Atomic Hub Files for Insolvency Protection (Wax, EOS and Immutable X Chains): Legal and Ethical Reflections

in #web36 months ago

In examining and interpreting pink.gg, the parent company of Atomic Hub’s, decision to file for insolvency in the District Court of München. Germany, it is possible to draw several provisional conclusions and inferences from the nature of the filing in spite of the limited documentation available to us. In the first instance, Atomic Hub’s decision to file for insolvency was a proactive one in that the firm chose to open proceedings against its own assets. Put simply, this means that Atomic Hub judged that it no longer had the revenue or liquid assets necessary to pay its bills and debtors and it opted to file for insolvency protection prior to a legal claim being made against the organization. It’s very difficult to read anything meaningful into this strategy inasmuch as it is not the same as what American readers might know as Chapter 7 bankruptcy. At this juncture in the proceedings, there is nothing substantive to suggest that pink.gg’s assets will necessarily be liquidated to pay off its debtors.

Rather, German insolvency law is more analogous to American Chapter 11 bankruptcy wherein a debtor will continue to administer their assets, propose a restructuring plan, and subsequently present the plan to its creditors so that the latter may vote on it. The goals of American and German bankruptcy/insolvency laws are quite similar in that they are oriented towards allowing a firm to take the necessary steps to increase revenue, cut expenses, and thus pay off debts while continuing operations. In examining the significant layoffs which Atomic Hub engaged in during the lead-up to this decision, it becomes very possible to infer that this was the result of a medium to long-term degradation of revenue that had not been proactively met with human capital expense mitigation earlier in the process. Atomic Hub’s decision to proactively file for insolvency highlights that the firm likely perceives itself as being in a vulnerable position, and potentially susceptible to liquidation should it fail in accumulating capital or reorganizing internally in a rapid fashion.

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With this in mind, and while the case remains indeterminate, we must not underestimate the significance of these court proceedings. German case law does not allow a corporate entity to seek insolvency protection for reorganization in the case of a temporary gap in liquidity. Instead, a firm can be placed into this status by a court if it has fallen behind on payments or can be sought proactively, as appears to be the case with Atomic Hub, in contexts where the debtor has a reasonable belief, demonstrable to the court, that they anticipate not being able to service their debts in the foreseeable future. If we read into this, and this is of critical importance, the meaning of this filing is that Atomic Hub believes that it will not be able, based on current revenue, to even service its debts for the foreseeable future.

As the owner of several corporations and a non-practicing attorney, it is my opinion that, while Atomic Hub’s actions have been congruent with its legal obligations and it has sought to act in its best interests, the firm has failed in relation to its duties to the blockchains that it operates on as well as its customers in terms of corporate social responsibility. While Atomic Hub announced an internal restructuring via its Discord channel on August 3rd of the current year, it failed to disclose its ongoing restructuring and the protection it has sought under German law. This is deeply troubling as the rhetoric put forth by Atomic Hub has been directly misleading, in the context of an unregulated space, and thus further serves to undermine user confidence in these blockchains and their assets. With the Atomic Assets contract holding a quasi-monopolistic position in the WAX ecosystem, this highlights a situation in which Atomic Hub deprived consumers of the right to provide informed consent in relation to their digital purposes due to this failure to disclose. While it is not illegal behavior, it is unethical behavior as viewed by the predominant stakeholder theory of business ethics.

Another troubling element of Atomic Hub’s corporate behavior, in a context where many front-facing employees were terminated over the course of the summer, is that this is fundamentally demonstrative of the fact that Atomic Hub was well aware of the fact that insolvency was pending prior to its filing. Again, and while firms face no legal obligations to disclose financial difficulties, notably when they are private firms such as pink.gg, such behavior is detrimental to the space as well as to its users as it calls into question the long-term viability of their assets. While we are aware that the Atomic Hub assets contract is safe because of its multisig nature, this does nothing to change the fact that Atomic Hub’s behavior was further misleading in relation to its role as a block producer. With one of its most important activities as a block producer embodying the continual refinement of the contract, any cessation of Atomic Hub’s activities is likely to be detrimental to these endeavors. This is a further and evident ethical lapse on the part of Atomic Hub. Questions should be asked of the WAX OIG as to whether it was aware of these financial difficulties in the run-up to the disclosure of pink.gg’s filing.

Ultimately, and while the Atomic Assets contract will continue to survive on-chain should Atomic Hub either choose or be forced into bankruptcy, this case is demonstrative of two things. First, and mirroring the broader Web-3 ecosystem, Atomic Hub’s lack of transparency has produced a context in which users of the chains that it operates on, as a for-profit entity, were not truly able to provide informed consent regarding their purchases of any assets premised on the Atomic Assets contract. In the second instance, it demonstrates the fragility of the chain in relation to semi-centralized asset standards such as the one operated by Atomic Hub. Should the latter fail and be rendered insolvent, it is unknown as to how this portion of its intellectual property will be liquidated. It could be purchased by an entity like WAX or could be part of a broader fire sale to meet the firm’s financial obligations subsequent to the failure of insolvency proceedings. This demonstrates the need for decentralized asset standards that are not directly tied to specific block producers. I am well aware that certain developers are making great strides towards developing asset standards that will be decentralized and open-source in nature. If the spirit of the blockchain is indeed decentralization, it may very well be wiser and safer for us to shift away from the Atomic Assets standard as soon as possible, and move towards the use of contracts that can be deployed by any party, at any time, without requiring the continued participation of a quasi-monopolistic entity like Atomic Hub.

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