Friend.tech, the BitClout lookalike that was once the most popular application on Coinbase’s layer 2 of Ethereum, has removed the ability to change the smart contract code. Administrators transferred permission to edit its smart contract to Ethereum’s ‘burner’ null address this week. Critics quickly declared its network ‘effectively dead.’

To date, the market capitalization of its token has declined 96% from $235 million to less than $10 million. Its protocol’s total value locked has declined a similar 93%.

After processing tens of thousands of daily transactions during its launch in August and September 2023, use of Friend.tech on Coinbase’s Base dwindled to nearly zero by November. Ever since, users have continued to neglect the network, with August 2024 transactions totaling barely a few hundred per day.

In 2023, Ethereum layer 2s like Arbitrum and Optimism were one of the hottest new things in crypto. That year, Arbitrum was airdropping its highly-anticipated ARB token, and Optimism was launching its OP Mainnet. Google queries for Arbitrum hit an all-time high in 2023 with over five times more queries than Google has received for that word at any other time.

Friend.tech: The flagship app on Base

In the midst of this frenzy, Coinbase launched its own Ethereum layer 2, Base. Differentiated by its lack of a proprietary token, Coinbase advertised Base as a way to save time and fees for a cornucopia of use cases.

In reality, a single application quickly gained traction and dwarfed all other activity on Base: Friend.tech, a copycat of BitClout.

Just like BitClout, Friend.tech allowed users to buy tokens associated with Twitter influencers in order to speculate on their popularity.

The DOJ and SEC eventually filed criminal and civil charges, respectively, against the founder of BitClout. Before law enforcement even published those charges, the market capitalization of BitClout had declined over 90%. It halved again after the charges – and has never recovered.

So far, no charges are filed against the founders of Friend.tech.

Read more: Are Friend.tech keys securities?

The protocol has generated approximately $40 million in fees since inception. There is no full accounting from Friend.tech nor its founder Racer regarding those funds.

For its part, Friend.tech denies claims that it is discontinuing its service or web application. It is simply guaranteeing that no one may change its smart contract on Base.

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The post The rise and fall of Friend.tech appeared first on Protos.

Nader Al-Naji, the founder of BitClout and Basis, is now the subject of a civil complaint from the United States Securities and Exchange Commission (SEC) that alleges that he raised more than $257 million in an unregistered security offering.

He has also been charged with a criminal count of wire fraud in the Southern District of New York. 

The SEC complaint focuses on the offering of BTCLT, the token for BitClout, which the SEC alleges is an unregistered security. 

The SEC highlights that Al-Naji marketed BTCLT as an investment, even comparing it to a “stock that allows you to own a piece of the platform.” Additionally, he communicated with investors in a way that suggested investments would increase in value, noting to one investor that “our most valuable partners should in at the ground floor” because if it raised the funds it expected to then “the protocol price will easily be 4-8x what it is now.”

Read more: SEC gives up on proving BUSD is a security

Al-Naji apparently believed that the appearance of decentralization was important to avoid the attention of regulators, noting in one communication that his “impression is that even being ‘fake’ decentralized generally confuses regulators and deters them from going after you.”

To maintain this alleged facade, Al-Naji apparently reached out to a law firm to procure an opinion that would state BitClout was not a securities offering. In order to get this law firm to produce this opinion, he had to claim that, “no funds were raised or will be raised to finance the development or upgrade of the network” and that he would not “promote or support listing or trading.”

Humorously, Al-Naji allegedly used the idea that “no funds were raised or will be raised to finance the development” to convince investors to provide funds to finance the development. Additionally, the complaint alleges that Al-Naji used $15 million of the raised funds to get BTCLT listed on Blockchain.com. 

The complaint further highlights that despite marketing claims that BitClout was decentralized, Al-Naji controlled the treasury wallet, used the proceeds from the sale of BTCLT for his own benefit, and controlled which investors would have access to the token. 

The SEC also says that Al-Naji claimed he would not use treasury funds to pay salaries for the team, but despite those assurances, he used the funds to pay developers and to enrich himself and his family, including:

• renting a mansion in Beverly Hills
• paying off credit cards
• giving out $2.9 million in cash gifts to his family members
• paying for his other cryptocurrency investments

Al-Naji’s wife and mother, as well as the DeSo Foundation, are also named as relief defendants due to the alleged transfers of funds to them.

