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Wonderland

From Invertopedia, the encyclopedia of how things fail

Entry 018. An analysis built from the public record, not an insider account. Spot an error? Tell us.

Wonderland was a DeFi project on Avalanche whose TIME token promised holders a share of a treasury listed at over $735 million[1]. In January 2022 TIME fell about 95% from its November peak of about $10,000[4], and on January 27 an on-chain sleuth identified its pseudonymous treasury manager, 0xSifu, as Michael Patryn, a co-founder of the collapsed Canadian exchange QuadrigaCX[2][3]. Co-founder Daniele Sestagalli said he had known for about a month[1], and holders voted Sifu out two days later[1].

Contents
  1. 1The bet
  2. 2What happened
  3. 3The kill shot
  4. 4Red flags ignored
  5. 5The cost
  6. 6The inversion
  7. 7What survived
  8. 8References

The bet

Wonderland was a fork of Olympus DAO[1], one of a group of so-called rebase tokens[5]. Buyers' money went into a shared treasury, and holders were the ones who would get it back if the project wound down[1]. The belief was that a treasury run in the open, on-chain, did not need a known person in charge of it. Sestagalli put it this way: "the past of an individual doesn't determine their future."[2]

What happened

Sep 2021Wonderland launches as a fork of Olympus DAO, mostly on Avalanche.[1]
Nov 2021TIME peaks at about $10,000. Bitcoin.com puts the all-time high at $10,063.[4][5]
Early Jan 2022TIME drops from $1,400 to under $830, and the team runs a buyback.[4]
Jan 26, 2022A liquidation cascade takes TIME to just under $420. Sestagalli's wallet records $15 million in liquidation losses and Sifu's $1.6 million.[4]
Jan 27, 2022The sleuth zachxbt says 0xSifu is Michael Patryn, a QuadrigaCX co-founder. Sestagalli says he "was aware of this."[2][3]
Jan 29, 2022Nearly 88% of more than 64,000 TIME tokens voting back replacing Sifu. The team proposes winding down and paying the treasury out to holders.[1]
Jan 30, 2022Before the wind-down vote closes, Sestagalli tweets that the "Wonderland experiment is coming to an end."[7]
Early Feb 2022The wind-down vote fails, 55% against and 45% in favor.[6]
Dec 2022Sestagalli returns to rebuild Popsicle Finance. CoinDesk calls Wonderland "since-failed."[8]

The kill shot

Holders trusted a pseudonym with hundreds of millions of dollars, and the one person who knew who it was chose not to tell them.

Sestagalli said he had learned Sifu's identity about a month before the reveal[1] and kept him on the treasury. He said blockchain "has no bias about your past"[2]. The holders did not agree: once they knew, almost 88% of the votes cast went to removing Sifu[1].

The token was already breaking before the name came out. TIME was 95% off its peak on January 26[4], and the founders' own wallets had been liquidated for millions of dollars[4]. A treasury token that pays out more of itself only holds up while people keep buying. When they stopped, the leverage and the reveal hit in the same week.

Red flags ignored

  • An anonymous person held the keys. Sifu ran a treasury listed at over $735 million under a pseudonym.[1]
  • A known past. Court records reported by Bloomberg tie Patryn to Omar Dhanani, who was sentenced to 18 months in US federal prison for a credit card fraud ring.[3][6] Patryn has denied being Dhanani.[3]
  • Founders on leverage. Sestagalli's own wallet took $15 million in liquidation losses during the January crash.[4]
  • A token that fed on itself. TIME belonged to the rebase-token craze and fell 61.8% in a single week once buying stopped.[5]
  • Votes weighted by tokens. In the wind-down vote, a few large holders could outweigh most individual voters.[7]

The cost

TIME fell about 95% from its peak by January 26, 2022[4], and Bitcoin.com measured it at 96.4% down a day later[5]. Holders were left with roughly a tenth of their money or less[7].

After he was removed, Sifu sent 3,000 ETH to the mixer Tornado Cash and said it was his own money[6]. Sestagalli said the treasury funds had been returned to the multisig and that "0 money is lost"[3].

The inversion

Check who holds the money before you check the yield. If no one will tell you who controls the treasury, assume the answer would change your mind.

What survived

The project, for a while. The wind-down failed, 55% to 45%[6], and Sestagalli accepted the vote to keep going[7]. By December 2022 CoinDesk called Wonderland "since-failed" as Sestagalli moved on to rebuilding Popsicle Finance[8]. QuadrigaCX, the exchange Patryn co-founded in 2013[2], had been found by Ontario Securities Commission staff to be a fraud by its CEO Gerald Cotten[2].

References

  1. ^ “Wonderland votes out QuadrigaCX co-founder Sifu and is considering shutting down”. The Block (Yogita Khatri), January 29, 2022. Launch in September 2021, Olympus DAO fork on Avalanche, treasury over $735 million, Sestagalli knew for about a month, the 88% vote of 64,000+ TIME, the wind-down proposal.
  2. ^ “CFO of DeFi Project Wonderland Outed as Co-Founder of QuadrigaCX: Report”. Decrypt, January 27, 2022. zachxbt's identification of 0xSifu as Michael Patryn, QuadrigaCX co-founded in 2013 with Gerald Cotten, Sestagalli's quotes, the OSC fraud finding.
  3. ^ “DeFi protocol Wonderland is allegedly run by QuadrigaCX co-founder”. The Block (Yogita Khatri), January 27, 2022. The reveal, Patryn's denial that he is Omar Dhanani, Sestagalli's "0 money is lost" statement.
  4. ^ “Wonderland's TIME Sets Low of $420 After Liquidation Cascade”. CoinDesk (Shaurya Malwa), January 26, 2022. The $10,000 November peak, 95% decline, the low under $420, the early-January drop and buybacks, Sestagalli's $15 million and Sifu's $1.6 million liquidation losses.
  5. ^ “Rebase Market Carnage: TIME Slips 61%, Wonderland Admin Allegedly Co-Founded Quadrigacx”. Bitcoin.com News (Jamie Redman), January 27, 2022. All-time high of $10,063 and the 96.4% decline.
  6. ^ “Wonderland's treasury saga exposes the fragility of DAO projects today”. Cointelegraph Magazine (Prashant Jha), February 8, 2022. The 55%-45% wind-down vote, the 3,000 ETH sent to Tornado Cash, the Bloomberg court-records report on Dhanani's 18-month sentence.
  7. ^ “Wonderland protocol founder tries to end vote early”. Web3 Is Going Great (Molly White), January 30, 2022. Sestagalli's "experiment is coming to an end" tweet before the vote closed, token-weighted voting, holders down about 90%, Sestagalli accepting the vote to continue.
  8. ^ “DeFi Project Popsicle's ICE Token Triples as Controversial Wonderland Founder Returns”. CoinDesk, December 21, 2022. Wonderland described as "since-failed"; Sestagalli returns to rebuild Popsicle Finance.
Categories: Crypto · DeFi treasury · Collapsed in 2022 · Cause of death: hidden treasurer · From the public record