ROLLUP: Blue Wave, Black Swan | $6B Binance Heist | French Bank Robbed | ETH Goes Quantum-Proof

David Hoffman:

[0:03] Bankless Nation, it's the first week of November. We got a blue wave and a black swan. We got the midterm results in first.

David Hoffman:

[0:11] The markets hated the Democrat sweep. Then it loved it the day after the midterms. And now on Thursday morning, we are seeing some of the worst selling that we have seen in many years. Many, many years. The worst decline in both the NASDAQ and the S&P since something like 2018. 2018 in just the first 40 minutes of trading the s&p 500 has raised two trillion dollars in the market cap there was a midterm rally right after the midterms got over and that's all completely gone crypto is getting hit as well but i would say not as bad was this because of the midterms or was this the ai bubble popping or was this something else

Ryan Sean Adams:

[0:47] I don't know david it seemed like we were just out of the woods on the crypto side from the biggest hack in crypto history and the biggest heist ever, $6 billion Binance hack. That happened last Friday. Crypto went down, then it was recovering, things looked good, and now we have this AI sell-off to contend with. But we got to go over the details of the Binance hack and put it in a historic context and actually go through the retrospective of what happened. And it also wasn't just a major crypto bank that was hacked last week. A regular bank was hacked as well, and they used crypto as their getaway car. I want to tell you about this because last week we posed the question, hey, can this type of thing happen to traditional banks, fiat? If so, how?

David Hoffman:

[1:26] I thought trad banks are safe.

Ryan Sean Adams:

[1:28] They're not safe. Okay. I want to give you the story of how hackers got in, what they did with the funds and what's going to happen next.

David Hoffman:

[1:34] Also, it's Ethereum DevCon happening in Mumbai, India in the moment, so we get to go down onto the ground, get some takes from people who are there on the streets. There was updates to the lean roadmap for Ethereum from Justin Drake, making Ethereum post-quantum even sooner. We got updates from Layer 2B and also just a sample of what Ethereum and Vitalik are focusing on from the DevCon keynote that we get every single DevCon. But first, we got to just talk about the markets. The markets can't seem to make up their mind.

Ryan Sean Adams:

[2:01] Yeah, there was a Democrat sweep, Of course, this is the blue wave. The Senate flipped in favor of the Democrats. Fifty-four senators elected, I think, two other seats in contention. That is a healthy majority. Also, the House flipped blue as well. So, there's a full sweep. Both chambers, pretty historic win. Both chambers flipping in this way, and also the numbers. Governor race is like, definitely, this was a blue wave. Some calling it a blue tsunami. I don't know if I'd go that far, but this is definitely the Democrats pushing in to recent Republican gains. I think the answer to why is probably everyone kind of knows this seemed like a self-inflicted wound from the Trump agenda. I think DC investor had a take where he just said, look, people aren't into the war, energy prices going up, CPI going up. It seemed like Trump wasn't focused on affordability.

David Hoffman:

[2:52] Maybe Trump had a mandate and he just floundered all of it.

Ryan Sean Adams:

[2:57] Yes. So even on things like border security, which was somewhat popular, the way it was implemented, ice and cities with masks and people. I mean, this this seemed like it was coming and certainly Democrat voters showed up for it. But the question as to like what's going on in the markets is still to be determined.

Ryan Sean Adams:

[3:16] In fact, David, maybe we should in a minute you could pull up some charts because a lot of this is playing out over real time. But you started, you said this was one of the largest crashes that we've seen in recent memory on the S&P, at least in terms of like volume and timescales here.

David Hoffman:

[3:30] Yeah, I keep having to update my numbers on the S&P, but in the last just day and a half of trading, the S&P is down 4%. 4% is just gargantuan for the S&P. That takes it all the way back to June 2026 prices. But just like the level of red on this candle, it's straight down, straight down. And the QQQ, Nasdaq, is even worse because Nasdaq is just so heavily tech-oriented. Nasdaq is down 6%, taking it all the way back to April 2026 prices. And then you can kind of zoom into specific sectors. And so State Street Tech Sector ETF, that's down at 7%. Semiconductors, S-O-X-X, is down 12%, just an index of semiconductors. And then we can get into some individual names like NVIDIA. NVIDIA down 8.6%.

