Lawtrades nearly failed three years ago.

We couldn't raise Series A or enthusiasm from VCs.

We raised $6M (at a $80M valuation) from 100 customers and investors using a link and no pitching.

Step-by-step:

We refocused our business first.

Lawtrades raised $3.7M while Atrium raised $75M. By comparison, we seemed unimportant.

We had to close the company or try something new.

As I've written previously, a pivot saved us. Our initial focus on SMBs attracted many unprofitable customers. SMBs needed one-off legal services, meaning low fees and high turnover.

Tech startups were different. Their General Councels (GCs) needed near-daily support, resulting in higher fees and lower churn than SMBs.

We stopped unprofitable customers and focused on power users. To avoid dilution, we borrowed against receivables. We scaled our revenue 10x, from $70k/mo to $700k/mo.

Then, we reconsidered fundraising (and do it differently)
This time was different. Lawtrades was cash flow positive for most of last year, so we could dictate our own terms. VCs were still wary of legaltech after Atrium's shutdown (though they were thinking about the space).

We neither wanted to rely on VCs nor dilute more than 10% equity. So we didn't compete for in-person pitch meetings.

AngelList Roll-Up Vehicle (RUV). Up to 250 accredited investors can invest in a single RUV. First, we emailed customers the RUV. Why? Because I wanted to help the platform's users.

Imagine if Uber or Airbnb let all drivers or Superhosts invest in an RUV. Humans make the platform, theirs and ours. Giving people a chance to invest increases their loyalty.

We expanded after initial interest.

We created a Journey link, containing everything that would normally go in an investor pitch:

• Slides
• Trailer (from me)
• Testimonials
• Product demo
• Financials

We could also link to our AngelList RUV and send the pitch to an unlimited number of people. Instead of 1:1, we had 1:10,000 pitches-to-investors.

We posted Journey's link in RUV Alliance Discord. 600 accredited investors noticed it immediately. Within days, we raised $250,000 from customers-turned-investors.

Stonks, which live-streamed our pitch to thousands of viewers, was interested in our grassroots enthusiasm. We got $1.4M from people I've never met.

These updates on Pump generated more interest. Facebook, Uber, Netflix, and Robinhood executives all wanted to invest. Sahil Lavingia, who had rejected us, gave us $100k.

We closed the round with public support.

Without a single pitch meeting, we'd raised $2.3M. It was a result of natural enthusiasm: taking care of the people who made us who we are, letting them move first, and leveraging their enthusiasm with VCs, who were interested.

We used network effects to raise $3.7M from a founder-turned-VC, bringing the total to $6M at a $80M valuation (which, by the way, I set myself).

What flipping the fundraising script allowed us to do:

We started with private investors instead of 2–3 VCs to show VCs what we were worth. This gave Lawtrades the ability to:

• Without meetings, share our vision. Many people saw our Journey link. I ended up taking meetings with people who planned to contribute $50k+, but still, the ratio of views-to-meetings was outrageously good for us.
• Leverage ourselves. Instead of us selling ourselves to VCs, they did. Some people with large checks or late arrivals were turned away.
• Maintain voting power. No board seats were lost.
• Utilize viral network effects. People-powered.
• Preemptively halt churn by turning our users into owners. People are more loyal and respectful to things they own. Our users make us who we are — no matter how good our tech is, we need human beings to use it. They deserve to be owners.

I don't blame founders for being hesitant about this approach. Pump and RUVs are new and scary. But it won’t be that way for long. Our approach redistributed some of the power that normally lies entirely with VCs, putting it into our hands and our network’s hands.

Financial regulators have for years attempted to apply existing laws to the multitude of issues created by digital assets. In 2021, leading federal regulators and members of Congress have begun to call for legislation to address these issues. As a result, 2022 may be the year when federal legislation finally addresses digital asset issues that have been growing since the mining of the first Bitcoin block in 2009.

