[HN Gopher] DeFi bug accidentally gives $90M to users
___________________________________________________________________
DeFi bug accidentally gives $90M to users
Author : pseudolus
Score : 349 points
Date : 2021-10-01 11:21 UTC (11 hours ago)
(HTM) web link (www.cnbc.com)
(TXT) w3m dump (www.cnbc.com)
| optimalsolver wrote:
| What's the average amount of loss that gets rugged crypto
| individualists begging for an intervention from Big Daddy
| Government?
| nielsbot wrote:
| That 10% "white hat" bonus is also taxable as income, right?
| ctvo wrote:
| If this isn't incentive to sign up for as many half-baked crypto
| platforms as possible, I don't know what is.
| stemlord wrote:
| Could have just as easily taken 90 million from users tho
| ctvo wrote:
| In case anyone reading this is unsure, DO NOT deposit 90+
| million USD into half-baked crypto platforms.
| danuker wrote:
| It's enough if 9 million people fall for $10.
| CobrastanJorji wrote:
| You're both right. We need to run a meta-scam where we
| create a visibly half-baked crypto currency in the hopes
| that a million investors hoping for a windfall from a
| software bug invest $10 each.
|
| Announcing CobrastanCoin. Motto: "Commits are forever!"
| For security, code changes are pushed instantly and can
| only be rolled back after 30 days. Our crypto dev team is
| our founder's brother's son Doug, who we hear is a whiz
| with computer things. We're looking into hiring someone
| to review Doug's code, send us a resume if you're
| interested. Our Coin IPO auction is in two weeks.
| sam0x17 wrote:
| Who thought Compound would give us accidental UBI
| paulpauper wrote:
| The IRS is the most understaffed, underfunded, overworked of the
| major agencies. Its alleged power is mostly an illusion of the
| media. I know someone who made over $1mm in a year and didn't pay
| taxes. just kept delaying it and got a lot of letters. A decade
| later still has not paid it. now the FBI and Secret Service are
| way worse though.
| mcintyre1994 wrote:
| Pay back 90% or I'll make sure you have to pay massively less
| than that in tax doesn't seem like a particularly strong threat?
| Khoth wrote:
| "Pay back 90% or we'll direct the IRS's attention to you, and
| they might well ask about all your other crypto stuff that you
| didn't declare"
| masterof0 wrote:
| Curious, what if you do declare all your crypto assets to the
| IRS, does the thread holds? I'm happy to pay taxes on free
| money.
| LurkingPenguin wrote:
| > "The protocol can easily absorb a loss of $90 million and a lot
| of it will likely be returned, but the larger issue would be if
| people lose confidence in the system's ability to function
| properly," said Greenspan.
|
| Why would anyone ever lose confidence in a system that sent $90
| million to users as a result of a "one-letter bug" in an "upgrade
| gone epically wrong"?
| quantified wrote:
| Can you lose what you never had to begin with?
| qwerty456127 wrote:
| At least in some European countries you can sue a person who
| refuses to return the funds transferred by a mistake and win
| inevitably. I have been such a person who got money this way
| (from a particularly rich company which earns its money a legal
| but morally questionable way so I have no remorse) and has been
| forced to return + pay the legal expenses (which can be pretty
| affordable in Europe). I never meant to actually keep the funds
| forever but used the lucky event as a loan :-)
| Zitrax wrote:
| I am also a bit confused by this. I have definitely read before
| that you can't keep money payed by mistake. Is this different
| in the US or is this some difference with cryptocurrencies vs
| normal banks?
| Glench wrote:
| Man, it feels like this has been happening a lot. I guess this
| happens when you have what is essentially JavaScript code on the
| EVM handling vast sums of money.
| cryptica wrote:
| It has nothing to do with the language. It's all about software
| architecture and logic. Modern JavaScript is one of the best
| programming languages in existence.
| Glench wrote:
| Yikes
| remexre wrote:
| Wouldn't a language with built-in support for proving
| properties of the code be better? My understanding was that
| compared to most of the typed functional programming
| languages, idiomatic JavaScript code is terribly more
| difficult to prove things about, by hand or machine.
| Glench wrote:
| Any code that controls money needs to be super solid, but I
| wonder if Chia's smart contracts[1] would help? Their VM is
| functional and doesn't have stateful side effects like
| Solidity/EVM. The Chia team claims this is more
| secure/efficient/auditable than arbitrary Solidity code because
| state changes are often the hardest things to reason about in
| programs. It's an interesting claim -- one that seems like it
| could be true and is worth seeing if it plays out in reality.
|
| [1] https://chialisp.com
| analognoise wrote:
| It's almost like there are rules and laws and people in the
| loop to prevent these kinds of things, and crypto is an
| expression of naive libertarianism that has no path to
| implementation without all the same things we decry about fiat
| - because in the real world those things are useful.
|
| The faster we ban all crypto nonsense the better.
| bluejellybean wrote:
| As many people on this forum know first hand, it's very, very
| hard to write that's 'perfect'. I've had the chance to write
| some fairly technically complicated EVM code (on chain contract
| upgrades with some other admin features), even the simple lines
| need a plethora of testing and review. This was a few years
| ago, but it took myself and another engineer, start to finish a
| couple months of dedicated effort to write what amounted to
| something like 5 source files. You have to know how the code
| executes with extremely high confidence up and down the entire
| stack, this takes time even with seasoned people. We ended up
| going through a security review with a third-party team, this
| is big money to do, high five figures for what amounted to two
| weeks of code review and pen testing! The problem is, without
| this serious dedication ($$) to making sure it's as good as you
| can get, projects are doomed to blow up like this. Hell, who
| knows what happens in 6 months after release when some EVM
| level bug gets discovered and directly exposes a hole in your
| contact. This might be different now, but a lot of contracts
| back then didn't have anyway to upgrade from those security
| exploits!
|
| So from my point of view, you have this massive upfront cost,
| that I suspect the vast majority of teams are not paying, and
| you also have the chance of success being very low. Where have
| we seen this before, home automation seems to ring a bell and
| we've seen the security horror show with that. I don't mean to
| be such a downer on these projects, but they're really
| difficult to get right and audit. And when we're talking about
| putting millions(90!) of dollars into a thing, I don't really
| want to rely on the goodwill of some hackers to give me my
| money back. I wish the general public understood the security
| aspects of these contracts more, but people seem to see these
| hacks, shrug to themselves thinking they'll get debugged and
| fixed like normal software, and then continue on in life.
|
| Unfortunately people are going to get burned in crypto by lack
| of experience, lack of review, lack of investment, and pure and
| simple scams.
| naasking wrote:
| Sounds like introducing some formal methods would be a good
| way to reduce costs auditing and verification costs. I know
| there's some work in that area in the Ethereum ecosystem, but
| I'm surprising it isn't prioritized more.
| int_19h wrote:
| Case in point. Here's the line of code that introduced a bug
| in a contract that was ultimately worth $32M:
|
| https://github.com/openethereum/parity-
| ethereum/blame/4c3217...
|
| https://blog.openzeppelin.com/on-the-parity-wallet-
| multisig-...
|
| If you look at the associated pull request, it added over 2K
| lines of code, and removed almost 1K, spread across 20
| different files. 5 files have changed so much, GitHub doesn't
| even show their diff by default.
|
| It was reviewed by _one_ person in a single day.
| bcrl wrote:
| It's almost like there's a reason banks try not to "move fast
| and break things"...
| snowwrestler wrote:
| Banks break things too, but they typically operate within
| legal structures (laws, regulations, and contracts) that
| supersede broken code.
| bcrl wrote:
| Yes, but banks tend to have policies and procedures in
| place where large transactions require multiple parties to
| review and approve. When those procedures get broken, it's
| usually a result of fraud and appropriate legal actions can
| be taken.
|
| While DeFi can implement these kind of policies and
| procedures, the rate at which seemingly undertested
| (untested?) code is being deployed and given unfettered
| access to a large values of tokens definitely falls under
| the "move fast and break things" category. Clearly the
| people involved don't grasp the level of risks they're
| taking or there would be a heck of a lot more emphasis on
| QA over deployment-to-the-blockchain.
| nathias wrote:
| banks break things all the time, thats why crypto exists
| ashtonkem wrote:
| That's a pretty glib and incorrect way of explaining
| crypto's creation. Really, it was created because of the
| misguided belief that the fed breaks things, not "banks".
| Basically, it was goldbug ideology on steroids.
|
| If we're comparing who "breaks" things more, crypto or
| banks, crypto will lose every single time. So far I've
| never had my bank account wiped out and the website
| replaced with a single page that says "penis".
| hef19898 wrote:
| Well, not the same way SV does. They did almost break the
| global economy in 2008, so...
| rchaud wrote:
| The repeal of the Glass-Steagall Act in '99 opened the
| gates for reckless risk-taking. Banks behave nicely only
| when they're legally obliged to.
| dragonwriter wrote:
| > Banks behave nicely only when they're legally obliged
| to.
|
| Not even then, as repeated illegal actions by banks
| (Wells-Fargo in particular has been getting caught a lot
| recently, but is hardly the only offender) demonstrate.
| SkipperCat wrote:
| And the government stepped in to save them. Not a fan of
| that but it's just what happened. Government will not step
| in to save crypto, at least not yet.
|
| There's also the possibility that governments will actively
| ignore cryptos problems just to de-enforce crypto's
| utility.
| hasperdi wrote:
| This doesn't look like Javascript to me:
|
| https://twitter.com/Mudit__Gupta/status/1443454935639609345
| pawelduda wrote:
| I see Solidity as statically-typed JS flavour. Knowing all
| the gotchas, I think it deserves to be called the JS of DeFi.
| When you write code in it, it feels like walking on a
| minefield. Except when things go wrong, your frontend won't
| crash, but you'll lose yours or someone else's money.
|
| Not to mention, you have all sorts of people trying to
| exploit your code - draining smart contracts from money is a
| great incentive for black hats.
|
| So it's even worse than JS in some aspects (not just the
| language itself, but the platform it is tied to).
|
| EDIT: see https://ethernaut.openzeppelin.com/
| nootropicat wrote:
| Solidity is nothing like js. The biggest security issue in
| js is weird implicit casting and conversions which aren't
| an issue in solidity. It's definitely the best language to
| write smart contracts as over the years simple traps have
| been eliminated, or are at least well known (the worst
| remaining one comes from people still using .transfer to
| send eth, but the method is widely known to be obsolete
| now). What remains is the actual irreducible complexity of
| writing smart contracts.
|
| The entire compound bug was apparently a typo, > instead of
| >=. No language can protect against logic errors like that.
| int_19h wrote:
| How much of this is still applicable?
|
| https://news.ycombinator.com/item?id=14810008
| m00dy wrote:
| As of Today DeFi has 83B as total value locked in. 90M is just a
| small fraction of it.
| vmception wrote:
| Can anyone shed light into why Robert Leshner jumped into the
| fray at all? Its not even an issue and some people got rich.
| People know how to report income to the IRS themselves.
|
| edit: okay I see his followup tweet saying he wanted to act on
| behalf of the community and considered the prior tweet
| boneheaded. Just normal amateur hour with amateur founders in
| crypto.
| TedDoesntTalk wrote:
| > The price of Compound's native token, COMP, initially plunged
| nearly 13% in a day on news of the bug
|
| That's it?
| seibelj wrote:
| It's actually up 7.5%
| throwdecro wrote:
| I wonder if the price is being supported by people opening
| accounts in COMP hoping to get free money from the next
| mistake.
| Ekaros wrote:
| So code isn't the law? Why does anyone trust these systems that
| keep failing time after time? If they need to ask money back and
| really have poor recourse? Didn't current banking and legal
| system to develop just solve those issues?
| SkipperCat wrote:
| And that is the crux of the issue. Modern banking has tons of
| fees and burdensome regulations, but it also has entrenched
| layers of protection that makes sure both the bank and the
| customer are not 100% nuked when there is a problem.
|
| Bank runs like from the movie "Its a wonderful life" - they
| don't happen anymore. Currencies devaluating like an exploding
| balloon - not since the civil war. Sure, it costs you more, but
| it saves you more.
|
| Lotta benefits to crypto, but lots of hurdles need to be
| overcome (power and security for a start).
| iso1210 wrote:
| > Bank runs like from the movie "Its a wonderful life" - they
| don't happen anymore.
