From theblock by Daniel Kuhn

There are many things in life that cannot be controlled, but public/private key pairs are not usually included in that list. In fact, blockchains are designed so that anyone can maintain ownership over their assets. 

Unfortunately for DEGEN L3, however, this appears not to be the case.

In a blog post on Thursday, the project’s founders disclosed they’ve been embroiled in a dispute with third-party infrastructure provider Conduit since August over access to their own blockchain. 

The unfolding conflict between DEGEN L3 and Conduit is a stark reminder of the risks inherent in using third-party infrastructure in blockchain projects. While blockchain technology promises decentralization and control over one's assets, DEGEN's struggle highlights the dangers of outsourced dependencies that can jeopardize ownership and operational continuity. This case underscores the importance of retaining control over essential elements like key management to avoid costly setbacks and potential legal battles.

Airing of grievances

“Conduit holds our rollup keys and has refused to upgrade our chain,” the Degen team wrote in a post titled “A Frustrated Migration and a Plea to the DEGEN Community,” that essentially outlines an alleged hostage situation. 

According to the team, in May, Conduit allegedly pushed out an unannounced software upgrade that caused a 54-hour period of downtime that cost Degen users $160,000 in lost funds. This was a black eye for the project that was once celebrated as the Ethereum  ETH +5.15%

-based network with the highest transaction count per second.

After the incident, Degen contacted Conduit to make their users whole — a proposition that was allegedly declined. Instead, Conduit offered Degen six months of free service. At that point, the Degen team decided to migrate to a new contract and use a different service provider.  

As the team tells it, after Degen notified Conduit it was not renewing its contract, the infrastructure provider confiscated Degen’s sequencer fees and deleted its block explorer data. Worst of all, Conduit has refused to hand over the Gnosis Safe multi-signature keys needed for Degen to deploy its new smart contracts and activate the new infrastructure provider’s sequencer.

“We feel we have no choice but to bring our grievances to the public,” the team wrote. 

Not your keys

While serving as a general reminder of that old crypto adage “not your keys, not your coins,” the Degen situation also illustrates the issues around made-for-order developer toolkits and the hurdles ahead for scaling Ethereum via ever more scaling layers. 

“Ultimately if you use ‘rollup as a service,’ you are not in control and are at the whims of the provider. And in the experimental world we live in, probably best to go with a well established L1 that shares fees with their devs,” DeFi icon Andre Cronje told The Block in a direct message. 

DEGEN L3, launched in March 2024 by former Hedgehog Technologies engineer Jacek Trociński, is a memecoin-focused Layer 3 blockchain that supports decentralized apps. At its height, it was processing $200,000 daily in bridge volumes.

From the start, it was supposed to be about fun and games, but apparently, Degen is the thing that got played.  

Wanting to launch a platform quickly after his points-accruing DEGEN token began gaining traction in the “degen” Farcaster channel, Trociński used prefab blockchain parts. According to Macha, he enlisted DAO services startup Syndicate to “piece together the infrastructure. "

Built on Arbitrum’s Orbit chain, it used Conduit as a “rollup-as-a-service” provider, the Decent bridge to connect to Base and Blockscout for a blockchain explorer. Conduit provides a no-code solution for deploying a rollup, a process that could happen in minutes.

“Outsourcing the chain development in this way enabled Degen chain to launch rapidly, and access the expertise needed to make customizations such as precompiled functions that reduce the need for smart contracts,” Macha wrote. 

The Block has reached out to both parties. 

No contracts

For its part, Conduit responded to the allegations, saying, “We empathize with the DEGEN team and have been supporting their offboarding.” The company has reportedly been providing DEGEN services for free since May “without a formal relationship.” 

“This is unusual in business, but at Conduit we are flexible and want to support the best communities, however we can,” the company wrote on X. 

More importantly, according to Conduit founder Andrew Huang, the company has not received an address to which it can transfer ownership of the rollup. "As soon as we do, we’re ready to facilitate that transfer," he said.

In addition to the dispute around which party should keep the Degen sequencer fees (Conduit allegedly refuses to release the funds “unless a contract is signed between both parties” in part because the sequencer is unprofitable, Degen claims), the companies are also in dispute over signing a contract. 

According to Degen, Conduit has been stalling on signing the migration contract for three months and is pushing for a version that would absolve them of all responsibility. Conduit, however, claims it has already signed a document that “has been viewed but not signed by DEGEN since October 30th.”

“We're ready and waiting to deploy several new services on DEGEN L3 that we think are critical to improving the developer experience and range of available applications,” Degen wrote, noting that if Conduit does not hand over the keys and take the other necessary steps to begin offboarding, the project is willing to choose the less than “ideal path forward” of creating a new chain and ruminating holders.

The project is also mulling a lawsuit, though Degen founder Colton Dillion noted it is "a slow solution that will leave the chain unable to be upgraded until we get a settlement or a court decision."

“In the original contract we were supposed to get our keys within 30 days of saying we wanted to leave. It’s been 6 months since and no keys,” Degen wrote. “We hope the community can forgive us for trusting too much and erring on the side of kindness,” Degen wrote. 

Whether DEGEN can migrate or is forced to relaunch from scratch, it’s a lesson that “not your keys, not your blockchain.”