David Hoffman:

[4:19] Intel down 7%. But not only is Intel down 7%, but Intel is off of its all-time highs by 61%. MU Micron, just an AI build-out favorite, down 14% on the day, but also just down 45% from its all-time highs. There are some assets that I think are getting buffered from this massive sell-off. Like Amazon is down 2%, but on the week it's flat. You know, Google's down 1.5%, but it hasn't gone down since it reported its earnings. Apple's actually doing okay. So if you're an Apple hoarder, you're down 1.5%, but you're at near all-time highs. So the AI infrastructure build-out companies are just getting absolutely walloped. A lot of the AI spenders, Amazon, Google, these aren't doing so bad, even though the whole market is down this week. And so I think you could definitely say that this is AI bubble popping, as well as you have some actual specific assets that are selling off specifically because of the Democrat blue wave and these would be all the Elon assets. So Tesla's down really,

Ryan Sean Adams:

[5:26] Really bad. I would say still too early on this Thursday to call this an AI bubble pop. It does seem like a correction. Like, will it, you know.

David Hoffman:

[5:35] Turn into- It's been correcting though. Micron down 60%, Intel down 40% from its all-time highs.

Ryan Sean Adams:

[5:42] Absolutely. But these sectors have had tremendous games. I guess in general, we're back to what, summertime in the S&P, summertime in the NASDAQ?

David Hoffman:

[5:50] Yeah. So if you're an AI build out like Semi or like Micron doing selling memory, you're back as bad as possible, which is back to April. If you're a Google, if you're an Amazon, you're back to like June.

Ryan Sean Adams:

[6:04] It's weird, though. It's hard to call the market reaction a result of the blue wave, really, and the Democrats can take control of both chambers of Congress because it was originally was up. Right. So like we had kind of a run up.

David Hoffman:

[6:18] We had a very green day that everyone was like, oh, turns out like getting kicking Trump's chaos out of office is actually good for a variety of reasons.

Ryan Sean Adams:

[6:27] This morning, Thursday morning, everyone changed their mind. Everyone just suddenly changed their mind.

David Hoffman:

[6:32] Yeah. Well, my attitude is that this is, there was AI tech stock sell-off going into the midterms and then midterms took center stage and we focus on that. And now that midterms are in the rear view mirror, actually people still want to sell tech stocks.

Ryan Sean Adams:

[6:46] I guess so. There were some specific losers like, you know, Trump. The Trump media asset was down like 30%. Even this was on the back of the election results. I wonder what it's at this morning.

David Hoffman:

[6:57] And then there's also the Trump meme coin. Don't look at that chart. That chart is down 30% post the blue wave. And so, and as I kind of said, like Tesla and SpaceX, while everything else was rallying post midterms, Tesla, SpaceX were down bigly just because Democrats are going after Elon. So there were specific assets that did respond as you would expect them to the blue wave. Overall, though, you can kind of just look at the AI industry and see that the AI build-out assets have been down the most.

Ryan Sean Adams:

[7:31] All right so ai markets in carnage let's talk about our beloved crypto assets because it seemed like on wednesday we were out of the woods we just survived this binance hack somehow some way we we were above on bitcoin the 50-week moving average which has been a key we're in early bull cycle territory we somehow stayed above that now where are we at the time of recording what's bitcoin price.

David Hoffman:

[7:55] Yeah post midterms bitcoin jumped up to above 80 000 so We got above 80,000 for a moment, almost touched 81,000. And now we have set a new low, just a smidge of a new low, but a new low nonetheless of 75,500. We're up to 76,000 right now. Maybe the worst is over. Do you know what the 50-week

Ryan Sean Adams:

[8:14] Moving average is, David?

David Hoffman:

[8:15] Tell me.

Ryan Sean Adams:

[8:16] It's right at 76. 76? Yeah, right at 76. It's 75.9 or something like that. There it is.

David Hoffman:

[8:24] Yeah, there it is.

Ryan Sean Adams:

[8:25] So we're just hanging above it. Like, this is, you know, Galaxy, Alex Thorne talked about the 50-week moving average. Michael Nato from the DeFi report talks about the 50-week moving average. In previous early bull cycles, we've always stayed above that. And even in the Binance hack, we were kind of like bouncing on that 76K number. We bounced back up, which is a bullish indicator, back to 80. Now we survived that. The question is, are we going to be able to survive the AI sell-off with the Bitcoin bull market above the 50-week intact?

David Hoffman:

[8:59] Yeah, not all assets kind of responded the same. So Bitcoin set a new local low. ETH did not. ETH actually has performed better than Bitcoin on the week. I think Bitcoin is down like 2% or 3% on the week, and ETH is kind of flat on the week. Zcash as well is kind of holding its own at the moment. Like, we'll see if that continues to play out. Overall, I would say crypto has fared this sell-off. Like, it's gone down, but I wouldn't say it's gone down uniquely. And so as a crypto holder, I'm somewhat pleased that like prices are a little bit more favorable. But my industry, my assets aren't getting hammered specifically.

