Wonderland Money Sifu Scandal

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Wonderland Money

Wonderland is a DAO which invests funds on behalf of members and has a asset-backed TIME token. One of the founders was Michael Patryn, who has a long and concerning history. His identity wasn't disclosed to users. At one point, $8.4m of funds were taken out of the multi-sig treasury in order to avoid liquidation (which happened anyway). This created controversy, that ultimately resulted in an investigation and Michael Patryn's presence being revealed. The community voted to remove him and keep the project going. A significant amount of his funds were subsequently transferred through TornadoCash. It's not clear that any losses have been passed through to users.

This is a global/international case not involving a specific country.

About Wonderland Money

"The Defi WonderLand. Financial tools to grow your wealth - stake and earn compounding interest."

"Wonderland is a DeFi protocol mostly based on Avalanche. It is a fork of Olympus DAO, a decentralized reserve currency protocol that lets users deposit or sell tokens to the Olympus treasury in return for discounted OHM tokens. Wonderland quickly became a famous fork of Olympus. The current treasury balance of Wonderland [stood] at over $735 million, according to its website."

"Wonderland is the first decentralized cross-chain reserve currency protocol on the TIME token. Each TIME token is backed by a basket of assets (e.g., MIM, TIME-AVAX LP Tokens etc etc) in the Wonderland treasury, giving it an intrinsic value that it cannot fall below. Wonderland also introduces economic and game-theoretic dynamics into the market through staking and minting."

"Our goal is to build a policy-controlled currency system, native on the AVAX network and then bridged across different chains, in which the behavior of the TIME token! In the long term, we believe this system can be used to optimize for stability and consistency so that TIME can function as a global unit-of-account and medium-of-exchange currency. In the short term, we intend to optimize the system for growth and wealth creation."

"We intend to achieve price flatness for a representative basket of goods without the use of fiat currency, in order to allow the cryptocurrency industry to detach once and for all from the traditional finance world!"

"Wonderland is a cross-chain fork of Olympus. Our team is mostly anonymous, born from the DeFi Community. We aim at becoming a Decentralized Autonomous Organization, and we are actively working towards that goal." "Currently most of the decisions are taken by the core team, but we expect to be able to turn this into a DAO-governed model as soon as possible!"

"TIME is not a stablecoin. Rather, TIME aspires to become an algorithmic reserve currency backed by other decentralized assets. Similar to the idea of the gold standard, TIME provides free-floating value its users can always fall back on, simply because of the fractional treasury reserves TIME draws its intrinsic value from."

"Each TIME is backed by 1 MIM, not pegged to it. Because the treasury backs every TIME with at least 1 MIM, the protocol would buy back and burn TIME when it trades below 1 MIM. This has the effect of pushing TIME price back up to 1 MIM. TIME could always trade above 1 MIM because there is no upper limit imposed by the protocol. Think pegged == 1, while backed >= 1."

"Wonderland is currently unaudited! It is a fork of Olympus DAO on the avalanche Network, audits will occur at a later stage. Stay cautious!"

"Wonderland launched September [2021]."

“In my personal opinion, I try to avoid judging people for what they have done in the past. I tried to stick to the experience I had with him, and we had many, many months of working together, talking every day and building successful things together,” said Sestagalli (via CoinDesk).

“I did my own research. I looked into it, I said, ‘OK, there is a young guy who did some credit card stuff — you understand? Some mistakes when he was young. And then there was the Quadriga situation, which is definitely unclear.”

The Reality

"All funds are Sifu. An on-chain sleuth discovered that all was not well in Sesta's Wonderland, and the impacts of Quadriga are far from forgotten."

"Patryn, a notorious name in crypto trading circles, was one of the co-founders of the endlessly mysterious defunct crypto exchange QuadrigaCX, alongside the (supposedly) deceased Gerald Cotten." "Separate from his involvement in Quadriga, Patryn also pleaded guilty to conspiracy to commit credit card fraud, burglary, grand larceny, and computer fraud."

