As the tides of DeFi turn, they often reveal some pretty turbulent undercurrents. And the Avraham Eisenberg vs Sasha Ivanov legal battle is a prime example. Eisenberg, once a seasoned trader and developer, is now in jail for fraud and market manipulation. Most of his notoriety comes from the Mango Markets exploit, but his public beef with Ivanov, who’s embroiled in his own crypto controversy, has added to Avraham’s rollercoaster story.
In this article, we’ll be parsing all the complex, intertwined details of the ongoing lawsuit, which has Eisenberg demanding millions in damages. We will also provide a run-down of both participants’ history in the crypto space, and walk you through the timeline of major events. By looking at this high-stakes legal drama, we explore what it means for the crypto industry and its complex rules and regulations.
Who Is Avraham Eisenberg?
Avraham (Avi) Eisenberg, once a trader and developer with deep ties to the DeFi world, now sits in jail for fraud. His arrest marks the first U.S. case involving crypto market manipulation.
Eisenberg gained infamy mostly due to his part in the Mango Markets exploit, a daring act that rattled the decentralized finance scene. In October 2022, he carried out a clever plan on Mango Markets, a DeFi platform running on the Solana blockchain. He tricked the platform's price oracle to boost the value of his collateral, which let him drain over $100 million in assets. Eisenberg showed no remorse insisting his actions were legal. He argued that he used the platform's code as intended. After being arrested, he made a deal with Mango, returning $67million. Though we couldn’t independently confirm this information, it is assumed the FBI confiscated the rest of the funds.
But this bold move didn't go unnoticed. The scheme sparked widespread outrage in the crypto world and caught the eye of U.S. officials. Authorities arrested Avi Eisenberg making him the first person in the U.S. to face charges for manipulating the crypto market. The groundbreaking case highlighted the growing set of laws around digital assets.
Though this was the straw that broke the camel’s back, Avi’s “career” didn’t start with the Mango Exploit. For instance, he was also accused of embezzling almost $15 million from Fortress in 2019, when he was still working there as a developer. Critics have speculated that Eisenberg used the funds he stole from Fortress as the initial collateral he needed for the Mango Markets heist.
Who Is Alexander (Sasha) Ivanov?
Sasha Ivanov is credited as the founder of the Waves Platform, a blockchain system that allowed users to create versatile smart contracts. Waves began in 2016, and many saw it as a strong rival to Ethereum, thanks to its easy-to-use tools and focus on decentralized apps (dApps). Ivanov, who studied theoretical physics in Russia, claimed he wanted Waves to open up finance and bring blockchain tech to more people.
But Ivanov's time with Waves hasn't been easy. One big problem involves the Neutrino USD (USDN) stablecoin, which the Waves token (WAVES) backs. USDN lost its peg to the U.S. dollar several times making people lose trust in it. The crash of Terra's UST stablecoin around the same time only made things worse for Waves, hurting the whole stablecoin market. Ivanov tried to fix these issues by suggesting new plans and launching a new stablecoin, but many in the crypto world still had doubts.
Besides the USDN problem, people have criticized Ivanov for how he ran the Vires.Finance platform, a DeFi lending system built on Waves. The platform racked up half a billion dollars of bad debt, which Ivanov took on himself to stop USDN from losing its peg again. This action though, made people wonder about how centralized decision-making was in the Waves ecosystem, which is supposed to be decentralized.
Sasha's link to Avi revolves around a series of mutual claims of market manipulation, culminating in the Avraham Eisenberg vs Sasha Ivanov suit. Ivanov has blamed certain individuals, Eisenberg included, for taking advantage of weak spots in the Waves ecosystem to sway the price of USDN and WAVES. Meanwhile, Eisenberg blames Ivanov for allegedly running a “global Ponzi scheme” at Waves.
The Waves Saga
In 2022, Waves and its linked stablecoin USDN saw big ups and downs, with USDN often losing its tie to the U.S. dollar. Ivanov said externalities, in the form of “outside players”, turned this instability into a complete disaster. He pointed to Eisenberg, who he claimed took advantage of weak spots in the platform to make money from USDN's split from the dollar and the drop in WAVES token price that followed. This brought to mind Eisenberg's well-known Mango Markets scheme where he used similar tricks to sway markets for his own gain.
