundation Guard is announced by Do Kwong, an organization supposed to build reserves supporting the $UST peg amid volatile market conditions and also allocate resources supporting the growth and development of the Terra ecosystem (January). It raises $1 billion through the sale of LUNA tokens to buy bitcoin for UST’s reserve system, the main investors are Jump Crypto and Three Arrows Capital.
The investors behind LFG propose a mechanism for how to deploy the bitcoin (BTC) reserves to support UST’s price while in a crisis (23 March) and purchase bitcoin worth $125 million (2,840 BTC at the time) for that reason. Over the past few days, the LFG’s Bitcoin wallet address gets more than 27,000 BTC worth $1.3 billion.
Terra’s LUNA tokens rise 10% and reaches new all-time highs of over $106. (29 March)
on March 30: LFG purchases another 5,773 BTC, worth $272 million.
on April 5 LUNA token’s price reaches a next new all-time high of $119.2.
LFG continues purchases and boosts its stash to over $1.6 billion at the time. (in BTC, AVAX, LUNA).
The circulation of the supply of LUNA hits an all-time low of 346 million tokens as LUNA tokens are burned to keep up with the rising demand for UST (27th of April).
UST gets a low of $0.985 after a series of large dumps of UST on Terra’s lending protocol Anchor and stablecoin exchange protocol Curve (7th of May).
LFG to defend the peg of UST commits to loaning $750 million of BTC to market makers and another $750 million of UST to be used to buy back BTC after volatility subsides(8th of May).
After UST is trying to get back to $1, deposits on the Anchor protocol plunge below $9 billion from $14 billion and the ANC protocol token fell 35% during the day. (9th of May) At the same time, UST loses its $1 peg for the second time and falls to as low as 35 cents.
More than half, 58%, of traders place futures bets on higher LUNA prices despite Tuesday’s drop, leading to $63 million in liquidations caused by 58% of traders placing futures bets on higher LUNA prices despite the previous drop (11th of May). LUNA reaches price levels previously seen in August 2021. Value locked on Anchor protocol drops $11 billion over two days.
The LUNA price falls 96% in a day, reaching less than 10 cents. (12 May)
At block height 7603700 – the Terra blockchain officially ceased after LUNA falls sharply in price, threatening the network’s security. (12th of May), then the blockchain was commissioned again and halted for the second time at block 7607789 but it resumed activity after around nine hours. Trading on Terra tokens is ceased by Binance and OKx after UST loses its dollar peg and LUNA slumps by more than 99%. Binance later resumes trading in LUNA.
On the 13th of May 13 Do Kwon proposed a “Revival Plan” that would see the network ownership distributed to UST and LUNA holders through 1 billion new tokens.
Data analytics from Elliptic follows LFG’s $3.5 billion BTC reserve to major exchanges Gemini and Binance.
LFG’s BTC reserves were reduced from around 80,000 bitcoins to 313 bitcoins during the attempt to save UST’s peg. (16th of May)
Do Kwon proposes to fork Terra without UST stablecoin, calling the current chain “Terra Classic?”
A South Korean Terra-backer venture fund has lost over $3.5 billion on the Terra collapse. (19th of May)
Terra’s decentralized finance applications have lost $28 billion due to investors have abandoned the Terra ecosystem. (20th of May).
South Korean authorities are starting to scrutinize crypto exchanges more closely because around 280,000 citizens are believed to fall victim to the abrupt plunge in UST and LUNA.
Blockchain data analytics (Nansen) claims that the myth that a single attacker caused the depeg during UST's death spiral was false.
The launch of Terra 2.0 (with LUNA airdrop - 28th of May). Previous LUNA and UST holders will receive the new blockchain's native token, luna (LUNA), based on their holdings. The old Terra blockchain remains functional, and its token will be renamed to luna classic (LUNC).
Following the crash of Luna and TerraUSD, Terraform Labs began trading a new cryptocurrency termed Luna 2.0 in June 2022.
However, the release of Luna 2.0, now called LUNA on trading platforms, drew pushback from investors and critics.
But what about the consequences? Will the men responsible for all the frauds and losses be prosecuted?
… well the investigation carries on…
As I found on (...)

“The U.S. Securities and Exchange Commission (SEC) began an investigation of Terraform Labs in June 2022 to determine if the marketing of the TerraUSD stablecoin violated federal regulations on securities and investment products. Following the crash in May 2022, the SEC investigation seeks to determine whether TerraUSD and its underlying algorithms worked as marketed or if it violated federal investor protection regulations. Despite Terraform Labs being based in Singapore, TerraUSD falls under SEC's regulations as Americans bought the token to fund businesses or seek profit.