|
| Another example of a bank run is the bank run of Northern
| Rock on the 14th September 2007. This was the biggest banking
| problem in the United Kingdom since the banking crisis in the
| seventies, this was also the first bank run in the United
| Kingdom in 150 years. Eventually, this resulted in the
| nationalization of Northern Rock. It is interesting to
| analyze this bank run because it is one of the most recent
| bank runs in Western Europe. Furthermore, the bank run from
| Northern Rock is a special case because it was a 'reversed
| bank run'. Normally during a bank run, a lot of depositors
| first withdraw their money, due to lack of confidence for
| example, and then the bank will as a result of the huge
| withdraws get into a liquidity crisis. However, in the case
| of Northern Rock, the bank first got into a liquidity crisis
| and as a result of that, depositors withdrew their money from
| the bank.
|
| https://arno.uvt.nl/show.cgi?fid=116241
|
| It certainly looks like a bank run - the scenes in London
| today fulfilled the dictionary definition.
|
| And heading north to Nottingham, and Middlesbrough, the same
| extraordinary scenes. savers forming long queues to drain
| their life savings from Northern Rock.
|
| Banking -- an industry built on credibility, confidence and
| trust. But the Rock looks wrecked even in its home town of
| Newcastle.
|
| Deposit guarantees should prevent this. But even after an
| extraordinary unlimited lending facility granted by the Bank
| of England and agreed by the Chancellor, customers preferred
| the sight of real cash.
|
| https://www.channel4.com/news/articles/business_money/the%2B.
| ..
| zinekeller wrote:
| In that case, the nationalisation in that context is to
| apply brakes - sure those brakes are broken already and so
| wouldn't prevent a collapse - but its intention is to allow
| Bank of England's and UK government's protection schemes to
| be applied with as minimal loss to the taxpayers' and other
| banks' customers' money as possible. In this case, it
| limited the run to only the original bank (unlike 19th and
| early 20th-century bank runs resulting runs in other
| unrelated banks). Unfortunately, if your a customer of
| Northern Rock, it sucks _so bad_.
| SkipperCat wrote:
| Mia culpa.... I was thinking locally as a US citizen. I
| can't really speak for what's happened in other places but
| appreciate the context. Thanks.
| ajb wrote:
| It's still not the same as an old school bank run. The UK
| government guarantees the first PS85000* of each
| depositors money (those with more are well advised to
| split it across multiple banks)
|
| * It was somewhat less in 2007
| csomar wrote:
| That's very far from the truth. Here is an incidence of a
| hack, ripping $81m from a poor country:
| https://www.wired.com/2016/05/insane-81m-bangladesh-bank-
| hei...
|
| Here is $24bn of losses due to credit card fraud:
| https://shiftprocessing.com/credit-card-fraud-statistics/
|
| If the bank bears the losses, then the burden is indirectly
| distributed to all its customers/shareholders. If the
| government bears the losses, then its distributed to the
| whole economy.
|
| > Bank runs like from the movie "Its a wonderful life" - they
| don't happen anymore.
|
| In the Western developed countries. There are billions living
| in countries/systems where currencies are devaluating like
| hell and where banking regulations is looser than crypto.
| ska wrote:
| > Modern banking has tons of fees and burdensome regulations,
| but it also has entrenched layers of protection
|
| It would be a mistake to think of these two features as
| easily separable.
| Animats wrote:
| > Bank runs like from the movie "Its a wonderful life" - they
| don't happen anymore.
|
| There was one at the beginning of the coronavirus epidemic in
| the US. A friend of mine runs a branch of a major bank. Just
| as lockdown was announced, they were mobbed by people
| demanding cash. The branch ran out of cash and had to close
| early. It was a bit of a frightening experience for the bank
| staff. But not a disaster. The branch ordered more cash
| delivered from the bank's cash center, added extra guards,
| reopened the next day with the ATMs fully loaded, paid out
| cash all day, and were back to normal traffic levels by the
| end of the day.
| effingwewt wrote:
| Also during the last housing crisis. Banks were going under
| and people were scrambling to yank their cash out.
|
| I still remember the lines at the WaMu branches, it was
| insane.
|
| That was also the 1st time I heard of FDIC insurance caps.
| A lot of people lost a lot of money over that if I remember
| correctly.
| rsj_hn wrote:
| Running out of vault cash is not a bank run. Those are two
| completely different things.
|
| A bank run is something that forces the bank out of
| business -- it makes the bank insolvent. This happens
| because the bank can't convert its illiquid assets (e.g.
| mortgages) to cash in order to meet depositor outflow.
|
| That doesn't happen anymore in part because there are
| markets for things like mortgages that didn't exist before
| (making those mortgages liquid) and also in part because
| banks are on the one hand regulated to control what types
| of assets they are allowed to hold but at the same time
| they are given access to lending facilities in which they
| can pledge their assets as collateral to get reserves
| directly from the Federal reserve, which will never run out
| of reserves, and with those reserves they can purchase cash
| from the Bureau of Engraving. Then trucks will ship that
| cash to the branch. Yes, it may take some time, but the
| bank will always be able to close out deposits after a
| brief delay.
|
| Obviously banks try to minimize their cash holdings because
| cash pays no interest. So they have cash management
| professionals whose job is to predict cash demand (which is
| predictable) and hold no more cash than is necessary to
| meet that demand, parking the rest of their working capital
| into short term interest bearing liabilities like
| commercial paper or bills. Today, even reserves pay
| interest. So everything is better than cash. That
| necessarily means unexpected events will lead to a
| situation in which the cash management team underestimates
| a cash need and so they have to sell some assets (or borrow
| reserves), pick up the phone and order a truck. That
| happens quickly but not instantly. When that happens, e.g.
| when the cash management team makes a mistake, it's not
| considered a bank run, even if it means that a branch has
| to close until the armored trucks arrive. It's no different
| than Safeway running out of apples -- actually there can be
| prolonged apple shortages at safeway, but there can be no
| prolonged cash shortages at a bank, since the bureau of
| engraving can print cash with much lower latency than
| farmers can grow more apples.
| Tenoke wrote:
| >Bank runs like from the movie "Its a wonderful life" - they
| don't happen anymore.
|
| I've witnessed and been (indirectly) affected by a bank run
| in the last decade[0].
|
| 0. https://en.wikipedia.org/wiki/Seizure_of_Bulgaria%27s_Corp
| ba...
| sremani wrote:
| In US FDIC, which insures bank accounts upto USD 250K, has
| basically obfuscated Good Bank vs Bad Bank quality check
| for the retail customer.
|
| The Fed Reserve and Treasury and FinGov apparatus does some
| 'stress tests' but mostly a dog and pony show.
|
| Banking in US is mostly element of convenience than
| quality. No one ran from Wells Fargo accounts (at least
| retail users) to say Bank Of America because Wells Fargo is
| fined for basically fraud.
|
| In short term its a good thing, in long term.. well it is
| prone to blow up, I hope that is not in my life time.
| sneak wrote:
| I know several people who closed their Wells accounts
| (and moved to other retail banks in the US who are just
| as shitty) when that whole high-level fraud thing at
| Wells came out (they were opening checking accounts for
| people without their knowledge and consent, yeah?).
| jachee wrote:
| I dropped WF for a credit union as soon as I became aware
| of their corruption, deception, and mistreatment of their
| customers. NCUA provides similar if not identical
| coverage, and with the CU, the entire institution feels
| less user-hostile.
| canjobear wrote:
| All those things absolutely do still happen, just not in the
| US.
| Tenoke wrote:
| That's like asking why people trust sites or banks after some
| sites or banks have had bugs. In neither case does it
| invalidate the whole concept.
| endisneigh wrote:
| no it's not
| wyager wrote:
| Code hasn't been law for "defi" since Ethereum reverted the DAO
| hack in 2016. Then the DAO went defunct later that year anyway!
| yokem55 wrote:
| Because 'code is law' is a terrible expression to begin with.
| Law can be expressed with code, but law is ultimately a
| construct of human consensus. In the case of the DAO hack,
| the human consensus forked away from the bugs in the code.
| wyager wrote:
| There are many laws that have nothing to do with human
| consensus. Physical laws, for example.
| canjobear wrote:
| Physical laws and legal laws don't have anything in
| common except the name.
| wyager wrote:
| They have a lot in common. They are admissibility
| conditions under a rule system. Same thing with laws
| encoded in a computer system.
|
| Your argument is circular; "code isn't law because I've
| redefined the word 'law' to explicitly preclude it".
| bhaak wrote:
| Not "anyway" but because of the hack. TheDAO was done for
| after it was hacked. The code was too bad and trust was gone
| as well. That was clear pretty soon.
|
| The only thing to decide was if they would let the hacker get
| away with at the time 15% of the whole supply. If they did
| that it would have endangered the decentralization of the
| eventual proof-of-stake switch.
| wyager wrote:
| > it would have endangered the decentralization
|
| So they decided to kill it outright?
| bhaak wrote:
| You have to specify what kind of decentralization you're
| getting at.
|
| The distribution of ETH was less decentralized before the
| hard fork than afterwards. 15% of the whole supply in one
| hand is quite a concentration in the distribution.
| canjobear wrote:
| > it would have endangered the decentralization
|
| So the solution to save "decentralization" was for a
| centralized cabal to literally rewrite history?
| bhaak wrote:
| Technically, there was no rewriting of history. Just a
| single (but very large) transaction was added to the
| consensus rules that (IIRC) replaced the TheDAO smart
| contract code.
|
| Given that this incident resulted in the
| Ethereum/Ethereum Classic split, the "centralized cabal"
| was not very effective. The community voted with their
| feet and many went to Ethereum Classic.
| [deleted]
| suikadayo wrote:
| Ethereum the project never talked about it as "code is law"
| anyway. It was the company that created The DAO that memed it
| into existence.
| grandphuba wrote:
| Code seems to be the law, hence why they're resorting to
| begging and blackmailing
| miracle2k wrote:
| Underrated comment. Very wise.
| xiphias2 wrote:
| While I'm not into Ethereum itself, lots of the failures you
| see are happening because the infrastructure for (mostly)
| decentralized finance is moving at an incredible (and
| irresponsible) speed. We're witnessing the modern version of
| old bank robberies that helped create the regulations.
| drfxyjhdyfrhgc wrote:
| >So code isn't the law?
|
| Code is law. This law was just written incorrectly. This is a
| known risk; it's the reason why defi interest rates are similar
| to junk bonds.
| sremani wrote:
| If Code is law, the compiler is the judge.
| canjobear wrote:
| If the code is the law how can it be incorrect? It can only
| be incorrect by comparison with some other law (like "the
| code writer's intentions"), in which case you are effectively
| making that the true authoritative law, rather than the code.
| automatic6131 wrote:
| Yes, let's turn the [financial|legal](delete as appropriate)
| system into an obfuscated C competition. Last place prize is:
| [lose your life savings|spend life in prison].
| beambot wrote:
| Curious. I would claim that our current finance and legal
| system frequently does the very same for the impoverished
| or disenfranchised...
|
| Underbanked get hammered by fees with no safety net for
| emergency expenses. And large portions of our population
| get saddled with poor legal representation resulting in de
| facto indentured survitude in for-profit prisons.
| pavel_lishin wrote:
| That's a fair criticism of the current system, but not a
| good justification for introducing another shitty, broken
| system as an alternative.
| sneak wrote:
| You don't need a justification for giving people more
| choices that they're free to ignore if they don't like
| the terms or circumstances.
|
| More options are better. Nothing about DeFi or
| cryptocurrencies invalidates or prevents people from
| continuing to bank as usual. The whole alternative system
| is opt-in.
| fennecfoxen wrote:
| I don't understand why anyone, even an enthusiast, would dare
| to touch cryptocurrency lending with a forty-nine-and-a-half-
| foot pole. There's no technical measure that can force me to
| pay back the coins I borrowed if I don't have them. If you
| wanted to enforce being paid back in the real world legal
| system you'd be much better served with normal lending
| systems, know your customers, and report them to credit
| authorities. And if it's not one of those "stablecoins"
| you're borrowing something that could conceivably be worth
| 10x more in a year; that sounds like financial suicide. What
| do you possibly gain from engaging with all this?
|
| Maybe if I built a defi lending platform myself so I could
| take a lot of loans from my customers and then default.
| That'd work just fine. Otherwise, run for the hills.
| yokem55 wrote:
| Because the only way to get a loan is to put up collateral
| that is locked into a contract. And that collateral can
| only be extracted if you pay back the loan. So, if you
| value the collateral less then your debt, then, sure, walk
| away. But if the value of that collateral falls to less
| then the liquidation threshold (an amount some percentage
| greater then the value of your debt), your debt will be
| paid back by a liquidation bot and the the liquidator will
| take your collateral for themselves.
