Review on Proposal #122343 - Create Sonic's SNS DAO

Author: @spnrapp
Date: May 17, 2023

Recommendation

Vote: NO

Proposal

At the time of writing, SNS ("Service Nervous System") public sale on IC ("Internet Computer") requires 2 NNS ("Network Nervous System") proposals. CakeMaker, the CEO of Sonic, announced its plan to launch an SNS public sale in a post published on DFINITY's Developer Forum on May 2, 2023, to solicit community's feedback. On May 9, 2023, Sonic submitted the NNS proposal #122209 to allow its principal to create the SNS canisters, which received 25.789% Yes votes and 8.621% No votes when the voting ended on May 13, 2023, totaling roughly 153.2M voting power or 34.4% out of total NNS voting power of 445M. The first NNS proposal was therefore adopted. On May 15, 2023, Sonic submitted the 2nd NNS Proposal #122343 to create an SNS-DAO. Its voting window will end before May 19, 2023.

Impact

Given that the first NNS proposal was already adopted, if the second NNS proposal is also adopted, Sonic's SNS will commence, which means that the Sonic team will start a public sale for its token $SOC, raise funding from ICP holders (and Community Fund controlled by NNS), create a DAO ("Decentralized Autonomous Organization") owned by its token holders, and transfer the ownership of its product Sonic to this newly created Sonic DAO.

If this decentralization sale goes through, Sonic would become the second IC project team after OpenChat to adopt SNS, an innovative fund-raising method in the IC ecosystem to issue tokens, create a community-owned DAO, and transfer DApp's ownership to this DAO in a major step toward decentralization. OpenChat completed its SNS sale in a span of 5 hours on March 3rd, 2023, raised 1 million ICPs (at roughly $5.5 million) from 2,375 investors. Based on May 16 price from IC Lighthouse, OpenChat's token $CHAT is now traded at 0.07315 ICP, with a market cap of roughly $38 million, or roughly 72% over its initial post-SNS valuation.

Background

Sonic is an AMM ("Automatic Market Maker") DEX ("Decentralized Exchange") platform that allows investors to swap tokens and participate as liquidity providers. It supports DIP20 token standard, 13 tokens and 72 liquidity pools in the IC ecosystem, including ICP, WICP, XTC (cycles), ckBTC, SNS1, CHAT (OpenChat), OGY (Origyn), ICL (IC Lighthouse), and NDP (NNSDAO). It uses Plug wallet。

Sonic's Twitter was created in March 2021 and now has 32.7K followers. Its website is hosted on an IC canister. Its whitepaper was updated by CakeMaker the CEO, bugslayer, and sidekick.icp the CTO on April 24, 2023. Detailed documentation can be found at docs.sonic.ooo. Its source code can be found at github.com/sonicdex.

Sale

As explained in the tokenomics section in its whitepaper, with a total supply of 125 million $SOC, Sonic plans to sell 22% of its tokens or 27.5 million by raising 850K $ICP, of which 1/3 would come from the Community Fund controlled by NNS. At May 16's price of $ICP of $5.24, its SNS sale plans to raise roughly $4.45 million, valuing $SOC at roughly $20 million post-SNS. If either of the below two scenarios appears, the SNS sale will be called off and deemed incomplete: 1) less than 425K ICP are raised; 2) fewer than 500 investors participate in the sale. For each invester participating in the SNS sale, he/she needs to buy at least 1 ICP and can purchase up to 100K ICP.

Highlights

Sonic is one of the oldest DeFi ("Decentralized Finance") projects in IC since DFINITY launched the IC mainnet on May 10, 2021 and an early adopter of the ICP ("Internet Computer Protocol") technology. It was touted by DFINITY as the first DEX to launch on the Internet Computer on January 23, 2022. It was one of the first platforms that allowed buying of cycles, the native stablecoin of the IC ecosystem that's essential for all IC developers building DApps.

Sonic is one of the major decentralized exchanges in IC at the moment, along with IC Lighthouse, Bitfinity, ICPSwap and E3. It's featured in the "Ecosystem Showcase" page by the DFINITY team. DFINITY's official Twitter handle covered Sonic a few times in early 2022 and early 2023.

Sonic is an exclusive IC DApp ("Decentralized App") that's only available for ICP users. It supports Plug, one of the most popular native wallets in the IC ecosystem, which means all users of Sonic are in the IC ecosystem and contribute to the growing TVL ("Total Value Locked") in the IC.

Sonic reported to have generated 27K+ connected wallets, $9.76 million transaction volume, 230K transactions and $415+K TVL, as of February 2023. It's one of the few DApps whose TVL (for token $XTC) is tracked by crypto industry's standard bearer DefiLlama, which shows that XTC's TVL peaked in August 2022 at about $1.6 million and tapered off to $300K-400K range since November 2022.

Concerns

Sonic the product has been around since 2021 and well known in the IC community. It was first known as DFinance and rebranded into Sonic when it joined the portfolio of Psychedelic DAO in November, 2021. The team behind Meme Cake acquired Sonic from Psychedelic DAO in early 2023.

The team that currently owns Sonic has much less track record in IC. Given that they only took over Sonic a few months ago, they can use more time to prove themselves. It remains to be seen if they have sufficient commitment to see this project through and deliver the roadmap as they promised. The current core team members built several IC applications such as Meme Cake (an NFT multichain marketplace), Rocket (a gambling DApp) and Artemis (a wallet adapter), but none of them could match Sonic in terms of technical depth, engineering effort, or operation complexity. A DEX platform takes custody of customer's money, sometimes over an extended period of several months. It's critical for the team to demonstrate a consistent track record. While it's very inspiring to see Sonic team to open-source its code base and embrace SNS to decentralize the ownership of its DApp and the governance of the community as the first DEX on IC to make such an effort, an SNS sale at this point seems too soon too early.

The initial token distribution allocates 4.00% (roughly $800K) to the Psychedelic team. Half of that is released right away post-SNS and half of that will be released after one year. The Sonic team has not disclosed whether this is a remainder to be paid to Psychedelic for the product takeover in early 2023, or the full amount. Either way, this creates the appearance of using one financing event (SNS) to fund the other financing event (acquiring Sonic). While it's Sonic team's decision how they want to deploy capital and various financing methods to fund its operation, this "legacy" transaction begs many more questions and one would argue what is the true motivation for this SNS sale.

Sonic's code base, consisting of codes written in Motoko, Rust and Javascript, was only open-sourced around the same time when Sonic submitted the first SNS proposal on May 9, 2023, with moderate documentation and test cases. It is not certified or reviewed by any third-party code audit firm. Memecake argued in a forum post that an audit conducted now would be wasteful as they are planning to implement significant architectural changes, so the team made a "strategic decision" to postpone the audit. If Sonic plans to go through a major facelift soon, it would be more prudent to complete the upgrade, perform a security review, let the new version run a few more months, then initiate SNS sale.

Its code base is also missing CI ("Continuous Integration") pipelines that can produce verifiable and reproducible release binaries, which was recommended by section 2.3 of the SNS Launch Checklist. Lack of a robust CI workflow means that it's difficult (if not impossible) for Sonic's users to verify the software version running on sonic.ooo is indeed the same binary that's updated through Sonic's SNS DAO via proposals. Lack of security review and CI could lead to exploits of the DEX platform that will erode confidence of users of Sonic and ICP at large.