The Curve Emergency DAO has killed the USDM gauge

Here’s another smart quote to add:

“infinite mint constrained by finite pool depth, this is a pretty basic principle to understand, it doesn’t matter how much you print if there is no liquidity for what you are printing…I never said it was unquestionable, in fact it was extremely risky, but hello this is crypto, and LPs weren’t rekt until the pool gauge was shut down, so Curve either failed to assess the risk properly before doing this, or they were just playing politics and protecting their cartel”

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And it would have.

It would not have. We’ve had plenty of tokens that even with a gauge failed to maintain the peg. See USDP which had to shut down.

USDM has several directions.

  1. minted and sold.
  2. bought and repaid
  3. LP to speculate on neutral flow

Since Mochi team holds nearly all the Mochi, they own nearly all the CVX purchased.

They have no incentive to distribute ownership of that CVX, and at this point have made no moves to create their own staking contract to distribute ownership. No ownership distribution has been mentioned by the team.

Here’s a thought experiment for you, you hold USDM.
Which is a Mochi product.

You provide liquidity.
The team trades through the pool USDM > 3pool to access CVX.

Do you think Mochi will be repaying that loan? They did lock their purchase for 16 weeks, so at minimum not for 4 months.

If you think they wont sell the CVX to pay back the debt, then you think they’ll keep voting on incentives, which means no flow back to repay which means LPs will be stuck in USDM without opening their own USDM vault. (And having more value stuck behind USDM)

If they will sell the CVX to pay back the debt then you don’t think incentives will stay on the pool anyway, which means they still wont have a good peg by your standards.

The magic trick here was doing it slow. It was noticed early and able to be shut down but lets say it didnt. End result is even more locked CVX bought through the pool with no reverse flow. Is that good for LPs to be supporting an even larger one way flow when speculating on neutral flow?

If all the flow is just playing the farming game, we’ve seen pegs like this fail such as yveBoost which was a one way flow.

The speed cut off the problem faster. You’d be in the same boat, but Mochi team would be a lot personally richer had the behavior been allowed to continue. Its the natural end.

If Mochi team would sell the CVX and repay their loan, you’d likely be in pretty good shape, but they have expressed no interest in doing so.

The best bet of LPs in my frank opinion is petitioning for Mochi to sell the CVX for USDM in 16 weeks and repay their debt (or hold doesn’t matter at that point) This would put the pool back in balance and can be done without Curve’s involvement at all.

If not that, next best is to have them incentivize liquidity with their governance token to distrubte ownership of the CVX purchased.

Else if Curve incentivizes we’ll just create a scenario where more folks like you are trapped against the one way flow of the team. Its the natural end of such a flow.

But the most important issue at hand here isn’t LPs. This is a governance attack first and foremost, and Curve DAO is incentivized to protect the DAO above all else.

LPs of Mochi’s products can be made whole by Mochi if they choose to. No one can force Mochi to act with decency. Ball is in their court.

Restore the gauge and see what happens.

Liquidity will pour in and 1M of CVX will boost the USDM-3CRV pool and Mochi token will moon to compete with Spell.

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And there will continue to be a one way flow and LPs will still get stuck because there is no reverse demand to repay debt.

Now we have a lot more stuck LPs. What do?

USDM mint debt would be slowly repaid, or if Mochi mooned maybe some would be sold to pay back USDM debt. The time stamps are available. Even after the USDM mint (which WAS NOT unlimited) the peg was $0.98. After Curve killed the gauge at Tetranode’s personal demand, LPs exited and price crashed.

“Of course the code needs to be fixed first and no one is saying otherwise. but the original move worked and didn’t create systemic risk, Curve just panicked because of their whales and found a way to dress it up as ‘governance.’ “

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Your use of quotes throws me off, and feels out of context. But I’ll give it a shot.

USDM mint has no plans to be repaid at this time.
Mochi has 0 market depth. It can’t moon because no one can buy it, and it can’t dump because no one can sell it. Its current price is literally made up by the team.

Mochi can change the rules at any time and changed the rules to mint series of buys being discussed. It is therefore not all that hard to believe they’d change the rules again just as easily. Going from 1 signer to that same signer plus 1 more isn’t really adding security against that possibility.

