Sonic Labs Wins Legal Battle to Liquidate Multichain Foundation
A Singapore High Court has ruled in favor of Sonic Labs (formerly Fantom Foundation) in their motion to force the Multichain Foundation into liquidation. This decision aims to recover funds stolen during a significant hack in 2023, which impacted numerous blockchain users.
On May 9, Justice Kwek Mean Luck of the Singapore Supreme Court granted Sonic Labs’ request to declare Multichain bankrupt and appoint liquidators from KPMG, a global audit, tax, and advisory service. This action marks a crucial step in the ongoing efforts to recoup the lost assets.
Sonic Labs CEO Michael Kong stated on X (formerly Twitter) on May 14 that the team felt compelled to file the lawsuit due to the uncooperative and evasive behavior of Multichain’s former employees. The primary goal is to ensure that the liquidators can work with relevant parties to recover funds and return them to the victims of the hack.
“Going forward, the liquidators can now start working with other parties to initiate the process of trying to acquire funds that should eventually be returned to users if those legal proceedings are successful,” Kong said.
The 2023 Multichain Hack: A Devastating Loss
In July 2023, the Multichain Foundation experienced unusually large outflows, which were later confirmed to be the result of a hack. This security breach led to significant losses across multiple blockchain networks, including Fantom, Ethereum, BNB, Cronos, and Polygon.
According to a report by blockchain security firm Beosin and Fantom in August 2023, the total losses across all affected chains amounted to at least $210 million. This substantial loss severely impacted users who relied on the Multichain protocol for cross-chain transactions.
Legal Action Follows Initial Win
Prior to this ruling, Sonic Labs had already secured a default judgment in January 2024 from the High Court of Singapore as part of their legal action against Multichain. The lawsuit cited breach of contract, fraudulent misrepresentations, and claims that the cross-chain protocol had lost $122 million of Sonic Labs’ funds.
Following the initial legal victory, Sonic Labs announced their intention to petition the court to wind up the Multichain Foundation and appoint a liquidator. This process, similar to a Chapter 7 bankruptcy in the United States, aims to facilitate the recovery and distribution of missing or frozen assets to the affected parties.
Sonic Labs also indicated its intention to use the legal win to enable other victims of the Multichain hack to file claims for their losses, providing a potential avenue for recovery for a broader range of affected users.
Multichain’s Shutdown and CEO’s Detention
Multichain ceased operations in July 2024 due to a lack of operational funds. This shutdown followed the detention of the company’s CEO, known as Zhaojun, by Chinese police, further complicating the situation for users seeking to recover their funds.
Key Takeaways:
- Sonic Labs Wins Judgment: A Singapore High Court has ruled in favor of Sonic Labs to wind up the Multichain Foundation.
- $210 Million Hack: The ruling aims to recover funds stolen during a $210 million hack in July 2023.
- KPMG Appointed Liquidators: KPMG will oversee the liquidation process, attempting to recover and distribute assets to affected users.
- Multichain Shutdown: Multichain ceased operations in July 2024 following the detention of its CEO.
Understanding the Implications for Crypto Users
The Multichain hack and subsequent legal proceedings highlight the risks associated with cross-chain protocols and the importance of robust security measures. This case serves as a reminder for crypto users to exercise caution and conduct thorough due diligence before entrusting their assets to any platform.
The successful winding up of the Multichain Foundation by Sonic Labs provides a glimmer of hope for victims of the hack, demonstrating that legal action can be a viable path towards recovering lost funds in the decentralized finance (DeFi) space. The involvement of KPMG as liquidators adds a layer of credibility and expertise to the recovery process.
What is Multichain and Cross-Chain Technology?
Multichain, at its core, was a platform designed to facilitate cross-chain interoperability, allowing users to transfer assets between different blockchain networks. This functionality addresses a key challenge in the blockchain ecosystem, where various chains operate in silos.
Cross-chain technology involves protocols and mechanisms that enable the transfer of data, assets, and tokens between different blockchains. This is achieved through various techniques, including:
- Bridges: These are protocols that lock assets on one chain and issue equivalent wrapped assets on another chain.
- Atomic Swaps: These allow for direct peer-to-peer exchanges of assets between different chains without the need for intermediaries.
- Relays: These mechanisms verify and relay information between different blockchains.
While cross-chain technology offers significant benefits in terms of interoperability and liquidity, it also introduces complex security challenges. The Multichain hack underscores the importance of rigorous security audits and robust risk management practices in the development and operation of cross-chain protocols.
Looking Ahead
The liquidation of the Multichain Foundation represents a significant milestone in the ongoing efforts to recover funds lost in the 2023 hack. As KPMG begins its work as liquidators, the focus will be on identifying and recovering assets, as well as developing a fair and transparent process for distributing these assets to the affected users. The outcome of this process will have important implications for the future of cross-chain technology and the broader DeFi ecosystem.
