Kinto, the Ethereum Layer-2 blockchain that previously aimed to combine the effectiveness of centralized exchanges with the safety of decentralized platforms, has revealed it will cease operations by the end of September. The choice follows several months of difficulties, such as a $1.6 million breach in July and a failure to secure new funding, resulting in no practical way ahead for the team.
Kinto stated that although it secured $1 million in debt to revive operations on its modular exchange, deteriorating market conditions ultimately rendered additional fundraising unfeasible. The breach, which took advantage of a weakness in the ERC-1967 Proxy standard, a codebase commonly utilized in the industry, turned out to be a pivotal moment. Although many other DeFi protocols faced the exploit’s impact, the event prompted a decline in trust regarding Kinto’s viability.
The team highlighted that users may keep withdrawing assets as usual until September 30, after which withdrawals will be processed via a perpetual claim contract. Phoenix lenders, who intervened to assist in revitalizing the platform post-hack, are anticipated to regain about seventy-six percent of their loan principal. Additionally, Kinto declared a goodwill grant for those impacted by the exploit, allowing each affected address to claim as much as $1,100. Co-founder Ramon Recuero committed over $130,000 of his personal funds to back the effort, emphasizing that the wind-down is intended to safeguard the community as much as possible.
The market responded quickly and harshly. Kinto’s governance token, which was introduced just in April, dropped by more than eighty-one percent the day after the shutdown announcement. Previously reaching a maximum market capitalization of $14.5 million in mid-August, the token is currently priced around forty-six cents, and the project’s market cap barely exceeds $1 million.
Unsustainable yields, repeat failures, and lessons for DeFi
Kinto established its reputation through audacious commitments, providing remarkably high annual percentage yields on stablecoins, featuring an astonishing one hundred and thirty percent APY on USDC staking earlier this year. These numbers, although drawing in users temporarily, prompted concerns regarding the platform’s long-term viability even prior to the hack.
This isn’t the first occasion Ramon Recuero has witnessed one of his enterprises fail due to a security breach. In November 2022, his earlier venture, Babylon Finance, also closed down after being hacked and losing $3.4 million. Similar to Babylon, the Kinto team acknowledged that the adverse momentum caused by the exploit was too challenging to turn around, especially in a harsh fundraising climate.
This isn’t the first occasion Ramon Recuero has witnessed one of his enterprises fail due to a security breach. In November 2022, his earlier venture, Babylon Finance, also closed down after being hacked and losing $3.4 million. Similar to Babylon, the Kinto team acknowledged that the adverse momentum caused by the exploit was too challenging to turn around, especially in a harsh fundraising climate.