Basis Markets Investigation — Part 1 — Executive Summary

17 min readMay 27, 2023

Crypto Sleuth Investigations was engaged in March 2023 to undertake an investigation of a crypto project known as Basis Markets.

We were asked to investigate a number of questions:

Did the Basis Markets team sell illegal “securities” to investors in an Initial DEX offering (IDO), promising to deliver yield?
Did the Basis Markets team comply with AML/KYC checks for accredited investors, or geo-blocking for restricted jurisdictions?
Did the Basis Markets team use capital raised for use as dedicated project funds, or did they divert raised capital to personal wallets?
Did the Basis Markets team abide by their capital raise agreement to keep vested team tokens “locked”, without selling, for 12 months?
Did the Basis Markets team engage in “Pumping and Dumping” or “insider trading” of their token at the expense of their investors?
Did the Basis Markets team engage in possible fraud by selling a product (decentralised hedge fund) that they could never deliver?
Did the Basis Markets team have a connection with Sam Bankman-Fried (SBF)? And is there evidence that SBF hid billions of FTX money?
Did the Basis Markets team attempt to delete evidence in an attempt to reduce their possible liability for the above actions?

The results of the investigation into these questions will be presented in a series of articles on various aspects of the Basis Markets project. The overall conclusions from this investigation suggest that the blockchain elements are relatively straightforward. In our estimation, there is very clear evidence supporting the idea that Basis Markets:

pumped and dumped their own token, as well as a related-party token
diverted majority of raised project capital “treasury” to personal wallets
used part of IDO raised capital to pump $BASIS token price on-chain
sold majority of vested “locked” tokens before 12 months agreed date
engaged in ‘insider trading’ of their token (although this is not illegal)

These blockchain elements are pretty clear cut, and we will outline in full the evidence that supports these conclusions. For the non-blockchain elements, it is only possible to draw a probabilistic evaluation of the likelihood that the actions were inconsistent with legal / regulatory requirements.

The final conclusion of the investigation was that there was sufficient evidence to warrant forwarding a referral to authorities based on the premise that Basis Markets:

did not register their “securities” with the SEC in advance of IDO, while they should have as the tokens likely constituted an “investment contract” and highly likely met the Howey test for “security” designation
sold these “securities” to investors
did not appear to perform AML/KYC checks for US accredited investors
did not appear to have any geo-fencing to limit sales to US citizens
was intending to operate a decentralised ‘hedge fund’, looking to pool funds in an effort to make a positive return for investors, but had not registered as an “investment advisor” or set up custody arrangements

Basis Markets is a project that started with the loftiest of ambitions, raised $28M USD to build out those ambitions, yet has delivered almost nothing of what was promised in their Prospectus and detailed in their roadmap.

The team was pitched as being consummate professionals with >80 combined years of experience, TraderSkew with 25 years in TradFi including Goldman Sachs, CryptoBoole with 22 years software dev experience and co-founder of 7 startups, Andreas building tools for financial markets for 17 years, DeltaOneDennis with 8 years as strategy consultant, TedTalksMacro with 8 years financial markets and Comguito building crypto tools for 6 years. As CryptoBoole said in Discord: “This is not some snot nosed protocol built by kids.”

The behemoth being built by proffesionals (sic)

So, what indeed was the behemoth the Basis Markets team were building? They were effectively trying to build a sort of crypto ‘hedge fund’ that was projecting assets under management of between $1B and $10B USD, with their base case projections being $2B at the end of 3 years. The hedge fund was to primarily perform “basis trades” across centralized exchanges using a custody model, but with a difference.

As they explained it from the very first YouTube stream introducing Basis Markets, the core pitch was about: “a new little project, that we think is going to revolutionise the crypto space, and retail can jump on this, ahead of that institutional crowd, given the red tape that they have to go through. But we’re really trying to revolutionise what the markets can be for retail traders, particularly taking advantage of those basis trades and the particularly high funding rates that you get on a lot of altcoins at times when the market heats up. And the returns are really ridiculous. Delta neutral yield with virtually zero directional risk on your portfolio at the time that you execute these trades.”

