Categories
Ponzi Scheme

Kuailian: A Masternodes’ Ponzi Scheme


April 28, 2020

Kuailian has received 442,687 ETH from its 32,841 investors. It is the equivalent of 103,721,564 USD in todays ETH/USD price. (Last time this amount was updated: 2nd June, 2020).

The number of investors is extracted from the incoming transactions the “Activation Fee” wallet has received: Check on Etherscan

The total amount of ETH received from investors is extracted from the “Activation Fee Wallet”, together with the “Fast Bonus Wallet” (previously divided by 0.2 as it is the 20% of each “kuai”): Checking ETH received “Activation Fee” and “Fast Bonus”

We can not take in consideration the “Transaction Wallet” to calculate the amount of total ETH received as it also receives ETH from the “Leadership Bonus Wallet”.


Note that all data and information such as coin prices, market caps and masternodes’ ROI among others, is from the day of this report: 28th April 2020.

Summary:

  • Kuailian offers a monthly return of a 6% with a low-risk masternode, and a 17% monthly return with a medium-risk masternode.
  • Kuailian’s list of active masternodes is demonstrated to be false.
  • Incoming money ends in a centralized external exchange, where it becomes untraceable, despite the fact they self-define as the most transparent platform in the world.
  • There are a huge number of inconsistencies on both technical and legal levels that allow us to argue the fact that Kuailian is a ponzi/pyramid scheme.
  • Registrations are only available through a referral link which conforms a “compensation plan”, letting users win passive income if they recruit new members.

Introduction

According to the information given in their website, Kuailian sells two different licenses of a private software that operates masternodes within a pool they refer to as “smart pool”, supposedly based on machine learning. An activation/membership fee of $50 has to bee paid to be part of the “ecosystem”. Every license costs the equivalent of $100 in ETH (Ethereum’s currency) and there are two types of license: Low Risk (LR) and Medium Risk (MR).

Low Risk offers a 6% monthly ROI, while Medium Risk offers a 17% monthly ROI. To acquire a Medium Risk license you previously need to have bought three Low Risk licenses (3:1). The initial investmen of $100 a user spends on a license are not returned until 1,000 days have elapsed. Rewards generated in Kuailian are sent, on daily basis, directly to a private wallet the “investor” has previously specified.

If we do not take in consideration compound interest, the return of investment per year is 60-72% and a 180-204% depending on the license.

However, if compound interest is applied the annual return of investment is 200% and 658%. After the 1,000-day period the generated profit would be 814% with the Low Risk and a profit of 28,489% with the Medium Risk.

A return of investment of 28,489% in 1,000 days is something that falls outside any rational financial scenario.

We believe Kuailian is a company very likely to be running a fraudulent ponzi scheme, using masternodes as a smokescreen. In the following report we will detail some inconsistencies the service has.

Alleged Machine Learning

Why the point of implementing a Machine Learning software to filter masternodes is useless.

“Our machine learning tools selects Masternodes with the best risk/return ratios.”

kuailiandp.com

Things to take in consideration.

Information of all masternodes and their properties is public. Anybody can check daily volume, market cap, return of investment per masternode, etc.

Amongst the top 100 cryptocurrencies by market cap, there are only four coins implementing masternodes. Kuailian has received approximately a total of $34.000.000 as of today, according to their public transactions we can actually check. With this capital, the only two masternodes with enough liquidity to trade are Dash and Zcoin.

  • Dash has an annual ROI of 6,92%, with a cost per masternode of $82.000
  • Zcoin has an annual ROI of 14,02% with a cost per masternode of $4.000

Masternodes’ return of investment in Dash, for example, depends on block reward. ROI does not change overnight as the block reward value is intrisic to the code of the coin. Every masternode has to be hosted in a server, which has some costs.

If the return of investment of a masternode does not change overnight, why does anybody need to use a machine learning software to filter and move from one masternode to another?

Kuailian offers a monthly return of 6% with the low-risk masternode, and a 17% monthly return with medium-risk masternode. Thats’s approximately a 65% and 190% more respectively, than the actual return of a masternode of Dash/Zcoin (taking in consideration its running costs are zero and the price stays the same, if it decreases/increases it will also decrease/increase your initial investment and the corresponding return).

Where does all this money come from?

Lack of Liquidity

Kuailian members have access to a monthly document which contains information of the different masternodes that are being implemented by the pool.

Full document: Kuailian Document (.pdf)

With the help of this document, we are going to prove why apart from Dash and Zcoin, there is not enough liquidity to operate the pool with other masternodes.

Moreover, we are going to explain and demonstrate why almost all the nodes that Kuailian claims to run, are fake.

