Divergence Ventures charged with insider trading as analyst collects $ 2.5 million

Divergence Ventures analyst Bridget Waters involved in a $ 2.5 million parachuting scandal, charged with insider trading.

Venture capital firm Divergence Ventures was recently charged with insider trading when 702 ETH landed in the portfolio of one of its analysts, Bridget Waters, following a recent Ribbon Finance airdrop in May 2021 , which distributed 30,000,000 tokens.

Ribbon Finance is a protocol that creates packaged financial instruments that use a combination of derivatives to achieve a risk-return objective, such as betting on volatility, improving returns or protecting capital. Divergence Ventures is a venture capital firm that has invested $ 25,000 in Ribbon Finance.

Token airdrops are typically awarded to first-time users or for performing simple social media tasks, and are awarded to any wallet that performs some type of transaction. It is possible to benefit from it by “farming”, which involves interacting with protocols which are said to release a token from several wallets. Airdrops also increase the supply of a circulating coin or token, boost trade, and improve project visibility. The more people who own a cryptocurrency, the more likely it is to be adopted and see its value increase.

The 702 ETH deposited in Waters’ Ethereum wallet came from several different wallets. The contained portfolios Ribbon Finance RBN tokens, which were exchanged for ETH and then deposited into Waters account. This is called a Sybil attack.

Ribbon’s “Sybil” attack explained

After the governance rejected a proposal to make RBN transferable in June, a second ballot took place, which saw 99% of voters vote in favor of the proposal. This proposal also made possible a reward of RBN 10 million in rewards, which could provide liquidity to an RBN-ETH liquidity pool on Uniswap.

The Divergence Ventures airdrop incident was first noticed by a user with the alias “Gabagool.eth”. Gabagool had bought a significant amount of RBN and was looking at the Uniswap v3 pool, observing what people were doing with their airdrops observing wallets buying and selling when he spotted a sale of 17 ETH, the proceeds of which were sent to a another new portfolio. The new wallet contained ETH which all came from wallets that had received a Ribbon Drop and sold a Ribbon Drop. The parent wallet was linked to a wallet with the Ethereum Name Service domain that identified the owner as Bridget Waters, prompting a backlash from the crypto community.

Divergence referred the 702 ETH back to Ribbon Finance, and Ribbon Community Manager Julian Koh defended the employee in question and said the fault lies with the founders of the organization, not Ms Waters, a student. Ribbon Finance had made the airdrop known to Divergence Ventures, but not the eligibility criteria, he said, denying the insider trading allegations, in response to the crypto community’s allegations.

DeFi governance issues highlighted

This incident highlights the fragility of the governance of the DeFi chain and the use of common sense and social etiquette among DeFi users. The SEC recently signed an agreement with crypto analysis firm AnChain. AnChain will provide them with data and blockchain technology to analyze smart contracts. This would give the SEC better insight into the fast-growing DeFi space, which grew 450% in 2021, and the total value of all listed protocols was $ 121 billion in August 2021.

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