This is Bloomberg Crypto, a daily Bloomberg Ihad podcast, and I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News. It's Thursday, February nine. One of the more interesting phrases used by folks in crypto is this one code is law. Think of it this way. Under the idea that code is law, what governs whether something, say, a transaction is valid or not isn't the whims or caprices of any individual regulator or government. Instead, what determines whether something is acceptable, permissible, or appropriate is what's written into the software that enabled that transaction in the first place. It's another way of thinking about the so called immutability of the blockchain. If the blockchain says it, then that's what's going to be true. That's what's going to remain. Sounds logical, right, But what happens when the code doesn't do what you're expecting it to do, or when someone or some party exploits loopholes in the logic of that software for their own personal financial gain. That's what we're going to talk about today. The interesting precedent set by a crypto trader named Abraham Eisenberg, who exploited the idea of code is law for millions of dollars and then was arrested and charged with fraud. Joining me now to break down what the latest charges mean is Bloomberg reported, Muya Chen and Bloomberg Lower correspondent Matthew Boltman. Matthew, Muya, Welcome back to the show, Muya, While come to the show, Matthew, So Mouel, I want to start with you. We have talked about this idea of code is law. We've actually had folks on the show previously talking about this Mango Markets hack. But what's been happening recently? Why does this continue to be a big deal as it were for players in crypto. I think let's just step back on what happened, as we all now that Einsberg was sort of involved in several I think criminal complaints right now, both SEC as well as I think the prosecutors in York has sort of suit him for several cases. And maybe we want to step back on what happened exactly and why it's important. The big part is that Einsberg sort of was suited for using to Mango Markets accounts that he controlled the manipulates the prices of Mango perpetro swaps, which are features that allowed traders to keep their positions open. And what is the man Gold market. It is a lending project that's based on Salona blockchain that allows people to post certain tokens in um. This example, we can post Mango tokens, which is a native token of Mango markets, to borrow other type of tokens for example stable coins and things like that. Now, what are some of the particular crypto issues that are at played here, Like how has this been playing with folks into centralized financer defied Because we're going to get into some of the more legal arguments very shortly for me um covering Mango markets hack. The biggest interesting part is that it's very big. Despite what he climbed himself, everything did in the past was like he was just following the code that was designed to supposedly. How it works that he has received very little support from DeFi community in general and Defamy as we know is they sort of have this belief in code is law essos, which is a belief that author in crypto is the pieces of a coat that underlies all the projects. However, as the court is designed and people were just following it, Matthew, How do regulators feel about this idea that someone can allegedly exploit a protocol a marketplace for you know, tens of millions of dollars and then say well, this is just what your software allowed me to do. The law enforcement and the regulators would disagree. I think that is maybe one of the big takeaways from kind of the the legal action that has has come of this is that if they view an action as as being fraudulent or market manipulation, they are going to aggressively pursue that behavior. What about this action is being viewed as potentially fraudulent or a manipulation of markets? And who are the players involved? So there are a few at this point. The Department of Justice has brought a case alleging wire fraud, commodities fraud, and commodities manipulation. The Commodity Future and Trading Commission has brought its own case, and the Securities and Exchange Commission late last month brought a case alleging securities fraud against Mr Eisenberg. That's a lot of people and a lot of allegations. Why are there so many players here? I think? I mean from the d j's perspective, those are criminal charges, and then you have the CFTC and the SEC are these regulatory agencies. Those are civil complaints where they could in theory, recoup some of the allegedly ill gotten gains from this alleged scheme. Their theory of the cases is all pretty similar that the idea is he artificially propped up the price of the mango token, increase, seen the price of these mango perpetual futures, and ultimately walked away with somewhere in the neighbor of fifty million dollars. When I was setting done, and it sounds to me like there's this interesting I don't want to use the word tension necessarily, but there's this interesting distinction between like the crypto perspective on this as Mouao is describing it, which is, you know, these contracts for this particular protocol were set up in a way that allowed what Eisenberg to be done, and the regulators are coming in and they're like, sure, but the spirit of the actual laws that play hair would scream that this looks to be something closer to fraud and market manipulation. How have regulators in your experience had to deal with sort of translating some of these crypto native concepts into policy, legislation, law enforcement. I think from the from the DJ's perspective, they describe this as the defied finance plan forms. This is a new frontier of old school financial crimes. I think from their perspective, if you did the types of actions that he is accused of doing in a traditional market, that is going to be market manipulation, and um wouldn't be a whole lot of debate. I don't think about from the