“DeFi Faces Scrutiny in $110M Fraud Trial of Crypto Trader Eisenberg”


On Tuesday, the criminal fraud and manipulation trial of crypto trader Avi Eisenberg will begin in New York. The trial, which is expected to last two weeks, centers around Eisenberg’s use of a “highly profitable trading strategy” in October 2022 that caused significant damage to Mango Markets, a popular cryptocurrency platform on the Solana blockchain.

This trial marks a shift in the government’s approach to policing crimes in the decentralized finance (DeFi) sector, which operates under the belief that “code is law.” Unlike centralized finance platforms such as Coinbase, Mango Markets is not tightly controlled and relies on smart contracts for trades, borrowings, and loans.

Eisenberg is accused of manipulating the price of the MNGO token on Mango Markets and borrowing a large amount of cryptocurrency from the platform’s deposits. He allegedly walked away with $110 million and later returned a portion of it in exchange for a promise that he would not be prosecuted. However, this promise was not kept.

During pre-trial proceedings, prosecutors and defense attorneys discussed upcoming testimony from Mango Markets’ founder, Dafydd Durairaj, who reportedly spoke with a ransomware negotiator for assistance following Eisenberg’s trades. The judge ruled that the government could not bring up this fact unless the defense opened the door by arguing that the negotiations were an “arm’s-length” deal.

The use of terms such as “manipulation” and “obliged” were also debated, highlighting the complexities of this trial. The government is attempting to present Eisenberg’s actions as a simple case of fraud, but the defense argues that the technical jargon used in the DeFi space makes it difficult to determine what is considered legal.

This trial delves into philosophical and practical questions about trading on permissionless blockchains and marks the first federal criminal trial involving a DeFi trader accused of breaking U.S. law.

The jury, which includes a variety of professionals and an avid eclipse watcher, seemed less than thrilled to spend Eclipse Day in a federal courtroom. However, they were able to briefly use their eclipse glasses while the judge and lawyers discussed peremptory strikes.

In the end, the judge reminded everyone that they could see the eclipse again in 20 years.

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