Many FTX employees were set to become fabulously rich because their holdings of Serum’s SRM had shot up in value in 2021.
But that annoyed Sam Bankman-Fried, who had backed Serum, since that meant those employees might not be so willing to put in 14-hour days at his crypto exchange, since they were now paper multi-millionaires.
So, Michael Lewis explains in his new book, “Going Infinite,” the FTX CEO changed the rules, locking up those SRM tokens for longer so his employees had to wait to sell them.
Locked up compensation
Crypto firms and protocols often compensate employees by giving them some tokens, with the caveat that they are released to the employee on a set schedule. With highly liquid cryptocurrencies, it’s viewed as crucial that insiders not be able to dump them on retail investors as soon as the tokens start getting some traction.
Locked-up tokens give off the perception that the team is in for the long-haul. The exact schedule of these token unlocks is published as part of a project’s tokenomics.
Bankman-Fried changed the SRM rules
During the 2020-2021 bull market, SRM was a rising star. As CoinDesk reported at the time, it experienced significant price surges after being listed on Binance, with its success attributed to its affiliation with the decentralized exchange Serum on the Solana blockchain, and its association with Sam Bankman-Fried of FTX and Alameda Research.
SRM hit an all-time high of $13.72 in September 2021, according to CoinDesk Indicies data, making anyone on the team that was allocated tokens at its launch price of $1.70 in August 2020 “ridiculously rich,” as Lewis wrote.
“In the fine print of the employee Serum contract, he’d reserved for himself the right to extend Serum’s jail time, and he used it to lock up all employees’ Serum for seven years,” Lewis wrote. “They now understood that if he had changed the rules once, he might do it again. They became less enthusiastic about their Serum.”
Plummeting back to Earth
In the weeks following FTX’s bankruptcy last November, and its subsequent hack, Serum’s SRM tokens surged in value as the decentralized exchange community initiated an emergency fork to address security concerns, given the token’s uncertain future given its ties to the compromised FTX.
By the end of November, Binance had de-listed the majority of SRM’s trading pairs.
SRM is down 99.72% from its all-time high, according to on-chain data, and is thinly traded on a half-dozen lesser-known exchanges.