News: Chaos in Wonderland, celebs shilling Bored Apes, how VCs get rich on Web3

It’s the end of January 2022, and everything in crypto land keeps getting nuttier. The news is filled with so much crypto and NFT stuff, I can barely keep up anymore.

BTC is at $38,000, after losing nearly half its value since its all-time-high of $69,000 in November. Tether has yet to save the day. It is still hanging around 78 billion, with no recent prints. 

Shares of crypto exchange Bakkt (BKKT) are down 90% since the company went public on NYSE in October. Shares in Coinbase (COIN) are also at a low, down 50% since its debut in April 2020. (Bloomberg)

The VCs and insiders have already made their money. It’s the retailers getting burnt once again. Paul Krugman calls crypto the new subprime. (NYT)

Things are not so wonderland in Wonderland

It’s been a tough few weeks for Wonderland. The drop in crypto set off “cascading liquidations” in the DeFi project after its TIME token sunk to record lows.

Wonderland’s founder Daniele Sestagalli and its chief developer “Sifu” also suffered liquidations — $15 million and $1.6 million respectively. (Crypto Briefing)

Following the calamity, Sifu — aka 0xSifu — was doxxed. Lo and behold, it’s Michael Patryn, the fraudster who helped launch QuadrigaCX. Patryn’s been watching over Wonderland’s treasury. Don’t worry. Your funds are SIFU! I wrote about this, as did David Gerard. (My blog post, David Gerard

The Wonderland DAO voted Sifu out of the project. Now they are considering winding down the whole big silly mess. Once you’ve been uncovered, best to move on to another Ponzi. (The Block)

What’s up with celebs and BAYC?

Jimmy Fallon was hyping his Bored Ape Yacht Club NFT on national TV, along with Paris Hilton, who also owns a Bored Ape Yacht Club NFT. (LA Times)

In case you were wondering, Fallon and many other celebs get their Bored Apes via MoonPay.

Justin Bieber also recently purchased a Bored Ape, for $1.3 million. (Benzinga)

It looks like Bieber didn’t buy that Bored Ape himself. All of the ETH in his wallet came from a single transfer of 916 ETH from the @inBetweenersNFT project. (Twitter thread)

We’ve lost a bunch of celebs to NFTs — Tom Brady, Serena Williams, Edward Snowden, Tony Hawk, Matt Damon, William Shatner, and more. (Gizmodo)

The founders of BAYC are so far a mystery. Nobody knows who they are.

A blog post has been circulating suggesting that the BAYC was started by a bunch of Nazis. There are a lot of ugly things about BAYC, but this is not one of them. 

“That blog post trying to argue that the bored ape nfts are a Nazi project is the kind of thing no serious researcher of the far right should be sharing at face value. Getting bad QAnon-ish vibes from parts of the theory argued there,” Jared Holt said. Holt knows his Nazis, so I’ll take his word for this. He studies extremism at the Atlantic Council’s Digital Forensic Research Lab. (Twitter)

Twitter launches hex PFPs

Twitter will allow you to display your NFT in your profile pic in a hexagon — if you subscribe to Twitter Blue for $3 a month, you have an iOS device, and you use a supported wallet (Argent, Coinbase Wallet, Ledger Live, MetaMask, Rainbow, or Trust Wallet). (Twitter

The good news? You can easily mass-mute everyone with a hex-profile on Twitter. (PC Gamer)

For some reason, the Twitter PFP feature works with any NFT in a collection, not just verified ones. Justin Taylor, Twitter’s head of consumer marketing, encourages people to use unverified NFTs — plagiarize someone else’s work just to create an NFT and get a hex badge! (Twitter)

YouTube wants to capitalize on NFTs, too. It’s exploring new opportunities for revenue. YouTube’s CEO says she is looking to Web3 “as a source of inspiration,” noting crypto, DAOs and NFTs. (CEO’s letter, Verge)

OpenSea will refund, ask them

OpenSea is reimbursing users who lost money via an loophole on the platform. Hackers were buying NFTs previously listed for much less even though those listings didn’t appear active to the seller — if the seller neglected to delete the listing. The hackers then flipped the NFTs for huge profits.

