FTX reps sat on the judges panel that awarded Sui’s first-ever DeFi protocol grant to Scallop. That was back in November 2022. Within days, FTX itself was bankrupt.
According to Scallop co-founder and team lead Kris Lai, this is only one of the team’s lucky breaks in recent months, which have seen the startup survive one of crypto’s most brutal winters to date. But alongside the lucky breaks have been timely, perceptive strategies. In fact, Scallop has avoided numerous catastrophes that have seen countless other startups crash out of the crypto space since that pivotal summer of 2022.
Finding a niche in the rapidly evolving Web3 world
Not to be confused with crypto’s other Scallop, Kris and co-founder Donnie Chen set out to launch their own Web3 venture back in March 2021. The pair, who share a background as full-stack Web2 developers, were inspired to explore Web3 by a friend who introduced them to Solana. Looking for their own niche, the co-founders spotted a gap in the Solana ecosystem: premium bonds. Other players like PoolTogether on the Polygon chain have built a premium bonds model leveraging Aave. But Solana lacked anything in this area, especially as any open-source EVM code (like PoolTogether’s) is incompatible with Solana. In fact, the gap was so large, the Scallop team had to build their codebase from scratch on Rust.
If you’re not familiar with premium bonds, the idea is essentially to pool and stake users’ funds, and then distribute the interest earned via randomized lottery. Users’ capital is never at stake, and they can deposit or withdraw their funds at any time. On Scallop, users can deposit various tokens such as USDC, USDT, and Solana into isolated pools. Those pools are staked on Solend, and the yield is randomly distributed within the pool it was earned from. Think of it as a low-risk, low-return lottery. These lottery tickets are free, but you only have a chance to win while your funds are staked.
Perhaps Scallop’s first lucky break was finding a highly supportive angel investor. The investor came onboard in the fall of 2021, and advised the Scallop team to look into expanding their DeFi solutions beyond premium bonds alone. That led to the Scallop team exploring new options, such as pivoting toward lending and borrowing. Through those discussions, the team also hit on the idea of going multichain.
Given their existing codebase was designed for Solana and Rust, the obvious jump was to look at opportunities on the newly emerging Aptos and Sui L1 blockchains. Both projects derive from Facebook’s now-shelved Libra project, later re-named Diem, and both utilize the Rust-adjacent Move programming language. Move aims to best Solana’s already breakneck transactions-per-second, which is ideal for developers. When it came to making the decision, Kris said Scallop was too late for Aptos, and instead shifted its focus to Sui. Scallop now intends to become the Sui ecosystem’s first lending and borrowing protocol.
Timing can be make or break
That leads us back to the grant. In Lisbon, November 2022, Scallop’s pivot caught the attention of the panel of judges – which included FTX core team members – and earned Scallop a US$30k grant. The timing couldn’t have been better… for Scallop. FTX crashed within the week. The closely-connected Solana ecosystem also teetered on the brink of oblivion (though it has now mostly recovered). Any remaining hype that had survived that summer’s crypto-lenders-wipeout had now also dried up. Many crypto startups without enough runway, or which were too exposed to the Solana token price, or had their assets on FTX, failed within weeks.
But not Scallop. The team had just added fresh cash to their runway. They had just set in motion their plan to go multi-chain. With the support of their angel investor, they had just communicated a clear roadmap to higher DeFi ambitions across Solana and Sui. Like many things in business, it’s hard to tell whether luck or strategy claims the higher portion of credit.
Now, Scallop has a core team for four people, along with support from advisors and freelancers. The team are raising for their pre-seed fundraising round, with some commitments already in. And they’re on track to launch Scallop’s new lending and borrowing protocol on Sui’s main net by year-end. And all in a bear market.
