Canadian $15.8M DeFi Theft Case Could Upend ‘Code is Law’ Convention

Indexed Finance’s Co-founder Dillon Kellar and a contributor, Laurence Day, claim the convention doesn’t apply in this case and are suing the alleged hacker to find out

article-image

Canadian flag

share

key takeaways

  • “I consider [code is law] a fringe and unworkable view of how DeFi actually needs to work if it’s going to be more widely adopted,” Day said
  • A series of tweets by a nondescript Twitter profile ZetaZeroes, which allegedly claims to be Medjedovic, has hinted that what occurred was crypto trading

A class-action lawsuit unfolding in Canada could upend the view that conventional law does not apply to unregulated decentralized finance (DeFi) protocols. The claim against Canadian teenager Andean Medjedovic, who allegedly stole $15.8 million from a DeFi protocol, Indexed Finance, argues that the so-called ‘code is law’ convention in DeFi doesn’t provide immunity from conventional laws. 

“Code is law,” often jokingly referred to as codeslaw, is a popular idea among DeFi communities that without real-life regulation, the DeFi (or crypto) ecosystem is regulated by code’s permissibility. 

Indexed Finance is a DAO that describes itself as a “decentralized protocol for passive portfolio management on Ethereum.” 

A series of tweets by a nondescript Twitter profile ZetaZeroes, which allegedly claims to be Medjedovic, has hinted that what occurred was crypto trading, simply put. Indexed Finance’s Co-founder Dillon Kellar and a contributor, Laurence Day, claim the convention doesn’t apply in this case and are suing the alleged hacker to find out. A notice of action was filed on Dec. 17 with the Ontario Superior Court of Justice relating to a proposed class action lawsuit against Medjedovic.

“I consider [code is law] a fringe and unworkable view of how DeFi actually needs to work if it’s going to be more widely adopted,” Day said in a message to Blockworks. “We operate in a space where perpetrators are…rarely found, which probably helps perpetuate the idea,” he wrote. 

Day said if code was law, it would set DeFi on a “pretty dystopian path where exploiters were lauded.”  

The idea of “just don’t get hacked” is a “cop-out that can realistically never be guaranteed” for any protocol, even in light of audits and open-source scrutiny, Day noted. 

“A lot of the ‘code is law’ appreciators seem to think that DeFi stands entirely outside of the framework of law, as opposed to simply being a manner of disintermediating financial institutions,” Day said. “Just because all of this happens through a blockchain doesn’t mean that suddenly hundreds of years of legal process magically stop applying,” he added. 

A number of lawyers are saying Medjedovic’s “code is law” argument probably will not be upheld under legal scrutiny, CoinDesk reported

The 19-year-old, who was 18 at the time of the attack, allegedly executed a series of trades, through $159 million of borrowed assets by using a flash loan. The filing claims he then distorted the protocol’s algorithm to buy assets at “artificially deflated prices” for a fraction of their true value. 

Around the time of the incident, ZetaZeroes tweeted that the protocol was “out-traded” and “there is nothing you can do about that.” 

But, the digital assets stored in Medjedovic’s crypto wallet are the “rightful property of the tokenholders,” the filing stated. 

“Thieves shouldn’t be encouraged or comforted by the fact that ‘code is law,’ or believe that they have a free pass to take assets that aren’t theirs simply because those assets exist on a distributed ledger,” Day said.

Medjedovic did not respond to Blockworks’ request for comment.

Tags

Upcoming Events

HYATT REGENCY SALT LAKE CITY

TUES, OCT. 8, 2024

Guided by the expertise of Blockworks Research Analysts team, this one day event will feature senior leaders, entrepreneurs, and developers from across the crypto industry. Attendees will have the opportunity to participate in an immersive experience to explore the latest trends, […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

hivemapper.jpeg

Research

We believe crypto market participants overlook Hivemapper’s fundamental potential due to a poor understanding of both the niche map data market and Hivemapper’s positioning relative to incumbents. Hivemapper’s token model catalyzes both a cost and product advantage via unmatched map freshness and near real-time accuracy, which is its wedge into a market characterized by stale data and high data collection costs. Its current and potential future product suite may represent one of the strongest possibilities for PMF in crypto today.

article-image

Exploit shows centralization can sometimes be an asset

article-image

The Fidelity Ethereum Fund, like other proposed ETH ETFs, seeks to stake a portion of its assets, according to the firm’s Wednesday registration statement

article-image

The DAO first voted on enabling SAFE transfers over a year ago

article-image

The final Bitcoin halving, where the mining reward becomes smaller than one satoshi, is expected to occur in 2140

article-image

The Department of Justice and Commodity Futures Trading Commission announced back-to-back lawsuits against KuCoin Tuesday

article-image

Judge Failla found that Coinbase didn’t operate as an unregistered broker in offering its wallet service