Michaël van de Poppe - 08 August 2022
75% of TVL on Solana was fake
Some surprising news regarding Solana’s TVL came out last week. It turns out that ~75% of Solana’s TVL is fake. Two crypto fanatics called Dylan and Ian Macalinao from Texas created fake pseudonymous identities to create the illusion of a developer community in order to artificially inflate Solana’s TVL.
Ian, a 20-something computer wizard from Texas, coded as 11 supposedly independent developers and created a vast web of interlocking DeFi protocols that projected billions of dollars of double-counted value onto the Saber ecosystem. This temporarily inflated Solana's total value locked (TVL). Ian has previously shown disdain for the TVL metric, claiming that it is a vanity metric. According to Ian Ethereum also stacks TVL to double-count deposits.
“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 wrote in a never-published blog post reviewed by CoinDesk.
The unpublished blog post was prepared on March 26 2022, three days after Cashio, one of the protocols built by Ian Macalinao, lost $52 million in a hack.
Two of Solana’s biggest dApps, Saber Protocol and Sunny Aggregator, comprised $7.4 billion of Solana’s $10.5 billion TVL at their peak. Sunny Aggregator was just 2 weeks old in early September 2021 when billions of dollars flooded the yield farm. Even though there was no information available on who Surya Khosla (the developer/Ian’s fake identity) was, if the dApps’ codebase was audited or if users’ cash would be safe, the yield farm still managed to attract a large amount of capital. Still, there were many users who felt uncomfortable locking their assets in Sunny.
With the way the Saber ecosystem worked, recycling TVL from protocol to protocol, the brothers were able to turn $1 worth of TVL into $6. At its peak Saber had ~$4.15 billion deposited on September 11th 2021. Saber’s $SBR token peaked at $0.90 that same day, and Sunny’s $SUNNY token peaked at $0.18 just one day before.
Solana’s TVL continued to increase even after the Saber ecosystem started to fall apart in mid-September 2021. Solana’s TVL peaked at ~$15 billion in November, even with Saber having lost 64% of its TVL by then.
Things started to fall apart after one of the brothers’ protocols suffered a $52 million hack. The hacker only returned $14 million, and attempts to get him back were disappointing. Ian's pledge to recompense victims is still unfulfilled.
The Macalinao brother created 11 different online personas, each posing as anonymous friends of Ian and Dylan. They created a coder club called Ship Capital with their fake identities as members of the club.
Some of the Ship Capital members include:
0xGhostChain - Cashio
Goki Rajesh - Goki
Larry Jarry - Quarry
Swagliono - TribecaDAO
Surya Khosla - Sunny Aggregator
“If an ecosystem is all built by a few people, it does not look as authentic,” Ian wrote in his blog post. “I wanted to make it look like a lot of people were building on our protocol, rather than ship 20+ disjoint[ed] programs as one person.”
Saber was designed to be the base protocol for their TVL inflating shenanigans. Ian and Dylan desired that other crypto protocols become so reliant on Saber that "its failure would result in the entire system failing."
The Macalinaos gained trust from the community through manipulation. Skeptics who hesitated to deposit their LP tokens into Sunny Aggregator were persuaded by Dylan. Dylan tweeted he ‘felt comfortable’ putting his own crypto into Sunny Aggregator, claiming that his team had audited the code. Dylan’s co-sign gave Surya the credibility he needed to win over skeptics.
The brothers went as far as to ‘circlejerk’ on Twitter, essentially congratulating themselves for launching new protocols.
Ian claimed the reason behind his anonymity was because he wanted a barrier for criticism.
“I only want to focus on building and creating value in my perception of what I believe is the best way of doing things. I do not want to deal with excessive criticism before my ideas are fully brought to market, and being anonymous is an easy way to distance myself (and the protocols I work on) from this.”
While Ian was able to maintain the barrier for a while, he is personally responsible for revealing his TVL manipulation scheme. It will be hard to avoid criticism now the jig is up.
The brothers left Solana for an emerging blockchain called Aptos, bringing Saber with them. According to a venture finance source, there are numerous Solana developers that are joining them. According to three sources, the Macalinaos are betting on it since they run a venture capital firm based in Aptos. The name of their VC is Protagonist. "Ship Capital" was its previous name.
The revelation of the Macalinaos has been a huge surprise. No one expected Solana’s TVL to have been fraudulent. It will be interesting to see how Solana’s TVL will be affected in the future now we have this information, and also be interesting to see what SBF, the biggest backer of the Solana blockchain, has to say about this debacle. Especially the community's reaction to the news will be noteworthy. Since Solana’s adoption was its biggest reason for its bullish narrative and its adoption turned out to be fake for 75%, it will be worth noting if the community’s trust in the blockchain remains or diminishes.
Finally we will have to wait and see how the move from Solana to Aptos will play out for the Macalinao brothers.