The community behind stablecoin project Hector Network is demanding the group’s leaders kill it faster.

The DAO’s undoing has already been approved by HEC token holders who, after learning that Hector suffered major losses from the Multichain bridge’s collapse, recently voted to liquidate.

They expected the death to be swift. They anticipated Hector’s once-sizable treasury would quickly be divided up among themselves.

They were wrong, and now they’re angry.

Hector’s unwinding could take “a minimum of six to twelve months” and will involve a liquidator, lawyers and an auditor, according a CoinDesk review of team Discord posts. That is almost certain to whittle away at the project’s remaining $16 million from a treasury that once held $100 million.

Longtime community members and newcomers alike are crying foul over the timeline, a review of Hector’s Discord channel shows. Many feel they were bamboozled, asserting that Hector’s team withheld information when it conducted the vote over the project’s future.

That anger reached a boil Wednesday as Hector shut its Discord server, deleting two years of history and denying community members a place to ask questions of leadership: most pressingly, when they’ll get their money back.

Technicalities

“It would be helpful for everyone to understand the complexity, legal requirements and thus time required to complete the liquidation process on an entity in existence for over a year and a half with multiple services,” Hector’s recently appointed treasury manager, the pseudonymous Farooq, said in a Telegram message to CoinDesk.

Farooq refused to answer further questions and referred a reporter to Sparring Legal LLP, Hector Network’s counsel. Sparring declined to answer CoinDesk’s questions.

The situation underscores the messiness of operating a so-called decentralized autonomous organization (DAO) – let alone killing one. These crypto clubs clumsily straddle the thick line between a legal entity and, well, a group chat with a crypto wallet. The first can take an army of lawyers to unwind. But the second needs only a smart contract set up to process redemptions.

In late 2021, Hector’s developers filled their treasury with $100 million from crypto investors who traded ETH, FTM and stablecoins for access to the HEC stablecoin, built on the Fantom blockchain. Their bet was that HEC and its sister stablecoin TOR could replicate Olympus DAO, which paid massive dividends to early backers. They believed Hector’s developers could pull it off in a decentralized style.

Behind the scenes, Hector was anything but decentralized. It operated through a “Hector Enterprises Inc.” in the British Virgin Islands that handled partnerships and contracts, a former employee of the group, who asked not to be named for fear of retribution, told CoinDesk. The British Virgin Islands is where Hector’s remaining leaders plan to proceed with liquidation.

But the DAO never approved the creation of this corporation; on the contrary, token holders rejected an effort to centralize Hector as recently as May. (They had previously approved the spinoff of a gaming-focused project).

Hector Enterprises pursued a wide array of endeavors – including a token launchpad, an NFT marketplace and even an “institute” to teach all comers about Hector and DeFi – that stretched far beyond the stablecoin vision.

All-out ambitions distracted the core team from accomplishing any one goal effectively, the former employee said. Instead, the push led to infighting and delays that frayed tempers and ran up the bill – further draining the treasury, this person said. Dissenting opinions outside of what a select few core members agreed on were punished and, eventually, their purveyors expelled.

Hector tried to right its financial ship in March by hiring Farooq, who said he was a Wall Street veteran who also goes by “Qboy,” to manage its finances. In his first months on the job Farooq cut expenses by 85%. But project insiders claim he did nothing to protect the DAO or its dwindling treasury from disaster. Hector declined to limit its exposure to Multichain-linked assets during the rocky month that preceded that bridge’s collapse.

The result cost millions of dollars to the treasury, limiting the cash that’s theoretically left for a distribution. Fees for a team of lawyers from Sparring added to the bleed.

The ragequit

Hector isn’t the first Olympus DAO fork to fail, according to the pseudonymous lilbagscientist, a prominent figure in the Hector community who said they “invested in a lot of OHM forks in 2021.”

“We had over 30 forks of OHM. Some were bound to blow out,” lilbagscientist said, explaining that many of the blow-outs ended life by conducting a treasury redemption where investors swapped their native tokens for more popular cryptocurrencies, like ether or stablecoins (in crypto lingo: a rage quit).

Activist investors had already been pushing Hector to conduct a “rage quit” months before the announcement of liquidation. They had identified Hector as so-called “risk-free value” (RFV) trade, in which individuals coordinate to buy governance tokens of projects whose tokens are trading below the book value of the treasury and then vote for a buyback.

Investors who spoke to CoinDesk said Hector’s budget woes and aborted projects made it a prime place for the RFV trade. These investors claim to only target DAOs that hemorrhage their crypto treasuries at the community’s expense. Holding a buyback, a “rage quit” or an all-out liquidation can get at least some return for regular token holders – and of course a sizable profit for the RFV traders.

Most teams running DAOs object to the activists’ Robin Hood-esque styling and instead view them as governance pirates (the activists’ choice of a Jack Sparrow-looking persona as their front-man for Hector DAO probably didn’t help convince leaders otherwise).

But the investors here succeeded in winning over some members of Hector’s community-staffed governance body, called the Oracles, and forged enough alliances with long-term holders that they felt confident in their direction.

When Hector’s leadership held a doomed vote to centralize the DAO – in so doing completely revoking the community’s claims to the treasury – the activist investors countered with a proposal to hold a rage quit. Hector leadership responded by expelling from the Discord anyone they suspected of conspiring against them.

That Hector is liquidating – or, at least, pledging to hold a treasury redemption in 6-12 months – only after its treasury lost millions of dollars to the Multichain collapse (and likely more to legal fees) comes as no joy to the activists.

“The word of the week is Pyrrhic victory,” one said.