Investors rip Hector Network team after it squanders $100m treasury and ‘rage quits’ DeFi project

• After losing $8m in Multichain fiasco Hector Network team proposes winding down treasury by ‘rage-quitting.’
• Hector Network investors are furious with a move that will leave them with a fraction of their stakes.
• HEC token has lost 99% of its value amid governance crisis.

The gods have acted.

The team running the Hector Network go by the pseudonymous names Zeus, Poseidon, Prometheus, Agenor, among others. They once managed a treasury worth about $100 million.

Now they have decided to “rage quit” the project after claiming the losses suffered in the Multichain security incident on July 6 caused “significant damage to its ability to operate.” They want the treasury liquidated and the proceeds distributed to token-holders on a pro-rata basis.

As it happens, that’s precisely the outcome investors have been demanding for months. But now it may be too late to salvage any significant value — the project’s native token HEC is down 99% from its peak and its stablecoin TOR has slipped its peg to the US dollar and trades at 13 cents.

Multichain fiasco

The Hector Network team’s decision comes after the project reportedly lost $8 million worth of crypto assets after funds were mysteriously removed from the coffers of the crypto bridge protocol Multichain earlier in July.

Hector Network is a DeFi ecosystem project based on Fantom, a smart contract platform. As a result, Hector was swept up in the Multichain fiasco because it was a major bridge protocol on the Fantom blockchain.

NOW READ: Crypto bridge Multichain says it’s ceasing operations after CEO and sister arrested in China

If there’s any real rage, it isn’t the would-be denizens of Olympus who are feeling it — it’s their investors. Hector Network community members are now poised to recover a fraction of their investments and are absolutely peeved.

“Once upon a time, a couple [of] techies with no real expertise in finance, economics, or business stumbled upon some Ponzi-scheme code they could use,” one community member named Chulos stated on Hector Network’s Discord.

‘Once upon a time, a couple of techies with no real expertise in finance, economics, or business stumbled upon some Ponzi-scheme code they could use.’

—  Chulos, Hector Network community member

On July 15, Zeus, Poseidon and their fellow Hector team members made a proposal to the Hector DAO to either liquidate the treasury or migrate the project to another blockchain. DAO members voted to liquidate the treasury with 83% of votes cast in the polls supporting this line of action.

“Without a proper accounting or info, they have launched a vote to liquidate what’s left of the remaining treasury, after they lost another $8 million last week in the Multichain hack because they did nothing to prevent these assets from depegging,” Lilbagscientist, a community member and vocal critic of the team, told DL News.

Slow rugging investors

Lilbagscientist is part of a group which has previously lampooned the project’s management, accusing them of “slow rugging” investors.

Slow rugging is when a project team steadily drains the treasury by paying themselves high salaries while failing to deliver value for investors who are left holding worthless tokens.

Ironically, the Hector Network team initially resisted the investor group’s clamour to rage quit. The team previously stated that governance token holders did not have any claim to the project’s treasury.

NOW READ: A 20-year-old Argentinian behind the $200m Euler hack says he’s now in a Paris jail

Even so, the decision to call time on the project and liquidate the treasury may be coming too late for investors. Hector Network’s treasury holds just $16 million and investors are facing a major haircut on after the proceeds from the treasury liquidation.

While token holders are poised to receive cents on the dollar, Zeus, Poseidon and their fellow team members have reportedly reaped massive compensations.

Critics of the Hector Network team have alleged gross mismanagement of the project over the last 18 months. They say team members enriched themselves with $52 million in salaries over this period without delivering any useful products.

“[They] paid themselves massively inflated salaries with absolutely zero competence,” a DAO member named Mekael stated on the community Discord server on July 15. “Never made a profit for the company, ever.”

NOW READ: DAO raiders accuse Hector Network of ‘slow-rugging’ investors as treasury dwindles

Hector Network responded to these allegations by reportedly censoring dissent from the group and blocking their access to future governance votes. The team stated at the time that such moves were necessary to protect investors and the project at large.

“We have implemented a Social Media Policy to protect our community against the spread of misinformation on our own public forums,” the project stated.

DL News contacted several members of the Hector Network team on Telegram and asked them to comment on the criticism from community members. They did not respond to DL News although the messages were marked as read.

Another DeFi rage quit

Hector Network is the latest DeFi protocol to devolve into a rage quit process following the likes of Rook DAO in April.

It is an emerging theme among DeFi projects whose treasuries are more valuable than the market value of their native tokens.

The Hector DAO treasury might suffer some added depreciation before being shared amongst token holders. In its proposal, the team said there are “contractual, statutory, and other legal obligations” to be met before the funds will be distributed pro rata to HEC token holders.

NOW READ: Aragon’s $200m activist battle ignites DAO debate: ‘Lining up soldiers doesn’t mean an attack’

Fulfilment of these costs could see the treasury decline to $12.5 million, according to a rough quantitative analysis provided by a community member named Bitfriend

Bitfriend has proposed that the community consider a two-phase claims process for redeeming the treasury. This two-phase process will keep 20% of the treasury funds to be claimed in the second phase.

“A rule of thumb for rekt projects is that about 20% of the tokens are lost or in dead wallets,” Bitfriend stated on the community Discord.

ROOK, the governance token of Rook DAO, temporarily gained 475% immediately after the rage quit process was initiated in April.

Incompetence or fraud?

The actual liquidation process will take between six months to a year and will be largely driven by the project team with limited input from the DAO.

Hector Network’s protracted downward spiral and the likely rage quit are a culmination of the fiasco that has left many community members questioning the team’s motives.

Conversations on its Discord server show that investors view team members as being a mix of incompetent and fraudulent.

“Their behaviour ranges from malice to incompetence and everything in between,” Lilbagscientist said.

‘A rule of thumb for rekt projects is that about 20% of the tokens are lost or in dead wallets.’

—  Bitfriend

Chulos said the team was unable to manage its early success. “They tried to go legit but due to no experience in finance, economics, or business they were unable to create any products people wanted and absolutely set our cash on fire,” he stated.

The team spent the last three months engaged in a public relations battle with the investor group for control of the hearts and minds of the larger community.

Sad day

Critics say the project’s management failed in their fiduciary duty to investors but was quick to wall off the project from dissenting voices.

“It’s a sad day for investors, as everyone has lost money, but the team who aren’t remorseful that they’ve managed to squander away $100 million in a year,” Lilbagscientist said. “I’d be sick to my stomach if I lost $100 million of my investors’ money but these guys are built differently.”

To share tips or information about DeFi governance please contact the author at osato@dlnews.com.