April 26, 2023: A Tangible Concern 🚩🚨
Llama Risks flags significant risks in RWA protocol
The Llama Risks team is out with another banger, this time on Tangible Finance.
Best reasons to engage with Llama Risks? So, so many! Here are our top ten:
FREE ALFA: Read intel for free, which would cost 6 figures if commissioned by Wall Street
TRUSTWORTHY: The team’s only source of funding is a generous Curve grant, so the probability of shilling is highly reduced
RISING STARS: Follow the various authors (in this case Lavi_54 and dabar_90), whom are invariably the rising analyst talent in the crowded DeFi space
SMOL CAP GEMS: Robust detail about protocols which otherwise have little coverage, good for people hunting looking for signal amidst the noise
AVOID SCAMS: If you want to ape, reading the reports from Llama Risk is a great way to ape safer
GO BEYOND THE DOCS: So few writers (including your truly) consistently take the effort to grill teams directly on tough questions
RISK RUBRIC: Learn a good framework for how to evaluate protocols to help you evaluate other new gems
PROTECT CURVE: Curve’s reputation could be undermined by LPs getting rekt, Llama Risk team is the self-policing we need
CHECK & BALANCE: If we normalize the process of rejecting gauge votes until they get a risk report, then governance can meaningfully stop scammers
SUPPORT THE BEST: With so many scammers in the space, why wouldn’t you want to elevate the cream of the crop?
We believe if you’re not reading Llama Risk, you’re essentially leaving free money on the table, which is a horrible idea (not financial advice tho).
Somehow Llama Risk still only has 2K followers on Twitter, while garbage like memecoins continue to fly high. We’re starting to adopt a new worldview… the reason people get scammed so often in crypto is simply because they want to be scammed. What other explanation is there?
If people continue to reject common sense resources to avoid getting scammed in favor of dumping their net worth into garbage rug pull projects, we can’t explain it any other way.
A Tangible Danger
All of which buries the lede… STRIP TANGIBLE FINANCE OF THEIR GAUGE!
Tangible Finance is bringing Real World Assets (RWAs) on-chain by tokenizing things like houses, watches, and wine as NFTs. It’s a nifty service, and a very necessary step towards meaningful cryptocurrency adoption. We’re legitimately impressed by the traction they’ve already gained on this front.
Still, we reiterate, KILL THEIR GAUGE IMMEDIATELY!
The Llama Risk report is as close to a scathing report as we could imagine. Some key quotes that may have been buried amidst the lengthy report. They cite directly: “Tangible represents a particularly high risk to users” and “Until these changes take place, we believe Curve should not be incentivizing the USDR/am3CRV pool.”
Some other choice quotes:
“USDR is not a trustless or decentralized stablecoin. It relies on the protocol's own RWA on-ramp service and management by the team”
“There is a general concern around access rights. Our research found that almost every contract has some sort of admin access. Hence, none of the contracts are immutable.”
“The custody risk thus lies in the hands of the Tangible: Deployer and in these signers. They basically control the entire project, making it a fully centralized project.”
“The insurance fund is composed mostly of the USDC/TNGBL Balancer pool and would be mostly ineffective in case of emergency. TNGBL poses a significant risk to the solvency of USDR.”
In one damning example, the Llama Risk team details how Tangible Finance issues $USDR based on the valuation of real estate in its portfolio. However, the team seemingly overvalued one property they looked into by 9-15%. This means the $USDR may well be undercollateralized.
They also compare the project, unfavorably, to Mochi, a project which caused quite a reputational hit to Curve back in the day.
Despite the cool idea of bridging real world assets on chain, there’s way too many real world concerns. The Curve DAO should take immediate action to kill this.
What Happened
If this protocol has so many issues, how did it get through governance?
The team applied for a governance proposal last month, where it sailed through without so much a single comment. We presume voters may pay less heed to Polygon, sometimes seen as so inexpensive as to basically be a testnet.
