$52 000 000 USD
DESCRIPTION OF EVENTS
"EOS, sometimes called Ethereum Killer, aims to serve as a platform for Decentralised Applications, Dapps. These Dapps would operate on a single, global network through EOS’ Blockchain, thus ensuring the privacy we have come to expect from cryptocurrencies such as BitCoin. EOS’ main competitor is Ethereum, the 2nd highest ranking cryptocurrency, and EOS is making some very bold moves that just might give it the edge it needs."
"EOS Ecosystem [was] a wallet app launched in 2018 aimed at rewarding EOS holders that deposit EOS on the network with lucrative returns." "On October 17, 2018, the w.io team pretended to bid for users to participate in the auction and obtained the account number created and delivered by starteosiobp “w.io”."
"Located in China, the wallet had promised its investors handsome returns for their deposits." An "investigative report [found] that a team called "w.io" professed to be developers of an EOS wallet called Starteos. Investors were then [encouraged] into depositing with promises of a high rate of returns." "[T]he w.io team used the [lack of knowledge] in[to how] the creation of EOS accounts [works], claiming to be a core member of the Starteos team, hoping to win the trust of users with the name of the Starteos super node."
"Prior to shutting down, EOS Ecosystem functioned as an interest-paying wallet. Users entrusted their EOS tokens to the wallet and earned daily profits in return." "The static income is as high as 0.342%-3.42% per day... the annual reward of EOS voting is to split the total of 1% of the newly added EOS tokens" ChainNews says via Google Translate.
"The group was also careful to try to introduce some kind of vague technical explanation for how those returns were possible."
"Unlike the simple and crude pull of Dogecoin, this time the MLM team has established an EOS ecology for itself, which is based on technology flow," ChainNews says.
"And most of all, it was very communicative, staying in constant contact with its users."
"The project also claimed to be connected to other block producers and EOS organizations. However, the organizations named denied any affiliations and claimed that is it a fraudulent project on multiple occasions."
"Notably, the “EOS Ecosystem” reputation was put into question when they were exposed to purporting to own an EOS node which was not the case. According to media outlets in China, the supposed EOS node was none existent and even mislead investors with the introduction of CryptoLion and team info. Allegations that super EOS node Crypto Lions via their website vehemently denied and issued a scam alert distancing themselves from the ‘cryptolions2’ account."
"Part of the reason the scheme succeeded is because it managed to get its claws into people and pay out the promised returns for a period of months. These people would then independently start evangelising the Ponzi scheme and drawing in new users."
"Because the EOS Ecosystem survival cycle is long, many leeks slowly put down their vigilance," ChainNews says. "According to fans, they can convince you for a long time for a few months. Three people can become tigers, not to mention the benefit of someone talking about something in your ears for two or three months."
"Supposedly, EOS Ecosystem was widely known as an alleged Ponzi scheme." "Chain News highlighted that EOS Ecosystem was sued by a court in Tengzhou last year for operating a ponzi scam, but there have been no updates on the case so far." "It was reportedly sued in a local court in China, and it's claimed to be affiliated with a number of block producers and other EOS organisations. These organisations have disavowed any association and claimed EOS Ecosystem is a scam on multiple occasions." "They were subject to court proceedings in China last year after they were sued for allegedly carrying out a pyramid scheme of over 33 million EOS tokens equivalent to $81 million at the time."
"A report unveiled this news on April 20, noting that China-based EOS Ecosystem, a renowned EOS wallet shut down and disappeared with its users’ funds." "On April 20, 2020, EOS Ecosystem investors reported that they were unable to access their accounts through the platform’s app. Chinese crypto and blockchain media outlet ChainNews revealed that most of the user funds appeared to have been removed from the service’s account." "According to both the Chinese crypto news outlet ChainNews and to The Block, EOS Ecosystem, [the] prominent EOS wallet, has disappeared with its users' money, and users report not being able to log in." "According to ChainNews via Google Translate, the amount lost is more than 3 billion yuan (over US$424 million). According to The Block, the sum is $52 million."
"As of April 20, $52 million worth of EOS tokens have been siphoned from an account known to be associated with the project leaving only 500 EOS tokens." "Suspicions raised after it was discovered that addresses associated with EOS Ecosystem had been virtually cleaned out. Per the report, a little under 500 EOS in holdings (approximately $1,265) remained in situ. Upon closer inspection, it appeared that over 890,000 EOS (around $2.3 million) had been removed that morning."
"Reportedly, the wallet’s operator locked investors out, barring them from accessing their accounts via the EOS Ecosystem app. The operator then proceeded to move a large sum of the funds from the service’s account to a different account. The account is dubbed huobidevice3. However, the account is not affiliated with the Huobi exchange. Purportedly, this account has £38.7 million worth of EOS tokens at the moment."
