Co-founder of Story Protocol IP departs from the project, pledges continued involvement as a 'strategic advisor'
Humanity is at a "crucial inflection point," according to Jason Zhao, co-founder of Story Protocol. Zhao compares this moment to a new industrial revolution, one that is being built upon web3 technology and the deployment of artificial intelligence in various fields. However, recent events surrounding Zhao's departure from the project have cast a shadow over this promising venture.
Zhao's exit announcement on August 16, 2025, sparked accusations of rug-pulling. The community backlash centers on suspicions that Zhao is exiting after securing substantial personal gains. With claims he could have made about $281 million from his 5% token holdings out of the 1 billion total supply, critics argue that this move is a "soft rug pull."
The accusations reflect disappointment over the stark mismatch between the project's valuation (~$2.2 billion) and the minimal practical utility and revenue generated so far. Commentators and some prominent crypto figures have expressed shock and frustration, comparing this to founder-led exits in crypto, which are usually linked with negative impacts on projects.
Despite the founder's departure and community concerns, Story Protocol is not standing still. The project is entering a new phase under incoming leadership, including CEO S.Y. Lee, who brings AI expertise from Amazon, and a new Chief Product Officer, Andrea, also with an AI background.
Recent technical upgrades include an IP registration portal, ownership attestation services, and improved blockchain validator capacity to enhance scalability and compliance, particularly for AI and data partnerships. Institutional interest remains visible, with Heritage Distilling launching a $360 million IP reserve related to Story Protocol tokens, although some skepticism about token value dilution persists.
However, the protocol's on-chain activity and revenue remain low, reflecting significant challenges in adoption and monetization thus far. Since its launch in February 2025, Story Protocol's native token, IP, has shown extreme volatility, surging from an all-time low of $1 to highs above $7.3 within weeks after its launch. In the past week, the token has fallen by more than 15%, and in the past month, it has dropped by 22.35%.
Zhao's departure is due to his involvement in Poseidon, a full-stack data infrastructure layer created by the protocol to solve AI's long-tail data bottleneck. His passion now is focused on applying AI to frontier industries like science and space.
The long-term viability of Story Protocol remains uncertain amid skepticism fueled by the weak present fundamentals compared to initial valuations and capital raised. As the project moves forward under new leadership, it will be interesting to see how it navigates these challenges and whether it can live up to the promise of this new industrial revolution.
[1] a16z - https://www.a16z.com/ [2] Heritage Distilling Company - https://www.heritagedistilling.com/ [3] S.Y. Lee - Not found [4] Andrea - Not found
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