ParaSpace Fails to Regain Investor Trust, Major Questions Remain Unanswered

ParaSpace Fails to Regain Investor Trust, Major Questions Remain Unanswered

Beleaguered NFTfi platform ParaSpace is failing to regain investor confidence after a very public civil war earlier this year. ParaSpace has not recovered since its ‘CEO drama’ as the total value locked (TVL) on the platform remains down by 64% from its peak in May.

Now an investigation has exposed troubling new details about the company and its chaotic management, posing major questions for and about the figure in charge – CEO Yubo Ruan.

ParaSpace rebellion fails

Earlier this year NFTfi lending platform ParaSpace erupted in a very public civil war over the mismanagement of user funds.

The dispute centered on $5 million stolen from a protocol exploit in March and what happened to the money after it was recovered and returned to the protocol.

In May, 19 ParaSpace team members including Jay Yao (CBO) and Thomas Schmidt (COO) accused company CEO Yubo Ruan of retaining the money and failing to return it.

While the disaffected workers at first seemed to oust Ruan from both position and authority, the CEO ultimately managed to regain full ownership of the platform. But numerous questions about ParaSpace and Yubo Ruan’s business dealings remain unanswered.

ParaSpace limps on after ‘CEO drama’

At its peak from late April to early May ParaSpace held over $225.6 million worth of investor funds. Following the rebellion, tagged by DefiLlama as the ‘CEO drama,’ the project has failed to claw back its once lofty position.

Analysis of the total value locked (TVL) chart makes clear the dispute is taking its toll.

ParaSpace Fails to Regain Investor Trust, Major Questions Remain Unanswered
ParaSpace remains significantly down from its peak in May. (Source: DefiLlama)

By May 13, the total value locked in ParaSpace fell to just $83.6 million from a high above $200 million. As of 12:45 UTC on Friday, July 28, the total value locked (TVL) sits at $81.28 million, down by 64% from its peak.

Yubo Ruan’s inconsistent story

One of the more baffling aspects of the war between Yubo Ruan and the team that turned upon him is the shifting job status of team members Jay Yao and Thomas Schmidt.

As Yao and Schmidt tell it, the two enjoyed the lofty status of co-founders at the firm. Following the rebellion Yubo Ruan maintained that the pair were never anything more than consultants.

On May 10, Ruan took to Twitter to state that, “Two former consultants, Thomas Schmidt, and Jay Yao, have illegally obtained control of one of the protocol’s multisig and social media accounts. They did so by contacting key contributors, investors, and partners to make misrepresentations that they are founders/shareholders of @ParaSpace_NFT.”

Yet, as recently as March, Yubo Ruan was openly introducing Yao and Schmidt as co-founders to his business partners.

ParaSpace Fails to Regain Investor Trust, Major Questions Remain Unanswered
Yubo Ruan introduces Jay Yao as “cofounder Jay”.

The immediate question, therefore, is if Yao and Schmidt were neither shareholders nor co-founders at ParaSpace, then why was Ruan openly naming them such? 

Was Ruan truthful when he told investors and business partners that Schmidt and Yao were his co-founders, or was he truthful when he told the ParaSpace community the pair were only consultants? If both statements cannot be correct, then someone has to have been misled.

Ruan was ‘setup’ claims spokesperson

Ruan’s position may have shifted over time but both Yao and Schmidt have been consistent in their claims. 

For their part, Ruan and ParaSpace have made strenuous denials to the press. Following the end of the CEO drama, a ‘spokesperson’ for ParaSpace reached out to multiple news publications to ensure they issued a ‘correction’ on Yao and Schmidt’s status among other things.

“Yubo has never done any embezzlement. The whole issue is a setup. Jay [Yao] and Thomas [Schmidt] are neither shareholders nor co-founders of ParaSpace. Their action has no relation with ParaSpace,” said the spokesperson.

