Questions over the ICO take on added significance now that Block.one has shed more light on how it plans to use the money the company earned as revenue from it. Block.one said in May it will use proceeds from the sale and other sources of funding to launch a subsidiary called Bullish, a cryptocurrency exchange valued at about $9 billion. The exchange, set to go public this year through a merger with a special purpose acquisition company, boasts several of the same investors who backed Block.one, including Thiel, Howard, Bacon and Angermayer. Other Bullish investors include Hong Kong scion Richard Li and a unit of Japanese investing giant SoftBank Group Corp. Its three-person board is comprised entirely of Block.one executives.

Bullish is preparing its public debut just as concerns around cryptocurrencies crescendo. SEC Chairman Gary Gensler is contemplating tighter oversight of digital money, and regulators around the world are grappling with how to rein in the excesses of a $2 trillion craze that involves wild price swings and a dearth of disclosure around the businesses that underlie publicly traded coins.

“We just don’t have enough investor protection in crypto,” Gensler said in a recent speech, comparing it to the Wild West. “This asset class is rife with fraud, scams and abuse in certain applications. . . . In many cases, investors aren’t able to get rigorous, balanced and complete information.”

How It Worked


Here’s how the trading volley played out, according to Griffin. First, parties transferred large amounts of Ether, another cryptocurrency, to specially created accounts on an exchange. Account holders then used Ether to purchase newly minted EOS coins at Block.one’s crowdsale — essentially an auction. But rather than hold onto EOS, as the other EOS buyers did, the parties “quickly and repeatedly” sold the EOS to the same exchanges for Ether — typically within 40 minutes of purchasing it. Those funds were then used to buy more EOS.

This behavior was unusual for several reasons, according to Griffin:

• Account holders typically sold EOS at a loss, instead of earning a profit by holding EOS throughout the ICO.


• The accounts bought and sold a similar amount of Ether on a daily or weekly basis and, unlike other accounts that participated in the sale, “appear almost solely created for this purpose.”


• Griffin flagged accounts as suspicious if they invested $15 million or more, compared with less than $10,000 for a typical account.


• The Ether sent back from EOS’s crowdsale wallet to the Bitfinex exchange was delivered in an unusually complicated manner consistent with trying to obfuscate the identity and tracking of the funds, he said.


“The suspicious accounts created legitimacy and the perception of wide-scale interest in EOS, and thus were able to make EOS move from an obscure ICO to become a token of widely perceived value,” Griffin said. 

EOS peaked at $21.54 in April 2018 before falling below $2 that December. Interest in the token revived in May when Block.one announced plans for Bullish, and it was recently trading at about $4.97.

“The possible motive of arbitrage is an alternative hypothesis examined in the report, but — contrary to profitable arbitrage trading — the repeated trading pattern appears generally unprofitable,” Griffin said. “Sophisticated traders typically don’t repeatedly lose money on a trade unless they have an offsetting profit source or motive.”

A person close to Block.one disputes these findings, saying that the transactions reflect systematic traders taking advantage of price arbitrage. This person also said that selling the tokens would have had the effect of depressing the price of EOS, just as purchasing it buoyed the currency’s price. No one would have the incentive to do that, said the person, who added that he didn’t know who the counterparties were.