Recently a large crypto hedge-fund, Alameda Research, deposited around $178M at Adamant in a number of our blue-chip vaults. Their deposit raised the total TVL of Adamant above $500M and brought some attention to us. As the TVL rose, a number of community members voiced concerns about one wallet controlling such a large amount of TVL. When Alameda started withdrawing their rewarded $ADDY early (with a 50% penalty fee that was then distributed to ADDY lockers) and selling it on the market further worry was raised.
As Alameda sold off their $ADDY rewards others also began to sell-off, lowering the price of $ADDY by around 20%.
Adamant has solid tokenomics that account for this type of sell-off normally (during the IRON Finance days we saw much more $ADDY withdrawn and sold off early without a significant dip in price). But with the negative market sentiment around Alameda, all eyes on their wallet, and an increasingly bearish season the sell-offs were causing some concern for the community and investor pressure to intercede.
A quick note on our tokenomics: normally rewarded $ADDY is vested for a period of three months but can be claimed early with a 50% penalty fee. This fee is paid to those that have locked $ADDY and incentivizes long-term holding. As well, $ADDY is emitted based on the protocol’s profit, ensuring the market is not swamped with rewards during a bear season.
Addressing the Issue
A number of options were raised by the Adamant team and community to address the situation. One of these was put in place at the time (lowering rewards for certain vaults while boosting others) but many would take time and testing before implementation.
To make sure the issue was addressed as quickly as possible a governance proposal was raised to blacklist Alameda’s wallet from further deposits and after a grace period to stop receiving rewards at Adamant. This proposal was put up to a vote for those with locked ADDY.
Among a number of reasons, those voting for a YES vote argued that it would be in Adamant’s best interest to disentangle from a controversial hedge fund and that blacklisting might help with market sentiment. Others pointed out that similar blacklists have been made in DeFi prior to combat what might be considered exploitative use of a protocol.
There was also a strong push from those voting for a NO on blacklisting. Many argued this move would be antithetical to the DeFi way, and it may hurt the wider community’s view of Adamant. As well, should Alameda be banned their profit would go with them. Others pointed out that banning would only remove one wallet, and would not prevent other firms from doing the same in the future.
Ultimately, the vote did not pass and Alameda was not blacklisted. Almost 170,000 locked ADDYcontributed to the vote, with NO having 97k of the vote and YES having 70k. The development team decided against the blacklisting and voted NO with their locked ADDY as well. Once a quorum was reached the voting ended.
At the time of this writing, much of Alameda’s deposit at Adamant has been removed. Around $36 million of the original deposit remains.
Going From Here
The Adamant team has learned a lot during this time.
- A number of alternative solutions from blacklisting were offered to address Alameda’s actions. The team will be pursuing many of those, and continue to think about other mechanics to incentivize holding of the $ADDY token. Knowing Adamant succeeds when our ecosystem succeeds, we’ve already changed some of the $ADDY reward emission rates for several of the blue-chip vaults Alameda deposited into, and in turn, boosted rewards for vaults with tokens native to Polygon.
- We’re also looking to boost vault rewards for those that lock $ADDY, and have continued to lower $ADDY emission rates month-over-month (https://adamantfinance.gitbook.io/adamant-finance/emission-schedule).
- We’ve learned how enthusiastic our community can be around controversial governance proposals, and will make sure to allow plenty of discussion for these ahead of time, along with clear details on what a proposal entails. We’ll also continue to enforce our moderation policy asking that arguments remain fact-based and avoid toxic or personal attacks.
- The moderator team is being expanded to assist in these conversations and make sure Adamant’s development is focused on making the protocol more secure, maturing the reward system, and incentivizing long-term holders of the $ADDY token. As well, we continue to look for a well-qualified web3/react developer to join the team.
We’re looking forward to the future at Adamant and deeply appreciate all of the community members that have participated in this vote and offered to help in so many other ways.