Ryan Sean Adams:

[9:36] I mean, I was ready to come into this episode fully bullish before the sell off this morning, which was just like, oh, my God, I was expecting after a six billion, the largest crypto exchange attacked, which, by the way, we'll talk about in a little bit. I would expect to be down like 15 percent, down 20 percent on Bitcoin. And yet we recovered. And that was like a bullish fact. And now we're back down again. So overall, I would say it just still feels net bullish from a market structure perspective. Of course, if there was a massive AI sell-off, of course, Bitcoin and crypto, we're going to take it on the chin for a bit. But there's still a lot of strength here in the numbers I'm seeing in the Binance hack and our recovery from that really prove that.

David Hoffman:

[10:17] Right, resting on the 50-week moving average means that you're getting a great deal, but also we could break through it and it could be even worse. The AI sell-off could continue. Ben Cowan could be right. We could go set a new actual low-low. No, no, no. Place your bets, place your bets. I think there's more to talk about with, are the Dems, now that the Dems are in power, are they going to come after crypto? Are they going to come and mess us up and get some retribution?

Ryan Sean Adams:

[10:44] David, you sent me this meme right before we started recording. Is this an actual Warren Buffett quote?

David Hoffman:

[10:50] This is the funniest meme I have seen in forever. For the listeners, it is a picture of Warren Buffett with a quote next to him saying, freak the fuck out and sell everything right now. It's fucking over.

Ryan Sean Adams:

[11:03] It's so funny how in this market, just like the, I mean, the VIX is hitting like 2018 highs, but we are whipsawing from like, oh, we're so back to it's so over in 24 hour increments. So maybe Warren Buffett has some good advice for us here.

Ryan Sean Adams:

[11:19] All right, so with Democrats back in charge of Congress, the question is, what does that mean for crypto? are they going to come and F up crypto? There's a number of different takes on this, David, and I'd love to get yours. First of all, we should probably zoom out and say the structure of a Republican president and a Democratic sweep where it's sort of divided. You have the executive branch, one party, and you have another party with the halls of Congress. Markets have traditionally liked that. They sort of like the standoff. They like the balance of power.

David Hoffman:

[11:48] It means- The gridlock.

Ryan Sean Adams:

[11:49] Yeah, they like the gridlock. It means no individual- Oh.

David Hoffman:

[11:52] You guys aren't going to get anything done? Thanks. We will take control from here.

Ryan Sean Adams:

[11:56] Yeah, yeah. So traditionally, that has been good. I think here's a chart. Stocks after the midterm, like doing quite well in the three-month, the six-month, nine-month, and the 12-month when it's been Republican, President specifically, and then Democrat-controlled House and Senate. That said, of course, Democrats, at least previous versions of Democrats, you're thinking of maybe Maxine Waters, you're thinking of maybe Senator Elizabeth Warren, they have been fairly hostile to crypto. And we should recall that they are coming back into power with some of these key positions. So Warren leads Senate banking. She has previously Waters has been on the House Financial Services. These are former members of the anti-crypto army. So that's also seems bearish on its face. So like, what's your take on this? What's your way in? Do you think this will be okay? Do you think it will be bullish? Do you think it'll be bearish for crypto.

David Hoffman:

[12:50] Well, I think you can kind of sense that the markets are pricing something in. So the Trump tokens, the Trump meme coin, WFLI, and also Trump media assets in the equity side, those are down bad. And I think that Democrats are going to come and seek retribution for Trump using the crypto industry as his grifty piggy bank, just extrapolating, just extracting billions of dollars from the crypto industry. I do not think that is the same thing as them and coming and just like cuddling the crypto industry in the same way that they did it under the Biden administration with Gary Gensler. I don't think

Ryan Sean Adams:

[13:24] That there's- You don't think they're just going to be like, oh, crypto is corrupt, Trump is corrupt, Trump uses crypto. Let's just nuke all of crypto from orbit. We're just like, take it all down.

David Hoffman:

[13:32] Yeah, I don't think that that is happening. What I do think is on the table is that the banks get a second attempt at stablecoin yield with the Clarity Act. And so maybe the banks go into Maxine Waters and Elizabeth Warren and being like, hey, let's like revise the Clarity Act to be more favorable for the banks. I think we could see a round two on the Clarity Act. But in terms of like stamping out the crypto industry, I don't see any evidence for that. I think there is no evidence for that to say that they want to do that. And I think it's far more likely that they've learned their damn lesson. Like they got walloped by crypto. And I think their battles, their political battles, and I know like crypto was kind of, they were trying to get some political wins, right? Like the Elizabeth Warren graphic of I'm recruiting an anti-crypto army. That wasn't really smart calculus by her then. And it's even worse calculus to do something like that now. AI is the bigger fish to fry. And so, like, why would they go out of their way to come after crypto? Yeah. I don't think we are very high up on their priorities.

Ryan Sean Adams:

[14:34] I'm not super bullish that, say, Elizabeth Warren has learned her lesson and will not mess with crypto. But I am more bullish on your second point, which is, like, they have bigger fish to fry. I think it'll be an anti-data center army that Elizabeth Warren and crypto are building.

