Crypto Confidential E-Book

Jake Donoghue

• Herausgeber: Flint
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 441

Veröffentlichungsjahr: 2024

Beschreibung

'A lively and dramatic account of greed, corruption, and scandal that will captivate you from start to finish.' – FRANK W. ABAGNALE, subject of Catch Me If You Can 'Everything you feared was true about crypto and much worse are laid bare in this gripping and infuriating insider account... Funny, illuminating and beautifully written.' – LIAM VAUGHAN, author of Flash Crash: A Trading Savant, a Global Manhunt and the Most Mysterious Market Crash in History Crypto Confidential tells the salacious story of the industry everyone is talking about right now. In doing so, it sheds light on some of the most scandalous financial crimes of the twenty-first century. From billion-dollar fraud cases to international money laundering cartels, political bribery and even faked deaths, it lifts the lid on the intricate and immense web of malpractice that crypto founders spin to trap ordinary investors. Written by a prominent and well-connected insider, Crypto Confidential provides a first-hand account of how the industry truly operates, and how every aspect is engineered for one purpose: to make vast amounts of fast money for those on the inside, by any means necessary.

Leseprobe

For Abigail

First published 2024

FLINT is an imprint of The History Press

97 St George’s Place, Cheltenham,

Gloucestershire, GL50 3QB

www.flintbooks.co.uk

© Jake Donoghue, 2024

The right of Jake Donoghue to be identified as the Author of this work has been asserted in accordance with the Copyright, Designs and Patents Act 1988.

All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without the permission in writing from the Publishers.

British Library Cataloguing in Publication Data.

A catalogue record for this book is available from the British Library.

ISBN 978 1 80399 619 6

Typesetting and origination by The History Press

Printed and bound in Great Britain by TJ Books Limited, Padstow, Cornwall.

Praise for Crypto Confidential

Crypto Confidential is the final word on the cryptocurrency industry. Its lively and dramatic account of greed, corruption, and scandal will captivate you from start to finish. I have been speaking out about Bitcoin and cryptocurrency for nearly ten years, and this book is a visceral illustration of why. It shines an uncompromising light on the dangers and pitfalls of the 21st century’s most malevolent fad, and I would recommend it as essential reading for anyone considering dabbling in digital assets.

Frank W. Abagnale, subject of Catch Me If You Can

Before investing in crypto, read this tale of ‘Grifters’ Groundhog Day’, in which investors, even the grifters themselves, fall for age-old scams, again and again. I can’t vouch for the accuracy of every performance in this circus of fraud, but they’re all more plausible than the rosy outcomes dangled by crypto-evangelists and swallowed by gullible investors.

Paul Romer, 2018 winner of the Nobel Prize for Economics and co-author of Looting: The Economic Underworld of Bankruptcy for Profit

A brilliant and fascinating description of crypto, the 21st-century high-tech version of age-old bubbles. It makes painfully clear that, on the buying side, there is no limit to human credulity, and in the faith in magic returns. And, on the selling side, no limit to hubris, deception and scamming. Read the book, and cry. Message to investors: do not touch the stuff. Message to regulators: kill the beast before it affects all of us.

Olivier Blanchard, former chief economist of the IMF, and Robert M. Solow, Professor Emeritus of Economics at MIT

Everything you feared was true about crypto and much worse are laid bare in this gripping and infuriating insider account of his time at the forefront of the industry. Funny, illuminating and beautifully written.

Liam Vaughan, author of Flash Crash: A Trading Savant, a Global Manhunt and the Most Mysterious Market Crash in History

A fascinating insider’s perspective into what life was like in the fast lane of the crypto shilling mania of 2021 and a must-read for all those still being actively wooed by crypto and blockchain lobbyists, from politicians and regulators to central bankers. Don’t be surprised to learn it was even worse than you ever suspected.

Izabella Kaminska, former editor of FT Alphaville, senior finance editor POLITICO Europe and founder and editor of The Blind Spot

I didn’t expect a book about cryptocurrency to be racy, funny and gobsmacking all at once ... Deliciously gossipy as the book is, you’ll need a strong stomach to digest some of its revelations … At a time when so many face relentless financial pressure, it’s a reminder that others have so much loose cash that they’ll throw it at an environmentally ruinous industry, where, even after the jailing of Sam Bankman-Fried, fraudsters are still mistaken for IT whizz-kids who want to save the world. In the lawless world of crypto, Charles Ponzi would recognise what’s going on right now; so would Bernie Madoff.

Andy Verity, BBC financial investigations correspondent and author of Rigged: The Incredible True Story of the Whistleblowers Jailed after Exposing the Rotten Heart of the Financial System

Just when you were thinking it might be safe to dip a toe into the crypto waters, along comes Jake Donoghue’s brilliant and propulsive Crypto Confidential, a cautionary tale if there ever was one about the dangers still lurking in that roiling sea.

William D. Cohan, bestselling author of House of Cards and co-founder of Puck

A fascinating and gripping insider’s account of the nefarious world of crypto. Donoghue takes the reader behind the scenes of the crypto industry, guiding the reader through its Byzantine complexity, and exposing the immorality and corruption at its heart.

Grace Blakeley, author of Vulture Capitalism: Corporate Crimes, Backdoor Bailouts, and the Death of Freedom

Jake Donoghue’s Crypto Confidential is a roll-call of infamy, providing an unparalleled insight into the nefarious bunch of chancers, charlatans, con men and fraudsters who control, or controlled, the global crypto space.