| lottin wrote:
| Yeah, but the whole purpose of a loan is to _fund_
| something, and to be able to fund something the amount
| loaned out needs to be larger than the collateral.
| Otherwise, there 's no financing going on. It's simply a
| bet on the relative value of the principal vs the
| collateral. Calling this "a loan" is misleading.
| TameAntelope wrote:
| What happens is someone takes a loan out with their BTC
| as collateral, the BTC grows, they earn more than the
| interest on the loan with the money they've borrowed, and
| make a _lot_ of money chaining these together over and
| over again.
|
| Vastly oversimplified (and possibly wrong), but if you
| want to know more, do some searching for "yield farming".
|
| The point is that they want to keep their BTC because
| they think it's going to go up, so they take out a loan
| with their BTC as collateral rather than directly spend
| their BTC.
| pdonis wrote:
| _> the whole purpose of a loan is to fund something, and
| to be able to fund something the amount loaned out needs
| to be larger than the collateral_
|
| Um, what?
|
| If I take out a mortgage to buy a house, the loan amount
| is not going to be larger than the value of the
| collateral (the house).
|
| If I take out a loan to buy a car, the loan amount is not
| going to be larger than the value of the collateral (the
| car).
|
| What kind of loan are you thinking of?
| lottin wrote:
| A car or a house being used as collateral are kept by the
| borrower at their disposal. This means the borrower can
| benefit from the collateral asset, e.g. by using it or
| living in it, while the debt still hasn't been paid off.
| In these cases a fully colletarelised loan can make
| sense. But this is not the kind of collateral that we're
| talking about here. We're talking about collateral that
| is held by the lender in a margin account, or "locked"
| (in defi parlance), until the debt is paid off, which is
| the only kind of collateral that can be used in
| "decentralised finance", because the other type requires
| a contract (not a smart contract, an actual, legal
| contract) and the ability to litigate.
| throwawaygh wrote:
| _> If I take out a loan to buy a car, the loan amount is
| not going to be larger than the value of the collateral
| (the car)._
|
| Pray tell of these new cars whose value does not plummet
| the moment they are driven off the lot.
| pdonis wrote:
| Which is why car loan providers usually require a
| substantial down payment so the loan is not underwater.
| (And why home mortgage providers usually require a LTV
| well under 100 percent--and make you pay mortgage
| insurance even then unless the LTV is even lower.)
| plorkyeran wrote:
| Currently several year-old cars are selling for nearly as
| much as brand-new cars. Even before the current car
| shortage, repossessed zero-money-down cars were commonly
| resold at basically the same price as the first sale.
| UncleMeat wrote:
| There is a huge problem with the collateral model:
| liquidity.
|
| If you put up $X in FOO_COIN as collateral and FOO_COIN
| starts tanking in value, the contract is supposed to
| auto-liquidate once it hits a certain point. But there is
| absolutely no guarantee that this can find a buyer. So
| the "guaranteed" collateral recovery is not exactly
| guaranteed.
| yokem55 wrote:
| That's why you can only borrow up to 80-ish% of your
| collateral, and that's getting very risky for the
| borrower. It also means that the sane lending protocols
| are somewhat stingy with what they take as collateral and
| then set the borrowing limits and liquidation thresholds
| fairly conservatively.
|
| When the market starts making big moves downward the
| liquidation bots have a keen eye on which positions are
| at risk, watching and predicting the oracle updates, and
| within a block or 2 (~30 seconds) of a position being
| vulnerable have the deal all closed out. It can even be
| all done in a single transaction bundle that calls the
| liquidation function, pays back the debt, takes the
| collateral, and sells it on a dex, all in one go.
|
| The market price for the collateral would have to drop
| more then 20% in the span of that 30-seconds for it to
| not be profitable for the liquidator.
|
| That's not to say it's impossible for this to fail, the
| biggest and sharpest dumps happen during liquidation
| cascades. But a failure is in the category of 'black swan
| event', and not something that is seen with regularity.
| wizzwizz4 wrote:
| > _That 's not to say it's impossible for this to fail,
| the biggest and sharpest dumps happen during liquidation
| cascades._
|
| If it _happens_ , it's not a black swan event.
| TomSwirly wrote:
| This is a wrong use of the term.
|
| Black swans are rare but actually exist.
|
| https://en.wikipedia.org/wiki/Black_swan_theory
| wizzwizz4 wrote:
| It's actually a correct use of the term. A "black swan"
| is something that is _believed not to be possible_ - or,
| in retrospect, something that _was_ believed impossible
| but happened anyway.
|
| The term predates the discovery of black swans;
|
| > _However, in 1697, Dutch explorers led by Willem de
| Vlamingh became the first Europeans to see black swans,
| in Western Australia.[9] The term subsequently
| metamorphosed to connote the idea that a perceived
| impossibility might later be disproven. Taleb notes that
| in the 19th century, John Stuart Mill used the black swan
| logical fallacy as a new term to identify
| falsification.[10]_
| plorkyeran wrote:
| A "black swan event" is something which was obviously
| possible in retrospect, but no one could have predicted
| other than via blind guessing. If you can explain how
| it'd happen in advance, it's not one.
| bhaak wrote:
| How is that different to traditional finance?
|
| Evergrande almost went belly-up as the prices of their
| real state fell sharply because they sold so much of it
| to cover their credits.
|
| The financial crisis from 2007 was because the
| collaterals were nowhere as sound as they were sold for.
|
| Don't get me wrong I think it's mostly a house of cards
| but crypto finance is just traditional finance on
| steroids IMO.
| UncleMeat wrote:
| > How is that different to traditional finance?
|
| There are a lot more backstops. Traditional finance can
| have this problem, but we can install human systems to
| limit the blast radius of things. As you say, it is
| traditional finance on steroids.
|
| Crypto enthusiasts seem to think it is the opposite.
| People tell me that defi loans are "zero risk" because of
| the automatic collateral systems and I just laugh and
| laugh.
| bhaak wrote:
| Crypto finance and especially DeFi is tiny compared to
| traditional finance. The blast radius is still small
| without the regulations. But the regulations will come.
| Crypto finance is going down the same path that
| traditional finance did just in a period of a few years
| than a century.
|
| Everybody who claims there's "zero risk" is either lying
| or blind to the risks. You can't get those large yields
| with zero risk.
| Workaccount2 wrote:
| Crypto evangelists have done so much to obfuscate the
| fundamental problem of the real world/digital world divide
| that I think many of them have lost sight of the problem
| themselves.
|
| Until we find the API for reality, many of these
| decentralized projects are hopeless.
| doliveira wrote:
| > Until we find the API for reality, many of these
| decentralized projects are hopeless.
|
| That was nicely put. I see so many of these projects
| promising to end with banking, bureaucracy, but
| forgetting that at some level the bits and bytes have to
| be input or acted on by a human.
| belltaco wrote:
| In some ways it's like the early days of banks, where
| flaws like this were found and fixed. However a lot of
| those fixes were put in place by governments and
| regulation with the threats of prison time and fines for
| both banks and their customers.
|
| Another question is if things like this will poison the
| well and scare people away permanently.
| bduerst wrote:
| It's almost like an authority is needed to enforce
| contracts. This decentralization for the sake of being
| decentralized doesn't solve the problem fully.
| cguess wrote:
| The difference is that the "early days of banking" were
| the 1200's CE (and arguably way before then). And even
| then, it took 800 years to really nail it down and
| finally get away from fiat currency. For some reasons
| none of this applies to crypto because _reasons that
| definitely aren 't a pump-and-dump_.
| saalweachter wrote:
| You can't get Rich with a capital R through safe,
| traditional investing working even a SWE job.
|
| You can get upper-class rich, seven figures rich,
| comfortable house, vacation home, early retirement rich,
| but you can't get Private Jet Rich, Masters of the Universe
| Rich, Look At Me Rich.
|
| If you want to be Rich you need to to resort to something
| like playing the lottery, or starting a unicorn startup, or
| exploiting large numbers of people for your own profit, or
| crazy "technically it's not a pyramid" schemes like crypto
| and DeFi.
| whimsicalism wrote:
| or inheritance
| ranma4703 wrote:
| Sounds like we should tax people enough that they can't
| get "private jet rich", in order to disincentivize those
| harmful behaviors.
|
| Nobody should have the power that having a billion
| dollars gives you
| nybble41 wrote:
| > Nobody should have the power that having a billion
| dollars gives you
|
| Let's pretend for a moment that I agreed with you on
| this. Your proposal to address the situation is to take
| all that money, which is currently at least _somewhat_
| distributed, and concentrate it in a single organization
| which already claims a license to steal, kidnap, and
| murder. I really don 't think you've thought this
| through...
| 6gvONxR4sf7o wrote:
| > You can get upper-class rich, seven figures rich,
| comfortable house, vacation home, early retirement rich,
| but you can't get Private Jet Rich, Masters of the
| Universe Rich, Look At Me Rich.
|
| SWE at the staff level will get you low to mid eight-
| figures rich [0] by the time you're old with safe,
| traditional investing. Sure you aren't Masters of the
| Universe Rich, but you're still filthy rich.
|
| And how many crypto people are going to beat low-to-mid
| eight figures? Maybe if you put $100k into bitcoin in
| 2013, but I'd bet there are more SWEs making $500k+ than
| there are people who put that much into crypto early
| enough (and weren't already filthy rich).
|
| [0] Low-to-mid eight-figures in today's dollars. Nine
| figures in future dollars. Assume $500k income, putting
| half away from 35 to 65, getting 7% (4.1% after 2.9%
| inflation).
| PragmaticPulp wrote:
| > Compound is the world's fifth-largest DeFi protocol with a
| total value locked of $9.65 billion, according to DeFi Llama,
| which provides ranking and metrics for DeFi protocols.
|
| So they lost 1% of the total funds due to a bug.
|
| And their solution was to threaten to dox the users.
| xur17 wrote:
| To be fair, these weren't user deposited funds. These were
| governance tokens they have been giving out to incentivize
| usage of their platform.
| noitsnot wrote:
| Yeah, I think I'll pass on that one. He did apologize for the
| tweet.
| tfang17 wrote:
| Code is law.
| vmception wrote:
| Compound is a YC company, lol, can you cancel that CEO to force
| greater decentralization? He shouldnt have said anything, their
| protocol already allows for user contributed code to get merged
| in so its already distributed enough and doesn't need him. They
| can find someone else to click "Merge Pull Request" and redeploy
| contracts.
| danfritz wrote:
| I have never had "bugs" from my bank or money that suddenly got
| stole / removed from my account. Yet in crypto land this seems to
| be daily news.
|
| Far too much trust and too little control in systems like DeFi.
| It all sounds wonderful in theory but we fail to see the big
| impacts of human errors.
| naasking wrote:
| Never had fraudulent charges on your credit card?
| cortesoft wrote:
| I have, and they always immediately reverse the charge. I
| have never had to pay for a fraudulent charge.
| naasking wrote:
| And yet, it remains the case that you experienced a bug
| where money was suddenly removed from your account without
| proper authorization, which was my point.
| cortesoft wrote:
| and my point is that there is an easy way to recover from
| that situation, where as with crypto you are out of luck.
| mminer237 wrote:
| That's not a bug, it's how they were designed. Someone
| could steal your secret key and make an unauthorized
| transaction with cryptocurrencies too. Only, then you
| would have practically no recourse.
| naasking wrote:
| "Unauthorized payments" is a bug. It's an unfixable bug
| for which they've created a recovery system, but it's
| still a bug, because the system is not intrinsically
| secure.
|
| "Steal your secret key" is not a valid analogy to a
| having a credit card number stolen. The information
| density of a secret key is orders of magnitude higher
| than credit card info, and that's why it has provable
| security properties that credit cards do not. Credit card
| info can in principle be brute forced where keys cannot.
| cortesoft wrote:
| This means though also face the risk of losing your key
| and having no way to recover it. This seems like a bigger
| risk to me.
| sneak wrote:
| You've had to pay an extra 2% on everything you buy (as
| well as everyone else) to pay for the overhead of dealing
| with all of the fraudulent charges.
|
| Ultimately the entire market cap of Visa/MC/AmEx illustrate
| how much more we're all paying over and above the just
| paying for the fraud directly.
