Parrot Finance raised $80 million through a public token sale in the glorious era of Solana’s bull run. The ambition was to revolutionize the crypto lending market, but two years on, those plans have waned considerably. The protocol has shifted gears, proposing a vote to refund its investors.
The Toll on Early Parrot Finance Investors
Parrot Finance has called for terminating its governance token, colloquially known as PRT, proposing a $50 million redemption program. If passed, this scheme would distribute funds from Parrot’s treasury to PRT owners, with each token valued at $0.0045.
Such a valuation would deal a heavy blow to the earliest investors who envisioned Parrot building a robust stablecoin and lending market within the Solana blockchain. Investors who joined during the Initial DEX Offering (IDO) stand to recover merely a tenth of their initial investment. This reality stings, especially as Parrot’s treasury continues to hold $73 million, only a minor 12% drop from the initial investment.
The Parrot team, previously promising PRT owners a say in the protocol, has been scrutinized for their seemingly passive role in steering it. This situation has led to accusations of their potential walk away with tens of millions, resulting in outraged investors.
This predicament sheds light on the perils of funding crypto protocols through unregulated token offerings, particularly when the U.S. Securities and Exchange Commission is escalating its actions. Parrot’s promoters initially pledged a community-governed protocol. Unfortunately, the community is now being coaxed into settling for a mere fraction of their investment.
Parrot Finance: An Unsuccessful Journey
Two years post-launch, Parrot’s lofty plans have not come to fruition. Parrot’s total value locked (TVL) is placed in the Solana DeFi’s lower echelons. Even as competing protocols spur growth through user incentive mechanisms and token integrations, Parrot’s TVL stagnates.
Parrot.fi amassed $84.7 million in a public token sale during September and October 2021, selling 10% of all PRT tokens. Unfortunately, these tokens have since lost at least 88% of their value, according to Cryptorank. All the while, the project’s treasury maintains a substantial balance in the tens of millions.
Investor Grievances and the Redemption Plan
The proposed redemption plan has been met with investor skepticism. Parrot’s move to return roughly $50 million of its nearly $73 million treasury to PRT holders must be more satisfactory. The remaining $21 million, a combination of project “runway”, illiquid LP tokens, and private investments, is set to stay with insiders. This split has stirred resentment amongst investors.
Moreover, the redemption plan lacks clear participation limitations, implying that insiders may also benefit from the redeemable treasury, tilting the balance in the team’s favor.
Last November, this imbalance deepened as the Parrot team prematurely unlocked a significant portion of the unvested team and VC tokens, two years ahead of schedule. This move has consolidated the team’s influence over the redemption vote and, in the eyes of investors, boosted their effective redemption price.
The Illusion of Community Control
Parrot Finance was launched to democratize finance and empower its community. These ambitions were echoed in a statement by the leader PartyParrot in June 2021. A standard method of achieving this is through a Decentralized Autonomous Organization (DAO), allowing token holders voting power on the protocol’s operations.
Regrettably, Parrot sold over $80 million of its PRT “governance token” in late 2021 but did not establish a DAO for PRT owners to exercise their voting rights. Instead, the team made crucial decisions, from modifying tokenomics to making investments, without a formal vote.
The proposed redemption program marks Parrot’s maiden venture into token-based governance. However, if successful, it will signify the PRT token’s demise and the unfulfilled promise of community control.
As a Parachute user humorously noted on Parrot’s Discord server, “The first proposal of DAO is to kill the Parrot.” Yet, this isn’t a laughing matter for the investors who once believed in Parrot’s vision.
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