The SundaeSwap / CardStarter Debacle Explained:
As the DEX launched, thousands of devoted community members found out they lost tens of millions of dollars in value.
The goal of this article is to provide a concise accounting of the controversy that has engulfed a devoted section of the SundaeSwap community. On the eve of DEX launch, the 20th of January, thousands of members of the Cardstarter community were horrified to learn that a widely promoted, 7 month-long agreement that the Cardstarter project had brokered with SundaeSwap seemed to have fallen through without any advance warning to the community it affected. The result has been the loss of tens of millions of dollars in value and a near certain demise of the Cardstarter project.
This is what happened.
In spring of last year Cardstarter emerged as a launch pad for Cardano based projects that were preparing for the Gougen era. After a few successful launches, they announced their intentions to build their own DEX on Cardano called Cardswap. They offered the community an opportunity to mine tokens for this future DEX. The token was called CSWAP, earned by providing liquidity for the CARDS/ETH pair on uniswap (Cardstarter is still Eth-based and readying migration currently). Soon after, Cardstarter had about 50M dollars of liquidity locked in its contract — all liquidity that it intended to migrate over to Cardswap post-Goguen.
By July of last year, however, this promising project announced a rather unexpected partnership with SundaeSwap. An arrangement was revealed whereby Cardstarter would commit to shuttering the Cardswap DEX it was working on and join forces with Sundae Swap.
The idea of shuttering what was felt to be a contender DEX on Cardano at the time, and allowing Sundae Swap instead to become the top DEX was mutually agreed upon. Why compete, we were told, when joining forces would make us all winners.
In addition to shuttering its own DEX, Cardstarter committed to transfer all of its liquidity to SundaeSwap when the DEX launched, which many anticipated at the time would be in Q4 2021, just a few months away at the time. At the time of the announcement, the summer correction of 2021 was in full swing, but Cardstarter still brought tens of millions of dollars of liquidity to the table. The idea was that Cardstarter would bring liquidity and also launch all future IDOs only on SundaeSwap, which would likely be the dominant DEX for Cardano. It was a win-win.
In order to discuss the ramifications of this partnership, a Twitter spaces AMA was held the same day, now available on YouTube, in which Mateen from SundaeSwap was also a participant. The elephant in the room of course was the fate of the CSWAP token which was issued to raise the very liquidity that Sundae Swap had come into the arrangement for.
Cardstarter strongly emphasized to its community in this AMA that the CSWAP token would “accrue significant benefits” in SundaeSwap. They could not say more however, for fear of SEC enforcement action. They would continue to maintain, repeatedly for the next 7 months, that details of the arrangement brokered with SundaeSwap were being kept secret by both parties so that regulatory risk is minimized.
SundaeSwap at its end was excited to have secured deep liquidity and the chance to welcome a devoted 15,000 member strong Cardstarter community into their fold.
On discord, when a Cardstarter community member asked why join the DEX’s at all, and not just develop separately, Mateen responded as follows:
The Cardstarter community asked SundaeSwap on multiple occasions if liquidity coming from another project entirely really would be rewarded by SundaeSwap in some fashion. They were quick to reassure the community.
With these repeated public assurances, The Cardstarter community merged with the SundaeSwap community, as Pi wished. Many subsequently engaged with the all members of the Sundae team on discord and many developed a real connection to the team because they were always so available on their discord server. They quickly started their own unofficial telegram channel for SundaeSwap that the team still frequents. They cheered them on since last summer and were a highly engaged group on their testnet, providing a lot of feedback and encouragement during that process.
And most of all, they committed liquidity for SundaeSwap like they were asked. Millions of dollars of it.
On the eve of the DEX launch, Cardstarter indicated it had a statement to make regarding CSWAP. They revealed to a shocked community, that the only reward they were going to get were the CARDS tokens itself, and that too, at a ratio of 400:1, to be take out of the team’s own supply. The Cardstarter team would not comment further on any benefit from SundaeSwap and asked the community to await further announcement.
No further communication of substance came from either SundaeSwap or Cardstarter for the next 48 hours as the Cardstarter telegram channel erupted into pandemonium. The community was overwhelmed with emotions — anger, betrayal, disbelief — and utter confusion.
