Crypto’s “code is law” ethos gets put on trial as the spotlight shines on DeFi
Fruit of a poisoned trade?… A trial kicked off in New York this week that tackles a core premise underpinning the multibillion-dollar decentralized finance market. Prosecutors allege that crypto trader Avraham Eisenberg committed fraud by manipulating futures contracts to steal $110M from the Mango Markets decentralized exchange (DEX) in 2022. The trial has sparked a debate around “smart contracts,” the code powering trading programs on blockchains like ethereum and Solana. Eisenberg’s lawyer argues that because the solana smart contract behind Mango let him make the trades, he’s in the clear. Meet “code is law.”
Code is law = the idea that any trade that a smart contract technically allows is OK. This idea has long been at the core of DeFi.
But also, maybe it’s not… Regulators don’t appear convinced, and Eisenberg’s trial looks to be the first time the argument’s been brought before a criminal jury.
Clouds rollin’ in… on DeFi summer. Decentralized finance is a fundamental part of what distinguishes crypto from traditional markets. It’s an umbrella term covering the trade of digital assets (like: ethereum, NFTs, dog-themed tokens) without a third party like a brokerage. Things had been looking up for the industry. Decentralized exchange volumes hit a record $267B last month, and Uniswap, the largest DEX on ethereum, just passed $2T in cumulative trading volume. But DeFi’s under threat.
You can’t always choose your champions… While the Mango Markets case is about whether Eisenberg committed fraud, a verdict has the potential to either embolden DeFi traders or chill the market. The timing’s rough. On Wednesday, as Eisenberg’s trial called into question the rules of the DeFi game, Uniswap’s CEO said his exchange received a Wells notice from the SEC, suggesting the regulator is prepping a lawsuit. Uniswap said the SEC’s notice focused on whether the company conducted unregistered sales of securities.