On a black and white abstract background reminiscent of London: WR 54: AI, climate, and North Korea Weekly Reckoning for the week of 3/3/25 Emmie Hine

Although he’s currently in prison, Sam Bankman-Fried has managed to resurface. Not long after rumors emerged that his parents were investigating the possibility of securing a pardon for their son [I76], Bankman-Fried gave a jailhouse interview to the New York Sun. Bankman-Fried, a Biden megadonor who was second only to George Soros in political contributions to the Democratic party in 2021–22, now claims he too is a victim of the Biden-led “prosecutorial abuse” and “politicization of the DOJ” that Trump has alleged for years. Why would they target him? Because, he says, they learned he was “giving to” and “working with” Republicans and conservatives more than was previously known.34 In the interview, he also gave an approving nod to Elon Musk’s “chainsaw” approach to government cuts — something he would extrapolate upon in a 10-tweet long thread posted a few days later, where he apparently felt the need to make his return to Twitter in order to give his thought leader-style take on widespread firings of federal employees.35c The sudden about-face is a rather transparent and groveling attempt to suck up to Trump, but it’s not terribly surprising that Bankman-Fried’s once claimed strongly held moral beliefs have wilted in the face of the possibility of 25 long years in prison.

Slide titled 'The internet as we know it is flawed', showing two globe icons with flags planted in them. On the left, the globe has the Chinese flag and is surrounded by red speech bubbles with Xs in them and yellow triangular warning symbols. It is captioned 'Digital Authoritarianism'. On the right is a globe with a flag containing the logos of Facebook, Amazon, YouTube, Apple, and Google, surrounded by green circles with dollar signs and blue circles with checkmarks. It is captioned 'Big Tech Oligopoly'. Anyone else remember when Andreessen Horowitz published a slide deck denouncing “Big Tech Oligopoly”? Just me? McHenry subsequently revealed he would also be taking a role as an advisor to the fintech firm Stripe, as well as as vice chairman of the advisory board to Ondo Finance. Ondo Finance is a “tokenized real-world asset” firm that wants to do things like put US treasury bills or stocks on the blockchain, and McHenry will likely be a valuable asset in — in his words — “making sure that Ondo is heard by the right people in Washington” and “helping shepherd them to new relationships.”37 Ondo contributed $1 million to Trump’s inauguration in late December;38 in early February, Trump’s World Liberty Financial project purchased almost half a million dollars’ worth of ONDO tokens.39

The revolving door has spit out former Representative and longtime crypto industry ally Patrick McHenry (R-NC) into roles at not one but three industry players. He will be joining Andreessen Horowitz as a senior adviser, where he will “help innovators navigate the policy landscape”, touting his time in Congress “remov[ing] bureaucratic barriers for American entrepreneurs”. He wrote that “It’s time to level the playing field and ensure that Little Tech—the next generation of builders—gets a fair shot.”36 (“Little Tech” in this case apparently meaning the largest venture capital firm in the world, which is so very small that it was able to blow $83 million on political contributions to ensure that no fewer than four of its employees were placed in major White House roles, including as the likely upcoming head of the crypto industry’s chosen regulator, the CFTC). Any mention of everyday American and the fairness of their shots was conspicuously absent in McHenry’s statements.

Besides the mention of specific crypto assets, Trump’s post doesn’t actually appear to announce anything new, and instead reiterates that his “Executive Order on Digital Assets directed the Presidential Working Group to move forward on a Crypto Strategic Reserve” [I75]. (I will note that the actual wording of the EO was more guarded, directing the working group not to “move forward on” a strategic reserve, but rather to “evaluate the potential creation and maintenance of a national digital asset stockpile”.) Nonetheless, crypto prices rallied a bit, with bitcoin returning to around $93,000. This was still somewhat of a subdued recovery, only juicing bitcoin back to around its February 25 price, leaving me wondering how many promises Trump has left in the tank to keep bitcoin prices pumped up as they are now. Without the actual government infusion of cash into bitcoin markets via this “strategic reserve” gambit — something that may yet be a ways off, could take various forms, and could fail to materialize entirely — words alone seem to be running out.

Bybit CEO Ben Zhou was quick to try to reassure customers that “Bybit is Solvent even if this hack loss is not recovered, all of clients assets are 1 to 1 backed, we can cover the loss.”14 Many customers weren’t satisfied with his promises,b and they withdrew a combined more than $5.5 billion from the exchange after the theft was announced. Bybit was able to satisfy the withdrawals, and has since said they “closed the gap” in ETH supplies to back client assets through a combination of OTC purchases and loans from exchanges and crypto VCs.15 The lack of skepticism around Bybit’s solvency is a little odd to me. For one, it’s clear that the assets were not 1:1 backed at the time of Zhou’s tweet, given that 400,000 ETH had just been stolen. Bybit later issued a press release boasting that they were “Fully Backed Within 72 hours”, acknowledging themselves that customer balances weren’t fully backed for those three days.16 Furthermore, much of the “gap” has been papered over with loans rather than the firm’s own assets. As we saw with Genesis’s $1.1 billion “loan” to try to cover losses in 2022 [I74], a company’s ability to secure a loan to cover a hole does not magically make that hole disappear. While Bybit’s proof-of-reserves demonstrates that the company now holds a sufficient quantity of ETH to back customer balances, these reports do not evaluate Bybit’s ability to repay the loans or provide any information about the terms of those loans.

