Why People Who Argue Arbitrum Violated DPRK's Property Rights Are Ridiculous

Transcript

So, let's let's actually dig into this. Cuz this is it's not just that funds were frozen. Right. This was actually something different to the point where like >> True. >> in my groups, people were like, No, that's not right. Like, that didn't happen. Like, genuinely they're like, no no no no no. Like, and then someone's like, I like I watched this in real time. Someone's like, but it's in a different address. It's wild. >> address. And by the way, it's it's not Like, it's not in a different address. It's also it was it's people keep saying like, oh, just nine out of 12 people signed a signature. No no no no no. That Those are Those are just the signers, guys. Yeah. Uh None of those signers write any code. Yeah.

>> Right? Let alone elegant, perfect, secure, like audited, like come up with a solution. The number I have no idea how many people like work together to make this happen. And that's why I say like even as it was happening, I didn't think it was going to happen. And I like genuinely because the number of things that had to come together for this singular event to happen is like I would say like at least like 100 people. So, so let's let's dig in.

>> Right. >> Let's put it out. This is like for making the right decision. Let's give them flowers where flowers is due. That was 100% the right decision. Anyone who says otherwise I think is like totally lost. >> Yeah. The push back like And and you know, I think this is one of those things where uh it's it's 70 million dollars, right? To your point, pay. There's a ticking clock. You need to deal with it, right? Um And the reason why most of the time like inaction is much easier, right? Than action. Like, Yeah. >> Oh, we can't you know, there were I'm like to your point, there are probably 10 points in this chain where 6 months ago or 9 months ago or 2 years ago someone would have said, and we know like we've been in these chains, right?

Where like something bad's happened. It's like, We can't do this in this amount of time. Or we couldn't do this or the it's too hard to coordinate this. And it would have just fell fell apart, right? Like, the the whole thing that the chain of events that needed to happen for this to happen requires everyone believing this is the right thing. And we just didn't have that consensus. Right? Um Now we have rough consensus that actually no, we are going to rug the DPRK if they steal money. So, so let's go into it. So, Arbitrum has a security council. Yeah. Um They have a uh a single sequencer and and um they are reliant on Ethereum uh security, Right? for for the economic

security of their own network. Um But they also have a lot of control. Right? Um To the point where like Arbitrum could just shut the entire thing down. Now, if they were to shut the entire thing down, and this is this is the interesting thing here, right? Um The whole point of an L2 is that Arbitrum disappears, you can go to the L1, and you can be like, no no no, I want my money back. And the L1 will be like, here Here you go.

You're fine. We have We have all of the state that's happened over here on this other network. You can replay it. Um We've made sure that the state every single change was fair, right? Um >> We've got, you know, these fraud proofs. We've got all these systems to make sure that the economic security of Ethereum is there, right? So, if something happens on an Arbitrum address. You send funds to the wrong place or whatever. Um You can and have been able to rely on this economic security to ensure that your funds are yours.

Right? Yeah. This somewhat changes that. Right? Um Because >> it makes it more complex. I think a lot of people and they were like when I was first asking questions, people were getting a lot of things confused because they did they do have one sequencer, right? But the underlying There's a lot of checks and balances that they have in the underlying chain. So, just because they have one sequencer doesn't actually mean that the sequencer can do anything. It was a class to like Exactly. So, the sequencer cannot because the cryptography the underlying cryptography, right? Is there. So, the sequencer itself cannot just like move your money. The sequencer also cannot um It can like censor you meaning that it can like choose to be blind to you,

which is like colloquially we'll say the sequencer freezing your funds because it's basically saying like, I'm not going to include you. But but you can force inclusion. Right? So, you can go back to L1 and you force inclusion from L1. And that's the escape hatch. That's the escape hatch. It's like, they can't rug me because of Exactly. >> to L1. And so even though you can theoretically like get the sequencer the guys that run the sequencer or you can force them to do things or convince them to do things, right? It doesn't like the extent of what they can do is limited because they built in these the whole the whole thing is uh meant to be

censorship resistant in that form. And that's the reason why for this situation like that was that's not an option. Right? >> Yeah. Like that's just not anything. >> And so so yeah, what they what they did and like Odysseus, feel free to >> Odysseus, do you know how Do you have a good understanding of what the update was? Yeah, so basically the the sequencer, right? listens to events Um about what transactions should be forced included. Um So, basically they upgraded the the L1 contract um the inbox as they say. And they forced included the transaction which spoofed um the address of from,