| cortesoft wrote:
| Sure, but my credit card also gives me 2% cash back on
| all purchases, and since I would have to pay the extra %
| no matter what, may as well get the cash back, too.
|
| I also get something for that 2%... the fraud protection
| you mentioned, the safety of not having to carry cash,
| ease of use, spending tracking, the ability to dispute a
| charge if a vendor screws me.
|
| Honestly, credit cards have been a great thing for me. I
| have never paid a penny of credit card interest and get
| thousands of dollars in cash back every year.
| sneak wrote:
| You also get point and click suspicion-less suspension of
| your ability to transact (no burden of proof), and total
| financial surveillance as well.
|
| It's not all good. Having an alternative to these
| privacy-destroying systems is a good thing for society.
|
| (The cash back you receive does not cover the increase in
| prices that are passed on to you. It is ultimately a
| losing trade for you.)
| cortesoft wrote:
| > The cash back you receive does not cover the increase
| in prices that are passed on to you
|
| Very few places charge a different rate for credit card
| vs cash purchases, so I would have to pay the increased
| cost whether I use a credit card or not. Since I have to
| pay it anyway, might as well get the cash back.
|
| Also, while you are right that I could hypothetically
| have my account suspended for no reason, it has never
| happened in the 25 years I have been using credit cards.
| I also mitigate this risk by having more than one credit
| card with different providers.
|
| However, I have had merchants fail to deliver something I
| purchased and had to use the chargeback feature of my
| card multiple times, something I couldn't do with crypto.
|
| I don't think I want to try to eliminate hypothetical
| risks that are unlikely at the cost if incurring very
| likely risks that I know will happen.
|
| This seems like people who don't wear a seatbelt because
| they are worried they will be trapped in a burning car
| unable to get out. Sure, that is possible, but not nearly
| as likely as being in a car accident where a seatbelt
| would save you from injury or death.
| robjan wrote:
| There's a mechanism for putting that right
| NullPrefix wrote:
| Complaining on social media isn't really a sound mechanism.
| cortesoft wrote:
| Every time I have had fraudulent charges on my credit
| card, it was the credit card company who spotted it and
| reversed the charge before I even notified them.
| NullPrefix wrote:
| Good for you. Everytime there was a virus on a computer,
| the antivirus spotted it and reversed its actions before
| I even noticed them.
| [deleted]
| adrr wrote:
| They are defrauding the merchant or the bank. I have zero
| risk.
| thehappypm wrote:
| Yeah totally. My credit limit on my Chase Freedom card is
| $90M, and this one time I bought something for $90M when I
| thought it was $90, and I was totally unable to reverse it.
| danuker wrote:
| Your anecdote is as powerful as mine: I have never lost crypto
| due to a technical glitch.
|
| As for bank glitches, here are some recent ones:
|
| https://eu.freep.com/story/money/2020/06/30/scams-glitches-s...
|
| https://www.verdict.co.uk/chase-bank-accidentally-makes-man-...
| isolli wrote:
| Ahem: "Wells Fargo clients began to notice the fraud after
| being charged unanticipated fees and receiving unexpected
| credit or debit cards or lines of credit."
|
| https://en.wikipedia.org/wiki/Wells_Fargo_account_fraud_scan...
| pradn wrote:
| This is a rather rare occurrence, and was fixed, with legal
| consequences for the bank.
| cwkoss wrote:
| Were the consequences actually impactful? Or did they only
| amount to a slap on the wrist and brief period of public
| shame before returning to business as usual?
| [deleted]
| lottin wrote:
| It doesn't sound wonderful in theory. It's sounds awful. And in
| practice it is too.
| bduerst wrote:
| It sounds wonderful when waxed praises from a crypto
| enthusiast. The people who know better don't care to refute
| it enough, IMO.
| thebean11 wrote:
| I have had other peoples money deposited in my account many
| times due to bad OCR for checks!
| sneak wrote:
| Wouldn't bad OCR on a check change the account to be debited,
| not the account into which it is deposited?
| thebean11 wrote:
| It specifically happened with payments from the IRS (I was
| getting someone's refunds) so my assumption was some wonky
| automated deposit handling on the bank's end. OCR is my
| theory because we had the same account number, except a 1
| was switched to a 7.
| 0x0 wrote:
| If you keep 10% and return 90% you still need to report the 10%
| to the IRS.
| kevingadd wrote:
| He's offering not to tell the IRS though, what's a little tax
| fraud between friends?
| DennisP wrote:
| It's not like Compound is able to do KYC on its users.
| There's nothing they can tell the IRS that the IRS can't see
| by just looking at the blockchain.
| yokem55 wrote:
| No, but most folks have addresses (with maybe one or 2
| degrees of separation) that have interacted with
| centralized exchanges that have done the kyc. The only way
| to truly anonymously get assets in the Ethereum world is to
| run the funds through tornado cash (slow and expensive) or
| bounce through the shadiest non-kyc exchanges who very well
| could just pocket the funds you try to put through them.
|
| You might be able to mine your way to anonymous funds, but
| that is even more expensive in terms of power and equipment
| costs.
| DennisP wrote:
| Yes, but my point is that any information Compound could
| give the IRS is already public on chain. The IRS can just
| read it themselves.
| cesarb wrote:
| I wonder if that's really the case. It's also possible that, if
| you kept 10% and returned 90%, you'd still have to pay tax on
| the 100% (that is, the 90% you returned might not be
| deductible).
| aloe_falsa wrote:
| The top income tax bracket in the US is 37%, so the rational
| thing would be to keep 100%, pay taxes on it, and still come
| out on top.
| sschueller wrote:
| But isn't this capital gain?
| paulpauper wrote:
| No way he getting anywhere close to the $90 million back.
| meigwilym wrote:
| Sometimes I wonder if crypto is making the mistakes that led to
| regulation for standard money systems.
| floatboth wrote:
| Yes, "speedrunning 500 years of bad economic history" --
| https://www.youtube.com/watch?v=xCHab0dNnj4
| elliekelly wrote:
| This was really interesting, thanks for sharing!
| trutannus wrote:
| This is the second crypto startup this week I've seen cost
| people _a lot_ of money. The other was a startup destroying a
| bunch of NFTs that got produced in a hack. Catch was, these
| tokens had already been bought and sold.
|
| Cavalier stuff like this _will absolutely get you regulated_.
| The draw of crypto is supposed to be immunity from this sort of
| thing, but the frequently amature execution of the products
| leaves end users often more vulnerable to attack than had they
| shoved their money in Bank of Your Nation. Banks invest eye-
| wateringly large sums of money every year in security. Crypto
| startups are just unable to match this level of security
| analysis and testing.
| deepsun wrote:
| By all means crypto coins are assets, not currency.
| rsynnott wrote:
| I mean, it's making many of them, but DeFi/"Smart Contracts" is
| a novel mistake. "Due to misdrafting of a contract we have to
| give all of the bank's funds to a cat" isn't a thing that
| happens in the real world; while contract mistakes can be
| expensive, the sheer ridiculousness common in DeFi-world is
| unique and new.
| mminer237 wrote:
| The difference is that in real life, contracts aren't read by
| a thoughtless computer. Things can be implied based on the
| usual business practice. If there's an ambiguity, the intent
| of the parties can be used to resolve it. If something really
| unfair would happen, it can be thrown out as unconscionable
| or against public policy.
| rsj_hn wrote:
| Superficially, the mistakes are different, but the evolution
| is the same.
|
| E.g. the original goal of bitcoin was to be a digital form of
| cash. Cash because the transaction is just between you and
| the buyer - cash is a bearer instrument. With ACH it's a
| custodial relationship with the bank, and the bank's interest
| may not be aligned with yours. They can decline transactions,
| freeze your funds, monitor what you do, etc. So there was
| less "ownership", and this true ownership combined with
| digital payments was the original vision.
|
| Except that true ownership is really limiting. Sometimes you
| want the intermediary or need money held in escrow and that's
| when you want a custodial relationship. So enters Etherium
| and the notion of contracts. Now it's no longer payer and
| payee, but you have the contract sitting between the two,
| much as the bank. And just as the bank, the contract can act
| against your interests. Now it's true, the specific _ways_
| that you get screwed by the smart contract are different than
| by the bank.
|
| Next up, we are seeing the need for adjudication/rollback for
| when the custodians screw up, as people want to unwind errors
| in smart contracts or make policy changes. So this will be
| like re-inventing the court system. Soon, someone will be
| able to sue you and put a lien on your digital currency,
| using smart contracts, for example, with appeal to an
| adjuticating system that can force you to enter into the
| contract against your will. Then we will be back to longing
| for the days of bearer currencies.
| 6gvONxR4sf7o wrote:
| The founder "threatened" them by telling them that if they don't
| return it, it'll be reported to the IRS as income. Crypto is a
| weird place when this comes across as a threat.
| icris wrote:
| if i were them i would rather invest it and return later w/
| interest
| gigatexal wrote:
| Haha. Bank error in my favor. Hell no am I giving anything back.
| It's getting converted to fiat ASAP end of story.
| driverdan wrote:
| Considering what it was created for Solidity is a very poorly
| designed language. It has many foot guns and unsafe defaults.
|
| I really hope something much better replaces it. DeFi has so much
| potential but running on Solidity makes it high risk.
| alfiedotwtf wrote:
| You might be interested in Tezos' Michelson
| version_five wrote:
| It's so weird to see these scams running in full view of the
| public and casually discussed as if they're not basically just
| criminal ponzi or mlm schemes dressed up with some jargon.
| Hopefully when this ends up collapsing, it will be public and
| clear enough that "tokens" etc will have the same credibility as
| a Nigerian prince asking to help transfer money, but in this case
| I feel like there is always more lingo to keep dressing up the
| scams as something new, e.g. NFTs.
|
| I don't generally like government intervention, but I do hope the
| "real" financial system is sufficiently isolated from these scams
| so their collapse won't cause problems.
| Sebb767 wrote:
| The housing and stock market are not that much better at the
| moment. Just look at the market cap of Tesla.
| elil17 wrote:
| There's at least an asset underlying Tesla - a reason it
| could go up and stay up. It may be overvalued, but that's the
| risk some people are taking.
|
| Crypto, and all other forex trading, is a zero-sum game.
| space_rock wrote:
| What a pathetic comparison
| [deleted]
| uncomputation wrote:
| High valuations which may or may not be founded are not
| scams.
| acdha wrote:
| Tesla provides things people outside of the auto industry
| want to buy. You might quibble about details (FSD in
| particular) but there is no shortage of people wanting to buy
| Tesla's cars to use, not resell.
|
| Cryptocurrencies have failed to do the equivalent - that's
| why the pitch is "buy in now or you'll wish you had later"
| rather than talking about things you could actually do that
| you can't do as well now.
| tarsinge wrote:
| TSLA has not much to do with Tesla the company, it's just a
| token that is speculated upon, like in crypto. Traders and
| investors, especially retail, don't care about what a stock
| is intrinsically (except maybe old school and large ones
| like Warren Buffet). They care only if they will be able to
| unload to someone else in the future. As long as people
| believe in a narrative the reality of what the company does
| is irrelevant. 10 years of Bitcoin have made that clear.
| acdha wrote:
| Words have meaning. TSLA is a share of a real entity with
| substantial assets and legal rights. While there is a
| portion of that value which is speculative, it's grounded
| in a real business with measurable performance.
|
| Contrast with cryptocurrencies which have no intrinsic
| demand or business outside of being speculated on. As
| Bitcoin has shown, this can get you a lot of speculative
| money but that doesn't mean there's any lasting benefit.
| Normal people would have their lives affected if Tesla
| folded but if Bitcoin shut down tomorrow nobody outside
| of speculators would be impacted.
| RNCTX wrote:
| Tesla sells government credits. Cars and solar panels are
| ancillary to that. The problem is that government issued
| credits like those _can be sold_. The Reagan administration
| cursed us with Elon Musk, and that simple fix (making
| government issued tax credits non-transferrable) prevents
| future Musks.
| acdha wrote:
| Again, I'm not saying that I agree that Tesla's current
| valuation is prudent -- only that they have a real
| business making things which a lot of people like. Even
| if you think that competition will prevent the massive
| upsides some investors are hoping for, the floor value
| from that is a lot greater than the zero for a
| cryptocurrency.
| Sebb767 wrote:
| Tesla's value is approaching a trillion USD, approximately
| six times the value of the whole Volkswagen group. You can
| believe in Tesla or not, but that valuation is clearly
| hoping for a future where Tesla dominates multiple
| industries. I don't see much difference to people investing
| in any insanely valued coin because they think it's the
| future of payment.
