How I Learned to Stop Worrying and Love the Points

SALT LAKE CITY — The way Barrett from Cypher Protocol sees it, Solana’s comeback depends on one thing: tokens.

Specifically, new tokens from teams on the Solana blockchain that haven’t issued them before. They’re the key to driving liquidity, trading activity and most important, new users into a decentralized finance ecosystem that sorely needs all three.

Barrett, the founder of crypto trading platform Cypher, sat down with CoinDesk on day two of this summer’s mtnDAO, the biannual “hacker house” now in its fourth edition. He’s the event’s emcee and chief organizer, and via Cypher its main sponsor, alongside MarginFi, an on-chain lending platform.

The two have charged up Solana’s growth leaderboard in recent weeks partly because of loyalty programs that give “points” to crypto traders who participate in their respective markets. These points aren’t themselves tokens, but nearly everyone amassing them is convinced they’ll transmogrify into a token payday—possibly soon.

Barrett, who has gone by his mononym first name at least since Cypher launched in 2021, won’t confirm whether the crypto lending startup is on the cusp of launching a token or will ever hold an airdrop. It hardly matters; all those askers of “wen Cypher airdrop” are plowing their points-earning capital through Cypher’s markets for trading crypto assets like SOL, ETH and BTC anyway.

This excitement is giving Cypher its first taste of success after three years and just as many pivots. On Wednesday Cypher v3 (Barrett describes it as a “generalized decentralized exchange”) crossed $2 million in total deposits for the first time ever.

“We’re consistently ranking top five in growth across one-, seven- and 30-day periods in the Solana ecosystem on both users and TVL,” said Barrett, referring to DeFi’s total vale locked metric. The protocol has grown 1,384% since launching a liquidity incentives program and more than doubled since debuting points, he added. Trading “volume is picking up on spot and perps” markets, referring to perpetual futures contracts.

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Cypher is part of what Barrett calls “Solana DeFi 2.0,” a loose confederation of protocols that are hitting their stride deep in the super fast blockchain’s bear market. Many of the teams were around during Solana’s heyday in summer and fall 2021 when token-linked protocols like Mango Markets, Saber and Serum commanded the ecosystem’s attention.

See also: Serum Token Becomes Latest Project in Bankman-Fried Empire to Turn Heads (2021)

Blowups, scandals and the specter of FTX’s Sam Bankman-Fried have, respectively, deleveraged that trio’s influence over the Solana ecosystem almost as much as they’ve nuked their token prices. Other erstwhile leaders have followed similar descents, albeit under less spectacular circumstances.

If Barrett is to be believed, a new breed of Solana protocols that never launched tokens are getting ready to take control.

When it comes to launching tokens in the new paradigm, “you get to observe those mistakes and stand on the shoulders” of those past teams, Barrett said. Among other things, that means designing better tokenomics, how a team divides up its allocations. It also remains to be seen how the Internal Revenue Service’s new guidance on taxing airdrops will impact Solana DeFi’s rebirth.

Getting it right could help determine whether Solana DeFi returns to its multibillion-dollar heights or instead trudges down the long road to irrelevance. The Solana ecosystem’s recent pump in TVL growth has stalled around $310 million even as Cypher and others continue up. This indicates new capital isn’t flowing in; now, it’s old money sloshing about.

Barrett has a pragmatic if cynically-tinged vision of the crypto markets that the author of this column most certainly shares. Degenerate traders only want one thing, and it’s disgusting (err, I mean money). Free tokens are money. Therefore, the degens want free tokens. They’ll go where the tokens are and they’ll do what they must to get them. If that means trading, they’ll do so on leverage; if that means staking, they’ll loop for more.

Solana DeFi 2.0 will be there, incentivizing them all the way. That could make a feedback loop of crypto’s downward spiral.

“They’re creating a lot of excitement that was missing from the Solana narrative for the last 18 months,” Barrett said of the incentive protocols.