Ian Fraser, author of Shredded: Inside RBS The Bank that Broke Britain

Pacey and authoritative, this is the sort of thing we need the most at present – an honest book about a thoroughly dishonest industry

Dan Davies, author of Lying for Money: How Legendary Frauds Reveal the Workings of Our World

Crypto Confidential is a unique insider’s view of a legal and regulatory nightmare, and an illustration of why crypto scams remain endemic and pervasive … It raises important questions about the future of crypto influencers, yield farming, staking, auctions, and other practices that would be closely regulated if they involved securities instead of crypto assets ... If you weren’t in the crypto industry from 2020–22, this book will take you there.

Frank Partnoy, the Adrian A. Kragen Professor of Law at UC Berkeley, International Research Fellow at Oxford University, and author of The Match King: Ivar Kreuger, the Financial Genius Behind a Century of Wall Street Scandals

This book provides a bird’s-eye insider view of the crypto industry’s highs and lows. Other books have recounted the lows, but it is Donoghue’s vivid description of the industry’s heyday that serves as the most searing indictment of crypto’s hollow cynicism. This account makes clear that the crypto industry was never about building anything; instead, it was always about making a quick buck for the lucky (or just plain dirty) few. Readers are left with the sobering impression that – even when there was no outright fraud or money laundering – it’s hard to point to a good apple in the crypto industry.

Hilary J. Allen, Professor of Law at the American University Washington College of Law and author of Driverless Finance: Fintech’s Impact on Financial Stability

From his insider’s seat at the table, Jake Donoghue takes us behind the scenes of the shadowy world of crypto grifters and reveals how so many worthless tokens were promoted with the aid of a legion of anonymous influencers and corrupt crypto media outlets. Crypto Confidential reads like the modern version of the movies Boiler Room and The Big Short. This book is a must-read for anybody who has ever invested, or is thinking of investing, in the cryptocurrency market.

Joe Saluzzi, co-author of Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street Are Destroying Investor Confidence and Your Portfolio

An eye-opening insider’s look into the crypto industry, which sheds a stark and uncompromising light on its nefarious incentive structures and lays bare the dark side of digital assets.

Stephen Diehl, author of Popping the Crypto Bubble

Crypto Confidential finally blows the whistle on one of the most fraudulent industries in history. Like Mackay’s Extraordinary Popular Delusions, Donoghue’s insider take will be the go-to history lesson for understanding the mania in digital-asset markets for generations.

Peter Howson, author of Let Them Eat Crypto: The Blockchain Scam That’s Ruining the World

As a crypto insider, Jake writes from a unique vantage point, offering a rare peek behind the curtain of one of the world’s most opaque and misunderstood industries. He offers his insights with humour and intelligence, and almost every page comes with a revelation or an explanation to clear some of the muddiest waters in finance.

George Harrison, co-author of Inside Allenwood: The Story of a British Banker Inside a US Prison

Contents

Author’s Note

Part One

Prologue: The Swindler’s Symposium

1    Slowly, then Suddenly

2    Vulture Capital

3    Auditory Blindness

4    Influence for Hire

5    Hysteria and Hype Cycles

6    Taxing Conversations

7    Round Trip to the Moon

Part Two

8    A Picks and Shovels Play

9    The Big Break

10    Dropping the Ball

11    Blockchain Bingers

12    Liquidity

13    The Grifter’s Gavel

14    Pay Day

15    Cagey Customers

16    Snowball Effect

Part Three

17    Crypto Continental

18    Bailing with a Leaky Bucket

19    A Tryst with Terra

20    Terra Infirma

21    Swan Song of the Swindlers

22    FTX

23    Bahamas or Bust

24    Exit

Afterword: Grifters’ Groundhog Day

Author’s Note

This book is based on my experiences working in the world of crypto. I’ve tried to capture, as best as possible, just what it was like working at the epicentre of an industry that is often, and most accurately, described in superlatives: the fastest-growing asset class in history; the greatest redistribution of wealth ever seen; the worst financial crimes ever committed, etc.

One problem I kept encountering when attempting this was something I had experienced many times working in the industry: the pace at which crypto moves, and the speed with which the whole landscape can change. This story is primarily concerned with the 2020–22 crypto boom: a period that saw the value of all the cryptocurrencies on the market top $3 trillion – more than the GDP of France at the time. However, even now, fresh developments are taking place almost daily in consequence of the events that transpired during that three-year period.

If you’ve glanced at the finance pages of any newspaper at any point over the past year and a half, you’ll know that the crypto industry has been in a precarious position for a long time. When I started writing this book, bitcoin was trading below $20,000. Less than a year before that, it was worth over $65,000. A long line of high-profile frauds and company implosions had eviscerated its value. And yet, at the time I’m writing this now in 2024, it’s back above $40,000. And it’s not just bitcoin that is subject to volatile, unpredictable and often unexplained changes in circumstance.

Just as I finished a section detailing the fall of a crypto bro’s once-great company, my phone would ping with a news alert saying the character in question had been arrested that morning. Just as I put the final touches on an anecdote about a player whose escapades resulted in his reputational ruin and exile from the industry, I would see on his social media that he’d managed to pull off a redemption arc.