"Following the trail, analysts tracked down several other addresses linked to EOS Ecosystem; they too had been completely emptied. Investigators also discovered that the main account had been drained of 19.3 million EOS—equivalent to around $52 million."
"According to the blockchain, the wallet that reportedly holds the stolen funds has about $48 million of EOS at the time of writing. The account is named "huobidevice3" but is not believed to have any affiliation with Huobi." "According to transaction data, a large chunk of the funds has been transferred to Huobi. The exchange has since pledged to freeze the funds as soon as they're discovered." "At present, the funds do not appear to have been deposited onto an exchange, and Huobi Exchange is currently on the lookout for the funds should they appear on the platform."
"To be honest, EOS is not a good way to cash out after [a fraud], and it is easy to be tracked. Monitored."
"This means the stolen crypto could just sit around like a ticking time bomb, as the alleged scammers wait for things to quiet down. Then at various points down the line, it periodically explodes onto the markets, driving down EOS prices with a series of dumps."
"At time of press [on April 21st, 2020], the victims of the EOS Ecosystem Wallet App ha[d] formed a WeChat group to coordinate legal action and fight back." "Victims of the current exit scam have gathered on a Wechat group to discuss their options, with some worrying that they would be unable to take legal action against the culprits."
EOS is one of the leading blockchains. EOS Ecosystem provided a wallet for EOS holders, which would reward them with interest paid on their deposited EOS tokens. The service launched in 2018 and continued to operate through to April 20th, 2020, at which time users found that they could no longer log in. Blockchain evidence showed that the funds in wallet addresses associated with the service had been drained.
While many of the users in the chat group felt that law enforcement would not help, others formed a legal group to pursue their options. It is unclear if any of those affected were successful in any recovery.
HOW COULD THIS HAVE BEEN PREVENTED?
When selecting a third party wallet, users should ensure that they have direct access to the funds present. Otherwise, they are, in fact, trusting a third party to manage their money for them. It is unclear what portion of participants were aware that they did not actually control their EOS.
Multiple respected blockchain entities exist outside of any oversight, in offshore jurisdictions. This is a situation which is fundamental to the blockchain being a global system, however it has also been increased through regulatory overhead, lack of clarity, and ongoing cost required to establish and maintain regulatory compliance, which often precludes innovative firms from even applying. Many countries that have strong foundations in blockchain technology have leading firms leave the country and establish offshore. At the same time, the general public doesn't understand how any of these regulations work to protect them, and following the stringent advice of sticking to purely regulated products is unlikely to be the norm among seasoned blockchain users.
A framework with transparent and public reports for exchanges and innovative technologies (including a verification of full backing of customer funds) would introduce an expectation of this information existing, and make a ponzi scheme stand out. Most existing audits are revenue-focused and have inadequate information in this regard. (For example, no breakdown of crypto asset liabilities.) When regulations are affordable for small platforms and simple enough for the general public to understand, reputable platforms will be less likely to choose to operate from offshore jurisdictions. Frameworks that maintain power in the hands of platforms, industry, and the community, are less likely to create conflict with innovation. An open-ended and decentralized, community-run insurance fund is one of few structures which could actually step in to assist victims of unregistered ponzis.
https://mp.weixin.qq.com/s/OYSo0UxbTGalVTiZQzhS2Q (Jul 25)
Chinese Startup Allegedly Behind New EOS Ecosystem Exit Scam (Dec 15)
https://www.chainnews.com/articles/071149808195.htm (Dec 15)
Alleged EOS Ponzi scheme runs away with US$50 million | Finder (Dec 15)
In Possible Exit Scam, Chinese EOS Wallet Locks Up $52M of Customer Funds (Dec 15)
Chinese Ponzi Wallet 'EOS Ecosystem' Shuts Down; Investors Locked Out Of M in Funds (Dec 15)
https://www.crowdfundinsider.com/2020/04/160418-exit-scam-developers-of-eos-ecosystem-a-digital-wallet-app-might-have-run-away-with-52-million-after-platform-shuts-down/ (Dec 15)
多次曝光的 EOS 生态也跑路了，圈钱 30 多亿！要不你们找 BM 把它冻结了！？ - 链闻 ChainNews (Dec 16)
EOS 生态跑路，网传负责人被抓，账户却源源不断的打钱！ - 链闻 ChainNews (Dec 16)
This Week: Upgrading and Growing the EOS Ecosystem | EOS Go News (Dec 16)
What is EOS? Cryptocurrencies explained by Blockchart.io (Dec 16)
EOS Ecosystem defrauded users of approximately £40.3 million | Invezz (Dec 16)