HectorDAO, a decentralized autonomous organization, has submitted a Chapter 15 bankruptcy filing in the United States after experiencing a series of market collapses and hacks that depleted its funds. Interpath Advisory, a court-appointed firm specializing in bankruptcy management and reorganization, stated in the filing on June 17 that HectorDAO’s current financial situation is primarily attributed to three factors: the collapse of the Terra network in May 2022, the collapse of the Multichain protocol, and a hack that affected the Hector treasury.
Interpath Advisory mentioned in the filing that it is still investigating whether the hack on January 16, which resulted in the loss of $2.7 million from HectorDAO, was an inside job carried out by former managers of the treasury.
HectorDAO’s difficulties can be traced back to 2022 when the Terra ecosystem collapsed, causing a significant loss of $16.4 million in treasury assets. Despite this setback, the members of HectorDAO continued their operations for over a year until July 17, 2023.
On July 15, 2023, the HectorDAO community members were faced with a decision: either migrate the decentralized organization to a different blockchain and rebrand the project or liquidate all assets and close down the organization. Two days later, 83% of DAO members voted in favor of liquidation according to the HIP-42 vote.
Immediately after the vote, the governing body of the decentralized community established a committee to oversee the liquidation and distribution of the remaining assets. However, as the assets were about to be distributed among investors, HectorDAO fell victim to a $2.7 million exploit. Members of the decentralized organization alleged that they were unable to establish contact with the liquidation committee following the incident on January 16.
This led the DAO members to accuse the management team of gross negligence and potential involvement in the hack. Ultimately, the Hector community demanded that control of the remaining funds be entrusted to a neutral party, which turned out to be Interpath Advisory.
Chapter 15 bankruptcy filings provide a means for foreign entities or entities with investors across international jurisdictions to initiate bankruptcy proceedings in the United States court system. However, the Chapter 15 filing itself does not restructure an entity’s holdings or debt; it simply allows corporate entities, organizations, and the involved investors to resolve these matters in U.S. courts.