There are two types of people involved in crypto. The first group doesn’t want to see the government involved in crypto in any form. Since they regard cryptocurrencies as a solution to the centrally-planned fiat currency system, they want these central-planners exempt from their solution. The further away, the better. In contrast, the second group believes government regulation can pave the way for further adoption. These people are convinced that more regulation legitimizes the crypto space and therefore attracts new money, as investors trust they’re entering a safe and stable financial system.
No matter what school of thought you subscribe to, there is no denying that certain elements of regulation can prevent the market from functioning in an optimal way. It is the free market that is the best allocator of resources. A ‘laissez-faire’ approach is superior because its invisible hand most efficiently directs funds to viable (crypto) businesses and diverts them from less competent (crypto) businesses. The end result of minimum governmental interference in the market are bankruptcies of inefficient businesses and increased funding for efficient businesses and therefore more of the products and services that market participants demand and less products and services that market participants don’t want.
We’ve just witnessed an example of how regulations (in combination with the legal system as a whole) can prevent fair competition between crypto organizations, by empowering entities that are willing to take advantage of it (as well as be smart enough to recognize how they can be abused). We’re referring to the recent Crypto Leaks article, which accused Ava Labs company and law firm Roche Freedman of having formed a ‘secret pact’ in order to attack and harm crypto organizations that might compete with Ava Labs or Avalanche (AVAX).
This article will cover tactics and operations Roche Freedman law firm (supposedly) exploited in order to eliminate competition. Make sure you stick till the end, when we’ll reveal what we think Ava Labs and Roche Freedman abuse of government’s rules and regulations can teach us. Let’s get right into it!
What type of pact Ava Labs and Roche Freedman supposedly have?
Ava Labs is an American for-profit company, which develops and promotes the Avalanche blockchain network. Its founder and CEO Emin Gün Sirer has allegedly formed a secret pact with the law firm Roche Freedman. In exchange for an enormous amount of Ava Labs stock and AVAX cryptocurrency, Roche Freedman supposedly agreed to help use the American legal system and regulations to attack and harm their potential competitors by litigating against them.
Additionally, Roche Freedman granted its ally various confidential information, acquired from other crypto organizations and projects. The alliance was supposed to be secret, as Kyle Roche (co-founder of the Roche Freedman law firm) was suing other companies on behalf of his law firm and then shared the confidential data with his business partner.
How did Roche Freedman obtain confidential information from other projects?
In the USA, when you sue an individual or company, you can use a special legal process called ‘discovery’ to get access to numerous confidential information about the entity you’re suing. This information includes confidential accounts, commercial data, email and other social media communications (providing the prosecutor with an insight into agreements with partners, payroll details and information about other financial transactions, as well as technical insights), etc.
Roche Freedman is suing numerous people and organizations in the blockchain industry (including prominent names such as Binance, Solana and Dfinity Foundation), which gives them access to all this private information. In one of the spy videos Kyle Roche boasted that as a result of suing ‘half the companies in the space’ and hence seeing the insides of all these companies, he considers himself to be one of the top 10 crypto experts in the world. Being a close friend and working as Emin Gün Sirer’s lawyer, he has allegedly provided him with all types of valuable information about competing projects.
On top of it, the law firm often litigated against Ava Labs’ competitors in order to make them look guilty of regulatory transgressions and to shift SEC’s (and CFTC’s) attention away from Ava Labs. Kyle Roche explicitly states that his law firm litigates to create "other magnets" for regulators to go after. Additionally, by litigating against these crypto competitors, Roche Freedman successfully drained them of their resources, as well as distracted them from their core work.
How come Roche Friedman didn’t also impoverish itself in the process?
The nature of the American class action system forces targets to spend far more on defense than Roche Freedman spends litigating against them, because a potential loss could put them in a position where they had to pay enormous sums to ‘victims’. Therefore targets prefer to spend more money defending themselves preemptively. Better to be safe than sorry!
Conversely, Roche Freedman's financial risk is limited to the money it spends on litigating against a target. Having been sued, even if they win, companies can’t demand their legal costs back, because of the design of the American legal system. As a consequence, Roche Friedman could spend a few million dollars suing Ava Labs competitor, lose, and get away with numerous handy information while draining the competitor of tens of millions of dollars in legal costs (not to mention the pressure of being practically threatened with a bankruptcy in case they lose), as well as casting a shadow over them.
What can we learn from it?
While on the one hand the Crypto Leaks article instantly condemned the ruthless nature (calling it ‘gangster-style’) weaponization of the system by the duo, we don’t see Roche Freedman and Ava Labs as purely immoral and dirty. Not that we’re excusing or supportive of such practices, but we believe that it is essential to look at the bigger picture.
Keep in mind the duo was abusing laws and regulations that were put in place by the government. Essentially, they were pursuing the best interest of AVAX investors by vigorously fighting competing companies, after all destroying competition ensures you come out on top. Absent these laws and regulations, such practices would not be possible. Therefore at least a part of blame (if not all) can be put on the government. It is difficult to argue against the fact that these laws and regulations are prerequisite for such immoral practices (even though some aspects were obviously illegal!).
The first adopters of crypto were libertarians who wanted to stop the government from controlling their money and hence controlling them. Without a doubt such malicious practices weren’t possible when crypto was still in its infancy. There is a reason libertarians often say: ‘Everything the government touches turns to crap’. Let’s keep the government out of crypto!