Update from Argentina

Hello from Argentina. This is Charles Hoskinson broadcasting live. So you may have noticed I was just at Consensus and Consensus was in Toronto. So now I'm on the bottom of the planet down here in South America. and I'm here for the opening of the input output office in Argentina which is going to be the headquarters of all of our operations for LACE.

So it's good to be here with the Argentine community. We're going to have a grand opening the office this this week. I think it's Monday, but I'll have to look at the calendar for it. It's getting harder and hard to keep track of time. I want to make a quick video to give an update on things related to ADA redemption since this seems to be the topic of Vogue.

also some clarifying statements because there seems to be some tweets from certain people that we'll discuss in a bit just so that people have full context and understanding how deeply frustrating the situation has been for us at input output. So as many of data was distributed through a primary cell system so a voucher system where vouchers were sold through a distributor called attain in Japan. Those were direct sales, meaning a salesman talked to a person. The person purchased those in yen and received a voucher with the understanding that there would be a redemption process once the network launched. this is an indisputable fact.

people acknowledge and understand it. Many of you listening were participants in that process. The sale took place from late 2015 to roughly 2017 through a series of four tranches. Now everybody had a role in place input output built compliance software for attain the nature and documentation of that software will be fully released as part of the audit report which will come out and you guys can see how KYC was done and how the software was used and how the distributors worked on the Cardano Foundation side. They took the role of verifying that Attain was doing proper KYC.

And that's not just a statement I'm going to make. I'm going to show you what one of those reports looks So, let me go ahead and bring that up for you. So, this right here is an audit report that was produced March 2nd of 2017. And this was actually one of the final audit reports that was produced. and it's about the Cardono audit internal assurance review of the ADA token sale for Trunch 4.

And what this report does is it gives you a sense of all the different things that were done, how KYC was done, the amount of value that was distributed amongst many other things. These reports will be made available to the auditor as well in addition to every single Slack interaction we can find email we can find in communication and meetings notes we can find that are relevant to the sale the redemption period pre- sweep redemption period the sweep and the post sweep redemption period few days ago we called the Cardano Foundation we seldom do that because we have no need to interact with them. My chief legal officer and my chief of staff called them because I was traveling and I've been on panels with Eric Trump and giving keynotes. So I often delegate in matters of great import to my chief legal officer and to my chief of staff important phone calls. They had a conversation I believe with the operating officer of the foundation and their general counsel.

We had a very simple request. Since you were in the Slack channels, since on numerous occasions in my bi-weekly calls with the CEO of the Cardano Foundation, could you at least tweet out that you were aware that an ongoing redemption post sweep was happening and that we had many times asked you for help in that process. We did not ask for an endorsement of the process or a statement that they're fully aware of all facts of the matter. Just simply a tweet to cool things down because what we've noticed is now a protracted and coordinated effort by certain people to defraud and defame the ecosystem. People are now going into Twitter spaces with thousands of people in them.

their messaging through private messages, influencers in the Ethereum ecosystem and other ecosystems propagating a story that hundreds of millions of dollars worth of ADA has been stolen. This story will continue to propagate and gain verality. By having an independent entity tweet that there's more to it and that people should wait for the audit report to come out. I think that would put some cold water on these coordinated efforts because the people coordinating would realize that if they were wrong, they are exposing themselves to significant liability through litigation and they would be a bit more reticent to dogpile and brigade until the audit report came out to give them some semblance of what actually happened, which is all we asked. The members of the Cardono Foundation said that this incident is self-inflicted, that they've been gracious and only we have attacked them, and that for them to send a tweet, I'd have to personally call Fred.

As I arrived here in Argentina, I did. He didn't pick up. Perhaps it's the time zone difference, but I've made every attempt through my proxies to try to control an in a situation where things are spiraling by people who have every intent to cause grievous damage to the brand of Cardano. You see, this is not an issue with input output. We will resolve the brand reputation issues that are caused here and we have a duty to act to litigate such things.

This is a broader issue for the Cardano ecosystem as a whole which is why we reached out to the foundation and we directly talked to them and said listen people don't read the headline IOG did something they read the headline theft in Cardano and for more than seven years we've been known as a high integrity ecosystem that doesn't fail doesn't go down and when headlines come out that money's been stolen or hacked or the chain has been unilaterally rewritten It causes damage that takes millions of dollars of marketing and branding and communication post audit report to repair. And if they have an opportunity to prevent that damage from percolating through our ecosystem as an entity that asserts itself as a as an entity that wants to protect Cardano, I would assume that they would do so. But I guess pettiness avails. And I'll show you a tweet from a member of the Cardano Foundation as an example of this pettiness that we have encountered again and again. So this is from Andreas Fletcher.

