6 ms·

FTA: > In their complaint, lawyers for Kellar and Day argued that two particular steps of the attack violated statutes against market manipulation and computer

FTA: > In their complaint, lawyers for Kellar and Day argued that two particular steps of the attack violated statutes against market manipulation and computer hacking. One was swapping almost all the UNI tokens out of the DEFI5 pool, the otherwise irrational trade that distorted the pricing such that Medjedovic could buy tokens out from under Indexed users, who were forced by the algorithm to sell. “The only purpose of that trade was to mislead token holders to part with tokens on terms they never would have agreed to,” says Stephen Aylward, a lawyer representing Kellar and Day. “We say that's a form of market manipulation.” The same argument applied to Medjedovic's interaction with the CC10 pool. > The second illegal transaction, they argued, was when Medjedovic overwhelmed the pool with free Sushi, thereby tricking the algorithm into letting him bypass the size limit on certain trades. Aylward calls this “an intentional act by Andean to disable a security measure, like disabling the security system at a bank.” He argues that this falls under Canada's “extremely broad” legal definition of a hack, which can be interpreted as “subverting the intended purpose of a computer system.”

faeriechangling 4y ago
If the law is held to have supremacy over “smart contracts” and implicit intent is held to be more important than explicit terms, than this undermines not just a major argument for smart contracts but a major argument as to why crypto as a whole is valuable. Enforcing a contract through a written contract & traditional finance vs a smart contract becomes a mere implementation detail since in either case somebody can come crying to the courts when they lose money. Smart contracts are only interesting if they’re a form of binding arbitration. If smart contracts are not binding, they just become poorly written contracts. Smart contracts being binding honestly might need to be legislated.
- TameAntelope 4y ago
  Yes, that's exactly the problem with smart contracts and why people are interested in resolving the case.
- antiterra 4y ago
  Even then, a binding contract is still subject to what is contractually enforceable, which could break the functionality and purported benefit of a smart contract.
- xur17 4y ago
  > If the law is held to have supremacy over “smart contracts” and implicit intent is held to be more important than explicit terms, than this undermines not just a major argument for smart contracts but a major argument as to why crypto as a whole is valuable. No, it really doesn't. There are 2 questions that you are conflating here: 1. Can the courts force a user to return funds made via a valid smart contract transaction? 2. Can the courts force a blockchain to reverse a transaction that was made. > Enforcing a contract through a written contract & traditional finance vs a smart contract becomes a mere implementation detail since in either case somebody can come crying to the courts when they lose money. Smart contracts are only interesting if they’re a form of binding arbitration. If smart contracts are not binding, they just become poorly written contracts. Can you elaborate on why this would be the case? To me there is a large difference between a system (like credit card settlement) that can have transactions revoked easily after settlement, and one that can only be revoked by another separate transaction that the sender makes. To me it comes down to a mix of probability of reversal, and who can actually do the reversal (only the sender in the case of a blockchain system).
  - faeriechangling 4y ago
    >2. Can the courts force a blockchain to reverse a transaction that was made. The courts already can't necessarily force a transaction to be reversed as it is. The money can be gone long before they get involved. >To me there is a large difference between a system (like credit card settlement) that can have transactions revoked easily after settlement, and one that can only be revoked by another separate transaction that the sender makes. There's a good deal of irreversible transactions, such as inter-bank transfers in traditional finance. It's also my understanding that most "Reversals" are just new transactions or cancellations of pending transactions. I don't see a HUGE difference in how an inter-bank wire transfer works and how sending somebody crypto works except that in the case of crypto it's the wallet/account holder in full control. I'll acknowledge there are differences, which impacts the probability of reversal and who can do the reversal, but I still feel it borders on the edge of "implementation detail". It only feels like a truly profound difference if you want to make a transaction a bank would normally interfere with, like a ransom payment, payment for fraudulent goods/services, drug deal, money laundering, funds being sent to political dissidents, or similar. Whereas the idea of smart contracts bypassing the expense of the courts entirely seemed like a much more broadly useful notion.
hedora 4y ago
Isn't the intended purpose of this particular computer to part fools and their money in a non-regulated "code is law" ecosystem? It seems like it's working as designed, even if it's not the outcome its operators wanted.
- betwixthewires 4y ago
  The funny thing is, based on the architecture of these types of systems, they aren't the operators. Arguably the miners are the operators, otherwise only the users are the operators.
motohagiography 4y ago
Their complaint hinges on an interpretation of what the correct level of abstraction for describing the transactions is. Their argument, "to mislead token holders to part with tokens on terms they never would have agreed to," is literally a counterfactual that presumes both fictional market conditions as well as intentions of anonymous owners. The second argument is an analogy, "disable a security measure, like disabling the security system at a bank," and the limit expressed in the code was definitely an expressed preference by the contract author, but if they wanted it to be a legal contract subject to human interpretation, they would have specified this in English. Instead, they created a software tool, and they did not take into account how that tool might be used by the public. The argument about this is whether code written for the express purpose of partipating in risky transactions can be imbued with any other coherent intention. The closest analogy would be that Medjedovic was at their gambling table and was counting cards, except there was no policy keeping him out of there, or against card counting.
colinmhayes 4y ago
> to part with tokens on terms they never would have agreed to Didn't they agree when they bought the token though?
paulmd 4y ago
So for the first claim, they are arguing that forcing a leveraged short squeeze is market manipulation? There seems to be lots of straightforward counterexamples that it's not - that's an extremely common tactic the big guys use to squash little guys in the regulated markets. The little guys "would never have agreed to part with those securities on those terms" and the squeeze is often deliberate, transient, and leveraged.
FireBeyond 4y ago
> One was swapping almost all the UNI tokens out of the DEFI5 pool, the otherwise irrational trade that distorted the pricing such that Medjedovic could buy tokens out from under Indexed users, who were forced by the algorithm to sell. “The only purpose of that trade was to mislead token holders to part with tokens on terms they never would have agreed to,” says Stephen Aylward, a lawyer representing Kellar and Day. “We say that's a form of market manipulation.” The same argument applied to Medjedovic's interaction with the CC10 pool. Shame you can't manipulate an unregulated market. It's not illegal to do irrational things. Hell, even the regulated markets say, "The market can remain irrational longer than you can remain solvent."

