Story Protocol Co-Founder's Exit Sparks Community Outcry Over Soft Rug Pull Claims Amid Dismal Revenue Figures

On August 16, Story Protocol co-founder Jason Zhao announced his transition from full-time leadership to a strategic advisory position, immediately triggering accusations of a soft rug pull across the crypto community. The departure marks a significant moment for the blockchain-based intellectual property platform valued at approximately $2.25 billion, especially given its underwhelming revenue performance relative to its substantial capital raises.

The Revenue Reality Check

The core issue at the heart of community backlash centers on Story Protocol’s revenue generation metrics. Despite commanding a $5.8 billion fully diluted valuation (FDV) and securing over $130 million in venture capital backing, including major commitments from a16z and other elite investors, the protocol reported just $45 in daily fees—a figure that crystallizes the disconnect between valuation and utility.

According to DeFiLlama data, Story Protocol’s all-time high revenue reached only $3,163, a stark contrast to the promises embedded in its whitepaper. The platform was envisioned as a transformative solution for managing intellectual property on-chain, enabling creators to register, monitor, and monetize diverse content categories from books and films to AI-generated works through decentralized infrastructure. Yet the execution has fallen far short of these ambitious goals.

Funding Timeline and Valuation Trajectory

Story Protocol’s capital acquisition history reveals the scale of investor confidence that preceded Zhao’s departure. The project secured $29.3 million during a May 2023 seed round, followed by a $25 million Series A in September 2023. The most substantial injection came in August 2024 with an $80 million Series B led by a16z’s crypto division, establishing the company’s $2.25 billion valuation. Additionally, an $82 million token-based investment from Heritage Distilling in August added to the capital base, part of a broader framework involving a proposed $360 million IP token reserve.

Developer Criticisms and Comparative Performance Gaps

Crypto developers and protocol founders have vocally challenged Story Protocol’s value proposition. Joseph Schiarizzi, founder of lending protocol Nerite, pointed to a concerning incident where Story Protocol’s team sold $150,000 in tokens merely to drive the IP token’s price up 2%—a move he characterized as problematic given the entity’s stated ambitions to establish a $300 million treasury reserve.

The performance disparity becomes even more pronounced when compared to other protocol ecosystems. The Harmonix Finance founder, operating on the Hyperliquid platform, highlighted a striking contrast: Hyperliquid raised no venture capital, its founders have no prominent institutional backgrounds, yet it has become the leading on-chain perpetual futures protocol, generating approximately $3 million in daily revenue—a multiple orders of magnitude higher than Story Protocol.

Token Distribution and Personal Gain Implications

The allegations of soft rug pull gain additional context through Story Protocol’s token economics. Zhao and three additional co-founders collectively control 20% of the total one billion token supply, equivalent to approximately 200 million tokens. Should Zhao liquidate 5% of total token supply at the current trading price of $5.69, calculations suggest potential realized gains of approximately $284.5 million—a figure that amplifies community suspicion surrounding his exit timing.

Leadership Transition and Zhao’s Stated Rationale

Zhao has not publicly addressed the controversy following his resignation announcement. However, he indicated that his departure stems from personal commitments to Poseidon, an AI data infrastructure initiative developed by Story Protocol’s ecosystem, targeting applications in biopharma and space research sectors.

In his transition statement, Zhao reflected positively on his tenure, describing it as “the most meaningful experience of his life” and noting that his initial concept has expanded beyond expectations. He credited Story IP’s evolution, citing major partnerships including fashion brand Balmain and K-pop group BTS in South Korea, and emphasized the protocol’s processing of millions of transactions.

The incoming leadership structure includes S.Y. Lee assuming primary guidance alongside newly appointed CPO Andrea, who brings prior experience from Amazon’s conversational AI division. Whether this organizational transition can address the fundamental revenue and utility challenges remains an open question within the community.

The departure underscores a recurring tension in crypto venture funding: the gap between capital deployment and demonstrable user value, with Story Protocol serving as a cautionary case study for how substantial institutional backing does not automatically translate into meaningful protocol adoption or sustainable revenue generation.