- September 6, 2023
- Posted by: [email protected]
- Category:
The native token of a prominent decentralized finance (DeFi) cross-chain bridge Synapse (SYN), experienced a significant and sudden price drop on the 5th of September. Approximately 9 million SYN tokens were sold off by an anonymous liquidity provider, while all stablecoin liquidity was swiftly withdrawn from the platform.
Synapse has garnered attention for its unique cross-chain bridge protocol, powered by Optimism technology. The project boasts an impressive track record, with over 1.3 million users and a staggering trading volume of $40 billion.
The official Synapse team, operating under the pseudonym “X,” confirmed the liquidity depletion event, attributing it to an “unknown liquidity provider.” Notably, the platform clarified that this incident did not stem from a security breach.
Upon closer examination, it was revealed that the anonymous liquidity provider had ties to Nima Capital, a long-term financial partner of the Synapse project. This revelation prompted the cryptocurrency community to scrutinize the situation more closely.
Community members highlighted that Nima Capital appeared to have breached the terms of their liquidity provisioning agreement by withdrawing their support several months ahead of schedule. This move triggered suspicion within the crypto community, with many labeling it as a potential “rug pull.”
To support these allegations, attention turned to a post from Synapse’s governance forum dated March 2023. This post contained detailed information about the liquidity provisioning agreement between Synapse and Nima Capital. According to the agreement, Nima Capital had committed to providing approximately $40 million in stablecoin liquidity for a year. In return, they were entitled to receive 33% of the bridge and swap fees generated by the platform.
According to Etherscan data, the whale responsible for the massive token sell-off had received 10 million SYN tokens, equivalent to $3.4 million, from the “Synapse: Executor 2” wallet on April 5th. Currently, this address holds no SYN tokens, adding to the intrigue surrounding Nima Capital’s actions, which occurred just eight months before an agreed governance proposal.
The situation escalated as Nima Capital’s website abruptly went offline, and the project ceased its online presence, including its Twitter account. These actions fueled speculation within the community that Nima Capital might be involved in a venture capital “rug pull,” an unusual occurrence in the cryptocurrency space.
Rug pulls, a common scam tactic in DeFi, usually involve project creators or developers altering code or abruptly discontinuing a project when the native token reaches a certain price threshold. However, a rug pull orchestrated by a venture capital (VC) firm is a rarity. Despite being a prime target for exploiters due to its role in facilitating cross-chain transactions, the Synapse Bridge remained secure, as confirmed by the project’s official account.
In response to the significant token liquidation, the price of SYN plummeted by over 20%, hitting a multi-week low of $0.30 before recovering to approximately $0.36 later in the day. Dextools data indicated a substantial decline in total value locked, which now stands at $6.42 million, a sharp decrease from its peak of $1.2 billion in early 2022.
Additionally, the user base dwindled from a reported 1.3 million to the current figure of 7,840 users, primarily due to ongoing selling activity following the news of the token sell-off.
The Synapse token’s sudden price drop, linked to Nima Capital’s actions, has raised concerns of foul play within the crypto community. This event serves as a reminder of the risks and vulnerabilities inherent in the DeFi landscape.
