Cosmos’ legal fight against strategy exec poised to turn nastier

• Defendant Grace Yu expects All in Bits to file more accusations
• Firm that built Cosmos alleges Yu violated non-disparagement agreement
• Lawsuit latest dustup for controversial co-founder Jae Kwon

One month ago, validators on the Cosmos blockchain network asked co-founder Jae Kwon to drop a lawsuit against a former contractor.

Now Grace Yu, whose three-month stint as head of growth and strategy at the firm that built Cosmos ended this January, fears Kwon is poised to make more accusations against her.

“They informed us that they’re not withdrawing the lawsuit, they’re going to submit a supplementary pleading,” Yu told DL News. “Meaning [Kwon] has some additional allegations he wants to add.”

Casting a shadow

The move would exacerbate a legal fight that is exposing a bitter side of DeFi, and casting a shadow on a project that purports to be the “internet of blockchains.”

In March, All in Bits, the company that built Cosmos and goes by the trade name Tendermint, sued Yu in US District Court in Brooklyn for allegedly disparaging the blockchain network in violation of the terms of her contract. While such litigation is routine in TradFi, it’s a novel development in crypto.

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The case is stirring up controversy for Cosmos, a technology designed to launch interconnected blockchains, as well as for Kwon, the CEO of All in Bits. More than $1.5 billion worth of crypto is locked in Cosmos-based blockchains such as Kava, Osmosis and Canto.

Cosmos Hub is a blockchain “that serves as the economic centre of the Cosmos Interchain,” according to the Cosmos website, and its token, ATOM, has a market capitalisation of $3 billion, according to CoinGecko data. ATOM has skidded 4.5% in the last seven days compared to a 0.3% slip for Ether.

‘Your corrupt NDA practices are well-known. Stop abusing confidentiality agreements and NDAs to conceal an established history of bullying, harassment and discrimination at the workplace.’

—  Grace Yu

Earlier this year, Yu led a public campaign against “unethical practices” at All in Bits. With the rallying cry #freedenis, Yu attempted to pressure the company to waive a non-compete clause in the contract of Denis Fadeev, a former developer there. After leaving the company last year, Fadeev wanted to “fork” code he had written at All in Bits so he could continue his work.

Hostile organisation

“Your corrupt NDA practices are well-known,” Yu tweeted in February, tagging All in Bits. “Stop abusing confidentiality agreements and NDAs to conceal an established history of bullying, harassment and discrimination at the workplace.”

In a separate tweet, Yu called All in Bits a “pathological and hostile organisation.” Kwon did not respond to requests for comment.

All in Bits argues Yu’s advocacy and criticisms crossed the line. In its suit, the firm said a clause in her contract forbade her from saying anything in public or in private that could tarnish the company’s reputation. It is seeking compensation for its legal fees and at least $150,000 in damages.

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“All in Bits (AiB) has taken a stand against an ongoing disparagement and disinformation campaign that has been harmful to our reputation and is creating a toxic culture that is detrimental to the Cosmos ecosystem,” the company said on Twitter in March.

Nonsense, said Yu.

“You can make a valid criticism and be liable for it,” she said, “but it has to create economic harm. They need to show that.”

All in Bits counters that it “lost business and lost goodwill,” but the firm doesn’t provide any examples, save that of a “talented candidate who rejected its offer to join the team due to [Yu’s] online statements.”

Candidate in question

Yu believes she knows the candidate in question — she had recruited him during her three-month tenure at All in Bits, she told DL News.

When she and the rest of her team were laid off in January, the candidate decided he was no longer interested in working at All in Bits, according to Yu.

“He doesn’t want to work for a company that dismissed us without cause and potentially for retaliatory reasons,” Yu said. “Furthermore, he certainly doesn’t want to work for a company that does not seem at all committed to open source principles.”

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The lawsuit is part of a growing trend in which corporations take legal action to cow defendants into submission, said Yu, who was the head of product strategy at Pylons, the flagship NFT platform for the Cosmos ecosystem, from 2021 to 2022.

“They have become an all-too-common tool for intimidating and silencing criticism through expensive, baseless legal proceedings,” Yu wrote in a GoFundMe campaign in March, which sought to raise money for her defence.

‘All in Bits (AiB) has taken a stand against an ongoing disparagement and disinformation campaign that has been harmful to our reputation and is creating a toxic culture that is detrimental to the Cosmos ecosystem.’

—  All in Bits tweet

The effort raised just half of its $50,000 goal. Yu’s allies appealed to the Cosmos Hub community with a proposal to dedicate about $600,000 worth of ATOM in the Cosmos Hub treasury to Yu’s defence.

Cosmos, like Ethereum, verifies and orders transactions using Proof of Stake technology that relies on users who provide, or lock up, their ATOM. Those stakers are able to vote on proposals that come before Cosmos Hub.

Almost half of Cosmos Hub stakers who voted rejected the proposal, and another 30% voted “no with veto,” signalling they believed the proposal was spam.

Narrow majority

Several days later, Yu’s allies asked the Cosmos community to weigh in again. This time, they didn’t ask for money — they asked the community to support a request that All in Bits drop the lawsuit.

In a symbolic vote last month, Cosmos validators did just that, asking Kwon to back off. The proposal passed with a narrow majority of ATOM tokens in favour and a clear majority of entities to cast a vote.

Cosmos validator Polkachu weighed in on the donnybrook in a statement.

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“AiB is a Cosmos OG, but it has not done much lately to help the Cosmos ecosystem grow,” Polkachu wrote. “In fact, it has engaged in some problematic activities that, as one can argue, hurts the community.

“The recent lawsuit against Grace is yet another example,” Polkachu continued. “We stand with Grace and hope that AiB drops the lawsuit.”

The litigation demonstrates the mounting tension between rank-and-file crypto workers who love the industry’s anarchic, do-as-you-please ethos but often clash with businesses struggling to survive this latest crypto winter.

Loyalty tests

Kwon, for his part, has long attracted controversy.

Back in 2020, Zaki Manian, then-director of Tendermint Labs, the precursor company to All in Bits, took to Twitter to say Kwon had “subjected every internal communication channel to religious discrimination, loyalty tests and abusive rants.”

(Kwon has said Manian and other former colleagues are part of a conspiracy to destroy Cosmos, charges they deny.)

In the meantime, Yu is developing a digital autonomous organisation, or DAO, devoted to supporting legal rights for the Cosmos network’s contributors.

Dubbed Cossmos DAO, it is an “ACLU and Legal Aid-inspired organisation that will continue to advocate for the civil liberties of builders in the cosmos network,” Yu said, “but also to provide legal defence funds when necessary.”

Have tips on Cosmos or other DeFi topics? Contact the author at aleks@dlnews.com.