The start of 2023 has been rocky for Logan Paul and his NFT escapades. It seemingly all started with a multi-part video expose created by a YouTuber known as Coffeezilla (whose real name is Stephen Findeisen). In the series, Findeisen chronicles the rise and ultimate demise of Paul’s once-popular NFT project CryptoZoo, offering evidence that Paul and his team may have scammed investors. After a short spat between Paul and Findeisen, the accused celebrity eventually opted to take accountability, pledging to pay back 1,000 ETH (around $1.3 million at the time) to those who lost money on the project.
But that apology was far from the end. On February 2, 2023, a lawsuit was filed against CryptoZoo, Logan Paul, and others alleging fraud, breach of contract, unjust enrichment, and much more. With charges mounting and prices for Paul’s venture still dropping, collectors are caught in the crossfire. The question has now been raised: How does the NFT space proceed from here?
Recapping Logan Paul’s NFT influence
To find a way forward, we must first understand the events that led to the current situation. While the CryptoZoo fiasco may have taken center stage, the project isn’t the first time Logan Paul has incited controversy in Web3. In 2021, Paul emerged as a seeming proponent of blockchain tech and culture, quickly making waves by collecting expensive and influential NFTs from rising projects. But before long, his name took a major hit by getting tied up with a new meme coin called Dink Doink.
Through podcast appearances and social media posts, Paul spoke positively about Dink Donk, which was marketed via a humorous, South Park-inspired character. Paul even said he was “all in” on the coin via a Twitter post. Yet, throughout this promotion, Paul neglected to mention that he had actually helped create the project. Further, Paul received a significant amount of the token supply (somewhere to the tune of 120 trillion, according to some sources) pre-launch.
The coin turned out to be a classic pump-and-dump, with Paul and those around him promoting it to increase its value before selling off their stocks and allowing the coin to crash and burn. Shortly thereafter, Paul distanced himself from the project and others who helped orchestrate it. The entire debacle was widely publicized, even leading to a subsequent expose from Findeisen.
While Paul was never charged for the alleged scam, NFT enthusiasts denounced his actions. Some even used blockchain analytics tools to find the influencer’s crypto wallet to ascertain how much he siphoned out of the Dink Doink ecosystem. It turned out to be upwards of $100,000, and although this evidence was never confirmed as pointing directly back to Paul (due to the decentralized and anonymous nature of software wallets on the blockchain), his alleged wallet would later go on to have a direct link to the CryptoZoo infrastructure.
Thus began the initial soiling of Paul’s NFT reputation. While other projects, like Liquid Marketplace, further soured Web3’s attitude toward Paul, CryptoZoo was another beast entirely.
The CryptoZoo fiasco
In the fall of 2021, only a few months post-Dink Doink, Paul began promoting his own NFT project, CryptoZoo. The venture was seemingly inspired by Pokémon and marketed by Paul as “a really fun game that makes you money.” Collectors could purchase NFT eggs and hatch hybrid animals depicted by photoshopped pictures of penguin-sharks, duck-dogs, etc. From there, users could breed these hybrids with others to produce increasingly rare NFTs. The system felt akin to Axie Infinity but with the overarching theme of profitability through peer-to-peer NFT trading and passive play-to-earn mechanics.
Much like other popular PFP projects released throughout 2021, CryptoZoo seemingly bit off more than it could chew, and the game never came to fruition. Although Paul allegedly put $1 million of his own money into the game’s creation, and the initial 10,000 NFTs (priced at 0.1 ETH each) sold out, the team leading the endeavor seemed to continuously hit roadblocks. They announced delay after delay until months had already passed with almost nothing to show.
As time went on, it started to feel as though Paul had once again distanced himself from one of his projects, with his subsequent NFT endeavor, 99Originals, soon becoming top of mind for his Web3 followers. But those who had invested heavily in CryptoZoo, of which there were many, started to feel cheated.
In December 2022, more than a year after CryptoZoo’s initial launch, Findeisen first stirred the pot by publishing his three-part series. Chronicling the supposed infighting and disagreement between the CryptoZoo founders and the many promises made to the project’s collectors that developers never followed through on, Findeisen’s lengthy series seemed to come as the nail in the coffin for Paul’s supposed passion project.
CryptoZoo lawsuit and the importance of arbitration
On February 2, 2023, attorneys from Ellzey & Associates and Attorney Tom & Associates filed a lawsuit that seeks class action certification in the Western District of Texas against Logan Paul, Danielle Strobel, Jeffrey Levin, Eddie Ibanez, Jake Greenbaum (Crypto King), and Ophir Bentov (Ben Roth) for the CryptoZoo fiasco. The effort is spearheaded in part by prominent attorney and YouTuber Tom Kherkher — known better by his handle, AttorneyTom.
The official 26-page filing paints a detailed picture of Paul and co. seemingly turning their backs on CryptoZoo investors, alleging that “Defendants marketed CryptoZoo NFTs to purchasers by falsely claiming that, in exchange for transferring cryptocurrency to purchase the CryptoZooNFT, purchasers would later receive benefits.”
According to Kherkher, who released a 10-minute video outlining the lawsuit, CryptoZoo’s terms and conditions contained two major clauses that can affect a victim’s ability to pursue legal action: the first being a forced arbitration clause and the second a class action waiver.
In short, forced arbitration requires disputes between parties (in this case CryptoZoo and investors) to be resolved through arbitration (private mediated dispute resolution) rather than in the court system, and a class action waiver prohibits victims from joining together as a group to bring legal action. Essentially, if you purchased eggs or zoo tokens, you signed away your rights to sue CryptoZoo in court.
So how were Ellzey & Associates and Attorney Tom & Associates able to help plaintiffs circumvent arbitration and file a suit that seeks class action? According to Kherkher, just because a clause exists within the terms and conditions, it doesn’t necessarily make it enforceable.
“In fact, I think there are quite a few terms and conditions present in the CryptoZoo agreement that I believe are unenforceable,” said Kherkher in the YouTube video. Although he went on to add that in addition to the class action lawsuit, there is a situation in which he and his associates may need to engage in arbitration (for all individuals represented) due to the aforementioned clauses.
Forced arbitration has been a major point of legal contention over the past few years, with the U.S. House even passing a bill banning arbitration agreements in March 2022. Although, judging by the legal efforts of Kherkher and others, this seems to have had no effect on the CryptoZoo terms and conditions set forth in September 2021.
What NFT collectors should consider moving forward
Again, we ask: How does the NFT space proceed from here? For those affected by CryptoZoo, waiting for a possible settlement — either from the lawsuit or from Paul’s pockets — could prove to be the only resolution. But there’s a bigger issue here; the issue of accountability, and it goes far beyond CryptoZoo.
Due to many factors, including a lack of regulation in Web3, everyone from fresh-faced enthusiasts to seasoned trading veterans has fallen victim to scams over the years. While legal action has been brought against a wide variety of large-scale NFT endeavors, crypto exchanges, and other Web3 empires that have been under scrutiny from the SEC, bad actors continue to flourish on the blockchain.
Of course, things are steadily changing, and the rise of SEC investigations, the advent of crypto-bills, and even lawsuits involving intellectual property are undoubtedly leading the way toward regulation. But for those holding CryptoZoo eggs and contemplating selling for a major loss just to leave the debacle behind them, salvation still seems far off.
Among all the drama, though, perhaps one lesson has been learned: while major influencers often seem to be a benevolent force poised to help drive mainstream adoption, they can just as easily set Web3 back by detracting legitimacy from it NFTs and blockchain technology.
Read the full article here