"According to Dani they met when Sifu/Patryn DM’d him as an early Abracadabra investor. They exchanged ideas and slowly started to work together over time." "Perhaps his interactions with Sifu (unknowingly Omar) made him look past his history. Dani said however he believes in second chances." "Sestagalli claims he met Patryn in an online chat server with other DeFi insiders and decided to work together on his Olympus fork, Wonderland, due to Patryn’s deep knowledge of tokenomics."

"[U]nbeknownst to everyone but Sestagalli, Patryn was serving as treasurer for the hundreds of millions of dollars locked in Wonderland’s treasury, albeit controlling just one multi-sig key." "Sestagalli claims that he knew of Patryn’s past and decided to trust him with one of Wonderland’s multi-sig keys regardless."

"Patryn and Sestagalli had grown close, said Frog Nation’s spiritual leader in a CoinDesk interview." "Eventually, the QuadrigaCX co-founder felt comfortable enough to disclose his past. Sestagalli reckoned he didn’t encounter any red flags while working with 0xSifu, so he considered giving him a second chance."

"Sifu first became known after the Ruler/Cover fiasco when he dumped the treasury on Yearn. Sifu was to blame for a lot of it yet faced lots of backlash at the time." "Sifu [was] accused of taking $8.4m worth of $time from the Wonderland treasury."

A video is shared discussing allegations against a team member named Sifu, who is a co-founder of the Quadriga CX cryptocurrency exchange. The individual has been accused of being a convicted felon involved in an identity theft ring called Shadow Crew. The co-founder, Michael Patrion (also known as Omar Dahani), served time in a U.S. prison for his role in the identity theft ring. The allegations have raised concerns about the reputation of Quadriga and the safety of users' funds. The video also highlights the similarities between Quadriga's platform and Liberty Reserve, a digital currency exchange involved in money laundering operations. The reputation management of Michael Patrion has been questioned, as he hired a company to bury negative press and present him as a fintech expert. The narrator expresses shock and concern over these revelations and acknowledges the potential impact on the cryptocurrency community.

What Happened

0xSifu withdrew funds from the team treasury, with the approval of all multi-signature members.

Key Event Timeline - Wonderland Money Sifu Scandal

Date	Event	Description
January 19th, 2022 2:12:00 PM MST	The DeFi Edge Report	The DeFi Edge reports that Sifu is being accused of taking $8.4m worth of TIME tokens from the Wonderland treasury and using it to prevent his own liquidation.
January 27th, 2022 1:35:03 AM MST	YouTube Video Published	A video is shared discussing allegations against a team member named Sifu, who is a co-founder of the Quadriga CX cryptocurrency exchange. The individual has been accused of being a convicted felon involved in an identity theft ring called Shadow Crew. The co-founder, Michael Patrion (also known as Omar Dahani), served time in a U.S. prison for his role in the identity theft ring. The allegations have raised concerns about the reputation of Quadriga and the safety of users' funds. The video also highlights the similarities between Quadriga's platform and Liberty Reserve, a digital currency exchange involved in money laundering operations. The reputation management of Michael Patrion has been questioned, as he hired a company to bury negative press and present him as a fintech expert. The narrator expresses shock and concern over these revelations and acknowledges the potential impact on the cryptocurrency community.
January 28th, 2022 2:27:00 PM MST	Next Step Snapshot Shared	A snapshot link is shared on Twitter by Wonderland Finance, which proposes to wind down the Wonderland project and return the treasury funds to shareholders. TBD follow link to proposal and report.
February 15th, 2022 8:00:11 AM MST	Impulse DeFi Video	Impulse DeFi reports that In the video, the host provides an update on the cryptocurrency project called Wonderland. The charts show the price of the project's token, Rep Memo, which has increased by 4% from the previous day. The host also discusses the treasury balance and the backing program of the project. The video mentions that the team is waiting for a proposal called WIP number five, which has been delayed. The host checks the Discord channel and finds that the proposal is still not released. Some community members express frustration about the delay. In terms of news, the video references an article from Coindesk discussing the potential regulatory implications for Wonderland and the broader decentralized finance (DeFi) sector. The article suggests that the project's use of protocol controlled value (PCV) and centralized treasury management may attract regulatory attention. It discusses the possibility of the Securities and Exchange Commission (SEC) exploring the claims of decentralization in DeFi protocols and the potential consequences for the sector. The video also mentions an update from Sifu, one of the co-founders of Wonderland. Sifu states that he will not be returning to the project and asks the team to leave his post in the general forum. Sifu remains active in the background as an investor and expresses sadness about giving up his involvement in the project. Overall, the video provides an update on the price of Rep Memo, discusses the delay in releasing a proposal, mentions potential regulatory concerns for Wonderland and the DeFi sector, and shares the news of Sifu's departure from the project.

