The Scandal That Struck Wonderland: 0xSifu and 0xMerlin (Frog Nation)
Written on: Februarie 04, 2022
Title : The Scandal That Struck Wonderland: 0xSifu and 0xMerlin (Frog Nation)
link : The Scandal That Struck Wonderland: 0xSifu and 0xMerlin (Frog Nation)
The Scandal That Struck Wonderland: 0xSifu and 0xMerlin (Frog Nation)
The Scandal That Struck Wonderland: 0xSifu and 0xMerlin (Frog Nation)
Before starting by reporting the many events that have happened in the last month on Wonderland, I remember that here you can learn more about Daniele Sesta's Frog Nation. Many in the previous days (especially on Twitter and Reddit) have shouted at the Rug Pull but let's make a summary of how Wonderland works (and its latest updates) and on the recent crime events that have concerned it.
The idea behind Wonderland was to build a "treasury" (a kind of decentralized investment fund, composed of all the holders of Time, Memo and wMemo) with various assets (Time itself, Mim, Avax, Eth, etc. ) which would have made it possible to obtain Time in exchange at a discounted price compared to the market value (bonding). This process is also called Time "minting" and has allowed the treasury to expand and the protocol to continuously increase its TVL. The original minting increased the quantity of Time both on the market and in the treasury itself: I bond 1 Time in exchange for Avax, a small proportional part of this Time that I get is created and added to the treasury (part of these Times are then distributed to staking, via rebase). To get an idea, this is the treasury updated on January 27, 2022:
From a user perspective, I basically make the bond by depositing some assets (Avax, Mim, etc), I get Time, I put it in staking, through rebase I receive other Time (in Memo reality which includes my Time in staking + rebase rewards that are paid to me every 8 hours). I could also have bought Time at the market and put it directly in staking but the system thus made encourages to make the bond (they increase the treasury, the user takes Time at a discounted price).
The Memos can also be wrapped in wMemo which represents a non-inflationary token that includes my Time in staking + the rewards of the rabase (basically it is a non-inflationary Memo that tracks the price). Let's see an example.
Let's assume that I have staking 1 Time which is worth $ 500. After 1 day I will have 3 rebases so I will have 1 Time + these 3 rebases that form Memo (I will get something like 1.01 Memo which we assume are worth $ 505). If at this point I wrap this 1.01 Memo in wMemo I would get 1 wMemo which is always worth $ 505. As you can understand, between Memo and wMemo absolutely nothing changes in terms of the value in dollars, the only difference is that wMemo better tracks the growth of the protocol because it also incorporates staking in its quantity (without increasing the number of tokens, what happens with Memo).
NON-INFLACTIVE MINTING
Given the enormously inflationary model due to the huge APY (over 80,000%), Time started dumping so the team decided to also add a non-inflationary minting (the management of the whole was entrusted to one of the founders, i.e. 0xSifu).
When someone made the bond, he took his Time discounted by the treasury itself and in the latter there was only the token used for minting (and no other Time).
Basically this solution was designed, precisely to limit the very high inflation that the Time token was facing, due to the huge APYs. Daniele Sesta had always warned users and those outside the protocol that the "real" Wonderland trend resides in wMemo itself. As explained above, there is no difference between Memo and wMemo. However wMemo understanding, not only the price of Time but also the rebases, indicates the real trend of Wonderland.
If I look at the Time chart, I would mostly see a token that dumps (due to the very high inflation) but Time's price is not indicative. It would be indicative for a simple holder.
wMemo instead also includes rebases. If Time is -70%, it is not the real loss I am going to face if I am staking because we should add the very high rewards deriving from the rebase. For this reason, the trend that should be watched is that of wMemo. It should be noted, however, that wMemo tends to diverge from Time the longer I keep my funds on the platform. Obviously if I put Time in staking and after 16 hours Time makes me a -30%, clearly the trend of wMemo does not differ much from Time (because I only received 2 rebases).
WMEMO AND PLANTING SEEDS
The idea is therefore to replace Time with wMemo (so buy the latter directly) by "revenue sharing" (I put wMemo in staking and earn the Betswap token. This same token was distributed in the form of an airdrop, to all participants of the protocol who had Time, Memo and wMemo not only on Wonderland but also on Abracadabra, Spirit and Morpheus). It was a real planting seeds, that is an investment made in pre-sale on this platform and then distributed to the users of its platform.
But more precisely, from what is the value of wMemo given?
