The world of cryptocurrency continues to face scrutiny as new revelations come to light involving prominent figures and their business dealings. Recent reports suggest that two associates of former US President Donald Trump, linked to the cryptocurrency venture World Liberty Financial (WLFI), have allegedly neglected their responsibilities towards investors from an earlier Decentralized Finance (DeFi) initiative.
Unfolding Crisis in the DeFi Sector
As noted in a recent report by Reuters, it has come to attention that Chase Herro and Zak Folkman, business partners in WLFI, have seemingly distanced themselves from investors impacted by a major security breach in their previous project, Dough Finance. The incident resulted in a significant loss of funds, amounting to $2.5 million.
Dough Finance was designed as a community-driven platform aimed at creating decentralized liquidity markets for users. Unfortunately, a devastating flash loan attack targeted this initiative last year, leading to the theft of over $2.55 million worth of cryptocurrencies, including USDC and Ethereum (ETH).
Reports indicate that the attack exploited vulnerabilities within Dough Finance’s smart contract. Attempting damage control, the team reached out to the hacker, offering a reward for returning the stolen assets, highlighting the desperate situation for affected investors.
Despite these efforts, only a fraction of the stolen assets — about 76.2 ETH, valued at roughly $281,000 — has been recovered by a cybersecurity firm, leaving many investors in a state of uncertainty about their funds.
September saw a partial recovery as $180,000 worth of ETH was distributed, yet many investors have voiced frustration, claiming they have not received any compensation, leaving them questioning the co-founders’ integrity.
In a detailed post on Medium, the remaining Dough Finance team issued an apology, citing their commitment to enhancing security protocols in the wake of the disaster. They expressed determination to learn from the exploit and protect their user base in the future.
However, the narrative took a turn as the co-founders shifted their focus to their new initiative, World Liberty Financial, shortly after the fallout from Dough Finance. Many have raised concerns over potential overlap between the two projects, particularly regarding the language used in their promotional materials.
Concerns Among Dough Finance Investors
Investors of Dough Finance have raised alarms about the lack of communication and transparency from Folkman and Herro. Reports suggest they assured users that efforts would not cease until everyone was compensated adequately.
Despite these promises, silence ensued, with social media channels remaining dormant since mid-August. The situation has escalated further as the Dough Finance website has been taken down, with reported Total Value Locked (TVL) dwindling to a mere $1,689, according to DeFiLlama analytics.
Legal actions have also started taking shape, with a Florida resident, Jonathan Lopez, filing a lawsuit against Herro. Accusations include fraud and violations of financial regulations, stemming from Lopez’s investment of nearly 300 ETH based on Herro’s claims.
Investors have shared their plight, often finding themselves without any updates for months at a time, with promises fading into silence. Many have voiced their discontent over the founders’ apparent negligence towards their commitments, while others express a mix of hope and skepticism about future resolutions.
Interestingly, as the crypto landscape evolves, it has been reported that Herro and Folkman have capitalized significantly from their new endeavor, with estimates suggesting earnings of at least $65 million from WLFI’s lucrative token sales.