The approach I settled on to deal with this issue was to treat this book as something of a history project. I have tried, in so far as it’s possible, to focus solely on the three-year period in question, and the events that led up to it. I’ve endeavoured to avoid getting lured into the Sisyphean task of providing a fully exhaustive, conclusive account of the fates that befell a whole cast of characters. In most cases, not only is this impractical, but impossible: many of them are still at large, and will continue to leave both stories and victims in their wake as long as they remain so.

Instead, this book is intended to serve as a snapshot, not just of the time period across which it’s set, but of my insights into the crypto industry. It’s an insider’s view, into the lives and livelihoods of some of the inner circle to which I used to belong. It’s a record of the sheer extravagance, excess and absurdity which seemed to take place on a daily basis. And what it illustrates is how the people behind one of the most captivating, disruptive and incomprehensible industries the world has ever seen act when the cameras are off, and their guards are down.

In telling this story, I have changed some names, dates and locations where necessary, to protect the privacy and identity of individuals. Some events (and some players) have been simplified, or even amalgamated, and some dialogue and details have been recounted from memory or constructed for the sake of the narrative. However, at all times I have endeavoured to remain true to the essence of the markets as I worked in them.

To sum up: this is all based on a true story. Or, at least, parts of that true story. Everything that happens in this book is based on what actually happened in real life. Even if, at times, I wish it hadn’t …

Prologue

The Swindler’s Symposium

I forced my way through the frenzied crowd, holding my phone like a man overboard with a lifeline. For the past 2 hours it had been pinging almost constantly with horrifying updates and even more alarming projections. It was a bloodbath; I had never seen this much red.

With a million sharply declining charts searing into my vision, I picked a precarious path through swathes of inebriated partygoers. The atmosphere may have been one of celebration, but I was a one-man island of terror. I had to find Archie; I knew he would be hidden somewhere in this heaving mass of bodies. I had to speak to him to make sense of what was going on. To ask how we were going to pull through this.

The year was 2022. Bitcoin was crashing, and everything was totally and irrevocably fucked.

In light of the market meltdown, I had arrived late to my own party. Midnight had come and gone before I found the entrance to the bar. We were in Canary Wharf, after all: a maze of endless, hollow boulevards. Here was the dark heart of British finance – a gleaming playground for capital and an apt setting for such an event.

Stealing out of the cold November night, I was ushered into the foyer of tonight’s low-ceilinged, clammy venue by Claire, our none-too-impressed events coordinator. She shouted over the blaring music, gesticulating wildly and speaking a novel and hybrid language – a fusion of English, French and general exasperation. With much effort, I managed to catch the gist of her discontent: London’s crypto bros had arrived in force, and now they were letting down their hair as only the sickeningly rich can.

I told her she could dispense with door duties and join the party, and we both strode into the main room – I in search of my co-founder, she in search of the open bar. I eventually spotted Archie, holding court in a quieter corner of the bar, surrounded by an audience of young men with glazed eyes and vacant expressions. Whatever he was saying, it would have to wait.

I hurried over to him, stammering an apology to the pack of hangers-on I pushed out the way.

‘Archie,’ I said, my voice a heady blend of relief and distress. ‘Archie, mate, you need to see this.’

I held out my phone, a price chart filling the display. I studied Archie’s expression as he looked at the chart, his face aglow in malevolent red light. Archie raised his eyes to meet mine, then reached out and snatched the phone from my hand. He swiped at the screen and started typing, watching for a reply from whoever he had just messaged.

‘Fucking hell,’ he eventually said.

‘Right,’ I said. ‘It’s bad, isn’t it?’

‘It’s awful,’ he said. Then, with a grin, he added, ‘I just messaged the manager, and he’s saying we’ve still got eight grand on the bar tab. What the fuck have these people been doing all night?’

With a laugh, Archie thrust my phone at my chest. Then he seized me and the nearest of the bystanders and marched us both to the bar, gesturing for another round of whatever overpriced concoction he had been quaffing all evening.

‘Right,’ Archie said, turning to me as the barman busied himself with an array of bottles. ‘What was that shit you were showing me on your phone?’

I blinked and looked into Archie’s drunken eyes. Music was pounding and strobes flashed from above, lending a dreamlike glow to the scene.

‘Are you fucking mental? Have you seen what’s happening to the markets? This is the lowest bitcoin has traded for over two years, and everything else is getting rekt with it.’

‘Rekt’ is a morsel of crypto slang that is used to describe a collapse in the price of an asset – or, in this case, the entire market. A deliberate misspelling of ‘wrecked’, the term originated in the gaming community before being appropriated by crypto commentators. It’s a light-hearted term but is often used to describe even the most cataclysmic events.

But Archie wasn’t fazed. He simply laughed and said, ‘You could do with getting a bit more rekt yourself. You’re bringing the vibe down.’

Archie’s admonishment did nothing to calm the anxiety that had been overpowering me for the last few hours. Surveying the bar once more, I found yet more cause for concern in the sheer lack of concern around me. These were some of the most prominent, influential people in the entire industry, and not one of them seemed bothered by what was happening to the market. Their house was on fire and, rather than rushing for the door, grabbing the family photo albums on the way, they didn’t even appear to have noticed.

In one corner, the CEO of a crypto company worth just under half a billion dollars (and less still by the second) was attempting to ‘long arm’ a pint of beer. He held the pint at full arm’s length and raised it into the air. Some beer gushed into his open mouth, but most of it spilled over his face and down his shirt. Onlookers cheered, and the sodden CEO set down his glass, wiping flecks of foam from his chin.

