Kinto Shutdown: Ethereum Layer-2 Project Ends After $1.6M Hack

Ethereum Layer-2 project Kinto is closing its doors by September 30, just months after losing $1.6 million in a disastrous hack. The team said that rising debt and failed fundraising attempts were key reasons for the shutdown. They added that worsening market conditions made operations impossible to continue, as reported by Cointelegraph.

A Hack That Shook the Project

In July, hackers found a weakness in the ERC-1967 Proxy standard, which powers many upgradeable contracts. They created 110,000 fake Kinto tokens on Arbitrum and soonn dumped them into Uniswap liquidity pools and Morpho lending vaults. Within a few hours, they drained 577 ETH, worth about $1.6 million.

The attack ruined the confidence in the project. The price of Kinto’s native token plunged by almost 95%, erasing months of growth and leaving the community shocked.

Phoenix: A Short-Lived Recovery Plan

The team did not give up immediately. They launched a recovery campaign called Phoenix and raised $1 million in debt to restore trading and rebuild the trust. For a small period, it seemed like Kinto might survive.

But the money didn’t go far enough. The debt kept adding up, and potential backers pulled away as market conditions got worse. Team members went unpaid for months. Eventually, the founders admitted they had reached the end.

In a candid Medium post, they wrote:

“Every day that we go on, the funds dwindle further. We’ve operated without salaries since July, and after the last financing path fell through, we have one responsible choice left: shut down cleanly and protect users and lenders as best as possible.”

How the Shutdown Will Work

Instead of disappearing overnight, Kinto has set up a well planned shutdown to protect its community.

• Withdrawals will remain open until September 30. After that, remaining balances will move to a claim contract on Ethereum mainnet. Users can collect their funds later without being in a hurry.
  
• Roughly $800,000 remains in the treasury. That pool will go toward repaying Phoenix lenders, who should recover about 76% of their principal.
  
• Founder Ramon Recuero has also pledged a $55,000 goodwill fund. This will cover up to $1,100 per address for victims who were affected through Morpho and Royco.
  
• Hack victims can opt into a Contingent Value Right (CVR), which entitles them to any money that is recovered from future investigations.
  
• If additional assets appear after repayments, the community will vote on how to distribute them, giving priority to long-term Kinto token holders.
  

This clear exit plan shows the team’s effort to deal with failure responsibly, even under great pressure.

Token Collapse and Founder’s History

The shutdown triggered a fresh wave of panic selling. The Kinto (K) token dropped more than 90% in a single day, slashing its market value from a $14.5 million peak in August to barely above $1 million.

This is the second major setback for Recuero. His earlier project, Babylon Finance, also had a fall in 2022 after losing $3.4 million to hackers. Both these cases show how DeFi projects can be risky. Even with really strong ideas and hardworking teams.

Closing Thoughts

Kinto’s journey shows both the promise and the dangers of decentralized finance. It tried to rise from the ground with Phoenix, but rising debt and failing confidence made surviving to be impossible. By being honest about closing down and returning some funds, the team shows that they still care about their users.

For the wider Ethereum community, Kinto’s story can be seen as a warning. That innovation must go equally well with resilience and safety.