Code is (still) not law: DeFi ‘strategist’ Avi Eisenberg arrested over Mango Markets exploit

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Police in Puerto Rico have arrested Avraham “Avi” Eisenberg in connection with a recent exploit hack on Mango Markets, which saw the platform lose over US$110 million. Eisenberg has been charged with market manipulation offenses in the Southern District of New York.

His arrest is another sign that regulatory authorities reject crypto’s popular “code is law” defense and will take action against anyone they consider to have engaged in unfair or illegal trading activities, regardless of whether a platform’s coded rules allow them to happen or not. 

Eisenberg was fingered as a potential suspect in the exploit almost immediately after it happened. Canadian independent journalist Chris Brunet posted an article containing screenshots of a Discord chat in which a user bearing his name described the attack. The Discord posts appeared shortly before the attack occurred.

A known digital asset figure on social media and self-confessed “shitposter,” Eisenberg wasn’t shy about discussing his schemes in public. Rather than denying the accusations, he owned them, playing the “code is law” card and adding that he’d negotiated a settlement agreement with Mango Markets’ insurance fund to make other users whole again (reports said he ended up returning around half the funds). A proposal purportedly from the attacker had offered to return most of the money on condition that decentralized autonomous organization (DAO) members wouldn’t pursue criminal prosecutions, though such a condition would’ve been difficult to enforce.

He apparently didn’t consider the exploit an “attack,” posting a statement about the incident on his Twitter account on October 16. He called it “a highly profitable trading strategy” that he believed consisted of “legal open market actions” and compared it to auto deleveraging procedures on major exchanges.

Statement on recent events:

I was involved with a team that operated a highly profitable trading strategy last week.

— Avraham Eisenberg (@avi_eisen) October 15, 2022

His Twitter bio describes him as an “applied game theorist.” His strategies mainly revolved around finding ways to profit from gaming DeFi platform rules concerning asset minting and borrowing and the digital asset world’s proliferation of useless tokens that exist for little reason other than speculative trading. 

In January 2022, Eisenberg posted an article on his Substack page titled “How our team makes millions in crypto risk-free: Exploiting crypto markets for fun and profit.” In it, he described how he’d earned millions in profits by gaming various token creation and borrowing tools and ended with a call for partners on future larger-scale endeavors, saying, “we have the skills to execute and the capital to maximize.”

“The biggest value in these opportunities is in being early,” he wrote. “We didn’t have the best bots, but for the first few weeks we were the only players even trying to mint big using Eden.”

While his strategies didn’t necessarily need to happen in the digital asset space, he added, it was rare to find these kinds of low-risk, high-return opportunities outside it.

RIP BOZO pic.twitter.com/8peCRwVR6x

— Sheikh Swampert 🍌 (@sheikhswampert) December 27, 2022

Eisenberg’s “trading strategies” apparently didn’t work all the time, and reports in November indicated he’d lost most of his Mango Market gains in a play involving the Aave platform and a leveraged position on OKEx. Wild swings in the value of Curve (CRV) tokens immediately following his move saw his highly-leveraged position get liquidated.

A judge, not a DeFi platform, will now decide whether Eisenberg’s actions constituted a crime. Clever exploits and “strategies” such as his have been a regular occurrence in DeFi, DAOs, and exchanges have occurred for as long as these platforms have existed. The main differences, in this case, were Eisenberg’s willingness to talk about them openly using his real name and his insistence that everything was actually legal. 

Just as DeFi’s complex rules and speculative trading nature encourage smart strategists to find exploits, Eisenberg’s openness about it probably made it easier for prosecutors and law enforcement to put his legal theories to the (human) test.

Watch: The BSV Global Blockchain Convention presentation, Trust But Verify: Everything