Secret Blockchain Suffers Departure as Foundation Head’s $2M-Plus Dividend Sparks Cries
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Secret Network, a privacy-focused blockchain, has seen a growing number of validators suspend their services, after the head of an affiliated foundation withdrew more than $2 million in dividends and an upgrade ran into technical problems.
At least four major validators say they have suspended services, including Smart Stake, Kingnodes, Azul Collection and Domerium Labs.
The trend could spell trouble for the Secret Network if others follow suit.
Smart Stake was the last company to stop validating the Secret Network, posts a tweet over the weekend citing “recent events” as a main reason for leaving.
Late last week, Secret Network founder Guy Zyskind, who leads the development of the network’s core technology as CEO of SCRT Labs, alleged in a project forum that Secret Foundation founder Tor Bair made an undisclosed sale of foundation funds and diverted some of the proceeds to himself even as a kind of dividend payment.
“The Secret Foundation sold a significant amount of USD worth of SCRT,” Zyskind wrote in the post. The project’s SCRT tokens have a market capitalization of around $124 million, according to CoinMarketCap. “Tor paid out a significant portion of those earnings (as far as we understand, a number in the low to mid-seven figures) as dividends.”
Zyskind continued, “There are potentially other unreported financial irregularities, such as an open loan to Alameda or one of its affiliates from the Secret Foundation. To our knowledge, the loan or its non-repayment has not been disclosed to the community in any of the reports. » Alameda refers to Alameda Research, the bankrupt crypto trading firm that was involved in the collapse of Sam Bankman-Fried’s FTX crypto exchange.
Zyskind recommended that the Secret Foundation be re-established as an organization “operating as advertised, and as a network of Secret’s size deserves.”
The foundation manager claims that he was owed
The Secret Foundation was created to provide grants and other resources to projects running within the Secret Network ecosystem, but it began facing increased scrutiny last year following revelations that it was incorporated as a for-profit entity despite being has previously represented itself as a non-profit organization. This led to calls from the secret society for greater transparency around the foundation’s operations and the use of community funds.
Bair defended himself in his own forum post, which he published an hour after Zyskind’s. In the post, Bair claimed that the withdrawn foundation tokens were owed to him as part of his SCRT monetization plan.
“Instead of paying out my earned tokens in December 2021, I converted my earned portion of tokens to USD at the OTC price and Secret Foundation distributed those funds as a dividend,” Bair wrote. OTC stands for over-the-counter, and refers to the market price outside the stock exchange. “The amount of tokens earned was 375,000 SCRT. The amount of the dividend distribution was $2.625 million, which is the OTC price of $7 multiplied by the tokens earned.”
While acknowledging the need for more transparency, Bair did not address whether the Secret Foundation has any outstanding loans to Alameda.
Bair did not immediately respond to requests for comment.
‘Problematic’ upgrade
Smart Stake, for its part, said that politics at the Secret Foundation was not the deciding factor in the decision to stop validating the chain. “A lot of projects have all kinds of problems and they sail through the tough times and recover from it,” a representative of Smart Stake wrote in a message to CoinDesk. “The Secret Network community is raising the right questions. Most of the core team members are still cleared.”
The decision to leave Secret stemmed primarily from issues with the network’s core technology, the representative said.
“Recently, a firmware upgrade from Intel was mandatory but problematic to achieve for many validators in time, resulting in quite stressful times for several validators,” the Smart Stake representative said. “A couple of validators terminated their validator within the last month and that was a decision that Smart Stake was also considering at that time.”
Azul, Domerium and King nodes all halted their Secret validator operations before the latest Secret Foundation controversy. Domerium, like Smart Stake, cited issues with handling a recent upgrade.
Azul said it shifted focus to the “application layer” of the chain. Kingnodes cited problems with validator profitability.
In a chirping in response to an earlier version of this article, Zyskind noted that validator departures are of less concern to Secret in the long term. “A single validator with 0.6% of the voting power left yesterday (which is happening). The others are also marginal and left to the technical requirements of running a node,” he said.
“Secret requires more technical chops to run, and if you’re not skilled you’re probably running at a premium that in this market could make someone give up,” Zyskind added.
The validator departures are the latest sign of potential trouble for Secret Network, which revealed in November that it was forced to patch a critical security vulnerability that could have been used to decrypt private user transaction data.
UPDATE (January 30, 21:42 UTC): Adding statement from Guy Zyskind.