OpenSea has so far reimbursed $1.8 million. However, many NFTs are still vulnerable, leaving the door open for bad actors, including one account named “opensee_​will_​refund_​ask_​them.” (Twitter)

On Jan. 27, OpenSea announced limits on free NFT minting — a feature that let you create NFTs without a gas fee, which you only had to pay if you sold the NFT — then reversed the decision hours later, after revealing that nearly all of the items created through the feature were either spam or plagiarized. (Vice)

Elsewhere in NFT land

MetaMask admitted last week that it neglected to patch an IP leakage issue that has been “widely known for a long time.” The issue exists in many wallets and NFT marketplaces, including MetaMask and OpenSea. (Alex Lupascu explains why this is so dangerous in a blog post.) Some researchers are now creating NFTs that grab a viewer’s IP and display it back to them, just to illustrate how NFT marketplaces like OpenSea allow attackers to load custom code when someone simply views an NFT listing. (Verge)

Neil Turkewitz interviewed “Bor,” a member of activist group @NFTtheft. The group hears from a lot of artists who claim they’ve made “life changing” money selling NFTs. But an inspection of those artist’s accounts on NFT marketplaces tells a different story. “Many times, they’ve only made a single sale. Most of the time, they haven’t sold any NFTs yet.” (blog post)

Another day, another NFT rug pull. Blockverse was a planned NFT Minecraft project, with access restricted to those who owned a particular NFT. The initial supply of 10,000 NFTs, priced at 0.05 ETH, sold out in minutes. A few days later, the founders deleted their website, Discord server, and game server, and took off with all the money. (PC Gamer)

Someone just came up with the idea of selling NFTs of colors. Why? Because you can. Behold the Color Museum, another example of how ridiculous some of these NFT projects have become. (Twitter thread)

LooksRare is a new NFT platform. It’s doing gangbusters! In fact, it’s the biggest rival to top NFT marketplace OpenSea. There’s just one thing — all of the buyers and sellers are the same people. CryptoSlam identified $8 billion sales on the platform that were wash trades. (Decrypt)

A German museum lost two CryptoPunk NFTs, worth $400,000 in crypto. Last spring, while trying to move them to another wallet, a cut-and-paste error sent the Punks to the wrong wallet address. Oops!(The Art Newspaper)

Melania Trump’s NFT auction didn’t go as planned. The sale came in under 30% of its starting bid, due to a crash in SOL, the token of the Solano blockchain. Sad! (NYT)

A disturbing trend is developing in the NFT world, wherein promoters seek to destroy physical art, so items only exist in the digital world. New Zealand auction house Webb’s is selling two NFTs of historic photos along with the glass negatives. If you buy the NFT, you get the glass negative along with a hammer to smash the artifact. (Webb’s auction portal, Newshub)

A French surgeon faces legal action after he tried to sell an NFT of an X-ray without the patient’s consent. The patient was shot in the November 2015 Paris attacks. The image was up for sale on OpenSea for $2,800. (Guardian)

Game developers have zero interest in NFTs, according to a survey by the Game Developers Conference. The comments at the end of the article are gold: “Burn ‘em to the ground. Ban everyone involved in them. I work at an NFT company currently and am quitting to get away from it.” (Kotako)

Crypto NFTs are rife with fraud. “We’re just seeing mountains and mountains of fraud in this area,” a special agent at the IRS’s criminal investigation division, said. (Bloomberg)

How VCs cash out on Web3

Fais Kahn wrote a blog post a few weeks ago on how VCs dump their shitcoins on retail by getting the coins listed on Coinbase. A16z is a Coinbase backer and holds a seat on the company’s board. Coinbase also has its own investment arm — Coinbase Ventures. Kahn’s post has gotten some attention! 

As a follow up, Ed Zitron wrote “Crypto, Web3 and The Big Nothing.” Most startups fail, and a liquidity event, if it does happen, can take years. “What Web3 allows founders to do is create companies that might do something and immediately capitalize on those promises. Instead of having to provide a service to users, you incentivize them by involving some sort of token — fungible or otherwise — that will theoretically increase in value as the company grows and does the thing it theoretically might do.”

