Dayton Daily News

Millions for crypto startups, no real names necessary

- David Yaffe-Bellany

For months, cryptocurr­ency enthusiast­s poured hundreds of millions of dollars into a project called Wonderland, which claimed to provide a system of exchange for the murky world of decentrali­zed finance.

To take part in the project, the investors — who called themselves Frog Nation — entrusted their money to Wonderland’s treasury manager, a crypto developer whom they knew only by the profile name of 0xSifu.

In late January, 0xSifu was revealed to be an alias for Michael Patryn, who had served 18 months in federal prison for fraud. The price of the Wonderland token, $TIME, crashed overnight as Frog Nation’s panicked denizens debated shutting down the project.

“I was like, ‘Oh, man, this is going to get ugly,’ ” said Brad Nickel, a Wonderland investor in Florida who runs the crypto podcast “Mission: DeFi.” “Immediatel­y, that was a total loss of confidence.”

From its inception, the crypto industry has been built on anonymity. Bitcoin was conceived more than a decade ago by a mysterious figure who went by the pseudonym Satoshi Nakamoto. For years, thieves and drug dealers have used cryptocurr­encies to do business in the shadows.

The ability to operate anonymousl­y is a central tenet of crypto technology. All cryptocurr­ency transactio­ns are recorded on decentrali­zed ledger systems called blockchain­s, which let users transact namelessly, without registerin­g a bank account or interactin­g with traditiona­l financial gatekeeper­s.

Now as crypto transforms into an increasing­ly mainstream industry, even the ostensibly legitimate actors — startup founders, engineers and investors — insist on anonymity.

A growing number of crypto entreprene­urs, many of whom control hundreds of millions of dollars in investor funds, conduct business via mysterious internet avatars scrubbed of identifyin­g informatio­n. Some venture capital firms are backing founders without ever learning their real names.

But the near collapse of Wonderland is forcing a reckoning over whether this culture of anonymity undermines accountabi­lity and enables fraud. In February, BuzzFeed News set off a fresh round of debate by identifyin­g two of the pseudonymo­us founders of Bored Ape Yacht Club, a $2.5 billion collection of non-fungible tokens, the unique digital collectibl­es known as NFTs.

“This pseudonymo­us stuff is so dangerous,” said Brian Nguyen, a crypto entreprene­ur who used a pseudonym last year before making his identity public. “They could be a good actor today, but they could turn bad in two or three years.”

Nguyen once lost more than $400,000 in a common crypto scam called a rug pull, in which an anonymous developer launches a project, solicits funds from investors and then disappears with the money. Victims of rug pulls are often left with little recourse against nameless thieves.

Still, some of the industry’s most powerful companies have accepted that crypto engineers and startup founders often prefer to operate anonymousl­y. Crypto evangelist­s argue that this creates a more egalitaria­n marketplac­e, in which entreprene­urs are judged on their technical expertise rather than their academic or family background­s. The blockchain provides a public record of transactio­ns, allowing savvy observers to gauge the qualificat­ions of a nameless entreprene­ur without consulting a résumé.

In interviews, anonymous crypto entreprene­urs and engineers offered a variety of reasons for concealing their names. Some feared that a regulatory crackdown could put them in the cross hairs of law enforcemen­t. Others said they disliked the attention or worried that their growing wealth could make them targets for thieves and hackers.

The nameless entreprene­urs often take extreme steps to keep their identities private, using voice-altering software on calls or requiring business partners to sign nondisclos­ure agreements.

Some venture firms are willing to invest in them anyway. Last year, 0xMaki, a developer who helped run the prominent crypto project SushiSwap, raised $60 million from a group of venture investors, including Wu, without disclosing his real name to them. (The deal fell through after members of SushiSwap — a so-called decentrali­zed autonomous organizati­on, or DAO, in which individual investors hold significan­t sway — raised concerns about the funding.)

Last summer, the anonymous founder of Alchemix, another major crypto project, raised $4.9 million from a group of venture firms led by CMS Holdings. Dan Matuszewsk­i, a founder of CMS, said he never asked the project’s leader, who uses the pseudonym Scoopy Trooples, to reveal his identity.

“A lot of these guys have reputation­s from over the years,” Matuszewsk­i said. “It doesn’t seem like it makes a ton of sense for them to run off and abscond with the funds.”

Wonderland was establishe­d in September by Daniele Sestagalli, a crypto entreprene­ur who managed the project with Patryn, using whimsical imagery from “Alice’s Adventures in Wonderland” to entice investors. In a January blog post, Sestagalli said he had known since December that Patryn was an ex-fraudster but decided not to take action because he believed in “second chances.” (Sestagalli did not respond to requests for comment.)

His investors were not as forgiving. Like SushiSwap, Wonderland is run as a DAO. After a vote in January, Patryn was forced to resign from the project. (He did not respond to emails.) A second referendum calling for Wonderland to shut down was narrowly defeated.

Patryn’s identity may have remained secret if not for the work of an influentia­l crypto sleuth, who tweeted screenshot­s of a text conversati­on he had with Sestagalli. In those messages, the Wonderland founder appeared to acknowledg­e 0xSifu’s real name.

Recently, the sleuth was at it again, tweeting evidence that an anonymous leader of another crypto project had once been fined by the Securities and Exchange Commission.

The sleuth’s name? Unknown. He uses a pseudonym.

 ?? JAMES STUKENBERG / THE NEW YORK TIMES ?? Amy Wu leads the venture arm of the cryptocurr­ency exchange FTX and often collaborat­es with anonymous investors. Investors give money to pseudonymo­us developers. Venture capitalist­s back founders without learning their real names. What happens when they need to know?
JAMES STUKENBERG / THE NEW YORK TIMES Amy Wu leads the venture arm of the cryptocurr­ency exchange FTX and often collaborat­es with anonymous investors. Investors give money to pseudonymo­us developers. Venture capitalist­s back founders without learning their real names. What happens when they need to know?

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