Twitter Vigilantes Are Hunting Down Crypto Scammers

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At the beginning of last month, laden with a jargon Post A pseudonymous Twitter handle took the crypto world by storm.

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The account called itself Gabagul.Ξth (mixture of references the Sopranos and Ethereum blockchain) and featured a fuchsia nebula as a profile picture. It saw decentralized finance, or DeFi, as a galaxy of blockchain-based apps that provide cryptocurrency lending and exchange services. The creators of the DeFi protocol often promote user loyalty by staging “airdrops”: the distribution of cryptocurrency tokens anonymously to users who have deposited a certain amount of cryptocurrency on the network. In May, a service called Ribbon carried out one such airdrop, distributing 30 million Ribbon tokens to 1,620 wallets. The tokens were designed in such a way that they could not be redeemed until 8 October.

On 8 October, Gabgool noticed something suspicious. A group of 36 wallets that received Ribbon tokens quickly exchanged them for the popular Ether cryptocurrency, then transferred the Ether to a cryptocurrency wallet. Gabagool thought that the person or people behind that wallet created 36 Ribbon accounts shortly before the airdrop in order to maximize the chances of receiving the tokens. According to Gabagool’s calculations, the wallet to which they were transferred earned at least 652 Ether, which was valued at $2.3 million at the time. “I thought, ‘Well, this guy made fun of AirDrop,'” the man running the Gabagool handle tells me in a phone call.

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That kind of fraud is not uncommon in cryptocurrency trading, an area where fake identities and sock puppetry abound. Then Gabgool discovered who Wallet ownership: By cross-referencing the address with information from Twitter and the crypto-wallet register ENS domains, Gabagool concluded that it belonged to Bridget Harris, a junior employee at the San Francisco-based venture capital firm Divergence Ventures, who has invested more. 50 cryptocurrency projects – including Ribbon.

Gabgool saw this as dishonest. He wondered whether, as a Ribbon backer, Divergence Ventures might have advance knowledge of the airdrop and then used that intel to milk millions by converting Ribbon tokens into ether. “They tried to exploit that information to make a profit, and they did so by publicly talking about being very excited and excited about Ribbon,” he says, comparing the actions of insider trading. Gabagool distilled his information in a tweet that “kind of blew up” as soon as he fired it up, he says.

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Divergence Ventures denied insider knowledge of the airdrop but later accepted to “cross a line”; This eventually returned the ether to the ribbon. In view of the incident, Mr. Reference Ribbon Investments disappeared from Divergence Ventures’ website. Divergence Ventures did not respond to a request for comment, and Harris did not respond to multiple requests for an interview via Twitter.

Gabagool is intent on finding, tracking and uncovering suspicious practices in the emerging DeFi world. Cryptocurrency is intended as electronic money that users can exchange anonymously and without intermediaries. But that anonymity comes with transparency: Cryptocurrency transactions are denominated in an open digital ledger, the blockchain, that provides a record of how assets flow through the system. Companies such as Chainalysis and Elliptic have created software to aid law enforcement investigations into illegal cryptocurrency-related activities. In contrast, these new amateur detectives rely on their hunch and the tips of others, use free tools to investigate blockchain activity, and broadcast their findings through pseudonymous Twitter accounts like Gabagool, Zack, And Sisyphus, Gabagool said he noticed suspicious ribbon activity while looking at Etherscan, a tool for tracking blockchain transactions. He and other officials say they are fueled by a propensity for investigative work, outrage, or frustration with the shamelessness of some people in space. They say that they are trying to save DeFi from themselves – by becoming its sheriff.

DeFi is arguably the wildest holiday of the cryptocurrency’s Wild West. Its advocates present it as a happy digital island where investors eliminate financial middlemen to negotiate on a peer-to-peer basis. In practice, it can sometimes resemble the digital equivalent of a tour of Las Vegas on LSD. DeFi protocols are often run as decentralized autonomous organizations: online-only operations that claim to be managed collectively by users rather than by a C-suite. Most DAOs provide financial services through self-executing software programs, which users can mix and combine to create unique trading strategies. New shiny crypto-tokens are constantly launched, usually on the Ethereum blockchain; Users earn tokens in the form of interest by parking the cryptocurrency on a decentralized exchange, or simply by playing video games, Non-fungible tokens, or NFTs—are sometimes cryptographic stand-ins for memes and pieces of digital art. accepted as collateral For cryptocurrency loans.