I believe he's the chief operating officer of the Cardano Foundation. Says, "Interesting move by IOHK Charles whenever he is in trouble, self-inflicted, or he calls for help by the CF. Sorry, but you need to solve by yourself. or maybe just speak with Fred and you both could solve it together. But no, you're still cudging in your quirm.

I have nothing fear. I'm just very busy, which is why I had my CLO and my chief of staff call you. And I think you guys are more than capable to discuss a single tweet without me having to call for it. And I'm happy to do so. But Andreas, this is not a self-inflicted wound.

Let's discuss the nature of why the sweep happened after attain went out of business. And why did attain go out of business? Because the Japanese government changed the law and direct sales were no longer lawful. So they had to shut down or become an exchange. Exchange licenses were rare and it was not part of their business model.

So when they shut down, the lifeline between the people who purchased and their ability to redeem was clipped. At that time, we tried very hard to get the Cardano Foundation, and I admit it was under different leadership than your leadership to take over the redemption process because that would make the most sense. They're supposed to represent the community as a whole, be objective. Also, they were the ones who audited the entire KYC process and thus were fully aware of who every single buyer were. So, they were best positioned to actually facilitate and run this.

They chose not to do it. So then there was this lingering issue where with attain now shut down and the final stage of redemption still impending because another thing that people don't seem to understand is the UTXOs in the genesis block were not custody. Those UTXOs were not yet in the custody of the buyers. These were still pending transactions. After vending had occurred, the final stage of redemption was to regenerate your vend certificate and rotate addresses.

And the reason being is that these were special addresses in the block that were specifically mapped to KYC and also hypothetically could be reconstructed if enough entities came together and had enough information. In other words, they were not necessarily secure assuming core entities were no longer around a tame. So, as redemption started declining and no one was using those addresses anymore, three things were true. One thing is that the remaining people either didn't know how or were unable for whatever reason to redeem yet they still felt they were owed something obviously because they bought something. They exchanged cash for it.

Number two, because of Aane's collapse, there was a strong possibility that if enough time elapsed, social engineering, other tricks could be used. Sorry, I seem to have lost my my stream here. So the third thing is the redemption scheme was supposed to be a finite period of time. Meaning the redemption mechanics were going to be removed from the blockchain after the Byron era as we entered the Shelly era and became fully decentralized. Which is why there was never an intent for Byron addresses, excuse me, redemption addresses to spend to anything other than Byron addresses.

So during the hard fork from Byron to Shelley, should that mechanism have survived as insecure as it was, every single wallet in the ecosystem would have to support it and it would be a burden to every wallet to every node builder made no sense for the sake of decentralization to preserve and protect a redemption mechanic. So a new redemption mechanic was chosen in consultation with Emergo and the CF was briefed. That redemption mechanic meant sweeping the redemption UTXOs into a custodial account and making the remaining buyers go through compliance again because we could not know if the original set of data had been compromised or not because attain the primary sales agent had shut down and those employees had since moved on and this was a great deal of funds and that's exactly what happened. Not only was the CF aware of this process, they were in our Slack. Oftentimes, I would mention how many redemptions had occurred and I have meeting notes from my secretary during meetings with Fred about these things.

I even recall a meeting where Fred said, "You guys are doing it the right way." So, all we asked is since you were in the channels, you'd received numerous communications on a pretty regular basis about what's going on. And we even asked you from time to time for help, especially with Japanese ambassadors and other people when we were attempting to make searches of redemption and reach certain people. All you have to do is just tell the world that you were aware of this and the assertions that the 300 million ADA was unilaterally stolen are not true. Here's the thing.

When a process goes offchain, no matter what I say or do, the only way to verify those statements requires a trusted third-party auditor to come through and check all of the documentation because there's no other way to verify such things. These reports take weeks to months to generate and typically they're very invasive and it requires time to parse and understand. So, in the interim, while we're all waiting for such a report to come out, everybody should do everything in their power to just kind of cool things down while people are waiting. Otherwise, there's not much more we can say or do. I've made every statement I can make on this matter, and I've tried everything I can, but at the end of the day, you have to see an audit report to understand what happened in the context of these things.

how each stage evolved, how the voucher sale was done, how the ADA voucher vending machine was constructed by Sarah Kel, how the process of one creating a a a redemption for that, how the Genesis copy was done, where the code was edited from Byron the Shelly, which by the way is in the specifications and people who were clever enough to read it could see it. And then the post sweep redemption mechanic, the partners that were involved a regulated exchange remix point where people had an option to either take self-custody or redeem to an exchange. A regulated actor in Japan participated in this. The law firms that were involved alongside the legal memos that were produced about how to do certain things and when to void a transaction. After 7 years, that had been sufficient time and it was the opinion of council that pending transactions could be cancelled.

