👁️ Bullish and EOS: A Very Long Grift

The team behind Bullish brutally rugpulled their earliest investors. They'll do the same to public markets.

Welcome back to Dark Markets, a newsletter about technology fraud. I’m David Z. Morris, a longtime tech and finance reporter. This week we dive into Bullish, the crypto exchange that recently went public at a $10 billion valuation. Much of that value derives from fundraising for EOS, a blockchain project announced nearly a decade ago.

If you want more of my work, consider pre-ordering my book on the FTX fraud and Effective Altruism, or check out Bitcoin is Magic, my case for crypto’s transformative potential.

Read on for the mind-boggling story of how Bullish got away with a $2.4 billion-dollar shell game.

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The crypto exchange Bullish went public in an IPO earlier this month, and beat expectations to reach a $10 billion valuation. To outside observers, this will seem relatively unremarkable. Coinbase is already a highly-valued public company, and Kraken is also exploring an IPO. But Bullish is nothing like Coinbase or Binance or Kraken. Those exchanges, whatever their many other flaws as companies or services, grew organically with the crypto sector worldwide.

Bullish, instead, is what one analyst recently referred to as a “never-heard-of exchange.” It has no credibility with experienced users. CoinMarketCap ranks it as the 101^st crypto exchange in the world by spot volume, though Messari ranks it a much more respectable 17^th. Coingecko has it almost precisely in the middle, around 40^th in volume.

One possible explanation for these discrepancies is differences in how these data feeds identify or handle wash trading – fake, value-neutral trades that falsely boost volumes. Dave Wang, an analyst who is short Bullish, believes wash trading is rampant on the exchange. Importantly, wash trading isn’t necessarily conducted by the exchanges where it happens, but by traders themselves, for a variety of reasons – but Bullish’ near-zero transaction fees make it the ideal venue for wash traders. Wang’s entire analysis is very worth reading – he calls the company as it exists today “a fraud in plain sight,” and some of his findings are, in a word, insane:

“Accounting abnormalities: The company’s core business metric, "Adjusted Transaction Revenue" (ATR), serves to obscure true revenues by blending in non transaction items like mark to market gains on crypto.

… The headline 2024 "adjusted transaction revenue" is ~$158m whereas core transaction revenue is $2m .... meaning the stock trades at ~5,000x multiple on core business.”

But my topic today is not the accounting practices of Bullish. Instead, it is Bullish’ wild origin story – and the apparent origin of a reported 24,000 BTC worth $2.4 billion on its balance sheet. It appears that started as much, much more money: Bullish was capitalized largely by a company called Block.One, which injected $400 million in cash and 164,000 Bitcoin, even then worth more than $9 billion, to found Bullish in 2021.

Did they sell on the order of $7 billion in BTC to fund operations between 2021 and 2025? That is, so far, unclear to me. But the more important question is where Block.One got all that Bitcoin in the first place.

It all started with a man named Dan Larimer, who is arguably the third-most brilliant blockchain innovator to ever live, and who loves Jesus very much.

This is the first of a planned series of deep dives into crypto history that’s suddenly relevant again. Future pieces in this series will include deep dives into Justin Sun’s Tron; Brock Pierce and Tether; Ripple and XRP; and Charles Hoskinson’s Cardano. To gain full access to this and other future premium content, become a Dark Markets supporter below.

Dan Larimer (far left) speaking with Vitalik Buterin (center-right) at the North American Bitcoin Conference, January 2014.

Bullish and CoinDesk

I do need to first talk about what happened to me in 2023, mostly to clarify my personal connection to Bullish: there is none.

They now own CoinDesk, where I used to work. And I had already published critical analysis of the organization years before their takeover. But I was let go from CoinDesk, as far as I know, before Bullish was even in the conversation to take over. The acquisition wasn’t announced until three and a half months after I was laid off. I (like literally everyone else) have been extremely disappointed in their stewardship of CoinDesk, but they’ve never harmed me personally. My evaluation of the organization is based, instead, on general standards of professionalism and ethics.

The actual culprit for CoinDesk’s handover to the bad stewards at Bullish was of course Sam Bankman-Fried and FTX. And also kind of the award-winning CoinDesk reporting team who took him down. We got a two-page portrait spread in New York Magazine, which described us as “hardcore” – possibly my favorite compliment ever. Then, the fallout from SBF’s fraud blew up CoinDesk’s parent company, DCG, a situation so remarkable that the New York Times wrote about us.

Incredibly, CoinDesk’s executive leadership had never bothered to aim for profitability, despite what I would estimate at very roughly $50 million in annual revenue. (Maybe more. The Consensus conference alone brought in $20-$30 million annually.) Instead, the thesis was eerily close to the outlook of Sam Bankman-Fried or Three Arrows Capital’s Su Zhu: That crypto as a whole would keep going up forever, and therefore the best thing to do was to spend a ton of money and hyperscale quickly.

This left CoinDesk a drain on DCG’s cash flow, but also one of the more valuable net assets in a parent company that was hemorraghing value. In January 2023, DCG’s Genesis Global Capital unit filed for bankruptcy. In May of 2023, DCG missed a giant loan payment to Gemini. The same month, the Tradeblock exchange subsidiary was shut down. CoinDesk had been acquired for a reported $500,000 in 2016, but the sales prices floating around by late 2022 were in the $200 million range, or even higher. Journalism had turned out to be an incredibly good investment – even, it would turn out, at fire sale prices.

