Life After FTX: How Solana DeFi Is Beginning Over—With out SBF’s Serum

 Life After FTX: How Solana DeFi Is Beginning Over—With out SBF’s Serum

The autumn of Sam Bankman-Fried didn’t simply topple a $32 billion cryptocurrency change in FTX—it additionally threatened to undo the material of decentralized finance on the crypto wunderkind’s blockchain of selection, Solana.

Serum, based in August 2020 by a consortium that included the Solana Basis and Bankman-Fried’s FTX and buying and selling desk Alameda Analysis, was a core decentralized change platform and liquidity supplier for the burgeoning Solana DeFi ecosystem. Its order e-book was essential for DeFi on Solana, built-in into nearly all the largest DeFi tasks on the community, like Jupiter and Raydium. 

However its personal keys had been housed inside FTX—which is strictly as unhealthy as that sounds.

Following an obvious hack on FTX on November 11, the identical day that the corporate filed for chapter, DeFi tasks on Solana rushed to chop ties with Serum out of worry that the personal key that might be used to replace this system had likewise been compromised. This successfully flipped the “off” change on Solana DeFi.

Since then, Solana builders, traders, and different stakeholders have been scrambling to show it again on, pushing forward with a fork of Serum—primarily a replica of the code, freed from any ties to Bankman-Fried or FTX.

Now, the neighborhood behind OpenBook, the successor to Serum, has to wrestle with some thorny tokenomics questions after reaching $2.7 million whole worth locked because it was added to DeFi Llama final week.

“The neighborhood’s evolution of Serum to OpenBook has been nice to observe,” Solana co-founder Anatoly Yakovenko informed Decrypt. “The neighborhood mobilized rapidly and within the open to redeploy Serum so it continues on a brand new, safe path, with choices made by and for the neighborhood members,” he mentioned. “Open Guide is a superb demonstration of decentralization in motion.”

The way it began, the way it’s going

Serum promised to make DeFi transactions quicker and cheaper—a tout that had extra zeal when gasoline costs on the pre-merge, proof-of-work model of the Ethereum community had been prohibitively excessive—all whereas “remaining totally trustless and clear.”

It’s grow to be a typical chorus among the many decentralized finance, or DeFi, neighborhood that decentralization solves issues which have been cropping up at centralized giants like FTX. Its proponents say DeFi doesn’t go away the destiny of a complete protocol within the fingers of 1 individual.

Besides when it does.

“The Serum program replace key was not managed by the SRM DAO, however by a personal key related to FTX,” pseudonymous developer Mango Max wrote in a thread on Twitter on November 12, saying he’d been in contact with new FTX CEO John Ray. “At this second nobody can verify who controls this key and therefore has the ability to replace the Serum program, presumably deploying malicious code.”

That Serum’s personal key was compromised was unhealthy sufficient. The revelation {that a} centralized change, not the Serum neighborhood, had unilateral entry to it was worse. To place that form of shock in perspective: It’s as if the Ethereum DeFi neighborhood discovered that Coinbase controls the personal keys to Maker or Uniswap.

Prior to now month, DeFi quantity on Solana has dropped under $20 million, down by 75%, in keeping with DeFi Llama. However there’s nonetheless $293 million in whole worth locked in DeFi on the community and builders, like former Coinbase engineer Mert Mumtaz, are attempting to rally individuals to maintain the ecosystem alive.

“DeFi on Solana has taken successful, nevertheless it’s coming again stronger than ever,” he mentioned on Twitter on Monday afternoon. Within the tweet, he mentioned that Helius, the event platform of which he’s CEO and co-founded, would offer free subscriptions to Solana builders.

However free assist has its limits, and OpenBook nonetheless wants a sustainable strategy to compensate builders who work on the undertaking.

One in all Serum’s options was its utility token, SRM, which granted holders a 50% low cost on buying and selling charges and entry to the governance course of. Now courtroom paperwork from FTX’s chapter proceedings present that the corporate, which helped create Serum, counted $5.4 billion price of SRM tokens in its reserves. FTX’s stash, which is nearly actually going to be liquidated to fulfill creditor claims, accounts for 97% of the token’s provide.

Taking SRM out of the equation for OpenBook has been a simple determination for the neighborhood. “OpenBook goals to don’t have anything to do with SRM,” Soju, head of enterprise growth at Solana lender Solend, wrote within the undertaking’s Discord final week.

Soju ran the undertaking’s neighborhood name on Monday morning, throughout which there was loads of debate on whether or not OpenBook wants a token in any respect. A few individuals on the decision puzzled aloud if they may depend on the Solana Basis for grants that will make it worthwhile for builders to maintain engaged on the undertaking.

“The inspiration could be very eager on funding grants, a minimum of for the foreseeable future, for OpenBook growth in order that we will keep this core piece of liquidity infrastructure for DeFi, nonetheless that properly shouldn’t be infinite,” Ben Sparango, head of enterprise growth at Solana Labs, mentioned through the name. “Every one in every of these grants will probably be evaluated on a case-by-case foundation. So it’s not going to be free cash eternally.”