If you purchase something and you fail to pick up the thing after a period of time, you no longer have the right to that thing. You're just simply refunded. That's how it works in pretty much every organized nation in the entire world. Unless people are asserting that people have an unlimited perpetual liability to forever be a custodian of an asset. So then there has to be a process of well how does that refund work?

And it's been exceedingly difficult to even find or contact the small set of buyers who chose not to redeem their ADA. So at some point those assets the yen have to be turned over likely to the Japanese government. But it's going to be an analysis under Japanese laws. One of the closing parts before everything gets shut down. That's what happened.

People like Dan Freriedman worked on this. It was one of the very first things that he was hired to do at input output before Cardano launched. And he spent a big chunk of his career for me there. So all of you fans that are running around with Paulmyra, your leader actually this is how he got into the Cardano ecosystem and he can talk about all these things as can Sarah Kell the company that engineered these things. as can Christian Lindren, Ben Krepen, Jerry and many others who worked on this on a fairly regular basis.

It wasn't a perfect system but 99.8% of people who participated, the original buyers who participated got the ADA they bought. The other 02% are voided transactions and somehow someway they'll get their yen back or it's going to probably go to the Japanese government. That's a pretty good outcome considering of the 99.8% who participated.

They bought at a $70 million valuation give or take and look at the current value of the market. This was transformational and life-changing for them. And this is why there still remains to this day such a strong Japanese community. All the while this event had enormous amounts of attempts for fraudulent redemption. Some of the salespeople actually tried to redeem on behalf of the buyers to steal their ADA.

Every week, every month, there was some attempt to fraud. Large-scale publicity on a primary issuance. All it would accomplish is to put a giant target on the back of a minority of people who clearly did not have the technical skills or knowledge necessary to participate in crypto comfortably and needed additional time, education, and handling in order to safely do so. It would have been a moral hazard to broadcast this across the industry as a whole, especially when it had absolutely nothing to do with the secondary market and nothing to do with Cardano as a whole. All of you knew where the ADA was distributed from and you knew when you had ADA, you bought it on the secondary market from Binance and Bitrix and other places and you knew who you bought it from, the Japanese ADA buyers and it's been something that many people have worked on for a very long time now.

The remaining forfeited ADA, as I've said before, was donated to Intersect in the same means and manner that the ADA was donated to the Cardano Foundation through something called the Dev Trust, the the Intersect Dev Trust or whatever the name of it is that was end up being selected and that Dev Trust is the principal funding vehicle of the of Intersect as a not for-p profofit in Wyoming. These details will also be included in the audit report including post-donation use of funds so people can get some additional clarity to that because there's been questions there too and again it requires a complex audit to do these things. On a personal note, I'm deeply frustrated because this has been something that's gone on for a very very long time and has been one of those no-win scenarios. It would have been ridiculously easy because we had no legal obligation at IO to recuse ourselves just the CF at that time recused itself and say what somebody else did it we didn't. So we don't have an obligation or responsibility best of luck and just moved on.

And the outcome of that would have been that a big chunk of that 300 million ADA probably would have never been redeemed and the people who bought it never got it. I didn't want to live with an outcome like that because these people trusted us as an ecosystem and they were willing to give us a shot to build what we have today. So I felt every one of the core entities had a moral obligation to participate. After all, we wouldn't be here if not for them. Ago did step up many times, sometimes grudgingly and sometimes willingly, but at least they did show up many times to help and assist.

And to be fair, the foundation at times especially the new foundation did step up from time to time and assist. And overall, I thought that we could finally get to a point this year where all of this would be resolved amicably and we would just simply move on and release an audit report as kind of the last mile in the great decentralization of Cardano. Unfortunately, this brigade has escalated things in an inconvenient and damaging way. And after that audit report comes out, there's going to be an enormous amount of cleanup that has to be done. Litigation has to be done.

Branding and advertising marketing has to be done alongside many other things. I don't believe for a moment, Andreas, that this was self-inflicted. I think we had courage and I think we did the right thing and all we asked was that our partners who knew and had the ability to act to calm people down for the good of Cardano as a whole act as simple as just sending a tweet just you did today. But I guess in your world this is a self-inflicted wound. I understand that there are cultural and business and social differences between us.

