🚨🚩🚨🚩🚨LendFlare Warning! 🚨🚩🚨🚩🚨
Yesterday we’d mentioned LendFlare as an interesting lending platform, but astute reader Johnny167 wrote to caution that the team has seemingly abandoned the project:
Due to low interest and no liquidation, borrowers maxed out by looping. And lenders can’t withdraw coz fixed term. And interest curve is too flat so borrowers immediately reborrow to loop again, leaving lenders empty handed. Some even have bots to borrow any repayment.
The whistleblower further cited the Discord to note that the protocol took on >$170K bad debt from borrowing against $UST LP.
The team issued an update in June that enabled this leverage looping. On a Twitter space they addressed the devs claimed they were working on a liquidation module, then disappeared. They’ve not been spotted for two months.
The Telegram and Discord are indeed not active. I’ve reached out to a team member who was previously willing to chat and not received response.
Fortunately, the smart contracts appear functional and I’ve not found any evidence they developers have stolen user funds. Conceptually the project may remain an interesting idea, but best to consider the project abandoned and withdraw any funds until further notice.
Wins and Conic
Out of nowhere, Conic Finance has seen a surge in activity.
The price chart also surged correspondingly.
Just yesterday, a DAO vote materialized for incentives for their CNC/ETH v2 pool.
What’s happening? Is it time to empty your entire net worth into the only project that’s seemingly going up in this market?
We first wrote up a review of Conic Finance based on the information released in April when it launched. The TL/DR is that the team has a concept of “omnipools” that would take deposits from a single coin, then automate the process of weighting this into related Curve pools and harvesting yield. Conceptually, we found it extremely promising.
In the interim, there’s been no more contract deployments from the Conic Finance deployer address, though their bespoke website (which is absolutely in the top tier of landing pages IMO) has gained a bit more functionality. They also released a white paper, and more recently the team began using LlamaPay.
If the team has not abandoned the project in the grueling bear market (like LendFlare above), we consider this a bullish indicator.
Until October 4, the team are actively running an airdrop of their $CNC token to users who had a vlCVX balance as of the snapshot time, which is viewable on their site. However, the airdrop was distributed along a curve so the available amount to claim now is close to zero. If you are interested in acquiring $CNC your best bet is the Curve v2 pool, for which they’re seeking a gauge at the moment.
So now let’s return to the million gwei question… should you ape your net worth into Conic? We can’t answer this because we’re not qualified to offer financial advice, but we can lay out some of the arguments we’ve seen on both sides.
Much of the bear case is a remnant of the fact that legendary whale Tetranode cast some suspicions back when Conic first hit the scene.
To be clear, Tetra had no specific claims of wrongdoing or ill-intent, this was more of a gut feeling. If you follow Tetranode, you surely notice he has a passion for keeping the community clean and fighting scammers, and this tweet appears consistent with this proclivity. The original tweet has been deleted.
From a handful of private conversations on the subject, we’ve not heard any accusations against the team’s intentions, so we don’t perceive any signs the “rug risk” is higher than any other project. Nothing we’ve seen in the contracts suggests it would be unsafe to interact with them in any way, and 0xLlam4 offered a similar assessment on Telegram.
The worst charge we’ve seen leveled against the project is that the task they are trying to accomplish is tough, and that no team is up to the challenge. Single-sided deposits into Curve have been tried before, including efforts by the brilliant developers at Yearn Finance, but none have succeeded and the problem is considered by some to remain unsolved.
Often times single-sided staking attempts have ended with LPs losing money. Bancor was a particularly high profile attempt to allow single sided staking. The team loudly promised “no risk of losing your stake,” right up until the point when investors lost their stake.
The above LendFlare example also illustrates these challenges. If one imagines you simply diversify a dollar equally among a handful of Curve v1 pools, most of the pools might well hold peg and earn a steady trickle rewards. But the entire amount that was staked into $UST getting erased could completely offset any gains.
How does one reliably and consistently cherry pick only the good protocols and avoid the scams? Hence the bear case mostly congeals around: “the team appear to be well-intentioned but may not be successful in their endeavors.”
The other charge we occasionally see leveled is simply that they overhype the emergency multisig, for which they have recruited several notables. We think this is a secondary concern, as we can’t fault a team for hyping their project. In fact, we’re be more reluctant of founders that undersell than oversell. We also respect the hustle of convincing luminary devs to agree to the responsibility of joining a multisig (true, addresses could be added to a multisig without consent, but it appears in this case all parties gave their permission).
At the same time, we hope everybody is equally aware that agreeing to be passively added to a multisig is miles away from actively participating in development. The fact that legends agreed to be added to a gnosis safe doesn’t indicate that they are guiding a project’s development or even vouching for the code. As always, DYOR.
This is the bulk of the bear case — what’s the bull case?
For starters, the team has a strong endorsement from the great adamscochran.eth:
If they prove able to pull it off, the team would be solving a major pain point and their product would have a clear and compelling use case. It’s always a great sign when a team is attacking an actual problem.
There are positive signs in the way they have built out the project to date, operating a seemingly fair token distribution and adhering to the Curve cultural tradition of giving the middle finger to VCs. And did we mention the website is great?
As they launch, we’ll be paying attention to how they inform users of risks. The Bancor approach of promising no losses led to a lot of loss. We hope they pick a more honest marketing angle.
For instance, the team might present their offering as a means of diversifying risk as opposed to maximizing yield. A thorough accounting of past attempts at providing single sided liquidity, an analysis of why they failed, and comments on how they would correct these may also inspire more confidence.
The Conic whitepaper mostly addresses mitigating risks from slippage, but no mention of other risks like depegs, oracles, etc., so a more thorough accounting of risk factors would be a positive step. Perhaps they may proactively collaborate with the Crypto Risks team before finalizing their design or requesting a gauge vote. For instance, one could imagine building a solution that had different tranches of risk/returns for each single sided asset.
More engagement with the community generally would also be a plus — their DAO vote went up without an associated discussion on the governance forum. The success of their offering seems to hinges on “a liquidity allocation vote held by the vote-locked CNC holders,” so active community participation will be crucial to their success, and we’d like to see a track such community building, which is a tough task.
Absent the usual governance forum discussion, we’d recommend voting against this particular gauge vote for now. It would be premature to begin incentivizing this pool before we held a more thorough public discussion of the project and its potential risks. At this stage, we don’t believe voters are equipped with enough information to cast an informed vote.
This is not a condemnation of the project long term. The gauge vote can be resubmitted anytime. We’d likely support it after more transparency about how the team will overcome the challenges around single sided deposits.
We believe Conic Finance is tackling a compelling use case. If they indeed solve these challenges it could be a substantial opportunity, and overall we hope Conic grows into a core piece of the broader Curve flywheel.
What are your thoughts? Bullish? Bearish? Drop them in the comments!
Disclaimers! Author was eligible for an airdrop from LendFlare, but did not claim it. Author thought he was eligible for an airdrop from Conic, but apparently wasn’t.