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Crypto Audits Explained In Two Words: Fraudulent Kiting

At least three more crypto exchanges have alleged issues. Let's investigate.
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Proof of Reserves

Preparing for Proof or Reserves 

Casting Suspicion 

Suspicion of CryptoCom and GateIO.

Broad Based Suspicions 

There broad suspicion on any other exchange linked with ArmaninoLLP

 Asset Swap

Finger Point Back at Binance

An Audit Flashback

The exchanges say there is nothing abnormal in their swaps, just other exchange swaps.

A Sanity Check on 17.5 Percent Interest

Also consider an Increasing max APR sanity check for Oracle Lido report (emphasis mine).

On 9 Nov, 2022, due to the extreme market conditions Lido has bumped into previously set conservative 10% APR limit for the stETH rebase after Oracle report. That happened due to the fact that the Oracle limit was set before the Merge hadn’t accounted for potential Execution Layer rewards spikes.

No user funds or rewards are at risk. Under the current set of constraints, the rebases most likely won’t happen daily before the parameters change in Lido Oracle contract. The proposed change is increasing allowed APR for Oracle report from 10% to 17.5% (1750 basis points).

The 10% yearly threshold had been chosen before the Merge and hadn’t accounted for potential spikes in daily rewards accrued by the protocol. In order to prevent potentially economically vulnerable large token rebases 20, only 2 basis points of the stETH total supply can be accounted for rebase daily (~940 ETH at the time of writing). So, in order to accommodate for those extra 2 daily basis points, the threshold increase should be ~7.5% yearly (2 basis points * 365 days ≈7.5%). According to analysis provided in github issue 20, that number is considered safe enough as it’s lower than the ≈28% yearly threshold.

Understanding stETH

Staked ether, or stETH, is a cryptocurrency token that represents an equivalent amount of ether (ETH) that has been staked. 

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We are told that 17.5% interest for stETH is "conservative" because it's lower than the ≈28% yearly threshold.

Bear in mind that interest is not paid in dollars it's paid in crypto. And once staked you are locked in for the duration. 

The claim "no user funds or rewards are at risk" is laughable because it presumes appreciation in the underlying coin.

If the underling coin drops in value, you can get killed on the transaction. Ethereum is down 65 percent on the year. 10 percent interest paid in Ethereum is not much of a benefit. 

And if you staked for a year, you are still stuck in the transaction. 

Hooray! you have 10% more crypto, it's just worth 90% less. Meanwhile, the rush is on to prove what's there is really there. 

Helping the Democrats 

Irony of the Day - Begging for Regulation

Another Mad Scramble is On

Quote of the Day

In case you missed it, please see FTX US Declares Bankruptcy Too, What About the FTX Arena?

The FTX parade keeps on rolling.

This post originated at MishTalk.Com.

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