| oldgradstudent wrote:
| > You can believe in Tesla or not,
|
| That's an apt way of saying that, as Tesla is the first
| publicly traded cult.
| [deleted]
| acdha wrote:
| Tesla's stock is definitely soaring but here's what they
| have underneath:
|
| 1. A very popular electric vehicle business (#1 & 2 best-
| selling EVs, top 10 across all vehicles)
|
| 2. A popular home sold and battery provider (3rd in the
| U.S.)
|
| 3. A large and popular EV charging network
|
| 4. A large collection of patents, software, manufacturing
| capabilities, and contracts for the previous three points
|
| Shareholders are still seeing a lot of growth potential
| but if the market takes a downturn the floor of that
| value is still quite substantial, especially since the
| world is turning hard to EVs. Even the bad hypothetical
| scenarios are something like Toyota buys them at a lower
| price than shareholders want, not utter disasters.
|
| In contrast, here's the sole value behind almost all
| cryptocurrencies:
|
| 1. How much the community thinks someone else will pay
| for a token
|
| The floor is $0.00 because cryptocurrencies are the most
| distilled form of fiat currency with a very weak backing.
| Nobody is required to use it and almost everyone has
| alternatives which are at least as easy and affordable so
| it's possible to end up in the case where simply nobody
| is interested buying in your particular set of random
| hashes at any price, or where the cost of operating the
| network exceeds that value.
| mxschumacher wrote:
| car making, EV charging and selling of home batteries are
| all terrible businesses: Highly competitive and capital
| intense, unit economics are disheartening (feel free to
| look into the financial statements of public pure-play
| companies in these sectors) - for cars you have a century
| of empirical data.
|
| Are Tesla's manufacturing capabilities really superior to
| Toyota? The latter is making 20x as many cars (2020),
| makes money while doing so and is worth about a third of
| Tesla.
| acdha wrote:
| Again, I'm not saying they're perfect -- only that
| there's a real business unlike a cryptocurrency. It might
| not be printing money like Google/Facebook ads but it's
| highly unlikely that the business could not turn a
| profit, albeit a tighter one due to competition.
|
| Contrast with a cryptocurrency: there's no value other
| than marketing and nobody needs to use it at all, much
| less any particular cryptocurrency over an alternative.
| That puts your floor value at zero: unlike cars, nobody
| needs random hashes and certainly nobody needs to buy
| your hashes over equivalent hashes available somewhere
| else.
| legulere wrote:
| You are right that Tesla has some inherent value to fall
| back to but cryptocurrencies do not.
|
| But still Tesla is probably valued several times too
| high. Tesla has almost three times the market cap of
| Toyota right now.
| acdha wrote:
| Yes, it's definitely possible for a stock to be
| overvalued. If you note my comment explicitly
| acknowledged this with the possibility that bad news
| could force a sale at well under the current price: the
| point was that there are very few possibilities where
| that value wouldn't still be a very large amount of money
| because there's a real business backing it and it's
| unlikely that the situation is going to change in a way
| which would cause all of their customers to disappear.
| [deleted]
| flarex wrote:
| Scams, criminals, ponzi schemes and MLMs. Usually when those
| are used to describe crypto there is no accompanying
| explanation of why those are relevant or apply in a particular
| case. There are many ways to genuinely critique crypto that
| don't use trite buzzwords.
| honkycat wrote:
| Because they are a platform that promises users they will
| make money by investing, when in reality only the early
| adopters / extremely lucky have any chance at making money.
| flarex wrote:
| My intuition tells me that if an asset class rises steadily
| (albeit with volatility) for 10+ Years the majority of
| investors would be in profit. Anecdotes aside. Do you have
| data that suggests otherwise? I would be surprised if you
| did.
| kwertyoowiyop wrote:
| Pardon me for a moment while I mint my new "Bored Nigerian
| Prince Yacht Club" NFT set.
| [deleted]
| olliej wrote:
| I have a couple of questions that I hope someone more versed than
| me can answer:
|
| * Isn't the rule of crypto currencies and the like that the code
| is explicitly the contract, so if the code says to give people
| money then that is "legally" binding?
|
| * Doesn't the IRS, etc still consider crypto currencies to be
| assets, not currency, so you'd only declare income on sale of the
| asset, not acquisition?
| mdoms wrote:
| Cryptocurrency is a circus.
| [deleted]
| cryptica wrote:
| IMO, if the project is truly decentralized as they claim, then
| the recipients of the tokens should be entitled to keep the
| funds. That said, I hope the SEC will investigate this to rule
| out a scheme in case the bug was an intentional way to launder
| tokens to insiders.
| grandpoobah wrote:
| Does anyone know what the one letter bug was, or can anyone
| speculate as to what that one letter bug might look like?
| addingnumbers wrote:
| Someone upthread claims they had a > where a >= should be, but
| didn't provide a source.
| NelsonMinar wrote:
| This is good for Bitcoin.
| bigodbiel wrote:
| "Tradition is a set of solutions for which we have forgotten the
| problems. Throw away the solution and you get the problem back.
| Sometimes the problem has mutated or disappeared. Often it is
| still there as strong as it ever was"
|
| Substitute tradition for "regulations" and you have "Uber of X"
| or "hot start up industry disruptor" in a nutshell.
| fouric wrote:
| I'd like to add nuance: tradition seems to oftentimes be a mix
| between actual solutions to problems, and legacy cruft that can
| be safely removed _without_ undoing the fix to the problem.
| Large, active codebases have to be occasionally refactored to
| keep them understandable, and this refactoring can often be
| done without a loss of functionality - why would the law (or
| tradition) be different?
|
| In particular, it feels like much of the legal system is a
| bunch of hacks grafted onto existing (oftentimes much older)
| laws, and that there's an opportunity to rewrite the laws and
| merge the hacks in to form a cohesive whole.
| admax88qqq wrote:
| While that's true, often times tradition and regulation are not
| the best solutions to the problemx certainly not as technology
| has evolve.
|
| Not to mention much of the time regulation is not a solution at
| all but rather just means to protect incumbents.
|
| Edit: To be clear, I agree there is tons of bullshit going on
| in crypto and DeFi, but I also believe that the existing
| players are ripe for disruption if they weren't regulatory
| protected.
|
| There's no reason why I shouldn't be able to do a bank transfer
| instantly, or why I can't pay a a small business electronically
| without a large fee going to Visa.
| arisAlexis wrote:
| Imagine how far this is from a utopia where all finance is
| running in defi. Singularity will come first.
| alangibson wrote:
| The article implies it's common for recipients to return a lot of
| the tokens in cases like this. Anyone have any clue why? I would
| thinks there is 0 incentive to return free crypto.
| swapneeltr wrote:
| Returning the money elevates the hacker to "hero" status within
| the crypto community. By keeping the funds they risk getting
| doxxed and having serious legal action taken against them.
| Additionally, if the funds are a sizeable portion the entire
| project might fail rendering their token useless.
| elliekelly wrote:
| Just a wild guess: To maintain faith in the system? I don't
| know anything about Compound aside from what I've read today
| but I would imagine whatever you've got invested could quickly
| go to zero if the crypto-investing public decides the protocol
| is too risky. (Assuming, of course, there exists an upper-limit
| to their risk tolerance.)
| bob229 wrote:
| Crypto is absolute garbage. Just an idiotic solution to a non
| existent problem and only used my cranks and criminals. Get a
| life people
| alfiedotwtf wrote:
| Code is Law*
|
| * unless core developers are adversely affected
| optimalsolver wrote:
| I still don't get how the Ethereum core devs can look
| themselves in the mirror after undoing the DAO hack.
|
| All smart contracts are immutable, but some are more mutable
| than others.
| swapneeltr wrote:
| Code is not law and never has been, consensus is law.
|
| The Ethereum community (technically, node operators) as a
| majority decided to rollback the blockchain and it would have
| been impossible to do so otherwise. The community was tiny
| barely three months after launch and this would be much
| harder to orchestrate today.
| ludamad wrote:
| Code is law! also vigilante justice by powerful actors, though
| Malic wrote:
| This is totally Peter G. Neumann* territory. Something to add to
| a second edition of his book, "Computer-Related Risks", if he
| ever makes one.
|
| http://catless.ncl.ac.uk/risks/
| joshstrange wrote:
| I have no current interest in DeFi not do I have any DeFi related
| crypto (Full disclosure: I have very minor Doge/ETH/BTC
| holdings).
|
| I know it's fun to kick DeFi when it's down and make fun of "code
| is law" and the like but all of this leaves me with a very queasy
| feelings especially when the same comments praise our current
| financial system as if it has figured this all out and only
| idiots try to reinvent the wheel. All I can think of is 2008 and
| how all our financial institutions royally screwed us and almost
| no one went to jail and no one was held accountable (I think 1
| person went to jail and they were a small fry).
|
| Does the exact issue that happened here happen in our current
| systems? Yes, but it's fixable. That said, much worse things
| happen and they can be swept under the rug/ignored.
|
| I don't put much faith in DeFi but I also put very little in
| "fiat"/"regular" financial institutions.
| qeternity wrote:
| Headline is misleading: the founder has threatened to doxx and
| report them to the IRS if they don't return funds which according
| to the Compound protocol, they rightfully own anyway.
|
| Notch it up to another first for crypto.
| 99_00 wrote:
| Doxing is publicly publishing private information. Reporting
| someone to legally bound authorities is not doxing. Relying on
| trigger words and sensationalistic language is a tell for a
| weak argument/stance.
| farmerstan wrote:
| I'm pretty sure if I worked for the IRS I would be visiting
| that company immediately and making sure they are reporting
| everything properly.
|
| Those users will be doxxed anyway, they should just keep the
| money since they are on the hook for it anyway now.
| BTCOG wrote:
| This is nowhere near the first time that this has happened.
| There have been numerous folks to find bugs in smart contracts
| around the DeFi/ETH contract space, millions taken "by the
| code" and owners threatening and throwing various forms of
| shade, and even offering the exploiters job positions, reneging
| on said positions, etc.
| dathinab wrote:
| > which according to the Compound protocol, they rightfully own
|
| And that is one of the biggest misconceptions of crypto stuff.
|
| Law and contracts (1) determine who owns what, not who happens
| to currently hold it.
|
| That's why the founder can threaten them with the IRS, because
| they (likely(1)) do not rightfully (as defined per law) own it.
|
| This is also why NFTs are kinds stupid, because you totally can
| sell someone a NFT which "claims ownership rights" without
| selling them any ownership rights legally seen. Sure it's most
| likely fraud as you deceived people, but only if. So telling
| people you sell them the NFT but not the think behind the NFT
| would make that pretty legal. Like you can sell a certificate
| about the correctness/quality of a picture without selling (or
| even having) that picture.
|
| (1): Smart contracts are not contracts, they are computer
| programs. They might also _contain_ contracts, but that doesn
| 't mean that just because something is done in a certain way in
| a smart contract it is legally binding, legal, or anything
| (Well, that's also true for contracts themself).
| pavel_lishin wrote:
| > _This is also why NFTs are kinds stupid, because you
| totally can sell someone a NFT which "claims ownership
| rights" without selling them any ownership rights legally
| seen._
|
| It seems that the only thing you own when you purchase an NFT
| is the NFT itself. Not a little jpeg that it points to; just
| the bit of code on the blockchain.
|
| It's kind of tautologically stupid. You buy a receipt that
| states you own that very receipt.
| babyshake wrote:
| NFTs likely make sense in a context like a metaverse where
| the bit of code is the law, and owning a digital item is
| the equivalent of owning a physical item within the
| metaverse.
| colechristensen wrote:
| NFTs _could_ be used for the sale of various kinds of
| intellectual property, I'm not aware of any that actually
| are doing so.
| tylerhou wrote:
| It's more like a deed. Even if you possess the deed,
| someone can still take you to court because they actually
| own the property. But a deed can still be a useful tool if
| most of the time whoever possesses a deed owns the house.
|
| But if people buy deeds instead of the house itself (i.e.
| most NFTs) then the link becomes broken and the signifier
| of "ownership" is less useful.
| sorbits wrote:
| _> But if people buy deeds instead of the house itself
| (i.e. most NFTs) then the link becomes broken and the
| signifier of "ownership" is less useful._
|
| And as it is used for digital goods, the signifier of
| "ownership" is already broken, as multiple people can
| have a copy of the item without their being any ownership
| conflict, unlike a house.
