Key findings
Investors buying crypto tokens, and corporations trying to identify partners, look to established crypto industry market research shops to give them clear and unbiased signal on the nature and progress of networks and projects. Crypto research organizations portray their research as unbiased and focused on the needs of their readers. But do they walk the walk, as well as talking the talk?
Nansen regularly publishes reports on the Avalache blockchain. Often such coverage results from a commercial relationship. But is what they publish concordant with what they know?
We decided to explore the reliability of crypto industry market research by digging deeper...
Nansen is a major venture-backed blockchain analytics and market research organization that has
raised about $88.2M from investors.
Nansen describes itself as:
| “ | Providing an unbiased source of analysis and institutional-grade market research and insights. |
We give Nansen the benefit of the doubt, and believe they are well intentioned. But they are working with Ava Labs, the developer and promoter of the Avalanche blockchain. How does that affect things?
Ava Labs develops and promotes the Avalanche blockchain, which is essentially a copy of Ethereum with a faster proof-of-stake consensus mechanism, and standalone chains, which they call "subnets."
The project is highly controversial. Behind the scenes, we have shown that the Avalanche operation is characterized by a strong pattern of highly deceptive behavior. This has included weaponizing the legal system against competitors using corrupt lawyers, running massive bot farms that surreptitiously promote the value of their AVAX token to retail investors and slander rivals, refusing to shutdown a crypto bridge proven to be powering mass money laundering by North Korean hackers, and manipulating American regulators.
The number of $AVAX holders in profit has reached an all-time low. While the asset has witnessed similar levels before, such as in June & December of 2022, it is the first time that nearly all AVAX holders (99.5%) are holding at a loss. pic.twitter.com/pdH387qHqs
— IntoTheBlock (@intotheblock) August 22, 2023
Given the background, how much should readers trust Nansen's paid research on the Avalanche blockchain?
We introduce Marcel Buen, a senior engineering manager at Nansen, who has an in-depth understanding of the blockchains they analyse.
Marcel first explains how Nansen combines blockchain analytics with research and analysis. Their technical blockchain analytics capabilities, which Marcel is directly responsible for at a senior level, provide them with deep insights into what is really happening on a blockchain:
Early on in our conversation, he raises issues with Avalanche's statistics: much of the activity
that Ava Labs was claiming for Avalanche was occurring on a standalone blockchain they call
a "subnet" that hosted the tokens for a play-to-earn web3 game called Crabada, which has since been
mysteriously shuttered.
He had a problem understanding:
| “ | who are these users, right? |
Nansen reports covering Avalanche are always glowingly positive, extolling the growth in its users, and receiving wide coverage in the press. This is one of the main reasons why many investors buy its AVAX token.
But Marcel says perplexingly:
| “ | I would say looking at the user base last year, it didn't seem very promising. I don't know if this will work out. |
Marcel goes on to say:
| “ | Um, I don't think Avalanche has shown like really good traction ... if you did some kind of like weak analysis on like who was actually on the chain, you would see that like 80% was bots playing Crabada |
Because Nansen owns and operates a highly sophisticated blockchain analytics platform, it was easy for them to see that activity on Avalanche was being created by bots before writing their reports, simply because individual accounts were creating new transactions 24 hours a day — and very obviously, real human beings need to sleep!
Marcel says:
| “ | ... analyse transaction usage and so on, you would see that most of the users were active like non-stop 24 hours a day ... these are bots essentially |
Despite knowing that bots account for most activity on Avalanche, Nansen has consistently publicly presented Avalanche as a fantastic investment opportunity. So what does our highly-qualified insider at Nansen think, who has the benefit of direct access to their sophisticated blockchain analytics platform?
Marcel says:
| “ | to be honest ... I think for me, it's just the, the fact, that most of the traction was faked or, you know like, bots, centered around like very few users really, just put me off as an investment. |
1. Funding corrupt lawyers to weaponize the American legal system
Our Case #3 covered how Ava Labs secretly funded crooked law firm Roche Freedman
with their stock, and AVAX tokens which were worth more than $250 million at their peak, to weaponize the American
legal system against the crypto industry. Key partner Kyle Roche claims to have: 1) funneled confidential information
harvested from the industry using legal discovery back to Ava Labs to give them a
competitive advantage, 2) widely sued across the industry to create decoys that drew regulators like the SEC and
CFTC away from Ava Labs, and 3) attacked their rivals by creating class actions against them.
We discovered that they created a class action against DFINITY, the developer of the Internet Computer blockchain, using apparently baseless claims for which no supporting evidence has ever emerged, after Kyle consulted with Emin Gün Sirer. In seminal and widely-covered spy video exposing their actions, Kyle boasted how he would also create a class action against Solana on behalf of Ava Labs, which they duly did some months later (before we published our spy video).
