The significance of @avi_eisen's arrest and what it means for DeFi

Given that Eisenberg may be the first person ever to go to prison for manipulating a decentralized financial (DeFi) trading platform, his arrest is a watershed moment in the history of DeFi. This article will discuss Eisenberg's arrest, the charges against him, and the implications of his detention for the future of DeFi.

Timeline of Events

Eisenberg's involvement in the DeFi space stretches back several years. In 2020, he exploited the decentralized autonomous organization (DAO) FortressDAO for a profit of $14 million. Eight months later, he exploited Mango Markets for a profit of $115 million.

After the Mango Markets incident, Eisenberg returned $67 million of the profits, keeping the remaining $48 million as a “bug bounty.” However, law enforcement authorities still pursued charges against him. On December 27, 2021, Eisenberg was arrested in Puerto Rico and charged with market manipulation offenses.

Who is Avi Eisenberg?

Avraham Eisenberg is a U.S. citizen based in Puerto Rico at the time of his arrest. He studied mathematics at Yeshiva University and later founded and operated Thimes Solutions Inc. from November 2016 to December 2020.

Eisenberg is known for believing in the concept of “code is law,” which holds that smart contracts and other digital agreements should be legally binding. This belief has led him to take controversial actions in the past, including ousting the founders of FortressDAO.

Exploitation of FortressDAO

Eisenberg first made a name for himself in the DeFi community when he exploited FortressDAO in 2020. He began by launching the project and then ousting the founders. From there, he printed 190 million $FORT tokens to crash the price. He then bought the tokens for pennies and redeemed them for a profit of $21 million, with $14 million going directly into his wallet.

The last transaction in this series, in which 20 million FUSD and 1 million USDC were sent to Eisenberg's wallet and emptied the FUSD multisig, effectively made both the FORT and FUSD multisigs useless. As a result, Eisenberg consolidated $14 million worth of real assets and 20 million FUSD in his wallet.

The exploitation of Mango Markets

Eisenberg's exploitation of Mango Markets in 2021 was even more profitable than his exploit of FortressDAO. In this instance, he bought massive MNGO perpetual longs and pumped the price of MNGO by 1,300% in just one hour. He then used the unrealized profit to borrow all of Mango Markets' $115 million liquidity, defaulting on the loan shortly after.

Eisenberg risked just $10 million in this exploit but ultimately profited by $115 million. He later returned $67 million of these profits, but the damage had already been done.

Significance of Arrest

Eisenberg's arrest is significant for several reasons. First, Eisenberg admitted his role in the Mango Markets incident and returned $67 million, keeping the remaining $48 million as a “bug bounty.” However, the FBI and the Commodity Futures Trading Commission (CFTC) launched investigations into Eisenberg’s actions.

The unsealed court documents allege that Eisenberg,

“willfully and knowingly” manipulated the sale of a commodity – namely, futures contracts on Mango Markets – and engaged in a scheme involving “the intentional and artificial manipulation of the price of perpetual futures contracts on a cryptocurrency exchange called Mango Markets, and other manipulative and deceptive devices and contrivances.”

The charges against Eisenberg carry potential fines and prison sentences. His arrest has implications for the DeFi industry. It may deter future market manipulation attempts and show that KOLs (key opinion leaders) who pump and dump DeFi projects may face jail time. However, some in the community believe the arrest is bearish for DeFi because these money market protocols need to be built robust enough to withstand such attacks in a PVP (player versus player) environment.