Dragonfly Partner on Recent Hot Topics: Bybit Hack, Presidential Crypto Scandal, End of Meme Cycle—Regulatory Tailwinds May Bring Market Turnaround
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Dragonfly Partner on Recent Hot Topics: Bybit Hack, Presidential Crypto Scandal, End of Meme Cycle—Regulatory Tailwinds May Bring Market Turnaround
The industry's attitude toward celebrity tokens is gradually turning negative.
Navigating Web3 tides with focused insightsCompiled & Translated: TechFlow
Hosts:
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Haseeb Qureshi, Managing Partner at Dragonfly
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Robert Leshner, CEO and Co-Founder of Superstate
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Tarun Chitra, Managing Partner at Robot Ventures
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Tom Schmidt, General Partner at Dragonfly
Podcast Source: Unchained
Original Title: Crypto Circus Never Ends: Hacks, Grifts, and Kanye’s Coin?
Air Date: February 24, 2025
Key Takeaways
The discussion covered the following topics:
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Bybit Hack Incident:
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Bybit suffered the largest crypto hack in history, losing $1.5 billion, allegedly carried out by North Korea's Lazarus Group.
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The hackers exploited a vulnerability in multi-signature technology to rapidly transfer funds to the Ethereum network.
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Bybit's CEO responded swiftly, pledging to meet all user redemption requests and securing bridge loans from Binance and Bitget.
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Libra Scandal:
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Libra, a meme coin backed by Argentine President Javier Milei, crashed 95% amid allegations of insider trading and market manipulation.
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The episode exposed common tactics behind meme coin launches, including KOL private sales and bot sniping.
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Celebrity Token Controversies:
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Kanye West postponed the planned launch of his YZY token due to poor timing.
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Celebrity tokens continue to collapse, such as Dave Portnoy accused of dumping Greed and Greed 2, causing massive investor losses.
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The industry is growing increasingly hostile toward celebrity tokens.
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Decline of the Meme Market:
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Recent sentiment in the meme market has weakened, with retail investors recognizing its zero-sum nature.
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Haseeb believes the meme cycle has ended.
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Improving Regulatory Environment:
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The U.S. SEC announced it is dropping its lawsuit against Coinbase and restructuring its crypto division to focus on combating digital fraud.
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Hester Peirce proposed collaborative regulatory policies with the industry, sending positive signals.
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Brian Quintenz has been nominated to lead the CFTC, potentially advancing a more favorable crypto regulatory framework.
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Infrastructure Development and Ecosystem Stability
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Solana and Ethereum ecosystems remain unaffected by meme market downturns, with developers focused on infrastructure and application innovation.
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Developer conferences on Solana show that long-term builders still exist in the market.
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The Largest Cryptocurrency Hack in History
Haseeb:
Last week we witnessed the largest cryptocurrency hack in history—Bybit lost $1.5 billion from a cold wallet breach.
Bybit stated the attack occurred during the process of moving funds from cold wallets to hot wallets—a routine operation exchanges perform to meet withdrawal demands. Although Bybit used multi-signature technology and relied on Ledger’s multi-sig system, there was a discrepancy between what the front-end displayed and what signers saw on their devices during transaction signing.
This attack method closely resembles previous hacks targeting Rexerx and Radiant Capital, leading many to suspect involvement by the Lazarus Group—an infamous hacker collective linked to North Korea responsible for major crypto heists, including the Axie Infinity breach years ago.
Bybit's Response and Industry Reaction
Haseeb:
Bybit’s CEO Ben officially confirmed the incident on Twitter, stating the company has sufficient balance sheet strength to cover the loss and can fully meet all user redemption requests. He went live about 30 minutes after announcing the hack—the first time he’s responded so quickly under such circumstances.
During the livestream, he assured everyone: "We’re completely fine, still able to fulfill all withdrawal requests. While there is some liquidity strain, we’ve secured a bridge loan—the on-chain data shows this funding came from Binance and Bitget."
About six hours after the hack, outflows stabilized, and the market appeared relatively reassured about Bybit’s situation. Many also stepped forward to support Bybit, including CZ and other exchange leaders. Some compared this event to FTX, but unlike FTX, Bybit was able to meet redemptions.
