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The fake team that made Solana DeFi huge


VSoinDesk reporters Danny Nelson and Tracy Wang released a bombshell report on Thursday that could tarnish the reputation of the entire Solana ecosystem. More than that, the dizzying story highlights serious social vulnerabilities in blockchain and crypto development and investment.

At the center of the story is a network of 11 developers who collaborated on a complex network of decentralized finance (DeFi) services based on a Solana stablecoin exchange called Saber. The developers, with names like Surya Khosla, Larry Jarry, 0xGhostchain and Goki Rajesh, managed to create trading and staking services that attracted $7.5 billion in deposits, known as “TVL” or locked total value.

This article is excerpted from The Node, CoinDesk’s daily roundup of the most crucial stories in blockchain and crypto news. You can subscribe to take full advantage newsletter here.

Nelson and Wang discovered, however, that these developers weren’t real people. Instead, they and others were aliases of just two men, the Dylan brothers and Ian Macalinao. CoinDesk reporters gained access to a blog post written by Ian Macalinao as an apparent confession to the long-running scam. The message was never published.

These $7.5 billion in deposits represented the lion’s share of all money accounted for on Solana services in early fall 2021, when the chain’s DeFi deposits totaled around $10.5 billion. TVL is often seen as a measure of the success of smart contract services or platforms, and Solana’s large deposits have helped bolster its claim to be a promising competitor to the Ethereum blockchain.

This narrative, in turn, played an important role in driving the price of the Solana token from below $40 in July last year to a high of $259 in November 2021. An important part of the Solana bullish narrative now appears to have been based on a series of deceptions.

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Developer personas weren’t all that was wrong. The Macalinao brothers’ operation with Saber was apparently undertaken with explicitly deceptive intent: “I devised a scheme to maximize Solana’s TVL: I would build protocols that stack on top of each other, so that a dollar could be counted many times over,” Ian Macalinao wrote in the unpublished blog post.

While there are still plenty of unknowns, what is perhaps most striking about the scheme is that it is unclear that its purpose was theft. The Macalinao brothers don’t appear, for example, to have used their swarm of fake identities as a shield when mismanaging user funds, as is all too common in such scenarios (although, again, this story expands Again).

See also: Why CoinDesk respects the pseudonym | Opinion

Rather, most of the damage done to users of the Saber ecosystem of services appears to be the result of the hacking of an application called Cashio apparently created by the Macalinao brothers. Additionally, users have apparently been let down, with Macalinaos announcing that they are focusing on new projects on the Aptos blockchain.

Blame it on our statistics

The staggering case highlights at least two serious specific vulnerabilities in the DeFi and crypto ecosystems, and some much bigger thorny issues. First, it reignites the perennial problem of anonymous developers in the crypto space. Bitcoin founding developer Satoshi Nakamoto remains pseudonymous, and there are many good reasons why blockchain developers may want to protect their real names.

But this standard also adds to the risk of a high-speed, high-stakes environment. Even a pseudonym can be trustworthy if it is a known entity with its own track record, but clearly the standard is not consistently followed by DeFi speculators. As Nelson and Wang’s reporting shows, Macalinaos were able to bolster the reputations of their different identities simply by orchestrating fake conversations on Twitter and having them trade mentions.

The second quiet issue is the use of TVL, or Total Locked Value, as a key metric in DeFi. Macalinao’s story both highlights that the metric can be technically manipulated, in this case by multiple counting assets on services that appear distinct, but aren’t. This may be fixable, as the best DeFi data service DefiLlama is Make changes to prevent similar attempts at game metrics.

But there is a larger and more complex problem that will be much more difficult to solve. What Saber’s story reveals is that less than a handful of people with dishonest intentions can profoundly distort the cryptocurrency markets. The Macalinao brothers’ scheme created huge false signals about the value of Solana, which is still one of the top 10 crypto assets to date.

See also: Is Solana Leading Crypto in Retail or Following Apple? | Opinion

“I think this has contributed to the spectacular rise of SOL,” Ian Macalinao wrote of the token in an unpublished post. (I personally dipped my toes into SOL last summer, but after seeing too many breaks in the chain, I sold my position at a loss and no longer hold the token.)

We’ve seen even more troubling failures and disappointments in recent months from Terra/LUNA, Three Arrows Capital, and centralized lenders like Celsius Network. But these were, at the very least, genuinely sprawling operations, backed by major messaging efforts and the appearance of seriousness.

That two 20-somethings in Texas could accomplish anything remotely comparable with nothing more than a series of carefully managed fake Twitter profiles should be an even stronger reminder of the enormous risks that seem, at least for now, inherent. to cryptocurrency.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.




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