Right? >> they sent the transaction as if the hacker was sending a transaction which moved the funds to um to the rescue address, right? And then they upgraded back the L1 contract to the original implementation right? So, uh at the end of the day, it's you know, a nine out of 12 12. From the perspective of the L1, right? Um This was a valid state transition. And so, you know, Yeah. >> There there there's a chain >> a economic security that requires the L1 to be able to say, this was an invalid state transition. The sequencer cheated, right? Um But there's a bridge.

Yeah. Yeah. >> That is on L1 that >> is the real thing that really decides what actually happened. And they upgraded the bridge, which they can because they it's multi-sig, Right? And so they upgraded the bridge to say, actually up is down for this one block. >> For this little Yeah, for this one block, right? Um And >> And so they spoofed the transaction and said, this was not an invalid state transition. This was a valid state transition. Um And then they put it back the way the other way. And then the blockchain both L1 and Arbitrum sees that for the rest of time as a valid state transition. Yeah. Okay.

>> And And by the way, my understanding about why like this route was chosen and I give them massive props for this is that there because there's a lot of things you can do, right? When when we're once we're in the realm of like, what can we do to stop the 70 million? There there's actually like a lot of things. This in my understanding, this was the like the one that carried the least amount of like technical risk, the least amount of like >> oopsies, we accidentally [ __ ] everyone else over risk. Yeah. The the most It's not a rollback. It It's the most aggressive thing that you can do, but therefore also Uh Very the safest,

Right? >> Yeah. >> Like just you know, like it it it lifts the veil of Um >> do things. We it actually you know, it it completely destroys this illusion that we can't do things to actually we can do anything. We can actually do anything. Uh And not only can we in a theoretical And >> sense, we have in a very practical sense done it. It's on the chain. You can see. Like we know Lazarus didn't send that transaction, Which means which means like someone did, right? Which means it's nine out of, you know, 12 people that >> Well, nine out of 12 that that signed the upgrade, right? Again, none of those

nine out of 12 or like intimately familiar with this stuff. They are actually a lot of them are auditors and security people. So, I assume that they looked at very carefully of what exactly they were doing. Yeah. Um But again, like this is not like if you think that you can go convince nine people to do something and it'll get done, let me tell you, you are so freaking wrong. Like it takes so much more than that. Because again, Especially the nine people that would be on that multi-sig. Yeah. >> I've been on a lot of DeFi multi-sigs. Like, You couldn't get two of us to agree on something. Dude, even for legit upgrades like >> [laughter] >> they're like chasing me down. Still to this day Linnea's like, Taylor,

uh please sign your [ __ ] [ __ ] So so Griff, who uh is a an Ethereum OG >> Um who's seen some hacks. He's the guy that Um >> famously narrated the DAO hack. Um >> You can find it on YouTube. Uh >> Yeah, is the second This is the second big life-changing thing that Griff has done, and that was another Look, there's a There's There's a lot of conversations on Twitter. I'll say this, if you put Griff on your security council, you didn't put him there to like evaluate the deep technical code is law [ __ ] You put him there because you wanted someone that was going to look at

it from a holistic point of view and do the right thing. If you don't If you don't want your security council to be that, don't put Griff or, by the way, or Zach on your freaking security council. And so Griff said, "We did not make this decision lightly. All it takes for evil to triumph is for good men to do nothing, so today we decided to do something." And I think that quote will go down as like, as I said, this watershed moment of like, "We're not going to take this [ __ ] anymore. We're not going to pretend >> we can't do anything. We're going to do things when those things are good, and we're going to use our own judgment, and we're going to try and protect users, and we will deal with the downstream

