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In this week's edition, Will Owens unpacks ZachXBT’s bombshell Axiom investigation; Zack Pokorny breaks down an important Aave vote; and Alex Thorn discusses the CFTC’s actions to curb insider trading on prediction markets.
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Market Update
The total crypto market cap stands at $2.35t, down 2.01% from last week (when it stood at $2.40t). Bitcoin's network value is 3.65% of gold's market cap. Over the last seven days, BTC is down 2.30%, ETH is up 0.99%, and SOL is down 0.08%. Bitcoin dominance is 55.97%, down 58 basis points from last week.
Onchain Sleuth ZachXBT Finds Evidence of Insider Trading at Axiom
After days of speculation, onchain sleuth ZachXBT released his much-anticipated insider trading investigation Thursday. The target: Axiom, a trading platform and one of crypto's most profitable companies, with ~$390 million in revenue to date.
Crypto’s most famous pseudonymous sleuth had teased the investigation three days earlier without saying whom he would finger, triggering a frenzy of guesswork across crypto Twitter and prediction markets. Traders rushed to bet on who the company would be, with potential targets including Pump.fun, Meteora, World Liberty Financial, Wintermute, Hyperliquid, Upbit, Jupiter, and many others. A dedicated Polymarket prediction market surged past $39 million in total volume. After Axiom’s odds spiked to roughly 40% around 1 a.m. in New York Thursday, ZachXBT’s reveal confirmed what informed money had apparently already priced in.
ZachXBT published a detailed thread alleging that Broox Bauer, a business development employee at the superstar Y-Combinator (Winter 2025 batch) company, had allegedly abused private user data and profited from it. Traders adore Axiom for its fast execution and sniping capabilities. The platform also offers perpetual futures trading.
The core of the scheme, according to ZachXBT: Axiom’s internal customer support dashboards had almost no controls or monitoring for access by internal employees. These tools could link wallet addresses to user identities, connected wallets, registration data, and transaction history. A user might trade from 10 different wallets thinking they are anonymous, but Axiom’s tools could tie all 10 together and reveal who owned them. That is what made this incident different from normal onchain snooping on a transparent blockchain like Solana. Broox allegedly compiled a Google spreadsheet of target key opinion leader (KOL) wallets using this enriched data and used it to front-run memecoin “shills” before they promoted tokens in their Telegram groups. For more information on KOLs, shilling, and Axiom for that matter, read our memecoin report from last year.
The most shocking evidence is audio from a private call in which Broox stated he can “track any user” and “find out anything to do with that person.” In the recording, he describes a strategy of starting with 10 to 20 wallets “so it does not look suspicious” before scaling up and appears to brag about helping a friend make $200,000 quickly using the same access.
If ZachXBT’s allegations are true, it would hardly be the first time crypto employees were caught trading on privileged information. The U.S. Attorney’s Office for the Southern District of New York (SDNY) has built a track record of prosecuting exactly these types of cases.
May 2023: Ishan Wahi sentenced for tipping associates about new coin listings on Coinbase.
April 2024: Avraham Eseinberg convicted for manipulating Mango Markets.
ZachXBT noted that Broox is based in New York City and suggested the Axiom case “presents itself as a good opportunity for SDNY.” The office is led by Jay Clayton, the former Securities and Exchange Commission Chairman during Trump’s first presidency, who is deeply familiar with crypto markets.
Axiom’s response said it was “shocked and disappointed,” promised to remove employees’ access to the tools, and that it would continue to investigate the allegedly offending parties. Meanwhile, Broox has allegedly deleted his LinkedIn account.
Our Take
The way ZachXBT dragged this announcement out over the course of a few days had people thinking it was going to be some insane revelation that would affect markets drastically. When people found out it was an Axiom employee trading small-cap memecoins, it felt anticlimactic. Not because the allegations aren’t serious, but because the kind of misconduct alleged is almost expected in the memecoin ecosystem, and also because markets wondered if it could have been a firm more systemically important to crypto markets.