Involvement of North Korean Hackers and Aftermath
Haseeb:
This incident is confirmed to involve North Korea, meaning we cannot predict what happens next. It’s unlikely North Korea will move the stolen assets directly to centralized exchanges. The stolen funds currently remain on the Ethereum network with no further movement. Clearly, they know global trackers are watching, and given the scale, laundering through privacy tools like Tornado Cash isn’t feasible.
The assets were initially in forms like mETH and stETH—Lido’s staked ETH and related tokens. However, they quickly swapped all these into ETH via DeFi platforms. I suspect this is because ETH offers the highest liquidity and is hardest to freeze. Holding smaller altcoins risks freezing through governance actions, but ETH faces almost no such risk.
Despite being the largest crypto hack in dollar terms, no one is proposing solutions like hard forks. A pattern emerges: the larger the theft, the harder it is to escape. Ironically, stealing $20–30 million might be easier to hide; but if you steal over a billion, where does that money go? Who helps you move it?
Robert:
I don’t know how they’ll handle these massive stolen proceeds. I believe online analysts have tracked such events for years, but my guess is they may eventually try converting the funds into commodities like Russian oil.
Tarun:
I recall Richard Heart, once the largest DAI holder after receiving large amounts of ETH from Pulse Chain, had to convert everything into DAI because many exchanges blacklisted him. I wonder if we’ll see something similar here—it would be an interesting test of whether attackers trust decentralized stablecoins.
Haseeb:
I don't think they’ll move all funds at once. Richard Heart’s conversion was a slow process, not instantaneous.
Robert:
Ultimately, it depends on the hackers’ risk tolerance and financial volatility preferences. Richard exchanged ETH because he needed stablecoins for USD expenses.
Haseeb:
If I were North Korea, I’d consider using this money and trying to shift it to places like Russia.
Robert:
They’ve tried bridging some assets to Bitcoin before, but now there aren’t many decentralized ways to move value from Ethereum to Bitcoin.
Haseeb:
If any protocol used for multi-sig security realizes it processed $1 billion worth of ETH, many participants might proactively report and advocate for seizure via governance structures handed over to law enforcement. In this case, almost no one would side with North Korea.
Tarun:
We might see some wild on-chain maneuvers since they have few options. Thorchain is interesting in this context. Previously, many hackers used Thorchain to borrow or bridge to Bitcoin, but third-party chain validators have largely withdrawn, making large-scale transfers impractical. Today’s Bitcoin cross-chain bridge tech is worse than ever, possibly trapping them.
Robert:
I imagine this like ancient pirates burying gold bars—hiding them somewhere, drawing a treasure map, then returning decades later. North Korea might treat these stolen cryptos as “buried treasure” to reclaim someday.
Haseeb:
An interesting hypothesis. Maybe they’ll propose a bounty—say, 10% reward for returning the assets. But I don’t know how to launder these funds. As an isolated nation, North Korea makes any negotiation extremely difficult, creating a terrible situation for both customers and Bybit. While I believe Bybit’s finances are solid, failing to acquire enough ETH for redemptions would be a major problem.
Many speculate whether Ben meant Bybit might need to buy ETH on the open market to meet redemptions. Currently, they’ve received bridge loans from Bitget and Binance—an encouraging signal contrasting sharply with FTX’s collapse. But assuming no one wants to do business with North Korea and no deals are possible, Bybit may indeed have to purchase ETH. If so, this could boost ETH prices due to ~$1.5 billion in net buying pressure—especially impactful given limited market liquidity.
Tom: I noticed the community highly praised Ben’s communication style. Going live immediately and speaking directly to the public is rare in our industry. He avoided vague corporate language and clearly said, "We’re fine, we’ll fix it, that’s it." This level of transparency is impressive.
Haseeb:
Absolutely. Compared to FTX, Bybit handled this perfectly—while FTX’s livestream was pure chaos.
Robert:
The fundamental difference is FTX was malicious, engaged in large-scale fraud, which caused their shortfall, whereas Bybit is a trustworthy victim hit by hackers.
Haseeb:
Exactly. In typical hacks, victims often downplay or delay disclosure, letting rumors spread. Bybit responded within 30 minutes—clearly explaining what happened and proactively communicating with users to keep them informed.
