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The Kinto project shutdown was officially confirmed on September 7, when the Layer-2 startup announced it will cease operations by September 30. The move follows a devastating July exploit that drained 577 ETH (about $1.9 million) from its ecosystem and left the team unable to recover financially.
The immediate market reaction was severe. Kinto’s native K token plunged 85% in 24 hours, bringing its monthly decline to 94%. Investors who had supported the project during its short-lived recovery attempt now face steep losses.
“This is a sobering reminder that vulnerabilities in DeFi can wipe out years of work in a matter of hours,” — Maria Paula Fernandez, co-founder of JPG Protocol, told Decrypt. “The Kinto project shutdown will likely spark new debates about standards for upgradeable contracts and investor protections.”
The exploit that triggered the Kinto project shutdown stemmed from a flaw in the ERC-1967 Proxy standard, a widely adopted OpenZeppelin codebase designed for upgradeable smart contracts. Attackers exploited this vulnerability to mint 110,000 fake Kinto tokens on Arbitrum, which were then used to drain liquidity from Uniswap pools and Morpho lending vaults.
In response, Kinto launched its “Phoenix Program,” raising $1 million in debt financing to stabilize operations and resume trading. But with mounting debt, weak crypto market conditions, and eroded investor trust, the recovery proved short-lived. Team members confirmed they have not received compensation since July, underscoring the financial strain.
“Phoenix gave us hope, but the market wasn’t forgiving,” — Ramon Recuero, Kinto founder, wrote on X. “The exploit set us back too far, and fundraising stalled.”
Despite the collapse, the Kinto team is working to manage an orderly wind-down. Roughly $800,000 in remaining assets have been secured in a foundation-controlled safe. These funds will first be allocated to Phoenix lenders, who are expected to recover around 76% of their principal.
Victims of the Morpho exploit will receive partial relief through a $55,000 goodwill grant funded personally by Recuero, providing up to $1,100 each. If authorities or recovery partners manage to retrieve any of the stolen ETH, those funds will be distributed to victims before being shared with the broader community via a Snapshot governance vote.
Users have until September 30 to withdraw assets from Kinto’s Layer-2 network. After that date, a claim contract will be deployed on Ethereum in October, with an ERA airdrop still scheduled for October 15.
“We’ll shut down responsibly, return what we can today, and keep fighting for recoveries tomorrow,” — Kinto team wrote in its official announcement.
The Kinto project shutdown underscores the fragility of smaller Layer-2 and DeFi protocols, especially those dependent on upgradeable smart contract standards. Security flaws, when combined with weak treasury protections and reliance on debt-driven recovery efforts, can quickly undermine user confidence.
Industry experts argue that the case should serve as a cautionary tale.
“As DeFi matures, security audits alone won’t be enough,” — David Hoffman, co-founder of Bankless, said during a livestream. “We need stronger treasury safeguards, insurance mechanisms, and accountability structures if projects are to survive long-term.”
For investors, the Kinto project shutdown reinforces the importance of due diligence. While DeFi innovation continues to push boundaries, the risks remain high. As the sector scales, projects that lack robust safeguards may struggle to survive beyond short-term market shocks.
One key takeaway is that even well-intentioned recovery programs, like Kinto’s Phoenix initiative, can fail without sustainable business models or diversified revenue streams. For investors, this means evaluating not just the technical soundness of a protocol but also the financial resilience of its treasury and its ability to weather prolonged market downturns.
Another lesson lies in the growing role of transparency. The Kinto project shutdown revealed how quickly trust can erode when communication falters. Consistent, clear updates about risks, vulnerabilities, and recovery plans are increasingly becoming as important as technological innovation in maintaining investor confidence.