Digital Asset Regulation in the Absence of Legislation

So far, Congress has left the task of addressing issues created by digital assets to regulatory agencies. Although a Congressional Blockchain Caucus formed in 2016, House and Senate members introduced few bills addressing digital assets until 2018. As of October 2021, Congress has not amended federal laws on financial regulation, which were last significantly revised by the Dodd-Frank Act in 2010, to address digital asset issues.

In the absence of legislation, issues that do not fit well into existing statutes have created problems. An example is the legal status of digital assets, which can be considered to be either securities or commodities, and can even shift from one to the other over time. Years after the SEC’s 2017 report applying the definition of a security to digital tokens, the SEC and the CFTC have yet to clarify the distinction between securities and commodities for the thousands of digital assets in existence.

SEC Chair Gary Gensler has called for Congress to act, stating in August, “We need additional Congressional authorities to prevent transactions, products, and platforms from falling between regulatory cracks.” Gensler has reached out to Sen. Elizabeth Warren (D-Ma.), who has expressed her own concerns about the need for legislation.

Legislation on Digital Assets in 2021

While regulators and members of Congress talked about the need for legislation, and the debate over cryptocurrency tax reporting in the 2021 infrastructure bill generated headlines, House and Senate bills proposing specific solutions to various issues quietly started to emerge.

Digital Token Sales

Several House bills attempt to address securities law barriers to digital token sales—some of them by building on ideas proposed by regulators in past years.

Exclusion from the definition of a security. Congressional Blockchain Caucus members have been introducing bills to exclude digital tokens from the definition of a security since 2018, and they have revived those bills in 2021. They include the Token Taxonomy Act of 2021 (H.R. 1628), successor to identically named bills in 2018 and 2019, and the Securities Clarity Act (H.R. 4451), successor to a 2020 namesake.

Safe harbor. SEC Commissioner Hester Peirce proposed a regulatory safe harbor for token sales in 2020, and two 2021 bills have proposed statutory safe harbors. Rep. Patrick McHenry (R-N.C.), Republican leader of the House Financial Services Committee, introduced a Clarity for Digital Tokens Act of 2021 (H.R. 5496) that would amend the Securities Act to create a safe harbor providing a grace period of exemption from Securities Act registration requirements. The Digital Asset Market Structure and Investor Protection Act (H.R. 4741) from Rep. Don Beyer (D-Va.) would amend the Securities Exchange Act to define a new type of security—a “digital asset security”—and add issuers of digital asset securities to an existing provision for delayed registration of securities.

Stablecoins

Stablecoins—digital currencies linked to the value of the U.S. dollar or other fiat currencies—have not yet been the subject of regulatory action, although Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell have each underscored the need to create a regulatory framework for them. The Beyer bill proposes to create a regulatory regime for stablecoins by amending Title 31 of the U.S. Code. Treasury Department approval would be required for any “digital asset fiat-based stablecoin” to be issued or used, under an application process to be established by Treasury in consultation with the Federal Reserve, the SEC, and the CFTC.

Serious consideration for any of these proposals in the current session of Congress may be unlikely. A spate of autumn bills on crypto ransom payments (S. 2666, S. 2923, S. 2926, H.R. 5501) shows that Congress is more inclined to pay attention first to issues that are more spectacular and less arcane. Moreover, the arcaneness of digital asset regulatory issues is likely only to increase further, now that major industry players such as Coinbase and Andreessen Horowitz are starting to roll out their own regulatory proposals.

Digital Dollar vs. Digital Yuan

Impetus to pass legislation on another type of digital asset, a central bank digital currency (CBDC), may come from a different source: rivalry with China.
China established itself as a world leader in developing a CBDC with a pilot project launched in 2020, and in 2021, the People’s Bank of China announced that its CBDC will be used at the Beijing Winter Olympics in February 2022. Republican Senators responded by calling for the U.S. Olympic Committee to forbid use of China’s CBDC by U.S. athletes in Beijing and introducing a bill (S. 2543) to require a study of its national security implications.

