This week’s edition of ‘The Cortex Connection’ summarizes some of the events, trends, and developments from the month of July.
Security
Conic Finance suffers $3.2 million loss in DeFi attack
Decentralized finance (DeFi) protocol Conic Finance was compromised on Monday, resulting in the loss of over $3.2 million worth of Ethereum. The attackers exploited a vulnerability in the smart contract that allowed them to withdraw more funds than they deposited - also known as a Reentrancy Attack. The development team has been dilligent to provide a post-mortem for the incident and has addressed the vulnerabilities but has suspended new deposits as they continue to work on recovering funds and assess next steps for the protocol.
EraLend Exploited, $3.4 Million Stolen in Read-Only Reentrancy Attack
EraLend, a decentralized lending protocol operating on the zkSync Layer 2, was exploited on July 26, 2023. The attack resulted in the loss of $3.4 million, which was withdrawn from the protocol's USDC pool. The attack was another common re-entrancy attack, which involves a malicious actor repeatedly entering and exiting a contract function to manipulate the contract's state and withdraw funds.
BlockSec, a security firm that assisted EraLend in addressing the issue, has confirmed that the exploit has been contained. The protocol has suspended all borrowing operations and advised users against depositing USDC until further notice.
Multichain, One of the Largest Crypto Bridging Protocols, Cease Operations
Multichain, a popular crypto bridging protocol, has announced that it is ceasing operations. The company cited the detention of its CEO, Zhaojun, and his sister by Chinese police as the reason for the closure. Zhaojun was taken away by Chinese police on May 21 with his computers, phones, hardware wallets, and mnemonic phrases all confiscated. His sister was taken into custody on Thursday. Multichain said that it has been forced to take this action "due to lack of alternative sources of information and corresponding operational funds." This action took place after Multichain was exploted for nearly $130M in crypto assets earlier this month.
Poly Network Suspends Service After Hacker Steals Millions in Digital Assets
Poly Network, another cross-chain bridge, has suspended its services after a hacker stole millions of dollars in digital assets. The hacker was able to exploit a vulnerability in the platform's code to steal 10 million USDC, 2.5 million BUSD, and 1,000 ETH. Poly Network has said that it is working with law enforcement and blockchain security firms to track down the hacker and recover the stolen funds.
Regulatory News
US Senate Proposes to Regulate DeFi Platforms as Banks
A new bipartisan bill introduced in the U.S. Senate would impose bank-like anti-money laundering (AML) requirements on decentralized finance (DeFi) protocols. The bill, the Crypto-Asset National Security Enhancement Act of 2023, would require DeFi protocols to collect and verify user information, report suspicious activity, and implement other AML measures.
The bill's sponsors say that it is necessary to prevent DeFi from being used for money laundering and other criminal activities. However, some critics argue that the bill would stifle innovation in the DeFi space.
Senators Reintroduce Bipartisan Crypto Bill Aiming for Comprehensive Regulation
Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) reintroduced a bipartisan bill on July 19, 2023, that would provide comprehensive regulation for the cryptocurrency industry.
According to Senator Lummis, the bill, titled the "Responsible Financial Innovation Act," would “…create a federal regulatory framework that allows crypto businesses and investors to prosper here in America while protecting consumers from bad actors.”
House Financial Services Committee Advances Crypto Bills
The House Financial Services Committee voted in favor of two crypto bills on Wednesday, H.R. 4763, the Financial Innovation and Technology for the 21st Century Act, and H.R. 1747, the Blockchain Regulatory Certainty Act. The bills would provide a unified legal framework for crypto and address blockchain-related issues. They now move to the full House of Representatives for a vote.
The bills were met with mixed reactions from the crypto community. Some praised the bills for providing much-needed clarity for the industry, while others criticized them for giving too much power to the Commodity Futures Trading Commission (CFTC).
FSB Releases Framework for Global Cryptocurrency Regulation
The Financial Stability Board (FSB) has released a framework for global crypto asset regulation. The framework outlines key principles up for regulation surrounding intended use, risks, interconnectedness, and international cooperation. The FSB's framework is a significant step forward in the development of global crypto asset regulation and provides further clarity for what regulators hope will ensure assets are regulated in a consistent and effective manner.
SEC Appeals Ripple Ruling, Citing Terra's Collapse as Example of Howey Test Failure
The Securities and Exchange Commission (SEC) has filed an appeal of a court ruling that found Ripple Labs did not violate securities laws by selling its XRP token. In its appeal, the SEC cited the collapse of Terraform Labs and its stablecoin UST as an example of how the court's ruling in the Ripple case could lead to the misclassification of other digital assets as securities. The SEC argued that the Howey test, which is used to determine whether an investment contract is a security, should be applied more broadly to digital assets.
For Your Information
Worldcoin Launch Divides Crypto Community, with Concerns Raised About Centralization, Privacy, and Security
The launch of the blockchain-based digital passport platform Worldcoin has polarized the cryptocurrency community, with some raising concerns about its centralization, privacy, and security. The project relies on highly sophisticated biometrics, scanning each user's iris using a piece of specialized hardware called "the Orb." This has led to concerns that Worldcoin could be used to track users' movements and activities as well as centralization concerns, as the project is controlled by a small group of individuals. The launch even prompted a long form response from Ethereum Co-Founder Vitalik Buterin that discusses the importance and potential pitfals regarding biometic proof of personhood in general.
Degens Are Betting Crypto on Snails, Rats, and Rabbits
The markets must be boring as some in the crypto community are now betting on the speed and agility of snails, rats, and rabbits in a new wave of animal-based betting dApps. The most popular of these dApps is Hamsters, which allows users to bet on live-streamed hamster races. Other popular dApps include Snail Trail, ZED Run, Metaderby, Rabbit Race, and Rat Roulette.
RFK Jr. Invests in Bitcoin for His Children
Robert F. Kennedy Jr., the son of former U.S. Attorney General Robert F. Kennedy and nephew of President John F. Kennedy, has revealed that he has purchased Bitcoin for his children. Kennedy, who is running for the 2024 Democratic presidential nomination, said that he believes Bitcoin is a "sound investment" and that he wants his children to be "exposed to the potential of this technology."
Prosecutors Seek to Revoke Sam Bankman-Fried's Bail, Alleging Witness Tampering
Federal prosecutors have requested that Sam Bankman-Fried's bail be revoked, alleging that he leaked the personal writings of Caroline Ellison to the New York Times. Ellison was formerly the CEO of FTX's sister firm, Alameda Research, and was briefly in a relationship with Bankman-Fried. Prosecutors believe that Bankman-Fried's alleged actions constitute witness tampering, and that he is a flight risk.
That’s it for our news roundup for July. We hope you found these updates useful. If we missed anything or you have any feedback or suggestions for future editions, feel free to visit our Discord to let us know.