Key Highlights
- MegaETH’s pre-deposit chaos exposed KYC and multisig flaws, with whales dominating deposits and the $1B cap plan canceled after a $500M freeze.
- Technical glitches and bot activity disrupted MegaETH’s token pre-deposit, prompting refunds and a retrospective review to address protocol weaknesses.
- Despite pre-deposit issues, MegaETH’s MEGA auction raised $1.3B, and USDm stablecoin aims to cut fees and smooth transactions for users.
Ethereum Layer 2 (L2) blockchain MegaETH’s pre-deposit event descended into chaos on Tuesday after technical failures disrupted the platform’s controlled opening for verified users. This caused confusion and controversy that exposed vulnerabilities in both the protocol’s Know Your Customer (KYC) system and multisig.
All the pre-qualified users were meant to lock in allocations of the MEGA token, but a configuration error and issues around rate limits prevented many from doing so. The pre-deposit cap of $250 million was therefore filled in a matter of minutes, and the team behind the sale controversially moved to extend this to $1 billion.
According to popular crypto influencer and analyst olimpio, the situation unfolded like a “PURE CINEMA”. He outlined that the pre-deposit campaign began at 9 AM on November 25 with a $250 million cap. The website crashed for around an hour, then quickly filled the cap in just three minutes.
MegaETH announced a cap increase to $1 billion, but a fully signed Safe multisig transaction executed prematurely, allowing deposits to flow earlier than intended. “People started depositing,” olimpio noted, forcing the team to cancel and rebuild new transactions, eventually freezing deposits at $500 million.
In a statement on X, the team said, “We’ve encountered unexpected issues throughout the process and are no longer moving forward with the $1B cap.”
The project added that it will release a retrospective review soon and provide users the option to withdraw funds if they no longer wish to participate. MegaETH apologized for the disruptions, stating, “Apologies for the turbulence.”
Technical failures expose protocol vulnerabilities
The pre-deposit period ran into several technical problems. KYC checks didn’t work because of setup and traffic issues. Adding to this, a fully signed Safe multisig transaction meant for a later cap increase went live too early.
This mistake allowed new deposits to surpass the intended $250 million cap. MegaETH explained, “The $250M cap is filled by people who were spamming refresh on the Pre-Deposit Website and were able to catch the random opening time.”
Moreover, deposit data shows concerning patterns. Blockchain analyst Melkor.eth highlighted that out of 4,869 deposits, 2,643 were under $5,000, while 79 wallets exceeded $1 million.
Duplicate addresses numbered 259, raising suspicions of bot activity or inflated metrics. “These numbers don’t show trust. They show deception,” Melkor.eth commented. Big whales and insiders appeared to dominate the pre-deposit, leaving small users at a disadvantage.
Auction success and ecosystem expansion
Despite the pre-deposit chaos, MegaETH’s MEGA token auction, held from October 27 to October 30, drew over $1.3 billion in commitments. The auction offered 5% of the 10-billion-token supply, with bids ranging from $2,650 to $186,282.
Participants could lock tokens for one year for a 10% discount. The event marked MegaETH’s third community raise, following the 2024 Echo round and the February “Fluffles” NFT drop.
In September, MegaETH launched USDm, a stablecoin created with Ethena. The goal is to lower gas fees, make real-time transactions smoother, and help the ecosystem grow. Co-founder Shuyao Kong said, “USDm means lower fees for users and a more expressive design space for applications.” Instead of charging users fees, MegaETH uses the stablecoin’s yield to cover costs, keeping activity steady and reducing friction in the network.
MegaETH’s pre-deposit issues reveal weaknesses in its operations, despite a successful token auction and stablecoin launch. Technical problems and signs of deposit manipulation raised concerns about fairness and transparency. Freezing deposits at $500 million highlights the need for proper testing and careful multisig management.
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