AC exits Sonic board – DeFi godfather pulls another vanishing act

Original Author: Kuri, TechFlow by Shenzhen

The sentiment in crypto this year can be summed up as watching U.S. stocks hit new highs daily, then opening your own portfolio and silently staring for three seconds before closing it.

BTC is down nearly 20% year-to-date, ETH is in even worse shape, and altcoins are not even worth mentioning. In this kind of market, a 90% drop in any L1 token isn't news. But colder than the price is the fact that when people leave, the warmth goes with them.

On June 19, DeFi godfather AC, along with two other founding directors, resigned from the board of Sonic Labs. The S token was trading at $0.028 at the time, a mere fraction of its year-high of $1.03. On-chain TVL plummeted from a peak of $1.14 billion in May last year to $20 million. According to DefiLlama data, that's a 98% evaporation.

The reaction to AC's departure within the industry was muted. After all, he had already "left the circle" once in 2022 before returning. His resignation statement was also standard, saying he "still believes in Sonic" but would no longer be involved in business decisions.

However, the next paragraph stung.

He said his main focus over the past 18 months had been Flying Tulip. This project raised $200 million in a private round last August at a $1 billion valuation, and then conducted a public sale on CoinList in February this year. Investors included names like Brevan Howard, DWF Labs, and Susquehanna.

In other words, during the time S dropped from $1.03 to $0.028, AC was busy setting the stage for a brand new billion-dollar project.

Even more stinging was Flying Tulip's token design.

Investors in the primary round received an NFT called ftPUT, essentially a perpetual put option, allowing them to burn the token at any time and redeem their principal at the original price. The CoinList public sale page clearly stated that FT (fungible tokens, normal coins) bought on the open market do not carry this right; only primary participants have it.

In contrast, S holders who bought on the secondary market are stuck with a price of $0.028. No floor, no redemption, no one writing you a safety net...

Not My Problem

AC's resignation statement was posted on X, short but every sentence seemed carefully measured.

He said he joined Fantom in 2018 as a technical advisor and only officially became a director in December 2022. He is not, and never was, the founder of Fantom, only its earliest technical architect. He was responsible for the underlying technology, including the core system of Sonic and its cross-chain gateway.

Then came the critical part, paraphrased: "I am responsible for the technical decisions I led. But decisions regarding migration, airdrops, tokenomics, and the handling of the old network - I was neither the initiator nor the final decision-maker."

With one sentence, he distanced himself from the 97% drop in the S token. The technology was my doing; the technology is fine. As for why the coin you bought dropped from a dollar to three cents, that was someone else's decision.

This author won't judge whether that claim is valid, but admits the clean break is admirable.

Most project founders, when leaving, either play dead and remain silent, or issue a vague statement full of "we" and "the team," blurring all responsibility into a mess. Not AC. He delineated the boundaries of his responsibility with extreme precision, so precise it's hard to argue, because he indeed wasn't in charge of tokenomics.

And this wasn't a last-minute decision.

In March 2022, AC announced his exit from the crypto industry, citing regulatory pressure and burnout. At the time, Fantom's TVL evaporated by nearly a third within a week, drawing widespread community criticism. A few months later, he quietly returned to work on Sonic's technical restructuring.

Left saying he was tired, returned without a word, and left again saying "I've actually been busy with other things for the past 18 months."

On the Sonic side, in the six months before his departure, executives changed one after another. CEO Mitchell Demeter, hired last September, resigned in February this year, along with the head of business. After the CEO left, the board managed operations for a few months before also stepping down, handing over to a new CEO, Matt Visser, who had no prior front-line experience running an L1.

In five months, the entire management layer was replaced top to bottom. Sonic's official statement didn't sugarcoat it, bluntly stating, "The token price has fallen, and community sentiment has fallen too. We won't pretend otherwise."

This kind of "resigned honesty" is rare in the crypto industry. But the problem is, the ones telling the truth are the new team, while the one whose name holds value has already left.

The Cicada Shelling Strategy

Looking back at AC's trajectory over the past few years, a pattern emerges.