This should become standard practice for every company facing a hack: control the narrative early. True, the scale is unprecedented, but relative to Bybit’s balance sheet, the loss isn’t catastrophic. Today’s crypto market is much larger; despite being the biggest hack ever, the loss represents only a few percentage points of Bybit’s total assets.
Tom:
After FTX collapsed, Bybit introduced proof-of-reserves, allowing users to verify their assets are included—greatly enhancing transparency. This incident involved no fraud, so users don’t need to worry about major balance sheet gaps.
Haseeb:
I actually hope there’s evidence this was an inside job. Internal breaches offer better chances of recovery. Fortunately, the industry’s foundation is strong enough to withstand this crisis while protecting all customer interests.
Hayden Davis & the Libra Scandal
Haseeb:
Another major story involves a token called Libra, endorsed by Argentina’s new president Javier Milei—a controversial figure himself. This scandal is considered the biggest insider trading case since FTX’s collapse. So, what exactly happened with Libra?
Javier Milei publicly promoted the Libra token via a tweet—suddenly, without warning. The meme coin’s market cap surged to $4 billion before crashing 95% shortly after. During the crash, Milei deleted his tweet. Reports suggest insiders sold off during the frenzy, pocketing nearly $200 million. As details emerged, more chaos unfolded.
The entire project remains confusing. What exactly is Milei’s stance? What does the Argentine government think? Later reports clarified Milei didn’t personally profit—the project was launched by a private Argentine firm claiming to act for the people or community, though the whole process lacked transparency.
The central figure is a white male named Hayden Davis. After returning to Argentina, he became a meme-focused entrepreneur—more of a “coordinator” than founder or promoter. In interviews, he explained launching a meme involves multiple roles, with his main role being connecting parties. He stressed he doesn’t directly control funds or own the assets.
Within Argentina’s crypto circles, Hayden Davis is seen as an insider. Leaked private messages show him boasting about paying Karina Milei, Javier’s sister and a prominent political figure. Hayden even tweeted about his influence over Javier Milei, saying: "I control that guy. I pay his sister, and he signs whatever I say."
Hayden controlled access to over $100 million drawn from internal wallets. Later, he gave several interviews attempting to explain the operation. During a Twitter Spaces session, he openly admitted engaging in “sniping”—using bots to manipulate the market when Libra crashed. He claimed: “I don’t know who really owns this money. Maybe it belongs to Argentina, or KIP Protocol, the company behind the launch. I don’t know whose it is, and I don’t want it. Tell me what to do with it—if you don’t, I’ll dump it back into the market.”
In those interviews, he detailed how memes operate—revealing secrets most never knew. He noted most major meme coins sell large portions privately to KOLs and institutional investors at below-market prices before launch. For example, Melania, Libra, and even TRUMP—all allegedly had $500 million private placements discussed internally in Washington D.C.
These private sale details often circulate among insiders but sometimes leak to outsiders, who use the information to profit through sniping when tokens launch.
Let me clarify what “sniping” means. Sniping refers to bots buying tokens instantly upon listing, far faster than retail investors can react, thus driving up prices. Because they know listings in advance, when retail rushes in, human reaction speed can’t compete. Snipers then sell high for profit. Since meme coins typically launch with low market caps and lack auctions or price discovery mechanisms, this practice is common.
According to Hayden Davis, “If you don’t snipe your own token, how else do you make money? Do you think there’s another way?” He believes everyone along the token supply chain thinks the only way to profit is by being an insider manipulator. These teams hope meme hype lasts one to two years, but reality shows most memes die within days. There’s widespread cynicism believing the entire crypto space is just a zero-sum game. To protect retail from external snipers, they argue the best defense is for the team to snipe first. Using profits from sniping, they claim they can stabilize the token and later buy back in.
On the day of the event, Argentina’s stock market dropped over 5%. Now, opposition parties have formally accused Javier Milei. This scandal is dubbed “cryptogate”—a major political and financial scandal. I believe it severely damages Argentina’s reputation domestically and internationally.
Robert:
I watched clips of Hayden’s interview—it was absurd. Each clip was more ridiculous than the last. He literally said on air, “Crime is good.”
Haseeb:
He’s the quintessential “crypto bro,” completely devoid of ethics.
Robert:
Remember our discussion nine months ago about rationality vs. madness? Hayden might be the craziest person in crypto history.