The Lazarus group is an extremely sophisticated cybercrime group that has been responsible for many of the chart-topping attacks in the crypto world, including the previously recordbreaking thefts of $625 million from the Axie Infinity game in March 2022 [W3IGG], and the the $300 million and $235 million hacks of the exchanges DMM [W3IGG] and WazirX [W3IGG] in May and July 2024. Their expertise means that they know how best to launder the stolen funds without causing serious impacts to the ETH price or risking the funds being frozen by exchanges and other centralized entities, and they have successfully laundered more than half of the stolen assets thus far by swapping it across various chains and into different crypto assets.9 While a substantial $43 million in stolen assets was frozen and recovered by the mETH Protocol, as was around $181,000 in Tether, that amounts to less than 3% of the total.10 To put this theft in perspective, the $1.5 billion stolen from Bybit alone surpasses the North Korean cyberattackers’ entire 2024 profits from crypto heists: around $1.34 billion from across 47 separate attacks throughout 2024. It’s more than double what they stole the year prior.11 According to the United Nations and the US government, these thefts have been a substantial source of funding for the country’s nuclear and ballistic missile programs.1213

Adding to pre-existing market jitters, the crypto world has just experienced a new record-shattering hack of the cryptocurrency exchange Bybit. Bybit is less known in the United States, as it is not permitted to serve US customers, which is probably why this hack has not earned the media attention of some of the other major industry disasters. However, Bybit is the second-largest exchange globally, ahead of Coinbase and behind Binance. On February 21, attackers stole more than 400,000 ETH (priced at around $1.5 billiona) from one of the company’s so-called “cold wallets”. Cold wallets are crypto wallets that are not routinely connected to the internet, making them less vulnerable to thefts. As a result, crypto exchanges often store substantial quantities of assets in cold wallets, transferring smaller amounts as needed to online “hot wallets” to satisfy withdrawals and purchases. However, any time these transfers happen, there’s some degree of vulnerability, and that’s what North Korea’s state-sponsored Lazarus cybercriminals were able to exploit.7 They were able to manipulate the Safe Wallet multisignature system used by Bybit to authorize transfers from the cold wallet to the company’s hot wallet, and when the Bybit employees signed off on what they thought was a routine transfer, the wallet was drained. Bybit and Safe are now pointing fingers at one another, with Bybit claiming that Safe’s infrastructure was compromised, allowing an attacker to manipulate the transaction s

A case against Consensys, the makers of the MetaMask crypto wallet, will be dropped shortly by the agency, according to the company.25 Consensys contributed $800,000 to crypto-focused super PACs. Simultaneously, ongoing investigations of companies including Gemini, OpenSea, Robinhood, and Uniswap have been dropped, despite the agency previously having sent Wells notices signaling impending enforcement action. Gemini’s Winklevoss twins contributed $4.9 million to crypto-focused super PACs and $2.6 million to Trump directly; Robinhood contributed $2 million to Trump’s inauguration fund.

SEC Trump’s nominee for SEC Chair, Paul Atkins [I71], has not even been confirmed yet, but that hasn’t stopped the agency from barreling ahead with the new administration’s promises to the industry that all their problems would go away. Most notably, the SEC case against Coinbase was dismissed with prejudice, meaning the SEC cannot refile the case in the future. CEO Brian Armstrong was explicit with his thanks when announcing the dismissal on Twitter: “I have to give credit here to the Trump administration, for winning the election”. He insisted that he believed “we would have won this case in the courts either way”, but noted that Trump’s election “certainly helped accelerate the process”.23 Coinbase has spent $75 million on contributions to crypto-focused super PACs, some apparently in violation of federal election law, and contributed $1 million to Trump’s inauguration fund. A case against Justin Sun and his Tron project, opened in March 2023 and alleging fraudulent market manipulation “through extensive wash trading”, “orchestrating a scheme to pay celebrities to tout TRX and BTT without disclosing their compensation”, and unregistered securities offerings, has been stayed as parties “consider a potential resolution”.24 As a foreign national, Sun is not permitted to make contributions to American political candidates or committees. However, he has spent $75 million purchasing World Liberty Financial’s WLFI tokens, and Trump personally gets a 75% cut of that project’s re

Having succeeded in lobbying for the investigation into Gemini to be dropped, Cameron Winklevoss is not satisfied. Winklevoss, a billionaire, argues that the government should pay him 3× his legal expenses, and that furthermore anyone at the SEC who was involved in cases or investigations such as the one into his company should be “dishonorably discharged” and publicly named-and-shamed on the SEC website.26

Table: Target Outcome Political contributions Coinbase Case dismissed with prejudice $75 million to crypto-focused super PACs $1 million to Senate super PACs $1 million to Trump’s inauguration fund $300,000 to the Democratic National Convention Justin Sun and Tron Case stayed as parties explore resolution $75 million purchase of Trump-affiliated WLFI tokens Binance Case stayed as parties explore resolution Gemini Investigation dropped Ongoing enforcement case status unclear $4.9 million to crypto-focused super PACs $2.6 million to Trump Consensys Consensys says SEC has agreed to drop the case $800,000 to crypto-focused super PACs OpenSea OpenSea says SEC has closed their investigation Robinhood Robinhood says SEC has closed their investigation $2 million to Trump’s inauguration fund Kraken No announcements with respect to ongoing SEC case Relaunched staking services which were shut down as part of a February 2023 SEC settlement $1 million to Trump $1 million to Trump’s inauguration fund $1 million to crypto-focused super PACs Circle January 2024 IPO still under review $1 million to crypto-focused super PACs $1 million to Trump’s inauguration fund Ripple No announcements with respect to ongoing SEC case $48 million to crypto-focused super PACs $12.6 million to Harris $5 million to Trump’s inauguration fund $3 million to the Democratic National Convention ~$1 million to House and Senate Democrat super PACs