The Beijing Olympics could motivate a legislative mandate to accelerate implementation of a U.S. digital dollar, which the Federal Reserve has been in the process of considering in 2021. Antecedents to such legislation already exist. A House bill sponsored by 46 Republicans (H.R. 4792) has a provision that would require the Treasury Department to assess China’s CBDC project and report on the status of Federal Reserve work on a CBDC, and the Beyer bill includes a provision amending the Federal Reserve Act to authorize issuing a digital dollar.

Both parties are likely to support creating a digital dollar. The Covid-19 pandemic made a digital dollar for delivery of relief payments a popular idea in 2020, and House Democrats introduced bills with provisions for creating one in 2020 and 2021. Bipartisan support for a bill on a digital dollar, based on concerns both foreign and domestic in nature, could result.

International rivalry and bipartisan support may make the digital dollar a gateway issue for digital asset legislation in 2022. Legislative work on a digital dollar may open the door for considering further digital asset issues—including the regulatory issues that have been emerging for years—in 2022 and beyond.

Everyone is talking about the $UST attack right now, including Janet Yellen. But no one is talking about how much money the attacker made (or how brilliant it was). Lets dig in.

Our story starts in late March, when the Luna Foundation Guard (or LFG) starts buying BTC to help back $UST. LFG started accumulating BTC on 3/22, and by March 26th had a $1bn+ BTC position. This is leg #1 that made this trade (or attack) brilliant.

The second leg comes in the form of the 4pool Frax announcement for $UST on April 1st. This added the second leg needed to help execute the strategy in a capital efficient way (liquidity will be lower and then the attack is on).

We don't know when the attacker borrowed 100k BTC to start the position, other than that it was sold into Kwon's buying (still speculation). LFG bought 15k BTC between March 27th and April 11th, so lets just take the average price between these dates ($42k).

So you have a ~$4.2bn short position built. Over the same time, the attacker builds a $1bn OTC position in $UST. The stage is now set to create a run on the bank and get paid on your BTC short. In anticipation of the 4pool, LFG initially removes $150mm from 3pool liquidity.

The liquidity was pulled on 5/8 and then the attacker uses $350mm of UST to drain curve liquidity (and LFG pulls another $100mm of liquidity).

But this only starts the de-pegging (down to 0.972 at the lows). LFG begins selling $BTC to defend the peg, causing downward pressure on BTC while the run on $UST was just getting started.

With the Curve liquidity drained, the attacker used the remainder of their $1b OTC $UST position ($650mm or so) to start offloading on Binance. As withdrawals from Anchor turned from concern into panic, this caused a real de-peg as people fled for the exits

So LFG is selling $BTC to restore the peg while the attacker is selling $UST on Binance. Eventually the chain gets congested and the CEXs suspend withdrawals of $UST, fueling the bank run panic. $UST de-pegs to 60c at the bottom, while $BTC bleeds out.

The crypto community panics as they wonder how much $BTC will be sold to keep the peg. There are liquidations across the board and LUNA pukes because of its redemption mechanism (the attacker very well could have shorted LUNA as well). BTC fell 25% from $42k on 4/11 to $31.3k

So how much did our attacker make? There aren't details on where they covered obviously, but if they are able to cover (or buy back) the entire position at ~$32k, that means they made $952mm on the short.

On the $350mm of $UST curve dumps I don't think they took much of a loss, lets assume 3% or just $11m. And lets assume that all the Binance dumps were done at 80c, thats another $125mm cost of doing business. For a grand total profit of $815mm (bf borrow cost).

BTC was the perfect playground for the trade, as the liquidity was there to pull it off. While having LFG involved in BTC, and foreseeing they would sell to keep the peg (and prevent LUNA from dying) was the kicker.

Lastly, the liquidity being low on 3pool in advance of 4pool allowed the attacker to drain it with only $350mm, causing the broader panic in both BTC and $UST. Any shorts on LUNA would've added a lot of P&L here as well, with it falling -65% since 5/7.

And for the reply guys, yes I know a lot of this involves some speculation & assumptions. But a lot of money was made here either way, and I thought it would be cool to dive into how they did it.