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| The biggest crypto news and ideas of the day Feb. 8, 2022 If you were forwarded this newsletter and would like to receive it, sign up here. Supported by
Welcome to The Node.
In today’s newsletter: Federal officials seize $3.6 billion of bitcoin from Bitfinex hack. KPMG adds crypto to its balance sheet. Leading exchanges announce integrity coalition. And DeFi's Aave announces Lens, a social media protocol.
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Today’s must-reads Top Shelf BTC BALANCE SHEET: The Canadian branch of accounting giant KPMG has made its first allocation of crypto assets to its corporate treasury. “KPMG in Canada is bullish on cryptoassets. We believe they are here to stay and we’ll consider other innovative investment opportunities in the future," KPMG Canada spokesperson Roula Meditskos told CoinDesk. KPMG joins corporates such as software company MicroStrategy (MSTR), electric car giant Tesla (TSLA) and payment firm Square (SQ) in making similar moves.
MARKET INTEGRITY: Solidus Labs, Coinbase, Huobi and Circle have formed the Crypto Market Integrity Coalition (CMIC), pledging a commitment to safe markets and working with regulators. The CMIC plans to add more members, develop training programs and to share insights and research. The Securities and Exchange Commission has denied several spot bitcoin ETF applications, a key issue for the crypto industry, citing the potential for market manipulation and fraud.
AAVE’S SOCIAL: Popular decentralized finance (DeFi) lending platform Aave has announced the launch of Lens, what founder Stani Kulechov described on Twitter as an “open, composable [Web 3] social media protocol to allow anyone to create a non-custodial social media profile and build new social media applications.” The protocol allows users to create NFT-based profiles that can store posts, publications and follower history, incorporates revenue-sharing features for content hosted on IPFS, and has built-in governance for groups of mutual followers, according to the Aave web site. The protocol is built on Polygon, the blockchain that just raised $450 million in a token sale.
WHISTLEBLOWER DEFENSE: A decentralized autonomous organization (DAO) raising money to support controversial whistleblower Julian Assange's legal defense has collected 12,350 ether (about $38 million), according to fundraising platform Juicebox. The DAO is made up of self-described "cypherpunks" who started the DAO on Dec. 10 when a U.K. court ruled Assange can be extradited to the U.S., where he faces 175 years in prison, the AssangeDAO site says.
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Putting the news in perspective The Takeaway What's More Important: Anonymity or Accountability? The past 10 days have been extremely eventful in the crypto world, as three dramatic events test the core values of the community – and, perhaps, highlight their limits.
First, in late January, came the revelation that 0xsifu, the pseudonymous co-founder and chief financial officer of the Wonderland DeFi (decentralized finance) project, was in fact Michael Patryn, aka. Omar Dhanani, who had previously played a major role in the $190 million QuadrigaCX fraud.
Then, on Feb. 4, came another identity revelation, as BuzzFeed unearthed the names of two of the Bored Ape Yacht Club founders.
Almost simultaneously, Ethereum Name Service (ENS) leader Brantly Millegan faced intense backlash after the discovery of 2016 tweets that expressed anti-gay, anti-trans and other troubling social views. Yesterday, he was removed from the ENS team.
Reactions to the three incidents varied in nuance and degree, but had a common thread. In both the BAYC and Wonderland cases, there were some who argued that the real villain was the investigator “doxing” anonymous founders or leaders. In the case of Brantly Millegan and ENS, a substantial portion of major crypto figures argued that Millegan’s sidelining was a concession to a “woke mob” enforcing its own standards of political correctness.
These reactions are linked by what they ignore: the element of power.
This is most obviously and troublingly visible in the swarm of mostly anonymous Twitter users who attacked the investigator @Zachxbt for exposing Patryn’s identity. The absurdity of this position is easy to spot. Bagholders were mad that the value of their Wonderland-linked tokens dropped after the revelation, but having a figure like Patryn directly handling the money flowing through the system represented a substantial risk of future instability. If Zachxbt had done nothing, that could have come much later – but the delay would only have yielded bigger losses, potentially spread across many more people and systems.
A similar dynamic is behind BuzzFeed’s highlighting of the identities of the BAYC co-founders, which had already been made public through corporate filings for Yuga Labs. There’s no indication at all that the BAYC team members are bad actors, but their leadership of a company valued at roughly $5 billion, with influence over the value of high-priced NFTs (non-fungible tokens) held by thousands of users, makes their identity a matter of legitimate public interest. If anything, you might argue BAYC holders should be happy – knowing that their assets are being managed by regular folks and not career scammers is good for their bags.
Crypto types love to believe they’re reinventing everything from scratch, and so they might be surprised by how useful it is to look at the literal centuries of thought already devoted to these issues. The case for public interest superseding the individual privacy of prominent figures has expanded, at least in the West, alongside rising levels of political freedom and democracy. That’s because (at least in theory) liberal democracy relies on public discourse to reach good policy decisions, and productive discussion requires good information – including good information about people with individual power to shape events.
The same logic applies to free markets, because individual decisions guide where resources are allocated and what behaviors are rewarded. It seems hard to argue that buyers of Wonderland assets were signaling informed confidence in the project if they didn’t know that one of the people in charge was an alleged repeat offender.
In other words, whether as a consumer or voter, you can’t make a real decision unless it is an informed decision. And over time, a bunch of collective decisions made on incomplete or inaccurate information can lead an entire industry, economy or even an entire society in the wrong direction. That’s why in the United States, as one legal analysis puts it, “public figures have almost no right to privacy, even when the published information about them is false.”
Similar principles hold, in varying degrees, across modern liberal democracies. It’s fundamental to how shared citizen governance is intended to work.
Of course, there are very good reasons that anonymity has become increasingly normalized in crypto in particular. On the one hand, more than a decade of regulatory uncertainty has left some ambiguity about what it’s actually legal to do in crypto. And in a few limited cases, there may be activities that break the law but adhere to a higher moral rationale.
In both instances, anonymous founders may be justified in following in the footsteps of Satoshi Nakamoto. But they must accept that they’re sacrificing some credibility when they go anonymous – and pseudonymity can’t be mistaken for carte blanche for bad actors to cover up their past actions, or escape responsibility for future ones.
There is a final mental knot to untie in all of this, which is the role of “decentralization.” If you took all the rhetoric around DeFi at face value, you might imagine that the identity of founders was irrelevant. Constant theoretical discussion of decentralized autonomous organizations and on-chain governance might give the impression that people like Brantly Millegan and Michael Patryn are merely engineers and caretakers. In principle, these systems aren’t intended to have “key leaders” whose singlehanded intervention can directly alter their development.
But, as Jump Trading’s bailout of the Wormhole protocol after a crippling hack demonstrated last week, we’re not there yet – perhaps one of the most important and widely overlooked truths in crypto. There are constant backstops, rollbacks and policy modifications in DeFi. The uncomfortable truth is that individuals with particular standing, skills or behind-the-scenes influence still wield enormous power over systems touted as democratizing finance.
That was the argument deployed by the ENS community as it removed Brantly Millegan. The concern wasn’t that his views were somehow existentially unacceptable (as homosexuality apparently is to Milligan), but that he would use his influence over the system to make it less usable by people whose identities he believes make them less than fully human.
Ultimately, the biggest failure may be that Millegan was seen as having that amount of power and influence in the first place. The ideal crypto developer and leader should be engaged in a constant race to fling power away from themselves with great force and distribute it to their community.
If they were actually doing that effectively, nobody would give a damn about who they were or what they believed, because it wouldn’t matter in the slightest.
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