consequences of that." If that, you know, and the downstream consequences >> and learn from it, too, because, by the way, I would much prefer the veil to be lifted in this situation, and then them for them to like cordon against it and be like, "Wait, hold on. Are we sure that this is the right like scope of people or things that have to happen for a a situation like this happen? Or should >> Now Now that it's Now that it's happened, right? That's the question, right? Like, now that it's happened, how do we How do we actually make sure that in the future this is not a mad scramble and and it's done? But I think it's worth There's There's some other quotes, right? That it's worth calling out, and Luka, you're going to love this one cuz this is like the antithesis of that,

right? Um Michael from Curve who he is one of these guys, like to your point, Luka, like one of the cypherpunk do-nothing, let the world burn, and, you know, code is law people, right? Said, "Many will probably reevaluate whether using Arbitrum is safe after this. If they can freeze anyone, hard to argue that some tradfi regulations are not applicable to the chain itself. It is not neutral infrastructure." Yeah, so let me just let me just let me just debate that very simply. And Kane, maybe you've got to like identify like what What actually defines a a cypherpunk?

Like, because isn't that the guy that like looped a bunch of money and bought like a $30 million house and did the whole thing and like >> was like a couple houses. Right. I I I I like my thing is is like like, okay, cypherpunk to me is like you know, integrity and moral compass and like doing these things for the world that are immutable but safe but for the betterment of humanity. It almost reads to me uh a little bit uh I don't know why I'm blanking on the term, but uh what Sam Altman was all about, the [ __ ] um Effective altruism, yeah. Effective altruism, yeah. No, yeah. No, it's simply aligned in that principle, but like a little maybe a little more rebellious. So like But then actually

like they really pushed Curve the libertarian the libertarian opponent of this, right? Um you know, is uh is like basically property rights are if property rights, right? This [laughter] is I'm sorry. This Okay. No. Someone just stole your property. You can't come back and be like But But like genuinely like the the the combination of like property rights are the only thing that anyone should care about, and it's now the DPRK's property. You could [ __ ] You can find people on Twitter that are like, "No, the DPRK owns this. How dare we steal it from them?" But this is that. Yes. Yeah. And I'm like, "No, no, no, that's not

DPRK, we literally you can't use a property rights argument to argue like But the But the argument is like that's like if somebody put a gun to my head in the street, took the watch off my wrist, and now it's his watch. Like Yeah. That's insanity. Right. No, but then you're the criminal for taking your watch back because >> Yeah, but you could go to California for that exact reason. It's insanity. Like let's let's be real here, people. Like that's insane. Yeah. No, it's But the the funniest part for me, honestly, of the of the like And again, like this is a genuine take that exists on the timeline of people being like, "No, no, no like the code is law, the chain is the chain.

You can't roll back transactions no matter who the person is, because if you do, then things will happen, right? Meanwhile, the DPRK, they don't believe in property rights. You're like You're like you're defending the property rights of like the DPRK. They don't care about your property. They're like, "These idiots, they're What are they doing?" Like They're laughing all the way to the Oh, by the way, they absolutely are, cuz they get money unfrozen all the time. They go convince services, and by the way, when they go convince services to unlock their money, they sound exactly like the most hardline Bitcoiner that you've met. They go into the service, and they literally say things like, "This is my money. You've no right to

freeze it. You're violating my property rights, right? What about decentralization? What about I'm not even kidding." And the service gets so They get so scared that they literally give DPRK their money back on the regular. And then people It I I can go about this all day. We're not going to do this, but all I'm saying libertarian take, but, you know, frankly, that doesn't sound very libertarian to me. I mean, that it sounds like sounds like anarchy. It sounds like It sounds like anarchy disguised as as as libertarianism, if I'm being frank.

