Cryptocurrency project sues Chainalysis
The new year looks set to be off to a tumultuous start for Chainalysis. The trial for Roman Sterlingov, set to begin on February 12th, is accused of laundering millions of dollars in money. In addition to calling into question the credibility of Chainalytic Reactor, he is currently being sued by cryptocurrency project YieldNodes.
In its 2023 Crypto Crime Report, Chainalytic claimed that YieldNodes, a Hong Kong-based project that rents computing power to participate in masternode pools, is a scam. In a graph summarizing cryptocurrency fraud activity, Chainalytic described YieldNodes as the second-largest cryptocurrency fraud by revenue in 2022, with a total of $341.6 million. In particular, Chainalysis’ graph failed to capture FTX, one of the largest cryptocurrency scams to date, which embezzled $8 billion in customer funds.
“They made no attempt to contact us prior to publishing the report. When we attempted to contact them to discuss the report, they referred us to a sales representative and attempted to sell us a license for the software.” YieldNodes wrote in its newsletter. .
Chainalysis’ classification had devastating consequences for YieldNodes’ business by blocking participants from depositing and withdrawing profits from the exchange. The reputational damage continued as Chainalytic’s claims spread across the media and resulted in the YieldNodes product being removed from trading platforms.
In a short statement, YieldNodes said it learned about Chainalytic’s classification after receiving transaction errors from participants. YieldNodes now acknowledges that Chainalytic lacks scientific evidence for its flagship product and accuses it of “prioritizing marketing over reliability,” citing limitations in false positive rates, false negative rates, and error rates.
Last July, YieldNodes encouraged projects to join a possible class action lawsuit against Chainalytic, citing the company’s size and the associated costs of challenging Chainalytic’s claims in court. Founded in 2014, Chainalytic is a blockchain surveillance company that provides its products to exchanges, financial institutions, and law enforcement agencies, including ICE, IRS, FBI, SEC, and DEA. Chainalysis has received more than $3.3 million since 2020 from InQTel, the CIA’s nonprofit venture capital arm.