The price of the CARDS token, which has already declined because of market conditions, fell off a cliff. Not only was the CSWAP mined of no significant value, but the underlying tokens locked into liquidity contracts to earn it had also collapsed in value too. Tens of millions of dollars over thousands of individuals.
SundaeSwap has recently released a medium article as news continued to spread over social media.
They acknowledge the distress (felt amongst what they now refer to as the “Cardstarter” community) and reveal that the two teams have been unable to come to an agreement on the issue of rewarding the Cardstarter liquidity providers with SUNDAE. They strongly emphasize that in the June agreement, “No money, tokens, or anything else of value was paid or promised by any party to the other in the June Agreement”
They go on to state that they have made repeated attempts with Cardstarter to reach a resolution “over many months”. They call out the Cardstarter team for not engaging in negotiations in the last few days specifically.
The Sundae team proceed to state that since all their good faith efforts at reaching a fair conclusion could not be resolved, the original arrangement is null and void. However in order to try and make the Cardstarter community members happy, they will give them 20M Sundae tokens, with a whale-control feature.
To this end, Cardstarter revealed private Telegram chat snapshots that showed that as of the 31st of October, a working agreement between SundaeSwap and Cardstarter appeared to have been reached, but going by a lack of any legal documentation presented by Cardstarter, it might be that nothing was committed to paper (or presumably they would present that instead).
CSWAP holders were to receive 150M SUNDAE tokens, per a detailed text from Pi to Aatash, the purpose of which was to go over the proposed vesting schedule CSWAP holders would be subject to.
Another screenshot reveals that later on, SundaeSwap was discussing a change in the terms of the deal. It is not clear when the change in terms was initially proposed but the date of the conversation is just two days before DEX launch.
— instead of 150M, SundaeSwap were now only willing to give 10M tokens to Cardstarter. Artem, from SundaeSwap, explained to Aatash in this text that SundaeSwap expects to have locked up 5.5 billion dollars of ADA in its ISPO, and is giving away 100M SUNDAE away for it. So for the liquidity that Cardstarter is bringing (which has shrunk to about 10M with recent market conditions), giving Cardstarter just 10M SUNDAE was “fair”.
The value of ADA staked in the ISPO and the value brought in as liquidity for a DEX are two completely different things. This is clearly evident to anyone with little knowledge of how liquidity in DEXs are calculated. Yet this was the rationale SundaeSwap used to explain why the new compensation for CSWAP miners, who had committed to them 7 months earlier, would just be 0.5% of its total DEX supply.
It looks like SundaeSwap decided to strong-arm Cardstarter into renegotiations at its time of peak popularity and strength, right before DEX launch.
In the vacuum of information inflicted by both teams in the first 48 hours after the announcement, there was wide-spread dismay within the Cardstarter community. The immediate assumption on the part of the community was that the Cardstarter team had been lying to them the entire time and the team received serious death threat. Aatash’s sister and mother’s personal contact information had been leaked as was his father’s license plate number. Ashwin’s medical practice location was doxxed. The team was placed in significant risk of harm and thousands of Cardstarter community members were stunned at their massive losses.
If the Cardstarter community has found itself in this unfortunate position because of bad faith on SundaeSwap’s part, then they must answer for it.
If SundaeSwap feels like shuttering the competing Cardswap DEX, and securing its community’s liquidity in exchange for for just 0.5% of its own DEX tokens (10m) is “fair” after 7 months of literally blind faith in them, that too is an interpretation they should speak clearly to in their follow up responses. In case you are wondering if 0.5% of the total supply is a big or small number, let us all remind ourselves that the handful of people that make the core SundaeSwap team have allocated themselves 25% of the total DEX supply.
This is an unfolding story, and further comment from both teams will undoubtably shed more light on what exactly went wrong here. But however this situation resolves, there is no doubt that when Cardano’s much vaulted first DEX launched, it left a devastated wake amongst a loyal community that trusted SundaeSwap and committed to boot-strapping it with liquidity long before cFund and Alameda came along and long before it reached the stature it currently enjoys within the Cardano ecosystem.
Disclaimer: I own CSWAP tokens, and I’ve been an avid fan and supporter of SundaeSwap. I do not represent or work for either Cardstarter or SundaeSwap.
