On July 14, Multichain, a Chinese cross-chain protocol, confirmed the arrest of its CEO, identified as “Zhaojun He,” and the arrest of its core team. The arrests had taken place on May 21, after months of denials by the company. The reasons for the arrests were not disclosed, but evidence suggests that it may be related to an anti-money laundering operation and a crackdown on crypto by Chinese authorities. The arrest of Zhaojun and the core team has resulted in the shutdown of the protocol, leaving $1.5 billion in locked value inaccessible.
Victims of the Multichain incident are demanding answers. The protocol’s team revealed that the multi-party computation servers and private keys were all under the control of Zhaojun, which were handed over to the police. As a result, the protocol had to shut down, and users’ assets became inaccessible. Attempts to rescue the assets resulted in further arrests. A victims group was formed by crypto investor ArkRide, who claims to have over $9,000 stuck in Multichain. The group now has over 300 members.
Evidence suggests that Zhaojun may have used a fake ID to register Multichain’s operations, raising further questions about his credibility. Some allege that his real name may be “He Xiaokun” based on a Singaporean business filing document. Victims have reached out to Chinese embassies and local police in their home countries to get more information but have received no response.
Fantom Foundation, one of the largest users of the Multichain bridge, has contacted Multichain victims and claimed to have hired Chinese lawyers to assist in the recovery process. They also confirmed that Zhaojun had been detained by Chinese police. The foundation is working to release frozen funds held by centralized exchanges and stablecoin issuers and distribute them to victims. They do not believe that the Multichain team misappropriated funds.
Stablecoin issuers Circle and Tether have frozen over $65 million in assets associated with the Multichain hack. These frozen assets are a significant blow to the network, as much of its locked value consisted of Multichain derivative stablecoins.
Cointelegraph reached out to the Fantom Foundation for comments but did not receive a response.
Freelance content creator PJ Krypto revealed that he lost a full month’s paycheck from a client due to his funds getting stuck in Multichain. He discovered the issue when his transfer took an unusually long time, and he noticed a large number of pending transactions on Multichain’s block explorer. Despite the team’s announcement that the protocol should not be used, Multichain’s user interface gave no warning. As a result, PJ’s paycheck remains stuck in the protocol, and he has been unable to pay his team for their work.
ArkRide, another victim, lost over $9,000 worth of crypto in Multichain. He expressed relief that his loss was small compared to others who lost hundreds of thousands of dollars. Some victims have even expressed thoughts of suicide due to their significant losses.
The investigation into Multichain continues, with new information emerging about its directors. An ID search revealed that the individuals listed as directors in the Singaporean registration documents are the parents of Multichain CEO Zhaojun. They reside in the same address in a rural Chinese village. Sources have confirmed that Zhaojun He was indeed in charge of Multichain during the time of the incident.
Sources claim that Chinese authorities accused Zhaojun of money laundering by bridging tainted assets through Multichain. As a result, the police have attempted to seize all protocol assets, including user and enterprise funds. Some seizures were prevented when centralized exchanges and stablecoin issuers froze the funds, but the rest have passed into the hands of Chinese authorities.
This incident is not the first of its kind in China. In 2019, the entire development team of crypto exchange CoinXP was apprehended by Chinese police, and the protocol funds were confiscated. The CEO was charged with operating a pyramid scheme. During the trial, there were reports of legal intimidation and threats to witnesses and defense attorneys.
The Multichain incident highlights the risks associated with investing in cryptocurrencies and the lack of regulation in the industry. It serves as a reminder to investors to exercise caution and do thorough research before putting their funds into any project. It also raises questions about the role and responsibility of centralized exchanges and stablecoin issuers in protecting users’ funds. As the investigation into Multichain continues, it remains to be seen whether the victims will be able to recover their lost assets.