Technical Details

On January 15th, 0xSifu withdrew 4.25k TIME, which has a market value of $8.4m USD. This was withdrawn from the Wonderland treasury with the approval of all multi-signature members.

Interpretation/Analysis By The DeFi Edge

The DeFi edge provided an analysis and interpretation of the events, reporting that Sifu's withdrawal from the treasury was well within the team allocation, which is lower than many other projects in the space.

There has been FUD around @Wonderland_fi treasury manager @0xSifu

Sifu is being accused of taking $8.4m worth of $time from the Wonderland treasury.

And then using it to PREVENT his own liquidation of $time.

/1 What Happened?

• 4.25k Time ($8.4m) was transferred from the Wonderland treasury to Sifu's private wallet on 1/15

• He then added it to his collateral on @mim_spell on 1/16 to prevent liquidation

Sifu still ended up getting liquidated despite this.

This is all on-chain.

/2 Was Sifu Allowed to take out 4,250 Time?

• The treasury is secured by a MULTISIG

• They would NOT approve $time taken out to provide his personal funds.

So why was he allowed to take out that much money?

The FUDSTERS are accusing him of acting maliciously.

/3 Because it's $time that the team OWNS

From @0xSifu

"There is a difference between "taking time from the treasury to avoid liquidation" and "staking team token allocation disbursement well before the crash"

"I was not at risk of liquidation when I added those tokens to the Abra position which I have been building since we launched the CDP.

As I receive no cash salary, I sell tiny pieces here and there.

I have expenses and cover many company costs."

/4 Every Crypto project has a % of tokens set aside for the team.

• The Wonderland team receives $0 salary.

• This allocation covers compensation for their hard work.

• It also covers company expenses.

This is all in the official documents btw if you want to check

/5 How Much Allocation Does the Team Get?

5% of the Circulation Supply

The Circulating Supply is 889,667.

5% is 44,483 TIME Tokens.

That's worth around $52 million.

/6 Is 5% a LOT for the team?

Let’s look at the tokenomics of other projects.

Most DeFi projects take around 10-20%.

It looks like we're getting the deal of the century with 5%.

/7 Most of his $time is still in the treasury

Taking it all out at once would dilute the APY %.

So they take it out in small pieces.

Prevent liquidation? He could've taken it out to pay for a for [an adult party].

It's none of our business.

/8 What does Mr. @danielesesta think?

”Whoever fud about payments you think we're so stupid to send ourselves the money on-chain”

"They're all [pretending to be] police inspectors uncovering a BIG SCAM"

Btw.

Daniele has made an invitation for the FUDSTERS to inspect his [transactions thoroughly].

/9 Do the FUDSTERS have an agenda against Frog Nation?

Maybe.

I noticed that the FUDSTERS are hardcore Trader Joe fans.

Could they be salty that Wonderland moved all their liquidity over to @sushiswap?

/10 Constructive criticism of a project is FINE.

But spreading lies and misinformation is NOT.

I'm supposed to be taking a break, but I can't sit back and see FROG NATION attacked with [misinformation].

Total Amount Lost

The total amount lost has been estimated at $8,400,000 USD.

Immediate Reactions

Impacts On Token Price

"While TIME had been tanking for weeks before the revelation hit, word that Patryn had any sway at all in Wonderland’s DAO sent the token to all-time lows almost immediately."

Vote To Replace Michael Patryn

"A vote was called, proving that the “Frog Nation” does not share Daniele’s belief." "Wonderland DAO opened a vote to unseat Sifu on January 27 and passed it with a majority on January 29. TIME token holders with a combined over 64,000 tokens participated in the vote. (One token generally serves as one vote)." "TIME token holders voted in 88% agreement to replace Patryn as treasurer earlier this week."