TedTalksMacro — introductory pitch from Basis Markets Town Hall 1

The core pitch was to retail traders, the concept of a crypto hedge fund that would bypass all the Venture Capital “insiders” and even the playing field, because TraderSkew is a “believer in grassroots ownership”. The pitch was that Basis Markets were introducing an “innovative ownership model, which we’ve designed to turn the tables and put the community in control of every aspect of basis.markets”. As TraderSkew stated in the very first YouTube town hall: “Rather than the big investment firms, the usual names we all see, logos get passed around, you will own it. So the limited equity owners you’ll own all the assets…..we’re putting the power for the first time back to the people.”

TownHall 1 — TraderSkew — “the limited equity owners, you will own all of the assets”

Promise, meet Reality

Let’s collate some of the promises / projections, and see how they have delivered on the promises.

Promise:“So the limited equity owners you’ll own all the assets”

Reality: Core team claimed exclusive ownership of all liquid assets, and appeared to divert most to personal wallets within days of raising capital

Promise: “The Ownership NFT model allows all holders to be a part of the capital table for basis.markets”

Reality: NFT Holders are not part of any capital table, BM team did not allow any ‘equity’ rights over anything in the capital table.

Promise: Decentralised liquidity pool / hedge fund with $1,000,000,000 — $10,000,000,000 assets under management

Reality: DBLP / Hedge fund unilaterally cancelled by core team 2 weeks before delivery due in June 2022, without putting decision to a DAO vote

Promise: “The reality is, we can achieve a TVL of $1b+ by December 2022”.

Reality: $0 TVL and no product delivered by December 2022

Promise: #slide16 — projected profit distribution return of $18k USD per month by end of year 3 for owning 1 NFT

Reality: #slide16 revised to 30k cumulative at end of year 3. In reality, there has been 0 profit distribution.

Promise: “After 12 months 100,000 ‘staked’ BASIS tokens bought in the sale will become 152,062”

Reality: Staked rBasis in the BM single sided staking came nowhere near a 52% APR increase in $BASIS token count.

Promise: Operating budget with 5-year runway using >$28M of raised capital: “We’ve estimated the funds we’ll need and will be monitoring and budgeting it closely over the coming 5 years”

Reality: >75% of raised capital appear diverted to personal wallets within hours — days, leaving very little funds to build team and deliver on promises

Promise: “It’s not cheap to buy a team of top-tier investment bankers, plus the best blockchain devs, but it will be necessary if we agree that we want to aim for this ambitious vision”

Reality: The team did not appear to advertise for any investment bankers, and hired 3 people, a UI/UX designer (~3–6 months tenure), a quant (~3 months) and a one dev (>1 year and possibly still present).

Promise: “Financial reporting is something we will commit to doing”

Reality: No financial reports have ever been provided

Promise: “Once we’ve finalised all our legal structure for this, we will obviously share that with everybody.”

Reality: No details of legal entity ever shared. TraderSkew has stated that there is no legal entity behind Basis, with no Cayman Islands vehicle (Cayman or British Virgin Islands often used for hedge funds)

Promise: “And then you have got the core team, which is us, and we’re locked for 12–24 [months]. We can’t join the staking program, but we can lend to help liquidity.”

Reality: Two largest core team holders (TraderSkew with 50% and Andreas with 20%) appear to have sold all or almost all of their “locked” tokens.

Promise: “The way in which we will pay our fees out and to avoid it being called an asset is, we’ve just basically created a token that maps to a dollar-pegged token. It can’t be a stablecoin, it’s just our coin that is valued, we will just issue the same number and value it as 1c and you’ll be airdropped them every week and can just come in and sell them. That’s also very different, no-one else is doing that.”

Reality: The core team never provided any legal justification for how Basis Markets, the Basis Markets yielding NFT, $BASIS token or bmNOW stable-coin passed the EXISTING SEC Howey tests (from 1946) for security designation, when they offered these tokens for sale in 2021.

Promise: “when you start going cross-exchange, the opportunity is massive. And a cross-exchange view with a custody model allows for us to make a decentralized basis pool, which is kind of our core piece”

Reality: The core team never provided any confirmation of custody arrangements before offering Basis Markets NFTs or $BASIS tokens for sale, nor at any time after offering the tokens for sale.

