Essence Finance Chi Stablecoin Rug Pull

Notice: This page is a freshly imported case study from an original repository. While the original content had a similar format, some sections may not have been fully completed. Please help fill in any empty sections or any missing information you can find. If you are new here, please read General Tutorial on Wikis or Anatomy of a Case Study for help getting started.

Notice: This page contains sources which are not attributed to any text. The unattributed sources follow the initial description. Please assist by visiting each source, reviewing the content, and placing that reference next to any text it can be used to support. Feel free to add any information that you come across which isn't present already. Sources which don't contain any relevant information can be removed. Broken links can be replaced with versions from the Internet Archive. See General Tutorial on Wikis, Anatomy of a Case Study, and/or Citing Your Sources Guide for additional information. Thanks for your help!

Essence Finance Logo/Homepage

Essence Finance promised a fully collateralized stablecoin named CHI, which was supposed to be fully backed more than 100% by assets. The stablecoin traded at a rate very close to $1 USD right up until October 25th, when the price started rapidly falling. The project is accused of performing a rug pull, extracting the $20m worth of liquidity backing the stablecoins. While the project has not posted an update since the price event, their Twitter/X account and website remain online.

About Essence Finance

"A fully-collateralized, decentralized stablecoin built around the needs of the decentralized finance ecosystem. Providing access to a scalable solution for a decentralized stablecoin."

"Essence Finance is unlocking a new paradigm for decentralized finance, providing a stable and decentralized way to store and transfer value, without sacrificing the core principles of decentralization and security."

"Integrate CHI into existing apps or use it to build new innovative services. Give your users access to the stability of the dollar while maintaining decentralization."

"Yes, CHI can always be redeemed for $1 of collateral through the dApp. Essence Finance will always maintain a minimum collateral ratio of 100%, meaning CHI will always be redeemable for the underlying collateral."

"Users can issue new CHI into circulation by depositing $1 of collateral (+ a small fee), this process is referred to as minting. Similarly, when a user wants to redeem CHI in exchange underlying collateral, it removes CHI from circulation, this is referred to as burning."

"ZEN is the governance token of Essence Finance. Essence is a community-driven protocol, and ZEN holders are the collective stewards of the PCV (Protocol Owned Value) and the Essence ecosystem."

"A core principle of Essence is its fully decentralized design and minimal dependence on any centralized assets or protocols. It is controlled by the ZEN token holders. The Essence DAO is responsible for utilizing all of the flexible and power features of Essence to continually enhance the protocol in an ever-changing DeFi space."

The Reality

This sections is included if a case involved deception or information that was unknown at the time. Examples include:

• When the service was actually started (if different than the "official story").
• Who actually ran a service and their own personal history.
• How the service was structured behind the scenes. (For example, there was no "trading bot".)
• Details of what audits reported and how vulnerabilities were missed during auditing.

What Happened

The specific events of the loss and how it came about. What actually happened to cause the loss and some of the events leading up to it.

Key Event Timeline - Essence Finance Chi Stablecoin Rug Pull

Date	Event	Description
September 10th, 2024 12:37:00 PM MDT	Final Tweet From Project	The final tweet from the project about a new trading pair which is available for the stablecoin.
October 25th, 2024 4:24:32 PM MDT	Price Normalcy	Price At 0.998792.
October 25th, 2024 5:26:36 PM MDT	Price Starts Dropping	Price At 0.991694.
October 25th, 2024 6:23:38 PM MDT	Price Starts Dropping	Price At 0.958128.
October 25th, 2024 7:23:40 PM MDT	Price Repidly Dropping	Price At 0.314190.
October 25th, 2024 8:23:53 PM MDT	Price Continues Dropping	Price At 0.110134.
October 25th, 2024 10:25:00 PM MDT	Wu Blockchain Tweet	Wu Blockchain publishes a tweet with suspicions of the protocol rug pulling on users.
October 25th, 2024 10:43:03 PM MDT	CoinTime Article Published	An article is published by CoinTime.
October 26th, 2024 8:26:44 AM MDT	Bitcoin News Article	An article is published by Bitcoin News.

Technical Details

This section includes specific detailed technical analysis of any security breaches which happened. What specific software vulnerabilities contributed to the problem and how were they exploited?

Total Amount Lost

The total amount lost has been estimated at $20,000,000 USD.

How much was lost and how was it calculated? If there are conflicting reports, which are accurate and where does the discrepancy lie?

Immediate Reactions

"Scroll ecosystem stablecoin project Essence Finance is suspected of rugpulled, its stablecoin CHI has fallen by more than 92% to $0.077 in the past 24h, more than $20 million of collateral is suspected to have been removed. The last tweet was posted on September 11. The audit report of the project comes from FEI Protocol V2."

"ChainCatcher news, the Scroll ecosystem stablecoin project Essence Finance is suspected to have undergone a Rug Pull, with its stablecoin CHI dropping 93.94% to $0.06 in the past 6 hours, and over $20 million in collateral is suspected to have been removed. The last post from its official X was on September 11. The project's audit report is from FEI Protocol V2."

"Early on Oct. 26, the U.S. dollar value of Essence Finance’s decentralized stablecoin, CHI, plunged by more than 90% after rumors emerged that more than $20 million of collateral had been removed. According to Geckoterminal data, the value of the stablecoin, which normally trades at par with the U.S. dollar, dropped by nearly 98% to $0.01338 in less than 24 hours. The huge drop has sparked allegations of a rug pull against the protocol’s developers. At the time of publication, Essence Finance had not issued a statement about the incident or acknowledged its impact on the protocol’s operations."

Ultimate Outcome

What was the end result? Was any investigation done? Were any individuals prosecuted? Was there a lawsuit? Was any tracing done?

Total Amount Recovered

There do not appear to have been any funds recovered in this case.

What funds were recovered? What funds were reimbursed for those affected users?

Ongoing Developments

What parts of this case are still remaining to be concluded?

Individual Prevention Policies

No specific policies for individual prevention have yet been identified in this case.

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

Policies for platforms to take to prevent this situation have not yet been selected in this case.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

No specific regulatory policies have yet been identified in this case.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.