A falling-out between two startup projects on Cardano has spilled out onto social media, reaching such rancor that the blockchain’s founder, Charles Hoskinson, took to YouTube this week to admonish the teams to “get your s**t together.”
The conflict is between CardStarter, which describes itself as a “decentralized accelerator” for startup projects focused on Cardano, and SundaeSwap, a decentralized exchange built on Cardano.
At the heart of the matter is what appears to be a now-soured marketing agreement that’s got the two projects’ leaders accusing each other of broken verbal commitments and promises.
The dispute could cast a pall over Cardano, sometimes described as an “Ethereum killer” because of its ambitions to compete with Ethereum, the second-largest blockchain, which has become the dominant venue for development of technologies ranging from decentralized finance, known as DeFi, to NFT trading. Even Hoskinson, who previously helped found Ethereum, acknowledged that the dispute risked damaging the “brand of the ecosystem as a whole.”
The bickering with CardStarter adds to the controversy already surrounding SundaeSwap, which went live last week – only to be slammed by user complaints over extreme delays in receiving the project’s native SUNDAE tokens. SundaeSwap representatives had to post a notice on its website pleading for patience.
But the spat between CardStarter and SundaeSwap has been in the making for nine months, starting with an initially harmonious plan to join forces but ending with harsh recriminations on both sides and complaints of steep financial losses.
For Cardano investors, the latest episode might show just how complex and difficult it can be to build a community of blockchain projects, developers and traders without significant growing pains.
Auspicious start
In April 2021, CardStarter announced the launch of CardSwap, a decentralized exchange (DEX) that was marketed as similar to Ethereum’s Uniswap – but for the Cardano blockchain. CardStarter stated that there would also be a liquidity mining program where providers could earn CSWAP tokens as rewards – incentivizing users through the attractiveness of getting in early.
Then in June, CardStarter entered an agreement with SundaeSwap to essentially team up: CardStarter would cease development of a competing CardSwap decentralized exchange and promise to contribute liquidity to SundaeSwap. The deal was announced publicly in a press release in July.
In an AMA (Ask Me Anything) forum on Twitter in July, SundaeSwap CEO Mateen Motavaf was asked: “Is this an integration between CSWAP and SundaeSwap? Is it essentially a replacement of CardSwap?”
Motavaf responded: “This is a merger, and Sundae is the name of the main DEX where a lot of this will be taking place.”
Ashwin Somasundaram, CardStarter’s senior operations advisor, said in the AMA that the CSWAP community will be “very well taken care of by all of us,” and that they are getting an “amazing end of this deal.”
Fast forward to October. That’s when, according to CardStarter CEO Aatash Amir, SundaeSwap officials agreed to set aside 150 million SUNDAE tokens for the CardStarter partnership.
A Jan. 24 tweet from CardStarter shows screenshots of a group Telegram chat between the two entities where they appeared to lay out the plan.
The screenshots show a portion of a conversation where SundaeSwap’s chief information officer tells Amir that 7.5% of the total supply of Sundae had been set aside for the CardStarter partnership. (That would be 150 million tokens of the reported 2 billion in supply.)
Then on Jan. 18, Artem Wright, SundaeSwap’s co-founder, wrote in a Telegram chat to the CardStarter team stating that the number of SUNDAE tokens allocated to the partnership would be reduced to 10 million.
When asked about the reduction on the Telegram group chat, Wright confirmed it and said that “We feel that 10M is the fair amount for what is available today.”
The reduction was based on there being “significantly less” total value locked (TVL) in the CardSwap-affiliated liquidity pool than both entities expected, according to the screenshots released by CardStarter. “Total value locked” is a commonly cited metric used in DeFi to signify how much collateral has been put into a protocol; it’s a key gauge of a project’s size and popularity.
Wright said in an interview with CoinDesk that CardStarter promised $200 million or more of TVL to SundaeSwap.
“Over the period of our negotiations, we went from expecting upwards of $200 million in liquidity to $10 million, resulting in lower token amounts negotiated in return,” Wright said.
CoinDesk reached out to CardStarter for comment on whether the team ever agreed to provide $200 million of TVL, but there was no response by press time.
What the data shows
CoinDesk checked data from the DeFi exchange Uniswap to independently assess the TVL associated with CardStarter.
On Oct. 31 – the day that SundaeSwap reportedly agreed to offer 150 million Sundae tokens to CSWAP holders – CARDS had a TVL of $18.5 million, according to data from Uniswap.
On Jan. 20, the TVL on CARDS was slightly lower, at $17.5 million.
James Thornton, an IT consultant from the UK who is a CSWAP investor, said he was skeptical that the CardStarter team would have ever agreed to accept just 7.5% of the SUNDAE tokens in exchange for $200 million of TVL. Thornton contacted CoinDesk after this reporter posted a message in a SundaeSwap community Telegram channel seeking sources to discuss the matter.
“No DEX partner would agree to stop making their DEX to port over $200 million TVL for 7.5% of tokens in return,” Thornton said. “They’d want at least 80%.”
Whatever the case, SundaeSwap’s decision to reduce the allocation meant that CSWAP holders couldn’t get all the SUNDAE tokens they thought they were entitled to.