David Hoffman:

[14:47] Warren is recruiting an anti-data center army. That is probably the new thing.

Ryan Sean Adams:

[14:50] The other thing I would say is when the anti-crypto army started in 2022, 2023, that era, right, was post-SBF, it was a different world. The banks and BlackRock and kind of the big financial money that supports a lot of these Democrat legislators, they were on the sidelines. They had not yet entered crypto. And so their incentive was like, hey, slow down, slow down, slow down until we have ETFs, until we figure out a path to tokenized securities. Now I think they're more on the side of like full steam ahead. Like they see the opportunity, Larry thinks, he's opportunity in tokenization, right? And they're fully bought in on crypto. And there's some of the Democrats funders as well. So ironically, you have kind of like big asset manager, Wall Street sort of on the side of crypto. And that's different than it was in 2022, 2023. So like what we've seen so far, This was mild asks from the Democrats. Of course, it is incredibly early. But this is Hasib tweeting out that Maxine Waters, she's proposed something called the Crypto Investor Bill of Rights. And it would include things like all exchange withdrawals have to happen within 24 hours, customer assets segregated, bankruptcy, remote, monthly proof of reserves. Like some of this stuff is great.

David Hoffman:

[16:03] And honestly, also, we're already heading that way anyways.

Ryan Sean Adams:

[16:06] We're headed that way anyway. That's good. That's reasonable. And honestly, like uncovering any sort of Trump or Trump family grift in crypto. I mean, you made the point. You said this is just like medicine that we have to take, right? You said that one of the biggest constraints on crypto's upside was Trump turned crypto into his grift piggy bank, this is probably a rough but necessary exorcism, for the crypto industry to get rid of sort of Trump. So they can come after Trump corruption, Trump coin coins all they want.

David Hoffman:

[16:35] Welcomed. Welcomed behavior.

Ryan Sean Adams:

[16:36] That's very good for crypto, right? It's like, I feel like crypto always knew doing this kind of like Trump thing was a little like a deal with the devil.

David Hoffman:

[16:44] A deal with the devil, yeah. But now we get all the upside. So long as the Democrats leave the SEC and CFTC alone, and allow Paul Atkins and Mike Selig to continue what they're doing, which is good, responsible, productive legislation. So long as that stays put, they can do whatever they want with all Trump grift crypto stuff. Have at them.

Ryan Sean Adams:

[17:07] That's a happy case, though, I got to say, David. It's not clear whether they'll take that path or they'll just.

David Hoffman:

[17:12] Go back to old

Ryan Sean Adams:

[17:13] 10s, anti-crypto, like everything. And that could also happen as well.

David Hoffman:

[17:18] I'm hoping that the absolute overperformance of the crypto packs, the fair shakes, all the crypto money, like, can't that be a carrot for them to like agree with us? Right. Like they like money. We all know the Democrats like money. All political parties like money. Maybe they would want to get some of that money by doing stuff that we want.

Ryan Sean Adams:

[17:40] I'm just hoping it's a don't notice us. The problem is we have big hacks in the news, like the Binance hack, $6 billion. Everybody notices that. It's impossible for senators and legislators not to weigh in. And that's what we're going to talk about next.

Ryan Sean Adams:

[17:53] Binance was hacked. This is the biggest heist in human history. We've got the retrospective of how this happened in the first place. Also, David, I got to tell you about the French bank.

David Hoffman:

[18:03] The actual, the normal bank that got hacked? I thought banks were immune to getting hacked.

Ryan Sean Adams:

[18:07] They are not.

David Hoffman:

[18:07] The largest bank heist in human history, $6.34 billion hacked by North Korea. The FBI sent out an alert saying the DPRK, the Democratic Republic of North Korea, was responsible for a theft of more than $6 billion from cryptocurrency exchange, Binance. Specifically the Traitor Traitor which is the Lazarus group 2.8

Ryan Sean Adams:

[18:32] Is it the same as Lazarus they have these little sub teams yeah I don't fucking know I don't.

David Hoffman:

[18:36] Know it's North Korea it's

Ryan Sean Adams:

[18:37] North Korea 2.85.

David Hoffman:

[18:39] Billion dollars was frozen and intercepted mainly USDC and USDT So $1.77 billion of Tether, $8.825 million of Circle, of USCC. Ripple froze $40 million. I've never actually seen them freeze, or at least I haven't remembered that they did that.

Ryan Sean Adams:

[18:58] This happened so quick, didn't it?

