Deep | Former Harmony Employee Reveals Management Chaos Behind the Struggling Public Chain

Former Harmony Employee Reveals Management Chaos of Struggling Public Chain

Author: Tim Craig, DL News

Compiled by Felix, BlockingNews

Harmony, a once-thriving public chain developed and maintained by Simple Rules, is facing accusations of improper behavior and poor management by the remaining two co-founders. Five former team members and several Harmony ecosystem developers allege that CEO and founder Stephen Tse reneged on promises and exerted “control” over employees, resulting in a sharp decline in users and developers over the past year.

The same group of employees also accused one of the co-founders, Stephen Tse’s deputy Li Jiang, of “poor financial management,” causing Harmony’s treasury to drop from $1 billion in early 2022 to $50 million today.

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Several former team members also claimed that a disgruntled ecosystem builder physically attacked Stephen Tse in Harmony’s Blockinglo Alto office, alleging that Tse had reneged on a $250,000 funding commitment.

Harmony’s Disarray

Harmony is a public chain that supports smart contracts and allows ecosystem developers to build DeFi protocols, crypto games, and NFT projects. Harmony’s biggest attraction is its lower transaction fees compared to the Ethereum blockchain. Harmony was also one of several Layer1 chains that surged in value during the 2021 crypto bull market.

Last year, Harmony’s TVL reached a high of $1.42 billion. Harmony’s flagship application is a fantasy RPG game called “DeFi Kingdoms,” which was popular among crypto “degens,” and the native token ONE’s price was close to its all-time high. But one year later, Harmony has become a “ghost town.”

As of June, its TVL is less than $3 million, down 98%. Developer activity has slowed to a crawl. The price chart of ONE token looks more like a pump and dump than “the future of finance.”

While many attribute Harmony’s collapse to the Horizon Bridge hack that lost $100 million in June of last year, former team members, ecosystem developers, and community members also point to the leadership of Harmony as another root cause.

Employees Forced to Play Basketball Daily

A former employee described typical behavior from Tse: he would shut down employees’ computers to get their attention and make them play basketball with him for over an hour every day, regardless of how busy or productive they were. Another source even speculated that if they didn’t play basketball with “Stephen” (referring to Tse), they would lose their job.

Another former employee told multiple stories of how Tse treated team members. He described how Tse would grab employees’ arms and “move them around like pawns” at company events (sometimes in conversation), talk behind their backs, and belittle them in front of colleagues and peers.

“It’s known that Tse interrupts employees and says, ‘Please hold me for a few minutes. Do you have any questions for me? If you don’t ask Stephen a question, he would be disappointed and say he’ll be back in a few minutes and hopes you will have a question for him by the time he returns.'”

Another former team member said, “He often forces you to say something or forces you to ask something, whether you want to or not.”

“I Want to Cry, Let Me Cry”

The source also claimed that Tse would often stand in front of employees and say, “I want to cry, let me cry.” Tse would have employees tell a story, trying to make them cry.

Former team members also claimed that Tse did not provide full-time employee status to team members, but rather had them work as contractors. One source said, “They hire people as full-time employees and pay them as contractors.” He explained that because of their contractor status, employees did not receive enough vacation time or benefits.

Founder of Eco Project Attacked

However, the most shocking event happened on July 5, 2022, when Tse was physically attacked in Harmony’s Blockinglo Alto office. Three former Harmony team members who witnessed the attack claimed that it was carried out by Hochung Nam, co-founder of a project sponsored by Harmony.

The project was initially called 1wallet when it received funding from Harmony, but was later renamed Timeless Wallet. It was a Harmony community project developed by Tse’s friend Zi Wang, who pledged to provide $1 million in grant funding to build a “social wallet that supports the next 100 million users on Web3.”

Two sources familiar with the matter revealed that the first funding commitment for the project was $250,000. One source revealed that Zi Wang and his partner Nam developed the project with their own funds, believing that the Harmony grant would cover these costs. However, Tse reneged on the funding commitment. This prompted Nam to go to the Harmony office to inquire about the reason.

A former team member who witnessed the assault said: “Hochung came to Harmony’s office in Blockinglo Alto to discuss the matter with Tse. They had a dispute and Hochung assaulted Tse, calling him a fraud. Everyone in the office saw it.”

Another former team member said, “After the incident, I immediately called 911 on my phone in case the attack continued.”

After the attack, the former team member immediately had a conversation with Harmony’s current team members, one of which wrote: “Tse’s nose might be broken.”

One source said, “In the end, I believe Nam and Zi Wang received less than $100,000.”

Three former team members said that after the attack, due to “serious concerns” about the safety of the core team, company on-site meetings and events were held at multiple locations in the San Francisco Bay Area instead of the Blockinglo Alto office.

Tse and Nam did not respond to requests for comment on the matter.

The conflict with Zi Wang and Nam is not the first business dispute that Tse has had with friends. In 2020, Harmony co-founder Alok Kothari filed a lawsuit against Tse and three other Harmony co-founders in Santa Clara County Superior Court. The lawsuit alleged that Tse defrauded Kothari of his ownership in Harmony. Court documents show that Tse denies these allegations. The case is still ongoing.

Funds Running Low

What caused Tse’s dispute with Timeless Wallet?

Multiple sources said that by mid-2022, poor financial management had left Harmony’s treasury nearly empty, unable to pay for any of its previously promised grants.

The treasury is a pool of encrypted assets reserved for blockchain project. The treasury funds are typically used to pay for business expenses, employee salaries, and to help the project grow.

A former team member said, “With the cooling of the last bull market, Harmony’s funds dropped significantly from nearly $1 billion, and Jiang did not allocate the treasury funds well, most of which were in ONE tokens.”

