The Filecoin Foundation, a nonprofit organization that promotes the development of the Web3 storage protocol Filecoin, is currently investigating the reported detention of team members from Filecoin Liquid Staking (STFIL), according to a social media post by Danny O’Brien, a senior fellow at the foundation. O’Brien stated that the foundation has a lawyer in China who is looking into the incident and has “high confidence” that the STFIL team members are in police custody. However, the foundation has not been able to confirm whether the police have the funds that were transferred. They expect to have more information within a week and plan to allow their attorney to represent all staking providers and leasers in any court proceedings related to the incident. O’Brien also requested staking providers who lost funds to provide their contact details through a designated Google Doc or Slack Channel.
Filecoin is a decentralized storage protocol that enables PC owners to rent out their hard disk space to users in need of data storage. In order to guarantee that data is stored as agreed upon, storage providers are required to provide FIL tokens as collateral. FIL holders have the option to lend out their tokens to storage providers and earn a portion of the collected fees, a process known as “FIL staking.” STFIL, on the other hand, is a protocol that pools FIL tokens and stakes them through a network of trusted storage providers. When users deposit FIL into the STFIL protocol, they receive STFIL tokens in return. Under normal circumstances, these tokens can be redeemed for the deposited FIL along with accumulated staking rewards. However, this redemption process has ceased to function since the unauthorized upgrades and transfers took place in April.
This incident is not the only instance of criminal legal action affecting Web3 protocols in China. Users of the Multichain cross-chain bridging platform had over $1.5 billion of their cryptocurrency frozen after the protocol’s development team was arrested by Chinese police. The funds have yet to be recovered. In an attempt to recover some of the lost funds through litigation, Fantom Protocol, one of the largest depositors to Multichain, filed for bankruptcy in March. According to Andre Cronje, co-founder of Fantom, it may take years for investors to obtain a court order that can compel the police to release the funds.