A key moment in this dispute was the huge buildup of risky loans on Vires Finance, a lending platform on the Waves blockchain. The amount of debt on the books was close to crashing the stablecoin once and for all, so Ivanov decided to take on these loans personally to keep USDN stable. Some proponents of Waves thought this was needed, while others said it showed how centralized and weak the Waves system was.
Eisenberg Sues Ivanov
The ongoing conflict between Alexander Ivanov and Avraham Eisenberg took a dramatic turn when Eisenberg, now convicted of fraud and market manipulation, filed a lawsuit against Ivanov from his prison cell. But while he awaited his sentence, Eisenberg decided to take Ivanov to court in his own multi-million dollar suit, claiming Ivanov's words and deeds have hurt his name and caused him to lose a lot of money.
The core of Eisenberg's lawsuit appears to be centered around the claims Ivanov made accusing Avraham of deliberately manipulating the price of WAVES and USDN stablecoin. Eisenberg was adamant that Ivanov's accusations were projection attempts by Ivanov. He argued that the debacle within the Waves ecosystem was a direct result of the platform’s flawed design and management, not his actions. Of course, that in itself turned out to be misdirection when Eisenberg went through with the Mango Markets exploit just months later.
In 2022, Ivanov claimed Eisenberg and other bad actors manipulated the price of WAVES and USDN stablecoin. In turn, Avi argues that Ivanov is a con artist. Even after being arrested and jailed, he says the instability in the Waves ecosystem was avoidable if not for Sasha’s schemes.
One tipping point in this dispute was the huge buildup of risky loans on Vires Finance, a lending platform on the Waves blockchain. Ivanov stepped in to take on this debt aiming to steady USDN. Some saw this as a needed step, while others slammed it as a sign that the Waves system was too centralized and weak. Claims about Eisenberg's part in starting this mess added fuel to these complaints, with many people doubting how safe and well-run Waves was.
| June 2016 | Late 2021–Early 2022 | June 2022 | April-July 2022 | October 2022 | December 2022 | July 2023 |
|---|---|---|---|---|---|---|
| Waves Platform is Founded | Waves Faces Stability Issues | Ivanov Shoulders Waves Debt | Ivanov Accuses Bad Actors (Including Eisenberg) | Eisenberg Commits the Mango Exploit | Eisenberg is Arrested for Market Manipulation | Ivanov is Sued by Eisenberg |
| The ICO was concluded on June 1, 2016. | Though an exact date could not be verified, Waves’ issues with depegging began around the time of the Terra scandal. | To avoid another depegging event, Ivanov personally took on $530,000,000 in debt | Ivanov named Eisenberg as one of the alleged perpetrators that caused Waves to crash. | Eisenberg executed the pump-and-dump, stealing $110,000,000. | Eisenberg was hauled off from a Puerto Rican beach to a New York jailhouse. | While still in jail, Eisenberg publicly sues Ivanov, alleging that he had nothing to do with the Waves crash, and seeking relief for reputational damage. |
The Avraham Eisenberg VS Sasha Ivanov Proceedings
Unfortunately, lawsuits are not as fast-paced and exciting as TV shows would have us believe. They can last for years or – as in the case of Eisenberg v Ivanov – the pre-trial proceedings themselves may span multiple years.
It all started on July 6, 2022, when Avi Eisenberg filed the suit against Sasha Ivanov in the U.S. District Court for the District of Puerto Rico. The filing shows that Ivanov is being accused of operating a "global Ponzi scheme" that led to Eisenberg losing about $14 million.
Avraham Eisenberg then went on to submit a motion for a TRO (Temporary restraining order) against Alexander Ivanov. These kinds of motions are usually meant to prevent the accused from taking any actions that can cause additional damages against the accuser, though in this case it most likely aimed to prevent Ivanov from making further statements.
Eisenberg's attorneys didn’t stop there, filing an additional motion to allow attorney Samuel Johnson to appear pro hac vice, which is a legal mechanism that lets an out-of-state lawyer participate in the case. It seemed like they were really going all out, until it came time to serve Ivanov.
Where Is Sasha Ivanov?
Eisenberg's legal team ran into big problems trying to serve Sasha Ivanov legal papers, which they needed to do to start off the court proceedings. At first, the court said no to a motion to allow sending the papers by email. This made Eisenberg's lawyers try other ways to reach Ivanov, like using court orders and even third parties to find him.