This whole episode is yet another win for Polymarket and Galaxy Research’s Zack Pokorny, who has extensively written about the informational signaling value of prediction markets. Axiom YES share prices spiked sharply a few hours before ZachXBT published his findings, suggesting insiders with good information were pricing the future accordingly. Bubblemaps subsequently identified a possible connection between Broox’s wallet and the wallet of the top Polymarket trader on the market, noting the latter wallet also bought “No” shares, a common tactic among insiders. However, it is not clear whether the two wallets belong to the same person. Observers speculated that the Axiom team itself used the market to profit even more, calling it “the insiders insider trading on the investigation into their own insider trading.” For what it’s worth, Polymarket currently prices the odds of Axiom launching its own token this year at 31%, though the market is thinly traded and should be taken with a grain of salt. If a token launch is in the cards, the reputational fallout from this investigation adds a new wrinkle.
More broadly, this story highlights systemic issues at fast-growing crypto trading platforms. Axiom built a product with wallet-tracking analytics and then gave employees unmonitored access to the data rich with private user information. The result was predictable. As platforms scale rapidly and generate massive revenue, internal controls often lag far behind. – Will Owens
Aave Votes on Alignment Proposal Amid Crypto Ownership Revolution
The “Aave Will Win” framework proposed by Aave Labs two weeks ago went to a snapshot vote this week as the back-and-forth continued between the protocol’s DAO and Labs. As we have covered extensively in our 2025 year-ahead predictions and our reports on futarchy and decision markets [1] [2] [3] and on revamped DAO token structures, an ownership and governance revolution is taking place in crypto. Aave and Uniswap, as two of the largest and most successful onchain organizations, are inklings that this trend is going mainstream. Uniswap’s UNIfication proposal was implemented with clear alignment between Uniswap Labs and that community’s DAO. Aave’s journey of orienting the interests of Aave Labs and its DAO, however, has been less straightforward. This is due, in part, to the high-stakes environment created by the protocol’s success and the value it commands, plus the economic ask from Labs to make the alignment work.
The central points of contention between the DAO and Labs are who owns Aave IP (including brand trademarks and marketing assets); what share of Labs’ revenue will be directed and allocated back to the DAO; and how much value the DAO must pass through to Labs to keep the organization functioning. The Aave Will Win proposal that is undergoing a snapshot vote details the following value transfer from the DAO to Labs: 1) a primary grant of $5 million in stablecoins up front and 75,000 AAVE delivered upon approval of the proposal, unlocking linearly monthly over two years and 2) a growth and development grant package of $5 million to launch an Aave App, $5 million for Aave Pro, $5 million for Aave Card, and $2.5 million for Aave Kit. This totals $22.5 million in stablecoins and $8.48 million in AAVE tokens as of Feb. 26. This is a significant amount of value outright, but even more so in the context of the DAO’s treasury, which totals $170.9 million and includes $52.4 million in stablecoin holdings and 581,631 AAVE (valued at $66.75 million) as of Feb. 26. Alternatively, the DAO has the option of using future revenue to continuously fund the proposal.
As the discussion and voting unfolded, the Aave Chan Initiative (ACI) published a general governance post detailing how much funding Labs has received over the years and its track record for executing on the funds. While the post bluntly called out the “product graveyard” Labs has created over the years, it still attributed some of the protocol’s success to Labs, which built Aave V1, Aave V2 and delivered the initial V3.0 codebase. However, ACI caveated that all of the individuals who contributed to this effort have since left the organization.
Our Take
The Aave Will Win proposal touches on a number of important issues and questions the industry is working through, including the token misalignment issue, the inefficiencies of old DAO models where buybacks serve as the sole alignment mechanism, and the shortfalls of the token voting mechanism. Addressing each of these questions and issues will be tricky, especially for existing DAOs, but crossing the chasm is something we view as necessary for the industry.
