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Harmony execs mismanaged funds and bullied workers, ex-staff claim

Harmony execs mismanaged funds and bullied workers, ex-staff claim
Stephen Tse, co-founder of Harmony. Staff say mismanagement helped lead Harmony’s coffers to drop from a $1 billion value at the start of 2022 to around $50 million today

Former contractors for the Simple Rules Company, which develops and maintains the once-thriving Harmony blockchain, have accused the company’s two remaining co-founders of misconduct and mismanagement.

Five former team members and several Harmony ecosystem developers have alleged to DL News that CEO and founder Stephen Tse reneged on promises and was “controlling” to staff, contributing to Harmony’s steep decline in users and developers over the past 12 months.

The same staff accused Li Jiang, fellow founder and Tse’s second in command, of “mismanaging treasury funds,” taking Harmony’s coffers from a $1 billion value at the start of 2022 to around $50 million today.

In a standout incident, several former team members reported that a disgruntled ecosystem developer physically assaulted Tse in Harmony’s Palo Alto office after they claimed he reneged on a $250,000 grant promise.

Chaos in Harmony

Harmony is one of several “Layer 1″ blockchains that soared in value during the 2021 crypto bull run. It is a smart contract-enabled chain, allowing ecosystem developers to build DeFi protocols, crypto games and NFT projects. Harmony’s biggest draw is that its transaction fees are much cheaper than those on the more dominant Ethereum blockchain.

Last year, Harmony’s total value locked – a measure of assets deposited into DeFi protocols on the chain – hit a high of $1.42 billion. Harmony’s flagship app, a fantasy RPG game called DeFi Kingdoms, was all the rage among crypto “degens,” and the chain’s native token, ONE, was trading close to records. Things looked good.

But 12 months later, the blockchain is a ghost town.

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Less than $6.9 million worth of assets remain – a 95% drop. Developer activity has slowed to a crawl. The price chart for the ONE token looks like what crypto traders might call a pump-and-dump rather than the “future of finance.”

While many had attributed Harmony’s downfall to the $100 million Horizon bridge hack it suffered in June last year, former team members, ecosystem developers, and community members also pointed to Harmony’s leadership as another root cause.

Ecosystem developers building on Harmony detailed how communication with the blockchain’s leadership went “unanswered for weeks,” became “increasingly difficult,” and led to Tse and Jiang breaking funding promises “with no good faith of attempting new arrangements.”

Forced basketball every single day

One former member of staff described Tse’s typical behaviour: He shut the staffer’s laptop in the middle of work to command attention, and the employee was forced to play over an hour of basketball “every single day… despite how busy or productive you’re trying to be.”

A different source even wondered if they might lose their job if they didn’t play basketball with Stephen as requested.

Another ex staff member relaid multiple stories of how Tse treated team members. He described how he would grab staff by the arm – sometimes mid-conversation – and “move them around like chess pieces” at company events, talk behind their backs, and belittle them in front of colleagues and associates.

“He is known to interrupt employees and say, ‘You have my time for a few minutes. What questions do you have for me?’ If you had no questions for Stephen, he would be disappointed and say he would come back in a few minutes and expect you to have a question when he returns,” the source said.

The employee was forced to play over an hour of basketball ‘every single day… despite how busy or productive you’re trying to be’

“He would often come up and just kind of force you to say something or force you to ask something, whether or not you wanted to,” said a different former team member.

‘I want to cry, make me cry’

The same source recounted how Tse “would often stand up in front of us and, and say ‘I want to cry, make me cry.’ He would ask us to tell a story to try to make him cry which was very weird.”

Former team members also claim Tse didn’t offer full-time employee status to team members, instead keeping them as contractors. “They were hiring full-time employees and paying them as contractors,” said one source, explaining how staff weren’t given adequate time off or benefits due to their contractor status.

A number of contractors told DL News they worked well beyond their contractual hours and as contractors didn’t get time off or other benefits.

‘Stephen’s nose might be broken’

However, the most shocking incident occurred on July 5, 2022, when Tse was physically assaulted in Harmony’s Palo Alto office. Three former Harmony team members who witnessed the attack alleged it was carried out by the co-founder of a Harmony grants project, Hochung Nam.

The project in question was known as 1wallet at the time Harmony granted it funding, but it has since rebranded to Timeless Wallet. It is a Harmony community project developed by Tse’s friend, Zi Wang, and had been promised $1 million in grant funding to build what it called “a social wallet for the next 100 million users on Web3.”

