It’s been an eventful couple of months for Solana, the 5th largest layer-1 blockchain. First, they narrowly avoided a catastrophic liquidation. Next, they announced their Solana phone with mixed reviews. Most recently, they were the victims of one of the most mysterious hacks in crypto history.
However, this new story might take the cake as the craziest of them all.
CoinDesk has revealed that developer Ian Macalinao was posing as 11 different developers in order to create a convoluted pyramid of protocols that would artificially juice Solana’s total value locked (TVL), a popular metric among investors for analyzing decentralized finance (DeFi) protocols.
Strap in for the strangest story of the year.
Although Ian created a vast web of projects, his flagship project was Saber, a stablecoin exchange. Saber turned out to be very successful, ultimately becoming one of the most popular apps on Solana. It was Saber’s success that would act as the foundation for Ian’s con.
Ian’s master plan was centered around TVL. Historically, protocols with a high TVL had high token prices. Ian recognized this and formulated a plan to use Saber to inflate his project’s TVL, which would, in turn, increase their token price and, ultimately, Ian’s profits.
To achieve this TVL pump, Ian built protocols that would “stack on top of each other, such that a dollar could be counted several times.” Basically, Ian would build protocols that recycled money from Saber. This way, the TVL for his new projects would increase without bringing in any new money.
The plot worked exceptionally well. At its peak, Ian’s protocols comprised $7.5 billion of Solana’s $10.5 billion TVL.
The natural question is, “how did he get away with this?” It’s fair to assume people wouldn’t be cool investing in a pump-and-dump scheme, so how did he successfully con them?
The key was anonymity.
Anonymity is a core fabric of crypto. Most people in traditional finance would never trust their money to an anonymous person, but it’s common practice in crypto.
Ian understood this and took advantage of crypto’s comfort with anonymous developers to build his empire.
This scandal is making people think long and hard about TVL as a metric, Solana, and anonymous developers.
TVL has been losing some of its luster recently, with many investors realizing it’s a flawed and easily gamed metric. Unfortunately, this scandal just further confirms that sentiment. In fact, DeFi Llama, the most popular TVL tracking platform, has now implemented a “double-count” filter to prevent a scandal like this from happening again. Suffice to say, this is a con that probably won’t work in the future.
For Solana, the scandal is another setback that has many questioning its merits as a layer-1 that can thrive in the future. One of the core selling points for Solana was its high TVL, as proponents pointed to it as evidence that the network was popular. This scandal casts severe doubts on those claims, and now the onus is on Solana to prove it can succeed honestly.
Finally, the scandal has people talking about the future of anonymous developers. This discussion has been percolating for years and notably exploded during the 0xSifu Wonderland drama in January. Still, this scandal takes it to a whole nother level. Over the coming months and years, we must decide if anonymity’s merits outweigh the drawbacks.
These are the types of discussions that ultimately decide what crypto becomes. We look forward to seeing the answer.