Mango Exploiter Explains $65 Million Bet To Get Rich Off FTX’s Demise

Avraham Eisenberg made more than $100 million in October when he outsmarted a decentralized exchange and forced it to pay him the exorbitant sum. After admitting to the aggresive tactics and promising to give most of it back, he is now taking his unconventional investing acumen and placing two bets based on the epic collapse of FTX, the exchange that went from being the JPMorgan of cryptocurrency to its Lehman Brothers overnight.

On Sunday, Binance CEO Changpeng Zhao, widely known as CZ, announced on Twitter
that he was selling an estimated $500 million worth of the FTX token used to reward that exchange’s users. CZ seemed to imply his decision was based on reports that FTX withdrawals were slow and that the cryptocurrency behemoth might be insolvent. Exactly what happened next is murky, but it appears the tweet contributed to $6 billion flowing off the FTX exchange. “Little did I know it was going to be “the straw that broke the camel’s back,” CZ tweeted on Monday

The losses were immediate. FTX’s lauded CEO Sam Bankman-Fried saw his net wealth nearly wiped out, from a peak of about $24 billion, based mostly on the company’s value. A number of companies, including cryptocurrency trading platform BlockFi, which had been bailed out by FTX following the collapse of the $40 billion luna stablecoin ecosystem, rushed to allay concerns that without their benefactor, they might vanish. CZ magnanimously stepped in to save the day, offering to buy the competitor.

But not everyone is losing money from the drama, and Eisenberg has already figured out how to make a few dollars. As the collateral damage surrounding the rapid demise of one of crypto’s leading forces only begins to be measured, Eisenberg thinks his next bet—a $65 million FTX-inspired short on the Tether
cryptocurrency—could net him, much, much more.

“Most likely, they’re fully backed, and they’re okay, in my opinion,” says Eisenberg, of the tether cryptocurrency, with a $69 billion market value. “But everyone is panicking now. And so if they weren’t okay, then the most likely time for there to be a bank run and the panic and throw off is probably in the next couple of days. ”

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Tether (USDT) is a stablecoin pegged to the U.S. dollar, but faster to electronically transfer than the greenback and thus used as an on-ramp and off-ramp for cryptocurrency trades that need to be capitalized quickly. The asset is supposed to be backed 1:1 by cash and less-stable commercial paper, but the company that created it was fined $41 million last October for making misleading statements, leading to a process whereby the company’s CTO, Paolo Ardoino said it would move the backing assets to short-term Treasuries.

On Tuesday, Eisenberg, who is a resident of Puerto Rico, and operates an undisclosed number of unidentified firms, deposited $20 million worth of USD Coin (USDC
), the stablecoin backed by Circle and Coinbase, as collateral on a decentralized finance (defi) exchange called Compound
and borrowed $65 million USDT against the funds. If the Tether drops half a percent, his open position will net him about $325,000. If it goes down a full percent he collects $650,000. He expects to add more to the short. “I’ve just been waiting and monitoring,” he says.

In May Eisenberg says he made $10 million in a single week on a short of TerraUSD (UST
), the stablecoin behind the former $40 billion Terra
ecosystem that collapsed when the luna cryptocurrency that backed it disintegrated.

Also on Tuesday, Eisenberg says, he bought a $17,000 put option that expires on Friday on shares of the $8.4 billion investing firm Robinhood, the only one of several companies FTX invested in during the current market downturn that is also publicly traded. In May, Bankman-Fried bought a 7.6% stake in Robinhood, which in addition to offering traditional stock transactions, lets users trade cryptocurrency. Based on what was at the time a 20% drop in Robinhood shares, to about $9.64 each, Eisenberg earned about a $60,000 profit essentially betting that FTX might liquidate holdings in the brokerage . “My thesis was simply, if he’s in financial trouble, then he may not want to own so much or may be forced to sell some of this.” Eisenberg no longer recommends that strategy as it’s possible all of the downside has already occurred.

A possible next move based on the FTX saga: Eisenberg says he’s now in conversations with a few groups who have money trapped in FTX that he may buy at a discount, and hoping for full reimbursement.

A relative newbie to the public eye, Eisenberg shot to public attention in October when a blogger named him as the perpetrator of a “hack” of the decentralized Mango exchange, which netted him more than $100 million. Though he later returned $67 million to help make the exchange solvent, his Twitter defense of the “highly profitable trading strategy,” earned him respect and notoriety on social media.

On Tuesday night, Eisenberg tweeted that he was considering buying his own exchange. “I think I could do better tweets than SBF and also not lose embarrassing amounts of money while bragging about how good our risk engine is,” he wrote. He also had some harsh words for Binance, despite its conditional offer to rescue FTX. Both FTX and Binance allowed luna assets to be traded on their sites, and Binance directly invested in the project.

“They were the pathway for a lot of retail investors to get harmed,” he says. “And I think if you ask them, and they were honest, they would say they don’t care. They’re just there to provide the marketplace, people can buy whatever they want. People have the right to lose the money or whatever. And they’re happy to take their fees.” Eisenberg minces no words about his thoughts on crypto. “I’m very skeptical of crypto, I think that it’s done a lot of harm.”

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