Is ICP a Scam? Arkham Intelligence Looked Into It

A Summary of Arkham Intelligence’s Takedown of ICP

Link to the article

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• ICP dropped from it’s ATH of $730 to $30
• It ascended to the 3rd most valuable crypto asset
• DFinity is the company behind ICP

On-Chain Analysis

• The addresses in question belong to 3 entities: Dfinity, exchanges, and suspected insiders
• The “Treasury” is the address Arkham believes belongs to Dfinity, and it received 107 million ICP from the mint(about 25% of total supply)
• There are two types of exchange addresses: central addresses and deposit addresses
  • In a nutshell, central addresses are the pot of ICP that an exchange holds
  • Deposit addresses hold crypto for a short time before transferring to central addresses
• The suspected insiders are some addresses that either received ICP from the Treasury or deposited ICP to a deposit address also used by the Treasury.
• Arkham tracked exchange flows and found that the Treasury deposited 3.1 million ICP to exchanges on May 10 and 4.7 million on June 15th
  • The exchange deposits on May 10 are typical for providing liquidity on exchanges
  • The deposits on June 15
• There are 34 suspected insiders that also deposited a lot of ICP to exchanges
  • They were sent 34.1 million ICP in total
  • About 75% of these transfers occurred within 3 hours of trading open on Coinbase
  • The deposits by insiders are made in different amounts, to different exchanges, leading to the assumption that there is no single underlying entity.
  • Despite this, many insiders made a large transfer on listing day followed by intermittent deposits post-listing
  • They followed this pattern:

1. Treasury sends 62.5k ICP to insider 2 hours before trading opens
2. Insider sends 62k ICP to Coinbase/Binance addresses over the course of 5 days after listing
3. Exchanges move this ICP to central addresses within 20 mins of deposit

Implications

• The Treasury and insiders sent about 75% of the total ICP deposited on exchanges.
• We can only assume these tokens were sold, as there is no “direct and clear” evidence that they were.
• The assumption is safe because:

1. The price plummeted as these deposits were made
2. The only thing to do with ICP on an exchange is to sell it

• A possible counter argument is that they wanted to use Coinbase for token custody
  • This is unlikely because the token holders (Dfinity and insiders) would most likely have the capability to securely store tokens and they would have been incentivized to store them in a way that maintained their custody of them(at the time of the dump, their tokens were worth hundreds of millions).
  • Secondly, ICP protocol distributes ICP rewards to holders who lock their tokens in the network. If there is no intent to sell, holders are incentivized to earn rewards rather than store them on exchanges
  • Thirdly, and most simply, the historic price drop indicates mass selling.

Off-Chain Analysis

• There was a lack of transparency regarding token allocation and unlocking as there is very little public information in the way of token unlock schedules
• Contrast this to UniSwap, who released breakdowns for allocation by category of holder, and a breakdown of the unlocking of the treasury
• Dfinity’s founder sent a twitter reply claiming:
  • “Foundation didn't vest itself but plans on putting most of its ICP into neurons. It is doing this carefully to make sure foundation+team members don't control the network (you wouldn't believe it based upon what you hear, but in actual fact, we care a lot about decentralization!)”
• Having no vesting essentially means that token holders are less incentivized to hold their tokens should something happen with the project(like a rug pull, team dump, or VC dump)

Seed Supporter’s Struggles

• At time of launch, seed supporters were entitled to about 25% of the total ICP
• These initial investors seem to not have been aware of how to access their tokens or how the tokens would unlock until listing day
• Dfinity published an article on Medium on how to access seed tokens
  • This article explains that seed investors would be subject to a 4-year unlocking schedule:
    • “Seed donors will receive all of their ICP tokens at Genesis Unlock, but these will be staked inside 49voting neurons within the NNS. Each neuron that is delivered will have a different “dissolve delay”configured by the NNS. This configures the minimum period required to unlock the ICP tokens staked inside. One of their neurons will have a dissolve delay of 0 days, allowing the staked ICP tokens to be unlocked immediately, if desired (subject to applicableAML/KYC verification). Another will have a dissolve delay of approximately 30 days, another of 60 days, another of 90 days, and so on.(Note:Configured dissolve delays may have some small random number of days added or subtracted by the NNS).”
• The provided set of steps to retrieve seed tokens is complicated and technical, with users reporting bugs.
  • The steps could not be performed on Windows or new Macs with M1 chips
• Dfinity support was unsurprisingly lacking
  • Users on the support forum report being redirected back to the forum after submitting tickets for their issues
  • Some users report buying new computers to access their tokens.
• If Dfinity intended to dump, it would make sense to effectively disallow seed investors to access and sell their tokens
• Many seed investors were forced to watch as they watched what would have been a life-changing investment slip through their fingers

Implications

• Any one of these pieces of evidence may easily be swept under the rug as a new project fumbling through release.
• As the pieces come together, it seems clear that there was intent behind all of these events.
• This rug pull event stresses the need for better analytics on cryptocurrencies
  • ICP buyers should have known about suspicious token flows and off-chain activity.