DJ's perspective, um and that they pursue charges. I think for them it's it's simply a matter of the same type of conduct in a new platform. From their perspective, it's it's quite similar now we are. While we may have said at the beginning that you know, like this idea of code is law is very widespread, a lot of people believe in it, the actual reaction to what happened to Mango Markets was far from unanimous, right. You definitely had people who were like, Nope, this this is not acceptable and we can't keep allowing things and defied to go this way. In addition to of course Eisenberg himself who at the time was like, well, you know, this is this is what I was able to do. So how do you, as someone reporting on this attempt to reconcile these differing perspectives as that was very interesting Previously when there's any sort of charges from regulators or prosecutors on DeFi related behaviors, we often see sort of resistance from the community and you know, as again cold is law and they believe that this is out of out of the regulation, out of regulators, sort of like field. UM. I think today, given what happened in the past year in Town two, which not exactly they're the most beautiful year for crypto in general, we saw at all kinds of frauds happening, and I think cryptal in general is quite humbled from all the experience in two, and they realize that it is almost sort of like naive to think today that crypto is outside the law, and people are actually hoping there's more clear locations from regulators on what it should be, um, what's legal and what's illegal and things like that. And in I think in this case specifically, given Eisenberg's own personality and how he sort of like bragged about his all his like you know, highly profitable trade trades in the past. People are very happy about that, you know, like the prosecutors are going after him and showing kind of example that they also make a distinguistinguished between what he was doing versus you know, quote is law, because in I think a lot of defail advocates his behavior there isn't like a reflection of code's law in crypto and he's what he's trying to do is code is above law, which is different. Well, I've asked you this question before, but is there really a middle ground, like is it possible to have defy with trap FI characteristics or Matthew, is it possible to have different types of banking with some of the you know, perceived innovations of crypto or we're always going to be talking about two totally different languages and the people who just like look at each other like they're both aliens on either side of this from covering defy self. The trend I'm seeing today is that I think DeFi is getting more and more sort of similar to traditional finance. I think a good point is that a lot of people are talking about so called permission to defy, which is the DeFi projects. That's white listing certain players into participating projects while after they were I think they went through such as like a m L and uh other different rules before they can't do that. So I think at this point, first of all, we are in a bear market, that we are far away from the old like Defy summer, when there was a lot of interests, a lot of retail interests, a lot of money in the space, and right now they have little interests in space in general, and people are looking for real innovations also called like real yields, real high real returns in the space other than just a bunch of like random tokens and posting sort of like fun or like unrealistic like high numbers out there. But in order to bring real I think returns or yields into Defy, you have to have sort of regulations, regulatory framework around it for I think institutions to participate. I think defied people, as I mentioned earlier, they're they're really humbled by the experience in two and they're sort of more like proactively engaging I think regulators, not just in the US, I think around the globe, because you know, after crypto is like global even there's might be a litteral slowdown in the US in terms like having a regulatory framework around how to to D five, But I think in other parts of the world too, I saw defied people. They're talking to a lot of regulators around word about how they can sort of encouraging an environment that can allow more banks, allowing more investment banks as well to get into this space. Up next, more from Bloomberg Report Muya Shan and Bloomberg Log correspondent Matthew Boltman will be right back. How are you seeing regulators approach this question of whether traditional finance should take on any defied characteristics. I think one of the interesting things from this complaint in particular is the SEC's view that the kind of the governance of the mango markets actually was not decentralized, that the power was concentrated in the hands of a limited number of individuals. And it's not the first complaint that we've seen along those lines. I'm thinking of another CFTC case. But at least some of these projects that these regulators are pursuing, in their view, they're kind of decorated in this new technology, but a lot of it is from their their perspective traditional fraud, and it clothes itself is decentralized, but actually the power is kind of concentrated. So I'm hearing two very interesting things from you that I want to make sure to kind of like real. The reason emphasize the first is you're saying that from the SECS perspective, from the u S regulatory perspective, this thing that presents itself as you know, we are defied, We are decentralized. From the SEC's perspective, They're like, mmmm, you look very much like these other kinds of entities that we continue to be centralized. The ways that you make decisions are concentrated in the hands of a few people, and the services or the products that you're offering also look like things that we would traditionally have remit over. Is that correct? As the first part this Mango respect to the Mango markets, absolutely, with respect of this