Crypto coin AVAX drops 11% after self-described whistleblower says Avalanche weaponized litigation

AVAX dropped to the lowest since July 13 on Monday after a self-described "whistleblower" website accused Ava Labs, the company behind its parent smart contract blockchain Avalanche, paid lawyers to hurt competitors and keep regulators at bay.

On Friday, Crypto Leaks, a self-proclaimed whistleblower, published a report saying some years ago, New York-based Ava Labs focused on developing Avalanche's ecosystem, and law firm Roche Freedman made a deal under which Freedman would collect confidential information of rival companies and trap them under class action lawsuits in return for massive amounts of AVAX tokens and Ava Labs corporate stock.

The report said:

"We can reveal that the pact directs Roche Freedman and their leader Kyle Roche, to: 1) use the American legal system - gangster style - to attack and harm crypto organizations and projects that might compete with Ava Labs or Avalanche in some way, 2) sue crypto industry actors generally with the aim of creating magnets for regulators such as the SEC and CFTC that distract them from the highly commercial nature of Ava Labs and the Avalanche blockchain, and 3) secretly pursue Emin Gün Sirer's personal vendettas against individuals."

AVAX has dropped 22% from $23 to $17.90 since Friday – with prices losing 11% in the past 24 hours alone, according to CoinDesk data. As of writing, AVAX was the only cryptocurrency with a market cap of at least $1 billion to report a double-digit percentage decline for the 24-hour period. At press time, bitcoin, ether and other major cryptocurrencies nursed 1% to 5% losses.

Emin Gün Sirer, Ava Labs founder and CEO, dismissed the piece as "conspiracy theory nonsense." However, the report has caught the eye of industry bigwigs, with some in the investor community calling the report disturbing while others wondering whether both parties will now face legal scrutiny for perverse incentive relationship.

Meanwhile, in a now-deleted tweet, Binance's Changpeng Zhao called the report "wild", assuming the legitimacy of the evidence videos published by Crypto Leaks. Zhao said Binance was the target even though the centralized exchange is not the direct competitor of Avalanche.

Brad Garlinghouse, CEO of Ripple Labs, wrote on Twitter Monday that he had "never met or spoken to (much less invested in) Kyle Roche," in response to a claim in the Crypto Leaks article that Garlinghouse had done so.

Avalanche gained prominence with other layer 1 blockchains last year, thanks to high transaction costs on Ethereum. AVAX surged a whopping 3,300% in 2021, hitting record highs above $140.

The token peaked with the broader market in November as the U.S. Federal Reserve shifted focus to inflation control and monetary tightening. Since then, the cryptocurrency market valuation has declined from $3 trillion to less than $1 trillion. Bitcoin, the leading cryptocurrency by market value, fell below $20,000 early today, having reached a record high of $69,000 in November.