In the East 8 Time Zone this week, the MilkyWay team announced the completion of the final profit distribution and the permanent closure of the protocol, marking the liquidation of what was once considered a representative DeFi project of the Celestia ecosystem. According to various media reports, the team will distribute a total of 92,708 USDC to users, setting a minimum withdrawal threshold of 1 USDC. While providing official explanations such as "insufficient DeFi adoption and immature ecosystem," it has also intensified the community's strong doubts about management capabilities and compensation fairness. This article will focus on the Celestia ecosystem development and liquidation compensation mechanism, dissecting the complete process from a star narrative to a disappointing exit.
A Week of Reversal from Star Narrative to Shutdown Announcement
● Ecosystem Positioning and Expectations: MilkyWay was once packaged as one of the core DeFi entry points of the Celestia ecosystem, building products around the yield management and liquidity allocation of TIA assets. Coupled with the expected protocol fees from ecosystem tokens like INIT and BABY, it was seen as a representative of "positioning for early dividends on a new public chain." The community generally expected it to become one of the first cash flow protocol examples on Celestia, taking on the role of introducing deeper liquidity and more complex financial scenarios to the ecosystem.
● A Sudden Turn in the Timeline: Before announcing liquidation, MilkyWay gradually released risk signals through announcements, from suspending some operations, explaining the final profit settlement, to publicly disclosing the 92,708 USDC distribution plan, and finally concluding with "permanently closing the project." This rapid shift from "adjusting operations" to "terminating the experiment" occurred within a week, catching many users still focused on growth narratives off guard.
● Exchange Actions and Amplified Emotions: Meanwhile, KuCoin's suspension of MILK deposit services was seen by the community as an important emotional signal. Although the official did not provide detailed technical reasons and timelines, the market highly correlated this action with project risks, leading to concerns about "fund security" and "liquidity exhaustion" within the community, further intensifying speculation about MilkyWay's operational status and exit intentions, causing the already fragile trust to collapse quickly.
● The Narrative Shift from Growth to Liquidation: Until the liquidation announcement, MilkyWay's main narrative was still the growth story of "building a yield and application closed loop around the Celestia ecosystem." However, with the shutdown announcement, this story was abruptly rewritten into a liquidation script of "how to make the final distribution under limited assets." The community's focus shifted from "how much can be earned in the future" to "how much can still be retrieved now," and this sudden change in narrative amplified existing dissatisfaction with the team's decisions and execution.
How the 92,708 USDC is Distributed and Questioned
● Overall Framework of Fund Sources: According to public information from various media, the 92,708 USDC mainly comes from fees and revenues accumulated during the protocol's operation, with core sources including protocol income related to TIA, INIT, BABY, which were uniformly converted to USDC for liquidation distribution before the shutdown. The official narrative emphasizes that this is a "final profit pool from protocol economic activities," rather than additional funding or temporary compensation raised.
● Distribution Principles Based on Final Snapshot: The team clearly stated that the distribution would be based on a final snapshot, targeting token holders, stakers, and LPs to cover different participant roles. The overall principle is to weight according to users' participation levels and positions in the protocol, but aside from the directional definition of "including holders and liquidity providers," no more detailed weighting algorithms or weight logic were disclosed, nor were the on-chain behavior details before and after the snapshot made public.
● Official Stance on the 1 USDC Threshold: In terms of specific execution, MilkyWay set a minimum withdrawal threshold of 1 USDC. The official reasoning mainly revolves around "the cost of actual withdrawal and on-chain interaction being too high for small amounts, making it impractical," thus treating amounts below 1 USDC as "abandoned." This rule was written into the distribution announcement, becoming one of the most recognizable and controversial technical clauses in the entire exit process.
● Structural Sources of Opacity: However, the core contradiction surrounding the 92,708 USDC lies in the lack of information disclosure—the team neither disclosed specific distribution ratios nor clarified the exact timing of the snapshot, nor provided ranges for the approximate shares obtained by different user categories (holders, stakers, LPs). This approach of "only providing totals and thresholds, without formulas and timelines" made it difficult for many participants to self-verify whether their gains and losses were reasonable, directly leading to systemic distrust regarding fairness and credibility.