Also referencing Kahn’s work, the FT wrote: “The Coinbase model, profit from companies it lists.” The FT did its own research. It found 20 tokens that Coinbase listed while holding an investment in a related project. Of those 20 projects, Coinbase disclosed only 12 as holdings on Coinbase Ventures.

“In the securities world, conflicts of interest have to be identified, disclosed and managed,” Tyler Gellasch, executive director of Healthy Markets, an investor focused nonprofit, told FT. “In crypto, it seems to be a free-for-all.”

Regulations

The SEC is taking a look into Celsius Network, Voyager Digital and Gemini Trust, companies with high-yield product offerings. These firms offer rates on tokens of 3% to as high as 18%. The question is whether these tokens are securities. The answer is, probably. (Bloomberg)

Alexis Goldstein has joined the Consumer Financial Protections Bureau, a federal agency created in the wake of the 2008 financial crisis. In her previous position as financial policy director at the anti-monopoly organization Open Markets Institute, she has been a vocal critic of crypto. (Read her Senate Banking Committee testimony on stablecoins if you haven’t already. It’s full of good info.) (Bloomberg)

Other news worth noting

Jennifer Robertson is getting criticized for “Bitcoin Widow.” Folks keep asking how she could have been so oblivious to Gerald Cotten’s shenanigans. Stephen Kimber, her ghostwriter, wrote an an entire article defending her. He points the finger back at Quadriga investors — the ones who actually lost money and are still waiting, three years later, to get a tiny portion of it back. “And yet no one asks them what the hell they were thinking, trusting this scam artist with their life savings?” (Halifax Examiner

FTX US gets a $400 million Series A with an $8 billion evaluation. Paradigm, Temasek, Multicoin Capital, and SoftBank led the round. The crypto exchange plans to use the funds to “accelerate its growth,” so it can leave Coinbase in the dust. (CNBC

Bermuda-based FTX also announced a $400 million Series C round, valuing the company at $32 billion. Existing investors included Japan’s SoftBank and Canada’s Ontario Teachers’ Pension Plan. FTX is one of Tether’s biggest customers. (FT)

The International Monetary Fund wants El Salvador to remove bitcoin’s status as a legal tender, dissolve the $150 million trust fund it created when it made BTC legal tender, and eliminate the $30 incentive for people to start using the digital wallet Chivo. It suggested there could be benefits to Chivo, but only if it uses actual dollars, not BTC.

The IMF warned President Nayib Bukele of the risks crypto poses — money laundering, corruption, etc. — and stressed that it would be difficult to get a loan from the institution. (IMF, Bloomberg 

Facebook Diem is having a fire sale, so it can return some money back to Diem’s investors. The project is officially dead. It’s just a matter of getting rid of the body. (Bloomberg, David Gerard)

Tether’s new accounting firm is the same as the old one. Moore Cayman is now operating under the MHA Cayman name. Also, the firm’s parent, MacIntyre Hudson, is under investigation in the U.K. (MHA announcement, Coindesk)

Texas Governor Greg Abbott thinks bitcoin miners can save the energy grid. (Decrypt)

In her latest blogpost, “Abuse and harassment on the blockchain.” Molly White says that in order to responsibly develop new technologies, we need to ask: “How will this be used for evil?” (Molly White)

Frances Coppola has returned to writing again after a break. She has taken a look at the Bitcoin ETF applications the SEC keeps rejecting. The problem isn’t the applications, it’s the market. (blog post)

This is fascinating. Ponzi schemer Stefan Qin was interviewed days before heading off to prison. The 24-year-old ran a crypto hedge fund until it imploded in late 2020 and lived in a posh $24,000/month NYC apartment — with extra bedrooms for all the sugar babies. (Youtube)

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QuadrigaCX cofounder Michael Patryn resurfaces — as 0xSifu, treasury manager of Wonderland 

Michael Patryn, the early cofounder of failed crypto exchange QuadrigaCX, has returned to crypto. A convicted felon, Patryn slid out of public view after Quadriga CEO Gerald Cotten died in India, and all the news came out about Cotten running Quadriga like a Ponzi. 

