The COVER token, originally called SAFE, relaunched after an initial dispute among within founding team. The relaunch of the token garnered attention after it announced Yearn.finance (YFI) creator Andre Cronje as an advisor. Yet, the Ethereum decentralized finance (DeFi) token has seen criticism from the community after it fell 62% due to controversies.
In September, the SAFE token, which is the native cryptocurrency of a DeFi insurance project, announced that it is relaunching. Alan, the creator of SAFE also known as chefinsurance, said there was a dispute with Azeem, an early investor. As a result, Alan said Azeem is leaving SAFE and the SAFE team is creating COVER.
“As the creator of SAFE, I acknowledge that mistakes were made in my handling of the SAFE token launch. I take full responsibility for my actions and no one else should be blamed except me. I apologize to anyone who was negatively affected and how I communicated. Testing in prod isn’t always fun,” Alan said at the time.
There was significant hype around COVER since then. Fast forward a month, COVER launched, but with a surprising twist to its supply. Rather than sticking to SAFE’s initial supply, COVER is implementing a max supply of 160,000 tokens.
SAFE2/COVER token on Ethereum drops 61% after controversial supply launch. | Source: CoinGecko
Max supply of COVER triggers outrage within the Ethereum DeFi space
Early SAFE investors, DeFi analysts, and venture capitalists, harshly criticized COVER’s maximum supply.
Jason Choi, a DeFi angel investor at Spartan Group, said the original holders of SAFE/COVER had their holdings diluted by 5.8-fold.
Choi noted that there was hope COVER could become a potent player in DeFi insurance. But, the investor said the “reckless” decisions of COVER makes it unlikely.
“Early supporters of $COVER ( $SAFE holders, not farm and dumpers) are now diluted by 5.8x. Was hopeful that COVER could be a viable addition to DeFi insurance, but the team’s repeated reckless decisions suggests otherwise. Still Nexus Mutual’s market to lose,” Choi said.
Danger Zhang, a DeFi analyst who runs Today in DeFi, said the decision screwed early supporters of SAFE and COVER. He explained:
“To explain it further: Everyone who bought or held SAFE/SAFE2 took on great risk to financially support a project which they strongly believed in. By massively diluting them you are screwing some of your most ardent supporters.”
What happens next?
The price of the COVER token is struggling to recover from its massive plunge, amidst heavy criticism from industry experts.
Chronology of $Cover Protocol (prev. SAFE)
#1 Release token w/o product
#2 Imply relationship with Cronje to hype token
#3 Cause 80% price drop with a tantrum
#4 Bring Cronje & SBF as advisors
#5 Dilute holders by 80% causing 75% price drop
This is not how you build a community pic.twitter.com/cWNaynnCpT
— Krüger (@krugermacro) October 18, 2020
The implications of the COVER controversy on the broader DeFi space and the DeFi insurance market remain to be seen.
Some believe that it could strengthen the dominance of existing DeFi insurance service providers, including Nexus Mutual and potentially Yinsure.finance.