The Oyster Protocol, or Oyster, is a decentralized file storage system built on IOTA and powered by two ERC20 cryptocurrencies, Oyster Pearl (PRL) and Oyster Shell (SHL). The Oyster file storage system is maintained with website owners running Proof of Work scripts on their websites which pays PRLs periodically to the website owner as users visit these websites. This Proof of Work script ensures that files are properly stored on IOTA's Tangle.
Oyster was founded by a person behind a pseudonym, Bruno Block. Block begin working on a decentralized file storage system in 2016. This turned into Oyster, which was formally announced in September 2017. Since then, the project was continuously polished for mass marketing, launching a beautifully designed website, publishing a detailed whitepaper, available in multiple languages, and operating an active community management team that maintained multiple social media channels and published frequent developer updates.
On October 29th, William Cordes, who took over as the CEO of Oyster from Bruno Block in 2018, announced that Block had exit scammed by exploiting a vulnerability in the PRL smart contract which allowed him to print almost 3 million PRL. He sold the counterfeit PRL on the cryptocurrency exchange Kucoin, and extracted $300,000 before being stopped by the exchange.
The market cap of PRL was once more than $190 million. This is the story of the project's meteoric growth and sudden collapse.
Oyster's ICO was held in October 2017. It was a little known project then. All was quiet for Oyster until later in the year, in December, when Oyster Pearl had its first exchange listing on KuCoin. This was when social media volume for Oyster noticeably picked up.
It started out as a series of Reddit posts about Oyster with a modest number of upvotes. Here are some examples:
- "Call me a shill or not. Look at my post history and make the decision yourself, but I'm just finding out about this token today. Read up on the white paper, and from what I understand the devs want to monetize web content without the use of ads..." (link)
- "Oyster Pearl not a pump and dump but definitely a good and risky investiment" (link)
- "What about Oyster Pearl (PRL) using I0T4 T4ngle and Ethereum? Any advice? I heard the co-founder of IOT4 David Sonstebo said the project is cool. It's firing up right now."(link)
- "Oyster Pearl (PRL). Cryptocurrency with a solid idea, and very little attention."(link)
- "Where can I buy Oyster Pearls (PRL)?" (link)
- "Oyster (PRL) is going to change the internet. Here's why." (link)
As Ethereum's USD price peaked in early January, Oyster's USD price also peaked. Without USD trading pairs, Oyster's USD price was tied to Ethereum's. Over the course of January and February, Oyster completed two major milestones. It launched Test Net A in January and Test Net B in February. This was also when the social media promotion of Oyster really picked up. Oyster was all over Reddit. Every other day, there would a highly upvoted post lauding the project or celebrating an insignificant milestone (i.e. a new project update blog post). Oyster was routinely mentioned in discussion threads as a good investment.
The sudden uptick in social media volume was suspicious. It's possible that the development team paid for inorganic social media promotion, or this was a concerted effort by a community of Oyster supporters (e.g. this post on their subreddit).
Many users were suspicious of Oyster's social media buzz, though they were often drowned out and downvoted by the shillers. Here's what one user had to say: "this is a staged shill post if Ive ever seen one. Every pro- PRL post is upvoted a ton. Every post that simply ASKS a question regarding competitors or brings up some type of opposition is downvoted. Scroll up and down and see for yourself" (link).
Knowing what we know now, it's fun reading the positive things that people had to say about Oyster:
- "The dude was working on Christmas Eve and Christmas day... that was enough for me." (link)
- "I am not confirming anything, so don't quote me on this, but I think Wikipedia adopting this tech is very likely. One of the most important websites imo, asking from time to time to donate just to keep the ads away. Amazing that they do it, but for them it's risky. Oyster would solve that issue and give them more revenue." (link)
- "Worth noting that the entire team outside of Bruno has only been on-board for right around a month. This group has already accomplished more in that month than many projects (with significantly better funding) have done in 6-12 months." (link)
- "Honestly the coin is probably the lowest it'll ever be right now. January massacred the price and it's currently liken 70% below it's ATH although it's currently rising slowly. I'm just upset I don't have more money to invest in it rn" (link)
- "Oyster (PRL) is going to change the fucking internet. Here's why" (link)
- "While nobody can predict the future, there is a real possibility that the value of this coin can go up massively in the future as the team develops it. That is why I invested, not for a quick 1 week pump and dump." (link)
Thank you Devs, I am a value HODLer and I will ride this train until its conclusion."
Oyster's market cap never recovered from its January high. There were scattered events throughout 2018 that temporarily buoyed its price up but these were always followed up with a larger drop in price.