| humaniania wrote:
| A deed only has value because there is a government that
| enforces what it represents.
| recursive wrote:
| You seem like a smart guy, so you'll probably recognize a
| bargain when you see one. I've got a deed available for
| disney.com, for today only.
| arcticbull wrote:
| Deeds are legally binding, NFTs are nothing at all. You
| can make as many or as few as you want, and they come
| with anywhere from 0 to full rights to the underlying.
| Also the "underlying" is literally just a URL with no
| restrictions. What it points to could just disappear one
| day and SFYL. Should have checked the JSON blob you were
| buying to make sure it pointed at IPFS or something.
| [deleted]
| [deleted]
| miohtama wrote:
| Compound protocol is not a legal person thus has no rights.
| The VC governance voters (Polychain Capital) should be
| responsible for pulling the trigger and sending the tokens to
| random people around the world. More here, plus the actual
| bug post mortem
|
| https://mobile.twitter.com/moo9000/status/144389383001774899.
| ..
| Flatcircle wrote:
| That's why the community is talked about so much with regards
| to NFTs, because if you get the right community leaders, like
| Snowfro from Artblocks, you know you're in good hands with an
| ethical player. But to buy stuff from some random creators no
| one's heard of, can get you into sticky situations. And photo
| NFT's are even more troublesome.
| IfOnlyYouKnew wrote:
| ...and this is supposed to be the better alternative to
| something like central banks with leadership appointed by
| elected governments! Because you can never trust any
| institution!
| djrogers wrote:
| > That's why the founder can threaten them with the IRS,
| because they (likely(1)) do not rightfully (as defined per
| law) own it.
|
| This statement is nonsensical - the IRS has no enforcement
| mandate for theft/fraud, nor does it have any authority to
| return stolen property. All the IRS would do is say "Hey, I
| heard you got an extra $NN last year - please pay your taxes
| on it".
|
| It could even be argued that by reporting people the the IRS,
| the founder is implicitly admitting that the current
| possessors actually do own said crypto, otherwise they
| wouldn't owe any tax on it.
| mason55 wrote:
| Re: your last sentence, I think it's more likely the
| implication is that lots of them have crypto gains that
| they haven't paid taxes on.
| [deleted]
| dxf wrote:
| No, because you have to pay taxes on income you receive
| from illegal activities.
|
| https://www.irs.gov/publications/p17
|
| _Illegal activities. Income from illegal activities, such
| as money from dealing illegal drugs, must be included in
| your income on Schedule 1 (Form 1040), line 8, or on
| Schedule C (Form 1040) if from your self-employment
| activity._
| FDSGSG wrote:
| >Stolen property. If you steal property, you must report
| its fair market value in your income in the year you
| steal it _unless you return it to its rightful owner in
| the same year_.
|
| :)
| Qub3d wrote:
| This puts to words the uneasy feeling I've had towards NFTs.
|
| The thought experiment that made this concrete was a sort of
| _reductio ad absurdem_ :
|
| Let's say for a moment that NFTs win worldwide support and
| begin to be used as proof of ownership for everything. As
| part of this movement, the Louvre registers an NFT signature
| for each item in their collection.
|
| Now, let's say a nefarious actor manages to use social
| engineering and convince a naive Louvre curator to transfer
| the NFT ownership of the Mona Lisa.
|
| This bad actor promptly goes to Sotheby's and asks them to
| list "his" Mona Lisa for sale.
|
| ---
|
| Of course, the Mona Lisa would not go anywhere. The French
| government would never allow it. This is an extreme example
| but can be walked back to less and less valuable items: would
| this work for an NFT of a house, a car, a computer, etc?
|
| Unless the state decided to universally and with no
| exceptions enforce ownership of NFTs, they are ultimately
| worthless.
| pavel_lishin wrote:
| This isn't completely unlike a deed to a house. People
| _have_ conned folks out of their deeds to properties, and
| sometimes the transaction is upheld and the bad actor gets
| to move into a house, and sometimes the transaction is
| recognized as invalid, and nobody gets kicked out of a
| house they 've paid for.
| sorbits wrote:
| You got any more detail on this?
|
| Most developed contries have digitized their deed system,
| so I am not sure how you can con someone out of their
| deed.
|
| Also, back when we did use physical deeds, there
| generally was owner's copy and land office's copy, and on
| the back of the deed would be the transfer history.
|
| So to con someone out of their deed, you would not only
| need to get the owner's deed, but you would also have to
| get your name added to the land office's copy.
| evancox100 wrote:
| > Most developed contries have digitized their deed
| system, so I am not sure how you can con someone out of
| their deed.
|
| Not the US*. I mean I guess they are digitized in the
| sense that records are typically published online
| electronically, but it is all still based off these bits
| of paper going back and forth, there is not like a
| database of ownership.
|
| *Except for Iowa
| https://archive.curbed.com/2018/2/26/17017142/title-
| insuranc...
| megameter wrote:
| Nobody on Alpha Centuari cares how much Jeff Bezos owns
| either. All ownership is contextual, it only _looks_ like
| we have universal rights enforcement because of the
| powerful state acting as middleman.
|
| Therefore I have to conclude that NFT usage is an extremely
| radical act against state power, because what it says is
| that the state doesn't matter, this blockchain(the one you
| are using at that moment) does. And you are accepting that
| your rights end where it does, too, so you had better trust
| the community.
| Paradigma11 wrote:
| Thats not different than other forms of proof of ownership
| on paper or in some database. If somebody steals or
| defrauds you, you can go to the authorities and they might
| act on it. That does not make those instruments useless.
| 6gvONxR4sf7o wrote:
| > That's why the founder can threaten them with the IRS,
| because they (likely(1)) do not rightfully (as defined per
| law) own it.
|
| This seems wrong. Here's the quote from the founder:
|
| > Otherwise, it's being reported as income to the IRS, and
| most of you are doxxed.
|
| It seems to be "return it or else it will count as your
| income," which seems... weird. Do most crypto people just not
| pay taxes on crypto? How is this a threat?
| xur17 wrote:
| Most of the people I know that make any serious money on
| crypto definitely do report it, which made the founder's
| IRS thread confusing to me as well. If anything, I'd be
| more likely to keep it after hearing him say that (go
| ahead, report me to the IRS, I was already planning on
| paying taxes on it).
|
| In fact, that threat almost makes returning it the riskier
| move. Are they going to report all of these transfers to
| the IRS? Will the IRS consider it income, and then a gift
| back to compound if I return it?
| arcticbull wrote:
| Of course most people don't pay taxes on crypto lol,
| they're libertarian ancaps who don't believe in the role of
| the state. It's a cesspool of crime.
|
| [edit] there's even a cottage industry supporting folks who
| refuse to pay taxes in getting second passports and
| abandoning their US citizenship. [1]
|
| [1] https://www.cnbc.com/2021/07/11/plan-b-passport-tax-
| break-bi...
| [deleted]
| NelsonMinar wrote:
| Cryptocurrencies: all about being libertarian and avoiding
| government authority right until you need to threaten someone
| to get your money back.
| masklinn wrote:
| To be fair threatening people when they don't do what you
| want is very libertarian.
| 988747 wrote:
| Threatening that someone with a baseball bat, or a gun
| would be libertarian. Threatening with reporting them to a
| government institution is ironic.
| wyager wrote:
| Shitcoiners are almost completely disjoint from libertarians.
| Every libertarian I know is only interested in Bitcoin and
| maybe Monero.
| dragonwriter wrote:
| There's two possibilities:
|
| * it was paid under the terms of a valid contract and need not
| be returned, and therefore is income (as this rests on the
| existence of a contract embodied by the protocol, it is _not_ a
| gift, but an exchange for value.)
|
| * it was an error and must be returned.
|
| This seems to be an offer to settle for the former treatment if
| the recipients refuse the offerers claim that the latter is
| correct.
| paulpauper wrote:
| what a weak threat. he should threatened to report the funds to
| exchanges to be blacklisted, that would be far worse.
| Technically, they would not pay anything unless they sold it
| for cash anyway.
| EveYoung wrote:
| Doesn't blacklisting funds go against the main idea of a
| decentralised crypto currency? What's the point of replacing
| the traditional banking and monetary system with something
| where funds could be devalued by the decisions of a few
| individuals?
| cowvin wrote:
| Yep, crypto is more or less the same as traditional finance
| in this sense. A few powerful individuals already control a
| disproportionate amount of the crypto world.
|
| Like the sketchy folks who run Tether and Binance at the
| same time.
|
| Or Elon Musk tweets raising and lowering the value of
| Bitcoin by a significant amount.
|
| Even Bitcoin itself is largely held by just a few people.
| It's just another tool for billionaires to get even richer.
| mdoms wrote:
| As it turns out most users of decentralized currencies
| don't actually want decentralized currencies when they get
| a taste of what that really means.
| Hamuko wrote:
| Are all of the suppliers Americans if he's threatening them
| with the IRS?
|
| Also, I wouldn't mind paying taxes on some free money since I
| still get to keep 66% of it.
| jliptzin wrote:
| If someone accidentally wires you too much money, or wires
| money to the wrong account, is it not illegal to keep the
| money?
| [deleted]
| mikepurvis wrote:
| But isn't the whole point of crypto to throw off all these
| inconvenient and unjust regulatory shackles? That technology
| has perfectly solved transacting in a trustless way, so that
| we no longer need or want agents of the state threatening
| citizens with violence in order to compel actions from them?
| withinboredom wrote:
| Good luck with that
| fksadfji12 wrote:
| They have all of their users information - in compliance
| with KYC.. so no.
| SkeuomorphicBee wrote:
| No one knows for sure. This question is still not answered in
| the judiciary (of any country afaik) when it comes to cripto
| contracts and protocols. It is not as simple as "money wired
| to a wrong account", those protocols are based on smart
| contracts, and the concept that the code is the contract
| (something that also is not tested in court). So a bug in the
| smart contract code would be akin to signing a contract
| without properly reading it, and it ends up having a clause
| you didn't originally want (but you did sign), that kind of
| "buggy" contract may be 100% enforceable or not depending on
| the country and the situation.
|
| Other analogy that may be relevant are cases where casinos
| had slot machines with bugs awarding more prizes than the
| casino intended. In some cases/jurisdictions the courts ruled
| in favor of casinos, that the money was awarded incorrectly
| and should be returned; but in other cases/jurisdictions
| favored the winner, saying that the winner did everything
| right according to the rules of the game and should keep the
| winnings.
|
| Also the Pepsi 349 Scandal in the Philippines in 1992 comes
| to mind [1]. In that case courts side with Pepsi, but I
| suspect that money has some inertia in Judges minds, so it
| was easy to side with Pepsi when it haven't paid yet. I
| suspect that if all that money had actually been
| automatically transfered to the many winners, then Pepsi
| would have a much harder task to convince the judges to make
| everyone transfer the money back.
|
| [1] https://en.wikipedia.org/wiki/Pepsi_Number_Fever
| avereveard wrote:
| I'm going to add smart contact providers have a strong
| incentive not to get the concept of smart contact tested in
| court, as if invalidated it would render them unfit for
| their purported use.
| colinmhayes wrote:
| But isn't the point of smart contracts that "code is law" and
| therefore there are no accidents?
| hotsauceror wrote:
| I'm not sure about the 'wrong account' scenario, but there
| was a case last year where Citibank accidentally paid off
| 'too much' of an outstanding debt to one of their creditors,
| and tried to recoup the money in court. They lost. But of
| course, they legitimately owed the money.
| cecilpl2 wrote:
| But in this case the Compound contract specified this was
| intended to happen, therefore it's not an accident nor was
| the money transferred to the wrong account. The whole point
| of the contract is that it's a perfect, unambiguous, clear
| representation of intent.
|
| Right?
| BigRedDog1669 wrote:
| Yes, exactly. If it's specified in the smart contract,
| that's what everyone signed up for, even if they didn't
| understand the bug.
|
| If people signed a paper contract and a software system was
| designed to implement the contract, but the software system
| erroneously (through a bug) did something that went against
| the contract, that would be an erroneous payment. But if
| the code is the contract in a smart contract, bugs aren't
| contract errors.
| lottin wrote:
| A wire transfer involves a money transmitter, who provides a
| service according to some terms & conditions. In case of a
| dispute, a court will have the final word. None of this
| applies to cryptocurrencies, because cryptocurrency
| transactions are final. They can't be overridden by a judge.
| If they could, they wouldn't be censorship resistant. You can
| have censorship resistance or rule of law, choose one.
