Wonderland Founder: ‘I’m Here to Fix This and Make It All Back’

“Frog Nation” leader Daniele Sestagalli has received an improbable vote of confidence from Wonderland investors.

Feb 1, 2022 at 2:35 p.m. UTC
Updated Feb 1, 2022 at 3:42 p.m. UTC

Andrew Thurman was a tech reporter at CoinDesk with a focus on DeFi.

The founder of a popular DeFi protocol is promising to make users whole after a scandal-ridden price implosion, but the path to achieving that isn’t totally clear.

On Monday, embattled developer Daniele Sestagalli took to Discord to answer questions from the Wonderland protocol community – a rancorous 45 minutes featuring big promises and bluster, but few specifics on how the project will move forward on leveraging its $325 million treasury to deliver value for tokenholders.

Wonderland, as well as a number of associated decentralized finance (DeFi) protocols loosely united under the “Frog Nation” banner led by Sestagalli, was rocked last week by the revelation from on-chain analyst zachXBT that pseudonymous Wonderland treasurer “Sifu” was in fact Michael Patryn, the co-founder of the fraudulent cryptocurrency exchange QuadrigaCX.

While Patryn has since reportedly been relieved of his duties following a DAO vote on his ouster at a 90-to-10 margin – and, as of Tuesday morning, has moved $2.8 million worth of ether (ETH) from his publicly known address to privacy mixer Tornado Cash – the question remains of what to do with Wonderland’s treasury.

Wonderland’s TIME token currently has a market capitalization of $320 million, just below the $325 million in its coffers.

While some holders are advocating dissolving the project by allowing token holders to redeem their TIME for a proportional share of the protocol’s assets, most investors bought at a valuation many multiples above the current treasury, prompting others to push for an outcome that could pump prices once more.

In Discord chats on Monday, Sestagalli – who indicated over the weekend his desire to see the project dissolved – vowed to push forward in an effort to help users.

“What we need to do is to find a PLAN to get the frogs back on their feet,” he wrote in a string of messages emblematic of his erratic, populist communications style.

So far that plan is beginning to take shape in a handful of current and former proposals from across Frog Nation, none of which so far have garnered popular support among the largely disgruntled investor community.

TIME’s up

Sestagalli founded Wonderland in September. A fork of Olympus DAO – a notorious, sky-high APY rebasing project frequently lambasted as unsustainable – Sestagalli initially envisioned Wonderland as a perpetual, “mega-ICO,” distributing tokens to holders over time and building a treasury, according to a November interview.

At the time Sestagalli was aiming to eventually leverage TIME as an in-game currency for a wide range of games, including a role-playing game (RPG) Sestagalli said was under development in 2021.

Since then the vision has expanded for the treasury to become a community-owned investment fund, mirroring a strategy from Redacted Cartel and others that use Olympus’ tokennomics to bootstrap deposits for the fund.

Indeed, as Wonderland eventually overtook Olympus in market capitalization and treasury size, Sestagalli and Patryn made seed investments into a number of projects and grew notorious for large, unilateral investments. Sestagalli in particular popularized a narrative where the Frog Nation investors would eventually compete with and replace “the suits” – shorthand for traditional investment funds.

However, the Olympus model has come under fire in recent weeks amid a crippling drawdown in both the original project and its various forks. In the days prior to Sifu’s unmasking as Patryn, Wonderland fell by as much as 40% in a 24-hour period, dropping as far as 95% off its highs.

The already anemic price action took another hit with Patryn’s revealing. In an interview with CoinDesk, Sestagalli said he had known Patryn’s identity for a number of weeks but chose to continue working with him anyway, a dynamic that has led to a crisis in confidence from investors.

Community split

Despite the project’s founder actively choosing to work with a convicted felon, on Monday a vote to end Wonderland’s operations and disburse the treasury to investors failed to pass – a sign that either token holders still have faith is Sestagalli’s ability to turn things around, or they’re reluctant to book their losses.

The failed vote was controversial from the outset.

Depending on the particular decentralized autonomous organization (DAO), the outcome of votes may programmatically and automatically prompt actions on-chain, altering the code for a protocol or leading to treasury disbursements, among other functionalities.

In Wonderland’s case, however, the protocol’s rarely-invoked DAO has hosted a total of just eight votes, and the outcomes of votes are merely signals of the community’s desires – desires that the Wonderland team can then hypothetically choose whether or not to enact.

This dynamic led to tensions over the weekend, as a tweet from Sestagalli seemed to indicate Wonderland would be shutting down regardless of the outcome of the “Wind down Wonderland” vote:

On Monday, however, the vote concluded with 55% of the token weight in favor of the project carrying on. With over 22,000 addresses voting, it was perhaps the most active governance proposal in history, with the vast majority of individual addresses voting to continue the project, outpacing a much smaller number of “whales,” who control large sums of tokens, voting to cease operations.

Sestagalli, in turn, backtracked on unilaterally closing shop, writing in Discord that the team was taking time to “compile suggestions, and determine the best path forward.”

“We understand that there is still [the] will to continue, the community wants to make it. Unwinding for many of you means taking a loss and you don’t know what to do next. You believed in me and you want to keep [invested] in me,” he wrote.

He added that the protocol was looking to hire a communications team, and the DAO would be “managed now by me Directly” in future.

While it might seem absurd to outsiders that the majority of voters would vote to continue, in the Discord multiple users are expressing support for carrying the project on, either supporting “Dani’s vision” or saying that, due to their losses on TIME, they are in effect trapped.

In the absence of any action from law enforcement or regulatory authorities, the experiment now appears poised to move forward.

In an interview with CoinDesk on Monday, Sestagalli said he was not worried about whether Patryn’s former involvement and the structure of the Wonderland fund could prompt regulatory action.

“It should worry everyone because most DeFi is like this,” he said. “I can worry or find solutions.”

Competing proposals

At least in theory what happens next is up to the DAO, and there are a number of options being discussed.

Prior to Patryn’s reveal last week, the team for Abracadabra – an affiliated asset-backed stablecoin protocol – proposed acquiring Wonderland’s treasury.

Similar to the xDAI and Gnosis merger or the Rari Capital and Fei merger, this would include a token swap that would allow users to exchange TIME for Abracadabra’s SPELL, hypothetically allowing TIME holders upside in the joint venture – a key goal in the proposal, Sestagalli told CoinDesk last week.

While Abracadabra is revenue-generating and its MIM stablecoin is among the most popular in DeFi, MIM briefly lost its peg last week amid the uproar, and efforts from the protocol to bribe its way onto the Aave lending platform now may be at risk.

Additionally, a number of proposals have emerged on the Wonderland governance forums to keep the treasury independent while replacing Sifu with another asset manager.

While no one proposal has yet gained traction, Sestagalli says that unlike in the past, he’ll be moving forward carefully.

“I need to slow down and listen to the community,” he said.

While the deliberations carry on, however, many in the DeFi community have bemoaned the ongoing saga – which now shows no sign of ending – as a black eye for the industry.

“Are we done giving people 9 figure treasuries with no strings attached and pretending [it’s] DeFi?” asked popular analyst and Yearn DAO contributor Ryan Watkins on Twitter. “This is the type of behavior I’m excited to get rid of in a bear market.”

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Andrew Thurman was a tech reporter at CoinDesk with a focus on DeFi.

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Andrew Thurman was a tech reporter at CoinDesk with a focus on DeFi.

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