- Industry sources close to Multichain told DL News they fear for the company’s employees.
- “I talked to some of the team members who haven’t been arrested. They’re very nervous,” said Marcel, who says he held a customer service role at Multichain
- Fantom Foundation CEO Michael Kong tapped a top law firm in China to find out what happened to Multichain.
- Multichain said last week that its CEO — who has sole access to funds — was taken away by Chinese police.
Multichain shocked the broader crypto industry last week when it shut down, saying CEO Zhaojun He and his sister were detained by police in China.
There may have been more arrests, and more may be coming. That’s according to industry sources close to Multichain, who told DL News they fear for the company’s employees.
Fantom Foundation CEO Michael Kong has tapped a top law firm in China, to find out what happened to Multichain, a crypto protocol once valued at more than $1 billion.
Kong, citing conversations with other Multichain employees in China, said he believes “several” more workers have been arrested.
A former employee who goes by Marcel told DL News he knows the names of five China-based developers at Multichain who have been arrested. Marcel, who also cited conversations with staff, declined to name them, citing worries about the individuals’ safety.
DL News was not able to confirm any arrests. Messages to a Multichain employee based in China have not been returned.
“I talked to some of the team members who haven’t been arrested. They’re very nervous,” Marcel, who says he held a customer service role at Multichain from July 2020 to February 2022, told DL News.
Michael Kong said his law firm, King & Wood Mallesons, ‘will hopefully be able to give us a bit more information.’
The five arrests were of Multichain employees that “were really most of the key developers,” Marcel said. “So, effectively, [the police] decapitated Multichain.”
Marcel and Multichain co-founders were “noteworthy contributors” to Fusion, a crypto company led by Multichain co-founder Dejun Qian, according to a website for Fusion enthusiasts. Qian did not immediately return a request for comment.
Chinese officials have yet to confirm the arrest of the CEO, who goes by Zhaojun, or the other Multichain affiliates. The Chinese embassy in Washington did not immediately return DL News’ request for comment.
Multichain said last Friday that its CEO — who has sole access to the company’s funds — was “taken away” in May by Chinese police.
The company did not share details, but said the police confiscated his computers, his phones, and his crypto wallets, and with them, access to Multichain’s money and most of the servers that run its software.
Kong said his law firm, King & Wood Mallesons, “will hopefully be able to give us a bit more information as to what potentially might be going on [and] confirmation, [that] what I’m saying is actually really the case.”
The Fantom Foundation oversees the Fantom blockchain, and was among the organisations caught in the fallout of a suspected $125 million exploit against Multichain earlier in July.
Since last year, Fantom has relied on Multichain to keep many of the assets in its ecosystem trading at the correct values.
The total value of crypto deposited in Fantom protocols fell by two-thirds this month, to just over $100 million.
“Multichain was a big blow,” Andre Cronje — the founder behind yield aggregator Yearn who told DL News about his return to the Fantom Foundation last year — wrote in a thread on Fantom’s forum this week. Cronje urged readers of the thread to not “trust, [but] verify” protocols’ claims.
Despite the team’s efforts to keep the bridge running after Zhaojun’s disappearance, Multichain suffered an apparent hack on July 7, when $125 million in crypto was transferred to “unknown addresses abnormally,” the company said.
Two days later, Zhaojun’s sister tried to save what was left, transferring much of the remaining crypto to wallets she controlled — only to also be taken into custody on July 13.
Out of money and unable to contact the CEO or his sister, Multichain said it will shut down, and share information as it became available.
To some, Multichain’s story was a cautionary tale about a failure in operational security and running a business in a crypto-hostile police state.
‘Multichain Scam’ Telegram
Some have raised scepticism about Multichain’s official record of events.
People claiming to have lost money through the suspected exploit and the collapse of Multichain have joined the “Multichain Scam” Telegram channel.
Members have shared tips for contacting Chinese police, in hopes they can confirm whether the CEO was, in fact, arrested.
Some suggested Zhaojun and his sister made off with the missing crypto, while others said the entire Multichain team might be involved.
“If I had to guess, I would tell that police story is more likely than just plain rug-pull. We’ll see,” wrote one user.
Multichain’s former head of communications, who goes by the pseudonym Mog, announced their departure from Multichain Saturday on Twitter.
In a message on Telegram, they told DL News they left, in part, because they hadn’t been paid in a month and a half.
Two weeks after Zhaojun’s disappearance, some of Mog’s colleagues stopped responding to messages, they said. The former spokesperson believed their colleagues were trying to lay low so as not to draw attention from the police, but later heard they had been detained.
Kong has a theory — as yet unproven — as to what might have happened to Zhaojun.
Mog said they have not been able to confirm their colleagues’ arrests.
Multichain Partner Xi Luo did not respond to requests for comment.
Fantom Foundation CEO taps ‘red circle’ law firm
Both Marcel and Kong rejected the notion the Multichain team defrauded its users.
“There’s essentially no motive for it,” Kong said. “The Multichain team was running what many people looked at as a widely legitimate project.”
Several prominent venture capital firms had invested, the company was valued at more than $1 billion, and revenue was strong, he added.
“There’s no [reason] why they would just suddenly destroy their entire business, destroy their reputations to engage in a really, really bad hack operation.”
On-chain data suggests the “abnormal” transfer to “unknown addresses” wasn’t a hack at all, Kong said.
Hackers are often quick to send stolen crypto to so-called mixer protocols, which make it difficult to track their movement across blockchains, and to move them to centralised exchanges for conversion to fiat currency.
NOW READ: How hackers turn stolen crypto into cash
That’s not what has happened this time. The crypto was transferred from Multichain to six unidentified wallets, where it has sat ever since, according to Kong. And stablecoin issuers have “frozen” dollar-pegged tokens, making them essentially worthless.
The Multichain transfers were “not consistent with any behaviour of a typical hack or an exploit,” Kong said. “Otherwise it would be one of the dumbest hacks ever.”
In the meantime, some in China have reached out to Kong and the Fantom Foundation with tips.
And Kong has a theory — as yet unproven — as to what might have happened to Zhaojun.
He said: “It’s conceivable that someone targeted the Multichain CEO from a police force and said, ‘Hey, he has money, he’s quite well known in the space. Let’s target him. Let’s see if he’s committed some sort of crime as a means of controlling the business or controlling the funds that the business holds.’ And that’s what I think could be going on.”
It might not be the first time.
In 2021, employees of a crypto exchange called CoinXP were arrested by police in China, according to an account published by founder Liang Liang in February.
Have a tip about Multichain or another story? Contact me at email@example.com.