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Multichain Winds Down, Cites Lack of Funds and Setbacks Arising from CEO’s Detention

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Cross-chain router protocol Multichain early Friday communicated to its users that it had been compelled to completely cease operations as it is left with no resources to resolve technical issues facing the project.

The woes befalling the Web3 routing infrastructure worsened this month due to a lack of means for the development team to contact CEO Zhaojun, who was initially rumored to be arrested by police in China in May. The local authorities reportedly confiscated his computers, phones, hardware wallets, and other personal devices at the time of the apprehension. Multichain verified the reports of the detention of Zhaojun, who was responsible for managing the project's funds.

Smart contracts associated with the crypto bridging project leverage a multi-party computation (MPC) system, but its servers were solely under Zhaojun's control. Zhaojun's sister, with the Multichain team's help, helped keep some of the protocol's services running until last Sunday.

“On July 7, user assets locked on the MPC addresses were transferred to unknown addresses abnormally. According to Zhaojun's sister, login information from an IP address in Kunming was found on the cloud server platform, along with a series of operations transferring funds from the MPC addresses,” Multichain said in a Friday tweet. “On July 9, Zhaojun's sister transferred the remaining user assets in the router pool and subsequently notified the team and several project parties of this asset preservation action.”

Multichain said Chinese police also took Zhaojun's sister into custody, leaving no one with direct access to the project's resources. In view of Zhaojun's sister becoming unreachable and the status of the assets she preserved unknown, the team resolved to halt operations. The team behind the project further clarified that it intentionally withheld information about Zhaojun's detainment to comply with domestic laws and regulations.

Blockchain security and analytics firm Chainalysis previously noted that more than $125 million in crypto assets was lost to the exploiters. In a report published this week, Chainalysis reviewed the abnormal withdrawal transactions concluding that they bear characteristics of a rug pull exploit executed by an internal team.

“While it’s possible those keys were taken by an external hacker, many security experts and other analysts think this exploit could be an inside job or rug pull, due in part to recent issues suffered by Multichain,” the Chainalysis team theorized in the July 10 report.

The take corroborates a July 7 hypothesis from the SlowMist team, which said the activity was “more like a hack or rug pull and less like a migration.” Earlier this month, Binance exchange notified its users that it was planning to end deposit and withdrawal support for a range of Multichain-linked tokens until further notice on account of the uncertainty around the protocol's status.

Circle and Tether separately froze more than $65 million in assets linked to the unusual withdrawals that resulted in a massive volume of outflows from the cross-chain router protocol.

Sam is a financial content specialist with a keen interest in the blockchain space. He has worked with several firms and media outlets in the Finance and Cybersecurity fields.