In Event Of Moon Disaster

Inside the Accidental $55m Reddit Rugpull

Reddit just sunsetted their Community Points program. A token that once held a $55m market cap has crashed 93% from all time highs. Five moderators rugged their own community for a few hundred thousand dollars. Here is what happened.

Background

Speculation: assumption of unusual business risk in hopes of obtaining commensurate gain.

Reddit launched the Community Points program in May 2020, which rewarded users of specific subreddits with points based on the amount of karma they received each month. Uniquely, these points would be issued in the form of tokens on a blockchain, first on a test net, and then later on the Arbitrum Nova mainnet. Reddit trialed the Community Points program with MOON, on r/Cryptocurrency, and BRICK, on r/FortniteBR, a Fortnite subreddit. Basically, Reddit were paying users of these subreddits in crypto. The only people that could issue the tokens were Reddit, but once Reddit gave them to you they were yours to do with as you pleased.

For the longest time the two tokens were worthless, but then speculators emerged, the subreddits tried to find ways to give their tokens utilities and gimmicks, and MOONS in particular started to accrue some significant gains. For whatever reason people wanted to buy them, and many didn't mind selling either. Users started black-market exchanges. After they moved to mainnet, MOONs could be found on decentralized exchanges like Sushi Swap. Towards the tail end of the experiment, major Cryptocurrency exchanges started listing MOONs. First, MEXC, which enjoyed a monopoly on centralized trading for a short time and saw tens of thousands of dollars in volume daily. Others wanted to get in on the party. This climaxed in first Crypto.com and then Kraken listing MOONs, two powerhouses at the center of the mainstream. MOONs spiked to an incredible 58 cents at their apex.

A $55,000,000 market cap that Reddit had printed out of thin air, backed by nothing more than speculation and a cash-for-shitposting economy. Everything was brilliant. Everyone was getting paid hundreds or even thousands of dollars for Redditing. Soon peak bull market conditions would return, the real degens would arrive, and MOONs would be propelled out of the stratosphere, making the entire subreddit millionaires. MOONs to $1. It was written in the stars. And then...

Reddit holds a Conference Call with Moderators to inform them they are about to sunset the program.

insider trading: the illegal use of information available only to insiders in order to make a profit in financial trading.

Tuesday, October 17th, 16:00 UCT.

Reddit holds a conference call with a group of the moderators of r/Cryptocurrency, and some representatives from other RCP subreddits. Reddit used to hold these calls infrequently to discuss the program, problems, challenges and changes. There was nothing particularly alarming about this call, until the very first minute.

“So listen, we're not going to beat around the bush here. We have decided to sunset the Reddit Community Points program”.

Citing regulatory concerns and a lack of profitability or scalability, Reddit had decided to end the project. With immediate effect. The previous distribution would be the last. In one hour a public announcement would be made, and from November 8th all traces of Community Point support would be removed from Reddit.

At the time of the call MOONs had a marketcap of $25,000,000, and traded at approximately 0.23 USD. Crypto is volatile, and MOONs were down a lot from peak hysteria after their listing on Kraken, a few short months ago, but 0.23 is a very respectable price for a token Reddit were giving away, every month, by the millions, for free.

Tens of thousands of people owned MOONs. Some of them built up their stacks over months or years of relentless karma farming. Some paid cash for them after they listed on reputable exchanges. Dozens of people held their MOONs and ETH in Liquidity Pools on Sushi Swap. All of this was about to come crashing down. The Reddit Admins had decided to kill MOONs, and they inexplicably gave an hours advanced notice to a dozen subreddit moderators. And they all just so happened to be some of the tokens biggest holders.

After the call, the moderators of the subreddit agreed not to act on this information, and hold a one hour period of restraint, until after Reddit had published the official public notice. A gentleman's agreement that would end in tears. These arrangements often do.

The Front Runners

Front-running: trading stock or any other financial asset by a market participant who has inside knowledge of a future transaction that is about to affect its price substantially.

Tuesday, October 17th, 16:38 UCT.

Around thirty minutes after the call, McGillby was the first to break cover, and began liquidating his MOONs at 16:38 UCT, 22 mins before the public announcement, for a total of approximately $45,000 USD. Perhaps prompted into action by the premature shots of his associate, Rider_of_the_storm sold right after at 16:44pm UCT, 16 mins before the public announcement, for a total of approximately $72,000.

It is important to understand how incredibly PVP Cryptocurrency can be, especially in current market conditions. This is amplified still in lesser known projects, those with smaller market caps, where a few significant buyers or sellers in a short period of time can cause huge swings in the market value of an asset.