As word trickled out, CardStarter’s CARDS token, which was changing hands around $9 on Jan. 18, has tumbled to about $3 now. As recently as last May, they were trading around $80.
The CardStarter liquidity providers began expressing their disappointment and labeling the unwinding as a “rug pull” on social media in various tweets, Telegram groups and on Discord.
Alec Yu, a university student from Melbourne, Australia, said in an interview with CoinDesk that he personally lost $300,000 from mining CSWAP tokens and said he would “never have invested if Sundae didn’t endorse this deal publicly and make it seem like CSWAP holders were going to be very well looked after.”
Yu invested his money to provide liquidity for SundaeSwap’s upcoming DEX, under the impression he was going to be rewarded with SUNDAE tokens.
Darren, a healthcare worker from Australia who asked that his last name be kept confidential to protect his privacy, said he lost about $116,000 on CSWAP itself and a further $30,000 to “impermanent loss,” as a provider of liquidity for CARDS-ETH LP, which is the liquidity pool on Uniswap that would eventually be to migrated over to SundaeSwap.
“SundaeSwap wanted the CSWAP liquidity for the health of its DEX,” Darren said. “It was advised that mining would continue, as the requirement was to move our CSWAP liquidity over to SundaeSwap once the DEX is live.”
“Most of us have held our CSWAP liquidity from May-June 2021 till this day, as we were migrating over to SundaeSwap,” said Darren. “As a result we’ve incurred impermanent losses due to the CARDS token depreciating, because of a combination of market conditions and mostly the Jan. 20 news.”
Thornton said he lost over $200,000 providing liquidity.
“The deal went sour and the CARDS token dropped,” Thornton recalled.
“I committed my life savings over nine months to provide liquidity for SundaeSwap’s upcoming DEX, under the impression I was to be rewarded with SUNDAE tokens,” he said. “After our money being held in a lock for over half a year and losing 90% of its value, we still have zero access to our liquidity.”
According to CoinMarketCap, the CSWAP tokens were trading around $0.21 cents just prior to the Jan. 20 statement from SundaeSwap. Now, they’re around $0.03
SundaeSwap responded to the backlash on social media, denying that there was ever a merger agreement or a promise of SUNDAE tokens.
“SundaeSwap and CardStarter entered into a ‘Marketing and Collaboration Agreement’ in June 2021. This was not in any sense a ‘merger’ of the two entities, as explained in our own announcement about the agreement,” SundaeSwap said in a tweet.
Words chosen ‘poorly’
In a subsequent blog post, SundaeSwap acknowledged that it had used vague terms on occasions when communicating with users.
“Members of our team have on two occasions chosen their words poorly when characterizing the Agreement and hoped-for future liquidity-provision relationship,” the blog post read.
SundaeSwap’s Wright said no promises were made to CardStarter regarding SUNDAE tokens.
Wright told CoinDesk in an interview that an agreement in June between the two entities includes CardStarter’s promise to not build its own DEX, and “it very clearly says they were getting nothing from SundaeSwap for doing that.”
Wright also said that the screenshots tweeted by CardStarter are “incomplete snippets of our months-long negotiations.”
What the agreement says
A copy of the June “Collaboration and Marketing Agreement” obtained by CoinDesk shows that SundaeSwap committed to providing favored status to listing pairs contributed by CardStarter within the first year after the decentralized exchange’s launch.
No amount of tokens were specified in the agreement. It further stipulates that each party’s liability to the other will not exceed $5,000.
The agreement was signed by SundaeSwap’s Motavaf and CardStarter’s Amir.
The document stated that no other agreements would be deemed binding, whether oral or written.
SundaeSwap provided an address in Greenbrae, California, while CardStarter’s is a post office box in the British Virgin Islands.
Cardano founder Charles Hoskinson
Hoskinson, the Cardano founder, initially responded to CoinDesk’s request for comment on Monday, writing in an email that “I’m a bit under informed on this story myself and being brought up to speed. I’m happy to chat later in the week after I’ve had some time to read up on it.”
Then on Monday evening, Hoskinson hosted a YouTube stream where he was critical of how the two organizations handled the situation. He said that it was unacceptable for SundaeSwap and CardStarter to use social media platforms such as Twitter, Reddit, and Telegram to make their case.
“It’s despicable,” Hoskinson said. “It doesn’t do anything other than try to abdicate your personal responsibility and damage the brand of the ecosystem as a whole.”
Hoskinson added: “Please, people, get your s**t together. Both sides come together, agree to arbitration, talk to each other, and figure out whatever the hell you agree to get done. And if you can’t somehow survive the arbitration process, the courts are always available to you.”
When asked whether the dispute would affect Cardano’s reputation, Denis Vinokourov, head of research at Corinthian Digital, said it’s yet another example of communication gone wrong in the world of digital assets and crypto project launches.
“Regardless of the actual situation between SundaeSwap and CardStarter, acting like squabbling squirrels in public is not the way to go and only hurts Cardano’s prospects of competing for institutional money allocation,” said Vinokourov.
Cardano’s ADA token is down 27% in one month, trading at around $1.11 at press time, though bitcoin and other major cryptocurrencies have also sold off sharply in a broad market retreat.
