Mango Markets Manipulator Arrested
The growth of the DeFi space over the last few years has meant that consumers have access to a wider range of decentralized services such as staking, swapping, lotteries, and so on. One of the downsides of this, however, is the fact that some people have taken advantage of DeFi protocols for their own gain.
One of these people is Avraham Eisenberg, the man who infamously took advantage of DeFi protocol Mango Markets, exploiting its smart contracts system and essentially draining it all together. Just recently, Eisenberg was arrested in Puerto Rico and will be facing charges from US prosecutors.
Details About Eisenberg’s Activities
DeFi protocols typically operate using smart contracts that automatically carry out transactions when certain requirements are met and while this makes DeFi convenient for users, these systems can also be exploited.
This is exactly what Eisenberg did back in October. Eisenberg opened two different accounts on Mango Markets and sold contracts for the platform’s native MNGO token back and forth between them, which increased the price of the token by 1,300 per cent.
Once this had been done, he took out a loan of $110 million in various other cryptos from Mango Markets using the MNGO token as collateral. After this, he withdrew all the tokens and essentially triggered a liquidity crisis for the platform as that was virtually all the tokens it had in its pool.
“Eisenberg 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,” a statement from prosecutors says.
Interestingly, Eisenberg has defended his actions, saying on Twitter that he did nothing wrong.
“I believe all of our actions were legal open market actions, using the protocol as designed, even if the development team did not fully anticipate all the consequences of setting parameters the way they are,” he said in an October 15, 2022 tweet.
He eventually negotiated with Mango Markets and agreed to return $67 million to its DAO and the platform even said in a public post that it would not be pressing charges. But now, Eisenberg is facing charges of commodities fraud and commodities manipulation and could even be looking at prison time.
The Implications of this Case
Eisenberg’s arrest is very significant, first because it is the first time that prosecutors are charging someone with regards to activities done on a DeFi protocol.
Because blockchain-based platforms and assets are relatively novel, they are sometimes looked at as a legal grey area. In the case of Eisenberg’s activities, many even pointed out online that what he did was ‘technically’ legal but very unethical and harmful to the community.
Now, it turns out that it might have been actually illegal. If he is eventually found guilty and sentenced, it could open up a whole new can of worms for the industry in that those who manipulate DeFi protocols can now be charged.