The governance token Kinto of the Kinto Network plummeted over 80% after the team announced that its Ethereum (ETH) Layer 2 blockchain would shut down at the end of September. The project had already faced several months of setbacks.
In July, a widespread industry hack resulted in the theft of approximately 577 Ethereum (ETH) from the protocol, valued at around $1.6 million. To restore trading on the "modular exchange," Kinto raised $1 million through debt.
The Kinto team stated in a Medium announcement on Sunday that as the market environment continued to deteriorate, "further financing was completely hopeless," forcing the decision to shut down the project.
The $1.6 million hack incident stemmed from a security vulnerability in the ERC-1967 Proxy standard. This standard is part of the commonly used OpenZeppelin code library, allowing smart contracts to upgrade without changing addresses. Several other projects were also affected.
While Kinto attributed its failure to the hack and escalating financial pressure, industry insiders pointed out that Kinto continued to offer excessively high annual yields on stablecoins even after the hack incident and during periods of revenue difficulty.
According to Kinto co-founder Ramon Recuero in April of this year, K staking provided up to 130% annual yield for USDC (USDC) — a rarity in the entire DeFi space. Other high-yield decentralized finance platforms have also experienced turmoil.
The project was built on Arbitrum and utilized the Ethereum (ETH) mainnet for settlement, also supporting tokenized stock trading for companies like Apple, Microsoft, and Nvidia.
Its modular exchange attempted to combine the efficiency of centralized exchanges with the security features of decentralized exchanges.
Kinto stated that all remaining assets, including $800,000 in Uniswap liquidity, would be allocated to "Phoenix" lenders who helped Kinto restart, with an expected recovery of 76% of the loan principal.
Kinto and Recuero will also establish a "goodwill grant" for the victims of the hack, with each affected address receiving $1,100 in compensation. Recuero pledged to personally contribute over $130,000 for relief efforts.
Kinto stated it would continue to pursue the recovery of lost assets, and if the recovered amount exceeds the victims' losses, it would share the surplus with the community through Snapshot (a platform commonly used for decentralized autonomous organization voting).
The Kinto team urged users to withdraw their assets by September 30. After that, users would need to claim through a permanent claim contract that Kinto plans to launch.
Kinto is Recuero's second cryptocurrency project to shut down. Previously, he closed the project Babylon Finance after it suffered a $3.4 million hack in November 2022.
At that time, Recuero also stated that the team "could not reverse the negative impact of the hack," and Babylon was forced to shut down just six months after its public launch.
According to CoinGecko data, since the team announced the news, the price of Kinto (K) has dropped 81.4% to $0.46, with a market cap just above $1 million.
This round of decline occurred less than a month after reaching a historical high of $14.5 million on August 14. The Kinto token was launched in April, just four months ago.
Related: Bitcoin whales sell off the largest amount since mid-2022, with 115,000 BTC dumped.
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