Having appreciated over 16,000% YTD, currently sitting at #5 in cryptocurrency market cap rankings, Solana has been one of the hottest cryptocurrencies of 2021. Despite this meteoric rise & all the hype that’s formed around Solana over the last year, many investors remain skeptical of the long-term viability of the project due to what appear to be some shady / deceptive actions on the part of the Solana development team.
Initially upon launch, in April 2020, the Solana team notified investors & community members that SOL, the native token to Solana, had a circulating supply (at the time) of 8,258,354 SOL tokens. After launch the Solana team faced criticism over the poor quality of their native block explorer, to which the Solana devs responded saying they were too busy to build a fully functioning block explorer.
Eventually, several weeks & some community skepticism later, a third party managed to find a single Solana wallet containing over 13m SOL, more than the entire circulating supply at the time according to the Solana dev team. Some simple addition shows that, after the uncovering of these additional >13m tokens, the total circulating SOL supply at the time was in excess of 20m - over twice the stated amount.
As expected, this fueled further skepticism & left a bad taste in the mouth of some early Solana investors. In response to the reaction from their community, the Solana team issued this statement on Telegram, essentially admitting these tokens were issued to a market maker they had contracted. Going on to say it’s tokens held by market makers are typically not included in the circulating supply of cryptocurrencies. This is in direct contradiction to the fact that these tokens are in fact, circulating & being used to “meet liquidity requirements” according to the Telegram statement issued by Solana’s dev team.
After continued community outrage, Anatoly Yakovenko, CEO of Solana, put out this statement, further detailing the agreement between the Solana Foundation & their market maker, specifying that 11,365,067 SOL were on loan for market making purposes. Anatoly then goes on to apologize for what some saw as his deceiving investors & community members, admitting that, while having market makers is “standard for any listed token project”, the Solana Foundation had failed to disclose this information publicly during their token auction.
Anatoly continues on, saying that “to make things right” the full amount of the 11,365,067 SOL on loan to their market maker would be returned & burned over the course of the next 30 days. The announcement was met with glee from optimistic Solana investors who celebrated the token burn as a bullish development for the SOL token. Others, having had a bad experience being deceived by the Solana Foundation, remained skeptical of the development due to the dishonesty they’d experienced from the Solana development team.
The ‘resolution’ to the token burn
Roughly a month later, on May 23, 2020 the Solana Foundation put out a follow up announcement, stating that the team had burned a total of 11,365,067 tokens. While the community was pleased, some who took the time to read the announcement came to a different conclusion: only a total of 3,365,067 SOL were actually retrieved from the market maker & subsequently burned. The remaining 8m SOL were sent from a Solana Foundation wallet - a wallet which they previously stated wasn’t part of the circulating supply due to it being “100% locked up.”
In addition to the double-speak from the Solana Foundation about their tokens being “100% locked up”, there is also the issue that 8m market maker tokens were never retrieved & were still circulating. After reading through the announcement, it becomes clear the Solana Foundation never actually made good on their promise to burn the full amount of market maker tokens. Additionally, the announcement of a “successful” burn was deceptive, considering the nature of how these 11,365,067 SOL were “removed from the supply.”
The Solana community ultimately moved on from this after the burn announcement & the Solana Foundation never fully addressed the issue again.
High Level Takeaway
While the community has largely chosen to forget about these series of events in wake of SOL’s extraordinary price increase since the time of the incident, there is a lesson to be learned for crypto investors; a locked protocol is free from threat of developer intervention, unannounced supply inflation, & a range of other problems facing the majority of prominent blockchains today.