David Hoffman:

[18:59] So quick, yeah. Even WFLI, the same contract call that froze Justin Sun's assets, froze North Korea's assets. And then assets on Arbitrum. Arbitrum froze assets when, what was the other exchange? Bybit got hacked. They hit that same button again. So 8,426 Ether and 74 million ARB tokens were frozen by Arbitrum on Arbitrum and are presumably going to be returned to Binance customers.

Ryan Sean Adams:

[19:28] This was the big one, though. This is the world's largest crypto exchange. It's always been sort of the black swan event that crypto has feared would happen is someday some exchange is going to get hacked. This was not Binance's cold storage, but this was one of its hot wallets. And $6 billion, that's absolutely massive. I think the second largest money heist in history is probably the Bybit hack, and that happened a year ago. It was $1.5 billion. So this is like a 3, 4x that. Now, it looks like $2.8 billion will be like frozen. So there's still a question.

David Hoffman:

[20:00] Frozen returned, yeah.

Ryan Sean Adams:

[20:01] Frozen returned. There's still a question of what about the $3.2 billion? And there was some talk on Friday with all of the fear of the uncertainty out there as to whether Binance had the funds to actually back up its reserves, right? Could this be another FTX type of unwind? So pretty chaotic Friday. Binance came out though, and they said they would provide coverage for the full $6 billion, Okay, even the amount that's still kind of frozen, they still don't have access to. They published proof of reserves up to about 100% of the 6.3 billion in lost funds. They showed that there had been some proof of reserves there. They took this out of their Seifu insurance kind of fund, which had, I don't know, a billion dollars or something. And the remainder was just like money that they had on the balance sheet. They pulled from other locations and they bought back the assets. So Binance with a good firm kind of like recovery response, and they published these proof of reserves too publicly. So these could be like authentically verified that the funds were there.

Ryan Sean Adams:

[21:06] The hack to begin with is pretty concerning, obviously, and that calls into question Binance's handling of these funds. We'll talk about the details in a second. I will say their response was top-notch, though, including some of the transparency of what happened and their response over the weekend to publish these proof of reserves. A fairly good response, I think, that calmed down the market and was part of the reason that Bitcoin didn't lose 20%, that we were only down 5%, and that we rebounded so quickly.

David Hoffman:

[21:35] Yeah, I mean, the core difference between this and FTX was that FTX had just so much contagion. And that was downstream of the other contagion from 3R's capital. So while these are...

Ryan Sean Adams:

[21:47] He was lying about it. He was also lying.

David Hoffman:

[21:49] Right. Whereas Binance was like an upstanding, valuable business that had cash on hand, so much cash on hand that it can just pay the customers the size of the loss of funds. And so to your point, like this sent Bitcoin down like three or $4,000, but not really anywhere near what you would expect from the headline Binance hacked the worst like fear headline that has been in our potential potential brains for it for years now. And so we people were bullish post that. It's like, yeah, Bitcoin got hit, but like it wasn't that bad. That's how North Korea got access. So I think this is kind of the thing worth reading about so that we can kind of see what AI attacks of the future look like and whether or not it was, I'm sure AI was getting involved somewhere, but it wasn't really like AI driven.

David Hoffman:

[22:37] They set up a fake job interview with a Binance employee. So somebody who works at Binance was given the opportunity to interview with another company. They gave this person a coding task for the job interview, but the said coding task that the person downloaded was actually malware, actually spyware. So that got onto that person's computer because that Binance employee's computer was inside the Binance network. That software was able to spread to other people's computers, which gave them permission to run malicious code and gave access to move crypto because one of the computers that the software got access to had the private keys. They abused an Ethereum feature called EIP 7702. This is something with the smart contract wallet that Binance uses. But once they got access to that, they could make unapproved transactions approved and allowed them to transfer the funds outside of Binance's normal withdrawal process. So it was a social engineering attack, namely. And then you can imagine that like AI helped write the actual software to do some of the more sophisticated stuff behind the scenes.

Ryan Sean Adams:

[23:41] It played out over months too, right? So the first infiltration was detected in July and then sort of they gradually kind of like ramped this out, social engineered this employee. But this employee was doing a job interview on a work laptop, downloading software on a work laptop, a fake company, completely socially engineered. You can kind of see how this type of thing would happen unless companies completely clamp down on the social engineering attack vector. This, of course, causes so many other ripple effects in crypto. And there's so many stories in the week, and we probably can't cover them all.

Ryan Sean Adams:

[24:16] But one to at least touch is probably the ThorChain story. Because once North Korea hacked some amount of funds, and of course, this was many different assets. This is stable coins. This is also Ether. This was even, we'll talk about like Polygon, tokens like that. Then they have to launder these funds somehow. So they might use a protocol like Tornado Cash. They also commonly use something called ThorChain, which has some different attributes versus TornadoCash, which is like nobody runs TornadoCash. It's just smart contracts. There's no engineers or there's no team involved, but there are validators in the case of ThorChain. So what happened here?