Subpoenas are just the court's way of saying, "You need to help with this case or you'll get in trouble." So Eisenberg's lawyers started by sending court orders to websites Ivanov used the most, like GitHub and Medium. They hoped these platforms would help them find any online traces that could show where Ivanov was looking at what he did in the crypto world. But this didn't work out. Neither website gave them info that could help find Ivanov.
When the court orders didn't help, Eisenberg's team decided to take things into their own hands and hired a PI company that finds people. These investigators found out that Ivanov lives in Dubai, UAE, when he is not traveling to other countries. Even though they learned this, they still haven't been able to hand Ivanov the legal papers.
Pump-And-Dump or Ponzi Scheme
Statements by Eisenberg refer to Ivanov’s alleged crimes as both a pump-and-dump and a Ponzi scheme. In reality, these are very different concepts and the truth of the matter is a bit more complicated. Let’s explore the concepts through the lens of the Eisenberg & Ivanov saga.
What is a Pump-And-Dump?
In the world of crypto, a pump-and-dump scheme typically consists of four steps – pre-launch, launch, pump, & dump.
Pre-Launch
Typically, the pre-launch stage involves building hype around a token to inflate its perceived value. Most pump-and-dumps lure people in with strategies like “exclusive” allowlists and pre-sales. The idea is to create a thin veneer of structure for a company that often doesn’t even exist. Eisenberg did not have to complete this stage with the Mango Markets exploit as the platform was already creating some hype.
Launch
Next comes the launch phase, where the scammers promote the chosen token using false advertising where they promise quick, sizable returns. The bad actors capitalize on FOMO (fear of missing out) and often target new traders. Mango Markets was already gaining market share in the DEX space, especially when it came to perpetual futures. So Eisenberg did not have to execute this phase either.
Pump
The pump stage is the beginning of the culmination of the scheme. In a regular pump-and-dump, this stage is signified by a steadily rising price, as the scammers’ promotional efforts draw buyers to the token. In turn, the rising price attracts even more investors to the coin, creating a snowballing effect. In the case of Mango Markets, the perpetrator was able to “pump” the MNGO stablecoin by over 1300%. Eisenberg did this by basically selling millions of dollars worth of perpetual futures contracts to himself.
Dump
Once a token reaches the desired price levels, the scammers quickly sell off their holdings, leaving everyone else holding bags of worthless tokens. In most cases, the scammers are the ones who develop the token, so they take steps to make the sales seem more or less legitimate.
Eisenberg also tried to create a veil of plausible deniability that he was sure would work, even Tweeting “I was involved with a team that operated a highly profitable trading strategy last week.” But investigators easily proved that he borrowed against his artificially inflated MNGO position and took over $110,000,000 off the platform.
What is a Ponzi Scheme?
A Ponzi scheme is a kind of financial scam that pays returns to early investors using money from new investors, not profits from a real business. This old trick requires a steady stream of fresh investments to keep paying earlier participants. In time, as the early investors continue to receive profits, the venture gains recognition and authority, attracting more victims. Here’s how a Ponzi works and why some people insist Ivanov ran one:
Initiation
The first and most crucial step is to find a large enough group of initial investors. This is mostly done via promises of huge returns with low risks. Since the fraudulent enterprise is not actually profitable in the traditional sense, the perpetrators must find ways to fund the payouts of these initial investors during this stage.
Though no wrongdoing has been proven, Ivanov’s Waves Platform was doomed to fail. Much like Terra, Waves relied on an algorithm that was not viable during especially volatile periods due to liquidity restraints. Buying in was simple and the returns they offered were around 30-70%.
Expansion
During the aptly named expansion phase, marketing is key. And no matter how far Google Ads has come, the most effective form of marketing is still word-of-mouth. All Ponzi schemes are structured to incentivize referrals. As more initial investors begin receiving payouts, they become convinced the enterprise is real. At this point, they become an ideal marketing tool, attracting even more investors. Meanwhile, the scammers can keep paying investors using money received from new investors.
Assuming the allegations are true, it is still unclear whether Ivanov knew he was defrauding people at the early expansion stages of the Waves Platform. One thing is clear – in hindsight, even the early trajectory of Waves overlaps with that of a Ponzi scheme. Their expansion was quick, allowing Waves to collect around $1.2 billion in investments by the end of the first quarter of 2022.
