The creators of the defunct crypto exchange Mango Markets say they want to revive the business, although SEC claims that the project’s native token, MNGO, is security. This categorisation raises complex questions concerning the viability of Mango Markets’ version 4.
SEC has charged Avraham Eisenberg, who had withdrawn $116 million from the exchange in October, with securities market manipulation. Securities attorneys not engaged in the case said that the SEC might be setting the framework for action against the exchange platform that distributed MNGO to its investors upon its issuance in 2021.
Mango Markets is a popular place to buy, sell, borrow, and lend cryptocurrencies on the Solana blockchain, and its creator, Daffy Durairaj, promised to revive the platform. In October, the exchange stopped after a single trader stole $116 million worth of crypto from Mango and its clients.
The SEC has just launched a lawsuit against Eisenberg, claiming that the MNGO token used in Mango’s native governance system is security. The SEC has stated that it was examining securities law breaches besides the Eisenberg case, including the sale of MNGO. This governance token gives its holders voting rights over Mango Markets’ operations.
Regardless, the creators of Mango are moving through with the relaunch of the trading platform. Mango Markets’ creator, Daffy Durairaj, updated developers on Sunday with a status report. Durairaj decided to set a good tone for Mango’s first developer meetup after the Eisenberg vulnerability.
Reopening Mango Markets
The long-awaited upgrade to Mango’s version v4 will help restore the protocol’s standing. Since November 1, Solana-based trade protocols have lost over 70% of their total value locked (TVL), while Crypto DeFi has lost around 14%.
In their complaint against Eisenberg, SEC attorneys pointed out that Mango advertised the launch of version 4 of Mango Markets on its website and social media. During the developer call, Durairaj told the 50 or so people that there are some concerns that they are looking at Mango v4’s debut about the SEC.
“I don’t know exactly what they’re worried about,” he said. “I don’t know why they added that into the complaint, so there’s something to discuss.”
The U.S. firm Mango Labs is establishing itself as MangoDAO’s legal defender, but these cases prove an expensive burden. Durairaj stated that the company spent over $400,000 on legal expenses in 2018, and it expects to incur an even more considerable expenditure in 2023. To cover legal fees, Mango Labs will approach the DAO for a $1.5 million grant.
“Lawyers are very expensive. Every time you talk to them, it’s a lot of money, which kind of sucks,” he said on the call.
SEC vs. Mango?
The SEC’s case against Eisenberg assumes that MNGO is a security since otherwise, the SEC wouldn’t be able to prosecute. Securities attorneys said that if the agency additionally contends that the token is unregistered, it might post challenges for the project. The government has yet to apply this distinction to MNGO.
The $70 million token sale scheduled for August 2021 by Mango Markets is a potential source of trouble. The purported prohibition on U.S. investors engaging in the transaction was likely an effort to escape regulatory attention. Despite this self-imposed limitation, the SEC’s complaint alleges U.S. investors, including some of Mango’s developers who live in the U.S., purchased the token.
In its case against Eisenberg, the SEC cast doubt on the degree to which MNGO, Mango’s governance token, was decentralised. According to the SEC’s claims, most MNGO token holders didn’t even bother to vote, giving insiders dominance in protocol decisions. The document characterised the DAO’s authority to rule as illusory.
The lawsuit also aimed at the “Upgrade Council” of Mango, which consists of seven Solana and Mango insiders and has the power to vote to implement modifications to Mango Markets without the approval of the general DAO. Mango v3 was disabled by the Upgrade Council after Eisenberg’s exploit, thanks to the votes of two of the program’s original developers.
The dangers of proceeding with any project so closely related to supposed security were underlined by Ron Geffner, a partner at Sadis & Goldberg LLP and former attorney in the SEC Division of Enforcement.
The SEC would likely classify cryptocurrency offerings as securities offerings in the vast majority of cases. As a result, it is fair to suppose that the safest course of action is that issuers and linked parties comply with the securities rules.
V4 Upgrades
In a Sunday development call, Mango’s creator, Durairaj, announced that v4 of the operating system would fix the vulnerabilities used by Eisenberg. He gave the example of a planned adjustment that would keep the risk in one asset’s trading pool from spreading to another.
Talk over the long-term viability of Mango’s Upgrade Council took up much of the call’s hour-long duration. According to Durairaj, the council was always designed to be a transitory feature that could respond to security issues like the Eisenberg attack more quickly than a full DAO vote. He opined that if we got a circumstance where Mango v4 is solid, the DAO might do away with the council.
“We’re fine to go ahead and launch Mango v4 under DAO authority,” Durairaj said, though he did note that several features are still in development.
To act as a Venmo for crypto, developers are nearly ready with an android version of Mango, he claimed.