In the second page of the document it is detailed the list of masternodes the company has been working with during the last weeks.

Kuailian - Nodos Activos
% InvestedCoin
66.48%Dash (DASH)
11.76%CryptoVerification Coin (CVCC)
5.83%Bonorum (BONO)
5.82%TradePlus (TDPS)
4.53%DiviPoject (DIVI-DIAMOND)
1.93%DiviProject (DIVI-PLATINUM)
1.78%ZCoin (XZC)
0.59%AXEL (AXEL-SYSTEM)
0.43%MalwareChain (MALW)
0.25%Zenon (ZNN)
0.23%SafeCapital (SCAP)
0.22%Stakenet (XSN)
0.06%Syscoin (SYS)
0.04%Pivx (PIVX)
0.04%Sinovate (SIN)
0.01%Centex (CNTX-T1)
0.01%Centex (CNTX-T2)

Checking the lack of liquidity

CryptoVerificationCoin (CVCC): 11.76% del Pool

According to Kuailian’s claims, their “smart pool” has allocated the 11.76% of the investors’ capital to implement masternodes of CryptoVerificationCoin (CVCC).

First of all we must know in which Exchanges the currency is listed. To do this we will visit the three largest and most updated directories: CoinMarketCap, CoinGecko and CoinPaprika.

To our surprise, CVCC is only listed on a single Exchange. Something really alarming.

CVCC CryptoVerificationCoin Markets
Source: coinmarketcap.com/currencies/cryptoverificationcoin/markets/

Despite the fact of being listed only in one Exchange, it could move a decent daily number or orders and volume that allows the coin to be traded and even open some masternode.

Checking Crex24’s orderbook of CVCC/BTC.

CVCC CryptoVerificationCoin Orderbook
Source: crex24.com/exchange/CVCC-BTC

There are only 1,212 coins for sale, and since there is no other Exchange operating with this currency, we are talking about the entire market.

There are only 1,212 CVCC for sale in the entire market.

A masternode requires 1,000 CVCC.

The document shows that Kuailian has 115 masternodes (115,000 coins), equivalent to $2,695,321 if we take the CVCC/USD price from the PDF itself.

The amount of 115,000 CVCC is x4.04 times the sum of all selling orders and x14.79 times the sum of all buying orders of the entire market.

Hypothetically, if it was true that they handle this amount of currencies and the masternodes are actually operated by Kuailian, it would not even be possible to sell the benefits they generated due to an evident lack of demand in the market. There are no buyers.

And to be able to sell the amount of 115,000 coins of the masternodes, it would require a demand x14.79 times greater than the current one.

Summary:

  • Kuailian claims to have 115,000 CVCC ($2,695,321)
  • Selling Orders (Entire Market): 1,212 CVCC ($28,397)
  • Buying Orders (Entire Market): 0.76 btc ($5,890)

As the orderbook has not experienced significant movements during the past months, we can conclude that Kuailian’s statement of paying profits through the benefits of CVCC masternodes is completely false.

Although it is true that it is possible that they may have 115 CVCC masternodes as long as they have acquired them a long time ago, today it is impossible to sell more than $5,890 of this coin, a figure that is far from the $2,695,321 corresponding to the 115 masternodes.

The same thing happens with the other masternodes of the list, except for Dash and Zcoin.

How is it possible to periodically buy and sell these coins, whether with machine learning or not, if there are no buyers/sellers?

TradePlus (TDPS)

For our surprise, TradePlus is only listed in two exchanges and one of them has derisory daily volume.

Source: coinmarketcap.com/currencies/tradeplus/markets/

*At the time of this publication, the exchange VinDAX is offline.

Checking orderbooks, we find something really interesting.

Orderbook of Crex24 for TDPS:

Source: crex24.com/exchange/TDPS-BTC

There are only 3,230 coins for sale.

A masternode consists of 3,000 coins.

According to Kuailian’s document, the company has 25 masternodes which is the equivalent of 75,000 coins ($1,383,750). It is x23.2 times the actual selling orderbook, and x80.8 the actual buying orderbook.

Hypothetically, if it was true they manage this sum of coins, they will not even be able to sell the profits of the masternodes as there is no demand. And we are not talking about the huge amount of coins being used for the masternodes, as selling them would also be impossible.

The question is, how did Kuailian manage to get so many coins when market interest on acquiring this cryptocurrency is clearly non-existent.

To summarize:

  • Kuailian claims to have 75,000 TDPS coins ($1,383,750)
  • Selling Orders (Total Market): 3,230 TDPS coins ($59,593)
  • Buying Orders (Total Market): 2.21 btc ($17,136)

As the orderbook has not experienced significant movements during the past months, we can conclude that Kuailian’s statement of running 25 masternodes of TradePlus (TDPS) is completely false.

