Synapse, an on-chain communications network, has suffered a sudden reversal following the significant removal of liquidity from its protocol. Because the price of the altcoin project SYN has witnessed a significant decline. SYN prices dropped over 20% in just a few hours. So, what’s behind this decline?
Liquidity provider sold altcoins
On September 5, Synapse Labs warned its users. He announced that a liquidity provider conducted a massive sale of SYN tokens. He then warned that he was removing liquidity from the platform. The team at Synapse did not disclose which vendor was behind the crash in question. However, user Wazz confirmed that the liquidity provider responsible for the sale was Nima Capital, a leading crypto venture capital firm. Synapse Labs tried to allay concerns about a possible security breach and made the following statements:
We investigate unusual activity in their wallets and actively work to contact them. We will provide updates as soon as we have more information.
A Synapse liquidity provider sold their SYN tokens and removed liquidity today. We're investigating unusual activity on their wallets and are working to get in touch with them. Will update once there is more info.
There was no security breach of the protocol or bridge.
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— Synapse Labs (@SynapseProtocol) September 5, 2023
Fortunately, Synapse users were relieved by the announcement that there was no security breach in the protocol or bridge. In particular, a crypto researcher known as “Spreek” reported a series of suspicious transactions involving the dump of 9 million SYN altcoin projects in two quick transactions just one minute apart. At the time, the total value of these tokens was approximately $3.7 million. In addition, another researcher, “Wazz”, openly pointed the finger at Nima Capital, expressing his distrust of the venture capital firm’s involvement. “Even venture capital firms are doing rug-pulls now,” he said, emphasizing the unexpected nature of the situation.
Even VCs are rugging now @NimaCapital dumped 9M $SYN and removed all stablecoin liquidity 8 months before the agreed gov proposal
Their site went offline and twitter protected too https://t.co/ShlYcZhFbz pic.twitter.com/1ncxP13XYV
— Wazz (@WazzCrypto) September 4, 2023
What is behind Nima Capital’s sudden exit?
What makes Nima Capital’s actions even more surprising is that they were designated as Synapse’s first liquidity partner following an offer made in March. In this offering, Nima Capital committed to provide $40 million in actively managed stablecoin liquidity for a 12-month period. However, it appears that Nima Capital pulled the plug on this liquidity partnership eight months before the agreed upon maturity date. In addition, at the time of writing, Nima Capital’s website (nimacap.com) has gone offline. Twitter feeds were set to “protected” and access was limited to approved followers only.
What other coins does the company have in its portfolio?
Nima Capital’s actions have raised numerous questions about its intentions and impact on the crypto market. According to Crunchbase, the firm has made 31 investments in DeFi and crypto, with its most recent investment coming in April when Teahouse Finance raised $5 million in funding. Over the past year, Nima Capital has also invested in NFT developer Flow, Fordefi, Eversify Labs, OneOf, and Morpho Labs, but specific details about these investments are scarce. Following these developments, Synapse’s Total Value Locked (TVL) dropped sharply by 20%, according to DeFiLlama. It currently stands at $113 million.
Already battered by a broader bear market, the SYN price witnessed a significant 24% decline following the liquidity crisis. Before the sell-off, SYN was trading at $0.410 but quickly fell to $0.309. At the time of writing, SYN is trading at $0.339. Moreover, the altcoin has experienced a 93% decline from its all-time high of $4.92 recorded in October 2021.
