It has been a miserable month for crypto — and it’s only the third day of August

It has been a rough month for the crypto sector, and it’s only the third day of August.

From cross-chain bridge hacks draining hundreds of millions of dollars in customer funds to the Securities and Exchange Commission coming after crypto ponzi schemes, this corner of the market can’t catch a break.

The developments add to an already torrid year for the crypto market, which has seen huge declines as fears around tightening monetary policy and a lack of liquidity set in.

The flood of news is difficult for even insiders to track, so here’s a rundown of what you’ve missed since Monday.

The Securities and Exchange Commission on Monday filed a civil complaint charging 11 people for their roles in creating and promoting an allegedly fraudulent crypto-focused pyramid scheme that raised more than $300 million from investors.

The scheme, called Forsage, claimed to be a decentralized smart contract platform, allowing millions of retail investors to enter into transactions via smart contracts that operated on the ethereum, tron and binance blockchains. The SEC alleges that for more than two years, the setup functioned like a standard pyramid scheme, in which investors earned profits by recruiting others into the operation. 

In the SEC’s formal complaint, Wall Street’s top watchdog calls Forsage a “textbook pyramid and Ponzi scheme,” in which Forsage aggressively promoted its smart contracts through online promotions and new investment platforms, all while not selling “any actual, consumable product.” The complaint adds that “the primary way for investors to make money from Forsage was to recruit others into the scheme.”

The SEC said Forsage operated a typical Ponzi structure, wherein it allegedly used assets from new investors to pay earlier ones.

“As the complaint alleges, Forsage is a fraudulent pyramid scheme launched on a massive scale and aggressively marketed to investors,” wrote Carolyn Welshhans, acting chief of the SEC’s Crypto Assets and Cyber Unit.

“Fraudsters cannot circumvent the federal securities laws by focusing their schemes on smart contracts and blockchains.”

Forsage, through its support platform, declined to offer a method for contacting the company and did not offer comment.

Four of the eleven individuals charged by the SEC are founders of Forsage. Their current whereabouts are unknown, but they were last known to be living in Russia, the Republic of Georgia and Indonesia.

The SEC has also charged three U.S.-based promoters who endorsed Forsage on their social media platforms. They were not named in the commission’s release.

Forsage was launched in January 2020. Regulators around the world have tried a couple of times to shut it down. Cease-and-desist actions were brought against Forsage first in September of 2020 by the Securities and Exchange Commission of the Philippines. In March 2021, the Montana commissioner of securities and insurance tried the same. Despite this, the defendants allegedly continued to promote the scheme while denying the claims in several YouTube videos and by other means.

Two of the defendants, both of whom did not admit or deny the allegations, agreed to settle the charges, subject to court approval.

Crypto startup Nomad lost almost $200 million in a devastating security exploit. Nomad is known as a “bridge,” where users can transfer tokens from one blockchain to another. Hackers exploited a security flaw that let users enter any value into the system and siphon off the funds, even if there weren’t enough assets available in Nomad’s deposit base.

Nearly 8,000 digital wallets have been drained of just over $5.2 million in digital coins including solana’s sol token and USD Coin (USDC), according to blockchain analytics firm Elliptic. The Twitter account Solana Status confirmed the attack, noting that as of Wednesday morning, approximately 7,767 wallets have been affected by the exploit. Elliptic’s estimate is slightly higher at 7,936 wallets.

Solana’s sol token, one of the largest cryptocurrencies after bitcoin and ether, fell about 8% in the first two hours after the hack was initially detected, according to data from CoinMarketCap. It’s currently down about 1%, while trading volume is up about 105% in the last 24 hours.

Starting Tuesday evening, multiple users began reporting that assets held in “hot” wallets — that is, internet-connected addresses, including Phantom, Slope and Trust Wallet — had been emptied of funds.

Phantom said on Twitter that it’s investigating the “reported vulnerability in the solana ecosystem” and doesn’t believe it’s a Phantom-specific issue. Blockchain audit firm OtterSec tweeted that the hack has affected multiple wallets “across a wide variety of platforms.”

Elliptic chief scientist Tom Robinson told CNBC the root cause of the breach is still unclear, but “it appears to be due to a flaw in certain wallet software, rather than in the solana blockchain itself.” OtterSec added that the transactions were being signed by the actual owners, “suggesting some sort of private key compromise.” A private key is a secure code that grants the owner access to their crypto holdings.

The identity of the attacker is still unknown, as is the root cause of the exploit. The breach is ongoing.

“Engineers from multiple ecosystems, with the help of several security firms, are investigating drained wallets on solana,” according to Solana Status, a Twitter account that shares updates for the entire solana network.

The solana network is strongly encouraging users to use hardware wallets, since there’s no evidence those have been impacted.

“Do not reuse your seed phrase on a hardware wallet – create a new seed phrase. Wallets drained should be treated as compromised, and abandoned,” reads one tweet. Seed phrases are a collection of random words generated by a crypto wallet when it is first set up, and it grants access to the wallet.

A private key is unique and links a user to their blockchain address. A seed phrase is a fingerprint of all of a user’s blockchain assets that is used as a backup if a crypto wallet is lost.

The Solana network was viewed as one of the most promising newcomers in the crypto market, with backers like Chamath Palihapitiya and Andreessen Horowitz touting it as a challenger to ethereum with faster transaction processing times and enhanced security. But it’s been faced with a spate of issues lately, including downtime in periods of activity and a perception of being more centralized than ethereum.