MalwareChain (MALW)

There are only three exchanges trading MALW according to CoinMarketCap and CoinGecko.

Source: coinmarketcap.com/currencies/malwarechain/markets/

*At the time of this publication, the exchange VinDAX is offline.

CoinMarketCap considers that ProBit Exchange is faking its volume, so it is not even included in the total sum of daily volume.

Orderbook of Crex24 for MALW:

Source: crex24.com/exchange/MALW-BTC

There are only 6,793 coins for sale.

A masternode consists of 5,000 coins.

According to Kuailian’s document, the company has 61 masternodes which is the equivalent of 305,000 coins ($73,810). It is x44.8 times the actual selling orderbook, and x12 times the actual buying orderbook.

How is it possible to buy and sell periodically this coin through their machine learning software if there is no market?

To summarize:

  • Kuailian claims to have 305,000 MALW coins ($73,810)
  • Selling Orders (Total Market): 6,798 MALW coins ($1,645)
  • Buying Orders (Total Market): 0.79 btc ($6,125)

As the orderbook has not experienced significant movements during the past months, we can conclude that Kuailian’s statement of running 61 masternodes of MalwareChain (MALW) is completely false.

The same happens for the rest of alleged masternodes, except for Dash and Zcoin.

How is it possible to periodically buy and sell these coins, whether with machine learning or not, if there is no market?

A collaborator has sent us a Discord conversation with the official representative of Crypto Verification Coin which we have been able to verify:

Following the money

Checking all ether movements and transactions.

“Unbeatable transparency. All transactions of funds are fully transparent and traceable through real-time blockchain monitoring.”

kuailiandp.com

Kuailian has a public list of wallets where its users can check all the ETH movements through a block explorer. However, there are two wallets that do not appear on the list. We will refer to these two wallets as “Hidden Wallets”.

If we follow the money, we find how all the ETH ends on an external exchange where users has no access to check transactions.

Basically, all the fresh money that joins the “ecosystem” ends in a centralized exchange (Kraken) making it impossible to know where all this ETH goes.

On the other hand, all “profits” users receive, come from another external centralized exchange. In this case Binance.

Diagram made by Tulip Research

To summarize, incoming money disappears on an external exchange to reappear later in order to simulate become users’ profits.

*A few wallets with a derisory amount of ETH in balance and in transactions have not been included.
*When we refer to temp/temporary wallet, it is just the way to express a wallet which has been created to only do a single transaction.

More Inconsistencies

Registration through Prifinance

Public information from the mercantile registry of Estonia of the company Kuailian App OÜ:

Kuailian-App-OU-Estonia-Registry
Source: Mercantile Registry of Estonia (ariregister.rik.ee)
  • Nº Registry: 14909553
  • Name: Kuailian App OÜ
  • Date of creation: 11/02/2020
  • Address: Harju maakond, Tallinn, Kesklinna linnaosa, Roseni tn 13, 10111
  • Email address: davidruizdeleon@gmail.com
  • Contact person: BCC CONSULT OÜ (info@prifinance.com)
  • Contact person address: Harju maakond, Tallinn, Kesklinna linnaosa, Roseni tn 13, 10111

The address where Kuailian claims to have all the programmers and the technical team, is the small office of a company called Prifinance which offers registration services in different countries.

To establish a company in Estonia through Prifinance you only have to pay €500, and it has included all you need to at least appear in the registry. There is no need to visit the country.

Dates to take in consideration

  • 19th June, 2019: Domain name “kuailiandp.com” registration
  • 7th September, 2019: First incoming transaction to “Activation Fee Wallet”
  • 16th September, 2019: Smart contract creation
  • 19th September, 2019: First smart contract transactions
  • 11th February, 2020: Company registration in Estonia with the name “KUAILIAN APP OÜ” (Registry code: 14909553)

Kuailian has been operating, without even being registered as a company, for 5 months.

Warning: Orients Capital and Blue Empire

CNMV (Comisión Nacional del Mercado de Valores) issued an official Warning (15th July, 2019) for the companies Orients Capital and Blue Empire, which later would merge to form what we know as Kuailian.

*As the links from the official website are temporary, here we leave the search results in case you want to view the PDF document from its original source.

Warning on Orients Capital & Blue Empire: Document (cnmv.es)

Smart Contract

“All Software licenses are based on a smart contract and are fully automated.”

kuailiandp.com

Taking a look to the smart contract we can figure out, for our suprise, that it consists of only 16 lines of code.

