The Filecoin Foundation, a nonprofit supporting the Filecoin Web3 storage protocol, is conducting an investigation into the alleged detention of Filecoin Liquid Staking (STFIL) team members. According to a social media post on April 13 from foundation senior fellow Danny O’Brien, the foundation has retained a Chinese lawyer for the inquiry.
Withdrawals from the STFIL protocol ceased functioning in early April after a developer wallet performed unscheduled upgrades and transferred $23 million worth of Filecoin (FIL) tokens to an unknown address. On April 8, the STFIL team announced that key technical members had been detained by local Chinese police, and the upgrades and transfers occurred during their detentions. This has left STFIL users uncertain about the recovery of their funds.
O’Brien stated the foundation has a lawyer investigating the matter in China and has “high confidence” that STFIL team members are in police custody. The foundation cannot confirm whether the police have the funds, but they expect to find out within a week. Their lawyer will represent all staking providers and leasers in any related legal proceedings.
O’Brien pledged to provide further updates once the plan’s specifics are established. He also requested that affected staking providers provide their contact information via a Google Doc or Slack Channel set up for this purpose.
Filecoin is a decentralised storage protocol that allows PC owners to rent out their hard drives to those in need of storage. It requires storage providers to use FIL tokens as collateral to ensure data storage per agreements.
FIL holders can lend tokens to storage providers and earn a portion of the fees as rewards, a process known as “FIL staking.”
STFIL pools FIL tokens and stakes them with trusted storage providers. Users who deposit FIL in the STFIL protocol receive STFIL tokens in exchange. Normally, these STFIL tokens can be redeemed for FIL plus staking rewards. However, this process stopped working in April due to the unauthorised upgrades and transfers.
STFIL is not the only Web3 protocol facing legal issues in China. Users of Multichain’s cross-chain bridging platform had over $1.5 billion in crypto frozen after the protocol’s development team was arrested by Chinese police. The funds remain unrecovered.
Fantom Protocol, a major Multichain depositor, filed for bankruptcy in March to potentially retrieve some lost Multichain funds through legal action. Fantom co-founder Andre Cronje believes it may take “years” for investors to obtain a court order that could compel police to release the funds.