Promise: “I’m waiting for a bear market, you know, because bear market for us is better, for a number of reasons. The usual basis trade gets crushed, and the reverse trade that fewer people think about is a better trade. You start to use dollars to use spot shorts, you can collateralise a lot better. Bear market is brilliant.”

Reality: Basis trade yields have been crushed during the bear market. Independent quantitative evaluation of BTE indicated opportunities during the bear market seems to suggest almost none of the high-APY claimed trades are actually positive expectancy trades in the real world.

Capital Raise Distribution

Let us have a sneak peak at the blockchain evidence, shall we? The team raised 32,000 Solana (USD value ~$7.5M at time of sale) in the November 2021 NFT presale, and a further $20.725M in the December 2021 $BASIS token IDO. 100% of that 32000 SOL ($7.5M) was distributed immediately to personal wallets controlled by core team members, with 0% appearing to go into any kind of ‘project funds’. The first presale tranche of SOL was distributed in exactly 51/20/10/7/7/5 ratio, less than 1 hour are pre-sale concluding. The team appears to have paid themselves upfront in full, less than an hour after raising capital. For more detail, see Part 3 — Blockchain — NFT presale — how was 32,000 SOL split?

NFT capital raise — 32,000 SOL distributed to personal wallets in pre-arranged ratio

In addition, of the $20.725M raised in the token IDO, only $5.8M appear to have been retained as ‘project funds’ in a BM team wallet, with the remaining $14.9M distributed within hours to days of IDO to personal wallets in 6 blocks of $2.484M each.

Capital raise split into 6 lots of $2.48M and distributed to Founders

In total, it appears 79.5% of raised capital were diverted to personal wallets within days of IDO, with the remaining 20.5% ($5.8M) being partly used for project funds and partly diverted to personal wallets over the course of the following 6 months. The operating project funds (or treasury) were running very low by the time that the team made their ‘regulatory pivot’, and well before FTX bankruptcy.

One interesting element to this story relates to how raised capital was used. As stated, almost 80% of raised capital were diverted to personal wallets, with TedTalksMacro receiving about $500k worth of SOL, plus $2.48M USDT. A large proportion of Ted’s share of the diverted proceeds were channeled through various personal wallets, and used to purchase $BASIS tokens over December 2021 and January 2022. Ted’s HQjt wallet appears to have net purchased >9M Basis in wallet HQjt starting from December 16th 2021, 5 days after the IDO (see Part 4 — Blockchain — $BASIS IDO — how was $20.725M split?).

These tokens were then moved to wallet 7vSa, and onwards. Around the time that Ted was purchasing Basis tokens with funds raised from the IDO, 10M tokens that were made available for liquidity bootstrapping the Raydium liquidity pools started being sold off. It appears the majority of the 10M tokens minted on Dec 11th for liquidity bootstrapping were sold off by team members, with the USDC proceeds transferred out via burner wallets and TraderSkew-controlled wallets to FTX. These sales were completed in the period where the Basis price was approximately double the IDO price, and towards the end of the heaviest period of TedTalksMacro using IDO funds to pump the Basis price. It appears that TedTalksMacro pumped, while someone else dumped. Yes, full evidence will be provided on both sides of this equation.

As this process of selling off the liquidity bootstrapping tokens was coming to its end, TraderSkew appears to have started selling off his 50M locked tokens. This process of selling his locked tokens started a couple of weeks post IDO, and concluded ~6 weeks later towards the end of January 2022. At the time, TraderSkew repeatedly used phrases such as “my locked are locked”, and he claimed to be a large net purchaser of tokens. We have found no evidence that TraderSkew was a large purchaser, but we have plenty of evidence indicating he systematically sold his locked tokens through multiple wallets under his control, including wallets known to be his personal wallets from as far back as 2020.

As of March 2023, TraderSkew has attempted to justify the lack of any large block holding (50M tokens) by saying that he did an over the counter (OTC) lending deal. This however was not explicitly allowed, and the blockchain evidence is supportive of the idea that he sold his locked tokens, and does not appear to support of the idea that he lent them over the counter to a third party. Much more evidence will be presented to support this conclusion in a future instalment.