The misalignment between token value and underlying business success has in many cases produced an inverse relationship between the two, contributing to growing apathy even as DeFi adoption has expanded and protocol revenues have scaled in recent years. The industry’s evolving approach aims to more tightly couple protocol economics with token value while granting holders clearer economic rights. This goal sits at the heart of the Aave Will Win proposal. In light of this, we view the reorganization of DAOs as a positive development in the contexts of Aave and the industry as a whole. If the largest DAOs begin to structurally align tokenholders with the underlying business, others will likely be forced to follow, and new organizations will be pushed to launch under such structures. Over time this means tokens without credible holder protections and claims on real economic activity will struggle to be taken seriously as investable assets. This creates a positive feedback loop in which stronger token design drives better performance, which in turn supports greater adoption and the emergence of additional tokens built on similar principles.
In response to structural misalignment issues, DAOs have been implementing buyback programs as a patch where a portion (in some cases 90%+) of revenue generated by their protocols is allocated to purchasing their tokens. Aave has implemented this strategy, deploying approximately $41.79 million of DAO revenue toward buybacks in an effort to strengthen alignment between tokenholders and protocol success. However, the results highlight the limitations of buybacks as a primary alignment mechanism. Using Aave as an example: despite the significant expenditure, the DAO is currently underwater on its purchases and tokenholders still have no meaningful claim on the protocol’s business and key assets or protections from rogue operators. This illustrates how price-indiscriminate programs executed at fixed intervals can destroy treasury value while failing to produce durable alignment and protections for tokenholders. Moreover, when buybacks are tied to a fixed percentage of revenue, the cost of “alignment” scales mechanically with protocol success, forcing the DAO to spend more as it is increasingly successful. This dynamic is economically inefficient and suggests that alignment mechanisms should be structural and durable rather than contingent on continuous treasury outflows. Buybacks themselves are not inherently negative and can be effective when deployed strategically, but when used as a substitute for deeper organizational reform, they risk becoming a costly and counterproductive solution.
Lastly, the Aave Will Win proposal process has highlighted the frictions of token-based voting. There are two components to the friction: 1) conflicts of interest between tokenholders who may also hold equity stakes in Labs, or otherwise benefit from it being funded by the DAO; and 2) the challenge of discovering the most economically optimal path forward on the issues being voted on, in this case primarily funding.
The first issue is particularly sensitive. Large tokenholders with exposure to both sides can materially influence the evolving DAO–Labs relationship (because the size of their bag dictates the magnitude of their influence over the vote), especially when proposals involve substantial transfers of value between the two entities.
The second issue reflects a structural limitation of governance-by-plebiscite: complex negotiations are reduced to proposing headline numbers followed by binary yes-or-no votes, with participants attempting to resolve the very conflicts the proposal seeks to address through the voting process itself. When large amounts of value are at stake, outcomes may reflect stakeholder positioning as much as underlying economic merit, suggesting that market-based signals could provide clearer guidance than governance votes alone.
The alternative governance mechanism that limits the downside of each of these frictions is (of course) futarchy. 🙂 – Zack Pokorny
CFTC Warns on Insider Trading in Prediction Markets
The CFTC’s Division of Enforcement dropped a pointed warning shot at prediction markets this week, issuing an advisory on illegal trading practices in event contracts after two recent enforcement matters became public involving KalshiEX (a CFTC-regulated designated contract market, or DCM).
The advisory spotlights two Kalshi disciplinary actions. First, a political candidate traded contracts tied to his own candidacy and then posted about it on social media. Kalshi’s compliance team contacted him the same day and he acknowledged the trades were improper under Kalshi’s rules barring trading when a participant has direct or indirect influence over the outcome. Kalshi imposed a five-year suspension and a $2,246.36 sanction (including $246.36 disgorgement and a $2,000 penalty).
Second, an individual (allegedly an employee of YouTuber MrBeast with advance knowledge of video content before it went public) traded a YouTube-related prediction market while formally affiliated with the contract’s subject. Kalshi concluded there was a reasonable basis to believe the trading was based on material non-public information misappropriated in breach of a duty. Kalshi imposed a two-year suspension plus a $20,397.58 sanction (including $5,397.58 disgorgement and a $15,000 penalty).
While Kalshi handled both matters internally, the CFTC’s message is that it has “full authority” to police illegal trading practices on any DCM, including “insider trading” (misappropriation), wash sales and pre-arranged trading, disruptive trading, and broader fraud/manipulation theories, while reminding DCMs of their core-principles duties to maintain audit trails, surveil markets, and enforce rules.
