Frog becomes F「rug」, a billion-dollar panic event triggered by a tweet

Original author: 0x137, Rhythm BlockBeats

Recently, two pieces of information about the former CFO of Frog Nation have spread across DeFi and the entire crypto space. As CFO, 0xSifu not only held the treasury power of Wonderland, the largest DeFi 2.0 protocol, but also had a huge impact on the revenues of other Frog Nation ecosystem protocols, involving funds exceeding one billion dollars. After news emerged that 0xSifu was involved in fraud, it pushed Frog Nation, which was at a critical development stage, into a crisis.

Explosive news in the early morning: CFO has been involved in fraud multiple times

In the early hours of the 27th, Eastern Time, Frog Nation's founder Daniele tweeted: "Today, accusations regarding our team member 0xSifu will spread widely. I want everyone to know that I am aware of this matter, but I believe that a person's past does not determine their future. I value the time I spent with 0xSifu before knowing about his identity even more."

A minute later, zachxbt published his chat records with Daniele on Twitter, confirming that 0xSifu had been involved in fraud multiple times.

In 2005, 0xSifu operated an identity theft gang called Shadowcrew under the name Omar Dhanani, specializing in credit card theft, identity theft, and other Ponzi schemes. Additionally, he ran another Ponzi scheme called Midas Gold and absconded with the funds. Shortly after, he was arrested and imprisoned in the U.S. along with six other Shadowcrew accomplices.

After his release, 0xSifu rebranded himself as Michael Patryn and moved to Canada. In 2018, he co-founded the cryptocurrency exchange QuadrigaCX with Gerald Cotten in Canada. This exchange was also a Ponzi scheme, where Cotten and "Patryn" used deposits from new users to pay withdrawals for old users, causing later withdrawals to be stuck for weeks or even months.

Not long after, Cotten "died" unexpectedly while traveling in India (his death certificate and his wife's reaction were both questioned for possible forgery), leaving $170 million worth of crypto assets stored in the exchange inaccessible to users. Many Canadians lost their life savings, while "Patryn" managed to escape with a large amount of assets.

Now, Frog Nation founder Daniele has appointed 0xSifu as his CFO, entrusting this former convict with the management of nearly $800 million in the Wonderland treasury. Of course, 0xSifu's own assets have also increased tenfold during this period.

Events at a critical juncture

After the news about 0xSifu broke, all key Frog Nation Tokens were severely impacted. Wonderland's TIME dropped by 30%, with trading prices falling from around $500 to $370; Abracadabra's SPELL fell by 15%, from $0.007 to $0.006. However, the impact of this exposure on the Frog Nation ecosystem goes far beyond just the token price shock.

Frog Nation is a DeFi project network founded by Daniele, consisting of multiple projects aimed at growing together and promoting each other for larger-scale ecological development. The protocols within its ecosystem had previously achieved great success: the adoption rate of Abracadabra's stablecoin MIM skyrocketed within months, and Wonderland surpassed Olympus DAO to become the largest DeFi 2.0 protocol.

Recently, Frog Nation has been at a critical development juncture, with several plans concerning the future of the ecosystem being advanced simultaneously. If everything goes smoothly, Frog Nation will become an unmatched "DeFi mafia":

Merger of Abracadabra and Wonderland

Abracadabra and Wonderland are the two most successful platforms in the Frog Nation ecosystem, with the former generating annual revenue of up to $300 million and the latter holding $800 million in treasury assets. However, Wonderland has been seeking new avenues to replace the forked model of DeFi 2.0. After a large-scale liquidation event this week, to alleviate the selling pressure on TIME, Daniele proposed merging Abracadabra and Wonderland to form a super-sized decentralized VC, aiming to allow token holders to earn through farming from the protocol treasury and airdrops from invested projects.

This new VC mechanism has already been experimented with on Wonderland's new token wMEMO. Recently, Wonderland finalized a key investment in the cross-chain bridge project Wormhole, which will make MIM the preferred stablecoin for Wormhole, aiming to significantly increase MIM's adoption and liquidity, helping MIM achieve its vision of becoming the number one cross-chain stablecoin. wMEMO holders will be able to receive airdrops from Wormhole.

Acquisition of Sushi Swap

In a recent blog post, Daniele stated that the Frog Nation team would take over SushiSwap to help clean up and restore Sushi's efficiency, making it a part of the Frog Nation ecosystem.

This plan has significant benefits for both parties. The Frog Nation ecosystem effectively adds an AMM fully controlled by itself, which, if developed properly, will become another important source of income. The Sushi community had previously been relatively chaotic, originally relying on vampire attacks to gain traction, and later the team and community fell into a trust crisis, leading to poor past performance of the token, so a strong new team is indeed needed to reshape the situation.

Undoubtedly, one of the important factors driving this merger is the community's trust in Daniele and the Frog Nation team.

Seizing the development opportunity of ve(3,3)

In a previous AMA, Daniele revealed that he was negotiating with the Convex team to secure a competitive advantage for MIM in the Convex War. This explains why Daniele is collaborating with AC on the new AMM project Solidly (formerly known as ve(3,3)). In the article "What is ve(3,3) that AC is promoting so hard?," it was mentioned that Solidly is akin to Curve on Fantom, where the more Solidly Tokens a protocol holds, the greater its incentive voting power.

