Crypto has had a miserable month and it’s only the third day of August

It has been a rough month for the crypto sector and it is only the third day of August.

From cross-chain bridge hacks that suck hundreds of millions of dollars in customer money to the Securities and Exchange Commission getting behind crypto Ponzi schemes, this corner of the market can’t take a break.

The developments add to an already scorching year for the crypto market, which has seen massive declines amid fears of tightening monetary policy and a lack of liquidity.

The flow of news is hard for even insiders to follow, so here’s a rundown of what you’ve been missing since Monday.

Monday

U.S. Securities and Exchange Commission headquarters in Washington on February 23, 2022.

Al Drago/Bloomberg via Getty Images

The The Securities and Exchange Commission on Monday filed a civil complaint indicting 11 people for setting up and promoting a supposedly fraudulent crypto-targeted pyramid scheme that raised more than $300 million from investors.

The scheme, called Forsage, purported to be a decentralized smart contract platform, allowing millions of retail investors to transact through smart contracts operating on the ethereum, tron ​​and binance blockchains. The SEC claims the setup functioned as a standard pyramid scheme for more than two years, with investors making profits by recruiting others into the operation.

In the SEC’s formal complaint, the top Wall Street watchdog calls Forsage a “textbook pyramid and Ponzi scheme,” in which Forsage aggressively promoted its smart contracts through online promotions and new investment platforms, while not selling a “real, consumable product.” The complaint adds that “the primary way for investors to monetize Forsage was to recruit others into the scheme.”

The SEC said Forsage operated a typical Ponzi structure, allegedly using assets from new investors to pay off previous ones.

“As the complaint alleges, Forsage is a fraudulent pyramid scheme that has been widely launched and aggressively marketed to investors,” Carolyn Welshhans, acting head of the SEC’s Crypto Assets and Cyber ​​Unit, wrote in a press release. .

“Scammers cannot get around federal securities laws by focusing their schemes on smart contracts and blockchains.”

Forsage declined to provide a method of contacting the company through its support platform and declined to comment.

Four of the 11 people charged by the SEC are founders of Forsage. Their current whereabouts are unknown, but they were last known to have lived in Russia, the Republic of Georgia and Indonesia.

The SEC has also sued three US-based promoters who endorsed Forsage on their social media platforms. They were not mentioned in the commission’s release.

Forsage was launched in January 2020. Regulators around the world have tried a few times to shut it down. The Securities and Exchange Commission of the Philippines first ceased trading against Forsage in September 2020. In March 2021, the Montana Securities and Insurance Commissioner tried the same thing. Despite this, the defendants continued to promote the scheme, while denying the allegations in several YouTube videos and in other ways.

Two of the defendants, neither admitting nor denying the charges, agreed to settle the charges, subject to court approval.

Tuesday

So-called blockchain bridges have become a prime target for hackers looking to exploit vulnerabilities in the world of decentralized finance.

Jakub Porzycki | NurPhoto | Getty Images

Crypto startup Noma lost nearly $200 million in a devastating security exploit. Nomad is known as a “bridge”, where users can transfer tokens from one blockchain to another. Hackers exploited a security flaw that allowed users to enter any value into the system and transfer the funds even if there were not enough assets available in Nomad’s deposit base.

The nature of the bug meant that users didn’t need programming skills to exploit it. Others caught and deployed armies of bots to carry out copycat attacks.

“With no previous programming experience, any user could simply copy the attackers’ transaction call data and replace the address with theirs to exploit the protocol,” said Victor Young, founder and lead architect of crypto startup Analog.

“Unlike previous attacks, the Nomad hack became a free-for-all with multiple users starting to drain the network by simply replaying the transaction call data of the original attackers.”

Blockchain bridges are a popular way to move tokens from networks like Ethereum, which has gained a reputation for slow transaction times and high costs, to cheaper, more efficient blockchains. But careless programming choices have made them a prime target for hackers looking to defraud millions of investors. According to blockchain analytics firm Elliptic, more than $1 billion worth of crypto has been lost so far to bridge exploits by 2022.

“I can only hope that developers and projects will discover that they are using critical software,” Adrian Hetman, tech lead at Web3 security firm Immunefi, told CNBC.

“They have to put security first in any business decision because they are dealing with people’s money. A lot of that money is tied up in those contracts.”

Nomad said it is working with crypto security firm TRM Labs and law enforcement to track the movement of funds, identify the perpetrators behind the attack and return stolen tokens to users.