The value is given by the price of Time for 4.5 (base index) for the rebase index (which is variable. Right now it is 12.76). I will therefore have a price like this:
The token has been renamed Wonderful Memories and can be bought / sold on Sushiswap for Mim. Here for more info on the calculation and the price: wMemo Future Price Calculator
This wMemo can also be used as collateral, to request a loan in Mim on Abracadabra (with a 10% liquidation fee and a 75% loan to value). How would the model work? If Time (hence wMemo) dumps too much, liquidations could occur on Abracadabra for all those who use wMemo as collateral to borrow Mim. At this point a manual buyback is performed (i.e. Times are bought at the market) and this theoretically would bring the price back up, preventing liquidations on Abracadabra.
ELIMINATION OF MINTING
Later the treasury employee, 0xSifu, decided to completely eliminate Time minting, in order to reduce dilution and inflation of the token. Therefore, the possibility of bonding and buying it at a discount has been eliminated. The only way is to buy wMemo directly on Sushiswap
These new features were supposed to revive the protocol and direct it to the purpose for which it was born: to become a kind of investment fund for new DAOs. However, absolute disaster will soon happen, as we shall see.
DUMP AND LIQUIDATIONS
On January 16, 2022 on the Olympus DAO (platform from which Wonderland was inspired), there were massive sales of Ohm, by whales, for an equivalent value of over 11 million dollars (Ohm lost 80 % in the last 30 days). Clearly these large dumps have also spread to Redacted and Wonderland which have significant amounts of Ohm in their treasuries. Time in the last 30 days has lost about 90%, Redacted Cartel about 85%. In general, even minor forks on other chains have been affected.
All this selling pressure is due not only to sales but also to liquidations because as previously mentioned, one of the features of wMemo is to be able to put it as collateral on Abracadabra to borrow the Mim stablecoin. Although it has been said several times that it makes no sense to look at the Time charts, it is inevitable to take a look at them as these are dumps that have brought the value of the token well below the "backing price" (which I remember depends on the treasury).
0XSIFU DI WONDERLAND
The dumps and liquidations (with the aforementioned buybacks that did not trigger) continued in the last few days, when the criminal past of one of the founders, just as often mentioned, was discovered, 0xSifu.
Zachxbtrevealed on Twitter that 0xSifu, who also doubles as Wonderland's CFO, was previously involved in the 2019 QuadrigaCX scandal.
His real name is Michael Patryn, co-founder of QuadrigaCX, the exchange. Canadian cryptocurrency whose founder suddenly disappeared with a scam worth around $ 150 million. According to some, Patryn on Reddit would be known as MikeXBT.
The company later claimed that co-founder Gerald Cotton had died suddenly during his honeymoon in India (in Jaipur). His body was cremated before anyone had a chance to verify his death (he ventilates he has changed his identity, disappearing into thin air).
This exchange was fairly well known in 2015 and already at the time the subscribers had noticed some strange things, such as orders suddenly disappeared and very long withdrawal times.
The cold wallets that contained the crypto, at first, were considered lost forever because precisely the founder who held the private keys was given up for dead. In fact, after a few months someone moved large quantities of LTC from some of those addresses. Surely someone who knew the private keys. The CEO of Quadriga CX, before his alleged death, seems to have been the only one who had direct access to cryptocurrencies precisely in order to be able to act undisturbed, even without the knowledge of his employees. Cotten, therefore, spent the money his clients invested in cryptocurrencies on personal expenses and, to a lesser extent, on high-risk investments.
According to investigators from the Ontario Securities Commission, the mechanism set up by Cotten represented a classic Ponzi scheme. The dynamics of Quadriga CX were based on a typical pyramid structure. Customers invested capital, which according to the data provided by the company increased or decreased according to the value of the different cryptocurrencies. In reality, however, the money was constantly decreasing, as the CEO of the company regularly drew from the accounts, without making it appear in the documents. Those who asked to withdraw their money were satisfied thanks to the funds introduced by new customers. The first who invested must be convinced that they are obtaining good earnings, in order to encourage the entry of new participants by word of mouth. In reality, most of the money is pocketed by the scam makers, who manage it. The capital of every investor always decreases, while he is convinced it is growing. If someone wants to withdraw, they are paid through the money of other members, which must be constantly increasing. When the situation becomes unbearable, the scammers try to lose their tracks, disappearing with the money.
It is called a pyramid scheme as the base, most of the investors involved, lose all the money while the top takes the most from everyone. Then there are the middlemen, usually unaware, who have made a profit by cashing in on time. Also in this case the surplus value of the investment is in fact made up of the capital stolen from the base through the scam.
But how was it possible for Sifu's right-hand man to fake his own death? You can read something in the book "Playing Dead: A Journey Through The World Of Death Fraud", written by Elizabeth Greenwood who faked her own death to investigate the Filipino mafia. In an interview with the Telegraph, she admitted that the idea came to her as she imagined what it would be like to try to evade a huge debt of hers.