According to two sources familiar with the matter, the project was promised $250,000 in the first tranche of its grant. One source relaid that Wang, and his partner, Nam, spent their own funds developing it, believing that the Harmony grant would cover these expenses.

Both sources alleged that Tse ignored messages from Timeless Wallet and reneged on his funding promise. This prompted Nam to visit the Harmony office looking for answers.

“Hochung came to the Harmony office in Palo Alto to speak with Stephen about it,” said a former team member who witnessed the assault. “They got into a disagreement, calling Stephen a liar… and Hochung beat him up in the office. Everybody in the office saw it.”

“When it happened, I had 911 ready to be dialled on my phone immediately after in case the assault continued,” said a different former team member.

“They got into a disagreement, calling Stephen a liar… and Hochung beat him up in the office. Everybody in the office saw it.”

The same source also shared screenshots of a conversation with a fellow Harmony team member that took place immediately after the attack to confirm the authenticity of his comments. “Stephen’s nose might be broken,” one of the messages read.

“In the end, I believe [they] received less than $100,000,” said one source.

Following the assault, company onsite meetings and events were held in multiple locations in the San Francisco Bay area instead of the Palo Alto office due to a “serious concern” for the core team’s safety, three former team members said.

Tse and Nam did not reply to DL News’ requests for comment.

Tse’s conflict with Wang and Nam is not the first time he’s had a business disagreement with a former friend. In 2020, Harmony co-founder Alok Kothari brought a lawsuit against Tse and three other Harmony co-founders in the Santa Clara County Superior Court. The suit alleges that Tse defrauded Kothari out of his ownership rights in Harmony. Tse denies the allegations, according to the court documents. The case is still pending.

Little cash left

But what exactly caused Tse’s dispute with Timeless Wallet in the first place?

Multiple sources told DL News that by mid 2022, poor treasury management left Harmony with little cash left to cover any of the grants it had previously promised.

A treasury is a pool of crypto assets that blockchain projects hold in reserve. Treasury funds are usually used to cover business expenses, pay staff, and help the project grow.

“The Harmony treasury sharply dropped from somewhere near $1 billion as the last bull market cooled off,” said one former team member. “Li didn’t diversify the treasury well enough and held the majority of it in ONE.”

“He never tracked the funds we promised to grantees or held their promised funding in stablecoins. When the market collapsed, so did the funding they promised to grantees.”

On-chain data shows the Harmony treasury is currently held entirely in ONE tokens. After trading for as much as $0.35 at the start of 2022, ONE now trades at around two cents.

Wallet addresses made public by the official Harmony Twitter account show the Harmony treasury is worth about $50 million. But as trading markets for ONE are illiquid, the treasury’s real value is likely much lower.

‘Amplification of what sounds like a misrepresentation’

“We strongly disagree with the narrative,” Jiang said in response to DL News. “This is an amplification of what sounds like a misrepresentation by disgruntled former employees who now work at a competitor.”

He said Harmony’s problems were a combination of the June Horizon bridge hack and the crypto liquidity crisis precipitated by the downfall of the Terra blockchain, hedge fund Three Arrows Capital and, most recently, FTX.

“I chose to stay the course at Harmony to help our ecosystem and team recover,” he said. “We’ve recently hired 10 full-time team members including from the Ethereum ecosystem and top schools like UC Berkeley. We have a roadmap for protocol scalability and user adoption for this year and our heads are down, building.”

DAOs, more DAOs… Like 10,000 of them

In addition to poor money management skills, Tse and Jiang’s obsession with decentralised autonomous organisations (DAOs) further depleted Harmony’s treasury. In 2021 and 2022, the pair committed $50 million to funding “10,000″ DAOs to build on Harmony through a grants program.

“10,000 DAOs, that’s how committed we are to it,” said Tse during his keynotes presentation at ETHDenver 2022. “Not only will we put all of our treasury and governance into these 10,000 DAOs, but also we know DAO is the right structure to sustain our future.”

Decentralised autonomous organisations – or DAOs as they are more commonly known – are an emerging form of business management structure popular in crypto circles.

DAOs have found pockets of success, with popular Ethereum DeFi protocols like liquid staking platform Lido and decentralised exchange Curve thriving under decentralised structures. However, due to the lack of regulatory clarity surrounding DAOs, the concept has also become a magnet for grifters and scammers.