In another corner, a group of try-hard traders, sporting slicked-back hair and shirts two sizes too small, laughed as they poured Cristal champagne over their plate-sized Patek Philippes. I rolled my eyes, having always considered this one of the more obnoxious practices of crypto millionaires.

Surely, I thought, everyone in the room couldn’t be so rich or stupid that they didn’t know or care about what was happening? Surely these erstwhile successful people wouldn’t fiddle all night while their empire burned?

I left Archie at the bar and plunged back into the crowd. This time, I was just looking for anyone who appeared sober or sensible. I needed a frame of reference, to vindicate my instinct that everyone else’s reaction was wrong.

I remembered hearing whispers of strange people who came to events like these to actually talk about business: to debate the goings-on of the industry, exchange contact details and build a web of useful connections. I realised in my desperation that this was exactly the type of person I needed now. Unconscionably, and in a sign that things really had gone to shit, I began to seek out that creature I had always shunned. The semi-mythical being I had pushed from my mind so many times. The Networker.

Soon enough, I spotted someone who seemed to fit the bill. With a bottle of mineral water in one hand and a deck of business cards in the other, this guy looked the right type to provide a sound take on the market turmoil.

‘Tim!’ revealed the name tag stuck to his lapel. And, indeed, Tim needed no prompting; as soon as I drifted into earshot, he launched into a lecture on the state of the gaming industry. He described, in an effortless monologue, how he was going to use blockchain technology to ‘disrupt legacy business practices’, ‘return gaming to the gamers’ and accomplish a number of other meaningless clichés.

‘That’s great,’ I said, when I understood he had finished. ‘And tell me, Tim, what do you make of what’s happening in the markets?’

‘What do you mean?’

‘The crash! Do you think this might be it for the industry? And how bad do you think the contagion is going to be?’

Tim said nothing. He merely stared with an expression as still and flavourless as his mineral water.

‘I haven’t heard anything about a market crash,’ he eventually said. ‘Or, uh … contagion?’ His expression changed, so that he was now looking at me like you might regard a person shouting at themselves on the Tube.

Luckily, though, I didn’t need an excuse to extricate myself from Tim. Just before I could make something up about checking in with our events team, the music died all throughout the bar. An alien silence enveloped the dancefloor, followed shortly by the sharp sound of silverware striking glass. It was time for the speech.

I nodded goodbye to Tim and squeezed my way through the tangle of limbs. I was heading for the other side of the room, where I knew Archie had planned to deliver his address. After much exertion, I saw him clambering onto an empty crate of Bollinger – an improvised soapbox that seemed particularly fitting, given the night’s mood. Holding a microphone in his left hand and a half-smoked cigarette in his right, Archie was clearly in a bad way. But it helped that everyone else seemed to be in a bad way too. And it also helped that one of Archie’s greatest talents was being able to chat an astonishingly articulate amount of shit, no matter the state he was in.

Archie raised the microphone to his lips. He took a second to compose himself, and said, ‘Thank you all for coming!’

The crowd cheered. Glasses were raised, and drinks were sloshed.

‘Thankfully,’ continued Archie, ‘only one person got their phone out tonight to try to show me a price chart. And what I saw on the screen scared me, I won’t lie.’

I took a breath. Here it comes, I thought.

‘Yeah, I was very concerned that there wasn’t a single green dildo in sight. Plenty of big red ones though!’

The crowd burst into laughter, and I shook my head. For some context, in the world of trading, the movement of asset prices on charts is depicted with a series of ‘candlesticks’. These charts look a bit like your typical bar graph, except each solid bar has a ‘wick’ at the top and/or bottom. The purpose of the wick is to show the high and low extremes the asset has traded at each day. When the price moves up, the candlestick turns green, and red when it trades down. Crypto bros, having the mental maturity of prepubescent kids, refer to these bars as either ‘red dildos’ or ‘green dildos’, even though it would take a herculean stretch of the imagination for them to look even vaguely phallic.

‘Jokes aside,’ said Archie, his voice taking on a more sober edge as he found his rhythm, ‘I want to congratulate each and every person in this room tonight. We’re making generational change. I’ve been in crypto for a decade, and I’ve seen a lot of people come and go. It’s the people who keep their heads down and build who get through the tough times. Make no mistake, crypto is going to bounce back bigger and better than ever before. Thank you, and thank you all for coming!’

Archie raised his microphone triumphantly into the air, accepting the applause of the crowd, before clambering down from the soapbox. As soon as I saw him handing the mic to the next speaker, I made my way towards the exit. I had stuck around for Archie’s speech out of a sense of duty to my co-founder, but there was no chance I was going to participate in this extracurricular circle-jerk for a second longer than I had to.

I slipped from the bar and returned to the bracing November air. With red candlesticks burning behind my eyes, I ordered a cab, relishing the prospect of bringing this night to its long-overdue close.

In itself, the general farce and idiocy on display that night in Canary Wharf was nothing out of the ordinary. On the surface, it was a typical Wednesday night affair in the London crypto scene. But what dragged the egregious evening down to the level of downright degeneracy was the timing of it all. The party took place on the same night that FTX collapsed.