McGillby and Rider_Of_The_Storm were two of the tokens biggest holders, and liquidated their entire positions within ten minutes of each other. As a result of this sudden enormous sell pressure, MOONs were now trading at around 0.17 cents, a 30% drop in a matter of minutes.

The worst was yet to come.

The Announcement

Sunset: A decline or final phase.

Tuesday, October 17th, 17:02 UCT.

One hour after the conference call, Reddit admin Cozy_Sheets submitted a post to the Cryptocurrency subreddit. 'Sunsetting Community Points Beta and Special Memberships'.

“TL;DR: We recently made the decision to sunset the Community Points beta by November 8th... The regulatory environment has added to scalability limitations. Though the moderators and communities that supported Community Points have been incredible partners - as it’s evolved, the product is no longer set up to scale. The Community Points product, including Special Memberships, will be sunset by November 8th. At that point, you’ll also no longer see Points in your Reddit Vault nor earn any more Points in your communities. Points in community tanks will be burned by the end of the year. Thank you all again for the deep involvement in this unique experience in your communities”.

The Rug Is Pulled.

Pull the rug: to suddenly or unexpectedly remove or rescind support, help, or assistance from someone, leaving them in a problematic or difficult situation.

IHaventEvenGotADog prepared his assets and pre-approved contracts in advance in order to ensure he had the first move. He began executing trades in 50,000 MOON clips from 17:03 UCT onwards, less than 60 seconds after the announcement was posted. By 17:06 he had finished, and in less than four minutes he had liquidated his entire position of more than 350,000 MOONs, for a combined total believed to be around $62,000 USD.

TNGSystems was next to act, and began executing trades from 17:05, less than three minutes after the announcement was posted. In just two trades, three and five minutes after the announcement was first posted, TNGSystems liquidated his entire position of more than 350,000 MOONs, for a combined total of around $55,000 USD.

MrMoustacheMan caught the short end of the stick, unfortunately being one of the smaller moderator whales, and he only started executing trades around 17:12, around ten minutes after the announcement. By this point word was spreading in the community Telegram, and regular users lucky enough to be online and paying attention had started panic selling. Despite this he did manage to liquidate more than 230,000 MOONs between 17:12 and 17:17, for a combined total of approximately $20,000 USD.

One hour after the announcement, MOONs were trading at just 0.037 USD. An 80% drop in less than 90 minutes, and a 93% drop from their all time high three months earlier. Moons now had a price chart to rival some of the most infamous shitcoins and scams in Crypto history. Five of the moderators had used insider information to rug their own community, for a combined total of a meager $254,000.

The Victims And The Victors

Aftermath: A consequence, especially of a disaster or misfortune, or, a period of time following a disastrous event.

Like every crypto catastrophe, there are always those that bought the top, in this case with the assumption of continued support from Reddit and an exciting road-map ahead. Thousands of holders that earned their Moons, rather than bought them, woke up to deflated bags and disappointment. Special sympathy should be reserved for those that were blindsided by the announcement and stuck in Liquidity Pools on Sushi Swap. They not only saw their MOONs value crater, but also lost significant amounts of ETH as people rushed to trade it for their now worthless community points. Another one of the biggest losers in this episode has surprisingly been Kraken, now left bagholding more than 12,000,000 MOONs, and no doubt disappointed in Reddit after their efforts to list, promote and ultimately legitimize the project.

The majority of the subreddit moderators chose not to act on the insider information, even after it went public, and instead went down with the ship. This includes the head moderator, jwinterm, who claimed he was in class at the time of these events, and nanooverbtc, the tokens biggest individual holder, who at one point had a stack that was worth (on paper) more than half a million dollars.

The remaining subreddit moderation team have promised a statement in coming days pertaining to what occurred on the day in question, what will happen next, and the possible consequences for the bad actors involved. Allegedly, “it won't be a slap on the wrist”. They have also expressed intentions to continue MOONs in some form without Reddit's support, and are exploring these options.

As for the inside traders? McGillby and Rider_Of_The_Storm both quit Reddit. IHaventEvenGotADog was initially removed from his position as a moderator, then subsequently reinstated. TNGSystems is not only still active on Reddit, but has firmly defended his decision to rug pull his own community, and also stated he intends to carry on in his capacity as a moderator. Understandably, a lot of the community are not happy about this. MrMoustacheMan has been inactive on Reddit since the incident.

We wish all the participants in this drama good luck in their future endeavors, and sincere condolences to the thousands of people that lost real money in Reddit's unfortunate foray into Web3.