Weekly Roundup 07/09/26 (BonkDAO exploit, Choke Point 2.0 extended to audit firms, Kraken v Mazars) (EP.729)

Paradigm raised $1.2 billion for its fourth fund targeting crypto, AI, and robotics. Other notable fundraises included Gauntlet raising $125 million from SBI Holdings, Mercado Bitcoin raising $20 million from Tether, and Extended raising $12.5 million from Ituro and Jump Crypto. Strategy sold 3,588 bitcoins for $216 million, disclosed in an 8K filing, which Matt Walsh described as the largest bitcoin sale Strategy has ever executed. Walsh noted the sale occurred while bitcoin's price was rising and had limited market impact, interpreting the filing as evidence of active balance sheet management rather than a purely ideological long bitcoin stance. Strategy's preferred share instrument STRC hit a low of $71 roughly two weeks before the episode and recovered to $85 but had not regained par, remaining off peg for nearly two months, with distressed debt shops reportedly buying positions hoping to swap them for additional preferred or common shares.

The BonkDAO governance attack involved no code exploit. An attacker spent $4.4 million to acquire approximately one percent of Bonk tokens, submitted a governance proposal to send $20 million to themselves, and the proposal passed with only 7 of 18,000 DAO members voting. The attack was executed over the Fourth of July weekend, which likely contributed to the low turnout. The proposal was technically valid under the governance rules, and BonkDAO is exploring legal responses. The incident was described as reflecting a low point for DAO governance, with no professional entity actively monitoring or managing the Bonk treasury.

Kraken won a $22 million arbitration award against its former auditor Mazars after Mazars abandoned the engagement days before its audit opinion was due in 2022. Kraken confirmed in writing that Mazars had no issue with Kraken, no fraud, and no disagreement before walking away. The departure was described as part of Operation Choke Point 2.0, a pressure campaign that intensified after FTX collapsed in late 2022, during which senators including Elizabeth Warren wrote letters to banks, regulators, the PCAOB, and the AICPA characterizing all crypto audits as shams. Mazars had been performing Proofs of Reserve for Binance using agreed-upon procedures rather than full financial statement audits, and after scrutiny of that work intensified, Mazars quit all crypto clients. Armanino and Grant Thornton also withdrew from crypto engagements during the same period, and the Big Four were largely unwilling to serve crypto companies throughout this time. The auditor departure was particularly damaging to Kraken because the company was on a path toward raising growth equity and eventually going public.

A federal judge denied Kalshi's request for an injunction in New York, ruling that the Commodity Exchange Act does not preempt local state gambling laws. The ruling contradicts the position that Kalshi, Polymarket, and the CFTC have advanced regarding federal authority over prediction markets. Sports event contracts could be banned in New York as a result, and a definitive ruling will likely require the case or a related one to reach the Supreme Court.

A paper by David Dye and a co-author found that traders are manipulating the Binance bitcoin reference price to influence Polymarket five-minute bitcoin contracts. Statistical analysis showed anomalous price spikes at the end of each five-minute settlement period on Binance tied to Polymarket contract settlement. Because Polymarket's five-minute bitcoin contracts reference only Binance for pricing, the contracts are relatively easy to manipulate. The recommended fixes were either switching to a multi-exchange index for settlement or using a 30-second settlement window to raise the cost of manipulation.

TeraWulf signed a 20-year lease with Anthropic expected to generate $19 billion in contracted revenue. Matt Walsh argued that bitcoin mining companies were positioned to service AI hyperscalers because of their existing power infrastructure, though Nick Carter noted TeraWulf did not originally plan on AI rescuing the business. AI labs appear to be going directly to power providers rather than through neoclouds, potentially disintermediating that layer of the market.

Vitalik Buterin announced that Ethereum's next major upgrade, to be called Lean Ethereum, will take three to four years and will rival the Merge in significance, including quantum resistance and a privacy component, with an official quantum resistance target date of 2029. Prediction market odds for the Clarity Act passing stood at 45 percent, down sharply from 75 percent in mid-May, with CFTC chair Brian Quintenz stating that regulators will write all digital asset rules if Congress fails to pass the bill, and speakers noting Congress needs to bring the act to the floor within roughly two weeks for it to pass in time.