Prior to its fall, FTX was one of the most prominent cryptocurrency exchanges in the industry. Exchanges are essentially trading platforms that allow users to make bets on whether the prices of crypto assets will rise or fall. Or, at least, that’s what they used to be.

Over the years, some exchanges – including FTX – have made astronomical sums of money. And, in some cases, the meteoric rise of these crypto exchanges has brought out the latent megalomania of their founders. And then, somewhere along the road, some of these founders convinced themselves that their companies were actually more like banks than exchanges. FTX was one such crypto exchange that started acting like a quasi-bank (when they were not simply buying banks outright to skirt local licensing laws, that is).

In recent years, a familiar playbook has emerged. As the C-suite gets high off its own fumes, the mega-exchanges start to create and issue currencies like they’re going out of fashion. At the same time, they roll out every financial service under the sun – from capital lending to the provision of credit cards and savings accounts – and even start trading the market like hedge funds. With so many fingers in so many pies, the exchanges afford themselves ample opportunity to commit financial misdeeds. Combine this with a non-existent regulatory framework (much of crypto remains, even to this day, wholly unregulated) and we arrive at what a financial journalist struggling for originality might well term a perfect storm of corruption.

And, indeed, the crimes and corruptions of FTX were truly immense, in both scale and quantity. The charge sheet against Sam Bankman-Fried (the disgraced former CEO of the company) was so encyclopaedic that it would’ve made Bernie Madoff wince. It ranged from fraud, money laundering and embezzlement to more ambitious and specialist crimes like making illicit political donations. His crimes were so extensive that prosecutors even had to drop some of the charges, as otherwise it simply would’ve taken too many years to process all the evidence. And on 2 November 2023 he was found guilty of all the counts brought against him. At the time of writing he’s awaiting sentencing and is facing over a century in prison.

It’s no exaggeration, then, to say that the case of FTX is one of the grossest and gravest cases of fraud in the twenty-first century, if not the entire history of finance. Not only was a $36 billion company wiped out overnight, but billions of dollars of customer funds, which were being stored on the exchange, were lost. And that’s not to mention the knock-on effects that reverberated through the space; investor confidence descended into a death spiral, causing the value of other assets, like bitcoin, to plunge. Some estimate that as much as $200 billion in value was wiped off the market over the course of just a few days.

And yet, for those who came to our event on the night of the grand crypto collapse, it was as if none of this was happening. These were supposed to be the most engaged and invested participants in the crypto industry – the inner circle of the ultimate insider’s game. While this indifference may seem shocking to those on the outside, it can be easily explained: for many of them, the events that came to light that evening were par for the course. Just another day in the office. Just another fraud that got found out.

These were people who had built their careers and made their living from fraud. It was a core component of their business model. In the pursuit of ever more obscene wealth, they had become desensitised to malpractice and acclimatised to corruption, to the point where they regarded it as a banality – an expediency, even an inevitability.

Crypto founders and industry insiders have been getting away with all this for far too long. It’s time their sordid story was brought to light – the full story, with all the gory details. One that is so ludicrous, so fraught with absurdity, about a con so large in scale and so cleverly masked and so convincingly abjured, that it simply has to be told.

But, in order to tell that story, I first need to tell my own. It’s the story of a player on the inside who became so blinded by greed that he didn’t even realise he had lost his way until it was almost too late.

1

Slowly, then Suddenly

‘So, Miles, how’s everything with you? You’ve been quiet this evening. Everything okay with that digital coin thing you’re working on?’

Miles glanced up from the phone he had been glued to all through dinner. His cheeks were flushed, either from awkwardness or from the heat, or both. It was a particularly warm night in August 2020. Back in those days, I was working as a PR consultant. A spinner for a large transatlantic agency, massaging the public perception of hedge funds and asset managers. The kind of firms that make billions on oil investments, and then bring people like me in to drum up press coverage for their CEO’s keynote speech at a climate conference.

That night, I was at a dinner party hosted by my old university friend Eliza, to celebrate her new job. We were all quite surprised that Miles had joined us. He was another friend of ours from university, but we hadn’t seen him much in the years since we graduated. And, in fact, we didn’t see him much when we were at uni either; he was a maths undergrad, who shunned nightclubs and student bars in preference to staying in on the weekends and studying the financial markets. He thought his flair for numbers gave him an edge, which he could use to make his fortune.

‘Yeah, no, I’m all good, thanks,’ came Miles’s reply. ‘Things are ticking along well with the crypto. Me and my cousin have just brought a head of branding on board, to design our white paper and stuff.’

Miles had been an early bitcoin evangelist. Along with an older cousin of his, he began buying it when we were students in 2016. Despite his usually reserved disposition, he was never shy when it came to talking about money. He would seize every opportunity that came his way to tell us just how much bitcoin he was holding. When the price was hovering around the $800 mark, he and his cousin had tens of thousands of pounds’ worth of it.

We all thought he was crazy. We thought the bitcoin thing was just a fad, and that he should cash out while he was ahead. That is, until bitcoin crossed the $10,000 threshold later that year. Miles was quick to inform us he had made over 1,000 per cent profit, and his bitcoin position was now worth more than a quarter of a million. At this point, he became something of a campus celebrity. The contemptuous amusement previously felt towards his bitcoin fanaticism quickly morphed into envy. And I felt the envy more than most. Miles had been exhorting me to get involved in his operation from the start, but I hadn’t taken his advice.