What happened: After we published our seminal Case #3, exposing the relationship between Ava Labs and Roche Freedman, Kyle Roche was forced to leave Roche Freedman, which has since renamed itself FNF, and American federal judges have been disqualifying them from class actions, and numerous other legal cases they created against crypto industry participants. Recently, the New York Times wrote a crypto villain puff piece that appeared to try and white wash Kyle Roche's actions, giving him a platform to claim statements he made on video were lies, and spin unlikely tales about how Crypto Leaks was to blame. Case #7 exposes the comical but frightening mendacity of their article, and asks whether it relates to a defamation lawsuit they are defending as a result of their previous cooperation with Sam Bankman-Fried.
2. Using 1000s of bots to corrupt social media and mislead people
Our Case #5 covered how Ava Labs was behind a massive
astroturf and bot operation on Twitter. We were able to identify and share more than 1000 accounts that were likely fake,
which apparently existed to extol the investment potential of AVAX tokens to retail investors, and to slander
rivals, for example by accusing their leaders of being criminals who should be sent to jail
— it now remains to be seen what legal liability Ava Labs and Emin Gün Sirer have incurred
through these actions.
3. Powering money laundering by North Korea
Our Case #6 covered misuse of the "Avalanche Bridge" by criminals and rogue
states. The Avalanche Bridge is a system operated by Ava Labs, and has become a
cryptocurrency mixer of choice for those wishing to launder funds because of flaws in its design.
In one of the most sophisticated blockchain analysis operations ever performed, we traced almost $300 million of
illicit and stolen assets being deposited into the bridge — primarily by a group of hackers linked to the
North Korean government called Lazarus — then sharing all our blockchain tracing data in an easily verifiable form,
placing the facts beyond doubt.
Comment: Retail users of the Avalanche Bridge are now at risk of receiving tainted assets, but in a damning demonstration of the irresponsibility of Ava Labs and Emin Gün Sirer, they have refused to comment on the facts we shared, and have continued operating the bridge, allowing its continued application by criminals, as can be see from this recent report.
4. Playing American regulators
Ava Labs has shown itself to be a relentless marketeer of the investment potential of its AVAX tokens
to American retail investors.
In late 2021, Ava Labs was apparently promoting their potential to retail investors on the New York subway,
saying that "it's never too late to be early" (with the implication that it's not too late to buy them
before the price goes up):
It's never too late to be early. pic.twitter.com/Hxwf3TjnkG
— Emin Gün Sirer🔺 (@el33th4xor) December 14, 2021
Those retail investors who followed their advice at the time have now suffered an almost 95% loss. More generally, it seems that nearly every retail investor they induced to buy AVAX tokens has lost money:
The number of $AVAX holders in profit has reached an all-time low. While the asset has witnessed similar levels before, such as in June & December of 2022, it is the first time that nearly all AVAX holders (99.5%) are holding at a loss. pic.twitter.com/pdH387qHqs
— IntoTheBlock (@intotheblock) August 22, 2023
Meanwhile, Emin Gün Sirer and Ava Labs now indulge their expensive passion for motorsport using funds raised from investors, sponsoring both a NASCAR team and the world's premier Formula E team at a cost of many tens of millions of dollars — which enables them to enjoy the ultra-luxury entertainment packages that come with such arrangements:
Green, sustainable and fast! And now the winner of the Formula E race in London! https://t.co/DWMmRUY6fi
— Emin Gün Sirer🔺 (@el33th4xor) July 30, 2022
You may now being asking, like many others: why Ava Labs and AVAX was not mentioned in recent communications by the SEC targeting other major tokens?
We believe there may be more to this than meets the eye. The General Counsel of Ava Labs is none other than Lee Schneider.
Lee was previously General Counsel of block.one, the promoter of the EOS blockchain. From the summer of 2017, block.one raised $4 billion from retail investors in a year-long ICO, then essentially keeping most of the money for themselves, rather than reinvesting it into development of the EOS blockchain and its ecosystem, with retail buyers of the EOS token the main losers. Yet — in strange events that many insiders claim set the crypto industry on a damaging path by greenlighting extreme opportunism and unscrupulous behavior — after block.one hired Lee Schneider, they negotiated a settlement that allowed them to keep the money after paying a comparitively miniscule fine of $24 million (0.6% of the total they obtained).
Lee was undoubtedly a formidable lawyer, joining block.one for a multi-million dollar package from leading law firm McDermott Will & Emery, where he was leading their FinTech and broker dealer practices. This would have brought him into direct and regular contact with regulators such as the SEC. Lee even used to co-host Appetite for Disruption, a bi-weekly FinTech podcast with former SEC Commissioner Troy Paredes. Could his network have been involved in negotiating the extraordinary settlement that block.one obtained? Did Ava Labs hire him on a similar package because of what he did for block.one? Has he used his skills and connections for them too?
The apparent untouchability of Ava Labs, which flies in the face of hard evidence in the public domain, is as surreal as the events with block.one ever were. We all need to know more.
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