What if $100 million fines are good for the industry?

Taylor Culbertson -

Fancy meeting you here, hope you had a great Valentine’s Day 😘 It’s ya boy Taylor, CEO of Hedgehog, where we turn crypto complexity into convenience and calm. Allow me to remind you, every week I give one lucky winner a free Ledger Nano S hardware wallet — just answer the question at the bottom of the newsletter.

I often remark that calm is the opposite of the crypto market at large. This week was no exception. For example, BlockFi received a $100 million smackdown from the SEC for the firm’s crypto lending product.

The ongoing friction with regulators is disheartening, even when they don’t all agree with each other. Maybe especially then? For crypto entrepreneurs, it’s pretty nerve-wracking! Hedgehog takes compliance seriously, of course, because we’re committed to doing right by our customers and being good citizens overall.

But naturally it’s stressful to keep up with rules that are currently being written! Traditional finance is governed as much by, well, tradition as by an explicit rulebook. Crypto hasn’t been around long enough to create a cultural balance of adversarial cooperation between the industry and regulators. We’re still testing our expectations on each other.

Bright side: Hedgehog customer success lead Jon Hope can always find a silver lining, one of the many benefits of having him on the team. Here’s what he said on Discord:

This BlockFi headline looks bad but could be a positive for overall adoption. Forcing some regulation by having successful offerings before clear guidance was provided. The result is much more clear rules surrounding the lending products they have. Which I think helps all of us in the long run. Industry wants clear regulation and BlockFi took a hit to get some today.

In fact, the CEO of BlockFi agrees with Jon, at least in the company’s press release about the enforcement action: “Today’s milestone is yet another example of our pioneering efforts in securing regulatory clarity for the broader industry and our clients, just as we did for our first product – the crypto-backed loan. We intend for BlockFi Yield to be a new, SEC-registered crypto interest-bearing security, which will allow clients to earn interest on their crypto assets.”

Tldr: Atta boy, go get ‘em.

A web3 founder was targeted by an insanely high-effort social engineering scam, which was summarized in this spectacular comment on Hacker News:

Thomas has a Discord for a drone transportation startup, and the scammers proceeded to embed themselves in the community and provide valuable labor such as web design and graphics design in order to earn his trust.

Thomas's wallet is public and advertised on Twitter via his ENS domain. He had $100M+ in aETH, a derivative token provided by Aave when you lend out your assets for interest. The aETH is redeemable for the underlying asset.

The scammers created a fake NFT project associated with space and drones, and proceeded to give Thomas a free one, but asked that he stake it (or deposit it into a smart contract), to earn yield in the form of Armstrong ETH, a token they made up that had the same acronym as Aave's (aETH).

The catch was that when he went to stake his NFT, they asked for an approval for spending aETH from his wallet. Approvals such as this are normal when interacting with smart contracts, since the contract has to be "delegated" responsibility over the tokens in order to move them. However, what wasn't normal is that the approval was actually for Aave ETH [not Armstrong ETH, as Thomas thought].

Essentially, by approving the smart contract, Thomas gave permission to the hackers to withdraw the actually valuable aETH — but he was saved by using a different wallet. Heist = Foiled.

Tldr: Trust no one. Except for me. You can trust me!

Miscellaneous interesting links:

Tldr: Curb your enthusiasm, the Coinbase ad was better.

Tldr: Is Solana coming to Brave? Or is Brave coming to…Solana? *cue dramatic music*

Tldr: Don’t tweet stupid things. Lifehack!

  • Nic Carter on bitcoin mining: “virtually all ASIC parts are recyclable. there's nothing toxic in them. they're not full of nasty stuff like cell phones. they don’t have batteries. they are mostly made of aluminum. there's a financial incentive to recycle them obviously.” Way more details in the thread.

Tldr: I want my ASICs that away 🎶 Also, just to clarify, this is a different Nic Carter.

Giveaway question of the week: What precautions do you take to avoid getting hacked? Reply to this email with your answer and you’ll be entered to win a Ledger Nano S hardware wallet. Which is extra secure, so… it all ties together 😎

Bye, Bye, Bye,
— T

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