He later identified that an upcoming Solana Basis hackathon in January would deal with DeFi and inspired OpenBook to submit requests for proposals, which might push among the work to hackathon contributors.

However grants and hackathons don’t add as much as a sustainable DeFi undertaking. As pseudonymous developer Jimthereaper put it through the name: “Grants don’t work.”

Developer Mango Max identified that there has at all times been some trepidation round DeFi on Solana due to Alameda’s involvement with Serum.

”There’s at all times this aspect when you will have a giant stakeholder, like Alameda was within the ecosystem, that some persons are like, ‘Oh there’s nothing for me to do right here.’ And as for the liquidity aspect, quite a lot of merchants had been cautious to return to Solana as a result of they thought, ‘Oh, it’s identical to buying and selling on FTX.’ Then on the similar time, there have been individuals who had been cautious to launch an order e-book as a result of that was Alameda territory,” he mentioned through the name. “Now, there’s a transparent signal that folks can begin engaged on stuff and so they wish to do it as a part of a neighborhood effort.”

In some respects, the Solana DeFi ecosystem at all times appeared crowded with Bankman-Fried’s Serum as a central piece of infrastructure and Alameda Analysis relying closely on yield farming—the follow of offering liquidity to automated market makers in change for token rewards. The previous FTX CEO was recognized to be so enamored with it as a method that he infamously described yield farming as a “box” on Bloomberg’s Odd Heaps podcast, saying traders put cash into DeFi protocols after which take earnings out. 

It’s a comparability that drew numerous criticism for sounding loads like a Ponzi scheme, which lures new traders and makes use of their cash to pay earnings to earlier traders so long as the originator can maintain the ruse up.

On-chain information exhibits that with a minimum of 18 totally different tokens, Alameda Analysis would accumulate belongings, earn yield on them, after which promote its stash in the marketplace proper after costs spiked following their itemizing on FTX, in keeping with compliance agency Argus.

However now the unique Serum protocol has floor to a halt. Even when it nonetheless has an extended strategy to go, OpenBook has already managed to combine with Jupiter, Raydium and Prism because it launched and did $1.8 million in quantity over the previous day.

Solana’s “crucible second”

Through the third quarter, there have been indicators that Solana’s DeFi ecosystem was beginning to mature and stabilize—even when the bear market has been brutal on costs expressed in U.S. {dollars}, wrote Messari analyst James Trautman in a latest State of Solana report.

Actually, it’s the distribution of whole worth locked—a DeFi metric sometimes abbreviated as TVL—throughout DeFi protocols that helped mitigate the danger of anybody undertaking bringing the entire thing down.

“Some high networks by TVL have publicity to single functions with wherever from 50-60% of the ecosystem’s TVL,” Trautman writes. “In distinction, no single Solana utility seems ‘too huge to fail,’ with Solana’s largest DeFi protocol, Solend, capturing solely 14% of TVL on the finish of Q3.”

As of Wednesday, DeFi quantity on Solana over the previous day was $27 million—lower than 2% of quantity in all the DeFi ecosystem, in keeping with DeFi Llama, which tracks exercise on 78 totally different blockchains.


Solana DeFi quantity hit an all-time excessive of $568 million on November 9, the day $800 million price of SOL tokens held by validators had been set to unlock. If the tokens had all of the sudden hit markets, it may have tanked SOL’s already lagging value. To go off calamity, the Solana Basis halved the variety of unlocking tokens and restaked its personal provide, which means it recommitted a considerable portion of SOL tokens to the community and prevented them from hitting the market. 

Earlier that day, Solana co-founder Raj Gokal described the occasions main as much as all of it because the community’s “crucible second.”

However the path that Serum’s successor seems to be going may, ultimately, be a boon for SOL, because it additional escapes the shadow of FTX. There have even been requires SOL to grow to be the token that grants reductions and will get used to pay builders who work on OpenBook. A tweet about it from pseudonymous NFT collector R89Capital gained some traction final week as Solana co-founder Yakovenko, Mango Max, and Helius’s Mumtaz all chimed in.

Yakovenko mentioned he was towards it as a result of OpenBook offered the chance to launch a totally recent token, “with no pre-mine or bullshit and see what happens.” Mumtaz appeared intrigued, however didn’t say whether or not he’d assist it. Mango Max mentioned final week and repeated on Monday morning’s name that he’d favor to not introduce a token to OpenBook.

John Kramer, co-founder of Twin Finance, mentioned through the name on Monday that he feared a token is inevitable and the Solana DeFi neighborhood that forked Serum to launch OpenBook ought to take the chance now to create some tips round the way it occurs.

”I believe it’s inevitable there will probably be a token, so why not spend a while to determine what that may appear like. We don’t really must implement something, but when we’re going to get neighborhood buy-in, then we should always have some type of a say in what that appears like,” he mentioned, “as a result of human nature simply calls for that it’ll finally occur. Individuals are going to wish to be incentivized to work.”

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