On 17 May 2022, members of the Korean parliament and government authorities called for a potential parliamentary hearing regarding Terraform Labs and its founder Kwon, citing the lack of regulatory framework as the main reason for the impeded investigation of the events that took place.

On 18 May 2022, following investigations led by the National Tax Service of Korea, Terraform Labs founders Kwon and Daniel Shin were asked to pay additional taxes worth approximately $100 million in December 2021. However, the two founders refused to pay because the subsidiaries Terraform Labs Pte. Ltd. (Singapore) and Terraform Labs Virgin Islands are not Korean entities. Regardless, the National Tax Service has claimed that since "the founders had made practical management decisions" during their time as official residents in Korea, the transfer of funds between the subsidiaries and their profits made by each entity need to obey Korean jurisdiction.”

A South Korean court issued an arrest warrant for Kwon and five others on allegations of violations of Korean capital markets law. The prosecutor's office said all six individuals were located in Singapore. The Seoul Southern District Prosecutors' Office said they had begun the procedure to place Kwon on the Interpol red notice list and revoke his passport (September 2022).

It seems to be that we will have to wait a long time until we hear the end of this story.
What is quite surprising, quite a lot well oriented crypto specialists were
predicting a Terraform Labs fate like that, for example:
Cyrus Younessi, head of risk at MakerDAO and a former research analyst at Scaler, tells Scaler why he believes Terra/LUNA would not work, describing a scenario that later unfolded in mid-2022, also crypto trader Algod, who compared UST/LUNA to a Ponzi scheme, bets $1 million against Do Kwon that the price of LUNA will be below $88 by March of 2023. Another crypto trader, GiganticRebirth, bets $10 million against Kwon that LUNA will be below $88 in 2023.