Kuailian Smart Contract Ethereum
Source: etherscan.io/address/0x469503159DdF6Bfd0a9ec8Eba8e97A84Fd3eaE5b#code

It does simply redistribute ETH from three wallets to all users, and to another wallet known as “Excedent”. In case there is no ETH available on the incoming wallets, outgoing wallets will not be able to receive the funds.

So, if the Kuailian company does not take money from its Binance accounts to feed the incoming wallets of the smart contract, users will not receive their corresponding profits.

Registration only by referral

“Kuailian offers a unique referral system with attractive bonus payments and reward programs.”

kuailiandp.com

The registration process is only available through a referral link. Users participate in what they call a “compensation plan” to earn passive income by introducing the product to new members.

Kuailian Elite Executive Ambassador Club

Enterprise Ethereum Alliance

The Enterprise Ethereum Alliance is an organization where different projects working in software related to the Ethereum network “associate” themselves by paying an annual fee.

“Steps to Join the EEA:

1. Submit Application The EEA membership team will review your Membership Application within 1 – 3 business days, and be in touch with any questions. If there are no questions on your application, you will receive an email from DocuSign with the EEA Membership Agreement for signature.

2. Review EEA governing documents, and execute the EEA Membership Agreement. The EEA membership team will process your membership within 1 – 3 business days and send you welcome materials with an invoice for your annual membership dues.

3. Pay first year’s annual dues. The EEA can accept payment via wire, check, and ETH. Payment may be made by credit card for dues of $3000 USD. Membership privileges do not begin until payment is received.”

entethalliance.org

Kuailian claims they are running a legit business because the company is a member of the EEA, despite the fact any project can actually join the alliance by following the previous mentioned steps, legit or not.

Conclusion

Kuailian’s business presents a huge number of alarming inconsistencies. We strongly believe they are “allegedly” carrying out fraudulent activity masked through a masternodes’ smokescreen.


If you would like to check the wallets referred in the diagram here they are:

Wallets

Transaction Wallet: 0x74381D4533cc43121abFef7566010dD9FB7c9F7a
Incoming (acquiring license 80% price)
Outgoing (1): Pool Wallet

Fast Bonus Wallet: 0xac54b0f52f314f1efbef245a5416fd5d7e381b71
Incoming (acquiring license 20% price)
Outgoing (1): Kuailian.app

Profit Wallet: 0xa1237ca6886f30264af4f5a8a1aa54b8f56ebe15
Incoming (1*): Binance
Outgoing (2): Kuailian.app, Node Wallet

Smart Contract (Kuailian.app): 0x469503159DdF6Bfd0a9ec8Eba8e97A84Fd3eaE5b
Incoming (2): Profit Wallet, Fast Bonus Wallet
Outgoing (all users)

Leadership Bonus Wallet: 0x4e2D2d20af5Ab16AaBF5Db0F290b9116E7ed0607
Incoming (1): Kuailian.app
Outgoing (2): Transaction Wallet, Hidden Wallet (2)

Node Wallet: 0x003F668A1a35721fC0c6b5eC9E15669466347161
Incoming (1): Profit Wallet
Outgoing (1): Kuailian.app

Pool Wallet: 0xc0d4e2b02e4bb1889facd40ecf75cbb4afb93065
Incoming (1): Transaction Wallet
Outgoing (1): 0x1b85a7a5d7a61a429cf24ce048a32c0e1bb51cc1
*24h/tx IN and OUT simultaneously

Company Wallet: 0x11d8ba8841b8de8e23c583ed92106b7e8b9d0648
Incoming (1): Kuailian.app
Outgoing (1): 0x1b85a7a5d7a61a429cf24ce048a32c0e1bb51cc1 (24h/tx)

Activation Fee Wallet: 0x32970A5A2f43d12a5D28C4553a980B5a56be1A44
Incoming (1): Temporary account created by Kuailian (fee always of $50)
Outgoing (1): 0x1b85a7a5d7a61a429cf24ce048a32c0e1bb51cc1

Excedent Wallet: 0xA3Dfa0aD8bF91aF36eb0cC7BD03093556deAee7c
Incoming (1): Kuailian.App
Outgoing (1): 0x1b85a7a5d7a61a429cf24ce048a32c0e1bb51cc1

Hidden Wallet: 0x1b85a7a5d7a61a429cf24ce048a32c0e1bb51cc1
Incoming (4): Activation Fee Wallet, Pool Wallet, Excedent Wallet, Company Wallet
Outgoing (1): Kraken

Hidden Wallet (2): 0xe909fb2e5bfd4268d63bbe77baa329b776326f3b
This wallet has been used only once to send 195 ETH to Kraken.
Incoming (1): Leadership Bonus
Outgoing (2): Kraken