The original move extracted value from LPs, and created a scenario where Mochi was committing a governance attack which left their gauge kicked. It didn’t work for anyone but the Mochi team, who’m I imagine you are quoting.

Team now owns ~50m CVX.
You don’t.
LPs don’t
Mochi CDP users don’t.
“worked”

Had the gauge not been pulled and their bahavior called out would they have continued? I have seen no one from Mochi argue against that.

Had the behavior continued, would the pool continue to shift off balance? Yes. They had already pushed to $.98 in a system designed to keep it on peg with very strong force with no intention of slowing down.

Curve didn’t kill the gauge at Teranodes personal demand. They are not even on the Emergency DAO and no one on that DAO is bound to Teranode in any way.

And please keep in mind, this is first and foremost a governance attack which is why it was shut down quickly.

Edit: re your quote. “no systematic risk” USDM largely backed by a non liquid asset mostly owned by a single entity. That USDM was converted into a 4 month lock so can’t be sold to cover debt. They literally added massive systematic risk to USDM by their direct actions. Were other CDP holders knowledgeable of this introduced systematic risk when it occured? I think not.

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Andre was concerned that USDM would be minted, collateral deposited, raising TVL, affording more borrowing power, to mint more USDM for a loop like instadapp.

That didn’t happen. CVX was not deposited as collateral. It was vote locked to vote for the USDM pool. How is that demonstrating this behavior would continue? Locked for 16 weeks is pro social cooperative behavior. That’s what would have continued.

What’s the attack on governance that hasn’t been addressed within 24 hours? Is there something still outstanding?

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You misunderstand. The tweet

  1. Be Mochi
  2. Incentivize USDM/3pool
  3. Get $100mm liquidity
  4. Mint free Mochi
  5. Use Mochi to mint 46mm USDM
  6. Swap USDM to DAI
  7. Buy 46mm worth of CVX
  8. Use CVX to vote more incentives
  9. Liquidity increases more
  10. Repeat ad infinitum

Step 8 is lock CVX for more votes, which is what was done.
Step 9 is gain more LPs to dump on through CRV paying incentives.

I’d like to note, by using CRV for incentives, they don’t need to distribute ownership of their DAO, and thus ownership of the CVX they bought remains undiluted as the teams.

Further, I’d note that Liquidity needs to increase before they can repeat to remain under the radar, which was the initial goal. So when you say they didn’t add more Mochi collateral, that was never to use the CVX as collateral, but to mint Mochi and use that as collateral.

Now few people, are using the liquidity of many, to personally gain CVX and governance influence, which they have already show are using it not for the benefit of Curve, but to self enrich.

You: Locked for 16 weeks is pro social cooperative behavior.

Its also “i can’t repay the loan” behavior, choosing to add risk to their system.

Who made that choice to lock? Was it the personally enriched team who holds all the governance tokens? Was it you? Was it the 5% given to kickstart bribes?

From original post

As this constitutes a clear governance attack
eventually creating more liquidity for the Mochi team

The problem at its core is Mochi team getting personally enriched and voting to continue to personally enrich. In the process, creating a one way flow of debt minted sold, locked, meaning LPs never get repay flow. And why would they, repay to unlock governance tokens that have 0 market depth, that’s literally not valuable. CVX is valuable. They entirely own it.

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TVL won’t increase instantly from a vote lock, only deposit of collateral would do that. TVL would certainly increase as folks saw massive rewards for USDM-3CRV pool. I missed out on that AND the pool is unbalanced and rekt from the direct actions of salty whales and hasty reaction from Curve. The massive rewards would have been the next CVX vote, so there was plenty of time to address the issue in a regular governance proposal.

There was no systematic risk to Curve.

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TLV isn’t a factor. Its that they need enough liquidity to not move the price too much that people call it a rug. They need people to add 3pool liquidity to buy USDM, so they can then sell more freely minted USDM.

Nothing to do with TLV.

As more votes come in, yes, more LPs like you would enter the system to earn the rewards they vote to give you.