Our Take
As we wrote last week and discussed this week on Galaxy Brains, prediction markets force regulators into an uncomfortable but necessary distinction: some “insider-ish” informational advantage is the entire point of the product, but certain kinds of advantage (or influence) threaten the integrity of the market itself.
What’s notable about the CFTC’s framing here is that it implicitly endorses a workable taxonomy, one that looks a lot like the mental model sophisticated market operators already use:
“Influence” cases (manipulation-adjacent): The political-candidate example is the cleanest illustration of a class of behavior prediction markets simply can’t tolerate if they want to be taken seriously. If a trader can meaningfully influence the underlying outcome (or is literally a decision-maker), the market can become less a price-discovery mechanism and more a personal monetization scheme. The CFTC doesn’t need to contort securities-law doctrine to get comfortable here; the integrity rationale is obvious and Kalshi’s rule is blunt for a reason.
“Access” cases (classic misappropriation): The YouTube editor fact pattern is closer to the traditional “insider trading” bucket, not because it’s a share of stock, but because it’s about misusing confidential information obtained via a relationship of trust. In other words: you didn’t “predict” anything; you harvested a private feed.
Those are the easy cases.
The hard part (and where we expect CFTC Chairman Michael Selig’s broader rulemaking priorities to land) is the messy middle: people who aren’t decision-makers, but are close enough to matter; people who don’t “misappropriate” anything clearly confidential, but still exploit a structural edge; and people who can’t influence outcomes directly, but can still distort markets through trading tactics.
The advisory is revealing because it leans on CFTC Rule 180.1 / CEA 6(c)(1) (the Commission’s flexible anti-fraud/anti-manipulation toolkit) rather than suggesting prediction markets are some exotic new category requiring bespoke statutes. If the CFTC can treat event contracts like other derivatives for enforcement purposes, the policy conversation shifts from “are prediction markets gambling?” to “what surveillance and conduct rules are needed for fair derivatives markets?” And it’s important for the CFTC to assert jurisdiction over prediction markets under the Commodity Exchange Act (CEA), the CFTC’s core authorizing statute. Doing so reaffirms the view that these new market types are already under its jurisdiction. In short, the CFTC is signaling that prediction markets don’t get a special exemption from the baseline norms of derivative markets. – Alex Thorn
Chart of the Week
The big story in the crypto lending market through Q4 2025 is the divergence between onchain reflexivity and offchain resilience. As of Dec. 31, Galaxy Research tracked $27.44 billion of open centralized finance (CeFi) borrows. This represents quarter-over-quarter (QoQ) growth of 11.61%, or $2.85 billion, and $20.23 billion (+280.67%) growth since the bear market trough of $7.21 billion in Q4 2023. Still, CeFi borrows outstanding are 26.02% below their Q1 2022 all-time high of $37.08 billion. Even so, CeFi loans outstanding grew for the eighth straight quarter in Q4 2025.
The fourth quarter saw most non-stablecoin issuer lenders’ books remain flat to slightly down. However, Coinbase logged its largest quarter of loanbook growth in absolute terms. Through Q4 Coinbase added $438.69 million in net new loans outstanding, a 47.89% increase.
Stay tuned for Galaxy Research’s full Q4 leverage report, coming soon.
In Other News
♻️Meta testing stablecoin payments 4 years after scrapping Diem/Libra
🪙OCC proposes stablecoin regs implementing GENIUS Act
🗺️Ethereum researchers publish ‘strawmap’ with 7 forks through 2029
💻CoreWeave to raise $8.5b in chip-backed debt
🏦Fed moves to codify removal of “reputation risk” from bank oversight
🌲WisdomTree enables 24/7 trading for onchain MMF with SEC blessing
⬛Jack Dorsey’s Block to cut 40% of workforce
🚨World Liberty’s USD1 briefly falls below $1; team blames ‘coordinated attack’
🌙Jane Street sued for insider trading by Terraform administrator
⛏️Canaan buys Cipher’s stake in Texas BTC mining JV for $40m
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