Solana Top Projects Move Away

Plus: MNGO exploiter arrested, OpenSea new features

December 28, 2022

GM 👋🏻 - Happy hump day. Only two more days before the NYE weekend 💃🕺 , if you're already feeling checked out, we're not blaming you.

In other news, Coinbase stock hits another all-time low, and Avi Eisenberg was arrested. Looks like that "profitable trading strategy" was considered theft by Federal agents 👨‍⚖️

In Today's Email:

  • What Matters: Avi arrested, code is not always law ‎‍⚖️

  • Case Study: Solana top projects move away 🚶‍♀️

  • Features: OpenSea Drops, a better experience for creators 💸

WHAT MATTERS

Code Is Not Always Law 🥭

State of play: In October 2022, a Solana-based DEX called Mango Markets was exploited for $114M. The leader behind the group who conducted the attack, Avraham (Avi) Eisenberg, later returned $67M of the exploited funds. Avi insisted the action was legal, using the protocol's code as designed, albeit exploiting its flaw.

  • Fast forward to December 2022, Avi has been arrested in Puerto Rico. He's charged with market manipulation offenses. One interesting takeaway of the arrest is that the DOJ/CFTC appeared to have deemed the MNGO token and USDC as commodities 🥭

Why it matters: Avi's arrest signals that regulators and getting serious about addressing on-chain market manipulation. While Avi's action was morally bankrupt and genuinely harmful to the protocols, his arrest can have further implications. MEV-related tactics such as sandwich attacks and JIT liquidity can be impacted by the ruling outcome of Avi's case.

  • This is because Avi still utilized the code as intended. He didn't break any security practices but simply utilized a vulnerability in the underlying smart contracts. While many agree that his arrest is positive, we need to be careful about the potential of law enforcement overreaching their jurisdictions to the on-chain DeFi market 🤔

For builders: Pay attention to security first and foremost. If you're building a web3 software, specifically DeFi protocol, you're directly interacting with users' assets. The level of responsibility that you hold is much higher. A security vulnerability in the context of Twitter might only result in a privacy leak. A security vulnerability in a web3 protocol almost always means a loss of customers' funds.

For investors: Understand the mechanism behind what you invest in. If you think you know it, try again. What happened to Mango Market wasn't necessarily novel. Similar exploits have happened in the past. Bad native assets are used as collateral and bad loans. Investors, which tend to have more experience in the space, should help foresee such problems.

CASE STUDY

Solana Top Projects Move Away

State of play: Solana is in a lot of trouble. The L1 was already battered by the bear market. Then came along the Macalinao brothers, who faked $7.5 billion of the Total Value Locked; as well as SBF, which was very closely tied with the Solana ecosystem. Now, its top projects are leaving (or expanding to other chains) 🏃‍♀️💨

  • The largest wallet and NFT marketplace in Solana, Phantom, and Magic Eden, are going multichain. The move happened in November and August 2022 respectively, just in time as Solana's TVL has been dropping off a cliff. At its peak, the Solana ecosystem amassed more than $12 billion in TVL. It now sits at ~$300M 📉

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  • The founder of Solana, Anatoly Yakovenko, seems to be somewhat neutral about the trend. Others, not so much. Many think that projects shifting to different chains because of incentives can set a bad precedent that enables mercenary-like behavior.

What's happening: Despite Magic Eden and Phantom expansion to Ethereum, what creates the most noise are y00ts and DeGods. These two are Solana's top NFT projects, backed by the same founders. In the past month, they did more trading volume than all other Solana NFT collections in the top 10. Now, they plan to leave Solana.

  • y00ts: it will move to Polygon. Polygon paid for the move with a grant from its partnership fund, with details to be disclosed at a later date. The grants will provide y00ts with 1-2 years of runway.

  • DeGods: it will move to Ethereum. CoinDesk reported a rumor that DeGods was seeking $5M from the Solana Foundation to stay on the platform. DeGods team denied this claim.

For builders: There's a fine line between becoming a pragmatic and mercenary founder in web3. Given Solana's bleak short-term outlook, one can't entirely blame the founders of y00ts and DeGods for finding alternatives to do right by their prior investors and community. Always remember that a blockchain is just a tool for you to build your products. Don't marry the blockchains that you're building on.

For investors: Understand how application-layer dApps and the underlying blockchain interact with one another. It's naive to think that organic growth will come if a blockchain is not already established like Ethereum or Bitcoin. For newer blockchains, dApps play a significant role in bringing the users. This shifts the power dynamic in favor of the dApps founders 💪

FEATURES & GOVERNANCE UPDATE

OpenSea Drops: A Better Experience for Creators 💧

OpenSea announced "Drops", a new feature to help creators launch their NFT collections. The new feature enables creators to deploy their collections across EVM chains in a much quicker and customizable manner.

Why it matters: OpenSea (OS) is facing significant competition from other players, especially Blur. OS' market share, by NFT trading volume, has dropped from an average of 90% in early January 2022 to 30% in December 2022. As competition increases, NFT marketplaces need to differentiate. Becoming a better hub for creators is one of the most obvious ways to keep your market share.

Other notable feature updates:

QUICK BITES

  • DOJ probes $372M FTX hack.

  • FTX asks court help over $450M Robinhood shares.

  • Avi (Mango exploiter) arrested for alleged market manipulation.

  • SEC heightens scrutiny of auditors' crypto work.

  • Midas investment firm shutting down.

  • SBF-FTX case assigned a new judge.

  • Pudgy Penguins NFT broke all-time high.

  • Nexo terminates deal with Vauld.

  • Coinbase stock hits all-time low.

  • Japan to lift the ban for foreign stablecoin.

MEME & NOTEWORTHY READS

  • James Prestwich's blog on MEV: The First Five Years

  • CoinDesk's reporting on SBF Robinhood shares.

  • @compassings' blog on Crypto 2022 Wrapped.

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.