Amidst swirling rumors last week, reports emerged suggesting that Chinese authorities had apprehended several executives of Multichain, including their CEO Zhaojun. While arrests have yet to be confirmed or denied, the news prompted a response from Binance, which suspended specific token deposits in connection to the situation.
Further reports across multiple twitter accounts also speculated that law enforcement authorities had seized control of a significant wallet valued at $1.6 billion, which allegedly belongs to Multichain.
Events escalated further on May 31, when Multichain, the cross-chain protocol, made a startling revelation that it has been unable to establish contact with its CEO, Zhaojun. This development has sparked widespread speculation, suggesting that the protocol's leadership may have in fact faced arrest in China, coinciding with the previous rumours and persistent technical challenges faced by the platform.
The tumultuous week for Multichain began on Monday when the project's Twitter account disclosed that they were facing multiple issues stemming from "unforeseeable consequences." According to the team behind the protocol, despite their best efforts to address these challenges, they encountered a significant hurdle as they were “unable to reach” CEO Zhaojun, impeding access to crucial servers.
Multichain's recent announcement was due to mounting issues within its Router5 node network, resulting in disruptions to cross-chain services for multiple blockchains. This network issue has affected the functionality of several blockchains, including Keychain, PublicMint, Dyno Chain, Red Light Chain, Dexit, Ekta, HPB, ONUS, Omax, Findora, and Planq.
In light of these challenges, the Multichain team has made a request to its partners, urging them to temporarily refrain from calling smart contracts on the platform until the necessary permissions and server access can be obtained.
Following the persisting issues and lack of clear explanations, Binance took action by suspending deposits for 10 bridged tokens across the BNB Smart Chain, Fantom, Ethereum, and Avalanche blockchain networks on May 25. The unexplained downtime also prompted the Fantom Foundation to withdraw 449,740 MULTI tokens (equivalent to $2.4 million) from liquidity on the decentralized exchange SushiSwap.
Notably, Lookonchain, a blockchain analytics firm, reported approximately $3 million worth of MULTI outflows from smart money accounts during the previous week, further highlighting the impact of the ongoing situation.
A Step Back in Decentralization?
The recent events surrounding Multichain CEO Zhaojun's disappearance shed light on a significant issue within the industry. It’s ironic that an industry built around the concept of blockchain networks with no single points of failure encountered such a debilitating situation because of exactly that – a single point of failure.
While Multichain positioned itself as a decentralized service connecting various networks, the lack of redundancy became apparent when access to its centralized servers was compromised. This disruption had significant repercussions on downstream liquidity, highlighting the importance of ensuring redundancy and resilience even in decentralized protocols. As Shahar Madar, head of security products at digital asset custody and settlement platform Fireblocks pointed out, “One guy doesn't answer the phone for 24 hours, and suddenly everyone fears for billions of dollars potentially.”
Madar raises an important question regarding the extent of an individual's influence over a decentralized platform.
Having a single party with central access leaves it vulnerable to being compromised by force, coercion, or influence. In contrast, the very essence of decentralization lies in minimizing reliance on any single party to prevent those very vulnerabilities amongst others. Given the potential risks associated with centralized access, it becomes crucial to distribute influence and decision-making power across multiple participants within a decentralized platform. By doing so, the platform can maintain its resilience, integrity, and resistance to external pressures or coercion.
Hopefully, the developing situation with Multichain will come to be seen as a lesson in the potential faults of having a single point of compromise, a useful reference point in future endeavors for building a more resilient ecosystem.