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Coinbase’s new layer 2 on Ethereum, Base, saw a lackluster launch with just $10 million worth of inflows on its debut day. However, Base suddenly rallied with the curious introduction of Friend.tech, a “social network” that airdropped tokens to anyone with an active Base wallet linked to Friend.tech’s mobile app.

Base was attempting to displace some of the layer 2 incumbents on Ethereum, like the $1.9 billion Arbitrum or the $800 million Optimism. So many users tried to sign up for the airdrop on August 10 that the app crashed entirely. As of August 11, it had intermittent issues with loading, and new users were searching for any referral code they could find. Referral codes posted on Twitter exhausted within seconds.

Over 21,000 wallets have now transacted over 270,000 times on Friend.tech.

These numbers instantly made Friend.tech the most popular use case for Base. Coinbase’s Ethereum layer 2 now has an impressive $110 million in total value locked (TVL) — 10 times higher than Base’s launch day.

All thanks to a well-known crypto launch strategy: buying shares in people. Literally.

Friend.tech’s value proposition was the ability to buy a stake in celebrities’ Twitter accounts. Stakeholders are granted direct messaging capabilities, with more features planned in the coming months. Sound familiar?

Read more: A critic’s guide to BitClout

For those unfamiliar, BitClout (now DeSo) was an Andreessen Horowitz (a16z) crypto project that used an up-only bonding curve to guarantee insider enrichment. CLOUT tokens (now DESO) once traded at $192 apiece. Like Friend.tech, BitClout claimed to facilitate the buying of shares of people’s digital identities, starting with their Twitter personas, plus a suite of future rights. Today, BitClout tokens are worth less than $9 or a 95% loss.

Coinbase launched a beta version of Base in February 2023. The current version of the layer 2 launched on August 9, 2023. Base’s head of protocol Jesse Pollak says more than 100 apps have already been built on it. Friend.tech is by far the most popular use for Base.

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The post Coinbase’s Base rallies thanks to BitClout copycat Friend.tech appeared first on Protos.

Mario Nawfal’s Roundtable is an incredibly popular Twitter Space that features celebrities and Fortune 500 executives and attracts thousands of US listeners. 

Nawfal also recently launched a second Twitter Space called Crypto Town Hall that offers sponsorships and interviews — often for hire — and focuses on breaking news topics with broad appeal.

However, Nawfal’s success may not be what it seems. An uncanny number of dubious international Twitter users join his Spaces punctually — and, curiously, he averages a similar number of listeners daily. As a result, there are many allegations that Nawfal pays for fake Twitter engagement.

Indeed, online sleuth Upper Echelon claims to have uncovered a number of shady business dealings involving the 29-year-old. These include a public company that has lost four-fifths of its value and a loan scheme that once refused to return lenders’ principal despite Nawfal’s signed guarantee to pay. Upper Echelon also accused Nawfal of reneging on a guarantee to his lenders.

Nawfal’s entire Twitter Spaces operation seems purpose-built for crypto promotions. He once claimed to charge over $20,000 per crypto sponsorship on his Roundtable or Crypto Town Hall shows.

Allegations of unconscionable pricing markups

Nawfal repeatedly uses his Twitter Spaces to call on startups to join his incubator. International Blockchain Consulting (IBC) group is one of his supposed startup incubators. Disturbingly, Upper Echelon found evidence that Nawfal’s supposed incubator, rather than investing in companies as a typical startup incubator, charged many of them for services like marketing or social media management.

IBC often claimed to sell these services to incubated companies at cost, with no markup. However, IBC actually marked up the services it resold quite dramatically. Nawfal admitted on video to collecting $2 million from a crypto client called Faith Tribe despite only paying $8,000 and a few weeks of work to assist it as a client.

According to Upper Echelon, IBC often sourced promotional services like bot engagement, fake followers, SMM panels, forum spamming, and repetitive Twitter comments.

Nawfal’s IBC was also invoicing Nawfal’s public company, NFT Tech, for generously-priced services. During his investigation, Upper Echelon could not confirm that a number of the services invoiced for were rendered and noted that some NFT Tech employees pushed back against paying certain, questionable invoices. One line item displayed “Promoting the Roundtable” — the name of Nawfal’s Twitter Space — as a service.