Even as other corners of the cryptocurrency world move toward the mainstream, this fast-moving, nihilistic mirror world of precious tokens and runaway meme-coins—largely outside the purview of regulators—is as investment in DeFi platforms. The overall value of the cryptocurrency exchanged is $250 billionAccording to data aggregator DeFi Lama. Primarily, DeFi is littered with behaviors that would be considered suspicious elsewhere. Exit scams, or “rag-pulls”, are where the creator of a DeFi project absconds with users’ cryptocurrency as well as more nuanced “white collar” misdemeanors, such as promote a project without disclosure Payment from its makers, or exploiting connections and influence to gain an unfair advantage over the market.

According to Zach, another Twitter-based investigator, the lack of regulatory oversight at DeFi has made self-policing necessary. “In every other industry, there are rules” [bare] Minimal,” Zach says in a Telegram conversation. “These people defame the industry and lock people out.” Zach, who focused on uncovering promoters hiding ties to supporters of a token, says authorities began uncovering “bad actors” because they were angry that taking advantage of people had any consequences. were not. Zach, whose Twitter bio reads “10x Rag Pull Survivor,” might even have a personal ax to grind. Zach says the 10x reference is a joke, but adds, “If you’ve been in space for a while, it’s very unlikely that you [have been swindled] in some capacity. ,

Gabagool thinks he and his fellow investigators want to ensure DeFi’s existence. “There is a real potential within DeFi, to create a different type of financial system,” he says. “But this requires us to actively strive to protect retail users from sophisticated actors who have privileged information.”

Gabagool—who says he is a US-based academic and refuses to disclose his real name to avoid harming his teaching career—says he started crypto trading on the DeFi platform at the start of the pandemic , and well done that is now “paying off” [his] Rent in tokens. Then they began to look at other activities on these networks, mainly using open source technologies. Since the Ribbon incident, he has been collaborating with a group of three to seven other amateur digital gumshoes on the investigation and launched his token with the aim of creating a collective for research. Ribbon at the summit of Hu-Ha, Gabagul and Sisyphus Establish a crowdfunded reward program called d. is calledeasywatchers.eth To reward people who suggest “bad behavior” in DeFi. According to etherscan data, digitalwatchers.eth has received about seven ethers from other wallets and transferred more than two ethers to three wallets. Sisyphus declined to be interviewed for this story unless he was paid for his time.

The main problem with amateur probes is that they lack teeth. Twitter threads or blog posts in which crypto-spies reveal their findings are only good for warning potential victims or embarrassing criminals. Hope people care enough about their reputation to make amends. This happened with Divergence Ventures, and previously with NFT marketplace OpenC, which in September found itself at the center of another “insider trading” scam. twitter user Its head of product was accused of NFT deposits by artists that were about to appear on OpenC’s homepage, thus benefiting from a spike in hype. The head of product was forced to resign.

But when shame doesn’t bring change, very few can. Many of the behaviors uncovered by crypto-spies take place in a regulatory vacuum. “Insider trading has a very specific meaning – using non-public information when trading the stock market,” says Nick Price, crypto-asset dispute specialist at law firm Osborne Clark. “These tokens are not stocks and shares. NFTs are not regulated, so it is not insider trading.”

Price says cases of fraud, such as theft of crypto or manipulation of smart contracts, can be reported to the police. But he says the level of scrutiny coming from the cryptocurrency community, and the quality of information it can crowdsource, is “unprecedented.” For example, users of the DeFi protocol indexed finance in October said They uncovered the man who had committed the theft of $16 million on the network – although negotiations with the hacker to recover the funds did not ultimately end. The team is “working to determine which authorities have jurisdiction over the attack,” According to a recent Twitter post.

The open ledger of blockchain is a huge advantage for investigating mischief. It “leaves a much better audit trail than other sectors,” Price says. “There’s more info…

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