David Hoffman:

[24:59] The difference, the comparison is that the people running TornadoCash software are Ethereum node operators. You're just running all of Ethereum because all of the smart contracts lives on Ethereum. With ThorChain, the ThorChain is run by node operators. So there's a direct one-to-one relationship with the node operators of ThorChain and people running the transactions that are coming out of North Korea. So it's like as if you could go directly target the people who are running Tornado Cash software, which is not what you can do in Ethereum. Money was laundered through ThorChain. So like TRX was sent through ThorChain, a bunch of Solana was sent through ThorChain, and then Bitcoin and Ether came out the other side because those are the immutable assets. The FBI sent out an alert explicitly naming ThorChain node operators saying like, hey, don't process those transactions associated with the North Korean wallets. Like, obviously, not just ThorChain, but like regular RPC node operators. Anyone who's like a service provider who manages these transactions, they're saying, hey, don't process those.

Ryan Sean Adams:

[26:04] If you have the ability to freeze or stop processing these transactions, then stop processing.

David Hoffman:

[26:10] Then don't do that. specifically they named Thor chain node operators And I don't know what's going on behind the scenes there, but like if I was a ThorChain node operator, I would be very worried about not listening to the FBI. I know it's been in the social contract of ThorChains like, hey, we don't censor transactions. We're totally neutral. We can't even stop it if we could. But like, interestingly, ThorChain had like a fault in the bug when there was an Ethereum block reorg. And so as a result of that, ThorChain, something bad happened and they stopped the ThorChain from processing blocks because there was a bug in the code. Then this happened on October 31st, which was right around the same time as the Binance hack. It was just completely adjacent. So they clearly will stop running transactions, stop the ThorChain protocol when there's a bug in the code, but they have been resistant to doing anything else as a result of the hacks. I'm kind of confused as to why we haven't actually seen any stories about like the FBI raiding ThorChain node operators houses that's something that you would expect but like I don't know my only plausible answer is that the FBI is running ThorChain nodes and the CIA is like they're inside the ThorChain house that's my only explanation as to like why ThorChain node operators aren't in jail

Ryan Sean Adams:

[27:34] Either that or they're incredibly like bold right so So, I mean, I think there's the stance that if you do have a button, right, and if you can be regulated to go push that button, then the state will regulate you to push that button and probably should in these cases.

David Hoffman:

[27:50] Probably should, yeah.

Ryan Sean Adams:

[27:51] So the only answer is to go fully decentralized and not have the ability to do these types of things. But ThorChain is somewhat in the squishy middle. It's not like TornadoCast where it's just deployed immutable code, Nobody could turn it off without turning off the entire Ethereum network. ThorChain can be, it's just like much more squishy. It can be censored, can be turned off. Things can be reversed. But I saw a post, this is a podcast, one of the founders of ThorChain, it's from the Defiant. ThorChain refused to block the BitGit hacker. Here's why, you know, and they're talking like, I just, I don't know what the incentive is to go, like we've seen what's happened with Roman Storm. If you're kind of a Thor chain operator or a dev, right, this is just like the FBI has asked you politely to not do this. What are the next steps there? If it's not kind of hands off the buttons, complete decentralization, and you have some ability to press, like knock at the door type of step.

David Hoffman:

[28:50] Not only that, but like what gives him the like audacity to go on the Defiant podcast and being like, yeah, we don't, sorry, we don't do that. We don't freeze stuff. I know the FBI asked us not to but like yeah fuck you like we don't care my only explanation is that They're working with the FBI, and the FBI wants the information. Like, if you're running the RPC node, you have a specific vantage into the funds being routed, and the FBI needs that to trace the money. That's my only explanation, is that the Thorchain operators are narcs.

Ryan Sean Adams:

[29:24] It could be. Yeah, I have no idea. It's just an unexplained phenomenon going on. I do wonder, though, if this attack from North Korea was flying a little too close to the sun. And I know you had someone from TRM Analytics helps the FBI and authorities kind of trace these types of things. I know you had them on last Friday to talk about this. But this is a story Kim Jong-un's sister is apparently saying, coming out and saying, hey, this wasn't us. This wasn't North Korea. And I don't recall her saying these types of things in the past. This is a massive hack, biggest ever, international. The FBI was clearly involved, you know, seconds after receiving notice that this happened. And I almost wonder at what point in time the U.S. or other world authorities start to go on the offensive with respect to North Korea, right? This is a form of cyber warfare, and the U.S. or the countries have offensive capabilities here. They could even bounty it out such that, hey, if you can go and get some of the $6 billion back and restore it, then maybe the U.S. will pay a 10% bounty. Maybe we'll bounty this out privately. Maybe the U.S. will begin to go on the offensive here. If they did, and if they were doing that, we wouldn't know about it, right?