Tom:
I agree. Hayden sounded shockingly ignorant. Last week I went skiing and met some Argentinians who were oddly excited. To them, this felt like the TRUMP situation—they saw Milei promoting it and thought, “Oh, this is our TRUMP moment.” But it turned into a massive scandal. Still, if you lose money gambling, who can you blame? The casino operates on “winner takes all.”
Haseeb:
That analogy hits hard. Such a ridiculous meme triggering national-level fallout. The scandal also tainted the broader crypto industry. It later emerged that the team behind Kelsier Ventures—responsible for Libra—also managed Melania. They used the same sniping tactic during Melania’s launch, proving it’s a repeat playbook.
Meteora and Recent Developments in the Solana Ecosystem
Haseeb:
An interesting angle is how this affected people in the Solana ecosystem. Meteora was the launchpad for TRUMP and Melania. Recently, Meteora drew attention due to investigations involving certain individuals tied to the platform.
To clarify, Meteora is a competitor to Jupiter. Jupiter is a major DeFi aggregator on Solana, while Meteora focuses on launching new tokens. Meteora’s lead developer Ben resigned amid allegations of misconduct (e.g., insider trading), though I’m unsure if these claims are verified or merely suspicions.
Robert: On Twitter, someone dug up Ben’s past, claiming he violated securities laws multiple times before. Is that true?
Tarun:
I’m uncertain about the validity. Ben is one of Meteora’s co-founders and the project originally belonged to Jupiter. I’ve known Ben since before crypto—he ran an insurance startup. I even interviewed him back in 2012. He didn’t enter crypto until 2021. Meteora existed for a while but struggled to find product-market fit. After FTX collapsed, Jupiter rose fast as the primary platform for trading Solana tokens—since most other exchanges didn’t support SPL trading. Meanwhile, Meteora evolved into a launchpad for early projects.
Unlike Pump.Fun, Meteora allows issuers to manage pools and liquidity to some extent. This design arguably makes sniping easier. Still, I see Ben’s case more as a founder ousted by the board rather than a dev fired. Viewed as a corporate governance issue, founder oustings usually involve complex power struggles.
The Decline of Memes
Haseeb:
I think this story casts a shadow over the entire meme space. After Libra, and seeing TRUMP and Melania roll out, people now view meme coins negatively. Post-Libra, audiences seem to grasp the ugly truth Hayden revealed—the exploitative mechanics behind big meme launches and how they disadvantage retail. This shift changes the crypto atmosphere, raising doubts about meme operations. Whether retail will keep playing in this so-called “casino” is now uncertain.
Robert: People once believed meme games could be won, but now the truth is exposed—everyone sees it’s a rigged game, they’re victims, and winning is impossible.
Haseeb: In absolute numbers, Pump.Fun volume remains strong, but overall market volatility is down. Sentiment has clearly turned against memes. Previously, people argued tech tokens or VC-backed tokens were just memes too—but that argument now lacks traction. People realize real projects must be rebuilt.
Tarun:
I think this shows less-controlled memes survive better, while those requiring heavy liquidity management face greater challenges. That’s why Pump.Fun hasn’t seen a major volume drop.
Robert:
I see this as a turning point. Meme coins attracted huge capital inflows, but now interest is fading—this capital will flow into other crypto verticals.
Tom:
I agree with Tarun. People love fair, transparent games. When they feel they can no longer profit, the market naturally collapses. Just like past ICO and NFT booms—if people stop feeling excited or seeing opportunity, the whole market suffers.
Haseeb:
Indeed, the contrast between Pump.Fun and managed launches is fascinating. Libra could be seen as a celebrity coin—not technically, but functionally, due to its link with Milei.
Controversy and Hypocrisy Around Celebrity Tokens
Haseeb:
It’s safe to say the celebrity token wave has passed—or cooled dramatically. Recently, I heard Kanye West planned to launch a meme/celebrity token, but realized timing wasn’t right.
I heard he initially planned a Monday launch but delayed to Friday. Apparently, the team debated whether it was too close to the Milei scandal—clearly adjusting based on news cycles. What’s funny is the new token is called YZY Token.
