During a community hangout organized by the Paycoin Foundation, a surprise announcement was made that one Prime Controller is being held by digital currency exchange Cryptsy. The transaction was also posted about on the Paycointalk forums. According to that post, it seems plausible that the Prime Controller was given to get Cryptsy to update to the new Paycoin wallet.

Prime Controllers are a feature unique to Paycoin, although calling them a feature is a bit like saying a burning sensation is a feature of gonorrhea, it may technically be true but that doesn’t mean it is a feature appealing to anyone.

Prime Controllers are essentially wallets that stake at a higher rate than regular wallets. Originally, that was going to be 10% compared to a normal wallet’s 5%. It was eventually revealed that some Prime Controllers were staking at a rate as high as 350% compounded interest.

The community and Foundation, who is doing its best to distance itself from Josh Garza, is still trying to decide what to do with the hyper staking Prime Controllers. Eventually, the community wants to get all the Prime Controllers staking back under 10%, but that has proven to be “technologically and politically” challenging, according to members of the Slack forum. What exactly the hold up is, isn’t clear. There are 15 Prime Controller unaccounted for and the rumor is that GAW knows who the 15 unknown Prime Controller holders are (they should, they sold them originally) but are hiding that information from the public.

That leaves the community in the bind of trying to decide what they should do with them.

Since they won’t be getting rid of coin destroying hyper stakers, it is obviously important to at least know who controls which. Not even the Paycoin Foundation claims to know who controls what. One thing we do know, is that the Paycoin Foundation is claiming to have gifted a Prime Controller to Cryptsy, with two additional Prime Controllers possibly moving into the exchange’s ownership in the near future.

Immediately, speculation began springing up that Cryptsy was bribed into updating the Paycoin wallet with the Prime Controller. Besides making logical sense, that theory has been given more credence by the Paycointalk post announcing the deal.

“Last week, members of the Cryptsy organization met with the current Prime Node managers to review the status of the new wallet release. During this meeting, the Paycoin Core Development team determined it would benefit the health and decentralization of the coin to transfer one of the Prime Nodes to Cryptsy[.]”

There are serious ethical implications that come along with an exchange like Cryptsy essentially owning 1/45th or 1/15th of a coin being traded on its exchange. If Cryptsy is able to stake at a rate higher than any other non Prime Controller holder and can instantly convert Paycoin to Bitcoin within its own system, the conflicts of interest quickly add up.

As for how they came into possession of the Prime Controller, we do know from Paycoin’s own admission, that representatives from the Foundation were speaking to Cryptsy about the exchange updating their Paycoin wallet, and during those discussions it was determined that Cryptsy should be given a hyper staking Paycoin wallet. It is being sold as a move to “increase decentralization” on the Paycoin forums and elsewhere.

We have reached out to Cryptsy for comment, but have not heard back at press time. You can watch the Paycoin hangout here, the relevant part begins around 38:45.