Token replacement raises doubts, founders face legal challenges, how did the former king of blockchain games, Gala Games, fall from grace?

Author: Mia, ChainCatcher

Recently, the once-dominant blockchain gaming company Gala Games has drawn public attention again due to a drama between its founders. Last Thursday, it was reported that the blockchain game developer Gala Games was involved in lawsuits between its two co-founders, current CEO Eric Schiermeyer and co-founder Wright Thurston.

Eric Schiermeyer accused Wright Thurston of stealing $130 million worth of GALA tokens in 2021 through his company True North United Investments, while Wright Thurston accused Eric Schiermeyer of selling and wasting millions of dollars of company assets for personal gain without the knowledge or approval of the board or shareholders, and engaging in systematic, purposeful, and deceptive actions that harmed Gala Games and its shareholders.

Investors and players of Gala Games began to panic. According to CoinGecko data, as of the time of writing, the GALA token has dropped over 25% in the past 14 days. In fact, aside from the drama between the two founders, Gala Games has faced continuous issues since the pNetwork pGALA contract was attacked. So, how did the once-mighty king fall from grace step by step?

The Birth of a King

Gala Games was founded in 2018 with the aim of becoming a decentralized gaming ecosystem, akin to "Steam" in the blockchain gaming field, bringing traditional gamers into the world of blockchain games and the metaverse. Gala Games serves as both a game developer and a game aggregation platform, introducing a node ecosystem where users can run nodes by purchasing node licenses to participate in the platform's decentralized governance and earn GALA tokens and NFT rewards; at the same time, the platform grants players control over their in-game assets, allowing them to trade game items on the blockchain for profit.

Behind this ambitious project to become the "Steam" of blockchain games is a star-studded team. Eric Schiermeyer, the CEO of Gala Games mentioned above, is a successful serial entrepreneur and co-founder of the social gaming company and publicly traded company Zynga, having developed and operated numerous games such as FarmVille, Mafia Wars, and Cafe World. He is also a co-founder and CTO of the social media site Myspace, as well as an investor and advisor for the game company Bee Cave Games. The technical director team behind him is also composed of seasoned professionals from the gaming industry.

With the rise of the metaverse and GameFi trends in 2021, Gala Games' so-called "immersive" gaming experience became one of the reasons investors were optimistic, compared to the traditional blockchain gaming emphasis on "Play to Earn." The enormous development framework, impressive behind-the-scenes team, and the surge in the GameFi craze made Gala Games a leading product in blockchain gaming at that time, winning the favor of investors. Major exchanges, including Binance and Coinbase, successively listed the GALA token, triggering a certain FOMO effect. After being listed on Binance, GALA's development peaked alongside the rising token price. GALA surged from an opening price of 0.02 USDT to a high of 0.84 USDT, a rise of over 40 times, leading to a new wealth legend, with Gala Games reaching a peak of 1.3 million monthly active users.

In fact, in the blockchain field, "success only requires one time," and Gala Games' ability to attract investment reached its peak at that time. By the end of 2021, Gala Games began to intensively invest in the blockchain gaming field and the metaverse, first announcing a $1 billion deployment for game development in South Korea, followed by a partnership with C² Ventures to launch a $100 million fund for investing in game developers and emerging projects utilizing blockchain technology. In early 2022, Gala boldly announced a $5 billion Gala Games NFT expansion plan, with $2 billion allocated for games, $1 billion for music products, $1 billion for movies, and $1 billion for Gala theme park NFTs.

The pNetwork Incident

Just when everyone thought everything would develop steadily, the bear market hit. With the sharp decline of BTC and the frequent occurrence of black swan events like "FTX," Gala, as an altcoin, was not spared, with its price plummeting from 0.6 USDT to 0.03 USDT. What further exacerbated its price decline was the subsequent "pNetwork incident," where the multi-chain routing protocol pNetwork's pGALA contract was attacked, resulting in over $1 billion worth of pGALA tokens being minted out of thin air and sold for profit on PancakeSwap, causing the on-chain GALA price to plummet dramatically.

Afterward, Gala Games announced it would sue pNetwork on behalf of the pGALA victims, seeking $27,671,934.80 in damages for self-paid expenses, additional damages, punitive damages, and more due to the breach of contract.

Doubts Over New Token Replacement

Undoubtedly, the pNetwork incident not only had a severe impact on the price of GALA but also dealt a huge blow to the development of Gala Games. Perhaps due to security considerations and future scalability, Gala Games launched the v2 upgrade in May this year, introducing an enhanced burning mechanism and arranging for all users holding GALA (v1) tokens on Ethereum to automatically receive the new GALA (v2) tokens at a 1:1 ratio. After this, GALA (v1) would no longer be supported, and Coinbase would not support any airdrops for Gala v2, advising users to transfer GALA to self-custody wallets to receive potential airdrops.

