Satoshi Nakamoto proved a pseudonymous founder doesn’t have to be a deal breaker. Blue Kirby, however, has reminded cryptocurrency investors that fake names can still be a red flag.
For those who didn’t spend last weekend on Crypto Twitter, Blue Kirby is the handle of a now-infamous figure in the decentralized finance (DeFi) community who appears to have absconded with some $1 million worth of ether (ETH).
As detailed in two worthwhile reads, DeFi community members allege Blue Kirby unfairly exercised influence over the Yearn.Finance ecosystem and then conducted a questionable initial coin offering (ICO) for a non-fungible token (NFT) marketplace called “Off-Blue.”
While the above sentence may sound to normies like so much word salad, the Blue Kirby fiasco marks the latest in a series of cautionary tales from 2020’s “DeFi Summer.” The episode shows how – absent compensating factors – permissionless technology, pseudonymous identities and borderless marketplaces can make a combustible mix.
Without skin in the game, Blue Kirby had little incentive to act in community members’ best interest in the long term, crypto industry members said. And without a real name, they now have little recourse.
Out of the blue
According to Set Protocol’s Anthony Sassano, Blue Kirby created his online persona in the early summer months, riding on the back of Andre Cronje’s wildly successful robo-crypto hedge fund Yearn.
The pseudonymous token cheerleader quickly rose through the ranks of DeFi community members on Twitter as witnessed in community allocation of $7,000 per month for his tireless promotion of the YFI token.
Blue Kirby’s poor judgment came to light over time, beginning in late September with the botched release of Cronje’s Eminence, a new DeFi contract. Although Eminence had yet to be audited – as fits Cronje’s tagline: “I test in prod[uction]” – Blue Kirby encouraged users to deposit funds.
Some $15 million poured into the contract in no small part from Blue Kirby’s direction. Almost like clockwork, a hole in the contract was soon exploited an the attacker drained all the money While $8 million was eventually returned to YFI holders, Blue Kirby’s reputation took a hit.
Then, Blue Kirby doubled down by doing the unthinkable: he (or she, or they) sold their YFI tokens at $22,000 per coin for about $550,000 total.
Typically, selling financial assets is a personal decision. But that’s not the case in Weird DeFi where the proportion of token holdings to stylistic “pump it” tweets directly correlates to community acceptance (though this sentiment is perhaps not unique to any one part of the cryptocurrency market). Selling YFI placed negative pressure on other community members’ token holdings, in turn earning Blue Kirby scorn.
The token has fallen some 25% since that time, to $16,889, according to Messari.
Blue Kirby concluded his three-month DeFi career with a play out of the old playbook: An ICO of his Off-Blue governance token.
The platform raised some $800,000 in ether before its NFT host Rarible shut down the marketplace on Oct. 10.
“People presumably understood that Blue Kirby was going to disappear with their money. This resulted in a lot of feedback we received from users, warning us about the potentially dangerous long-term impact of this sale,” Alexander Salnikov, co-founder and chief product officer at Rarible, told CoinDesk in an email.
Surprisingly, the ICO is currently offering refunds, but not before a public doxxing campaign went forward on the anarchic message board 4chan identifying at least one individual as the human face behind Blue Kirby. Attempts to reach that person for comment were unsuccessful, and it has not been conclusively proven that he is indeed Blue Kirby.
The Blue Kirby saga highlights yet again the challenges created by pseudonymity in cryptocurrency markets. Indeed, Chef Nomi of SushiSwap, shielded by an avatar, engaged in similar behavior in September.
Cryptocurrencies themselves were made possible only through anonymity or pseudonyms, Erik Voorhees, longtime bitcoiner and founder of exchange ShapeShift, told CoinDesk in an email. (The identity of Nakamoto, the creator of original cryptocurrency bitcoin, has never been conclusively determined after years of speculation, and yet the asset remains the sector’s most valuable with a $216 billion market cap.) An identifiable leader, after all, is arguably a single point of failure for a technology that depends on having none.
If given a second chance, Voorhees said, he would consider starting ShapeShift anonymously.
“Being anonymous can be very helpful to a project, but obviously people should tread carefully before reputation is established,” he said. “The problem with Blue Kirby wasn’t that he was anonymous, but that he was new. The account came out of nowhere and people threw money at it.”
In other words, investors didn’t necessarily have to know the name on Blue Kirby’s birth certificate, but they needed to know something about the person other than that his handle was inspired by a Nintendo character.
“Fools and their money are soon parted, as they say,” Voorhees added.
DeFi designer Richard Burton told CoinDesk that DeFi projects and investors should look for long-term incentive plans for developers similarly found in startups.
“It seems that so many of the issues we see could be solved with simple vesting contracts. If you want to demonstrate your long-term commitment, prove it,” Burton said.
Voorhees and Burton’s sentiments were echoed by independent researcher and pseudonymous figure Hasu, who called pawns of Blue Kirby “victims of the halo effect” in a Telegram message.
As a pseudonymous community member himself, Hasu said that he has had “0 disadvantages” from his chosen angle of public interaction.
“People in this space generally evaluate you based on what you say and what you do. In general, I think, every successful pseudonymous account makes it even easier and more socially acceptable for those that come after it,” he said.