In April, the team executed an airdrop which gave all holders of Oyster Pearl an equivalent amount of Oyster Shell. Shell was a new cryptocurrency that will be used alongside Pearl in the protocol. In May, the team launched the protocol's main net. This was the final hurrah for the project. After the main net launch, the price collapsed, along with the rest of the cryptocurrency market. In June, Bruno Block, the project's anonymous founder, stepped down as CEO. He performed the exit scam in October.
The Exit Scam
On October 29th, William Cordes, the CEO of Oyster, published a Medium post with a simple title, "Oyster Update". The post described how someone exploited a loophole in the Ethereum smart contract managing Pearls to issue "upwards of 3M PRL". The exploiter then sent the counterfeit PRL to Kucoin to be sold. In total, the theft was able to make away with ~$300,000 before Kucoin could stop them.
Since Bruno Block, the owner of the smart contract, was the only person capable of doing this, there was little doubt that it was him. In fact, Kucoin was just about to implement a KYC policy on November 1st. One could reasonably infer that Block didn't want to reveal himself, and cashed out before he was forced to.
As a result, Opacity Storage (the name of the company developing Oyster) abandoned the corrupted Pearl smart contract and created a new cryptocurrency called Opacity (OPQ) which also exists as an ERC20 smart contract. Owners of PRL received OPQ at a 1:1 ratio. Kucoin froze the PRL and SHL markets and replaced them with an OPQ market. When the market opened on Kucoin, OPQ was trading at about $0.02 a piece. It's since fallen to just above $0.01. In contrast, PRL was trading at $0.20 a piece before the exit scam was discovered.
Block has since wrote a public response to his actions. In the post, he claims that Cordes was engaged in insider trading and he is only interested in manipulating PRL's price through superficial events like exchange listings. Block claims that cryptocurrencies are a "giant Ponzi scheme", and that USD Tether will collapse and bring cryptocurrency markets down with it. He also claims that the world is headed for disaster (i.e. "Billions of people will die") because of "peak oil" and the "fractional reserve banking system". Finally, Block admitted that he made a lot of money from Oyster, and now he's going to continue working on his original vision for it, even though he does not believe there will be a "future to host it".
As for the Oyster community, although the ongoing bear market has caused many to ditch their PRLs, some have stubbornly HODL'd, as they say, with the belief that Oyster will actually "change the fucking internet". One user posted this on the Oyster subreddit: "I have invested $2000 one year ago and now its worth 0$!! I did not sell at any time because i trusted in you. You fucking asshole scammers. ROT IN HELL."
The largest red flag for Oyster was its weak premise. Let's recap: the project wants to use the IOTA Tangle (another cryptocurrency) to store data, and data integrity is maintained with Proof of Work scripts running on websites.
There are so many problems with this. First, IOTA is a burgeoning technology that has its own slew of problems. Many people are bearish that it works. It's widely known that IOTA still needs to support its network with centrally maintained servers. It's definitely not able to support the transfer and storage of terabytes of data, something that a decentralized file storage system must be able to do. This manifested itself in the Oyster main net's painfully slow upload and download speeds. In fact, Oyster wasn't even running on IOTA's public Tangle, the development team was operating their own private Tangle.
Another problem with Oyster's premise is that it relies on getting both website owners to include Oyster's Proof of Work script on their websites, and their visitors to allow the script to run and use their CPU. If website site owners don't want to use the script, perhaps because it doesn't pay enough, or visitors are likely to block it from running, Oyster will fail.
Another red flag for the project is its anonymous founder who uses the pseudonym Bruno Block. Why would the founder of a project that supposedly has so much promise want to stay anonymous? In fact, it's rare for altcoin projects to have anonymous founders. Staying anonymous was good for one thing though: exit scamming with scant consequences.
A final red flag that I'll discuss is the disproportionately large amount of social media hype for Oyster. There were tens if not hundreds of altcoins with similar market caps, and many of which had better premises than Oyster, yet Oyster managed to consistently reach the front page of cryptocurrency subreddits. Although rampant shilling is not a direct sign of a bad project, it can be a good proxy. For example, it can indicate that the team spends more time and resources marketing than building.
What happened with Oyster teaches us a valuable lesson. Wisdom of the crowd doesn't apply to social media, especially for cryptocurrencies. Social media can easily be manipulated to make even the most rotten projects appear polished and investable. With cryptocurrencies, one must do their own due diligence. Warren Buffett doesn't invest in things he doesn't understand, neither should you.