FTX founder Sam Bankman-Fried once referred to Project Serum as the “truly, fully trustless” Solana-based DeFi platform. But trust in the FTX crypto liquidity engine has now run dry.
On Saturday, Solana-based DeFi protocols started unplugging from Serum as they feared not knowing who wielded control after the FTX hack. The dev team, once associated with Serum, has now been silent.
In contrast, the protocol’s reliance on Bankman-Fried and his firms, Alameda and FTX, had great influence.
According to a source with knowledge of the situation, the complete control over Serum fell in the hands of FTX Group, which keeps the updated authority keys.
After the sudden collapse of FTX, developers are striving to develop a new Serum version that they can administer without fear of influence or interference from FTX.
Across Telegram, Twitter, Github, and private Discords, the Solana community seeks to salvage one of their blockchain’s major platforms for digital trading assets without a centralised exchange.
The FTX hack
As a backbone of Solana, Serum functions as its main central limit order book, a better alternative to the “automated market maker” often seen on DeFi platforms.
According to Nomics, Serum has processed more than $32 billion in volume this year with support from giant market makers like Jump and Alameda. But that activity has suddenly fallen to only $3.5 million in trades over the last 24 hours, an 80% fall compared to the previous day.
The recent compromise of FTX has damaged the project’s trust in the original Serum. Two developers said that there were Serum’s not-so-secret ties to Bankman-Fried, but his staff kept the governing keys of the protocol.
A pseudonymous developer on Solend that fetches token price data from Serum said that someone malevolent might access private keys at FTX. He feared that Serum’s keys might be compromised, too.
This is purely speculative FUD:
If internal FTX private keys are compromised then it’s entirely possible that serum’s upgrade authority might also be. While I would like to see serum continue to survive despite the best efforts of its creator, it might be best to avoid for now— HenryE (@Henry_E__) November 12, 2022
Lending protocol Jupiter, Solend, automated market maker Raydium, stablecoin swap shop Mercurial Finance, Solana-based traders and centralised entities limited their exposure to Serum. They disconnected pricing data oracles, closed token trading pools, and suspended trading on the central limit order book.
The independent contributor Michael Morrell said there was a poor likelihood of malicious actors compromising Serum’s codebase. Yet, fear spread across the entire ecosystem. Some of Serum’s earliest contributors are currently attempting to fork Serum and launch a new project, with “Mango Max” of Mango Markets leading the charge.
Not-so-decentralised exchange
The votes of SRM token holders theoretically regulated Serum. According to Crypto Notte, a developer of the Vyper protocol, Serum’s so-called decentralised autonomous organisation (DAO) has no actual control over the system other than voting on token allocations. He said proposals to alter how Serum worked would fail to gain traction.
The FTX-funded contributors who once worked on Serum have not been heard from in months, and replacements from Bonfida have not been adequate. But Serum performed admirably; that was all it needed to do. One source described it as “feature-complete.”
In recent months, Serum DAO had become a source of token grants for other protocols, according to multiple Solana DeFi sources. Projects wishing to integrate with Serum would first determine the viability of their proposal with major SRM holders before pitching the community forum.
Proposals that reached a vote typically passed with the support of a single whale: a wallet whose name began with “Cuie.” According to Morrell, an independent source, Alameda had the authority over that wallet.
Under the condition of anonymity, a former developer stated that a small group of Alameda employees collectively determined how the Serum wallet would vote. A review of Serum’s governance history reveals that the Cuie wallet single-handedly approved at least 13 proposals.
A source whose project once received a token grant from Serum DAO stated, “It’s a sham that survives on backroom deals.”
The protocol’s press strategy revealed its rubber-stamp governing practices. Before the voting began on October 15, 2021, Project Serum’s publicity team pitched the community’s support of a $100 million budget allocation.
FTX was substantially involved in Serum’s success. Earlier this week, the Financial Times reported that Bankman-exchange Fried’s had $2.2 billion in SRM tokens.
The SRM coin fell 8.3% on Saturday in digital asset exchanges. The price has plunged 62% this month alone, leading to an annual decline of 91%.
Critical infrastructure
Despite its lacklustre popularity and ties to Bankman-Fried, Serum is not a project that Solana DeFi can abandon and ignore. Protocols optimised for Serum continue to rely on it for operation.
James Moreau, a prominent developer at Jet protocol, reported that the initiative to integrate a DeFi product with Serum is virtually complete.
“Trying to re-architect it for another platform makes no sense when it’s not even done,” he stated. “I’d say we need to finish what we started and then assess the situation after.”
Could @aeyakovenko / @rajgokal / @armaniferrante please comment on the status of @ProjectSerum?$SRM $SOL @Solana pic.twitter.com/lSSzKq5RSI
— Curb◎ (@CryptoCurb) November 12, 2022
A spokeswoman for the Solana Foundation informed CoinDesk that the group was monitoring the efforts of developers to contain concerns around Serum.
Mango Max, the leader of this project, declined to comment.
According to Chow, the co-founder of Jupiter DEX, their campaign aims to “fork” Serum or essentially rewrite its codebase and start again. Major ecosystem developers would share program update power.
The community’s haphazard effort to reclaim Serum from FTX Group skirts a less heroic notion. Until last week’s dumpster fire, few fussed over the not-so-decentralised exchange’s numerous entanglements.
Nevertheless, Saturday’s upheaval may lead to a new Serum with a more plausible claim to decentralisation. Chow remarked, “Probably better in the long run as Serum was languishing anyway.”