particular project. Yes. One of the things that they had talked about the Mango token, which is kind of the central token that's involved in this alleged scheme. There were governance rights attached to that token, which in theory would give any countless people a say and how the project is run as you see in its complaint, called those governance rights illusory and said really that the power is concentrated in the creators of the mango market. Got it, and moal, if I could just put the second piece to you, that's very different from how the folks and Defy are positioning themselves. Right, So like, even with this idea of permissioned or you know, things that are subject to a higher bar, their argument is still we couldn't be more different from the banks, We couldn't be more different from these traditional securities and lending providers. Yeah, I think I would agree with that based on everyone I talked to in the past few weeks. It's just like I think an easy example is if you're creating a doubt, which is a decentralized autonomous organization, which I think is like device way of a traditional corporate entasy. It sounds like you know it is, this is like nothing like a corporate and you know it is. You shouldn't be regulated. But as long as you have a group of people who are making money in this case, that you do need to set up a bank account and where exactly you're gonna stay set a bank account if it's onshore in the US, so offshore somewhere else. Wherever it is, you know, it has the entity, it has some sort of like regulations like being involved. And what I'm seeing today is that if you're defied project that do not have a lawyer, that you're definitely constantly looking for a lawyer or any sort of legal service around how you should managing your your protocol or how you should organize your doubt today, which I think will be a trend for twenty three. Yeah, if there's one thing we can take away from a lot of these episodes is that no matter what, the lawyers will make money. So on that note, thank you Muyal, and thank you very much, Matthew. It's been a pleasure having you both on the show. Thank you. That was Bloomberg Reports Muya Chen and Bloomberg Glow correspondent Matthew Boltman. You can find more of their reporting on the Bloomberg Terminal and on Bloomberg dot com and Bloomberg Law. For more, be sure to check out or twice weekly newsletter Bloomberg Crypto. This is Bloomberg Crypto, a daily podcast from Bloomberg and I Heart Radio. For more shows from I Heart Radio, visit the I Heart Radio app, Apple Podcasts, or wherever you get your podcasts. Send us your comments, questions, or suggestions for the show to Crypto at bloomberg dot net. The supervising producer of Bloomberg Crypto is Vicky very Galina. Our senior producer is Janet Babin. Our producers are Mohammed Faruke and Sharon Burriro. Our associate producers are Ty Butler and is This on desta wonder At is our engineer. Original music by Leo Sidron. I'm Stacy Marie Schmaal. We'll be back tomorrow.

This is Bloomberg Crypto, a daily Bloomberg Ihad podcast, and I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News. It's Thursday, February nine. One of the more interesting phrases used by folks in crypto is this one code is law. Think of it this way. Under the idea that code is law, what governs whether something, say, a transaction is valid or not isn't the whims or caprices of any individual regulator or government. Instead, what determines whether something is acceptable, permissible, or appropriate is what's written into the software that enabled that transaction in the first place. It's another way of thinking about the so called immutability of the blockchain. If the blockchain says it, then that's what's going to be true. That's what's going to remain. Sounds logical, right, But what happens when the code doesn't do what you're expecting it to do, or when someone or some party exploits loopholes in the logic of that software for their own personal financial gain. That's what we're going to talk about today. The interesting precedent set by a crypto trader named Abraham Eisenberg, who exploited the idea of code is law for millions of dollars and then was arrested and charged with fraud. Joining me now to break down what the latest charges mean is Bloomberg reported, Muya Chen and Bloomberg Lower correspondent Matthew Boltman. Matthew, Muya, Welcome back to the show, Muya, While come to the show, Matthew, So Mouel, I want to start with you. We have talked about this idea of code is law. We've actually had folks on the show previously talking about this Mango Markets hack. But what's been happening recently? Why does this continue to be a big deal as it were for players in crypto. I think let's just step back on what happened, as we all now that Einsberg was sort of involved in several I think criminal complaints right now, both SEC as well as I think the prosecutors in York has sort of suit him for several cases. And maybe we want to step back on what happened exactly and why it's important. The big part is that Einsberg sort of was suited for using to Mango Markets accounts that he controlled the manipulates the prices of Mango perpetro swaps, which are features that allowed traders to keep their positions open. And what is the man Gold market. It is a lending project that's based on Salona blockchain that allows people to post certain tokens in um. This example, we can post Mango tokens, which is a native token of Mango markets, to borrow other type of tokens for example stable coins and things like that. Now, what are some of the particular crypto issues that are at played here, Like how has this been playing with folks into centralized financer defied Because we're going to get into some of the more legal arguments very shortly for me um covering Mango markets hack. The biggest interesting part is that it's very big. Despite what he climbed himself, everything did in the past was like he was just following the code that was designed to supposedly. How