faeriechangling 4y ago

If the law is held to have supremacy over “smart contracts” and implicit intent is held to be more important than explicit terms, than this undermines not just a major argument for smart contracts but a major argument as to why crypto as a whole is valuable. Enforcing a contract through a written contract & traditional finance vs a smart contract becomes a mere implementation detail since in either case somebody can come crying to the courts when they lose money. Smart contracts are only interesting if they’re a form of binding arbitration. If smart contracts are not binding, they just become poorly written contracts. Smart contracts being binding honestly might need to be legislated.

TameAntelope 4y ago
Yes, that's exactly the problem with smart contracts and why people are interested in resolving the case.
antiterra 4y ago
Even then, a binding contract is still subject to what is contractually enforceable, which could break the functionality and purported benefit of a smart contract.
xur17 4y ago
> If the law is held to have supremacy over “smart contracts” and implicit intent is held to be more important than explicit terms, than this undermines not just a major argument for smart contracts but a major argument as to why crypto as a whole is valuable. No, it really doesn't. There are 2 questions that you are conflating here: 1. Can the courts force a user to return funds made via a valid smart contract transaction? 2. Can the courts force a blockchain to reverse a transaction that was made. > Enforcing a contract through a written contract & traditional finance vs a smart contract becomes a mere implementation detail since in either case somebody can come crying to the courts when they lose money. Smart contracts are only interesting if they’re a form of binding arbitration. If smart contracts are not binding, they just become poorly written contracts. Can you elaborate on why this would be the case? To me there is a large difference between a system (like credit card settlement) that can have transactions revoked easily after settlement, and one that can only be revoked by another separate transaction that the sender makes. To me it comes down to a mix of probability of reversal, and who can actually do the reversal (only the sender in the case of a blockchain system).
- faeriechangling 4y ago
  >2. Can the courts force a blockchain to reverse a transaction that was made. The courts already can't necessarily force a transaction to be reversed as it is. The money can be gone long before they get involved. >To me there is a large difference between a system (like credit card settlement) that can have transactions revoked easily after settlement, and one that can only be revoked by another separate transaction that the sender makes. There's a good deal of irreversible transactions, such as inter-bank transfers in traditional finance. It's also my understanding that most "Reversals" are just new transactions or cancellations of pending transactions. I don't see a HUGE difference in how an inter-bank wire transfer works and how sending somebody crypto works except that in the case of crypto it's the wallet/account holder in full control. I'll acknowledge there are differences, which impacts the probability of reversal and who can do the reversal, but I still feel it borders on the edge of "implementation detail". It only feels like a truly profound difference if you want to make a transaction a bank would normally interfere with, like a ransom payment, payment for fraudulent goods/services, drug deal, money laundering, funds being sent to political dissidents, or similar. Whereas the idea of smart contracts bypassing the expense of the courts entirely seemed like a much more broadly useful notion.

hedora 4y ago

Isn't the intended purpose of this particular computer to part fools and their money in a non-regulated "code is law" ecosystem? It seems like it's working as designed, even if it's not the outcome its operators wanted.

betwixthewires 4y ago
The funny thing is, based on the architecture of these types of systems, they aren't the operators. Arguably the miners are the operators, otherwise only the users are the operators.

motohagiography 4y ago

Their complaint hinges on an interpretation of what the correct level of abstraction for describing the transactions is. Their argument, "to mislead token holders to part with tokens on terms they never would have agreed to," is literally a counterfactual that presumes both fictional market conditions as well as intentions of anonymous owners. The second argument is an analogy, "disable a security measure, like disabling the security system at a bank," and the limit expressed in the code was definitely an expressed preference by the contract author, but if they wanted it to be a legal contract subject to human interpretation, they would have specified this in English. Instead, they created a software tool, and they did not take into account how that tool might be used by the public. The argument about this is whether code written for the express purpose of partipating in risky transactions can be imbued with any other coherent intention. The closest analogy would be that Medjedovic was at their gambling table and was counting cards, except there was no policy keeping him out of there, or against card counting.

colinmhayes 4y ago

> to part with tokens on terms they never would have agreed to Didn't they agree when they bought the token though?

paulmd 4y ago

So for the first claim, they are arguing that forcing a leveraged short squeeze is market manipulation? There seems to be lots of straightforward counterexamples that it's not - that's an extremely common tactic the big guys use to squash little guys in the regulated markets. The little guys "would never have agreed to part with those securities on those terms" and the squeeze is often deliberate, transient, and leveraged.

FireBeyond 4y ago

> One was swapping almost all the UNI tokens out of the DEFI5 pool, the otherwise irrational trade that distorted the pricing such that Medjedovic could buy tokens out from under Indexed users, who were forced by the algorithm to sell. “The only purpose of that trade was to mislead token holders to part with tokens on terms they never would have agreed to,” says Stephen Aylward, a lawyer representing Kellar and Day. “We say that's a form of market manipulation.” The same argument applied to Medjedovic's interaction with the CC10 pool. Shame you can't manipulate an unregulated market. It's not illegal to do irrational things. Hell, even the regulated markets say, "The market can remain irrational longer than you can remain solvent."