The Threshold and Snapshot Dispute: Marginalized Long-Tail Users
● Direct Criticism of the Threshold by the Community: In community discussions, the viewpoint that "the 1 USDC threshold effectively deprives small holders of their rights" became a frequent opinion. For many users who only invested a small amount to test the Celestia ecosystem, their already small positions were directly wiped out by this threshold, leaving them unable to receive compensation and difficult to verify through on-chain data whether they were reasonably accounted for. This experience of being "automatically ignored by the system" was seen by many as institutional exclusion of small participants.
● Structural Invisibility of Long-Tail Accounts in DeFi: In most DeFi protocols, long-tail users are numerous but have limited individual funds, often regarded as "statistical noise" in product design and profit distribution. Once entering liquidation or abnormal states, teams are more likely to prioritize the processing efficiency of large funds and institutional addresses, categorizing long-tail users as "reasonable losses below the technical threshold." The controversy surrounding MilkyWay merely concentrated and exposed this long-standing issue.
● Trade-offs Between Operational Costs and Fairness: From the team's perspective, handling a vast number of very small addresses means higher on-chain interaction costs, more complex front-end and script development, and longer execution cycles. Under limited manpower and financial pressure, they tend to set minimum thresholds to "technically simplify the problem." However, once such optimizations lack sufficient disclosure and prior agreement, they can easily be interpreted as sacrificing the interests of vulnerable groups to save costs, thus amplifying the gray area between fairness and resource efficiency.
● Common Contradictions in Industry Liquidation Events: Looking back at previous DeFi liquidation or shutdown events, disputes over "small addresses being ignored during liquidation," "high thresholds for profit distribution," and "unclear snapshot and distribution rules" are not uncommon. The MilkyWay incident is not an isolated case; it reflects a common contradiction in the entire industry regarding the design of exit mechanisms, which has long lacked standardization and user protection awareness—when projects shift from pursuing growth to passively stopping losses, the question of who is responsible for long-tail participants remains unanswered.
Is the Market or Management to Blame: Official Narrative vs. Public Opinion Clash
● Official Version: Ecosystem and Adoption Insufficiency: In response to shutdown doubts, the MilkyWay team attributed the main reason to "insufficient DeFi adoption and the Celestia ecosystem being not yet mature," emphasizing that under limited user scale and trading depth, the protocol struggles to cover operational costs and the resources needed for continuous iteration. This statement leans towards attributing failure to "unfavorable macro conditions" and "the industry being too early," attempting to embed the project's outcome within the overall market rhythm narrative.
● Management Error Perspective: Product Rhythm and Cash Flow Break: Contrary to the official narrative, critics focused their fire on team decisions, with the view that "the late launch of WayCard led to a break in the funding chain, which is a management decision error" becoming representative. In their view, MilkyWay failed to launch products that could bring stable cash flow in a timely manner during the peak interest and traffic window of Celestia, missing the opportunity for scaling, ultimately facing insufficient income and an inability to support continuous development after traffic receded. This is seen as a result of management's misjudgment of product rhythm and financial safety boundaries.
● The Triangular Game of Product, Cash Flow, and Ecosystem Traffic: If we place MilkyWay within a larger framework, we can see the real traffic ceiling of the Celestia ecosystem, the product iteration speed of MilkyWay itself, and the team's estimates of operational costs and financial buffers forming a complex game throughout the process. When the ecosystem is still in the cold start phase, the protocol must make a difficult choice between "burning money for growth" and "conservatively controlling cash flow." Once the judgment leans towards optimism while actual adoption falls short of expectations, it ultimately evolves into liquidation and exit.
● Rapid Fermentation of "Locking Funds and Running Away" Public Opinion: In the context of limited information disclosure and opaque distribution rules, the question of whether there is "locking funds and running away" quickly became one of the most emotionally charged labels within the community. Due to the lack of on-chain details and authoritative conclusions at the judicial level, it is difficult for outsiders to make objective judgments. However, in the heated discussion environment, the term "run away" itself is enough to overshadow rational analysis, further weakening the persuasiveness of the official narrative and branding MilkyWay's shutdown with extremely negative emotional connotations in public memory.