And as I said before, I think there's many people on your side of the aisle that really do not like or respect us. I don't particularly care if you like or respect us. But you do have to acknowledge that you're living in the house that I built and paid for. And you do have to acknowledge that the people who put up the money to pay for that house were the ones that we asked you to help take care of and your organization did not do that. That's just a fact.

So as you spend all that Genesis ADA and as you tell yourself that you're here to support and take care of the Cardono ecosystem, ask yourself if you succeeded in your leadership test here. And by asking making everything contingent on me calling and talking to Fred, that was a really a wise move. Of course, we can talk to Fred and try to renormalize relations, but this has nothing to do about my relationship with him, my communications with him, or whether IoG and the CF will ever get along and walk through the sunset on the beach. This has everything to do with the fact that when people are trying to deframe and harm, defraud and harm the ecosystem as a whole, we just asked you to put some cold water on it to give everyone the time necessary to release an audit report. That's it.

You were in the Slack channels. You were briefed on a pretty regular basis. Joel Telner even discussed these things with you when he went to Switzerland. We'll hunt down the slide decks and the meeting notes and of course we will hand those over to the auditor. and we just ask for a tweet.

That's it. But I guess we can't even get there in 2025. If there's any silver lining or consolation in all of this, it's that Cardano is truly decentralized. The sins and history of the founding entities, the squables of them, the pettiness of them is completely immaterial to the fact that Cardano continues to grow and thrive. We have a diverse ecosystem now.

We have different clients being built. We have multiple members based organizations. We have a lot of open-source projects and software. A decentralized treasury. A lot of people waking up every day that are inspired by the mission to bank the unbankked, connect the unconnected, to change the economic, political, and social systems of the world.

And instead of just listening to me in an AMA, they're actively taking a role in hand in sculpting this ecosystem and growing it to the next level. And I'm excited about that. I saw it firsthand when I was at Consensus and I met with the fluid tokens people and they were excited to announce that they had implemented Babel fees before input output did. They're the first to bring that to market. It was exciting to see other people working on Bitcoin bridges like Sundial for example and being part of the Bitcoin D5 revolution.

Not a single dollar of input output money came there. They did that of their own accord, valition and will. And there's countless thousands of stories of people throughout our ecosystem who are doing that, who are inspired by the vision, the mission, and are achieving great momentum towards that end. There's going to be some heartburn this year as we finish the transition, and eventually everybody's going to find their lane and live within it. And ultimately the D-Reps and the onchain government are going to have to decide how to live within their lanes.

And that's the challenge of governance. We have a lot of courage in Cardono. Courage to be and courage to have our fights out in the open. It's very easy to call people and in shadowy rooms and private calls try to resolve things. It's a lot harder to be honest in the public sphere.

And we have achieved that as an ecosystem. And because of that courage, I have every faith and belief Cardano will continue to grow and thrive. It's been a long 10 years for me. And as you see, my hair is not what it used to be. The beard is not as it's got a lot more white in it.

Many of you comment I've gained quite a bit of weight. All these things are true. And a lot of that has to do with the constant travel and stress. And a lot of it has to do with the burdens of many things on my shoulders. I was in my mid20s when all of this began.

And I did my best with very limited resources and not a lot of things going for me to bootstrap something so incredibly complicated and hard. And since that time, I traveled 75 countries, established dozens of businesses. We were able to get that ADA sale done in Japan despite many, many people trying to do bad things with it, getting to the other side of it, making sure that people were made whole. And we built Cardano and launched it. Every step of the way, there's been extreme criticism.

Every step of the way, partners that were supposed to do things didn't show up or sometimes we made big mistakes, myself included, and we had to recover from those mistakes. Sometimes we hired wonderful people like John Woods and unfortunately sometimes those people got poached like John Woods and it derailed or slowed down a progress stream. Same for losing certain key engineers in the Laos project. But we never complained about it and we tried to keep joy in our heart. I'm still good friends with John Woods and I even just recently hired the guy who poached him for us.

He's now the marketing director of the Midnight Foundation. So there's no hard feelings there. And month after month, year after year, I definitely see the strength in the Cardano ecosystem. Especially when I was at the midnight booth at Consensus, where a Cardano native token, a project being built on Cardano, stole the show at Consensus. This was an unthinkable thing two years ago, but now it's a fact, and I believe we will do so again at token 2049.

