Key Takeaways

• The Kinto token has plummeted over 80% after the Ethereum layer-2 project announced it would shut down at the end of September following a $1.6 million hack.

• The team cited worsening market conditions and a failed fundraising round as the primary reasons for the shutdown, stating they could not continue operating without a new capital infusion.

• This marks the second failed crypto venture for founder Ramon Recuero, who also had to shut down Babylon Finance in 2022 after a separate hack.

The Ethereum layer-2 project Kinto has announced it will officially wind down operations on September 30, a decision that sent its governance token plummeting by over 80%.

The shutdown comes months after a devastating $1.6 million hack and a subsequent failure to secure new funding. The Kinto team stated that after the last financing path fell through, “we have one responsible choice left: shut down cleanly and protect users/lenders as best as possible.”

Financial Pressures and the L2 Ecosystem

The collapse of Kinto is a cautionary tale about the financial pressures facing crypto projects, particularly in the aftermath of a security breach.

Kinto’s hack, which exploited a vulnerability in a common smart contract standard, drained millions in assets, leaving the project in a precarious financial position.

Despite raising $1 million in debt to restore trading on its modular exchange, the team said that “worsening market conditions killed further fundraising.”

The project also faced criticism for its high annual percentage yield (APY) offerings on stablecoins, with one founder noting a 130% APY. Such high yields are often a red flag for investors, as they can indicate an unsustainable business model.

This combination of a hack, failed fundraising, and a potentially flawed financial model proved to be a fatal mix.

A Second Failed Venture

For Kinto founder Ramon Recuero, this is the second time he has had to shut down a crypto project due to similar circumstances. Recuero’s previous venture, Babylon Finance, also closed down in 2022 after it fell victim to a $3.4 million hack.

In both cases, Recuero cited a failure to “revert the negative momentum” caused by the hack.

As part of the shutdown, Kinto has unveiled a recovery plan. The project will distribute its remaining assets to the lenders who helped it relaunch, who are expected to recover 76% of their loan principal.

The team is also setting up a “goodwill grant” for hack victims, funded in part by Recuero’s personal funds. Kinto urged users to withdraw their assets by September 30 to avoid having to use a perpetual claim contract later.

Final Thoughts

The Kinto shutdown is a painful reminder of the high-risk nature of the crypto industry. The project’s failure, driven by a combination of a hack and an inability to raise funds, shows that even promising layer-2 solutions are not immune to market forces.

Frequently Asked Questions

What is a layer-2 network?
A layer-2 network is a secondary blockchain built on top of a main blockchain (like Ethereum) to increase transaction speed and reduce fees by processing transactions off-chain.

Why did Kinto shut down?
Kinto shut down after a $1.6 million hack and a subsequent failure to secure new funding, with the team stating that worsening market conditions made it impossible to continue operating.

What is the history of Kinto’s founder?
Kinto’s founder, Ramon Recuero, previously founded Babylon Finance, which also shut down after it was hacked in 2022, making Kinto his second failed crypto project.