multichain liquidity crisis

Multichain’s FUD, Liquidity Crisis, and CEO goes missing! Multichain, the fifth-largest bridge is having delayed transactions over multiple bridges for the past week. The worst of all is that Multichain’s team has provided little information about the ongoing issues.

On May 31st, Multichain’s halted services for several chains due to the inability to contact its CEO, Zhaojun. This has led to speculation that the leadership may have been arrested in China. In this article, we’ll try to put everything that is going on with Multichain so far.

What is Happening with Multichain?

First, funds belonging to some users were stuck for over 24 hours and not reaching their intended destination. This was caused because some cross-chain routes are unavailable due to “force majeure”. (The time for service to resume is unknown)

Technically, according to L2BEAT, Multichain’s biggest risks involve in its multi-party computation (MPC) nodes.

multichain liquidity crisis

To understand this better, we have to say that Multichain uses the following permissions addresses:

A privileged account received funds from Ethereum without a corresponding burn on the destination chain.

Account controlled by the MPC nodes. Can set minters for any tokens. Can access liquidity in any tokens.

Account controlled by the MPC nodes. Can set minters for any tokens. Can access liquidity in any tokens.

  • Multichain’s Response

Multichain developers attributed the delay to a backend node upgrade.

multichain liquidity crisis

Source: Twitter

Multichain said it would compensate users affected “during this process,” with a formal plan to be announced in the future. Now, let’s take a look at the other factors.

Multichain’s Team Arrest Rumors

Dovey Wan, a founding partner at Primitive Ventures and an investor in Multichain, said these local authorities are cracking down on crypto projects operating in mainland China.

multichain liquidity crisis

Source: Twitter

A very important update also comes on Twitter amidst rumors that the team behind the protocol was arrested in China in connection with the illicit use of funds in Multichain transactions in the past.

Multichain’s CEO is Missing

Yesterday, on 31st May, the team reported that they are “currently unable to contact CEO Zhaojun and obtain the necessary server access for maintenance.”

The alert was issued due to issues with a network of nodes within Multichain, specifically Router5. This has affected cross-chain services for several other blockchains, including Keychain, PublicMint, Dyno Chain, Red Light Chain, Dexit, Ekta, HPB, ONUS, Omax, Findora, and Planq.

The team has requested that partners stop referring to smart contracts running on Multichain, at least until they are able to obtain the necessary permissions and access to the protocol’s servers.

The Impact of Multichain’s Liquidity Problem

Conor Grogan, who is the head of product at Coinbase, tweeted today that the problems mentioned above will only affect a small number of users. This showcases the low transaction output on the mentioned networks.

multichain liquidity crisis

Source: Twitter

Despite yesterday’s news, Multichain’s native token, MULTI, has been affected over the past 24 hours, with a 13.1% decrease, changing hands at $3.97. Since bridges are connected to multiple blockchains, problems with bridges have a particularly large impact on the crypto ecosystem as a whole.

Multichain is the 5th largest bridge by volume and supports 92 blockchains, and the potential for damage is especially high. The project also raised $60M in 2021 from Binance Labs, the now-bankrupt Three Arrows Capital, and others. Also, here are other consequences:

  • An address related to the Multichain, maybe an investor, transferred 494,200 MULTI to
  • The Fantom Foundation Wallet has removed 449,740 $MULTI from Sushiswap.
  • Chinese crypto investment firm, HashKey Group, moved $250,000 to crypto exchange
  • TRON founder, Justin Sun, withdrew 470,000 USD, a stablecoin, from the protocol itself.
  • hwg.eth seems very smart as he sold 36,243 MULTI ($200k) on May 23rd.

There are a lot of uncertainties with the bridge, and the team is not duly responding to the community and investors. If you want to bridge your assets, try using alternatives such as Wanchain.

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