Greenwood's research found that people who want to escape debt or their personal responsibilities have gone so far as to fake their own death. There is an industry ready with their "death kits", where anyone can hire doctors, administrators and witnesses for as little as $ 100. Philippines and India are among the most sought after countries for easily obtaining a "fake death certificate." "to deceive families, loan sharks and insurance campaigns.
This would have been his will: Gerald Cotton (Testament)
According to another investigation, part of the funds were inadvertently sent to a cold wallet without a private key. Beyond what happened, the tracking of these addresses has shown that over the years some amounts of Bitcoin have been sent to LocalBitcoins, to Mixer (to make them lose track), gambling sites and black markets on TOR. (Silkroad 3.0 above all). Other addresses that received these cryptocurrencies are: Cryptsy (another exchange that suddenly closed with an exit scam), wallets associated with the Bitfinex hack and even the very old Mt.Gox exit scam (2013). Before founding Quadriga with Cotton, Michael Patryn had been involved in an identity theft ring (with Albert Gonzalez's notorious ShadowCrews) for which he later pleaded guilty.
In court, he also admitted a number of other charges, including aggravated theft and second degree burglary. He was known at the time as Omar Dhanani, however he changed his name and was soon deported to Canada. The revelations that 0xSifu would be Patryn, Cotton's right-hand man (as mentioned, vanished with $ 150 million), inevitably shocked many Wonderland investors and Time fell a further 40%. It seems that 0xSifu has transferred 8.4 million dollars from the Wonderland treasury to its private wallet (you can find it here DeBank Sifu).
Daniele Sesta, the founder of Wonderland, later released a statement confirming that 0xSifu will be suspended, pending the decision by the community on the possibility of continuing to participate in the project (vote).
Sesta confessed that he discovered 0xSifu's past about a month ago, however, he decided to give it a "second chance" as people shouldn't be judged by their "first mistakes".
For a strange twist of fate, in an old interview with Koinsquare and dating back to 10 December 2020 (well before these protocols saw the light), the same Sesta says that the story of Quadriga, sooner or later will come back to the surface:
0XMERLIN DI ABRACADABRA IS GIANCARLO DEVASINI?
Another pseudonym behind Abracadabra Money (another Daniele Sesta platform) or 0xMerlin would be Giancarlo Devasini as you can read according to the reconstructions in this thread on Twitter: Nicolaborzi (Twitter Status)
I stress that these are only rumors and there are no confirmations.
There would also have been some money spins between these platforms and Bitfinex, as we read in this message:
But who is Giancarlo Devasini? He entered the world of cryptocurrencies in 2012, showing up on a popular Bitcoin forum to ask if anyone would like to buy DVDs or CDs at 0.01 Bitcoin each (they were then worth around 12 cents) promising free shipping on large orders.
Today Devasini is CFO of Bitfinex, a well-known cryptocurrency exchange and also of Tether.
We know that Tether is also a deeply controversial cryptocurrency, as it would not be fully hedged by the dollar.
In early 2021, New York Attorney General Letitia James said Tether had lied about its reservations in the past and called Devasini and colleagues "unlicensed and unregulated individuals moving into the darkest corners of the financial system."
Though inferior to his longtime business partner, Tether and Bitfinex CEO Jean-Louis van der Velde, Devasini is considered by many to be one of the central figures of these two protocols.
In 2007, Devasini's commercial empire had a turnover of 12 million euros, until it suffered the final blow from a devastating fire that hit the warehouse and its offices in February 2008. The parent company, Solo SpA , was put into liquidation in June 2008. And in Solo's 2007 financial statements, the subsidiaries Acme, Compass and Freshbit were written down to a nominal value of 1 euro each.
During his nearly twenty years of selling computer hardware, Devasini has adopted the pseudonym of "Merlin" in many communications, also choosing the Skype nickname of "merlinmagoo". In 2010 one of his partners referred to him as "Mr Merlin".
In 1996, not long after leaving medicine for business, Devasini paid $ 100 million in a counterfeiting lawsuit with Microsoft. A decade later, in 2007, Toshiba is suing another of Devasini's creatures, Acme, for an alleged patent infringement on the DVD format specifications.
Tether explained that in the first case, Devasini had unintentionally loaded unlicensed Microsoft software on the computers he was selling, after trusting the assurances of a vendor, and had cooperated with the authorities after the investigation was initiated. As for the second case, the Tether press office makes it known that the lawsuit filed by Toshiba was meaningless.
In 2006 another Devasini company, Alcosto, bought 1,575 memory chips from a British company. Then, in 2016, the UK Tax Commission found that that transaction was part of a "fraudulent tax loss" scheme.