Sometime between June 1, 2022 (the date on the last viewable IBC invoice) and June 7, 2022, when Nawfal’s NFT Tech announced the appointment of a new CEO, investors pushed Nawfal out of his position as CEO. They also forced him to forfeit ownership of 666,667 restricted share units.

Nawfal often threatens to sue when confronted with evidence about his shady business dealings. Upper Echelon clapped back, threatening to countersue and filing an ethics complaint with the California bar against Nawfal’s attorney. Nawfal reluctantly relented.

Mario Nawfal’s long history of failed businesses

Nawfal describes himself as a ‘serial entrepreneur.’ He co-founded NFT Tech, which went public on the NEO (Cboe Canada) exchange. On May 30, 2022, when Nawfal was still running the company, shares were trading at CAD$0.70 (around $0.50). Today, they are worth 85% less.

Before his involvement with NFT Tech and IBC, Nawfal had a significant presence on a social media platform called BitClout (CLOUT). BitClout misrepresented the likeness of celebrities as though they were BitClout users without their consent. Its founder, Nader Al-Naji, issued CLOUT on a bonding curve to guarantee insider enrichment. Even after a name change due to BitClout becoming such a despised brand, CLOUT (now DESO) is trading 95% below its all-time high.

Read more: A critic’s guide to BitClout, this cycle’s most hated Bitcoin project

BitClout is now called Decentralized Social. Nawfal’s promotion of his BitClout/DeSo tokens earned him significant holdings within BitClout, which he parlayed into an initial dex offering (IDO) called the DESO IDO fund.

Nawfal’s disastrous IDO fund

A document obtained by Upper Echelon indicates the IDO was probably a loan agreement with IBC through which IBC would pay out just 20% of its crypto profits. It would keep the remaining 80%. The loan agreement stipulated that IBC would pay no interest for the first three months after an investor sent funds. IBC would also pay no interest after the termination of the agreement.

Nawfal and a partner called Terek created a ‘Family and Friends’ investment pool. This pool leveraged the loan agreement to buy tokens in IDOs.

According to Upper Echelon, investors — or, more accurately, ‘lenders’ — sent approximately $750,000 in funds, which IBC used for its Family and Friends pool. However, many of the tokens that the Family and Friends pool invested in significantly declined in value. For instance, the fund bought $30,000 in DeliqFinance tokens which returned just $8,000. The rare tokens on which Family and Friends made a profit didn’t earn enough money to rescue the fund. In fact, it ended up losing $150,000. These losses would have made it difficult to pay back all investors.

Another ‘public-facing’ portion of the IDO fund allowed smaller investors to invest as little as $1,000. A related Telegram group had 57 members who likely invested in the fund. Only a few investors ever got their money back. Most of them ended up writing it off as a rug pull. Nawfal and Terek stopped participating in the Telegram group for long periods of time.

Upper Echelon’s investigation ended five months ago. Protos has not been able to verify the current state of the above-mentioned funds, including whether or not Nawfal subsequently repaid or provided satisfactory relief to participants.

Threatens critics with lawsuits

Mario Nawfal has a dubious business history that’s unknown to the vast majority of his Twitter Spaces listeners. Like many crypto influencers, he’s promoted shady investment schemes like BitClout and IDOs and even helped list a penny stock that, predictably, lost almost all of its value.

Upper Echelon has covered Nawfal’s possibly-shady business decisions. Nawfal tried to defend those decisions in a video and then had his attorney send a cease-and-desist letter. That letter threatened to pursue a DMCA request to YouTube to remove Upper Echelon’s videos criticizing Nawfal or IBC. The Digital Millenium Copyright Act (DMCA) allows copyright holders to request the removal of online content that violates copyright laws. However, critics say that bad actors have abused the DMCA to have YouTube channels’ free speech silenced.

Upper Echelon filed a complaint against Nawfal’s attorney for unethical conduct. Nawfal subsequently sent proof that he had fired his lawyer and was trying to get a refund.

As one might predict, Nawfal tried to downplay the whole thing in another Twitter Spaces event, claiming, “I’ve got no skeletons I’m worried about.”

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The post Twitter Spaces host Mario Nawfal’s dubious crypto dealings appeared first on Protos.