In 2020, he wrote Yearn Finance, a flagship product of DeFi Summer, with TVL once reaching tens of billions of dollars. He pretty much let it go without much management. Yearn continued to run okay on its own, but he was largely disconnected from it.

Next, he worked on Fantom's technical architecture. Fantom surged. In March 2022, he announced his exit from the industry, and Fantom entered a prolonged decline, later rebranding and relaunching as Sonic. He returned with the title of CTO. Sonic's initial TVL broke $1 billion, before collapsing all the way down to its current state.

Each time, he withdrew at the peak of hype or just as the heat was starting to fade, to move on to the next thing. Each time, holders of the old project bore the brunt of the decline after he left.

Flying Tulip is the fourth project he's currently working on. This author believes he might have truly absorbed the lessons from previous experiences and baked them into the token design this time.

When you participate in Flying Tulip's public sale on CoinList, spending $0.10 to buy an FT, you don't get the token itself. Instead, you get an NFT called ftPUT, with the token locked inside it. This NFT is that perpetual put option. You have three choices.

First, do nothing. The token stays in the NFT, untradeable, but the redemption right remains. Whenever you want out, burn the token and get your USDC or ETH back at the original price. No matter how low the FT price drops on the secondary market, your principal has a floor.

Second, withdraw the token from the NFT to trade freely. But upon withdrawal, the redemption right is permanently voided. For the amount you withdraw, that principal is released to the protocol for buyback and burn.

Third, withdraw partially, keep some. Those remaining in the NFT retain protection; those withdrawn are exposed.

AC himself made a very interesting point in an interview with The Block, paraphrasing: Because of the perpetual PUT, the raised funds can't actually be spent.

The actual raised amount is zero. So where do operational expenses come from?

All raised funds are deposited into lending protocols like Aave and Ethena for conservative strategies, targeting an annualized return of about 4%. Assuming the full $1 billion is raised, that yields roughly $40 million in interest per year, used to pay the team, fund development, and conduct buybacks. The team receives no initial token allocation; all FT must be bought back from the open market using protocol revenue.

This author must admit this design is quite ingenious within DeFi. It addresses the most notorious problem in crypto over the past few years: project founders taking the money and running, or mismanaging funds, leaving investors with nothing. AC's solution essentially ties his own hands. The money can't be touched, the team gets no pre-mined tokens, and investors can exit anytime.

But ingenious as it is, this protection only exists in the primary market. Once FT is listed on exchanges, tokens bought on the secondary market do not come with the ftPUT. The CoinList page states this clearly in bold.

Public market buyers see the same token but enjoy completely different treatment.

A Microcosm of the Industry

Money is fleeing the crypto market this year; that's no secret.

BTC is down nearly 20% year-to-date, and the median decline for altcoins is far steeper. Industry insiders open their stock portfolios to see the Nasdaq hitting new highs, then switch back to their crypto holdings and feel that indescribable feeling.

Many people's real strategy this year has been to gradually shift their positions into US stocks and stablecoin yield products. On-chain activity is visibly shrinking.

In this environment, AC's exit from Sonic is just the tip of the iceberg. The entire L1 track is experiencing the same story: shrinking TVL, user attrition, founding team turnover or outright disappearance. Sonic is just the sample because of its high profile and extreme price decline.

But AC's case has a layer that other projects lack.

Flying Tulip is currently valued at around $1 billion. Sonic's market cap is roughly $100 million. Same person, same timeframe, one project valued at a billion, the other at a hundred million. A tenfold difference. Where's the distinction? It lies in where AC's name is attached.

This is a truth rarely spoken openly in the DeFi industry.

Many project valuations aren't built on revenue, users, or technological moats. They are built on a person's name. When the name is there, the money follows. When the name leaves, the money goes with it.

The bear market has ripped off this fig leaf. In a bull market, all L1s rise, and you can't tell if it's fundamentals or just the name propping them up. When the tide goes out, what's left becomes very clear.

One last detail the author finds most interesting.

Flying Tulip's initial deployment chain is Sonic. AC resigned from Sonic's board, no longer involved in any business decisions, yet his new project's first stop is built right on Sonic. He left, but his business remains.

The captain got off the ship, but opened a new store on the dock, selling goods more expensive than what's on the boat.