yETH and Curve Go To War – Trustnodes

yETH and Curve Go To War


yETH dai draining by arbitrage due to Curve Y pool flaw, Sep 2020

The hottest new dapp that could have fueled the price of eth seems to have courted a bit of a problem, the Curve (CRV) guys don’t seem to like them too much anymore because the yethers are selling their curves.

This wouldn’t have mattered if yETH didn’t find an oversight in the Y Curve pool that underprices dai.

“Yearn is repaying CDP early using Curve to mitigate as there is not enough DAI to repay the debt quickly. $44M DAI in Curve this morning, $20M now,” Julien Bouteloup, a long time eth dev, says.

That was after he said the yETH pause was an “emergency shut down & you’re all stuck in yETH vault #13972 while $ETH is crashing!”

Something that Andre Cronje called “pointless sensationalism” and “simply false.” All suggesting the happy couple is having a bit of a row.

You see the Y Curve pool is selling dai for cheap. So when a lot of eth was sent to yETH, about $100 million, and that eth through collateralization got a lot of dai that was sent to the Y Curve pool, arbitrage boters quickly munched that new dai because it was going for cheap.

That’s because of something called A which from the sound of it seems to be the intensity of the shape of the curve.

Meaning at A 2,000, the contract sends the signal that you really should convert this dai to some other stable coin because it has hit the target of $1, when the dai free market price is say $1.01. Small difference, but not with big amounts. Cronje says:

“The high A of y pool, has essentially allowed arbitragers to keep getting DAI for 1, when in fact they should have been paying 1.01 ~ 1.02.

So by bringing A lower, it makes DAI more expensive to buy. But, since y pool is incredibly low on DAI, it also makes DAI nice to sell to it.

This will keep the pool more evenly spread between assets, which I generally think is positive for all LPs, will remove a source of cheap DAI from the market (good for DAI). And create a healthier balance of assets.”

The proposed solution is to halve the A to 1,000, but this is at the Curve protocol layer, and there the Curve holders decide, and one of them says:

“Although I am generally in favor of collaboration with Andre Cronje, I will be voting against this proposal.

Everyone is free to sell their earned CRV but I have no interest in helping make that process easier or in this case safer to do at a large scale.

Growth of the yeth vault only pushes CRV price down and brings absolutely no LPs invested in the curve protocol success.

I want distributed CRV to end up in the hands of investors that could decide to hold it if incentivized properly, the vault does not offer that option at all.”

Ouch, and what must hurt even more is that you can’t even blame him. However, this flaw in the Y Curve pool applies regardless of whether there is or isn’t a yETH because it existed before yETH came around, it’s just now that it became evident to experts who can do something about it.

So you have here a pretty awful clash between what is objectively reasonable and right, and between what is ‘objectively’ better for one’s pocket.

The former one is easy. What is right is right. There’s a flaw, though not a fully critical one, but there’s a mistake that should be addressed.

The latter one is hard to objectively analyze because there are tradeoffs in as far as obviously CRV holders wouldn’t want automated selling of their token, but presumably they wouldn’t want the Y Pool to go down or really, presumably they wouldn’t want to be thieves either because they’re facilitating the taking of money for cheap when there’s nothing one can say about it if they were unaware, but now that they know, well it’s basically a refusal to fix what is theft really.

It isn’t theft because you willingly put it in there and in this case the yeth guys came up with y pool as well, so where the past is concerned there’s no argument there.

But even now it isn’t theft because you’re willingly and knowingly putting it in there. And yet, it kind of is theft at this point to prevent its fixing and such prevention creates further risks in as far as devs may well consider Curve to be a bit of a moat.

You’re kind of at their mercy if you build on top of it and in this case, Cronje says:

“Y pool has also become something closer to a stable savings account and meta stable coin for yearn and a lot of other communities. So having a more equally proportioned pool gives a lot more safety and security.

We have been building and integrating a lot of solutions ontop of y specifically because till now, it served that purpose so well.

I have no objections to all veCRV holders to vote for 0 CRV rewards for y pool, but I would like to keep using it as the defacto meta stable pool + savings account.”

If we read this correctly he is saying the Yearn team has built an entire ecosystem around this pool, and that entire ecosystem is basically at the mercy of another ecosystem that may have its own interests which in this case kind of overlap, but also conflict.

Making this a complicated situation and a tough decision for CRV holders, especially the CRV dev team.

Bouteloup happens to be part of that team and from his public statements, he isn’t happy about yETH at all and seems to be happy to see it potentially come down crashing, naturally maybe because he is part of the CRV team.

However, he hasn’t made any statements on this A matter as far as we can see, and the CRV team in general has not made any statement so far.

As such, what they’ll decide is to be seen because there can easily be a difference about not liking the fact your token is insta sold by some mining dapp, and not fixing your own dapp.

There can also be other wider implications if there’s a negative decision, with it unclear whether Yearn can just fork this pool and fix the A, something that you’d think would be a checkmate, except it wouldn’t mine CRV but maybe some Y token.

Or they could just offer the option to get CRV as CRV instead of insta selling them with devs now probably realizing you can interlope but you better be careful about it if you’re doing something the other dapp might not like and there is something they can do about it, like in this case not fix your/their pool.

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