Ryan Sean Adams:

[30:43] We would know about it maybe possibly after it happens and not before. But do you think this is like a Do Kwon moment for Kim Jong-un? You think this hack is like sort of like, wow, you've tripped over something that has the rest of the world now coming after you?

David Hoffman:

[30:59] Uh, it's, if so, then if it is too close to the sun, then we would have to say that this $6 billion hack was too close to the sun, but the Bybit, like $1.6 billion hack was not too close to the sun. We had Ari Redbird on after the Bybit hack, and he was like, yeah, one of the big solutions here is allow people, vigilantes, to go get the money back and to say, hey, if you get any of the $6 billion back from North Korea, we'll give you 10%. Do something like that. I feel like that's been a conversation. I don't know to what degree of money moves the FBI to become more motivated than $1.6 billion.

Ryan Sean Adams:

[31:43] I mean, it's a national security thing. It's like these hacks are a significant double-digit percentage of North Korea GDP, and it's going right into their missile program.

David Hoffman:

[31:50] I think it's like their number one source of revenue. Not even close.

Ryan Sean Adams:

[31:53] I mean, so it's a national defense reason why you'd want to restore these funds. I sort of just wonder if things are going on in the background that might, we might read a headline someday that some of these funds were mysteriously restored. Maybe Trump would, this would be a win for Trump, right? For crypto that everyone would basically support rather than a new meme coin. It's like, hey, we're going on the offensive. Look, we just took back X billions of dollars.

David Hoffman:

[32:15] From- It's very generous of you to credit Trump for that.

Ryan Sean Adams:

[32:19] It's a possibility here. There's some other things that were happening, including, I don't know if you saw this, David. So part of the funds were Polygon funds ended up on the Polygon chain and Polygon proposed a hard fork to recover it. So validators have already frozen about 6.5 million in poll. Some of this was from the Binance hack. Actually, some of this was another hack we didn't even have time to cover, which is the Polymarket hack that happened on Friday too. All right, so the poll is frozen on Polygon right now. And now they are proposing a improvement proposal, which would actually roll back the chain. So this would be the biggest rollback since the Dow.

David Hoffman:

[33:00] The IV rollback, yeah.

Ryan Sean Adams:

[33:02] This would actually like roll back the chain and actually delete the poll from the hackers accounts. And this was crazy too. Here's a kicker. The hackers actually bribed validators to unfreeze the poll, okay? And they did this by way of broadcasting a transaction with an incredibly generous Polygon fee, a 20K fee, in order to move it.

David Hoffman:

[33:28] Oh, interesting. They're just saying like, hey, and plus it only takes one validator to process that transaction, take that bribe, defect from everyone, and then release the funds. And so that was probably North Korea's only option left is like, hey, let's bribe them with like one third the value of the funds to process the transaction. And no one did it? No Polygon Validator defected?

Ryan Sean Adams:

[33:52] Not so far. You probably don't want to be put on the list. I mean, I.

David Hoffman:

[33:55] Don't want to go to jail, so.

Ryan Sean Adams:

[33:56] Well, they've also directly contacted validators and said they'd offer them side cash as well. So it doesn't even have to be kind of an on-chain publication of this type of thing.

David Hoffman:

[34:05] Oh, interesting. They should say yes, but then go talk to the FBI on the side.

Ryan Sean Adams:

[34:10] Well, it's just fascinating. Now we're getting to the level of validators having to make decisions. And I think there's a clear split between chains that are completely immutable, that will never, cannot roll back. So this is sort of, you know, the Bitcoins, Ethereums, the Zcash's of the world. And then everyone else who's like doing the Arbitrum thing or doing the Polygon thing, where they're going to freeze, they're going to roll back. And at some level, that's also a feature of the chain. like if you're a user maybe you kind of like want that to happen yeah so.

David Hoffman:

[34:41] I mean arbitram has been two for two on the last two big hacks by bit and then binance on not losing customer money not their customers well it was their customer because it was binance as their customer but like arbitram saved two for two times

Ryan Sean Adams:

[34:56] Yeah exactly do you want me to tell you that story of how.

David Hoffman:

[35:00] Yeah okay Let me just set up the premise of crypto has always felt very insecure because of the acceleration of AI exploiting technologies. So especially for bear assets, because once they are stolen, they are stolen because it's sent on a blockchain. It's gone. Banks don't have that problem because if you send a bank transfer, you can just call your bank and say, hey, undo that. And there is no transaction finality in the bank context. You can undo a transaction that's like 60 days old, a year old. You can go really far back with a court order. And so there has never been the notion of bank heists in the trad bank world because they can just ledger entry, update and undo the heist.