In Patryn’s latest incarnation, he is 0xSifu, cofounder and treasury manager of Wonderland (TIME token), a DeFi protocol that runs on the Avalanche network.

ZachXBT posted the news in a Twitter thread early today:

“This needs to be shared. @0xSifu is the Co-founder of QuadrigaCX, Michael Patryn. If you are unfamiliar that is the Canadian exchange that collapsed in 2019 after the founder Gerald Cotten disappeared with $169m. I have confirmed this with Daniele over messages.”

Daniele Sestagalli is the founder of Wonderland, who fully admitted to keeping 0xSifu’s true identity hidden from the rest of the group for a month.

Sestagalli posted a response to the doxxing in a Twitter thread, saying he felt Patryn — who he called a friend and “part of my family” — deserved a second chance:

“Today allegations about our team member @0xSifu will circulate. I want everyone to know that I was aware of this and decided that the past of an individual doesn’t determine their future. I choose to value the time we spent together without knowing his past more than anything.”

Sestagalli also issued an official statement on Mirror.xyz, reiterating that he believes in second chances. And reassuring everyone all the funds are safe, even though a convicted fraudster is watching over them. TIME’s treasury balance, as of Jan. 27, is nearly $680 million.

“I found out about this 1 month ago, I am of the opinion of giving second chances, as I have mentioned on Twitter. I’ve seen the community very divided about my choice of maintaining him as the treasury manager after finding out who he was and his past,” he said.

He added that Patryn will step down from his position at Wonderland. And there will be a vote as to whether or not he rejoins the team. “Wonderland has the say to who manages its treasury not me or the rest of the wonderland team,” said Sestagalli.

Of course, it wasn’t until now, they were working with full information.

Wonderland is a fork of OlympusDAO, an obvious Ponzi, as pointed out by Coindesk, who literally wrote: “Yes, it’s a Ponzi scheme. But who cares?” The project promised an annual yield of 7,000%. Compare that to Wonderland, which is currently offering crypto lenders 83,000% APY.

In addition to Wonderland, Sestagalli is behind Popsicle Finance and Abracadabra. He also headed the now-defunct Zulu Republic. Members of the collective, call themselves, “Frog Nation.”

Sestagalli doesn’t like to tell people who his is or talk about his background. When asked about himself at a 2021 conference, he replied, “I’m a frog. I identify as a frog.” You can see him speaking here.

Who is Michael Patryn?

Patryn is former convicted felon Omar Dhanani, who legally changed his name to cover up his criminal past. Patryn left Quadriga in early 2016, after he and Cotten allegedly had a quarrel and split ways. 

Prior to founding Quadriga, Patryn was one of 28 people arrested in connection to operating an identity theft ring called Shadowcrew. He pled guilty and was sentenced to 18 months in a US federal prison. Upon his release, he was sent back to Canada, where he went right back to doing what he had been doing all along — moving money. 

Operating as a type of middle man, Patryn ran several exchangers for early digital currencies, such as E-Gold and Liberty Reserve, both widely popular among underground economies. 

Five years older than Cotten, Patryn was Cotten’s mentor, his big brother, and the controlling mind behind QuadrigaCX. The two had connections that went back to their early days on TalkGold, when Cotten was just settling into his career as a con man, running small time Ponzi’s and disappearing before they went bust. He died just as QuadrigaCX, a gold mine for the small-time con, was losing its wheels.

It should be of no surprise to anyone that Patryn has resurfaced again, or that he has found a trusting partner such as Sestagalli to kick off another business with.  

Patryn is a one-trick pony. He’s not clever enough to reinvent himself, and his hubris makes it impossible for him to simply disappear and go and enjoy a quiet life somewhere. 

MyCrypto founder Taylor Monohan, who was in the QuadrigaCX documentary Dead Man’s Switch, tagged Patryn’s wallet in 2019, after she herself lost money on QuadrigaCX. The wallet has remained active and shows transactions totaling 20 ETH to 0xSifu’s address, as Monohan points out on Twitter.

0xSifu’s wallet currently has $70 million worth of crypto in it. It’s been apparently offloading funds all day. Earlier, it held over $450 million worth of various coins.

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