From then until the time of the dinner party, it had always been a bitter source of regret, and the cause of many sleepless nights spent imagining what I could have done with the small fortune I’d turned down.

As soon as he made the comment about his crypto project going well, I sat bolt upright in my seat. And I wasn’t alone in wanting to hear more; the conversations in his vicinity ground to a halt, heads turned his way, and he suddenly found himself with half a dozen pairs of eyes staring at him.

‘Oh, right,’ came the response from the girl sitting opposite him. Miles looked uncomfortable, and a bit apprehensive. He could sense the impending cross-examination. ‘I didn’t know you were into crypto. I thought bitcoin crashed and died a few years ago?’

‘It crashed, but it didn’t die. It nearly topped $19,000 at the end of 2017, but then dropped back down to around 3,000 within a year or so. Things were pretty slow for a while after that, but we’re back above ten K now.’

Miles had barely finished speaking when the next question came from someone two seats down: ‘And what do you mean you’ve just hired a head of branding? How can you be hiring anyone? I thought you were just investing?’

‘We were investing back at uni, but we’re launching our own crypto project now. We’ve been fundraising and need to bring more people on board.’

‘And what the fuck is a white paper?’

‘Umm, well it’s kind of like a document, which just explains what a crypto project does, and what benefits the token has. The bitcoin white paper set the precedent for this and was a document of great elegan—’

‘Right. Got it. Cool.’ After the initial wave of curiosity, the crowd seemed to quickly lose interest. Their previous conversations were resumed, and Miles went back to scrolling through his phone. My interest, on the other hand, had intensified. I was surprised to learn that Miles was still into crypto, and not just investing, but running what sounded like a proper company. I resolved to find out more.

I stood up and extricated Miles from the frivolous chatter taking place around the table, steering us to a quieter corner of the flat. He didn’t need much encouragement to tell me more about his project and the broader state of the crypto industry. While he floundered somewhat in social situations, he relished talking shop.

He started to explain that the crypto markets were undergoing a substantial uptick. He said that the $12,000 mark was in sight for bitcoin and reckoned it would only be a matter of time before a new all-time high was set. And it wasn’t just bitcoin that was flourishing: there was a slew of new projects entering the market. Every week, dozens of tokens were being launched. Their prices were skyrocketing, as speculators who hadn’t bought bitcoin early enough were now snapping up other tokens to get some skin in the game.

This was a renaissance period for crypto, after the 2018 slump. Commentators were calling it the ‘DeFi Summer’, with ‘DeFi’ being an abbreviation of decentralised finance. And Miles was getting in on the action. He was setting about founding his own DeFi project, called Portent Protocol.

He explained that Portent Protocol would be composed of two elements: a platform and a token. This is the typical project set up in the industry. All the money in crypto lies in launching tokens onto the market, so there’s often little incentive to launch a platform without an accompanying token. And, conversely, there’s an abundance of incentive to launch a token without the inconvenience of having to build a platform.

Portent Protocol, I learned, would essentially be a gambling platform, enabling users to bet on the future price of bitcoin. Unlike other trading or betting platforms, however, Portent wouldn’t make users pay if they made a bad bet. Users would simply state how much money they wanted to gamble, input their price prediction, and wait the given amount of time to see the outcome. If their bet was right, they would win a payout. And, if it was wrong, then they would get their initial stake back, fully intact and undiminished. Miles thought he had invented risk-free gambling and discovered a source of free money for all.

Of course it sounded too good to be true. However, Miles quickly reassured me that his project was the exception to the otherwise immutable saying around propositions of this nature. He told me that, after launch, a large amount of tokens would be set aside to pay out the betting rewards. This, combined with a small usage fee that users would pay to place their bets, would more than cover the amount needed to pay winning gamblers. It wasn’t until much later that I discovered this to be a totally implausible business model. One that would ultimately bring about the downfall of the project. However, for now, it sufficed to dismiss any doubts I had.

Miles then went on to inform me that the platform – and its fanciful logistics – weren’t his priority at the time. The token was. And the token had to be launched, he asserted, before the platform could be launched or even built. He cited a number of compelling reasons for this, chief among them being that people would not be able to use the platform without the token. It was only through buying and holding the Portent token – called TENT – that users could access this economic fairy tale of a gambling site.

I didn’t question Miles any further on this point. I didn’t cast any doubts on the necessity of launching a token. Nor did I put forward any counter arguments (for example, that his platform would work just as well if a token wasn’t used to access it, with bettors just gambling their funds directly). I simply marvelled at the entrepreneurship of it all, impressed to think of a 25-year-old peer as a ‘founder’ of anything, let alone something as esoteric and explosive as a cryptocurrency.

After I lathered the praise on thick, Miles carried on justifying his project and the practices of the industry in general. He started to talk at length about why crypto tokens are launched, explaining that tokens typically serve two functions: ‘access’ and ‘governance’. The former of these he had already covered with the spurious argument around needing tokens to use platforms, thereby lending the tokens a facade of utility and drumming up demand for people to buy them. The question of ‘governance’ is slightly more nuanced. But while it may appear more convincing on the surface, at heart this concept is just as fundamentally flawed.

Essentially, ‘governance’ means decision making. Token holders, in many projects, are given the right to vote on decisions affecting the project in question. As a user, your voting power is often proportionate to the number of tokens you hold. These voting rights cover all manner of sins and allow for a wide range of management decisions to be outsourced to the community of investors. From budget allocation to developer priorities and even things like where the companies should be headquartered, major questions in the running of any given crypto project are often outsourced to the user base. Whatever answers are thrown up, that’s governance.