Subsequently, in March 2010, another of Devasini's companies, the Perpetual Action Group based in the principality of Monaco, was banned from Tradeloop, a resale site for used electronic components. An American had complained about a $ 2,000 purchase of memory chips purchased by PAG and wrote that there was a large piece of wood inside a box.
At the time, Devasini vehemently denied the buyer's claims, saying the packages must have been tampered with during the trip, and offered partial compensation. "This is a small commercial dispute from more than 10 years ago, which has nothing to do with Tether or Bitfinex," says Tether. Towards the end of the decade, however, Devasini, with much of his business empire in liquidation, sets out in search of a new project.
Then in 2012 Devasini discovers Bitcoin and throws himself into the crypto world, which at the time was the far west of unregulated finance. Also that year he joined Bitfinex, just founded, managing the trading operations. Tether was born in 2014, even if up to 2017 the contours of the ownership and management of the two companies were not well defined. Devasini and the other Bitfinex and Tether executives own shares in the company and maintain a "decentralized" structure, with offices scattered around the world. Devasini's "merlinmagoo" Skype account currently returns the African island state of Sao Tome and Principe as a location, while corporate records indicate addresses in Switzerland, Italy and the French Riviera.
One of the main sources of criticism from the American supervisory authorities concerns precisely the transparency information relating to Tether's reserves. Until February 2019, Tether claimed to the markets that it held one dollar for every USDT issued. He later rectified, saying that every token the company issued was "backed" by dollar-denominated assets.
However, the investigation by the New York Attorney General found that in some cases prior to the February 2019 version change, large amounts of Tether's reserves were held on Bitfinex bank accounts.
The investigation by the New York prosecutor's office revealed that for several months in 2017 Tether had no access to banking services and at one point more than 85% of its liquidity was held in a Bitfinex bank account, accounted for as "credit. ". The rest was in an account in the name of Hoegner, the legal counsel. Subsequently, in 2018 Tether loaned Bitfinex $ 625 million after the latter lost $ 850 million deposited with the defunct Panamanian payment company Crypto Capital Corp. Bitfinex explained that a significant portion of the funds had been seized by the authorities. and that he was trying to get the money back. In 2019, the United States indicted two people linked to Crypto Capital Corp for banking fraud. In the messages released by the prosecutor James' office, we read Devasini who, under the alias "Merlin", has been pleading for months with an individual from Crypto Capital Corp called "Oz" to pay him back the money.
"You have to understand that all of this could be extremely dangerous for everyone, for the entire crypto community. If we don't act quickly, Bitcoin could even drop below 1000"
(in October 2018, the price was around $ 6,500)
these words as proof that Devasini's cryptocurrency was used to pump the price of Bitcoin. Bitfinex survived that earthquake, largely thanks to the $ 625 million it received from Tether in November 2018, as well as a fundraiser in 2019. The loan from Tether, later formalized into a $ 900 million line of credit , collateralized with shares of the parent company of Bitfinex, had remained unknown to the market until April 2019. And it is this loan that is at the heart of the accusation made by the New York Attorney General in 2021, which claims that Bitfinex and Tether had distorted the accounting of Tether reserves.
Both Tether and Bitfinex have neither confirmed nor denied the prosecutor's thesis, but have negotiated by agreeing to pay a fine of 18.5 million dollars.
Hoegner: "The loan was repaid in full in January, with the due interest and earlier than expected. So it has always been a due credit, as we have always said"
Going back to recent times, 0xMerlin also known as the "master wizard" is one of the minds behind Abracadabra and according to rumors of the last hour, behind this pseudonym, there would be Devasini (as has been shown in some screens, the nickname "Merlin" appears several times in its history).
The curious thing is that MIM, among the big exchanges, has been listed only on Bitfinex and it is known that Daniele Sesta is a great friend of the central figures behind Bitfinex.
WHAT FUTURE FOR THE FROG NATION?
Daniele Sesta said he wanted to reimburse the users who were liquidated by Abracadabra out of his own pocket, and he also said he wanted to transfer the Wonderland treasury to Abracadabra itself. It would be the Spells to be minted to buy Time (emissions of farming) bringing it back to its "real" value but at the same time making Spell significantly more inflationary.
Meanwhile, Popsicle Finance, another protocol of the Frog Nation ecosystem led by Squirrel, has distanced itself from what happened:
Finally, we remind you that Sesta is also involved in the new project by Andre Cronje, here to learn more: The New Project By Andre Cronje : NFT Solidly V3.3 (VampWars)
That's the article The Scandal That Struck Wonderland: 0xSifu and 0xMerlin (Frog Nation)
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