“Jiang never tracked the funds promised to the beneficiaries, nor held the promised funds in stablecoin form. When the market collapsed, the funds promised by Harmony to the beneficiaries also evaporated.”

On-chain data shows that the Harmony treasury is currently entirely in ONE tokens. At the beginning of 2022, ONE was priced as high as $0.35, and now the price is around $0.01.

The wallet address publicly shared by Harmony’s official Twitter account shows that the Harmony treasury is worth about $50 million. However, due to the lack of liquidity in the ONE trading market, the actual value of the treasury may be much lower.

“Sounds like former employee rumors.”

In response, Jiang said, “We strongly oppose these claims, which sound like untrue statements from disgruntled former employees who are now working for competitors.”

Jiang said that Harmony’s problems are the result of a combination of multiple crisis events, such as the June Horizon bridge hack, Terra, hedge fund Three Arrows Capital, and the cryptocurrency liquidity crisis caused by FTX’s collapse.

Jiang also said, “I choose to stay at Harmony to help the ecosystem and the team recover. We have recently hired 10 full-time team members, including members from the Ethereum ecosystem and top schools like UC Berkeley. We have a roadmap for this year’s protocol scalability and user adoption, and we are working hard.”

DAO, more DAO, like 10,000

In addition to poor fund management, Tse and Jiang’s obsession with decentralized autonomous organizations (DAOs) further drained Harmony’s funds. In 2021 and 2022, the two promised to allocate $50 million through a grant program to fund “10,000” DAOs to build Harmony.

Tse said in his keynote speech at ETHDenver 2022, “10,000 DAOs, that’s our promise, and we will not only put all the funds and governance into 10,000 DAOs, but we also believe that DAOs are the right form to achieve this goal and sustain our future.”

DAO is a popular emerging business management structure in the cryptocurrency field. While DAOs have seen some success, DeFi protocols in the Ethereum ecosystem – such as liquidity staking platform Lido and decentralized exchange Curve – are thriving under decentralized structures. However, because DAOs lack clear regulation, the concept has also attracted fraudsters.

Read Yuval Noah Harari’s Books, Brother

Files posted on Harmony’s Notion website show that senior team members frequently pushed back against DAO plans. In an off-the-record Q&A, Jiang didn’t dispel outside concerns but delivered a philosophical speech. “We all should read Yuval Noah Harari’s three books and see how Web3 and DAOs will become the dominant narratives for human beings in the 21st century,” he said.

When Harmony finally started funding DAOs in earnest through its grants program, it did so without a plan in place. The bar for receiving funding was low. Multiple DAOs received six-figure sums with little more than a written proposal. DAOs often received five-figure rewards for hitting low-level targets like 1,000 Twitter followers or 100 Discord members.

Posts on the grants forum show that Tse and Jiang burned through Harmony’s coffers, providing funding to dozens of DAOs, some of which took the money but provided almost no return. “There was a mandate at one point that the team had to onboard 100 DAOs a month,” said a former Harmony employee who worked on the grants team. “The reasoning was that Tse wanted as many DAOs as possible, even though it didn’t seem like he really understood what DAOs were, and feedback from the team indicated that this was a terrible idea.” Another former team member said no standards for evaluating and approving DAO proposals were in place until the program was nearly over. Projects that received funding often were ones that Tse and Jiang personally liked.

“An Unreal Moment”

One of the most controversial DAOs funded by Harmony was Blu3 DAO, a project focused on empowering women and nonbinary people in the cryptocurrency space. Blu3 DAO posted its proposal on the grants forum on Feb. 18, 2022. Within 24 hours, Jiang had approved $1 million in funding. The decision to fund Blu3 DAO was made at a dinner during the ETHDenver conference, according to a source.

Members of the Harmony team were surprised to see someone casually promise to donate $1 million to someone he had just met, calling it a “fantasy moment.” Like most DAOs funded by Harmony, Blu3 DAO has stopped posting updates on the grants forum. Jess Furman, a core member of the Blu3 DAO team, expressed gratitude for the $75,000 received from Harmony before the funding program was suspended, but said that Blu3 DAO is “no longer an official partner of Harmony.”

The hasty allocation of funds to the DAO has damaged Harmony. Developers in the ecosystem have started to leave Harmony. Projects that Tse and Jiang previously promised to fund, such as DeFi Kingdoms, were ignored. Eventually, DeFi Kingdoms abandoned construction on Harmony. According to Artemis’ data, there are only 12 active developers left per week.

Bolon Soron, alias director of DeFi Kingdoms, said, “We have decided to stop developing on Harmony and move to another chain. There are several reasons for this, and for some time now, communication and technical collaboration with the Harmony team have become increasingly difficult. Their team has also not honored the grants agreed upon several months ago, and there has been no sincere attempt to try new arrangements.”

Another Harmony ecosystem builder who declined to be named said, “As a participant trying to build truly valuable projects on the basis of Harmony, this is very disappointing and frustrating. For weeks, our communication with the Harmony team has received no response, while these random DAOs seem to be receiving all the attention.”

By the end of 2022, Harmony was in a precarious position. But a recent development could bring some hope.

On January 23, the U.S. Federal Bureau of Investigation (FBI) said it had traced more than $60 million in assets stolen by the North Korean criminal group Lazarus Group in the June Horizon Bridge hack. A week ago, Binance CEO Zhao Changpeng said Binance had frozen about $2.6 million worth of bitcoin related to the hack.

Of the eight co-founders who launched Harmony in 2018, only Tse and Jiang remain. And all interviewed former Harmony employees requested anonymity because they said they feared Tse and Jiang would take legal action. “Tse loves to sue,” one source said.

Many people still can’t understand why such a hopeful project ended up like this. An ecosystem developer said, “I want to know how they can be so bad, the level of negligence shown in 6 to 12 months is shocking.”

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