Dohrnii Labs Clashes with Blynex Over Alleged Unauthorized Liquidation of DHN Tokens

In a dramatic turn of events, Dohrnii Labs has escalated its battle with crypto exchange Blynex, taking their fight to the UAE authorities over what it claims was an unauthorized liquidation of its DHN tokens, causing a significant drop in the token’s market value.

• Dohrnii Labs files police report against Blynex in UAE
• Alleges unauthorized liquidation of DHN tokens
• Vitalik Buterin’s sale causes flash crash
• Legal action pursued; settlement rejected

Dohrnii Labs, a blockchain-based “learn-to-earn” platform, deposited 12,649.99 DHN tokens, valued at over $500,000, with Blynex on March 23. They used 8,650 DHN tokens to secure a 30-day loan of 80,000 USDT, but claim they never received the loan. Collateral refers to assets pledged to secure a loan, and in this case, it was the DHN tokens. To their dismay, Blynex liquidated the collateral on Uniswap, a decentralized exchange where tokens can be traded directly between users, generating 149,151 USDT, a move that sent the DHN token’s price tumbling. Moreover, Dohrnii Labs stated that they’ve been unable to withdraw their remaining 4,000 DHN tokens.

Blynex defended the liquidation, stating it was necessary due to limited liquidity of DHN tokens, which means there weren’t enough buyers and sellers to trade the tokens without affecting the price. At the time, the available liquidity for DHN was approximately $315,000. Mike Baskes, co-founder of Blynex, argued that their automated risk management system detected a high risk of further loss, necessitating immediate action. Yet, Dohrnii Labs refutes this, calling the justification misleading and pointing out that the collateral was worth nearly double the loan value.

Amidst this turmoil, the situation was exacerbated by an unexpected move from a prominent figure in the crypto world. Ethereum co-founder Vitalik Buterin’s sale of 5,000 DHN tokens he received for free from Dohrnii Labs led to a flash crash, dropping the token’s price by a staggering 50% from $38.50 to $20.69. Buterin, who has advised projects against sending him tokens, sold them for 65 ETH, around $124,000, demonstrating the market’s sensitivity to influential figures’ moves. In the crypto world, where the only thing more unpredictable than the market is the next tweet from a crypto celebrity, such actions can send tokens into a tailspin.

Dohrnii Labs has not taken this lying down. They rejected a settlement offer from Blynex, which included 80,000 USDT and the release of 4,000 DHN tokens, deeming the terms unacceptable. They’re now in contact with UAE regulators, the Virtual Assets Regulatory Authority (VARA) and Abu Dhabi Global Market (ADGM), and are considering a joint lawsuit with other affected projects.

Despite the flash crash, DHN tokens have shown resilience, recovering to $43.94 before settling at $39.75. This dispute highlights the risks and challenges in the crypto lending and collateral space, especially when automated systems meet limited liquidity. It also underscores the broader issues of market stability and the need for robust risk management in crypto exchanges.

Dohrnii Labs: “Blynex failed to deliver a promised loan, illegally liquidated their collateral, and blocked access to their remaining tokens.”

Blynex: “The liquidation was part of their ‘automated risk management system.'”

Mike Baskes, Blynex co-founder: “The available liquidity for DHN was approximately $315,000 at the time, making it difficult to sell the tokens without impacting the price.”

Dohrnii Labs: “Blynex’s actions were not about mitigating risk but rather an unjustified seizure of assets.”

Key Takeaways and Questions

• What prompted Dohrnii Labs to file a police report against Blynex?

  Dohrnii Labs filed a police report due to Blynex’s unauthorized liquidation of their DHN tokens, failure to deliver a promised loan, and blockage of access to remaining tokens.

• How did Blynex justify the liquidation of Dohrnii Labs’ collateral?

  Blynex claimed the liquidation was necessary as part of their automated risk management system due to limited liquidity of the DHN tokens.

• What was the impact of Vitalik Buterin’s sale of DHN tokens?

  Vitalik Buterin’s sale of 5,000 DHN tokens caused a flash crash, dropping the token’s price by 50% from $38.50 to $20.69.

• What actions has Dohrnii Labs taken in response to the dispute?

  Dohrnii Labs has filed a police report, contacted local regulators VARA and ADGM, and is considering a joint lawsuit while rejecting Blynex’s settlement offer.

• What is the current status of the dispute between Dohrnii Labs and Blynex?

  The dispute remains unresolved, with Dohrnii Labs pursuing legal action and seeking the return of their assets, while Blynex has yet to provide further statements beyond their initial defense.

This ongoing saga illustrates the delicate balance between innovation and risk in the crypto world, where even the most promising platforms can find themselves at the mercy of market dynamics and exchange policies. As the industry continues to evolve, cases like these remind us of the importance of transparency, robust systems, and regulatory oversight in fostering a safe and thriving ecosystem. In the crypto world, where the only thing more unpredictable than the market is the next move from a crypto celebrity, how can platforms protect themselves from similar disputes?