Founder says Waves Labs suffered ‘financial damage’ in six-month-long hack

• Intruders lurked inside Waves until last December and put customer data at risk
• Founder attempting to revive blockchain network and Vires Finance lending arm

Hackers broke into Waves Labs, the company behind the eponymous blockchain, and compromised internal data and caused “financial damage” last year, according to Waves founder Aleksandr Ivanov.

The intruders “sneaked in undetected” into Waves’ management software system and attempted to extort money from the embattled blockchain company, Ivanov said in an exclusive interview with DL News in Dubai.

“‘We have been in your system for half a year. So we know everything, so you have to pay us,’” the hackers told Ivanov, he said.

Latest twist

The revelation is the latest twist in the tumultuous saga of Waves, a layer 1 blockchain that was once heralded as a “Russian Ethereum” and peaked at a $5.6 billion market cap in April 2022.

After losing 97% of its value, the network is still reeling from an alleged theft on its lending protocol Vires Finance in April 2022, which cost investors more than $530 million. Many of those who lost money have accused Ivanov of being the prime author of the scheme, an allegation he has repeatedly denied.

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Ivanov met with DL News in a lounge at the Voco Bonnington Hotel, a moderately upscale establishment in the crypto-friendly Arabian Gulf metropolis. In real life, Ivanov was almost painfully shy and soft spoken, a far cry from his bombastic and profane personality on social media.

When confronted by his accusers, he has typically ridiculed their allegations as nothing more than FUD and challenged them to meet him in person. “Send me your location and I’ll personally fuck you up,” Ivanov told one user in April who accused him of “hiding in Dubai.”

Bad situation

In a wide ranging interview, Ivanov addressed the fiasco that poleaxed Waves and Vires Finance, his references online to friends in the Russian mafia, and the hack that, until now, had not been known. Ivanov declined to quantify or describe the financial damage from the hack, nor did he provide details on the stolen data.

“It was a pretty bad situation,” Ivanov said. “We could have had much, much bigger financial damage.”

A hack of Wave’s internal system also risked putting its users’ data in play. Investors who used Wave’s in-house exchange, which supported much of the blockchain’s infrastructure, provided personal information and email addresses to open accounts.

‘I’m not crying, because we had similar situations before,’ Ivanov said. He didn’t elaborate on what he meant by ‘similar situations.’

Asked why he didn’t disclose the hack to the Waves community after it came to light in December, Ivanov deflected the question. “I’m not crying, because we had similar situations before,” Ivanov said. He didn’t elaborate on what he meant by “similar situations.”

Ivanov suggested the hacker had tried to cash out stolen funds through a centralised exchange but declined to name which one. “I can’t reveal the name of the exchange but somehow they just need to give us the data,” he said.

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DL News also asked Ivanov about his role in the $530 million loss of user funds from the Waves lending protocol Vires Finance. Ever since the catastrophic event last spring, victims and on-chain sleuths have pieced together transaction records which appear to connect Ivanov to the loss. Ivanov has rejected their allegations on social media.

In March, DL News reported that a wallet beginning 0x9C02, linked to Ivanov through a tweet he made, sent $900,000 to a Waves wallet beginning 3PEEs. That wallet, along with several others, worked together using a complex looping scheme to syphon funds out of Vires Finance.

When asked if he controlled the 3PEEs wallet, Ivanov didn’t deny that it was his. “It’s all on-chain, you know, so I can’t really – I wouldn’t like to comment on that. Because it’s all on-chain,” he said.

Another connection between Ivanov and the Vires legerdemain is his personal wallet, which he publicly announced would assume the debt from several wallets — including 3PEEs — which replaced Vires depositors funds with dummy collateral comprising USDN stablecoins.

‘It’s all on-chain, you know, so I can’t really – I wouldn’t like to comment on that. Because it’s all on-chain.’

—  Aleksandr Ivanov

DL News asked Ivanov why his wallet, beginning 3P84, sent millions of dollars worth of tokens to 3P87, one of the wallets that worked with 3PEEs to drain funds from Vires.

“People forget about that,” he said. “I publicly assumed all the debts a year ago.”

When asked point blank if he had ever scammed anyone, he flushed and looked away, and said no.

Hidden secret money

“I’m not going to be saying anything about my financial situation because people don’t believe me… I don’t care about money. " he said. “If somebody tries to find some money, I wish him well. It’s not like I have hidden secret money, okay?”

As for the rumours that Ivanov is connected to members of the Russian mafia, he was amused by the notion, and indeed, he has promoted the idea himself. “I’ll visit you with one of my Russian mafia friends,” he replied to a detractor on Telegram in April. In the interview in Dubai, Ivanov said he was just joking. “I have no ties to the Russian mafia,” he said.

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For all the controversy enveloping Waves, Ivanov appears to be intent on reviving its fortunes.

“As I promised a year ago, everyone will be made whole,” Ivanov said, echoing previous promises he has yet to deliver on.

On May 15, Ivanov tweeted that he had relaunched Vires Finance, but those who lost their money on the embattled lending protocol the first time are warning new users of its problematic past.

Facing criminal fraud

“In the real world, if you close a company, run away with the deposits and then open it again, you are facing criminal fraud. In crypto, it’s called a relaunch and the community is happy like a puppy to the bone,” said one user posting under the name Krystian in reply to Ivanov’s announcement.

But Ivanov, who has worked on Waves since it launched in 2016, doesn’t see any other option but to keep going.

“I can’t leave Waves because it’s impossible,” he said, “like because it’s my thing. And I’ve been doing it for years, so I’m not gonna do any kind of rebranding. And so, everything that’s going to be launched, maybe, will be meant to help resolve the current situation, and maybe be valuable in its own right.”

To read a transcript of DL News’ interview with Aleksandr Ivanov please see: Q&A with Waves founder Aleksandr Ivanov

Do you have a tip about Waves or another DeFi protocol? Reach out to the co-author at tim@dlnews.com.