And so like like I I think everyone should be praising this. And somebody who I think has benefited so much off of crypto, I'm sure this Curve guy is great and like obviously Curve gauges and like everything that like they're they're they're pioneers in the space. Give them credit where credit is due. But I mean, like I don't think he understands how how much he's disservicing the space when you're talking about a centralized L2 that nobody knows better than him how centralized L2s are and saying that this is compromising trust because he's not understanding the network effects and his voice and the respect that so much capital has for a guy like It just seems like thing, right? Like the Yeah, but the lack the the the

delusional take on this, right? Um like we said, you know, Odysseus was like this is people are going to want to use Arbitrum more, right? And this guy, who's still He's like a Japanese soldier in like 1950s still like fighting Cold War, right? Like he's like he's like, "Many Dude, like three guys, you and the three other people are going to reevaluate whether or not you want to be on Arbitrum. 99.9% of people are going to be like, "Thank [ __ ] god that I didn't lose all my money.

Thank Thank like Thank these guys for like stealing back the money that I thought I was going to lose. I thought I was going to get like a 10% haircut on my like, you know, ETH savings, and instead I'm going to get most of it back. Like um I I just And again, like I in like I was this guy. Five years ago, I was like, "We can't do anything because if you do things, then slopes and slipperiness and >> [laughter] >> whatever." Like, you know, I But I'm like I I look at it now, and and I just think the world has changed. We're in a different phase of whatever this is.

Odysseus, what is your recommendation for teams in this space who are building things, real things, right? Centralized things, decentralized things, permissionless things. Like, what is your recommendation to avoid any of these bad things from happening? Um you know, next time you have to prioritize between the road map and security, maybe prioritize security instead of only the road map once every 6 months. Um I think I mean, you know, the space is new. Everyone is like, you know, fighting for PMF and, you know, people are dying left and right. So it's like I think very difficult for teams to prioritize security uh because it seems so you know, it's not going to happen to

me right? It happens to other people. Um but I think now the question they need to to ask themselves is you know, the yield I'm providing, how much better is than the 4% yield that is FDI insured that the customer will have to choose between that and mine. Right? And I think that answers what will drive all the decisions. Would you take 5%? I think it's a fair take. Like, you know, the the the like the market will become more efficient, right? But part of the efficiency is like having, you know, not the risk of every 200 days you

get zero. Yeah, right. It's crazy. You need very high yield to offset the risk of total loss once every 3 months. Um it's it's Yeah, it's it's not um not It's not very viable. >> It's not viable, I don't think. Like, and I think that it was it was it was a bit different when sort of like DeFi summer era, where we're all moving fast, but the yield was insane, but we were also just like Yeah, you didn't park your money anywhere, dude. It was a daily thing.

You wake up, you check your [ __ ] Something got hacked. It's okay, though. You have 20 other things, right? But that's not what Aave is. No. Yeah. Like Like you know, I woke up, and I was like, "Holy [ __ ] like my money is at risk in Aave? Like this is not what I signed up for." I signed up for, you you like of course there's some risk, right? Like you know, this is I'm not even earning yield on Ave. This is like me using it for like Ave. I'm paying I'm a paying customer of Ave, right? I'm like I didn't sign up for this [ __ ] Like come on Stani.

You know, you got to you got to fix this. And and so yeah, I think I think if we want if we want this intersection of TradFi and DeFi to be viable and scalable, we're going to have to make some changes to how we do things. But I think the market has sort of forced this, right? Like you can look at this and say this is like a nine people making a decision to your point. Say it's not just nine people. There's a lot of like this was a long time coming. It was going to be at this moment, right? Where someone chose to do something and it was going to shift the Overton window of doing things. And that's happened now.

And and you know, the consequences of that we'll see and there'll be you know, some bad stuff and some good stuff. But I just think you can't you can't unwind this now. And but the take that this will somehow cause like a mass exodus from Arbitrum is just giga [ __ ] If you like this clip, tune in to Uneasy Money every Wednesday at 4:00 p.m. Eastern. Multichain Advisors is an emerging technology growth firm that has helped create over $50 billion in enterprise value for more than 80 clients like Piff, MoonPay Commerce, and Wormhole.

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