Oct. 5, 2022: Dai Laughing ☠️😅
Contentious Crypto Risk Team report recommends splitting 3pool
The Crypto Risk Team is back with their most explosive report to date.
Diligent Deer delivers a banger. If you’re not much for reading, the article also contains a helpful TTS recording so you can just listen to it like your fave podcast.
If that’s still too much work, our TL/DR is that deer explores the consequences of MakerDAO’s “Endgame Plan.” Following the imperious Tornado Cash sanctions, MakerDAO is taking steps to limit possible regulatory attack vectors, and the plan consists of allowing Dai to eventually float off-peg (over maybe a 2-3 year timeframe).
Of course, Dai depegging would have significant effects on any Curve pool built against the 3pool, as well as fees.
The 2-3 year timeframe is just the team’s guess. It could happen much quicker if regulators prove notably hostile (which… if you’ve been paying attention… they are swiftly approaching a “kick the puppy” level of cartoon villainy). Hence the mild urgency behind the considerations for what Curve could look like in a post-3pool world. It might take 3 years, but for all we know it could happen as soon as 3 days from now.
The report raised eyebrows with its bold conclusion. Curve should move to abandon 3pool — create a $USDC-$USDT 2pool and migrate liquidity to this pool.
Moreover, since we need a new fee token, what about TriCrypto?
The TriCrypto suggestion in particular is interesting — LPs would get passive exposure to a hedged position of top crypto assets.
Or we could wait and see if there’s a $crvUSD angle.
At any rate, the report compelled the official Curve Finance account to issue a disclaimer:
Partly this was due to a typo in the original report (the report was written by the independent “Crypto Risks Team,” not an official “Curve Risks Team.” Curve doesn’t pay for marketing, the quality of its code is its own best marketer.
Not everybody grasped this distinction though. Several people were impressed by the thoughtfulness of the paper, and may have mistook this for an official recommendation by Curve to ditch Dai.
This typo notwithstanding, we suspect Curve still had plenty of reason to distance itself from the report..
STORY TIME!
Once upon a time… an ambitious gentleman by the name of Do Kwon learned exactly how close to the sun he could soar.
He’d conquered all of Korea. He fought back against the SEC. He forced the Washington Nationals to bend the knee. For a time, he’d temporarily prop up the entire supercycle thesis by turbo-buying Bitcoin amidst a crash.
Was there nothing that could stop his rise to power?
As it turns out, the final boss he couldn’t conquer was MakerDAO’s Dai.
We still don’t know who knocked over Terra’s house of cards. Maybe it would have collapsed under its own weight. Or perhaps had they continued collateralizing they would have acquired sufficient Bitcoin reserves and fended off a crash forever.
At any rate, right before Terra could get its Dai-killing 4pool off the ground, somebody, or perhaps several somebodies, would trigger massive selling. The pressure would cascade. The fundamental flaws with the tokenomics of Terra would rip apart, and the price of $LUNA plummeted to nearly zero.
We still don’t know who sparked the match. But MakerDAO might well have had the means, the motive, and the opportunity. Plenty of speculators have therefore fingered MakerDAO as the assassin.
Are we accusing MakerDAO of orchestrating the downfall of Terra? Absolutely not. We’ve seen what happens to their enemies…
We adhere to the simplest explanation: Terra would inevitably have fallen prey to its own design, so it did. Perhaps the timing was remarkable, but as the brashest protocol in a sellers’ market, Terra happened to be wearing the flashiest target sign on the killing fields during hunting season. Until we see evidence to the contrary, we suspect it was ordinary bear market selling activity, at which point plenty of other opportunistic sellers saw the trends and hopped on the bandwagon.
Did Maker have the power to make this happen? Tough to say, but they are undoubtedly powerful. The earliest DeFi protocols to market who are still standing tend to have extraordinary staying power. DeFi is a brutal market. Any players who emerged from the scrap heap survived because they contain an impressive degree of resiliency and anti-fragility.
The top ten list by TVL on DefiLlama heavily consists of the old guard from the original DeFi Summer. Little innovation from up and coming protocols has been sufficient to fully displace this first mover advantage. A large TVL remains the best hand you can hold in DeFi.
A number of these protocols also learned to play somewhat friendly with each other over the years. Curve utilized a variety of AAVE-backed tokens across its ecosystem. Lido relied on its Curve pool to keep $stETH liquid in the most stressful circumstances. So too has Curve kept Dai in its warhorse 3pool for all these years.
Our hypothesis is that Curve sees more opportunity in continued collaboration with Dai than it does in declaring war. Before the Terra collapse, MakerDAO was exploring plans for a $mkrCRV — perhaps something like this is still in the works? (Note: We have not seen any evidence of this, $mkrCRV appears to be stalled from every indication we’ve seen.) The opportunity to see such a token come to market may be juicy enough that Curve desires to keep up relations.
After all, MakerDAO remains number one by market cap. As the bard says, if you come at the king you best not miss. It’s a reminder that as much as we like to have fun joking about the Curve Wars, they remain a solemn and bloody affair.
We respect the Crypto Risk team for prancing over red lines. Yet if we wake up to find any casualties, we’ll suspect Diligent Deer steered just a bit too close to the target.
Great article
A few rumours got it wrong about the author of the report and therefore claim that Curve wanted pave way for crvUSD by killing DAI. Such FUD. I hope for collaborations among the protocols to do the "DeFi Lego" but not "Lego wars".