Experts suggest that Hegic, a decentralized options trading protocol, might soon face an SEC investigation for suspected insider trading. The protocol recently executed a buyback of one of its subsidiary projects, but it later emerged that Hegic had made millions from this buyback. However, there is one potential complication: Hegic’s founder is known only by a pseudonym.
Hegic, launched in 2020, was the first on-chain, peer-to-pool options trading protocol. Pseudonymous founder Molly Wintermute developed this pioneering protocol, eliminating the order book and enabling users to trade options with pools. This innovation mirrored what Uniswap achieved in decentralized trading but for options.
Within months of launching, Hegic’s market capitalization soared, initially exceeding $200 million. However, it has since declined, partly due to the bear market and partly because options are, in general, less popular among crypto traders.
Following the launch of Hegic, Wintermute introduced another project named Whiteheart, which had its own token, WHITE. Whiteheart aimed to simplify hedging for traders who were unfamiliar with options trading. It utilized a system of Ethereum smart contracts to facilitate automatic hedging.
Despite all efforts, Whiteheart has seen minimal usage, so Wintermute decided to discontinue it and, at the end of November, announced a buyback of WHITE tokens for all holders.
…Consequently, the decision was made to close the project permanently. All funds raised will be returned to tokenholders at the IBCO price (1 $WHITE ≈ 1.708 $WETH).
The announcement led to a significant surge in the WHITE token's price, which increased by 17 times. However, it was later revealed that Hegic’s treasury, independent from Whiteheart’s, had acquired nearly a third of the WHITE token supply just three days before the shutdown announcement.
Experts have labeled this a clear case of insider trading. When executives at publicly traded companies are aware of impending market-moving events, they are prohibited from trading based on that information before it is public.
Yet, this situation presents challenges for any potential SEC investigation. Given that the person or persons behind Molly Wintermute remain entirely anonymous, it becomes a complex task to locate or charge her/them with any violation of securities law. Furthermore, Hegic and Whiteheart are not structured as traditional corporations, meaning that conventional rules do not directly apply in this context.
It is also improbable that the U.S. will sanction Hegic as it did Tornado Cash, given that Hegic is not implicated in laundering illegal funds. So, while this might be a clear case of insider trading, it remains to be seen whether U.S. officials will decide to investigate further.
This situation highlights the continuing uncertain nature of crypto, where such 'insider trading' can still occur quite openly, even with recent regulations in place.