Just read Harari, bro

Documents posted on Harmony’s Notion site show senior team members often pushed back against the DAO initiative. In one offsite Q&A, instead of addressing concerns, Jiang waxed philosophical. “We should all read the three books from Yuval Noah Harari as a pretext to see how Web3 and DAOs will become the overarching narrative for humanity in the 21st century,” the transcript cited him as saying.

“The entire team was urging that they don’t shift focus,” said one ecosystem developer.

When Harmony eventually started funding DAOs through its grants program, it didn’t go as planned.

The threshold for giving out cash was low. Multiple DAOs were handed six-figure sums after merely writing proposals. DAOs were routinely awarded five-figure amounts for hitting lowball goals like 1,000 Twitter followers or 100 Discord members.

Posts on the grants forums show Tse and Jiang burned through Harmony’s treasury funding dozens of DAOs – some of which took the money and provided little in return.

“At one point, there was a mandate that the team must onboard 100 DAOs per month,” said a former Harmony staffer who spent time on the grants team. “The reason is that Stephen wanted as many DAOs as possible, despite it seeming to me that he didn’t truly understand what a DAO was, and receiving feedback from the team that it was a horrible idea.”

“At one point, there was a mandate that the team must onboard 100 DAOs per month”

The same source also confirmed that there were no criteria for evaluating and approving DAO proposals until near the end of the program. “Projects that received funding were often ones that Stephen and Li Jiang personally liked,” said another former team member.

‘Surreal moment’

One of the most controversial DAOs funded by the Harmony grants program was Blu3 DAO – a project focused on empowering women and non-binary people in crypto. Blu3 DAO posted its proposal to the grants forum on February 18, 2022 and was green-lit for $1 million in funding by Jiang less than 24 hours later. One source told DL News the decision to fund Blu3 DAO was made over dinner during the ETHDenver conference.

People on the Harmony team expressed surprise, describing it to the source as a “surreal moment, seeing someone promising to give away $1 million so casually, and to people he had just recently met.”

Like the majority of DAOs to receive funding from Harmony, Blu3 DAO has ceased posting updates to the grants forum. In a statement sent to DL News, Blu3 DAO core team member Jess Furman said that the DAO was grateful for the $75,000 it received from Harmony before the grants program paused but that it was “no longer an official partner” of the blockchain.

DeFi Kingdoms departs

The frivolous allocation of DAO grant money took its toll on Harmony. Ecosystem developers started leaving the chain. Legitimate projects that Tse and Jiang had previously promised grant money to, such as DeFi Kingdoms, were ignored. Eventually they gave up building on Harmony. According to data from crypto metric platform Artemis, there are just 12 weekly active developers left.

“There were several reasons behind our decision to stop development on Harmony and move to another chain,” said Bolon Soron, the pseudonymous director of DeFi Kingdoms.

“Our communication with the Harmony team has been going unanswered on any topics for weeks all the while these random DAOs have seemingly been receiving all the attention.”

“Communication and technical collaboration had been increasingly difficult with the Harmony team for some time. The decision was also made by their team to not honour grants that had been agreed upon many months prior, with no good faith of attempting new arrangements.”

“As someone who has been involved in legit projects that tried to build on Harmony by delivering genuine value to the ecosystem and its community, it’s been extremely disappointing and discouraging to develop,” said another Harmony ecosystem developer who wished to remain anonymous.

“Our communication with the Harmony team has been going unanswered on any topics for weeks all the while these random DAOs have seemingly been receiving all the attention.”

‘How could they be really that bad?’

By the end of 2022, things looked bleak for Harmony. But a recent development could provide a light at the end of the tunnel.

On January 23, the FBI confirmed that it had traced over $60 million of assets stolen in the June Horizon bridge hack to the North Korean crime syndicate Lazarus Group. A week earlier, Binance CEO Changpeng Zhao confirmed his exchange had frozen around $2.6 million in Bitcoin tied to the hack.

Out of the eight Harmony co-founders who started the project in 2018, only Tse and Jiang remain. All the former Harmony staffers who spoke to DL News did so on condition of anonymity because they said they fear legal recourse from Tse and Jiang. “Stephen is very litigious,” said one source.

As for what’s left of the Harmony community, many are still trying to understand how such a promising project could stumble so far.

“I wondered how they could really be that bad,” said one ecosystem developer. “The degree of negligence shown over the course of six to 12 months was truly remarkable.”

This story has been updated to clarify that the 1wallet name has been changed to Timeless Wallet.