Saturation
Although it is the most major milestone in the lifecycle of a Ponzi scheme, the saturation phase comes and goes in an instant. It is the point when new recruitment slows down so much that the perpetrators will start losing money if they continue to pay out investors. Once maximum market saturation is reached, the fraudulent enterprise gradually stops operating.
In the crypto space, the downward spiral is more of a cliff that coins jump off as sell-offs cause exponentially more sell-offs. And according to Eisenberg, this was all a part of Ivanov’s plan.
Collapse
In a traditional Ponzi scheme, the collapse phase consists of denial, redirection, and preparation. The scammers need to stall for time by denying wrongdoing, while preparing to defend themselves in court or escape justice by other means.
When Ivanov was accused of playing a part in a scheme that saw an astonishing $530 million in funds evaporate from the Vires Finance balances, he denied his own involvement (and then moved to Dubai). Aside from Eisenberg, Sasha also pointed fingers at various other parties, including Alameda Research, the firm established by Sam Bankman-Fried of FTX infamy, alleging that Alameda deliberately shorted WAVES. He Tweeted that the company then engaged in spreading negative rumors and uncertainty—commonly referred to as "FUD" (fear, uncertainty, and doubt)—to drive down the token’s value.
The Waves debacle may not be a traditional Ponzi scheme, but it sure seems to have ended as one.
The Aftermath
Even if you discount the entertainment value of the dramatic case of Eisenberg v Ivanov, you should be excited about the long-term impact it will have on the world of crypto. The case shines a bright light on shady dealings by both Ivanov and Eisenberg. Sure, the crash of Waves, along with FTX and Terra debacles dealt big blows to the DeFi space. But as they say, “what doesn’t kill us makes us better regulated and more primed for mainstream adoption.”
Regulatory Ripples
As regulatory frameworks become more robust and as the industry itself weeds out bad actors, the foundations for broader, more secure adoption are being laid. This process is painful, but necessary, for crypto to achieve mainstream acceptance and for DeFi to become a credible alternative to traditional finance.
One of the most unexpected ways this case changed the space is the skyrocketing pressure on regulators to step up their oversight of the DeFi industry. As more crypto-related cases come to light, governments and regulatory bodies all over the globe are being forced to face the facts – Crypto is here to stay and it must be reigned in with effective policies. Although controlling an industry that was literally designed to operate outside the traditional financial system comes with unique challenges, legislators are now more incentivized than ever to overcome them.
A Wake-Up Call for Investors
For crypto enthusiasts, this case reminds them how risky DeFi can be. It has an impact on developers, pushing them to create systems that are more secure and open. Investors now act more, asking to see clear, provable information before they put their money in. The aftermath of what happened with Waves, and how Eisenberg's actions affected things has also started more discussions about the thin line between disrupting financial markets with new technology and manipulating them with age-old schemes.
As a result, crypto whales and small-timers alike are well aware of how risky the crypto world can be. To avoid investing into the next LUNA or USDN, most traders avoid sketchy algorithm-based DEXs altogether, opting for an exchange that offers transparency and security above all else. It’s also why PlasBit stores 100% of all crypto funds in offline cold wallets and does not retain users’ account access. That means that, even if bad actors somehow get past the platform’s cybersecurity, no one is able to steal from PlasBit users’ online hot wallets.
In Conclusion
The legal warfare of Avraham Eisenberg vs Sasha Ivanov runs much deeper than the claimed $14 million loss. Accusations of Ponzi schemes and pump-and-dumps on the Waves Platform showcases the Wild West of the DeFi space. Eisenberg's past, including his well-known Mango Markets exploit, clashes with Ivanov's own infamy and debated leadership of Waves. The case raises concerns about possible manipulation and central control in a sector that’s supposed to be all about decentralized finance.
Ivanov and Eisenberg are both so shady that it’s hard to tell who’s in the right. But the lawsuit does make one thing crystal clear – the DeFi market is missing crucial regulatory safeguards. On the one hand, this weakens the image of crypto as a whole. Yet, on the other hand, it can be the catalyst we need to finally implement common-sense regulatory frameworks that are bound to push crypto into the mainstream.