There's been great progress too with Draper University cohort that the foundation sponsored and the Silicon Valley perception of Cardano startups has dramatically changed as well. So, as painful as these short-term events can be and as much friction as they can cause, we always have to keep our eyes on the future and realize that it's a bright one and in the coming days, the coming weeks, the coming months will be the best days, weeks, and months of the Cardano project as a whole. And also, this whole series of events just proves the absolute need, necessity for blockchain technology. We did our best in an era before the ERC20 token to do things as well as we could and especially keep them contained within Japan because that was the nature of the sale. And for better or for worse, it got us to where we're at today.

I'm truly sad that some people think I'm a thief, a criminal, evil. It's a hard thing to wake up every day and have your character maligned and objectively know the things that they're saying are lies and understand that you just have to go to work every day and try not to let it bother you. It's hard when friends or family members send you links to articles and say, "What's this about?" And you have to say, "Well, it's a lie." They say, "Well, why are people writing about it?

Why don't you sue And I say, "We will, but we just have to be patient and wait." And it's a hard thing when people should show up to help you out and be there to calm things down, to give you the time that you need to get where you need to go and they're missing action or they try to lobby and use it as a way to gain some political points. But that's human nature and that's politics. And unfortunately, that's what human social systems are. It doesn't diminish my excitement, enthusiasm, and my desire to keep moving forward, but it slows me down a little bit.

And it means that sometimes I have to take a little bit more time to get things done. But I'm happy to be here in Argentina. It's a wonderful place to be. There's a wonderful community here. It's a time of great excitement opening a new office.

And there are so many amazingly passionate young people that want to be part of our revolution. And Cardano is one of the few protocols that has a founding company here that opened an office here right next to Globin's Tower. And that office is going to be filled with lots of interesting people from politicians to engineers and entrepreneurs, philosophers and journalists next week. So that's what gives me hope is the future. So thank you all for listening.

I do appreciate it and I hope this provides some clarity in the matter. part of the audit report will also be an executive summary and we're hiring an internal journalist to go through the entire story end to end and write it all down in one cohesive narrative because these things are often difficult to understand and so there'll be a big big data dump. So hopefully next week the contracts can get signed with the proposed auditors and they can make a joint announcement that they've begun the process and we're going to do everything in our power to expedite it and that means it'll be quite expensive but it's necessary to get these types of things out and once it's out I'll give 5 days for those who have criticized us to apologize and retract. I think that's a fair and ample amount of time to read the audit report, the narrative, ask questions, and get them clarified. At that point, should they not retract and apologize, then we'll take a look at how egregious and damaging certain ones have been, and we will pursue litigation at that point, likely in multiple jurisdictions concurrently, subject to the advice of council.

We've already begun retaining a dedicated law firm that specializes in slander and defamation. And we've begun collecting data and u archiving various different communication threads and things that we expect to be used in litigation or also trying to quantify the brand and reputation damage that this has done to Cardano as a whole. It is my belief there is also a potential for a class action lawsuit against these people once this has come out. So, probably best to let us lead and then have a follow on. but it can be a protracted multi-year campaign to make an example out of people that go out of their way to defraud and defame.

Always give people an opportunity to say they're sorry. Give people an opportunity to back down, correct the record, and move on. But in the face of overwhelming evidence, if they choose not to do that, well then the last recourse is to make an example and show that there are consequences to this type of speech. I'm a big believer in free speech, but the caveat to free speech is free speech doesn't mean consequence free speech. You're free to say anything you want, but if you call your girlfriend fat, you're going to live with the consequences.

And similarly, when you slander, lie, liel, and defame with the intent to cause commercial harm, those are damages that can be quantified. And even the founding fathers of the United States of America were certainly aware of slander and liel and participated in litigation around it. So, I think it's a fair compromise and I think it's the path forward and hopefully it gets all these things done. I'd like to thank all the people that worked so incredibly hard over the last near decade to get all these things done. It's been a marathon and it's been exhausting.

Many many trips to Japan, many phone calls, many sneaky turns and a lot of weird stuff along the way. And I hope that that internal journalist when he writes the executive summary will be able to represent their sacrifices and commitments as well as possible. that's another reason why I got so pissed off about this affair. If it was just me, it's one thing, but when it's other people who have literally spent almost a decade of their lives doing something, it's so incredibly unfair to say they didn't exist, their work didn't happen, and money was just simply stolen. It's just a blatantly wrong statement, and it should never occur.

And so in deference to them, we also have a duty to act and protect their brand and reputation for the hard work they put in. So thank you all for listening. This will be the last statement before the audit report comes out in video form. I may tweet from time to time, but likely Joel Tilner will take it from here. and we'll just see where it goes.

Cheers.