They would sell into your liquidity. You aren’t minting USDM, so you have no way to redeem it for $1 of debt. You need buyers, but you have an infinite dump machine as your counter party.

Lets say you missed out on 100% APR. This needs 1 year to earn 100% of principal. If USDM peg doesn’t last 1 year, what you are actually setting up is to get rekt and lose principal chasing yield.

Sure you’ll have tons of USDM, but with no debt, no value without buyers. You could mint debt, but then more USDM to try to sell.

The risk to Curve is that a entity of Few is using folks like you as exit liquidity for a one way flow that doesn’t create eventual buyers for USDM, and which doesn’t distribute ownership of the CVX beyond the few who are profiting and voting to self profit.

Its a timebomb and it sucks, and I get that, but at the end of the day, giving back the gauge just means more people get stuck.

I totally disagree.

It was a bold move, and it pissed off CRV and CVX Whales who said they would REKT the pool, and they did. It was all done out of spite and vengeance, and Curve governance went along with it lockstep. There was no systemic risk to Curve, and security issues were fixed in 24 hours. This pool is rekt unless Curve turns the gauge back on, and you’re making an assumption that the few will continue to dump. Yearn farmed and dumped CRV tokens. It wasn’t until CVX came along and saw the error that they changed to farm and hold. You’re making assumptions that Mochi will do something similar, but you haven’t given it any time to prove they will be honorable. It’s not a timebomb and it’s a very unfair frame which is continuing to rekt USDM-3CRV LPers.
It’s similar to the frame that sets up this whole “emergency vote:”

"“as it is a clear governance attack against both Curve and Convex, as well as an attack on the USDM liquidity pool itself”.

This is in the write up of the vote and guides and frames a narrative for an agenda and suggests the outcome."

Guys like you claim it was enough of a risk to do an Emergency DAO to shut off the gauge… A gauge by the way that received tremendous support. Mochi provides collateral for long-tail assets, and it has a market fit. The Mochi token is a competitor to Spell… but instead of paying for bribes, Mochi bought 1M worth of CVX and voted to direct CVX rewards to the USDM pool. This would have made the pool very attractive, and the Mochi token very attractive. But the salty whales came up with some deceitful panic to kill the gauge, which had LP providers exit in mass and now smaller LP providers, like me and many others are totally rekt.

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Ok. So I’m gonna distill the following from what you are saying.

  1. Mochi is great project. Provides collateral for long tail assets.
  2. Mochi so great will compete with Sepll.
  3. Mochi made smart move to not further pay bribes (further distribute governance token) to lock CVX.
  4. Having this CVX locked is attractive for participants in the pool.
    5a. Without incentives, no one will LP, and you are stuck in USDM, an asset no one will buy.
    5b. With incentives, people will buy to LP for rewards. (providing exit liquidity to you and others currently stuck who may want to exit)

So it seems:

  1. Mochi is great. People want it.
  2. Mochi has a ton of governance tokens owned by the team. Undistributed.
  3. People are speculating it has potential to be a great innovative project.
  4. It absolutely needs incentives to work.

I think as far as the last 4 points we are in agreement, right?

As I see it, there are two options going forward. Please let me know if you think there are alternatives.

Option A

  1. CRV rewards incentivize people to LP
  2. Mochi governance still undistributed.
  3. No reason to distribute.

Option B

  1. Mochi governance token could be used to reward LPs.
  2. Mochi governance becomes distributed
  3. Decentralization of access/ownership to gains removes governance risk, gets access to a gauge since problem is resolved.

I think Option B is the best way forward.
What is the reason its so off the table in your opinion?

Edit: just to be ultra clear, in A team gets rich. In option B LPs who get in on ground floor of next spell get to share the riches assuming Mochi has the potential you say

Edit: This argument is from perspective of post replying to, trying to highlight that the best option forward is for Mochi to resolve issues on its end. I don’t actually think its a good product.

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Looks pretty good, thanks for writing that up. From what I read there is zero resistance to forming a Mochi DAO so hopefully Option B moves forward!

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It would be attractive to enter the LP for the rewards.