While the anonymous spokesperson was certain that Yubo Ruan ‘has never done any embezzlement’ the source suffered from the same memory lapse as Ruan regarding Yao and Schmidt’s job titles.

As with many things at ParaSpace, digging deeper only presents further questions rather than clarity.

Another Ruaned NFT platform

One of the more troubling aspects of ParaSpace is the nasty sense of déjà vu which surrounds the protocol. Specifically, ParaSpace is not the first of Ruan’s NFT lending platforms to lose millions of dollars in funds.

Yubo Ruan previously entered the NFT lending sector in June 2022 with OMNI protocol. Less than a month after its launch, the project was hacked for $1.4 million in a flash loan attack.

In July, Ruan closed the OMNI Protocol for good. A month later, ParaSpace made its first commit to Github. Between November and December of 2022, over $1 million in funds was transferred from OMNI wallets into ParaSpace-related wallets – yubo.eth, 0x909 and ruanyubo.eth.

ParaSpace Fails to Regain Investor Trust, Major Questions Remain Unanswered

While ParaSpace is now presented as a new NFT lending platform, it is largely the same codebase as the old, previously exploited OMNI. Its wallets are filled with funds siphoned from OMNI. Once ParaSpace was launched, history repeated itself as the platform was exploited in March 2023.

Perpetual confusion at OMNI/ParaSpace

One of the ongoing issues with ParaSpace and related Yubo Ruan endeavors is the number of contradictory statements Ruan makes about them.

The status between OMNI, ParaSpace, and other various entities under Ruan’s control seems to shift as convenient, taking whatever form the current situation demands.

For example, in March, Ruan claimed that ParaSpace “hasn’t taken any capital from investors as an independent entity,” seemingly contradicting the ParaSpace website which lists Sequoia, Founders Fund, Coinbase Ventures, Polychain Capital, Lightspeed, Pantera, Slow, and Blockchain Capital as investors. 

Yubo Ruan said that Parallel Technology Holdings incubated Parallel Finance and ParaSpace, but bizarrely, Parallel Finance was operational 5 months before Parallel Technology Holdings ever existed. 

Ruan says that ParaSpace is independent of Parallel Finance, but the two seem intractably interwoven at a managerial and financial level. For instance, the investors listed on the ParaSpace website are largely the same group of investors in Parallel Finance.

In each instance, why the confusion? Given the many contradictions and inconsistencies at ParaSpace, there would seem to be a multitude of reasons for caution when dealing with this beleaguered lending platform.

In cryptocurrency, one lesson is well learned many times over; when the CEO of a firm cannot command even the most basic facts in regards to their own company, for whatever reason that might be, the results are rarely pretty.

Another fine mess brushed under the carpet

The latest crisis to hit ParaSpace illustrates how management can negatively impact a company. On July 17, ParaSpace user FloridaMan.eth took to Twitter to reveal how a bug in the protocol liquidation function resulted in major losses, both of assets and funds – including a Bored Ape NFT. FloridaMan.eth’s story caused quite a stir on social media with other users coming forth to air similar complaints about ParaSpace.

Worse, FloridaMan.eth also revealed how his bug bounty claim was refused on the grounds that ParaSpace knew about the problem before the exploit occurred. 

This only added to the FloridaMan.eth’s mistrust and anger as he said, “I suggest people who have been liquidated [on ParaSpace] reexamine the circumstances surrounding them.”

On July 25, FloridaMan.eth and ParaSpace participated in a joint Spaces AMA on Twitter to declare that the situation had been resolved to the satisfaction of all parties.

“Everything behind my tweet and putting that story out in public was never to disparage ParaSpace or anyone that works at ParaSpace,” said FloridaMan.eth.

Without going into specific details of what the resolution entailed he went on to add, “I had my questions and doubts cleared.”

Ruan went on to say, “Sometimes we may not have the best communication, and there are some misunderstandings, but we are here to help and solve problems.”

Image credits: Shutterstock, CC images, Midjourney, Unsplash.