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Following one of the most tumultuous 48 hours in recent crypto history, DeFi’s most freewheeling act is showing signs that it may be coming to an end.
On Thursday morning, popular on-chain analyst zachxbt revealed in a Twitter thread that 0xSifu, the pseudonymous treasury manager for decentralized finance (DeFi) project Wonderland, is in fact Michael Patryn – the co-founder of a notorious Canadian crypto exchange that defrauded investors of upwards of $190 million.
Read more: Wonderland Rattled After Co-Founder Tied to Failed QuadrigaCX Exchange
The revelation has rocked “Frog Nation,” a loose conglomerate of projects including Popsicle Finance, Wonderland and Abracadabra, which are all currently helmed by prolific DeFi developer Daniele Sestagalli.
Frog Nation-related assets, including ICE, TIME and SPELL are down on the day in excess of 30%, and observers are now worried that Abracadabra’s MIM – one of the largest algorithmic stablecoins with a circulating supply in excess of $4.6 billion, per Coingecko – may lose its peg.
$SPELL down 30% this morning and although the $MIM peg is still 1:1 the Curve finance pool is becoming increasingly imbalanced w/ ~$0.5B in farmers exiting.
Before 0xSifu news
$1.4B 3Crv, $1.1B $MIMAfter 0xSifu news
$0.8B 3Crv, $1.25B $MIM pic.twitter.com/03eTn5Ayhi— FreddieRaynolds (@FreddieRaynolds) January 27, 2022
In an effort to understand how Patryn came to be so deeply embedded in the organization, CoinDesk reached out to Sestagalli, who expressed doubts about the manner in which he ultimately revealed his colleague’s past to the community – but not about working with him in the first place.
“I have been thinking today, could I have prevented more damage today by saying, ‘Yes, it’s him?’ I don’t know,” he said.
Read more: Wonderland’s TIME Sets Low of $420 After Liquidation Cascade
First meeting
Sestagalli told CoinDesk that he initially began talking to Patryn in a trading group with other prominent crypto personalities. Sestagalli had previously taken note of how Patryn added valuable input in a variety of other chat channels, particularly related to yield farming mechanics.
When Sestagalli launched Wonderland, a fork of Olympus DAO, in September 2021, he thought that Patryn would be a natural fit, particularly after Patryn made suggestions for Abracadabra features.
“When I decided I wanted to launch Wonderland, I said to him, ‘I know you know a lot about OHM,’ and he had a deep understanding of bonding. [I said,] ‘Do you want to help me use the Olympus DAO model to raise funds for a DAO?’”
While working together, Wonderland grew to be arguably the most successful Olympus fork, at one point even exceeding Olympus’ treasury. Sestagalli and Patryn became notorious for their aggressive use of treasury funds, investing in startups and deploying yield farming strategies, at times being accused of recklessness.
Wonderland bought 213 $wBTC @ 47209.4 and 2590 $ETH @ 3861 . Love Shopping in Weekends.
— Daniele never asks to DM (@danielesesta) December 4, 2021
“We had tons of meetings, passed through moments and difficult decisions – that’s how I met him. Not as a person, but as Sifu,” said Sestagalli.
Read more: Avalanche-Based Wonderland Makes Seed Investment in Betting Dapp
The two first met in person after Sestagalli had to flee his country of residence last year after threats against his family following his home address being doxxed. Sestagalli invited Patryn to move with him as well as large swaths of the rest of the Frog Nation team.
Patryn eventually agreed, and as the two grew closer in person, Patryn revealed his past.
The ‘Quadriga situation’
According to Sestagalli, his personal experience working with Patryn led him to believe that the convicted felon had turned a new leaf.
“In my personal opinion, I try to avoid judging people for what they have done in the past. I tried to stick to the experience I had with him, and we had many, many months of working together, talking every day, and building successful things together.”
Anon culture is popular in crypto, especially in DeFi circles where it is not uncommon for founders and prominent members to maintain some level of anonymity.
3/ One of the reasons why blockchain technology and DeFi is so powerful is that has no bias about your past. I have no bias about @0xSifu he has became a friend and part of my family and if my reputation of judgment will be hit by his dox, than be it. All frogs for me are equal.
— Daniele never asks to DM (@danielesesta) January 27, 2022
Nonetheless, Sestagalli was taken aback by the revelation, saying he “felt like I was living in a Netflix documentary.”
“When he told me, it was kind of wild. ‘It’s me, it’s this,’ I was like ‘holy fuck.’ Of all the people I could have encountered in my journey, I encountered him. What were the chances?”
He says he conducted personal due diligence on Patryn’s background, but ultimately decided to overlook his colleague’s history because Patryn “has not had any behavior internally in our experience that would raise any red flags.”
“I did my own research. I looked into it, I said, ‘OK, there is a young guy who did some credit card stuff – you understand? Some mistakes when he was young. And then there was the Quadriga situation, which is definitely unclear,” he said.
Crypto exchange QuadrigaCX was founded by Gerald Cotten and Patryn in 2013, quickly becoming one of the largest crypto exchanges by trading volumes in Canada. Cotten died in December 2018 after a trip to India, after which over $190 million worth of cryptocurrency owed to 115,000 customers was deemed missing, as per reports.
Where the funds went remains a mystery, as Quadriga executives claimed that only Cotten had access to the private keys that held the millions of dollars worth of client funds.
Sestagalli admitted that the circumstances surrounding Cotten’s death did give him pause.
“To be honest, at the beginning when I did my research I had my doubts. You know? I was like, ‘Yo, I’m another co-founder, I don’t want to end up like the last one,’” Sestagalli said, laughing.
Ultimately, however, he opted to trust his gut.
“You can look at something from afar, and you can look someone in the eyes. I asked him, what was his version of the situation? And in my opinion, at that point in time, let’s be realistic – it was good enough. If it wasn’t, I would have put him out.”
Community vote
Sestagalli claimed multiple times throughout the interview that the TIME treasury funds – currently worth in excess of $700 million, per a dashboard shared with CoinDesk – previously managed by Patryn are safe.
Additionally, in a post in Discord on Thursday morning, Patryn himself wrote that there is “no risk to Wonderland assets if something happens to me.”
The funds are reportedly managed by a multi-signature scheme, a popular tool that requires multiple individual signatories to approve transactions. Multi-sigs are broadly considered to be a bare-minimum security tool, however, particularly when managing a fund of Wonderland’s size.
Moving forward, Sestagalli said that what happens next is in the hands of the rarely-invoked Wonderland DAO.
“Right now [Patryn] is not managing the treasury, and the community needs to vote on if he should stay. That will happen today,” he said.
Currently, a vote is active to decide if Patryn should be permanently removed from his position as treasurer.
Vote to remove Sifu as treasury manager. https://t.co/fGTBqlAdii
— Daniele never asks to DM (@danielesesta) January 27, 2022
Sestagalli noted that he will be abstaining from the vote, only the seventh in the DAO’s history. “I already made my choice,” he said.