| tlogan wrote:
| I believe the US law inforcement will criminally prosecute
| you if you receive money you have no reason to believe it
| should be yours (money mule laws, using stolen property,
| etc.).
| jliptzin wrote:
| Just because there's technically no mechanism within the
| protocol to reverse the transaction does not suddenly make
| it legal to keep the money right? You could spend all the
| money accidentally wired to you and have nothing left to
| your name, but you still owe that money. So you could keep
| the ill-gotten crypto but still be liable for civil or
| criminal charges.
| int_19h wrote:
| They can be overridden by the judge in the same exact way
| cash transactions are: by forcing the offender to make a
| transfer in the amount that they owe, and/or selling off
| their other property to pay that debt.
|
| The thing about crypto and ownership is that the blockchain
| is not the final arbiter of _legal_ ownership, and that
| qualifier matters in a lot of cases.
| easytiger wrote:
| That's certainly the case in the UK at least
| tlogan wrote:
| Yes. In 99% of cases it is illegal. There are some cases when
| it ok to keep it (like if one pays off their loan too early
| [1]) but you will be criminally prosecuted if you do not
| return money you have no reason to believe it should be yours
| [2].
|
| [1] https://www.cnn.com/2021/02/16/business/citibank-revlon-
| laws...
|
| [2] https://www.ktvu.com/news/woman-jailed-after-refusing-to-
| ret...
| elliekelly wrote:
| Usually, yes. But banks have a process for reclaiming funds
| that have been incorrectly wired so it's pretty unusual for
| the "legality" of it to be litigated.[1] Blockchain has no
| such process. By design.
|
| [1] A recent high-profile example where the facts and
| circumstances meant the wrongly wired funds were legally kept
| by the recipient: https://www.theregister.com/2021/02/19/citi
| bank_money_mistak...
| gitfan86 wrote:
| Most things in life are a tradeoff.
|
| You can't just get rid of 100% of bad things about
| regulation and keep 100% of the good things about
| regulations. It reminds me of people who start open
| relationships. The upside sounds great, but there is a huge
| potential for downside and you may not fully appreciate
| that until it happens.
| perryizgr8 wrote:
| Not always. Remember the Citibank Revlon case?
|
| https://www.cnn.com/2021/02/16/business/citibank-revlon-
| laws...
| wombatmobile wrote:
| In the Citibank case, the beneficiaries were entitled to
| the money because they were the original lenders, and did
| not know that (what appeared to be) the repayment had been
| accidentally wired.
| zinekeller wrote:
| Correct. This is equivalent to you paying your bills
| early. Sure, it sucks to be stuck in a money crunch if
| you found it out later, but your financial mismanagement
| doesn't automatically mean that the you have the right to
| ask your utilities to return the money.
| manquer wrote:
| Actually revelon owed the money and city actually paid.
| It is more akin to your dad paying your bills mistake.
| princeb wrote:
| hmm i don't know. generally speaking, money today is not
| the same as money tomorrow. and so,
|
| if you think about money as a commodity, to be consumed,
| transformed, redeployed, similar to let's say... corn.
| what would you do, as a grain processor, if your supplier
| decided to show up with 500k bushels six months too
| early?
| zinekeller wrote:
| I think that the analogy is reasonable, mainly because
| both examples are the type of debts that can be serviced
| (i.e. repaid) anytime (unless your utilities needs to be
| pre-paid before you can use it, which in case it breaks
| down because it becomes a bought thing, not a borrowed
| thing). There are _recommended schedules_ to pay them, as
| well as a _hard deadline_ , but you can usually pay them
| early (and sometimes those early payments can be
| rewarded, for example by reduced interests).
|
| Your example mainly deals with _futures_ (a type of
| financial instrument), mainly because you have agreed to
| pay within a tight schedule, which does not allow you to
| service them too early nor too late. Also, you forgot
| that money was invented to be widely fungible (okay, you
| can argue if this is true in this age but I argue it 's
| still largely is) meaning that it can be (relatively
| speaking) easier to convert to corn, stocks, or
| generators (for example), which is different from corn
| which is only usable to a subset of people, meaning that
| you can only deal with those people which needs or wants
| corn (for example, you cannot easily get generators with
| corn).
| wizzwizz4 wrote:
| If you think of money as corn, then of course you get a
| different answer. But money is not corn; it is money.
|
| Money is not a commodity; it's a quantity of fungible
| tokens (plus the other stuff that makes it money). Money
| doesn't expire; the closest thing is tax. Yes, it's worth
| a different amount as time goes on, but debts are
| generally _money_ debts rather than _value_ debts.
| mfer wrote:
| It's more complicated than that. Aren't they required to report
| this to the US gov? When someone takes out out they would
| trigger capital gains.
| bostonsre wrote:
| Paying taxes on free money isn't the end of the world.
| pawelmurias wrote:
| It's likely those people might already have had a fuck ton of
| preexisting free crypto-pyramid scheme money lying around.
| db65edfc7996 wrote:
| It might even be the best way to legitimize (legally
| launder?) the money.
|
| If I receive $XX, would happily pay %Y of that to stay above
| board. If the IRS wanted to audit me, my personal war chest
| is now $XX-%Y greater than it was before and more than
| adequate to cover whatever past (accidental) tax errors I may
| have had in the past.
| dragonwriter wrote:
| > If I receive $XX, would happily pay %Y of that to stay
| above board
|
| But paying taxes on it doesn't make it legal if it was
| illegal for non-tax reasons, it just makes it not-tax-
| evasion.
| ashtonkem wrote:
| It's not, but "give us our money back or we'll report you to
| the IRS" strongly implies that they were willfully assisting
| in tax avoidance before. It might even legally be blackmail,
| if they're aware of any crimes their customers have
| committed.
| yial wrote:
| I think that trying to obtain goods or services through
| threat of initiating criminal proceedings is usually
| illegal.
|
| Wash. Rev. Code SSSS 9A.56.110, 9A.56.130, 9A.04.110
|
| For example
| dnautics wrote:
| founder is clearly an asshole but "reporting it as income
| to the IRS" probably doesn't count as "threat of
| initiating criminal proceedings" as it's likely something
| that they are enjoined to do anyways.
| runnerup wrote:
| > something that they are enjoined to do anyways.
|
| Indeed, this is the key to make it "not blackmail".
| duxup wrote:
| Amusing as the founder then would be outright saying he
| knows what criminal activity has been going on and exactly
| who is up to it ... and is willing to use that info if he
| see fit.
|
| That would seem to present all sorts of risks for his
| users, and himself, legal and otherwise.
| fossuser wrote:
| Yeah I got a kick out of that too.
|
| "Send the money back or we'll follow the laws we were
| supposed to be following anyway!"
|
| Patio11 had a thread on Twitter better than this article.
| blfr wrote:
| I believe it starts here
|
| https://twitter.com/patio11/status/1443738002065268736
| kevinpet wrote:
| Interesting.
|
| Except that recent events regarding Citigroups incorrect
| $900M payout on the Revlon bond shows that in fact grown
| up finance will sometimes say, actually, the law is the
| law and the contract doesn't cover this, so thanks for
| the money.
|
| This was a case where the bond holders did have some
| claim to the money, but it was clearly an error.
| JadeNB wrote:
| > This was a case where the bond holders did have some
| claim to the money, but it was clearly an error.
|
| You refer to recent events, and I don't know how recent,
| so maybe I missed something; but my understanding was
| that the finding was that it was reasonable for Revlon to
| believe _when they received the fund_ that it was a
| legitimate payment, not just an error. Of course _in
| retrospect_ (e.g., when Citigroup calls and says so!) it
| is clear that it was an error, but the legal argument,
| whether or not you buy its truth, was that it was not
| clear _at the time_. I think that this sort of finding in
| which both grown-up financiers decide not to be chummy
| about misplaced funds, _and_ the law sides with them in
| not requiring them to do so, is comparatively rare.
| jjeaff wrote:
| I'm a little foggy on details, but I remember reading
| that the bond holders had been kind of mistreated before
| all this. Something to do with reorganizing or splitting
| off valuable parts of the company. The bond holders
| weren't too happy as it was beginning to look like they
| might not get their money back. So it makes sense why
| they would not be quick to cooperate and return what they
| initially thought were early payments.
| blfr wrote:
| 'patio11 covers that and notes that it was fairly
| exceptional
|
| https://twitter.com/patio11/status/1443739575872999424
| SilasX wrote:
| "Better" is debatable. If you've ever _actually_ wired
| money to scammer, you 'd know that the banking system
| isn't one giant kumbaya circle run on gentlemen's
| agreements to Do The Right Thing, and you were rolling
| your eyes through the whole thread[1].
|
| At most, it works like that for anyone rich or working on
| behalf of a big firm, which isn't exactly a ringing
| endorsement. And don't you worry, cryptocurrencies are
| just as capable of reversing transactions of those with
| the real power! [2]
|
| [1] Thanks to blfr for finding the link:
| https://twitter.com/patio11/status/1443738002065268736
|
| [2] https://www.gemini.com/cryptopedia/the-dao-hack-
| makerdao
| fossuser wrote:
| I think what that twitter thread points out is that #2 is
| harder and less common in crypto (for better or worse) in
| the current state. What would be a trivial correction in
| the normal system isn't here.
|
| There are also a lot more ways for regular people to
| reverse transactions, but I take your point about how
| hard it is to reverse wires to scammers.
|
| I'm still pretty bullish on DeFi.
| bpodgursky wrote:
| Not sure that makes any sense... if users held the assets
| before, they have an asset with unrealized gains. When it
| transfers ownership, those gains are realized.
| SilasX wrote:
| Not really? There are things that you're not required to
| report to the IRS that others can use to underreport income
| -- for example, the identity of which contractor you made
| small cash payments to. Reporting their identities to the
| IRS is not illegal, but neither is failing to.
|
| (Also, I assume you mean tax evasion? Avoidance is the
| legal one.)
| [deleted]
| chucksmash wrote:
| > [...] strongly implies that they were willfully assisting
| in tax avoidance before.
|
| It does nothing of the sort. It's a enormous leap based on
| an assumption of bad faith to go from expecting protocol
| users to sort out their own personal tax situation to
| "willfully assisting in tax avoidance."
| JadeNB wrote:
| > It does nothing of the sort. It's a enormous leap based
| on an assumption of bad faith to go from expecting
| protocol users to sort out their own personal tax
| situation to "willfully assisting in tax avoidance."
|
| There are obviously lots of subtleties here, including
| places where no-one knows how the legal implications will
| shake out, but "expecting ... users to sort out their own
| personal tax situation" isn't always an option; for
| example, my bank isn't allowed to assume I'll sort out my
| own personal tax situation and must report my interest
| earned, whereas, say, Amazon is allowed to make that
| assumption, and so need not report the items that they
| have sold to me. It _could_ be that this is a more
| Amazon-y situation, but it could also be that it 's a
| more traditional-bank-y situation. Probably even the IRS
| and Leshner, but definitely those of us who aren't
| involved in the situation, don't know which it is.
| chucksmash wrote:
| > There are obviously lots of subtleties here.
|
| Precisely, which is why the jump to "strongly implies
| willfully assisting in tax avoidance" comes off so
| poorly. In my opinion, it not only mischaracterizes what
| is happening, it imputes ill intent to boot. Guidance for
| DeFi apps is poor currently and policy in this area is
| actively being legislated. In the meantime, shifting the
| onus for tax reporting back onto individual users !==
| willful assistance in tax avoidance any more than
| companies not witholding income taxes from payroll pre-
| WW2 was willful assistance in tax avoidance.
|
| Further, since these transactions are all captured on a
| public ledger, anyone using this for tax avoidance is
| really just electing to pay their taxes later with
| massive penalties and possible jail time once the IRS
| gets around to tying addresses with unreported
| transactions to fiat on/off ramp transactions that are
| KYC'd.
| cesarb wrote:
| > Paying taxes on free money isn't the end of the world.
|
| Playing devil's advocate: it's not exactly "free money", it's
| free "tokens" of some kind, which might not be convertible to
| money at the same rate which was used to estimate the tax. If
| the tax amount was assessed at the value the tokens were
| supposed to have today (based on what they recently traded
| for at some exchange somewhere), but you were too slow and
| only traded the next day and the price paid for these tokens
| has fallen heavily, you might have to pay more in tax than
| the money you can get from these "free tokens". So yes, it's
| not hard to imagine a situation in which paying tax on that
| "free money" can be "the end of the world" for some.