it works that he has received very little support from DeFi community in general and Defamy as we know is they sort of have this belief in code is law essos, which is a belief that author in crypto is the pieces of a coat that underlies all the projects. However, as the court is designed and people were just following it, Matthew, How do regulators feel about this idea that someone can allegedly exploit a protocol a marketplace for you know, tens of millions of dollars and then say well, this is just what your software allowed me to do. The law enforcement and the regulators would disagree. I think that is maybe one of the big takeaways from kind of the the legal action that has has come of this is that if they view an action as as being fraudulent or market manipulation, they are going to aggressively pursue that behavior. What about this action is being viewed as potentially fraudulent or a manipulation of markets? And who are the players involved? So there are a few at this point. The Department of Justice has brought a case alleging wire fraud, commodities fraud, and commodities manipulation. The Commodity Future and Trading Commission has brought its own case, and the Securities and Exchange Commission late last month brought a case alleging securities fraud against Mr Eisenberg. That's a lot of people and a lot of allegations. Why are there so many players here? I think? I mean from the d j's perspective, those are criminal charges, and then you have the CFTC and the SEC are these regulatory agencies. Those are civil complaints where they could in theory, recoup some of the allegedly ill gotten gains from this alleged scheme. Their theory of the cases is all pretty similar that the idea is he artificially propped up the price of the mango token, increase, seen the price of these mango perpetual futures, and ultimately walked away with somewhere in the neighbor of fifty million dollars. When I was setting done, and it sounds to me like there's this interesting I don't want to use the word tension necessarily, but there's this interesting distinction between like the crypto perspective on this as Mouao is describing it, which is, you know, these contracts for this particular protocol were set up in a way that allowed what Eisenberg to be done, and the regulators are coming in and they're like, sure, but the spirit of the actual laws that play hair would scream that this looks to be something closer to fraud and market manipulation. How have regulators in your experience had to deal with sort of translating some of these crypto native concepts into policy, legislation, law enforcement. I think from the from the DJ's perspective, they describe this as the defied finance plan forms. This is a new frontier of old school financial crimes. I think from their perspective, if you did the types of actions that he is accused of doing in a traditional market, that is going to be market manipulation, and um wouldn't be a whole lot of debate. I don't think about from the DJ's perspective, um and that they pursue charges. I think for them it's it's simply a matter of the same type of conduct in a new platform. From their perspective, it's it's quite similar now we are. While we may have said at the beginning that you know, like this idea of code is law is very widespread, a lot of people believe in it, the actual reaction to what happened to Mango Markets was far from unanimous, right. You definitely had people who were like, Nope, this this is not acceptable and we can't keep allowing things and defied to go this way. In addition to of course Eisenberg himself who at the time was like, well, you know, this is this is what I was able to do. So how do you, as someone reporting on this attempt to reconcile these differing perspectives as that was very interesting Previously when there's any sort of charges from regulators or prosecutors on DeFi related behaviors, we often see sort of resistance from the community and you know, as again cold is law and they believe that this is out of out of the regulation, out of regulators, sort of like field. UM. I think today, given what happened in the past year in Town two, which not exactly they're the most beautiful year for crypto in general, we saw at all kinds of frauds happening, and I think cryptal in general is quite humbled from all the experience in two, and they realize that it is almost sort of like naive to think today that crypto is outside the law, and people are actually hoping there's more clear locations from regulators on what it should be, um, what's legal and what's illegal and things like that. And in I think in this case specifically, given Eisenberg's own personality and how he sort of like bragged about his all his like you know, highly profitable trade trades in the past. People are very happy about that, you know, like the prosecutors are going after him and showing kind of example that they also make a distinguistinguished between what he was doing versus you know, quote is law, because in I think a lot of defail advocates his behavior there isn't like a reflection of code's law in crypto and he's what he's trying to do is code is above law, which is different. Well, I've asked you this question before, but is there really a middle ground, like is it possible to have defy with trap FI characteristics or Matthew, is it possible to have different types of banking with some of the you know, perceived innovations of crypto or we're always going to be talking about two totally different languages and the people who just like look at each other like they're both aliens on either side of this from covering defy self. The trend I'm seeing today is that I think DeFi is getting more and more sort of similar to traditional finance. I think a good point is that a lot of people are talking about so called permission to defy, which is the DeFi projects. That's white listing certain players into participating projects while after they were I think they went through such as like a m L and