Chinese Legal Inquiry on STFIL Incident Launched by Filecoin Foundation

The Filecoin Foundation, a nonprofit organization supporting the development of the Filecoin storage protocol, is investigating the reported detention of members from the Filecoin Liquid Staking (STFIL) team in China. This follows the suspension of withdrawals from the STFIL protocol due to unscheduled upgrades and the movement of $23 million worth of Filecoin (FIL) tokens to an unknown address. On April 8, the STFIL team announced that core technical members had been detained by Chinese police during the time of these upgrades and transfers, leaving users concerned about the recovery of their funds.

Danny O’Brien, a senior fellow at the Filecoin Foundation, stated in a social media post that the foundation has a lawyer in China who is looking into the incident. While they have not confirmed if the police have possession of the funds, they expect to have more information within a week. The foundation plans to allow their attorney to represent all staking providers and leasers in any court proceedings related to the incident, with more details to be shared once finalized. O’Brien also requested that staking providers who lost funds provide their contact details through a designated Google Doc or Slack Channel.

Filecoin is a decentralized storage protocol that allows PC owners to rent out their hard disk space to users in need of storage. Storage providers must provide FIL tokens as collateral to ensure they meet their data storage agreements. FIL holders also have the option to lend out their tokens to the storage providers and earn a portion of the fees collected, known as “FIL staking.” The STFIL protocol, Pools FIL tokens and stakes them through trusted storage providers. Users who deposit FIL into the STFIL protocol receive STFIL tokens in exchange, which can be redeemed for the deposited FIL and accumulated staking rewards. This redemption process has halted due to the unauthorized upgrades and transfers.

The STFIL incident is not the only case of criminal legal action against Web3 protocols in China. Users of the Multichain cross-chain bridging platform had over $1.5 billion worth of crypto frozen after the protocol’s development team was arrested by Chinese police. Unfortunately, the funds have not yet been recovered. Fantom Protocol, a major depositor to Multichain, filed for bankruptcy in March in hopes of pursuing some of the lost funds through litigation. According to Fantom co-founder Andre Cronje, it could take years for investors to obtain a court order compelling the police to return the funds.