Ethereum layer-2 project Kinto is closing its doors after months of financial strain and the fallout from a multimillion-dollar hack. The team confirmed that its blockchain operations will wind down by September 30, sending its native token K tumbling more than 80% in value.

Kinto Token Collapses After Shutdown Announcement

The governance token of the Kinto Network plunged 81.4% to around $0.46 following the shutdown news, according to CoinGecko data. Its market capitalization now hovers just above $1 million, a sharp decline from mid-August, when Kinto briefly reached an all-time high of $14.5 million.

Launched in April 2025, the project lasted less than six months before deciding to close operations. The sharp token decline reflects both shaken investor confidence and the project’s inability to recover after its July security breach.

The Hack That Triggered the Downfall

Kinto was among several decentralized finance (DeFi) protocols hit by a vulnerability in the ERC-1967 Proxy standard, a widely used OpenZeppelin codebase that allows smart contract upgrades without changing addresses. The exploit drained around 577 ETH—worth roughly $1.6 million at the time—from the protocol.

While the team quickly raised $1 million in debt financing to restore trading on its modular exchange, the financial setback proved too severe. Coupled with worsening market conditions, further fundraising attempts failed, leaving Kinto without a viable path forward.

In a Medium post, the team admitted:

“Every day that we go on, the funds dwindle further. We’ve operated without salaries since July, and after the last financing path fell through, we have one responsible choice left: shut down cleanly and protect users/lenders as best as possible.”

High Yields and Sustainability Questions

Even before the hack, some critics argued that Kinto’s economic model was unsustainable. Co-founder Ramon Recuero noted in April that K staking offered 130% annual yields in USDC, one of the highest rates in the DeFi ecosystem.

Excessively high yields have historically been linked to instability across decentralized finance platforms. For Kinto, offering such returns while struggling to maintain revenue raised doubts about its long-term viability, and those concerns appear to have been validated by recent events.

Built on Arbitrum With Ambitious Goals

Kinto was designed as a modular Ethereum layer-2 solution built on Arbitrum, combining the efficiency of centralized exchanges with the security of decentralized exchanges.

Its flagship offering was a “modular exchange” that allowed users to trade not only crypto assets but also tokenized versions of traditional stocks, including Apple, Microsoft, and Nvidia. This hybrid approach aimed to bring real-world financial instruments into the blockchain ecosystem, but it struggled to gain traction before the hack disrupted operations.

Recovery Plan and User Compensation

As part of its wind-down, Kinto has outlined a recovery and compensation plan for affected users. The project holds around $800,000 in Uniswap liquidity, which will be distributed to “Phoenix lenders”—backers who helped the platform relaunch after the hack. These lenders are expected to recover about 76% of their loan principal.

In addition, a “goodwill grant” will be provided to hack victims, with each affected address receiving approximately $1,100. Recuero pledged more than $130,000 of his personal funds to support this initiative.

Kinto has also committed to continue pursuing recovery of stolen assets. If recoveries exceed victim amounts, the additional funds will be allocated to the community through Snapshot, a decentralized voting platform.

The team has urged users to withdraw their assets before September 30. After that date, any remaining balances will need to be claimed via a perpetual claim contract that Kinto intends to deploy.

A Pattern of Failed Ventures

Kinto is not Recuero’s first failed crypto project. In 2022, his earlier venture Babylon Finance shut down after a $3.4 million hack undermined its momentum. Like Kinto, Babylon was unable to recover investor trust or attract sufficient funding following the exploit.

With Kinto’s closure, Recuero has now seen two projects end prematurely due to security incidents and their aftermath.

Lessons for Ethereum Layer-2 Projects

The collapse of Kinto highlights the ongoing risks faced by Ethereum layer-2 solutions and the wider DeFi industry. Security vulnerabilities, unsustainable yield promises, and reliance on volatile funding channels continue to threaten the stability of experimental blockchain ecosystems.

While Kinto’s attempt to merge traditional finance with decentralized infrastructure was ambitious, its downfall underscores how quickly momentum can evaporate in crypto when trust is broken.

Conclusion

Kinto’s shutdown marks another chapter in the turbulent history of DeFi ventures struggling to balance innovation with sustainability. Its governance token has collapsed, user confidence is shaken, and the project will officially cease operations by the end of September.

Although its recovery plan offers partial relief for lenders and hack victims, Kinto’s rapid decline serves as a cautionary tale for Ethereum layer-2 projects promising high yields without proven resilience.