Aug 2, 2023

Risk management firm Gauntlet posted a proposal to Aave community members, suggesting the ongoing crisis situation stemming from a large curve token collateral can be prevented by pausing borrowing activity.

Video transcript

We couldn't end this episode without talking about all the craziness going on in define markets. After that huge hack on curve, one of the biggest exchanges on Ethereum over the weekend, you might remember one of the um outcomes of that hack was that the price of curve, this big important token sunk, which put a huge loan, a huge position on ave the lending platform and a bunch of other lending platforms um at risk. So essentially Michael Egorov, the head of curve had a bunch of the supply of curve, put about 30% of it in collateral to back loans that he used to buy. Who knows what apparently houses were involved, who knows? You can look at reporting on that in coin desk and elsewhere. But anyway, if that loan gets liquidated, a bunch of bad things happen for the entire T I ecosystem because of this $200 million worth of tokens gets sold to the market and further suppresses the price of curve, this really important token. So now the news today um as um has reported is that a um it's risk management, um you know, partner called Gauntlet, which is you know, used throughout D five they have proposed now for the second time, actually that Ave block, um, or Abe's Community block, um, borrowing of these curved tokens essentially making it so that positions like this can't get bigger and can get wound down more easily. Um, I don't know. It, it's a, it's a crazy story. Zach, what do you, what do you think? Yeah, I mean, this is D I compos at its worst, right? Like D I compos is heralded as a way to make things uh innovate on themselves faster. But then you see situations like this where there's all this interconnectedness and subsequent platforms getting snared in what uh previously would have been an ugly incident confined to one thing. Now, it sort of spreads across the ecosystem. I did want to ask you about that Gauntlet thing, Sam, because that's a uh a detail that I think is worth mentioning. The gaunt gauntlet had flagged a similar problem previously that wasn't acted on previously, meaning like weeks or months ago. Is that right? The first, the first instance of gauntlet exactly raising red flag. So a lot of people are sort of like grumpy that, you know, that advice wasn't acted upon earlier. But now you have people stepping in uh in the heat of battle trying to address again, some of these ramifications that are rippling out across the D I ecosystem. And you know, we enter into really funny situations where all of a sudden, Justin son is backs stoping a pretty critical piece of the D I landscape. So anyway, I think again, to me, these are compos stories. I think compos in D I is super cool. But also the flip side of compos is this interconnectedness that ultimately can lose people, lots of money um through fault of their own. Right? And so I think we're seeing that kind of play out again with two really foundational pieces of the D I ecosystem. So that to me is the, the big picture, but some of that granularity, some of that detail, especially around some of those uh those advisements from Gauntlet I think is worth uh worth picking up on. So thanks for flagging that as well. I don't know Wendy. What do you think about this, the whole curve thing? And the whole Australian mansions there is uh a degree of, of richness in this story as well. OK. So to me, there's a lot of different parts here, the thing that stands out the most is the crypto DFI contagion because we saw the crypto contagion with centralized entities. And now we're seeing it with D I and we're seeing this because it sounds like a lot of people over leveraged, over collateralized, bet too much money and didn't practice risk management. And now we're starting to see somewhat of a collapse of the D I sector. Do I think D I is gonna go away No. Do I think D I is still in beta? Yes. I think that we will figure out how to um recover from this. I don't know what, how long it's gonna take. I don't know what the outcome is gonna be. I think it's awesome that Justin Son stepped in, but at the same time, um like the more big whales we have step in, wouldn't that essentially kind of centralized a lot of these entities in some aspects, depending on how much liquidity they're adding or what the deal is with the tokens. Um And then the separate story is um the gentleman that bought a lot of very expensive real estate and I know crypto Twitter is like kind of jumping on it and talking about it, but that's kind of pocket watching. And I don't know if that's really relevant to this particular story, that person had specific tokens because he was a founder because he did and it was essentially payment for his services. So what that person decided to do with that money that was not stolen from the project that he was granted either due to a dow or to the community or however, it was structured, that's kind of his personal business. And I don't think that necessarily relates to the particular story of the D I contagion. However, if he is over leverage and he owns a large amount and it's ca that's causing issues, then it could potentially relate. But at the same time, I don't know if they're directly related or it's just a fun talking piece because people love drama. Sam in the, the last quick point that I'll say here. Well, two things. First off, I recommend that everybody read the, um, op ed that Daniel Kon posted to Coin Dusk. Um, I think it was today or yesterday. Um, d I died and we didn't even notice which covers obviously with a more opinionated voice than we're giving even here. Um You know, what went on and why? It's scary for DP five, some of the stuff you've mentioned on, um mentioned Wendy with Big Whales. Um And the, the last thing you know that I'll say on the curve situation is just that I, I think it really does underscore the role um that coin desk and other, you know, crypto focused media outlets need to continue to play and play in a bigger way in terms of calling out potential, you know, red flags. Um This loan we have reported on about a month ago was public knowledge and yet Curve was considered a blue chip decentralized finance protocol in the same realm as UN swap and Abe and others. And I'm curious if other red flags exist out there for either those platforms or other quote unquote blue chips. Um This is something that people should have been yelling about rather than just, you know, talking about inside conversations for a while. Now So anyway, we should have seen this coming, maybe not the hack, of course, but, you know, the systemic risk posed by that specific loan and the token system that he had put together.

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