uh other different rules before they can't do that. So I think at this point, first of all, we are in a bear market, that we are far away from the old like Defy summer, when there was a lot of interests, a lot of retail interests, a lot of money in the space, and right now they have little interests in space in general, and people are looking for real innovations also called like real yields, real high real returns in the space other than just a bunch of like random tokens and posting sort of like fun or like unrealistic like high numbers out there. But in order to bring real I think returns or yields into Defy, you have to have sort of regulations, regulatory framework around it for I think institutions to participate. I think defied people, as I mentioned earlier, they're they're really humbled by the experience in two and they're sort of more like proactively engaging I think regulators, not just in the US, I think around the globe, because you know, after crypto is like global even there's might be a litteral slowdown in the US in terms like having a regulatory framework around how to to D five, But I think in other parts of the world too, I saw defied people. They're talking to a lot of regulators around word about how they can sort of encouraging an environment that can allow more banks, allowing more investment banks as well to get into this space. Up next, more from Bloomberg Report Muya Shan and Bloomberg Log correspondent Matthew Boltman will be right back. How are you seeing regulators approach this question of whether traditional finance should take on any defied characteristics. I think one of the interesting things from this complaint in particular is the SEC's view that the kind of the governance of the mango markets actually was not decentralized, that the power was concentrated in the hands of a limited number of individuals. And it's not the first complaint that we've seen along those lines. I'm thinking of another CFTC case. But at least some of these projects that these regulators are pursuing, in their view, they're kind of decorated in this new technology, but a lot of it is from their their perspective traditional fraud, and it clothes itself is decentralized, but actually the power is kind of concentrated. So I'm hearing two very interesting things from you that I want to make sure to kind of like real. The reason emphasize the first is you're saying that from the SECS perspective, from the u S regulatory perspective, this thing that presents itself as you know, we are defied, We are decentralized. From the SEC's perspective, They're like, mmmm, you look very much like these other kinds of entities that we continue to be centralized. The ways that you make decisions are concentrated in the hands of a few people, and the services or the products that you're offering also look like things that we would traditionally have remit over. Is that correct? As the first part this Mango respect to the Mango markets, absolutely, with respect of this particular project. Yes. One of the things that they had talked about the Mango token, which is kind of the central token that's involved in this alleged scheme. There were governance rights attached to that token, which in theory would give any countless people a say and how the project is run as you see in its complaint, called those governance rights illusory and said really that the power is concentrated in the creators of the mango market. Got it, and moal, if I could just put the second piece to you, that's very different from how the folks and Defy are positioning themselves. Right, So like, even with this idea of permissioned or you know, things that are subject to a higher bar, their argument is still we couldn't be more different from the banks, We couldn't be more different from these traditional securities and lending providers. Yeah, I think I would agree with that based on everyone I talked to in the past few weeks. It's just like I think an easy example is if you're creating a doubt, which is a decentralized autonomous organization, which I think is like device way of a traditional corporate entasy. It sounds like you know it is, this is like nothing like a corporate and you know it is. You shouldn't be regulated. But as long as you have a group of people who are making money in this case, that you do need to set up a bank account and where exactly you're gonna stay set a bank account if it's onshore in the US, so offshore somewhere else. Wherever it is, you know, it has the entity, it has some sort of like regulations like being involved. And what I'm seeing today is that if you're defied project that do not have a lawyer, that you're definitely constantly looking for a lawyer or any sort of legal service around how you should managing your your protocol or how you should organize your doubt today, which I think will be a trend for twenty three. Yeah, if there's one thing we can take away from a lot of these episodes is that no matter what, the lawyers will make money. So on that note, thank you Muyal, and thank you very much, Matthew. It's been a pleasure having you both on the show. Thank you. That was Bloomberg Reports Muya Chen and Bloomberg Glow correspondent Matthew Boltman. You can find more of their reporting on the Bloomberg Terminal and on Bloomberg dot com and Bloomberg Law. For more, be sure to check out or twice weekly newsletter Bloomberg Crypto. This is Bloomberg Crypto, a daily podcast from Bloomberg and I Heart Radio. For more shows from I Heart Radio, visit the I Heart Radio app, Apple Podcasts, or wherever you get your podcasts. Send us your comments, questions, or suggestions for the show to Crypto at bloomberg dot net. The supervising producer of Bloomberg Crypto is Vicky very Galina. Our senior producer is Janet Babin. Our producers are Mohammed Faruke and Sharon Burriro. Our associate producers are Ty Butler and is This on desta wonder At is our engineer. Original music by Leo Sidron. I'm Stacy Marie Schmaal. We'll be back tomorrow.