Throughout January 2022, TedTalksMacro continued to trade in and out of Basis tokens, with net purchases across his controlled wallets. Through January 2022, TraderSkew appears to have sold off most of his locked tokens. It appears that Ted pumped, while TraderSkew dumped. Whether this was coordinated is unknown, however Ted ending up holding 20M or so Basis tokens on top of his 7M “locked” allocation, and this was eventually unwound when he dumped 20M tokens in a single transaction in April 2022. This seems more in keeping with the idea that it was not a coordinated pump and dump between Ted and Skew, but more likely, naïve Ted was providing exit liquidity for TraderSkew, as were the rest of the Basis investoooors.

Hotbit CEX Pump and Dump

On April 19, 2022, TraderSkew and Cryptoboole appear to have participated in a specific instance of a “pump and dump” on the day that the $BASIS token was unexpectedly listed on the HotBit exchange. At 8:37am, TraderSkew moved 241k USDC from FTX to his personal wallet 8eDH. 1 minute later, that wallet purchased 246.8k worth of Basis tokens. Another minute later, Cryptoboole’s C19M wallet purchased a stack of Basis tokens. 10 minutes later At 8:48am, TraderSkew posted a message in the TraderSkew OG Discord, followed shortly afterwards by a similar message in Basis Discord announcing the Hotbit listing and advising people to “get out of short farms fast and also maybe +++”.

TraderSkew followed through and dumped his newly acquired tokens in three tranches at 9:02am, 9:05am and 9:23am. Meanwhile, Cryptoboole dumped a tranche of tokens at 9:08am. It is almost like they were coordinated on the “pump and dump”. Again, much more evidence will be presented to demonstrate this “pump and dump”.

How much did each founder receive?

In total, it appears that TraderSkew received ~$12M USD from his participation in Basis Markets. This is comprised of ~$3.75M USD worth of Solana in the NFT sale (51% of raised SOL), plus $2.48M diverted from token raise, plus $5–6M from selling ~45M of his 50M tokens at a median sale price of 0.12, plus what appears to be around $400k worth of additional ‘salary’ received during Jan-June 2022. Most of the value extracted appeared to be before the end of January 2022, less than 2 months from pitching the capital raise. The pitch to investors was all about the promise of long-term passive yield generation, but instead the actions appear to tell a different story, with actions suggesting that project investors were used as “exit liquidity” from almost immediately after capital raise.

In a similar manner, Andreas appears to have pocketed up to $5.5M USD, being $1.53M from selling his “locked” tokens, plus ~$1.5M worth of SOL from the NFT public sale, as well as $2.48M distributed 3 hours after the token IDO, and an additional $160 in Jan-Feb 2022 ‘salary’.

TedTalksMacro and CryptoBoole appear to have received around $3M each, being ~$500k from the NFT public sale, and then $2.48M each from the token IDO, plus another $400k in Jan-Jun 2022 ‘salary’. DeltaOneDennis’s and Comguito’s amount received from NFT and token raises appear to be ~$3.6M and ~$3.2M respectively.

Prospectus Projections

The team raised $28M USD worth of fresh capital to deliver a liquidity pool / hedge fund with a base case assets under management (AUM) of $2B, projected to return 24% ($480M in profits), of which 16% ($76.8M) were to be performance fees to Basis Markets investors. Despite having 80 years combined experience including TraderSkew at Goldman Sachs and cryptoboole as prior founder of 6 startups, the team does not appear to have put in place the necessary legal structures to allow custody of funds (either before or after raising capital), the kind of custody arrangements that befit a fund that complies with existing SEC legislation under the Investment Adviser Act of 1940.

It appears likely that they have fashioned a regulatory pivot in an opportunistic fashion in mid-June 2022, less than 1 week after Lummis-Gillibrand draft bill was released for comment, but 3 weeks after TraderSkew stated that they would be breaking “number 1 rule” if they took client funds.

