A $200M Mining Heist and a Life Sentence
The closure of a case that catalyzed China’s 2021 mining ban
Xiao Yi, a former Chinese official who had shielded a crypto mining operation for years, received a life sentence following his arrest in May 2021 amid China’s anti-graft campaign.
Several crypto media outlets reported Xiao’s sentence, but few have told the Wild West story behind it that dates back to 2017. In short, Xiao took bribes to provide a political shield for a local crypto mining operation that embezzled $200 million worth of crypto miners from Genesis Mining to mine for itself. The involvement of a city chief in such a jaw-dropping case led to an investigation into Xiao, catalyzing the country’s strictest mining ban ever.
So what happened?
Xiao served as the Municipal Communist Party Secretary of Fuzhou between 2015 and 2021 in his home province of Jiangxi — a role that made him effectively the city chief. While pushing for a “Digital Economy,” he was introduced to a businessman named Lin Qingxing.
In 2017, Xiao and Lin signed a partnership deal with Genesis Mining to bring investments to the city. That was when the founding members of Genesis Mining were looking to start a proprietary mining business, which was only formally launched as Genesis Digital Asset four years later.
The deal was to build “supercomputing” data centers in Fuzhou, which were effectively mining farms. It was supposed to be a win-win for everyone: subsidized energy for Genesis Mining, hosting profits for Lin, and political achievements for Xiao’s Digital Economy ambition.
But then friends became foes. Lin suspended payouts in 2018, accusing Genesis of failing to pay bills. Genesis wanted to withdraw its machines, but Lin changed the payout address of those machines to his own.
Chinese media reported that before Lin was taken into police custody in 2021 along with Xiao’s arrest, his company had a few golden years when dozens of luxury sports cars parked outside his office building. It was estimated that Lin’s company alone consumed 10% of the total electricity in Fuzhou from 2017 to 2020. The extravagance was also fueled by funding support from the government at Xiao’s direction such as bank loans guaranteed by the government that were estimated to be ~$329 million.
While Lin and his associates were on joyrides, Genesis had sued his company. The case was stuck in courts at the local level for a couple of years. Then, in 2021, when it was moved up, the Supreme People’s Court sided with Genesis and ordered the return of half a million GPUs.
As the case received more attention from higher-ups in the Chinese government hierarchy, the business nature of Lin’s company came under the spotlight, followed by the connection between him and Xiao. Unsubstantiated Chinese reports said Xiao accepted 6,000 BTC in bribes from Lin. The official news last week said Xiao took bribes worth 125 million yuan (~$17 million), of which $8 million was not “realized.”
The timing was intricate: The Chinese Communist Party’s Central Disciplinary Committee announced Xiao’s arrest on May 10, 2021 — just a week before China’s State Council decided to ban the mining industry altogether.
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