Divergence Ventures Accused of Insider Trading as Analyst Cashes Out $2.5M

3 mins
9 October 2021, 12:05 GMT+0000
Updated by Ryan James
9 October 2021, 12:05 GMT+0000
In Brief
  • Divergence Ventures accused of benefitting from investment in Ribbon Finance.
  • ETH tokens from Uniswap v3 liquidity pool found in Divergence employee’s wallet.
  • ETH returned to Ribbon Finance, with a plea to absolve implicated party.
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Divergence Ventures’ analyst Bridget Waters embroiled in airdrop scandal worth $2.5M, accused of insider trading.

Venture capital firm Divergence Ventures was recently accused of insider trading when 702 ETH landed in the wallet of one of its analysts, Bridget Waters, from a recent airdrop by Ribbon Finance 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, like betting on volatility, enhancing yields, or protecting the principal. Divergence Ventures is a venture capital firm, which has invested $25000 in Ribbon Finance.

Token airdrops are generally awarded to early adopters, or for completing simple social media tasks, and are allocated to any wallet that completes a certain type of transaction. It is possible to benefit from this by “farming”, which involves interacting with protocols that have been rumored to release a token from multiple wallets. Airdrops also increase the supply of a coin or token in circulation, stimulate trade, and improve the project’s visibility. The more people who own a cryptocurrency, the more likely it is to become adopted and see an increase in its value.

The 702 ETH deposited into Waters’ Ethereum wallet came from a number of different wallets. The wallets contained Ribbon Finance’s token RBN, which were exchanged for ETH, and then deposited into Waters’ account. This is known as a Sybil attack.

Ribbon’s “Sybil” attack explained

 After governance rejected a proposal to make RBN transferable in June, a second round of voting was held, which saw 99% of voters vote in favor of the proposal. This proposal also made possible a reward of 10 million RBN in rewards, who could contribute liquidity to an RBN-ETH liquidity pool on Uniswap.

The Divergence Ventures airdrop incident was first noticed by a user who goes by the pseudonym “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 by observing wallets buying and selling when he spotted a 17 ETH sale, whose proceeds were sent to another new wallet. The new wallet contained ETH which all came from wallets that had received a Ribbon airdrop, and sold a ribbon airdrop. The parent wallet was linked to a wallet with the Ethereum Name Service domain that identified the owner as Bridget Waters, resulting in a backlash from the crypto community.

Divergence has sent the 702 ETH back to Ribbon Finance, and the Ribbon community manager Julian Koh defended the employee in question and said that the blame lies with the founders of the organization, not with Ms. Waters, a college student. Ribbon Finance had made the airdrop known to Divergence Ventures, but not the eligibility criteria, he said, denying allegations of insider trading, in response to allegations made by the crypto community.

DeFi governance issues highlighted

This incident highlights the fragility of DeFi on-chain governance and the reliance on common-sense and social etiquette amongst DeFi users. The SEC recently signed a deal with crypto analytics company AnChain. AnChain will provide them with blockchain data and technology to analyze smart contracts. This would give the SEC greater insight into the fast-growing DeFi space, which has grown by 450% in 2021, and the total value of all listed protocols was $121B by August 2021.

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BeInCrypto has reached out to company or individual involved in the story to get an official statement about the recent developments, but it has yet to hear back.