Still, $15MM has been dumped into the pool earning a whopping 46% boosted rewards. It’s now the 3rd largest pool on Polygon. We couldn’t stomach seeing so many people suffer losses should Tangible Finance actually suffer an exploit through one of their multiple potential attack vectors.
In the gauge vote, scarcely anybody voted against the project. Perhaps due to the quiet comment period, maybe nobody noticed. I also said nothing, so I’ve as much culpability as anybody.
Even if you’re not a veCRV whale, you can still do your part to prevent such slip-ups in the future. Whenever you see a Curve governance forum post requesting a gauge, take a minute to confirm they’ve received a Llama Risk report. If they don’t specifically link the risk team’s blessing in their forum post, drop a comment and ask if they’ve talked with Llama Risk.
If they go straight for a gauge vote without even posting on the governance forum, flag me or anybody else around the Curve community. I’m poor, but I can do my part to run it up the flagpole.
Death Spiral
We acknowledge that projects often need to begin centralized to get off the ground, then push towards decentralization as they scale.
Being rejected from receiving a Curve gauge should not be viewed as a condemnation of any early stage project. Plenty of projects applied and got rejected, only to ultimately receive a gauge after making some tweaks and reapplying.
The premature issuance of a gauge should be less a reflection on Tangible, than a reminder to Curve DAO voters to be cautious and to err on the side of rejecting proposals until the Risk Team weighs in. Projects likely suffer more reputational damage if a hastily awarded gauge is taken away than if it is rejected in the first place.
Unfortunately, we see the same pattern playing out right now with the Accumulated Finance (aka $ACME) gauge votes happening right now. Some cursory digging sees $wACME sits outside the top 1000 on CoinGecko, yet the proposal looks like it will pass through governance without any discussion.
We know very little about $ACME, it may well be the case that a thorough review by the Llama Risk team discovers it’s perfectly legitimate. Or it could be a train wreck.
The promise of DeFi is that we can build a superior financial system. Unfortunately, we know the existing regulatory system is corrupted, so we cannot have any faith they will protect users. Therefore, the onus falls on all us to self-police this system.
In the worst case scenario, Tangible Finance or some other dangerous protocol collapses and soaks Curve holders, giving crooked cops an excuse to bully the Curve community. The antidote is to keep a high focus on quality.
Rightly or wrongly, a Curve gauge may be misinterpreted to mean a stamp of approval. We have to apply a higher standard of scrutiny if we want Curve to remain independent and trustworthy.
/rant
Kind Words
Although we’re sure this newsletter hasn’t earned us any frens among the Tangible FInance team, we’ll nonetheless point out that we’re actually quite impressed by what Tangible Finance is doing and all their traction to date. We sincerely hope the killing of a gauge does nothing to stop Tangible Finance’s meteoric growth.
Solving the problem of bridging RWAs on-chain is a tricky problem, but whomsoever solves the problem will provide a massive use case for cryptocurrency while becoming extraordinarily wealthy in the process.
Tangible Finance has built out an extraordinary amount of on-chain infrastructure towards accomplishing this goal. If they aren’t the ultimate winner in the space, they may well provide the template for how it may actually be accomplished. Therefore it’s worth studying their smart contract deployments in detail.
It’s also worth praising their impressive command of directing influence throughout the Curve ecosystem. The team is utilizing Warden’s Quest to great effect, and other projects interested in gaining influence can use the team’s actions as a case study.
There are so many amazing aspects of Tangible Finance that we really hope they quickly gain the Llama Risk team’s blessing and rejoin the Curve Wars on the right foot. For now though, sned to ZERO.
From my point of view (only my opinion) there is nothing amazing with Tangible and people who use that "protocol" need to be warned. Only potential idea to bring real estates and respective yield they generate looks nice but everything else looks very bad. After all false narratives and damage they did to sector in last ~5 years we dont need one more. RWA isnt joke because open connection between off-and on-chain systems is another level of risk compared to ICOs, exploits, recent CEX tragedy, rug pulls and other previous fails.