David Hoffman:

[35:45] And so you're telling me that that narrative was violated by a trad bank getting heisted. How did that happen?

Ryan Sean Adams:

[35:52] Yeah, and this is a crazy story. And by the way, that's the reason I've always been skeptical of these takes of like, oh, you know, traditional banks are going to be hacked. It's just like, well, not in the way of crypto. They're not bare instruments. Everything is AMLKYC. You know, like it moves at the speed of people approving paperwork. Like how could a hack happen? Well, we saw exactly how a hack could happen. So there is a bank called Credit Mutuelle. I'm mispronouncing this because this is a French bank. They were robbed, estimated, it's not fully reported, about $130 million. This was a fiat stolen from a bank. So this is actually a pretty large French bank.

David Hoffman:

[36:30] A physical, like people with guns in the bank lobby?

Ryan Sean Adams:

[36:34] Nope. Digitally. Hackers. So similar in some ways to the Binance attack and also very differently. This is a big bank, I should say. So about $200 billion balance sheet. So five and a half million customers. It's a co-op and they have over 10,000 employees. It's a co-op. So it's not publicly traded. This is a major French bank. OK, here's how it happened. A entry was made by some hacker through a third-party vendor system. So this is not internal human error. It's probably some sort of API, some sophisticated external attack. Once they were in, then the hacker, because fiat is not a bearer asset, essentially if you want to move fiat from a bank system, you have to do so through a SWIFT. You have to do so through a messaging protocol. You're not actually physically moving the assets. You're just sort of, you know, launching these communication messages through something like the Swift protocol. So the hacker did that and sent this out to a bunch of mule accounts. So these mule accounts were other bank accounts that received these funds in small amounts. So it sort of- Oh.

David Hoffman:

[37:41] Sorry. What's a mule account? You mean like a horse and mule?

Ryan Sean Adams:

[37:45] It's just like a fake account at some other bank, like almost like a drug mule type of- Right.

David Hoffman:

[37:50] Yeah, yeah, yeah.

Ryan Sean Adams:

[37:50] Conclusion here. So it had all of these organized mule account networks across all of these banks. So the $130 million just stolen from this bank was pushed out just like with regular fiat transfers to all of these other banks went below the radar somehow. And then these smaller banks then pushed out the funds to crypto exchanges. Okay. So Kraken, Crypto.com, OKX, mule accounts in these crypto exchanges that then move the fiat from fiat into stablecoins. Once in stablecoins, ended up on chain, ended up in true bearer assets, and then sort of disappeared. Okay?

David Hoffman:

[38:30] Huh. Okay. The only way that this works is that this slipped under the radar because they would need time for all of these bank transfers to settle before they can send another bank transfer to Coinbase Kraken. And then once the money is credited in Coinbase Kraken, then they are free to buy their assets. Do we know how much time that was?

Ryan Sean Adams:

[38:52] I'm not sure. It looked very innocuous from the bank's perspective. Of course, it was just like, oh yeah, regular bank transfers being made and then it's going to other banks and then kind of they lose track of it. But here's the craziest thing is Zach XBT was actually the first person to notice this.

David Hoffman:

[39:07] So he saw it on chain. How the fuck did he see this?

Ryan Sean Adams:

[39:10] He saw it on chain November 2nd before maybe even the bank noticed that this was happening. And he flagged $106 million. Who knows? Through his methods, right? He saw this was sort of an aberration. This looked suspicious. And then he tweeted out that it looks like there's some sort of, you know, bank hack that has happened, didn't know the details. And now the bank says-

David Hoffman:

[39:32] What breadcrumbs did Zach, was Zach able to see to identify it as a trad bank hike? I'm assuming it's because the money ended up in known thief's wallets?

Ryan Sean Adams:

[39:44] Probably, right?

David Hoffman:

[39:45] But like how he sourced it from like a trad bank hike is interesting.

Ryan Sean Adams:

[39:49] I mean, ZachXPT is just like very sophisticated when it comes to kind of like on-chain analytics. And so he just saw this suspicious behavior. So, anyway, if this can happen...

David Hoffman:

[39:58] SAC-XVT has got to be the CIA. I've asked him like, I think like twice over the years, like, hey, like, you want to do like a written interview on Banklist? Like, no, not even any voice modification because he said no to that. He's like, no, no, I don't. Because he's the CIA.

Ryan Sean Adams:

[40:16] Maybe. I don't know. I mean, so anyway, that's how a bank is hacked. And I'm sure there's so many open doors through third-party tools for hackers to get inside of a bank network and fire off these innocuous-looking fiat-type transactions to correspondent mule-type banks to then move it into crypto and then exit. That's how a hack can happen. This was $130 million, but can you imagine a major U.S. institution getting hacked for billions of dollars and it ending up in crypto on the other side of this. Right.