It should be noted that protocols on Fantom previously fought fiercely for the ve(3,3) snapshot. Daniele's collaboration with AC is likely to give the protocols within the Frog Nation ecosystem an inherent competitive advantage.

At such a critical juncture in ecological development, any misstep by the team could create a ripple effect within the ecosystem, leading to unimaginable consequences. Everything seemed to be progressing smoothly, but at this critical moment, the principled error of the top-level team was exposed, directly shaking the foundation of Frog Nation's development and everyone's faith in its future.

MIM Decoupling

Shortly after the news about 0xSifu was exposed, the ripple effect reached Abracadabra. On the morning of the 28th, a large number of users began to exchange their MIM for 3CRV through the MIM-3CRV liquidity pool on the Curve platform, causing a severe imbalance in the asset ratio within the pool. Ultimately, less than 5% of the pool remained as 3CRV, and MIM began to decouple. As of the time of writing, the price of MIM against DAI was $0.98, but it was still in a decoupling state.

Worse still, many people could not directly obtain 3CRV from MIM-3CRV, so they first exchanged MIM for UST and then used UST to exchange for 3CRV, creating selling pressure on UST and dragging down the price of LUNA.

Although Abracadabra has now launched a minting plan to incentivize users to mint a total of 43,881,642 new MIM using 3CRV, it is still struggling to withstand the current wave of selling, as MIM cannot gain sufficient market demand. Currently, many users of the Anchor platform's Degenbox are engaging in this operation: depositing UST and borrowing 90% of MIM, then converting MIM back to UST and repeating the process, ultimately achieving over 100% stablecoin APY. Even during MIM's decoupling, many people are unwilling to give up higher APY to repay discounted MIM.

This is a huge blow to MIM's ambition to become the most adopted cross-chain stablecoin. Although Wormhole will provide support in the future, the trust and demand users have for its anchoring ability are difficult to restore in the short term.

Concerns from partners

Additionally, AC also expressed his dissatisfaction on Twitter, writing: "There should be principles in doing things. A series of long-term fraud, theft, and malicious behavior is not a 'mistake,' but a clear intention… Letting 0xSifu manage funds, especially user funds, is enough to be deemed neglect… I just want to get off Willy Wonka's magic vehicle now."

Although AC stated that he would continue to cooperate with Daniele in the future, it is evident that to mitigate the impact of this incident on Solidly, AC is drawing a line with Daniele. Solidly is an important project concerning the future of the Fantom ecosystem, and having such a situation arise shortly after its launch indeed brings a lot of trouble for the project's future development. The depth of future cooperation between the two and the benefits Frog Nation can obtain will be affected.

Now, the image of the Frog Nation team in the community has plummeted, with many referring to it as "F(rug) Nation." Coincidentally, Yearn Finance had previously considered merging with Sushi, and after the fermentation of this incident, members of the Sushi community have already proposed abandoning Frog Nation and returning to Yearn. If a similar situation occurs, it would be a further blow to Frog Nation.

DeFi wizard or boiling frog?

Daniele, as one of the soul figures of Frog Nation and even the entire DeFi space, enjoys a high reputation. It must be acknowledged that he was indeed an outstanding DeFi wizard: the Abracadabra platform effectively utilized various yield-bearing assets, promoting the development of the Frog Nation ecosystem.

However, after the news about 0xSifu was exposed, the fire in the backyard also burned Daniele himself, leading to discussions about whether Daniele is suspected of "boiling the frog."

Recently, a large-scale liquidation occurred in Wonderland, causing the native token TIME's price to plummet from $800 to $360 within a few hours. Some noticed that the trigger for this liquidation seemed to be related to Daniele and 0xSifu.

Before the large-scale liquidation occurred, Daniele and other team members, including 0xSifu, borrowed a large amount of MIM using Wonderland's new token wMEMO as collateral and transferred these stablecoins to the Bitfinex exchange, which effectively meant the team "cashed out" without actually selling wMEMO.

This large-scale liquidation may have been triggered by the liquidation of loans related to the team. However, during the entire liquidation process, no team member responded, and the expected protocol buyback did not occur, causing the token price to ultimately fall below the backing price, erasing many users' investments, which was effectively a soft rug pull.

What’s more frightening is that this is not the first time such an incident has occurred. During the previous widespread crash of DeFi 2.0, TIME had already fallen below the backing price. Similarly, the team took no action, and the backing price continued to decline along with the token price.

Now, although the authenticity of the news has not been confirmed, rumors about Daniele's relationship with Bitfinex have begun to ferment.

Currently, 0xSifu himself has responded to the matter, expressing his willingness to accept the community's final decision.

Although the vote initiated by the Wonderland DAO has decided to remove 0xSifu from the team, and the prices of Frog Nation-related tokens have rebounded, we cannot help but start to ponder: in the world of decentralized finance, who has been granted the greatest power? Is the occurrence of such events due to individual or systemic reasons? Are the funds people invest in DeFi really safe? Clearly, Frog Nation's handling of this matter not only concerns its own ecosystem but also impacts the future development of the entire DeFi space.