Last week, DAO-governed DeFi protocol Indexed lost around $16 million in cryptocurrency in an attack by a teenaged college student from Canada, who is now refusing to give the money back. This case might become a precedent in the industry.
At stake is the role of law enforcement in an unregulated sector, which is now worth $220 billion according to data from CoinDesk. When should one turn to the authorities, if ever?
Case basics
On October 14, Indexed’s official Twitter account reported an error involving its liquidity pools. Almost half of the protocol’s $34 million value was lost.
In the course of the Indexed team’s investigation, they believe they have identified the perpetrator, an 18-year-old math genius called Andy. He had been in contact with Indexed team member Laurence Day for months. In a tweet (supposedly from Andy), he thanked his followers and fans and asked for recommendations of a lawyer with experience in cryptocurrency-related cases.
A test of ‘code is law’
If the case goes to court, it might test “code is law”. This phrase is common in DeFi circles and refers to the following line of thought: in the absence of regulation, one man’s exploit is another’s trade. The protocol assembled a so-called ‘combat’ team. Among the members are Rotki founder Lefteris Karapetsas, Curve contributor Julien Bouteloup, and Yearn.Finance core contributor “Banteg.”
The team gave an ultimatum: give the money back or we’ll report you to law enforcement. Such threats have been proven to work in the past. According to core Indexed contributor Dillon Kellar:
Once he made it clear that he’s not gonna give up, that he doesn’t care we’ve found this damning evidence on him, at that point we had a difficult decision because if we just go to law enforcement, if we keep that information to ourselves, we’re effectively taking ownership of the situation ourselves, and we couldn’t do that.
Other DAO members might decide to pursue remuneration in civil court, individually or collectively. If the team doesn’t disclose Andy’s personal information, this could stop them from doing it, prompting a moral argument in favor of law enforcement. Laurence Day said in an interview with CoinDesk:
We’re not comfortable with the idea of publicly doxxing, but Indexed is not a legal entity – it’s a DAO. And Dillon and I don’t have the right to solely own this information, or to take ownership of the legal battle. This is a cornered response.