Due Diligence

The liquidity pool / hedge fund was due to be launched at the end of Q2, 2022, however a couple of weeks before launch, and despite saying that control over roadmap would be handed to the community, the team made a unilateral centralized decision to not release the DBLP hedge fund to solana mainnet. A complex justification was built around the DRAFT Lummis / Gillibrand bill released on June 8th, 2022 and put into a dense blog post that used lots of buzzwords but did not actually say what had changed or might change with this draft legislation.

1 week before the draft legislation was released, TraderSkew, the notional CEO had stated that: “we would break the number 1 rule ‘holding client funds’”.

This ‘number 1 rule’ was not a new rule introduced by Lummis / Gillibrand draft bill, but very likely an existing rule covered under SEC rule 206(4)-2, Custody of Funds or Securities by Investment Advisors, which is subsumed under the Investment Advisers Act of 1940. Hedge funds have been registering as “investment advisors” for many years, and structuring their operations as Cayman Islands or BVI legal structures to allow custodians to set up the appropriate custody arrangements to hold client funds.

Despite having a team with >80 years experience in markets, the Basis Markets team did not appear to have custody arrangements in place or agreed before they raised capital from retail investors in 2021 to build out a decentralized hedge fund. It is believed that the hedge fund model that the team pitched in their $BASIS token IDO prospectus was never compliant from a custody arrangement perspective under existing legislation, and that it is unlikely that they ever sought or received formal written legal advice on custody arrangements before offering NFTs or tokens (“securities”) for sale.

The team appears to have diverted ~80% of raised capital to personal wallets almost immediately after the capital raises (eg within 30 mins of completing NFT raise), and then spent or diverted a large proportion of the remaining 20% over the course of the next 6 months, while delivering almost nothing promised in their Prospectus or Roadmap. They managed to accrue a nice watch collection, however.

It is speculated that at the end of that 6 months, with raised capital appearing to be burnt through at an estimated rate of ~$7M per year (see Part 5 — Blockchain — What happened to the Basis bank account?), project funds were running low. At this point, the team appears to have made a centralized decision that the personal risk was too high to deliver what they had promised, and so they indefinitely shelved their DBLP “hedge fund”. An ex-member of the Basis Markets team, has speculated along these lines. When asked as to their opinion of Basis, their written response was:

“That skew over promised by a lot, like by way a lot. That it would (and probably should have) have rugged when Andreas sold. Skew / discord dynamic has poisoned the project. Boole is talented and had made an awesome product. That reaction to regs is heavy handed and driven by Skew…… He sold them on the idea of personal risk… most of the CT are at retirement level wealth… Boole still wants to figure out a solution”

Capital return decisions

A related project by the name of Metaverse Mining Alliance, which had some crossover with the Basis Markets team, raised capital in Jan-Feb 2022 to build out a Play-To-Earn guild, and then in Feb 2023 made the decision that the original vision was not able to be executed in the current environment. They chose to return capital to investors by liquidating the MMA “treasury” for which they had been providing monthly topline financial updates to the community.

In an comparable situation, it appears that Basis Markets has chosen a path that does not involve returning capital to investors, and without providing any financial reporting. Ultimately, that decision appears to come down to a financial reckoning. There was simply not enough left in the Basis Markets “treasury” to give back to investors, nor even apparently to hire any extra programmers to help build out the remains of their threadbare “roadmap”.

We’re pretty sure we now know how it came to be that the Basis Market team members are at “retirement level wealth”. It appears they split almost 80% of raised capital within hours or days of the IDO.

This whole situation reminds us of the quote from the comedian Steven Wright: “If at first you don’t succeed, destroy all evidence that you tried.”

It appears that Basis Markets team has taken this adage to heart, however there have been plenty of instances where authorities were able to use “consciousness of guilt” in legal proceedings. To that end, Part 2 of this series will be looking to document an inventory of Basis Markets’ digital properties, and see how they have evolved over time.

Spoiler alert: someone has been busy trying to scrub the internet of Basis Markets evidence.

Crypto Sleuth Investigations

If you have a crypto project that you want a team to dedicate some blood sweat and tears doing a proper investigation, reach out on Twitter and we can discuss your situation.