Needless to say, this method of decision making is fraught with problems. To put it plainly, the system is just too easy to exploit. Anyone of a morally reprehensible inclination can take advantage of a shoddy governance structure. And nowhere was this displayed more brazenly than in the case of the Uniswap grants fiasco.

Uniswap is the largest decentralised exchange in the crypto industry. Decentralised exchanges (or ‘DEXs’) operate in much the same way as normal exchanges, in that they enable users to swap one crypto token for another. However, the difference is DEXs have no central intermediary to the transaction, and no one can ever be stopped from using the platform. It runs by itself, following a set of pre-written algorithms that dictate how it operates.

Uniswap was launched in 2018 and, because this is the crypto industry, the launch didn’t just consist of the DEX itself. Naturally, Uniswap launched a token too. Like all cryptocurrencies, Uniswap’s UNI coin enjoyed huge price appreciation when the markets started taking off in the DeFi summer. Thanks to this, and the often hefty fees that Uniswap charges users for the pleasure of swapping tokens without an intermediary, the company was soon sitting on a vast treasury. At its peak, Uniswap’s coffers topped $2 billion.

At a loose end as to what to do with all this cash, the team formed a grants fund to reward good actors within the crypto ecosystem and encourage the positive progression of its principles. Interested participants from the wider world of decentralised finance were invited to enter their own governance proposals, recommending worthy causes or organisations that deserved to be funded. Around this time, as the first submissions started rolling in, a new profile appeared on Twitter. Here was an account calling itself the ‘DeFi Education Fund’. Nobody had ever heard of this group before but, as the bio explained: ‘We do policy and advocacy work to help DeFi flourish.’

The DeFi Education Fund profile was created in June 2021. Within a month or so, this so-called ‘Education Fund’ had entered a governance proposal suggesting that they be allocated $20 million from the Uniswap treasury. The proposal said they wanted the money to help facilitate their grand ambitions of brightening the future and broadening the horizons of decentralised finance, onboarding a billion users into DeFi, saving the world, etc.

For the wider community, this was quite disconcerting, given the Education Fund’s opaque origins and less-than-clear mission statement. However, the Education Fund quickly reassured the community by highlighting a pledge they had made within their proposal. These funds, they affirmed, would be allocated gradually over a period of four to five years, with all spending decisions explained and justified in full on their social media channels. The crypto community, the wider DeFi ecosystem and fellow UNI token holders had nothing to fear: these guys had promised, as a condition of receiving the grant itself, that they were in it for the long term.

These entreaties had the desired effect: UNI token holders used their governance rights to vote the proposal through. The Education Fund received $20 million in UNI tokens. And, two days later, they sold $10 million worth of them.

From then until now, next to nothing has been done with the proceeds. Their social media profile is still active and posts regularly, but the Education Fund has given no indication that it has engaged in any educational initiatives whatsoever. For all we know, these self-professed proponents of decentralised pedagogy have sailed off into the sunset, and their Twitter account is being run by an intern whom they occasionally check in on between barbecues and bouts of maniacal movie-villain laughter.*

However, when Miles was giving his project the hard sell at that fateful dinner party, none of this was known to me. It only became apparent later, as I waded deeper through the quagmire of crypto. Miles, for his part, may have known that such practices existed within the industry. But, if he did, he made no effort to disclose them to me that night. Instead, he decided to succinctly sum up the prevailing state of the industry with the eloquent exclamation: ‘There’s absolute shit out there sitting at a $40 million market cap. There’s a fucking fortune to be made.’

And, with this, Miles had me. I was wrapped around his little finger. He could’ve played me like a fiddle, and all I would’ve said was a simple and sincere, ‘Thank you for the opportunity.’ We spoke into the small hours of the morning, and I took my leave long after the sun had risen, the light ushering in a new dawn for my career. I knew that, one way or another, I had to get involved with the operation Miles was running.

If there really was a fucking fortune to be made, I wanted in.

*    In April 2024, Hayden Adams, the founder of Uniswap, got drawn into defending the Education Fund against criticism being levied against it on Twitter, and highlighted some of the initiatives the group had been busy with over the years. These amounted to three amicus briefs (essentially just informative documents filed to a court on behalf of a party involved in a lawsuit), a letter commenting on an SEC proposal, and, bizarrely, a lawsuit the Fund filed against the SEC in conjunction with a small Texan leather-goods startup. All of that in a mere three years and with a paltry $20 million at their disposal. Nice work if you can get it …

2

Vulture Capital

My eyes were bleary from overuse, and my mind was fuzzy. Squinting against the bright light of my laptop, I groped across my desk in search of a mug. I needed coffee if I was going to get this finished tonight. I took a fortifying glug and turned back to the task at hand. My laptop’s tiny fan whirred; the screen was a stark and vicious white, a cursor blinking on the page.

For several weeks, ever since that fateful dinner party, I had been working into the early hours, putting together the document that was to be my golden ticket into Miles’s money factory. It was a PR strategy for the launch of his token, presenting a variety of desirable narratives we could spin up to attract institutional investors and the public. Miles had never asked for it, and he didn’t know I was busting a gut to get it done. My hope was that I would demonstrate my marketing nous and prove how determined I was to get involved with his project.