The Fragile Coordinates of Celestia DeFi in Reality
● Real Constraints of Scale and Depth: The liquidation of MilkyWay first reflects the small scale and limited trading depth of Celestia ecosystem DeFi. Whether based on TIA asset management or protocol fees around tokens like INIT and BABY, the overall distributable profit pool is inherently limited. In the absence of a sufficient user base and high-frequency trading support, any attempt to build a "sustainable cash flow" DeFi model will appear particularly fragile.
● Comparison with Other Rollups and Early DeFi of New Public Chains: Comparing some Rollups and early DeFi projects of other new public chains, significant differences can be observed: some ecosystems quickly cultivate user habits and trading inertia during the startup phase through airdrop expectations, incentive mining, and improved on-chain infrastructure; whereas in the Celestia scenario, users are more likely to flood in with a mindset of "capturing new narrative dividends," lacking stable demand for long-term DeFi usage. MilkyWay faces inherently higher retention and monetization difficulties under such a user structure.
● Amplifying Effects of Ecosystem Support and Single-Path Dependency: MilkyWay's profit pool is highly dependent on a limited number of sources like TIA, INIT, and BABY. This single protocol income model and excessive reliance on a few asset paths means that any changes in ecosystem support rhythm, shifts in funding attention, or declines in token prices and trading activity will directly translate into a sharp reduction in protocol income. The lack of diversified income and risk hedging mechanisms amplifies operational risks in a short time, ultimately forcing the project into asset liquidation processes.
● Warnings for Future Celestia DeFi Projects: For teams looking to build DeFi on Celestia, the outcome of MilkyWay serves as a clear warning: if sufficient redundancy is not reserved during the design phase for "the ecosystem has not yet scaled" and "user habits have not yet formed," relying solely on a single narrative and a few sources of income to sustain operations may lead to forced liquidation in a highly unfavorable public opinion environment once market enthusiasm wanes. In terms of financing and product design, how to plan exit and compensation mechanisms in advance will become a key variable in whether new projects on Celestia can gain the trust of institutions and the community.
What Can Be Learned from This Failure: The Bottom Line of Compensation, Exit, and Trust
In the exit process, MilkyWay appears somewhat "restrained" compared to certain extreme cases in at least two aspects: first, the team did indeed publicly disclose 92,708 USDC as the final profit pool, clearly covering holders, stakers, and LPs, avoiding a "disappearance" outcome where asset whereabouts are completely unaccounted for; second, by settling uniformly in USDC and setting technical rules, the liquidation was relatively orderly in execution. However, the most controversial aspects were also concentrated and clear: the 1 USDC threshold, lack of distribution ratios and snapshot timing details, and negative communication in response to "locking funds and running away" accusations collectively formed the core triggers for the collapse of trust.
Looking to the future, similar projects should adhere to several bottom lines when designing profit distribution and shutdown mechanisms: first, publicly and clearly state the "asset handling and compensation logic during abnormal/shutdown situations" at the early stage of the protocol's launch, rather than formulating rules after the fact; second, provide ample explanations and community discussion space in advance for any thresholds and exception clauses to avoid technical details being interpreted as tools for interest bias; third, disclose verifiable data (total amount, ratio ranges, snapshot time periods) as much as possible when entering the liquidation process, providing users with a path for self-verification rather than just presenting results.
For the Celestia ecosystem and the broader new public chain DeFi, the failure of MilkyWay will force the evolution of governance and information disclosure mechanisms: whether it is ecosystem funds, infrastructure providers, or upstream applications, there needs to be a standardized requirement to incorporate "how to exit gracefully in case of failure and how to protect long-tail users" alongside "user acquisition" and "incentives," rather than continuing to rely on the self-awareness of individual teams.
For participants, especially early investors and users of protocols, the MilkyWay incident reminds us to identify several key risk signals before entering: whether the project has publicly disclosed "exit and compensation mechanisms"; whether revenue sources are overly concentrated on a single asset or subsidy; whether the team has consistently transparent data disclosure; and whether there are excessive promises of unrealistically high returns while the overall ecosystem traffic has not yet taken off. Only by understanding these structural risks can individuals judge whether they are participating in an innovative experiment or footing the bill for a potential liquidation script when the next "star narrative" emerges.
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