| hellojesus wrote:
| Agree fully with this point if it is considered income and
| not a gift.
|
| Let's assume the income case, a qyestion: What would happen
| if someone took these coins then transfered them to a new
| wallet while claiming that their private key was
| compromised. So "theft" essentially. Would they still be on
| the hook for taxes?
|
| The real downside to crypto to me is that there is no
| ownership, only proof of authentication credentials
| ownership.
| NikolaNovak wrote:
| From position of ignorance, I assume broadly same as
| being paid and than saying dog ate your cash on way Home.
| Crypto is not the first opportunity for dishonest actors
| to do dishonest things (it's just more fun to watch as
| they proclaim princioles and future and innocence :-)
| bduerst wrote:
| So just offload ~35% or whatever it is to cover the taxes
| in anticipation that they're reporting it to the IRS. Not
| sure if it qualifies as a gift though, which may be taxed
| different than income.
| pc86 wrote:
| The giftor pays the tax in the US, not the person
| receiving the gift. And only under certain scenarios.
| Practically speaking, "gift tax" is usually not a thing
| for what most people would consider gifts, but always
| speak to a CPA and probably attorney, etc. etc. etc..
| TedDoesntTalk wrote:
| In the US, you only pay taxes on income and gains. In other
| words, you're not going to pay taxes on those tokens until
| you redeem them for fiat currency. The tax is an percentage
| of the fiat currency you receive, not the token value.
|
| Just like stocks (you don't pay for any changes in value to
| the stock until you sell it for fiat currency).
| fossuser wrote:
| There are some exceptions like exercising stock options
| where you're taxed for the difference between the strike
| price and the fair market value at the time of exercise
| (I'm not sure why the law is this way).
| morpheuskafka wrote:
| The difference between the strike price and market price
| is the value of the option--its the money you otherwise
| would have had to pay to buy the stock if you didn't have
| the option. That's why it is so.
| fossuser wrote:
| So tax the gain on sale of the stock - there's no good
| reason to tax it on exercise (especially when the stock
| is illiquid and the price can still go down).
|
| The current law is bad imo.
| Retric wrote:
| Because your trading thing A for thing B. Suppose you
| could trade stock for a Yacht without income taxes
| applying. That's the kind of loophole everyone buying a
| yacht would use, especially if you could use a near cash
| equivalent like gold instead of barter.
|
| The difference between stock and stock options might not
| seem like enough to matter, but it's simply the same
| generic rule applying.
| fossuser wrote:
| I'm not sure this follows in the case of options? You
| have a contract to buy stock at X price. You do this at a
| discount and get the stock. You could just tax the gain
| on the stock on its sale with existing tax law and you
| could do this specifically for options if having some
| broad law would create weird exceptions like you suggest.
|
| ISOs existed to correct for this failure in options, but
| the income at which AMT removes that protection hasn't
| been updated substantially since it was created so this
| protection no longer really covers exercise. I also don't
| really understand how it could be abused.
|
| My change would be to have option exercise pay no tax on
| the spread, with all taxes payed on gains on sale.
|
| As it is, people with massive wealth can exercise when
| there is no spread (because they have lots of cash
| already when the shares are granted to them) or they get
| special early exercise via the 83b election with the IRS
| and special access from their startup.
|
| The people that get hit hardest by this are regular
| employees starting out that don't have lots of cash to
| exercise when the spread is zero.
| Retric wrote:
| Changing the law would of course change the system but
| paying people with options has significant economic and
| political implications. The current solution is for
| companies to agree to buy back enough shares to cover the
| tax burden when people exercise their options.
| twox2 wrote:
| Crypto is taxed as income. Everything is taxed as income.
| You are only taxed on gains if you have a cost basis and
| are trading the tokens, but otherwise if you are
| compensated via tokens you owe income tax on that whether
| or not you convert it to fiat.
| whimsicalism wrote:
| Just like how it works for stock grants unless you
| inherited them.
| twox2 wrote:
| Yep, not just stock grants, but anything. For example you
| find a bug in an airline, and report it and they
| compensate you as a thank you with 200k airline miles...
| you now owe income tax on those miles.
| randombits0 wrote:
| Imagine that, they tax you on a special "number"! Do they
| accept Crypto? If not, please point to the money they
| want to tax.
|
| They can't have it both ways. Either crypto is an
| equivalent to money or it isn't. If it is, accept it. If
| it's not, tax it when the money "appears" out the other
| end.
| [deleted]
| betwixthewires wrote:
| I like crypto, and decentralized finance is interesting, but I
| find it quite telling that users are being threatened with
| having to pay taxes as retaliation.
| NovemberWhiskey wrote:
| Ehh, technically any transfer to another where full
| consideration is not received in return (in either money or
| money's worth) is a _gift_.
|
| And taxes on gifts are presumptively payable by the _donor_ ,
| not the recipient.
|
| Disclaimer: not tax advice, YMMV etc.
| kwertyoowiyop wrote:
| I love this thread! And what are the rules for _unintended_
| gifts?
| ars wrote:
| The same. You can return or throw out the gift if you don't
| want it.
|
| If you keep it, and it's over the taxable limit, you have
| to report it and pay tax.
| NovemberWhiskey wrote:
| Please explain why you think the recipient of a gift is
| the one that has to pay tax on it.
| dnautics wrote:
| is this generally not understood? For example, if you go
| on price is right, and you win a nice trip to tahiti, you
| still have to pay tax on it.
| stonemetal12 wrote:
| Gameshow winnings are not a gift. I think it is
| considered gambling and taxed accordingly.
| kbenson wrote:
| Well, most people might think any sort of Crypto is
| gambling too...
| NovemberWhiskey wrote:
| If it's generally understood, then it's wrongly
| understood:
|
| https://www.irs.gov/businesses/small-businesses-self-
| employe...
|
| "Who pays the gift tax? The donor is generally
| responsible for paying the gift tax."
|
| > _For example, if you go on price is right, and you win
| a nice trip to tahiti_
|
| Those are prizes or winnings, not gifts. Totally
| different tax treatment.
| 0x0 wrote:
| Because otherwise you can come and build me a website and
| I can gift you $10k and wow nobody needs to pay income
| tax anymore?
| NovemberWhiskey wrote:
| No, because when you give me $10K because I made you a
| website, you're obviously paying me for my work. The IRS
| is not stupid, and doesn't look at the form you claim, it
| looks at the actual factual situation.
| PragmaticPulp wrote:
| This is an interesting case because presumably they would
| want to write this off as a loss (in a theoretical world
| where they were paying US taxes) so it's not a gift.
|
| Technically the profits are a result of the computer code of
| the system, though. If they want to stick to their arguments
| that smart contracts are the law, then it's just a regular
| payout from the system according to the rules of the system.
| Business as usual.
|
| However, I suspect when the losses are in the tens of
| millions they'll drop the pretense of "code is the contract"
| and start pursuing other legal avenues. The loss was about 1%
| of the total money locked in Compound.
| [deleted]
| l33tman wrote:
| You can make erroneous money transfers and it doesn't
| automatically count as a gift, the receiver can be liable if
| the amount makes it obvious it's an error for example and she
| won't return it. I'm sure this differs between jurisdictions
| in the details though..
| NovemberWhiskey wrote:
| No, _of course_ a mistaken payment isn 't a gift, and
| there's an appropriate mechanism for retrieving mistaken
| payments through the civil courts (if necessary).
|
| But a mistaken payment is also not _income_ and threatening
| willfully to mis-file a 1099 is completely inappropriate.
|
| If they want to get the mistaken payments back, they can
| ask nicely, they can send threatening letters, they can sue
| in court; but they _can 't_ use the IRS as their cat's paw
| because the only tax situation that fits the facts here is
| gift.
| mindslight wrote:
| It's not a gift - if you take the position that a smart
| contract is a binding contract, then the payment is
| pursuant to a contract that itself was entered into for
| full consideration. Nobody knew how the contract would
| develop, but the same applies for many contracts - eg
| options trading.
|
| If one wants to claim it's a mistaken payment, then the
| recipient needs to return the tokens - their legal
| ownership was never conveyed.
|
| Additionally, you can tell the intent is not that of a
| gift because the transferrer immediately wants it back.
| floatingatoll wrote:
| The founder has declared that they are not reporting financial
| transactions to the IRS that would be of material interest to
| the IRS, and noted that they will consider providing that
| material to the IRS _only if_ their conditions are met.
|
| It seems likely the IRS will subpoena them for the data
| regardless, and potentially seek conviction of tax fraud.
|
| While I ironically enjoy that he thought the best way to
| intimidate cryptocoin people was to threaten them with
| taxation, it does highlight cryptocoin's primacy as a way to
| acquire nation currency without paying taxes on it.
| snarf21 wrote:
| I thought crypto was censorship resistant? /s
| wyager wrote:
| Random DINO shitcoins certainly aren't.
| ed_elliott_asc wrote:
| Can't the people who have the money just pay the tax
| themselves? Seems like the easiest way to keep the money and
| stay on the right side of the threat?
| hef19898 wrote:
| So it would seem.
|
| EDIT: Also profitable, taxes should be less then 90%. Just
| out of curiosity, isn't DeFi motivating users to defraud the
| IRS by promising 10% without reporting it as income?
|
| EDIT: Come to think of it, if they are offering 10% without
| reporting to the IRS, which is obviously less than after
| taxes, would it be reasonable to assume _all_ revenue /
| profits have not yet been reported to IRS as revenue?
| [deleted]
| vmception wrote:
| Leshner isnt the "CEO of DeFi" and Compound doesnt
| represent anything either.
|
| Why even bother trying to make a mountain out of a
| molehill? You are building on a red herring.
|
| Anyway thats a lot of idioms
| TedDoesntTalk wrote:
| It's not revenue and not reportable until you exchange the
| tokens for fiat currency (I.e. sell it)
| ABeeSea wrote:
| That is completely wrong. Income is anything of value,
| not just cash. If you find a gold nugget in your yard,
| you have to pay taxes on the value of the gold even if
| you never sell it.
| bildung wrote:
| This all depends on juristication. You are correct if you
| implied the US AFAIK, TedDoesntTalk is right in e.g.
| Germany.
| pc86 wrote:
| And even within the US this is true for the IRS but may
| or may not be true for the state in which the person
| lives.
| nikanj wrote:
| Cryptos used for tax evasion!?
| dangerface wrote:
| How tho? How can i get my crypto into dollars without
| paying tax or using an offshore business that facilitates
| the tax evasion.
| pc86 wrote:
| You're probably unlikely to have anyone knowledgeable lay
| out the exact means by which crypto can be used to evade
| income taxes, but it's a pretty well known that it's used
| that way.
| joshmarlow wrote:
| > it's a pretty well known that it's used that way.
|
| Michael Morell, a former acting director of the CIA, has
| some things to say about the use of BTC in crime:
|
| > Based on our research and discussions with industry
| experts, I have confidence in two conclusions: * The
| broad generalizations about the use of Bitcoin in illicit
| finance are significantly overstated. * The blockchain
| ledger on which Bitcoin transactions are recorded is an
| underutilized forensic tool that can be used more widely
| by law enforcement and the intelligence community to
| identify and disrupt illicit activities. Put simply,
| blockchain analysis is a highly effective crime fighting
| and intelligence gathering tool.
|
| Source: https://casebitcoin.com/story/former-cia-
| director-finds-bitc...
| dangerface wrote:
| They setup a company in an offshore country like vanuatu
| and use an offshore bank to change the crypto into
| dollars avoiding capital gains tax etc, but its the
| offshore company and bank that facilitates the tax
| evasion.
|
| Just because every one thinks they know how it works
| doesn't mean they know how it works, thats why I am
| questioning it. The truth is its pretty well known how
| tax evasion works but it doesn't use crypto.
| hef19898 wrote:
| Who would have thought, right?
| qeternity wrote:
| Yep, nothing stopping anyone from keeping the funds. But
| we've seen other shenanigans in the past (forks, CEX
| involvement, etc) to paper over these mistakes.
| bostonsre wrote:
| Could the users sell now if they haven't already?
| noasaservice wrote:
| > Headline is misleading: the founder has threatened to doxx
| and report them to the IRS if they don't return funds which
| according to the Compound protocol, they rightfully own anyway.
|
| That has strong implications the company is _not_ reporting
| properly to begin with.
|
| Wouldnt be a first for the capitalist class, but using your
| legally required tax as blackmail is... well.. Interesting.
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