The decentralized finance (DeFi) realm suffered a reckoning last Thursday when a Twitter user exposed lifetime fraudster Michael Patryn among one of the scene’s favorite overhyped projects, Wonderland.
Internet sleuth @zachxbt revealed that head-to-toe hustler Michael Patryn, aka Omar Dhanani, is the name behind pseudonymous handle “0xSifu” — a prominent figure throughout the so-called “Frog Nation.”
Patryn, a notorious name in crypto trading circles, was one of the co-founders of the endlessly mysterious defunct crypto exchange QuadrigaCX, alongside the (supposedly) deceased Gerald Cotten.
Frog Nation is powered by a slew of projects managed by DeFi celebrity Daniele “Dani” Sestagalli:
- stablecoin and lending protocol Abracadabra (SPELL and MIM)
- so-called “yield optimizer” Popsicle Finance (ICE),
- “rebase” investment vehicle Wonderland (TIME, MEMO, and wMEMO),
- decentralized exchange SushiSwap (SUSHI),
- and decentralized sports betting platform Betswap (BSGG).
The idea is that by stitching together a series of experimental, self-referencing liquidity protocols, the retail crypto investors inhabiting Frog Nation can #OccupyDeFi and seize control of the industry from mooching venture capitalists.
Patryn is specifically involved with Wonderland. Participants stake crypto with the Wonderland treasury, which then uses that capital to make plays across the crypto space in search of profit.
If the DAO makes the right plays then its native token TIME should increase in value. Stakers are promised enormous yield, nearing 82,000% per year (paid in tokens).
Frog Nation’s SPELL, MIM, ICE, and TIME are together worth almost $3.7 billion, according to CoinGecko.
But unbeknownst to everyone but Sestagalli, Patryn was serving as treasurer for the hundreds of millions of dollars locked in Wonderland’s treasury, albeit controlling just one multi-sig key.
While TIME had been tanking for weeks before the revelation hit, word that Patryn had any sway at all in Wonderland’s DAO sent the token to all-time lows almost immediately.
Wonderland’s Patryn problem started long ago
Michael Patryn starts defrauding people all the way back in the early aughts, getting prison time at the age of 22 after pleading guilty to identity theft, credit card fraud, burglary, and grand theft in 2005.
In the Department of Justice press release, Michael (who was then Dhanani) was recognized as one of six operators of “Shadowcrew.com,” an online marketplace where stolen ID cards and credit cards were sold. The scheme resulted in over $4 million in losses for consumers.
After spending some time in the clink, Patryn changed his name for the first time to “Omar” and was deported to Canada. Under this new name he started a money washing site called “Midas Gold,” registered in Quebec, and another financial scheme called “VFS Network.”
It’s while he’s in Canada that Patryn meets Gerald Cotten on a forum called TalkGold — a place where scammers and schemers rendezvous to talk shop and chat about the most effective ways to take advantage of others.
Under the backdrop of the Secret Service’s dismantlement of illegal online US dollar derivative Liberty Reserve, Patryn starts to work more closely with his younger, high-yield investment product compatriot, Cotten.
Cotten and Patryn move together to Vancouver, ultimately leading the pair to found Quadriga Fintech Solutions, or as it’s more commonly referred to, Canada’s largest Bitcoin exchange QuadrigaCX.
Around this time, Patryn changes his name for a second time to “Michael Patryn” and gets to work on the new cryptocurrency exchange, as well as a Brazilian-Jujitsu non-profit, of all things.
The BJJ unit disappears and the exchange ultimately and famously ends in disaster.
QuadrigaCX’s missing funds still a mystery
According to A Death in Cryptoland, an investigative podcast about the QuadrigaCX saga, Patryn and Cotten had some sort of falling out across 2015 and 2016, supposedly over the exchange failing to go public on the Toronto Stock Exchange.
Patryn (who remember, just reappeared as 0xSifu) claims this is when he parted ways with Cotten and QuadrigaCX. The question of whether that’s true aside, at some point around 2016, Patryn made a speedy departure from Canada.
By 2018, he was living a “semi-retired” life in Phuket, Thailand, all while Cotten allegedly ran a complicated fraud through QuadrigaCX believed to have cost users more than $180 million in losses.
Most of QuadrigaCX’s missing funds were once believed to have been kept in cold storage — with Cotten effectively taking the corresponding private keys to his grave.
However, blockchain analysts and auditors have been unable to locate the crypto on-chain, with multiple discovered exchange wallets now empty.
Just months after Cotten was declared dead on honeymoon in India due to Crohn’s disease in 2018, crypto insiders noticed Patryn trading with significant size on BitMEX (once one of the largest crypto and derivatives exchanges in the world) under the pseudonym MikeXBT.
Mike was also posting regularly to Reddit under the same pseudonym, where he bragged about trading with up to $18 million without a problem.
In any case, Patryn’s movements are murky following the death of Cotten in December 2018, though Patryn claims to have taken up life as a Monaco resident for tax purposes.
He’s spoken of regular commutes between Monte Carlo, Nice, Cannes, and Genoa when he “gets bored.”
This more-or-less aligns with Sestagalli’s claims in a recent CoinDesk interview where he stated that official Frog Nation team members moved closer together in Europe last year.
Wonderland’s Sestagalli knew Patryn’s history
Sestagalli claims he met Patryn in an online chat server with other DeFi insiders and decided to work together on his Olympus fork, Wonderland, due to Patryn’s deep knowledge of tokenomics.
Wonderland launched last September. Sestagalli claims that he knew of Patryn’s past and decided to trust him with one of Wonderland’s multi-sig keys regardless.
Patryn and Sestagalli had grown close, said Frog Nation’s spiritual leader in a CoinDesk interview.
Eventually, the QuadrigaCX co-founder felt comfortable enough to disclose his past. Sestagalli reckoned he didn’t encounter any red flags while working with 0xSifu, so he considered giving him a second chance.
“In my personal opinion, I try to avoid judging people for what they have done in the past. I tried to stick to the experience I had with him, and we had many, many months of working together, talking every day and building successful things together,” said Sestagalli (via CoinDesk, our emphasis).
“I did my own research. I looked into it, I said, ‘OK, there is a young guy who did some credit card stuff — you understand? Some mistakes when he was young. And then there was the Quadriga situation, which is definitely unclear.”
So, why does it matter for DeFi?
Well, the leadership of a new “decentralized protocol” in Wonderland, unknowingly or not, trusted a felon with three different names and several online pseudonyms, convicted of numerous financial crimes combined with a murky exit from one of the strangest crypto exchange collapses in history.
Not only did they trust him, but they effectively put them in charge of a crypto treasury worth more than $1 billion at one point in January.
It’s almost impossible to write fiction as utterly ridiculous. Yet, hopefully it’s possible for DeFi proponents to take this moment to reflect on how to stop something this egregiously bold from happening again.
For what it’s worth, Wonderland DAO agrees. TIME token holders voted in 88% agreement to replace Patryn as treasurer earlier this week.
Sestagalli pledged to solely manage the project moving forward in a bid to drag his embattled token up in value once more.
TIME would need to increase 2,800% from here to return to its record high set in November, having sunk 97% since then.
Still, TIME holders seem willing enough to trust Sestagalli in the meantime, with the project’s treasury maintaining more than $700 million worth of crypto despite everything that’s happened.
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Edit 10:19 UTC, Feb 5: Corrected headline and context throughout to properly reflect Sestagalli’s role in Frog Nation, which is more of a spiritual leader than a coder.