Funds Moved Through Tornado Cash

"Patryn was caught “washing” $2.8 million worth of Ether through crypto mixer Tornado Cash shortly after the controversy broke, indicating he’d exited multiple positions, including Wonderland."

Ultimate Outcome

Daniele Sesta Public Apology

"Despite initially backing Patryn, Daniele Sesta has now published an apology of sorts, and it seems the fate of Wonderland will now lie in the hands of the community."

Vote To Wind Down Wonderland

On January 28th, a vote was announced on Twitter about potentially winding down the Wonderland Time protocol, with all treasury funds being returned to investors.

"The vote on winding the project down ended only after a dramatic stalemate, with some investors calling for the project to dissolve and for its treasury of user-contributed funds to be refunded, and others fighting in support of the project. In the end, the grass-roots campaign won by a slim margin, with 55 percent voting to continue. Despite the signal to carry on, what form it will ultimately take is currently unclear."

"At that point, the vote on whether to keep the project alive was around a 50/50 split, and Sestagalli said that the only way forward was to reimburse and unwind those who don’t want to be part of the community, and “find a new home” for those who feel “attached & inline with the Frog Nation Vision,” referring to the community of investors who have gathered around Sestagalli's multiple projects in DeFi."

“I do not agree about continuing this experiment,” he wrote. But then, a few hours later, Sestagalli backtracked and wrote on Twitter that “We will continue building together as a community and get out of the FUD [Fear Uncertainty and Doubt] together.”

So even the bad actors get their “share” returned…? #SoftRugPull

Pretty poor choice to wind down when we've achieved so much in a short 4 months. Sifu grew the treasury to a high of 1.5 Bill excluding $TIME/MEMO assets with seed investments in several projects and revenue share round the corner. We had so much going for us, till the FUD.

We just built a billion dollar business only to dissolve in less than 6 months just because the market crashed and people are whining like kids. Arbitrageurs are playing us like puppets and will double their money with this dissolution! No have to stop this!

Total Amount Recovered

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

Ongoing Developments

TBD

General Prevention Policies

Having a full background check on team members can avoid any issues with secret pasts. Participants should be made aware of who holds keys to the multi-sig.

Individual Prevention Policies

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

Avoid the use of smart contracts unless necessary. Minimize the level of exposure by removing or withdrawing assets whenever possible. Aim to choose smart contracts which have obtained third party security audits, preferably having been audited by at least three separate reputable firms. Pay attention to the audit reports, which smart contracts are covered, and whether the smart contract has been upgraded or modified since the report. Ensure that any administrative functions with the ability to remove funds from the smart contract are under the authority of a multi-signature wallet which is controlled by at least three separate and reputable entities.

When using any third party custodial platform (such as for trading), it is important to verify that the platform has a full backing of all assets, and that assets have been secured in a proper multi-signature wallet held by several trusted and trained individuals. If this can't be validated, then users should avoid using that platform. Unfortunately, most centralized platforms today still do not provide the level of transparency and third party validation which would be necessary to ensure that assets have been kept secure and properly backed. Therefore, the most effective strategy at present remains to learn proper self custody practices and avoid using any third party custodial platforms whenever possible.

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.

All aspects of any platform should undergo a regular validation/inspection by experts. This validation should include a security audit of any smart contracts, reporting any risks to the backing (of any customer assets, ensuring treasuries or minting functions are properly secured under the control of a multi-signature wallet, and finding any inadequacies in the level of training or integrity of the team. The recommended interval is twice prior to launch or significant system upgrade, once after 3 months, and every 6 months thereafter. It is recommended that the third party performing the inspection not be repeated within a 14 month period.

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.

All platforms should undergo published security and risk assessments by independent third parties. Two assessments are required at founding or major upgrade, one after 3 months, and one every 6 months thereafter. The third parties must not repeat within the past 14 months. A risk assessment needs to include what assets back customer deposits and the risk of default from any third parties being lent to. The security assessment must include ensuring a proper multi-signature wallet, and that all signatories are properly trained. Assessments must be performed on social media, databases, and DNS security.

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