The intersection where the money is made
A lot of actions you can take in crypto are grey market operations because it is just so new that regulators can’t keep up (get gud nerds 🤓). This means that while it is fine to use, you should be aware of when it is made illegal by regulators. This means you have to extra cautious when using these protocols to make sure you are doing legal stuff.
Here’s my simplified understanding and definition of these different types of markets.
Black Market: Illegal and Morally Bad
Grey Market: Legal and Morally Bad
White Market: Legal and Morally Good
As you can guess, white markets are quite and these are you Coinbase and Bitcoins of the world. Things that have been around for over a decade and been tested in various legal systems and stood the test of time. They are kinda lindy and they probably won’t be engaging in illegal stuff and it’s fine to use.
Grey Markets are basically the rest of crypto. The unregulated wild west of digital finance where anything can happen and the land of opportunity. This is where DeFi mostly lies. Protocols such as Uniswap, Aave and even things like Olympus Dao and Terra Luna. It’s not illegal to use these protocols or profit off these but you can make the argument for how it is ‘morally wrong’ to play zero sum games where you are profiting off of another person’s loss. Every investor who made money from Luna profited off the many uneducated new crypto entrants who believed the gospel of Lunatics and 20% ‘risk free’ APY that Anchor had to offer. But that’s just how these zero sum games work and you SHOULD be aware of these games before participating in DeFi (with the exception of very few safe protocols).
Black markets are where things get more shady and you don’t want to touch these at all. As much as I am a fun of privacy in DeFi and crypto, protocols such as Tornado Cash are illegal to use right now (especially for American users) and basically everyone around the world unless you are in a country that does not have an extradition treaty with the United States or can hide your tracks well. Even before US Sanctions, I avoided using it because it seemed inevitable that governments would focus on it. Tornado Cash was an easy way for crypto hackers and exploiters to launder their stolen crypto and get away with it. North Korean hackers were one of its if not the biggest users of Tornado Cash. In conclusion, Tornado Cash was in the grey until OFAC sanctioned it.
Another example would be ‘market manipulation’ of bad DeFi protocol designs. A current example would be the arrest of Avi (Avraham Eisenberg) in Puerto Rico based on his exploit of Mango Markets which he asserts was completely legal. His reasoning is based on the “Code is Law” argument which is typically made in DeFi regarding ‘hacks’ and it is even frowned upon to call these ‘hacks’ and people like calling them ‘exploits’ because the ‘hack’ was made possible to bad code by DeFi protocol developers. Before Avi’s arrest, you could make the case why operating these types of ‘market manipulation’ in crypto was completely legal and fine to do because it was the wild west without regulations. But it is now clear that regulators are keeping a very close eye on the industry, especially US regulators. So this highly profitable trading strategy just went from grey to black.
https://sharvesh.substack.com/p/highly-profitable-trading-strategy
My prediction is that Polymarket, a crypto based prediction market site that is currently in the grey zone is going to become illegal in many countries as it grows in popularity. Almost a year ago in January 2022, the US CFTX even issued a $1.4m fine against Polymarket and told the platform to geoblock US users and stop offering its services.
Other black market actions in crypto are the obvious ones like sus exchanges based in Russia or Bitcoin mixers which are made for money laundering purposes for criminal organisations.
So thats the various markets in crypto and watch your step anon.
