NEW YORK, NY — A recent U.S. Department of Justice staff memo dismantling the DOJ’s crypto unit and narrowing the scope of its crypto-related enforcement priorities will have no impact on the prosecution of Terraform Labs co-founder and former CEO Do Kwon, prosecutors said Thursday.

The memo, sent Monday evening by U.S. Deputy Attorney General Todd Blanche, informed staff that the DOJ would no longer be pursuing prosecution against crypto exchanges, mixing services, or offline wallets for the acts of their end users. Blanche told staff not to criminally charge any violations of federal securities or commodities laws, except under specific circumstances, in cases where the charges would “require the [DOJ] to litigate whether a digital asset is a ‘security’ or a ‘commodity’” and there is an adequate alternative criminal charge.

During a hearing on Thursday, U.S. District Court Judge Paul Engelmayer of the Southern District of New York (SDNY) asked prosecutors whether Blanche’s memo would have any impact on the charges against Kwon, which include two counts of commodities fraud and two counts of securities fraud, as well as five other charges including wire fraud and conspiracy to defraud.

The prosecution told Engelmayer that they have “no plans” to change their charges against Kwon at this time.

David Patton, Kwon’s lead attorney and a partner at Hecker Fink LLP, told Engelmayer that the contents of Blanche’s memo could — at least indirectly — lead to some pre-trial motions from the defense.

“I do think it could potentially be the subject of some pre-trial motions,” Patton said. “It may or may not be directly related to the memo.” Patton specified that the questions of whether the cryptocurrencies involved in the case were securities or not could be relevant.

In a separate civil case brought by the U.S. Securities and Exchange Commission (SEC) against Kwon and Terraform Labs last year, in which Kwon and his company were found to be liable for fraud, another SDNY judge found that the tokens involved in the case were, in fact, securities.

During Thursday’s hearing, Engelmayer told both the prosecution and the defense to inform him well in advance of the trial if they planned to request that he adhere to any of the rulings or findings made by the court in the SEC case.

The next batch of pre-trial motions are expected to hit the docket in July, and a third status conference has been scheduled for June 12 at 11 a.m. in New York.

Due to scheduling challenges, the start date for Kwon’s criminal trial has been pushed back three weeks from January 26, 2026 to February 17, 2026.

Read more: Do Kwon’s Criminal Trial Set for 2026 as Lawyers Deal With ‘Massive’ Trove of Evidence

Just two months ago, the total value of funds locked (TVL) on HyperLiquid, a decentralized derivatives exchange (DEX) that allows traders to generate returns by staking to a shared vault, sat at a record $540 million.

Now, users are fleeing, TVL has slumped to $150 million and the yield has dropped to a measly 1%, in many cases, less than they’d get if they stashed their cash in a bank account.

At issue is an exploit that saw one user manipulate the price of a token called JELLY and force the vault, known as Hyperliquidity Provider, into a loss. But the negative PNL wasn’t the reason for the exodus. Rather it was HyperLiquid’s response, which led to concerns about how decentralized the protocol actually was, and whether it was acting exactly like the centralized exchange model it tried to distance itself from.

For the manipulation, the user shorted JELLY on HyperLiquid, that is sold tokens they didn’t own. They also bought tokens on illiquid decentralized exchanges. The lack of liquidity tricked the pricing oracle to relay an inflated price to HyperLiquid, forcing HyperLiquid’s vault to inherit a toxic position via liquidation.

As the price of JELLY rose further because of the spot buying pressure, the PNL for HyperLiquid’s vault sank more heavily into the red. Eventually, the exchange force closed the JELLY market, settling it at $0.0095 as opposed to the $0.50 that was being fed to oracles via decentralized exchanges.

This meant that the negative PNL was wiped away and, on paper, the vault performed well throughout the saga. But the action raised concerns about the control of what’s meant to be a decentralized process. At the time, Newfound Research CEO Corey Hoffstein questioned the legality of HyperLiquid’s actions and social media descended into outrage.

Some believe that the exploit was a mistake on HyperLiquid’s part.

“The Jelly exploit on Hyperliquid wasn’t a fluke,» Jan Philipp Fritsche, managing director at Oak Security, told CoinDesk. «It was a textbook case of unpriced vega risk: when leveraged trading on volatile assets is allowed without properly accounting for how that volatility can drain the risk fund. The attacker opened massive opposing positions in JELLY, knowing that one side would collapse and the other would cash out.

«This isn’t theoretical. It happened. And it will happen again. We flagged this exact risk vector in audits before, but economic flaws often get ignored because they’re not technical. That’s a mistake,» Fritsche added.

In this case, the manipulator ended up with a small loss.

It’s worth pointing out that HyperLiquid attempted to remedy the centralization concerns, upgrading its system to a include an on-chain validator voting for asset delisting, which means that the exchange will not be able to remove like JELLY in future without validator consensus.

Volume remains steady as HYPE tumbles

While the vault suffered a major blow in terms of trust and branding, the exchange itself continues to tick along just fine in terms of trading volume. Over $70 billion worth of volume has been notched so far this month and it looks to be on track to break it’s January record of $197 billion.

Still, the exchange’s native token (HYPE), which was distributed to users in December, has failed to mimic the positive performance of the exchange, losing 60% of its value over the past four months with its market cap dwindling from $9.7 billion to $4.6 billion.

The chief financial officer of crypto marker maker Portofino Technologies, Mark Blackborough, has recently left the business.

«We can confirm that our CFO is transitioning out of the business. As we scale and adapt to new opportunities in the market, we’re continuously evolving our leadership team to align with our long-term strategic goals,» a company spokesperson said in emailed comments.

«Leadership transitions, especially in high-growth environments, are a natural part of building a resilient organization. Our focus remains on execution, delivery, and continued growth,” the spokesperson added.

Blackborough didn’t respond to a request for comment by publication time.

The Swiss company’s former CFO was based in London, and joined the crypto trading firm last September.

Before joining Portofino Technologies, Blackborough was employed as CFO of Enigma Securities, a digital asset liquidity provider. Prior to this he worked for crypto market maker GSR, according to his LinkedIn profile.

Portofino told CoinDesk last month that it was exploring opening new offices in both New York and Singapore.

The company raised $50 million in equity funding in late 2022, and was founded by two former Citadel Securities leaders Leonard Lancia and Alex Casimo in 2021.

The firm is regulated in the U.K., Switzerland and the British Virgin Islands.

Read more: Crypto Market Maker Portofino Technologies Has Big Plans For 2025