Alex Mashinsky

Alex Mashinsky (born in 1965) comes from a Jewish family who lived in Ukraine. In the 1970s the whole family moved to Israel. As a child, he was a talented tinkerer, well-oriented at technologies – for example, he could tap into and use public phone lines in Israel.
Mashinsky used to attend different universities where he majored in electrical engineering but did not graduate.
As an Israeli citizen, he had to go serve in the Israeli Army, where he trained as a pilot and served in the Golani infantry units.
At the end of the 1980s, he left Israel and moved to the United States.
In the U.S.A Mashinsky has tied his opportunities in a variety of different industries, often connected with popular technologies. Due to several conflicts with coworkers, Mashinsky left his company after a period of conflict or tension.
After moving to New York City, he began to run a business trading contracts for the delivery of industrial chemicals from China.
After that experience, Mashinsky started to work at A+ Systems, for a computer-based voicemail software company for phone carriers.
Using his wide knowledge and technological skills he became an early developer of voice over Internet Protocol (VOIP) and established VoiceSmart, one of the first companies to offer computer-based VOIP phone service ( in1991).
In 1996, he founded Arbinet, a marketplace for VoIP telephone service - the platform which was allowing telecommunication companies to trade minutes, it was one of the first companies offering services like that, so it was developing very well.
In 2005, he sold his stake in Arbinet, and started to do, what many prominent businessmen are supposed to do… no he didn’t go retire in the Bahamas or wherever he would like to.
He sold his stakes in Arbinet instead and used part of the profits from the sale to start GroundLink company, it was mainly based on services that allowed people to book limousines and car services from a smartphone or computer.
The companies also partnered with Gogo Inflight Internet to offer free service on US flights.
Mashinsky's other company - Q-Wireless was one of the four companies that made up Transit Wireless, a joint venture to install wireless cellphones and free Wi-Fi internet service in the New York City Subway system. His company had obtained a contract to install the service at 277 below-ground subway stations in New York City ( in 2010).
During the years 2014-2016, he used to hold many lucrative positions, like:
Membership to the board of directors of Novatel, a provider of Wi-Fi hotspot products, or be a Global CEO of RTX, a London-based financial technology firm in the telecom industry
Mashinsky became involved in crypto in 2017 when his venture fund Governing Dynamics brought on blockchain company MicroMoney as a strategic partner.
Well, it seems that everything in his life goes incredibly impressive …unfortunately for him (and for an enormous number of investors) he decides to go into the crypto market.
We all believe that, when an experienced, successful businessman takes care of a fintech branch, nothing can go wrong… but is it?
Alex Mashinsky and his two business partners: Daniel Leon and Nuke Goldstein found a lending company called Celsius in 2017.
In the beginning, it seemed quite promising for the company manager to collect $50 million in its initial coin offering (ICO) of the CEL digital currency in March 2018. A month later its main token was listed and traded on cryptocurrency exchanges, and, what's more, due to U.S. legacy, Celsius listed its currency as a security.
The company launched its mobile app (in June 2018).
In 2019, Celsius's valuation was at $140 million.
What seems pretty alarming, Celsius was a major buyer of its token, buying CEL interest it owed to customers on the open market. Crypto analysis company Arkham Intelligence estimated that Celsius had spent $350 million on purchases since July 2019.
Celsius managed to raise $20 million through equity crowdfunding to support its operations (August 2020).
In the autumn of 2020, the price of Celsius's reached over 230% within one month.
During its best prosperity(2020-2021) Celsius obtained a large amount of money from investors:
- In December 2020, $3.31 billion in assets under management.
- January 2021, more than $4.5 billion in assets.
- In October 2021, Celsius raised $400 million in new equity from investors (WestCap, the fund led by former Airbnb executive Laurence Tosi, and CDPQ –a Canadian retirement investment fund)
Meantime, an Israeli Celsius office employed 100 people and started cooperation with Israeli cybersecurity company GK8 for $115 million.
Unfortunately, not everything went so well, some scratches appeared:
- April 16, 2021- there was a phishing attack on Celsius customers, and due to that, a security breach occurred in the company systems.
Also, a legislation problem had begun:
Authorities in some of the US states accused Celsius's interest-bearing cryptocurrency accounts containing an unregistered securities offering.[ The attorney general of New Jersey, Kentucky, and Texas ordered Celsius to stop issuing interest-bearing cryptocurrency products via a cease-and-desist order.
In addition, Celsius pledged that one of its senior employees was the focus of an Israeli police probe associated with prior employment activities (26 November 2021).
First signs of distress.
On April 12, 2022, the U.S. Celsius platform announced that they will begin holding non-accredited investors’ coins in custody, where investors will no longer be able to add new assets and earn rewards. The company announced that they had to follow legacy rules, after an agreement with U.S. regulators.
The real problems began when the implosion of LUNA and UST- Algorithmic stablecoin terraUST (UST) and sister coin LUNA acted in a $40 billion collapse disrupting the cryptocurrency market and spurring $300 billion in losses across the cryptocurrency economy.
It affected consumer confidence in the crypto market, accelerating the onset of a “crypto winter – bear market” and an industry-wide sell-off that spurs a bank-run-style series of withdrawals by Celsius users. This so-called „coffin nail” happened on May 2022.
About 1,7 million investors froze in fear when Celsius announced the halt of withdrawals, swaps, and transfers in response to “extreme market conditions” (12th of June 2022), which only highlighted rumors that the platform has become deeply insolvent.
Even though Celsius hired restructuring expert Alvarez & Marsal to explore the firm’s options to mitigate the fallout of its mid-June swoon, it didn’t help much.
…. The cesspool broke…
Celsius Network (CEL) announced on July 13 that it filed for Chapter 11 bankruptcy after a month of turmoil.
Six states have launched investigations into Celsius, with Vermont being the latest to sue.
„Court filings show that Celsius is around $1.2 billion in the red, with $5.5 billion in liabilities and $4.3 billion. It also looks like customers may bear the brunt of Celsius’ collapse, as the filings show that most of the liabilities, $4.7 billion, represent customer holdings.” (https://www.forbes.com/advisor/investing/cryptocurrency/what-is-celsius/).
The company extended hundreds of millions of dollars in uncollateralized loans, and invested hundreds of millions more in unregulated decentralized finance platforms, the lawsuit said.
Mashinsky, wearing t-shirts with slogans such as "banks are not your friends," carried on to falsely represent to investors that Celsius was generating high yield through low-risk investments, according to the legal filing.
Well, at this point Alex was right, neither bank, banksters, nor even Bankman (Sam – SBF) were his company friends, the last one is believed to taking part in the fall of Celsius. At least, there are some traces leading to him.
I’m sure, the story will be continued… short actualization - Alex Mashinsky was arrested in 13 of July 2023.

Well, what can I say …In my own opinion, frauds like that will happen many times more, and it's not a matter of cryptos, it's a matter of human greedy nature.
The crypto market as its a pretty young, needs to be cleared from „bad blood”, but it will take a long time, I suppose.

I hope, you enjoyed the article, see you next time!
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