A high-flying DeFi project recently came crashing to the ground. The project was called Wonderland, and its main product was an exotic DeFi instrument called TIME. The idea behind the TIME token was to attract deposits, which in turn backed the token, allowing it to hold some intrinsic value. Plus, the token could be used across chains, and people who deposited funds could earn a fat margin.
It looked like the promise behind TIME was working. The Wonderland project was approaching $800 million in deposits, or “total value locked” in DeFi jargon, according to data from analytics platform DeFi Llama. This was stunning progress for a project that was just three months old. Then things started to go wrong.
Sometime in late January, a tweet (it’s always a tweet) revealed that one of Wonderland’s leaders, who went by 0xSifu, was in fact a felon named Michael Patryn. Patryn had served time for grand larceny, credit card fraud and computer fraud.
To compound matters, it turned out that Patryn had also worked on the notorious Canadian crypto exchange Quadriga, which was shuttered under mysterious circumstances in 2019, with some $145 million in customer funds vanishing. One theory is that its founder faked his own death to make off with the money. Patryn himself was not accused by authorities of wrongdoing in connection with Quadriga, but the association was unlikely to inspire confidence in investors.
The backlash was swift. Community members called for Patryn to be removed as the head of Wonderland’s treasury, a position where he oversaw the hundreds of millions in user funds. Wonderland’s TVL crashed from nearly $800 million to about $80 million—a 90% fall—in just 12 days.
It seemed that discovering the person behind the pseudonym could be enough to end a booming DeFi project. But separating who you are from what you do is a principle at the heart of crypto. The idea is that anyone should be able to trade a coin, spin up a lending protocol, or administer treasury funds without being tied to their location, gender or political leaning. The belief exists that crypto liberates people from political correctness.
The Wonderland incident tests this commitment to pseudonyms, as well as the idea that crypto can exist in a realm apart from people’s IRL identities.
Back to the beginning
So, how did crypto come to venerate pseudonymity in the first place? It has to do with the technology’s origin story. Bitcoin, after all, was proposed and implemented by a pseudonymous person or group called Satoshi Nakamoto.
The act of remaining unidentifiable lies at the heart of “trustlessness,” which is arguably the whole point of cryptocurrencies. As Nakamoto laid out in the founding document of the entire movement, the Bitcoin white paper in 2008:
“The traditional banking model achieves a level of privacy by limiting access to information to the parties involved and the trusted third party. The necessity to announce all transactions publicly precludes this method, but privacy can still be maintained by breaking the flow of information in another place: by keeping public keys anonymous.”
“We have proposed a system for electronic transactions without relying on trust,” the paper concludes.
Nakamoto’s identity remains unknown, but what does it mean when real identities start to seep into a world based on pseudonyms – and when some of those identities do, in fact, impact trust in a project?
Boring apes?
Another recent incident contrasts with the Patryn unmasking, as the real names of founders of a multi-billion dollar crypto project were revealed, and… nothing much happened. This was the case when BuzzFeed News published a story in mid-February revealing the names of two founders of the Bored Ape Yacht Club.
BAYC is one of the buzziest and most highly valued NFT projects on the planet. Justin Bieber owns a couple, and over $2 billion worth of Bored Apes have been bought and sold since its inception. The firm behind BAYC was valued at $5 billion in a massive funding round led by Andreessen Horowitz. That’s a lot of value for a business where most people have no idea who’s in charge.
Neither founder was discovered to be a felon, or involved in any historical malfeasance. Buzzfeed noted that it hadn’t discovered any red flags, and that the worst thing it found was one founder being accused of a minor instance of domain name squatting.
A small tempest in the Crypto Twitter teapot ensued when BuzzFeed ran the story. Crypto proponents argued that unveiling the BAYC founders achieved nothing, other than destroying their privacy. Some held the story up as an example of overzealous doxxing by a media outlet.
But Patryn’s story raises the question: What if the Bored Ape founders had been found to have more checkered personal histories? Clearly, the markets cared enough about Patryn’s past to remove nearly all the capital that had been entrusted to the Wonderland project.
To take the thought experiment one step further: what if Nakamoto turned out to be a convicted fraudster? The hypothetical cuts both ways. If we imagine a former swindler as Nakamoto, we can argue that this is precisely the time to use a pseudonym. If someone has been convicted and served their time in prison, why should they continue to be penalized? (Indeed, Patryn himself changed his legal name twice after his convictions.)
Perhaps in the end decentralization will prove that the identity of the individuals involved in a project don’t matter after all. Ultimately, the Wonderland community voted overwhelmingly to remove Patryn as treasury manager. But as for Wonderland, the project that Patryn helped build? The community voted to keep it going.
