In a significant legal move, Hash Asset Management Ltd has filed a lawsuit in Delaware state court against the founders of the ICHI crypto protocol, alleging a “rug pull” that resulted in the loss of over US$16 million in investor capital. The lawsuit, initiated against DMA Labs Inc, its officers Bryan Gross and Nick Poore and other associates, claims the collapse of a cryptocurrency yield pool due to a fraudulent pump-and-dump scheme.
Daniel A. Griffith, co-chair of the litigation department at Whiteford, Taylor & Preston in Delaware and <a href="https://www.belgravia.law/team/george-benaur" target="_blank" class="news-text_link">George Benaur</a>, of counsel at Belgravia Law in New York, represent the plaintiff, Hash, in its lawsuit against DMA Labs Inc, its officers Bryan Gross and Nick Poore, the ICHI Foundation, its associate Tyler Pinter and its business manager Julian Brand.
Cryptocurrencies are digital assets secured by blockchain technology, which is essentially a code-based, decentralised ledger recording all cryptocurrency transactions. The Ethereum blockchain is widely used for creating new cryptocurrencies and stablecoins are designed to maintain a stable value, typically pegged to a reliable asset like the US dollar, to minimise the volatility often seen in cryptocurrencies.
ICHI, launched in early 2021, is an Ethereum-based token and protocol designed to create project-specific stablecoins, known as “oneTokens”. These stablecoins were to be backed by deposits of stablecoins like USD Coin. Investors, including Hash, were promised the ability to mint and redeem oneTokens on a 1:1 basis as well as earn yield by contributing liquidity to Rari Pool 136. That pool was set up with dangerously high leverage, allowing borrowers to use the volatile ICHI token as collateral to borrow stablecoins, per the complaint. The defendants allegedly used this structure to artificially inflate the price of ICHI - borrowing against their own token to buy more of it, driving up its value, then pledging that higher-valued ICHI to extract more stablecoins.
As a result, Gross and his co-defendants are accused of secretly draining millions from the community treasury without any votes or approval. The lawsuit alleges multiple instances where the treasury, which was meant to be protected by smart contracts and community consensus, was unilaterally accessed to prop up the ICHI token or fund the pool, exposing investors to significant risk.
According to Hash Asset Management, the incident involved an artificially inflated price of the ICHI token. Defendants allegedly borrowed against the ICHI token to purchase more of it, boosting its value and using the inflated token price to extract more stablecoins. These actions, conducted without investor consent or governance approval, allegedly drained millions from a community treasury meant to safeguard investor funds. When investors tried to withdraw funds, the redemption mechanisms failed, leading to massive losses.
The legal complaint filed by Hash includes accusations of fraud, market manipulation, breach of contract and selling unregistered securities. The case underscores growing concerns about governance and investor protection in the decentralised finance (“<span class="news-text_medium">DeFi</span>”) space, highlighting the risks posed by platforms that claim to be decentralised but are controlled by central actors.
Eugene Uporov, General Counsel for Hash Asset Management, emphasised that this case calls attention to the misuse of investment pool structures in the DeFi industry. Central management allegedly undermined promises of decentralisation, undermining trust in the ecosystem.
As the DeFi sector continues to grow, the case may serve as a critical reminder of the importance of clear governance and investor protections in an increasingly volatile digital asset market.
