When we first Observed the story about the Multichain network losing $100 million and the whereabouts of its CEO, we felt that there might be more to uncover, although even we didn’t see it going quite so far as allegations of police corruption.
The problems first arose on May 21, when Multichain CEO Zhaojun He went missing, leaving the development team unable to access the multi-party computation (MPC) servers for maintenance. A week later, issues with one of the scanning node networks forced the team to suspend cross-chain service for a number of minor chains, and admit that it was no longer in contact with He.
Rumors at the time suggested that He had been detained by the Chinese police, although these were not confirmed until after a suspected exploit on July 6 had drained over $100 million from some of the remaining bridges, the majority of this from Fantom.
A week after our original report, the Multichain team posted an update on Twitter (now X). This confirmed that He had been taken from his home by police in May, along with computers, phones, hardware wallets, and mnemonic phrases.
Despite earlier claims of decentralization, all MPC node servers had actually been running on He’s personal cloud server account, and all operational funds and investments had been under He’s direct control. This meant that all access to funds and servers fell under the control of the Chinese police.
Oh, and just to top it off, between the July 6 fund drain and the July 14 Twitter update, He’s sister had tried to ‘rescue’ some of the remaining on-chain funds, and was then also arrested by the Chinese police in possession of $220 million.
So, if the funds are in the safekeeping of the Chinese police then they will all be returned following the investigation, right?
Not according to Wuwei Liang, a former member of staff at the CoinXP crypto exchange, who took to Medium to detail a similar incident concerning his previous employer.
Liang claims that the firm’s entire development team was taken into custody in 2021. Funds were confiscated, and the firm’s CEO (and Liang’s brother) was accused of running a ‘multi-level marketing’ or ‘pyramid’ scheme.
The trial began in July this year, although Liang alleges that key witnesses and even defense lawyers have been threatened and intimidated. The presiding judge apparently also stated that in China, “the presumption of innocence is not a correct principle of law.”
Police have at no point informed investors and owners of the funds how to reclaim their money, or even that charges have been brought. Liang believes that this is because police are using the legal system to embezzle funds from Web3 entrepreneurs.
The Chinese authorities have been similarly opaque regarding Multichain and He.
While it would be presumptuous to advocate the complete avoidance of any project with a development team in China, one should certainly confirm that any project’s claims of decentralization are genuine, wherever they are based.