The Fake Team That Exaggerated Solana DeFi's Size

NounsDAO on the Brink of Treasury Division Split Amidst 'Rage Quit' Uprising by NFT Holders

Turkish Crypto Exchange Thodex CEO Faruk Özer Sentenced to 11,196 Years in Prison for Collapse

CFTC Initiates Enforcement Sweep Targeting Opyn and Other DeFi Operations

On Thursday, CoinDesk reporters Danny Nelson and Tracy Wang published a shocking exposé that might jeopardize the reputation of the entire Solana ecosystem. The odd tale also reveals serious social flaws in blockchain and cryptocurrency investment and development.

On the Saber stablecoin exchange in Solana, a team of 11 engineers collaborated to build a sophisticated web of decentralized finance (DeFi) services, around which the story is centered. Surya Khosla, Larry Jarry, 0xGhostchain, and Goki Rajesh were among the inventors who were successful in creating trading and staking businesses that purportedly attracted a total value locked (TVL) of $7.5 billion in deposits.

However, Nelson and Wang have found that those developers were not actual persons. They were actually only two men, the brothers Dylan and Ian Macalinao, using different names. Reporters from CoinDesk were able to obtain a blog post that Ian Macalinao appeared to have authored as a confession to the lengthy scam. The article was never released.

The majority of the money spent on Solana services in early fall of 2021—when the chain's DeFi deposits amounted about $10.5 billion—was represented by those $7.5 billion in deposits. TVL is frequently used to gauge the performance of smart-contract platforms or services, and Solana's significant deposits supported its position as a promising rival to the Ethereum blockchain.

The Solana token price was significantly influenced by that narrative in turn, rising from under $40 in July of last year to a high of $259 in November 2021. The bullish Solana narrative appears to have been founded in large part on a number of lies now.

Not just the developer personas were made up. "I devised a scheme to maximize Solana's TVL: I would build protocols that stack on top of each other, such that a dollar could be counted several times," Ian Macalinao wrote in the unpublished blog post. The Macalinao brothers' operation with Saber appears to have been carried out with explicitly deceptive intent.

The scheme's apparent lack of a theft-related objective is perhaps most startling, despite the fact that there is still much that is unknown about it. For example, it does not appear that the Macalinao brothers exploited their multitude of bogus identities as a defense while mismanaging customer funds, as is all too frequent in similar circumstances (though, again, this story is still developing).

The hack of the Cashio app, which was ostensibly made by the Macalinao brothers, appears to have caused the majority of harm to users of the Saber ecosystem of services. Additionally, it appears that users have been abandoned as a result of the Macalinaos' announcement that they will be concentrating on new initiatives on the fledgling Aptos blockchain.

The astounding instance raises a number of difficult issues, including at least two severe unique weaknesses in the DeFi and crypto ecosystems. First, it resurrects the ongoing problem of anonymous developers in the cryptocurrency industry. Satoshi Nakamoto, the person who created Bitcoin, is still only known by his pseudonym, and there are numerous excellent reasons why blockchain developers might want to hide their real names.

But this custom also raises the dangers of a fast-paced, high-stakes setting. Even a pseudonym can be reliable if it's a known entity with a track record, but it's obvious that DeFi speculators don't always adhere to that criteria. The Macalinaos were able to enhance the reputations of their numerous personas by staging fictitious Twitter chats and having them exchange endorsements, as Nelson and Wang's reporting demonstrates.

The usage of TVL, or total value locked, as a crucial statistic in DeFi, is the second discrete problem. The Macalinao scenario demonstrates both how the metric can be theoretically altered and how assets can be counted more than once across services that appear to be separate but aren't. This might be fixable because leading DeFi data provider DefiLlama is making adjustments to stop attempts to use gaming stats in a similar way.

However, there is a bigger, more complicated problem that will be far more difficult to solve. The Saber case demonstrates how a small group of individuals with ulterior motives may significantly sway cryptocurrency prices. The Macalinao brothers' plan generated a lot of false information regarding the value of Solana, which is currently ranked among the top 10 cryptocurrencies.

In the draft post, Ian Macalinao said of the token, "I think it helped the sudden surge of SOL." (I personally dabbled in SOL last summer; however, after witnessing a few too many chain pauses, I liquidated my holding at a loss and no longer possess the token.)

In recent months, companies like Terra/LUNA, Three Arrows Capital, and centralized lenders like Celsius Network have all committed even more worrisome mistakes and deceptions. But even so, those were actually extensive operations supported by significant messaging initiatives and the impression of seriousness.

It should serve as an even stronger reminder of the enormous risks that appear to be, at least for the time being, inherent in cryptocurrencies that two twentysomethings in Texas could achieve anything remotely comparable with nothing more than a series of meticulously maintained fake Twitter profiles.

=========-