Scroll Ecosystem CHI Token Crash Sparks Rug Pull Concerns

A notable stablecoin project on the Scroll ecosystem, Essence Finance has come under intense scrutiny. This is due to the near-total collapse of its stablecoin CHI, which experienced a 98% collapse in value on October 26, 2024. According to data from GeckoTermina, the stablecoin went from $1 to $0.0134.

This sudden price crash has incite fears among investors and the crypto community about a potential rug pull. The fast drop in price came immediately after reports indicating the removal of more than $20 million in collateral from the project surfaced — a move perceived by many as a classic red flag. 

Since the price crash, market participants have been speculating on social media about Essence Finance’s transparency and security practices, with many questioning the platform’s intentions behind the move.

The project is yet to make an official statement about the crash as the last official post from its X (formerly Twitter) account was on September 10. Since then, the project has only been reposting, this revelation as further escalate community suspicion. Essence Finance’s silence has left investors feeling uneasy and used. Now many investors are looking for clarity on the unexpected decline in the stablecoin’s value and the project’s financial stability.

wUKRE/CHI Liquidity Providers can now earn $RWA rewards. See below for additional details! https://t.co/d93l1B07LY

— Essence Finance (@Essence_Fi) September 10, 2024

Impact on Scroll Ecosystem Amidst Rapid Growth

The CHI crash has overshadowed what has otherwise been a period of growth and progress for the Scroll ecosystem, known for its zkEVM (zero-knowledge Ethereum Virtual Machine) technology. This technology has propelled Scroll’s popularity as a high-performance, Ethereum-compatible Layer 2 blockchain. 

Recently, Scroll achieved a milestone with a total value locked (TVL) of above $1.17 billion — a number achieved through projects like Essence Finance and other decentralized finance (DeFi) applications. Also, its native token, SCR has secured listings on major exchanges such as Binance and Bybit, while Coinbase is enabling perpetual futures trading for the token. All of these highlight the project’s potential.

However, the collapse of a prominent stablecoin on the platform raises concerns about the ecosystem’s overall risk management. The market has been quick to point out these inconsistencies, with many wondering if other projects within the ecosystem could face similar issues.

Community Response and Market Repercussions

The Essence Finance token’s crash has also led to increased market activity, with CHI’s trading volume surging to over $45 million amid a wave of panic selling. With only 133 recorded holders, CHI’s drop has increased concerns about concentrated risk and potential liquidity issues within Essence Finance’s pools. 

Not to forget, Essence Finance has not yet addressed the situation, leaving investors to rely on speculative posts on social media. In the wake of the crash, Twitter has become a hot spot for the discussions, with Wu Blockchain’s post talking about the missing $20 million in collateral quickly spread across the crypto space.

Scroll ecosystem stablecoin project Essence Finance is suspected of rugpulled, its stablecoin CHI has fallen by more than 92% to $0.077 in the past 24h, more than $20 million of collateral is suspected to have been removed. The last tweet was posted on September 11. The audit…

— Wu Blockchain (@WuBlockchain) October 26, 2024

Many people in the Web3 community are now calling on Essence Finance and Scroll to address the situation directly to restore confidence. As the news spreads, the future of CHI and its impact on the Scroll ecosystem remain uncertain.