However, this raised widespread doubts among community users about why Gala Games needed to transition from v1 tokens to v2 tokens. Why did Coinbase decide not to support GALA (v2)? Yet users received no clear answers, leading many to speculate about what was happening internally at Gala Games. This was recently clarified in the disclosed lawsuit documents.

The Two Co-Founders in Court

According to Eric Schiermeyer's lawsuit documents, Gala Games was forced to release GALA v2 in May 2023 because it could not recover the stolen GALA (v1) tokens from co-founder Wright Thurston, nor could it publicly disclose the stolen GALA without causing panic. When GALA v2 replaced GALA v1, only the remaining GALA v1 tokens in his wallet could not be sold. Additionally, at that time, Thurston had already transferred about half of the stolen tokens, worth approximately $130 million.

Moreover, Eric Schiermeyer pointed out in the lawsuit that although Wright Thurston founded many companies, most ultimately ended up in lawsuits, bankruptcy, or were sued by the U.S. SEC. Gala Games appears to be his only legitimate enterprise. It was reported that Wright Thurston's Green United, LLC was sued by the SEC in March this year, accused of deceiving investors in an unregistered cryptocurrency securities offering.

The tarnished reputation of the co-founder has greatly impacted Gala Games' company credibility and brand image. After learning of this situation, Coinbase inquired about the SEC lawsuit against Thurston and the ongoing relationship between Gala Games and Thurston. Upon discovering that Thurston had stolen and begun liquidating the stolen GALA, Coinbase resolutely refused to support the GALA v2 upgrade.

In fact, Gala Games has been working to resolve the issues that Wright Thurston had created early on, but "the paper cannot cover the fire." Under the dual pressure of a continuously declining token price and ongoing community disputes, the two co-founders of Gala Games ultimately chose to go to court. Wright Thurston countered by accusing Eric Schiermeyer of destroying over $600 million worth of tokens and secretly founding a competing company.

According to Wright Thurston's lawsuit, Eric Schiermeyer destroyed over $600 million worth of GALA tokens belonging to shareholders and other members of the Gala community and wasted millions of dollars of company assets, even failing to upgrade the GALA token as publicly stated, instead transferring it to a personally controlled wallet. Furthermore, Eric Schiermeyer borrowed millions of dollars from Gala Games for personal use, such as paying $5 million in installments to purchase a company plane, and secretly created offshore entities in Switzerland and Dubai that should have belonged to Gala Games.

Currently, these two lawsuits are still under review, and according to the analysis of both parties' lawsuits, the internal conflict at Gala Games involves GALA asset values as high as $730 million, triggering panic within the community.

According to CoinGecko data, since the disclosure of the lawsuit documents, the price of Gala Games' GALA token has dropped over 98% from its peak, declining 10.4% in the past week, with a current total market value of only about $370 million.

Crypto influencer @TheBTCExpress publicly stated on his YouTube channel that he has sold all his GALA tokens and will no longer be optimistic about GALA.

If the token replacement is a cover for the internal chaos of Gala Games, then going to court is a complete revelation of all internal scandals.

The "Over-Centralization" of Management Becomes the Culprit

Gala Games may become the Waterloo of star entrepreneur Eric Schiermeyer, primarily due to the over-centralization of corporate management.

Like traditional Web2 companies, at the beginning, Eric Schiermeyer and Wright Thurston shared all business opportunities on a 50:50 basis, and all control of Gala Games was authorized by the two directors. However, the decentralized technology in the blockchain field provided a perfect "opportunity for crime" for this relatively centralized configuration. Issues regarding centralized governance and transparency are evident in Gala Games. When control of Gala Games was entirely in the hands of Eric Schiermeyer and Wright Thurston, they could manipulate company assets at will using decentralized technology without oversight from others, making the abuse and theft of company funds unsurprising.

However, as the financial hole grew larger, the entire company and its future would fall into the abyss, ultimately leaving users to pay the price. This also proves the importance of decentralized governance and on-chain governance.

Currently, this farce has yet to reach a conclusion. Gala Games has stated on its official Twitter that the lawsuit between the co-founders is a personal dispute and has no substantial connection to the company's operations. Additionally, according to Gala Games' latest updates, Gala Games will fully migrate the Gala platform to GalaChain by the end of the year, simplifying the usage threshold and development tools to provide comprehensive self-service for external teams by the end of the year.

Perhaps with the advancement of new developments, the impact of this incident on Gala Games will be digested by the market, while the immediate priority is how to restore the damaged brand reputation and user trust. A "decentralized governance" management restructuring may be a good choice.