When major cryptocurrency exchange, Binance, decided to celebrate its sixth anniversary with the culling of its staff up to 1000 people, arguably what should have attracted more attention was the disastrous closure of Multichain, the Chinese decentralized cross-chain bridge protocol, in the same month due to a string of events.
Chinese Authorities Seize Funds and Resulting Bankruptcy
Multichain announced the closure on July 14 due to CEO Zhao Jun and sister’s arrest by Chinese police, reasons undisclosed. Due to the CEO and his sister being absent from their duty, users reported over $100 million in unauthorized withdrawals from the protocol, and issuers froze $65 million in Tether and USD Coin. The Chinese state seized funds used for criminal activities, and this action resulted in Multichain declaring bankruptcy, further raising suspicion.
Everything began in late spring when users flooded the Multichain’s Telegram complaint about pending transfers being stuck. Rumors of Chinese authorities arresting Multichain Executives gained traction, and it was confirmed on May 21, 2023. As part of the MPC servers’ run, operational access and funds were solely under the control of the CEO, which lead to the police confiscating ZIJun’s all digital devices, cryptocurrency hardware wallets, and mnemonic phrases. With the CEO in custody, all transfers and operations of the protocol came to a standstill.
Strange occurrences ensued when Jun’s family accessed the cloud server, using historical information from his home computer. This allowed the team engineers to get physical access to the desktop and regain control. Zhaojun’s sister accessed customer assets locked in MPC wallets and transferred them to wallets she controlled, making things stranger.
Assets Seized by Chinese Authorities, Closure Announced
The team realized Zhaojun’s sister, not exploiters, transferred the $200 million in crypto, changing their initial belief. That revelation was followed by her being taken into custody by Chinese police on the 13th of July. Assets with Chinese state, no funds left; team forced to declare closure of operations.
The downfall of Multichain has only further raised suspicion of the decentralization aspect of this decentralized cross-chain bridge. MPC server under single control caused sudden closure, resulting in a 5 million loss for users and investors. (https://radiomusical.com/) The transaction’s authenticity raises questions about the security of funds held by the Chinese state.
As Zhaojun’s story concludes, it should serve as a cautionary tale for investors in blockchain companies and cross-chain routers. Users must watch asset security and decentralization in blockchain to prevent future occurrences.
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