“Nomad is committed to keeping its community updated as it learns more in the coming hours and days and appreciates everyone who acted quickly to protect funds,” the company said in the statement.

Michael Saylor, chairman and chief executive officer of MicroStrategy, first got into bitcoin in 2020, when he decided to add the cryptocurrency to MicroStrategy’s balance sheet as part of an unorthodox treasury management strategy.

Eva Marie Uzcategui | Bloomberg | Getty Images

Later on Tuesday, MicroStrategy announced that CEO Michael Saylor is stepping down to become the company’s executive chairman. The company’s president, Phong Le, takes over from Saylor.

Saylor has been the CEO since he founded the company in 1989. MicroStrategy went public in 1998.

Shares of MicroStrategy are down more than 48% this year. Bitcoin has fallen by more than 51% over the same period.

“I believe that splitting the roles of chairman and CEO will allow us to better pursue our two business strategies for acquiring and holding bitcoin and grow our enterprise analytics software business. As executive chairman, I will I can focus more on our bitcoin acquisition strategy and related bitcoin advocacy initiatives while empowering Phong as CEO to manage overall business operations,” Saylor said in the release.

The announcement comes as the company releases its second quarter results, which saw total revenues down 2.6% from a year ago. The company also reported a $918 million impairment charge on the value of its digital assets, believed to be primarily bitcoin.

MicroStrategy may technically be in business software and cloud-based services, but Saylor has said the publicly traded company also serves as the first and only exchange-traded bitcoin fund in the US.

“We’re kind of your nonexistent spot ETF,” Saylor told CNBC on the sidelines of the Bitcoin 2022 conference in Miami in April.

Tuesday late, Wednesday early

The Solana logo displayed on a phone screen and the display of cryptocurrencies can be seen in this illustration photo taken on August 21, 2021 in Krakow, Poland.

Jakub Porzycki | NurPhoto | Getty Images

And then Tuesday night unknown attackers came after hot wallets connected to solana’s blockchain.

Nearly 8,000 digital wallets have been emptied of just over $5.2 million worth of digital coins, including: solana’s sol token and USD Coin (USDC), according to blockchain analytics firm Elliptic. The Solana Status Twitter account confirmed the attack, noting that about 7,767 wallets have been affected by the exploit as of Wednesday morning. Elliptic’s estimate is slightly higher at 7,936 wallets.

Solana’s sol token, one of the largest cryptocurrencies after bitcoin and ether, fell about 8% in the first two hours after the hack was first detected, according to data from CoinMarketCap. It is currently down about 1% while trading volume is up about 105% in the last 24 hours.

As of Tuesday evening, multiple users began reporting that assets in “hot” wallets – that is, internet-connected addresses including Phantom, Slope and Trust Wallet – had been drained of funds.

Phantom continued Twitter that it is investigating the “reported vulnerability in the solana ecosystem” and does not believe it is a Phantom-specific problem. Blockchain Accounting Firm OtterSec tweeted that the hack has impacted multiple wallets “on a multitude of different platforms”.

Elliptical chief scientist Tom Robinson told CNBC the cause of the breach is still unclear, but “it appears to be due to a flaw in certain wallet software, rather than the solana blockchain itself.” OtterSec added that the transactions were signed by the actual owners, “suggesting that there is some sort of compromise with the private key.” A private key is a secure code that gives the owner access to his crypto holdings.

The identity of the attacker is still unknown, as is the cause of the exploit. The breach is ongoing.

“Engineers from multiple ecosystems, with the help of several security companies, examine empty wallets on solana,” according to Solana Statusa Twitter account that shares updates for the entire solana network.

The solana network strongly encourages users to use hardware wallets as there is no evidence that they have been affected.

“Don’t reuse your seed phrase on a hardware wallet – create a new seed phrase. Empty wallets should be treated as compromised and abandoned,” reads a tweet. Seed phrases are a collection of random words generated by a crypto wallet when it is first set up and giving access to the wallet.

A private key is unique and links a user to his blockchain address. A seed phrase is a fingerprint of all of a user’s blockchain assets that is used as a backup if a crypto wallet is lost.

The Solana network has been seen as one of the most promising entrants to the crypto market, with lenders such as Chamath Palihapitiya and Andreessen Horowitz touting it as a challenger to ethereum with faster transaction processing times and improved security. But it has faced a spate of issues lately, including downtime during periods of activity and the idea that it is more centralized than ethereum.

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