A few days after I sent Miles the strategy document, he invited me to meet his cousin, Archie, on a Zoom call. It seemed my efforts had been vindicated, those many nights of coffee-fuelled sacrifice paying off at last. I knew this was the final hurdle, one last screening with the co-founders before my official invite to join the project.

I logged on early to the call. Alone in the virtual waiting room with only my webcam feed for company, I watched myself counting the seconds as they ticked by on the clock in the taskbar. My dreams of generational wealth were closer than ever, but I knew there was still time for things to go wrong. Winning over Miles was one thing, but something told me Archie would be a tougher nut to crack.

After what seemed like a lifetime, Miles joined the call, followed shortly by his cousin. For our first meeting, Archie was sporting a black T-shirt and baseball cap. Staring into his webcam with inscrutable eyes, he puffed assiduously on a vape, stopping only to sip from the hip flask that stood on the corner of his desk. We dispensed with pleasantries in record time, and Archie got down to business.

‘Podcasts,’ he said, with a scrutinising intensity in his tone. ‘I didn’t see anything about podcasts in the doc you sent over. Did you look into podcasts at all?’

‘Yeah,’ I said. I had a copy of the document open on my computer, and now I started scrolling, slipping down the pages in search of the relevant section. ‘They’re right there, on page … seventeen.’

‘Yeah, nice. Of course. Just remind me which ones you wrote down again?’

Unsure if I was being had – or being tested in an obscure way, like I heard they sometimes did with interviewees at cutting-edge tech firms – I rattled off a few names from the top of the list. I couldn’t quite keep the hesitation from my voice. Just as I was about to finish, Archie muted himself. He picked up his phone and started talking into it. I could see his lips moving, but I couldn’t hear the words. A moment later, he turned his camera off, and his portion of the screen was plunged into total blackness.

‘Those suggestions are brilliant,’ said Miles, playing the diplomat as best he could. ‘Cheers for that, mate.’ There was silence for a moment, and then Miles felt compelled to fill it. ‘Sorry, shouldn’t be a minute. It’s a pretty hectic day for Archie.’

‘No worries.’

After an awkward 5 or 6 minutes, in which Miles mostly monologued about the project, Archie returned and unmuted himself. The phone was gone; the vape was back.

‘When did you say you can start?’ he asked. ‘There’s some stuff that we need to sort out this afternoon. Are you free to help?’

I looked at Archie’s portion of the screen and watched him take another puff. There was no trace of a smile on his face – or, if there was, it was hidden behind a cloud of vapour. I sensed I was at an inflection point, one of the moments on which a whole life can hinge. I took a breath and smiled at Archie.

‘I can start right now,’ I said. ‘No problem. Let me know what you need, and I’ll get it sorted.’

‘Brilliant, cheers. Need to run, so Miles will send over the vesting docs now and explain what you need to do.’ And, with that, Archie was gone.

I got the email from Miles around an hour after the call ended. It consisted of a single attachment and some instructions. Miles and Archie were gearing up for the big launch of the Portent Protocol project, which was still a few months away. As part of their pre-launch marketing, they wanted to publish a series of blogs and articles about the project, drumming up interest and raising awareness of what they were trying to achieve. One of the first morsels of content would explain the vesting schedule of the TENT token to prospective investors. They wanted me to write it for them, based on the information in the attachment.

I knew this would be an easy enough job, a fairly straightforward task to mark my ascension to the inner circle. I was delighted to have made it past Archie and, in my head, I was already spending the fortune I was sure to make. Of course, there was still plenty of work to do before I could sail off into the sunset, starting with the vesting document. But, before I could write it, I had to get myself up to speed on what, exactly, it was …

Back in those days, crypto launches tended to follow a standard playbook, and Portent Protocol was to be no different. In almost all cases, founders had to start by going after venture capital.

Before a new token hits the market, a select cohort of venture capitalists is usually given the opportunity to buy a load of them at a discounted rate. This guarantees they can get there first, before Joe Public has a chance to buy or sell. It’s not like there’s one flat rate for all VCs though. Instead, VCs will be grouped into rounds, with the best and most desirable VCs in the first round. Here the token will be offered at its lowest price, creating more of an incentive to invest. The price will then increase with subsequent rounds, with the less desirable VCs having to fork out more than the first-round contingent, but still getting a potentially vast discount on the eventual public sale price.

The process of selling tokens to VCs is known as a private sale, so called because it precedes the public sale round, in which the token is made available to ordinary investors. A project can have as many token sale rounds as its founders want, but the norm is to have at least four: seed, private, strategic, public. The seed round is for the crème de la crème of the venture capital world, investors who back the project early and put their money where their mouth is. The strategic round is for influencers, marketers, or others whose backing would be a strategic benefit to the project. Sometimes, you’ll come across a launch with an additional round, like pre-seed, slotted in somewhere, and sometimes the rounds will have different names. But you get the gist.

Token sales weren’t always conducted like this, however. In fact, they have come a long way from the 2017–18 boom. In many ways, this was the golden age of crypto, also known as the ‘ICO era’. ICO stands for initial coin offering – a play on the concept of an initial public offering (IPO), which happens when a company floats on the stock market. The handful of crypto projects that floated back in the ICO era made an absolute killing, inspiring subsequent waves of ICOs and sparking a tide of interest from retail investors.