At the last possible moment, CoinDesk management scrambled to make the operation look profitable. Layoffs started hitting by early 2023. I frankly thought I was safe because of how much I’d accomplished there, but the flipside was that I was quite expensive – they’d hired me away from Fortune in 2021, and I had made sure that was worth it. I was let go in August.

It was the best job I ever had or ever will have, but even at the time, I had an inkling that I was lucky to be let go. I was more right than I could have possibly imagined, because the sales process that had started out with such high hopes did not go well. The crypto market was still in a bad place in late 2023, and talk of any one acquirer eventually shifted to a more complicated deal involving a coalition of owners in the industry. This idea ultimately petered out, too.

When the sale was announced, it was clear it was one of the worst possible outcomes. The new owners of CoinDesk would be Bullish, at a sale price of a reported $75 million instead of $200 million, reflecting both DCG’s status as a motivated seller, and the broader rough state of the sector.

Being owned by an exchange, in itself, wouldn’t necessarily have been all that much different than being owned by DCG. But Digital Currency Group had been, overall, a nearly flawless steward for journalism. During his tenure as our owner, Barry Silbert interfered with our operation less than Jeff Bezos has at the Washington Post. That respect for editorial independence, along with good timing, was fundamentally what let CoinDesk grow in value and impact so dramatically in just a few short years after DCG’s acquisition.

But I knew from the very beginning that Bullish would not be that kind of steward. According to sources inside CoinDesk, they almost immediately started applying pressure to editorial leadership to cede more direct control of CoinDesk’s content. There was positive coverage of Bullish, and Bullish executives got columns and podcast appearances and conference slots. This came to a head within a year, in December of 2023, after top editorial leadership refused a mandate to alter an innocuous story about whiny bitch and major Consensus sponsor Justin Sun, and were let go en masse. Coverage of Sun in particular has since shifted tone considerably.

Now, what’s left of CoinDesk is, according to outside sources, effectively run by the marketing and sales side of the company, with editorial independence a hazy memory. The site’s reputation has cratered so dramatically it seems unlikely that the Consensus conference will continue as a major revenue driver under the current regime, at least relative to more reputable events as the broader industry continues to grow. And in fact, Bullish is now reputedly looking to sell CoinDesk on, having used the platform to burnish its image ahead of the successful IPO.

Bullish and its forebear organizations are made up of people who don’t know how to build anything of actual value. They know how to play shell games with other people’s money. It’s in the organization’s DNA, the same way a scorpion can’t help but sting.

And on their own mercenary terms, they’re good at this in the short run. Destroying a news site you paid $75 million for to add a couple billion onto an IPO is a hell of a deal, if you think about it.

Dan Larimer and EOS: A Genius Over Short Distances

I’ve followed almost all of Dan Larimer’s journey through crypto. When I first started looking at crypto in 2013, he was a very prominent figure, equivalent to the standing of someone like Uniswap creator Hayden Adams today.

In fact, Larimer arguably created a very rough blueprint for Uniswap with Bitshares, a “decentralized exchange” before those existed. When it launched on its own blockchain in 2014, Bitshares’ main problem was actually that there was no infrastructure to make it possible to trade other cryptos – and in fact, there weren’t that many other cryptos.

So instead, in a move typical of both his brilliance and his failings, Larimer touted Bitshares as a platform for trading synthetic equities – that is, copies of stocks with no ownership rights. He had re-created the 19^th century bucket shop, where those without access to the real stock market traded fake proxies. It was wildly illegal, but all of this was so small and marginal at the time it barely mattered. It also didn’t really get any traction.

Bitshares included another conceptual breakthrough, if a deeply flawed one – Larimer also seems to have invented, or at least built, the first algorithmic stablecoin, BitUSD. Like Luna’s UST, BitUSD wasn’t backed by any actual dollars, but by Bitshares own endogenous token, BTS. We now know endogenous backing sets algorithmic stablecoins up for deadly death spirals, and indeed BitUSD depegged almost immediately after its launch - but it seems it recovered and was being used on Bitshares at least through 2019. You can read a good thorough review of Bitshares here.

EOS even shamelessly mimicked the Ethereum logo.

Despite its failures, Bitshares was incredibly bold and pioneering – and not just in creating the idea of a DEX or an algorithmic stablecoin. Bitshares was an independent blockchain, a “layer 1.” But at a time when every blockchain used Bitcoin’s energy-intensive proof-of-work algorithm, Bitshares used a truly novel consensus mechanism called Delegated Proof of Stake, based on users depositing money to secure the chain, instead of running expensive GPUs to solve math puzzles.

In evolved form, Proof of Stake is now the consensus protocol for practically every new blockchain that launches. Ethereum transitioned from Proof of Work to Proof of Stake in 2022, a massive upgrade for its capital efficiency that set the stage for its current surge.

So while I’m sure there are nuances to the story, it’s impossible to deny that Dan Larimer has had a massive impact on crypto’s evolution – so much so that I’m willing to rank him after Satoshi and Vitalik for sheer vision. He’s nearly invisible in professional crypto circles today, though, largely thanks to two shortcomings that remain reflected in all of the organizations that have flowed from his work: he’s a shameless huckster, and he never actually sticks with anything.

(When thinking about Dan’s personality, it’s worth mentioning his fascinating father, Stan Larimer, who played a fairly significant role in his son’s projects. Dan seems to get his right-wing worldview from Stan, a creationist and Lyndon Larouche-style conspiracist who used to post a lot of YouTube videos about hunting Bigfoot.