Even crazier, Yeezy’s CFO accidentally leaked the plan to CoinDesk. He sent an email from Yeezy’s official address detailing the token plan and requested confidentiality—but CoinDesk refused and published it immediately.
On tokenomics: 70% held by Kanye, 10% for liquidity, 20% for investors—and that 20% has already been sold.
Robert:
Just days earlier, he tweeted that celebrity tokens exploit communities and have no value. Then suddenly, news breaks about his own token—such blatant hypocrisy.
Haseeb:
As an industry, we must unite and refuse to support such tokens. If no one buys, we can kill this trend entirely.
Robert:
The problem is, once launched, tokens get bought up, then dumped—only a few profit.
Haseeb:
We’ve seen this before—Dave Portnoy launched a token called Greed, holding 35%, then dumped it all at once, crashing the price.
Then he launched Greed 2. After Greed collapsed, the new token briefly hit a $20M market cap—then crashed again. He dumped once more and said on Twitter Spaces this whole process was a lesson for followers—memes are pure exploitation, criticizing traders as lazy people chasing quick money instead of real work.
Tarun: This is essentially fin dom—much more overt than what we discussed earlier.
Haseeb:
I recently tweeted similarly—I believe the meme cycle is over. I once described it like a casino where each slot machine is owned by someone extracting maximum profit from players—a model that simply isn’t sustainable.
Regulatory Developments and the Future of Crypto
Haseeb:
Recent negative news has left me exhausted. People are tired of valueless memes and are shifting focus to more promising projects—possibly contributing to last week’s crypto market rebound. Though today’s market dipped, affecting crypto somewhat. Still, positive regulatory news emerged.
We’ve long said this year could mark a reversal in crypto regulation—and now real progress appears. This morning’s biggest news: The U.S. Securities and Exchange Commission (SEC) is dropping its lawsuit against Coinbase. This is undoubtedly a major win for the industry, signaling the change we hoped for is happening.
The SEC previously sued Coinbase, accusing it of operating as an unregistered broker-dealer and exchange, facilitating unregistered securities trading. Now, these charges are being withdrawn. We may also see other similar SEC cases dropped. Earlier speculation suggested narrowing scope or settlements, but full dismissal sends a stronger positive signal. It indicates the SEC is beginning to support constructive players and willing to collaborate on building a healthy digital asset ecosystem.
Additionally, Brian Quintenz has been nominated to lead the U.S. Commodity Futures Trading Commission (CFTC). The CFTC may soon become the primary crypto regulator. Quintenz formerly led crypto policy at A16Z Crypto and spent the past four years advocating against excessive administrative oversight. This is undeniably an encouraging day—hinting at more positive shifts ahead for crypto.
Robert:
First, the SEC restructured its crypto division—which previously targeted compliant players—into a unit focused on fighting digital fraud. This means the SEC will prioritize genuine wrongdoing instead of relentlessly pursuing rule-abiding companies. This is exactly the shift the industry has sought for four years.
Second, SEC Commissioner Hester Peirce released a statement outlining desired reforms. She hopes to collaborate with the industry’s policy teams to promote healthy growth. The document covers broker-dealer rules, custody rules, trading rules, and safe harbor provisions. She expressed willingness to engage in dialogue and co-develop effective policies. This constructive approach starkly contrasts with the rigid stance seen just weeks ago.
Haseeb:
Hopefully, under this backdrop, we’ll see more favorable policies emerge—protecting compliant players like Coinbase from unnecessary attacks. At the same time, regulators can redirect resources toward punishing actual bad actors. Our descent into meme chaos stemmed largely from Gary Gensler’s leadership—where regulators spent all energy using case law to target top market participants, neglecting open-field enforcement against public fraud.
Tarun:
This week I attended a Solana developer conference. Hardly anyone talked about memes. This shows part of the ecosystem remains focused on infrastructure and app development, indifferent to short-term market swings. I believe any successful ecosystem needs such builders.
Haseeb:
Currently, sentiment in infrastructure remains stable. We haven’t seen mass outflows from Solana, nor significant differences in trading volumes between Ethereum and Solana DEXs—both showing similar volatility patterns.
Tom:
I feel this might play out like the last meme launch—when no one wants to buy anymore. This bearish sentiment could deter others. But if Yeezy truly becomes the last celebrity token, I can live with that.
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