Hot New Restaking Project Karak Faces Backlash Over Team’s Past

Karak, a new protocol seeking to ride the recent restaking boom, is under fire after the project was revealed to be the second reincarnation of Risk Harbor — a project accused of running off with millions intended to provide insurance for Terra’s failed UST stablecoin.

On April 8, Karak announced it had closed a $48 million Series A funding round at a more than $1 billion valuation to provide a “universal restaking layer” securing multiple networks and applications. Karak’s backers included heavyweight web3 investors including Lightspeed, Pantera, Coinbase, and Framework, providing a vote of confidence from many of the sector’s top VCs.

“Karak makes it easy to provide cryptoeconomic security with any asset,” Karak tweeted. "Karak enables users to repurpose their staked assets to extend Ethereum as well as other trust networks’ security to other applications.”

Karak also announced its private access launch, allowing community members with invite codes to begin depositing assets including liquid restaking tokens to its deployments on Ethereum, Arbitrum, and the Karak Layer 2 network. Users are incentivized with a combination of underlying ETH staking rewards, restaking rewards and points, liquid restaking points, and Karak’s XP points.

However, web3 sleuths quickly poured cold water on Karak’s coming out party, with CryptoIan, a former researcher at Bybit, linking the project to the team behind Risk Harbor.

“Seeing people shill Karak as the next farm,” CryptoIan tweeted. “Went into their Discord and then realized they are the same team that rugged Risk Harbor… Beats me how VCs don't do simple due diligence, will not be putting any $ in this one and I encourage everyone to [do your own diligence] before deciding to do so.”

Raouf Ben-Har, Karak’s co-founder, took to Discord to address the “malicious rumor” facing the community, characterizing the funds Terra provided to it as a “grant.”

“The Risk Harbor Foundation was granted 1B of UST minted by the Terra foundation as collateral for our risk pools,” Ben-Har said. “After the collapse of UST and once the dust had settled, in an effort to prevent further losses, the Risk Harbor Foundation sold $6M worth of UST out of the initial grant. These funds are currently earmarked for an insurance fund for initial restaking pools. Any equating to a scam or rug pull is categorically FUD, slander, and disparaging.”

However, RayRaspberry1, an advisor to TurkeyDAO, refuted Ben-Har’s characterization of events, citing old tweets from Terra indicating that the funds were not provided as a grant.

“Risk Harbor exited Terra $7M USD from an underwriting fund sent to their Binance account,” tweeted “They attempted a similar withdrawal on Terra 2 with 6M of community funds and were caught, returned the funds after private negotiations with Terra, and left the ecosystem.”

The revelation also outed Karak’s Series A as the same funding round previously announced by Andalusia Labs, a freshly rebranded Risk Harbor, in December 2023.

“Karak has transitioned from Risk Harbor, taking Risk Harbor investors alongside with us and everyone is excited about this acceleration towards our endgame,” Ben-Har said. “Our desire to transition from Risk Harbor to Karak stemmed from our initial product around staking protection.”

The drama has done little to slow deposits into the Karak protocol, with data from TokenTerminal showing the project has attracted a total value locked (TVL) of $143.5 million since announcing its early access launch. The TVL includes $67.8 million on its Karak Network, $67.4 million on Ethereum, and $8.27 million on Arbitrum.

Mike Silagadze, the CEO of the top liquid restaking protocol, EtherFi, took exception to Karak describing itself as providing restaking services. “This may be pedantic, but it's not restaking if it's not ETH, it's just selling slashable security,” he tweeted.