Prior to incentives the pool might look like

600 USDM : 25 3crv

Throw in half a million $ worth of token rewards. The sum of tokens residing in the pool will increase until the reward as % balances out for the risk.

60,000,000 USDM : 2,500,000 3crv, with incentive rewards now working out to 17% ($0.5 million in rewards / $ 3million in the LP)

The USDM is still “worthless”, and the sum of funds at risk is still only ~$3 million, not $62.5 million.

The peg is still ruined. Someone has to come along and willingly contribute dai/usdc/usdt, to effectively buy out enough USDM tokens and push up the USDM price back to it’s “fair” value. They would need to purchase something like $10 million to restore the peg. If I were to enter a LP, it would be with the same ratio and price as already exists within the pool.

Think if this were instead a ETH:BTC liquidity pool. Changing the incentives given to LP holders is not going to change the resulting peg.

The idea that pool incentives solely dictate market prices, is a very flawed assumption. There are far more factors at play. Careful thought needs to be given to token flow, and who ends up holding what. Plenty of people will enter positions without understanding the full mechanics at play (take a look at Iron Finance. It was only in the last week of operation, that people finally understood the underlying token mechanics/flows, and whales were learning to manipulate)

Killing a gauge puts a hold in further distributing out governance tokens to possible bad actors. It signals this topic requires better due diligence, and the gauge can be restored once parties are given time to debate their case.

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Forget for a moment whether what mochi/az did was right or wrong. The emergency dao’s nonsensical response and their and other big players’ (eg tetra) pr campaign to influence opinion (not to mention how the governance proposal is worded) is what concerns me most. This “ban” won’t accomplish what you imply it will, and it won’t get the CVX back.

I have no afiliation with or financial stake in mochi. I am just disappointed.

Interesting play. I do have USDM and 3CRV that I’d be willing to throw in. Curve.fi but this doesn’t give the option to use 3CRV (that I have) and I looked on the DAO page, but that’s for regular gauges. Is there an option to do this, or do I need to withdraw the 3CRV in equal proportions and then deposit it, which will likely be multiple approvals, and needlessly expensive to deposit. Update: I withdrew as single token DAI and paired with USDM to deposit and stake in Curve gauge. Convex gauge was closed to new deposits. It’s not emitting any incentive rewards.

Awesome, so you managed to enter the position you want? I don’t have a whole lot of experience with it and how many steps are involved, I usually play on other cheaper chains haha

https://curve.fi/factory/23

You should be able to trade on that page, or click on the deposit and withdraw sections at the top, if you want to change your holdings of the LP.

While incentives are shut down, you won’t receive any bonus CRV or CVX tokens. You should accrue whatever trading fees happen, and changes to the ratio of tokens within it.

If the situation resolves well for Mochi, I imagine the rewards will be reinstated. I’m not sure how this event plays out as it is a rather complex topic, and it would be ideal to try and avoid as many biases/favoritism, for either side.

edit: In an earlier post you asked if I took up this trade/idea as well. Fwiw, no I don’t believe the USDM tokens will hold any value in the long run, so I don’t like the idea of holding them. I also can’t see any communication from AZ that more thoroughly explains his actions and how this is at all sustainable. So at best, I can only assume he is acting from either ignorance or through deceit. But that is my own my personal opinion, not debatable points, you’re free to place your own bets as you assess the situation, and form your own opinion.

edit2: To also outline my comments with a very prominent WARNING. Anyone continuing to provide usdc/dai/usdt to this pool, is essentially giving it away to AZ to do as he wishes with. So, please, understand the tokenomics, and the warnings the figureheads have been attempting to outline. To the best of their and my own understanding, with all those inherent biases, you are being taken for a ride. There is no way to get this point across clearly without believing there are further hidden agendas. Please, be extra diligent.

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Azeem responded to some attacks in Crypto Twitter, but got tired of being a punching bag. I know he’s been working with the team to get the security issues addressed, because restoring the gauge is the #1 priority. If I recall correctly multisig is 3 of 6 now, and fully distributed Mochi DAO is on its way. There’s been communication to the Mochi Discord and various channels.

If you look at the framing of this proposal it’s not a neutral one inviting discussion and well constructed argument. It clearly condemns him as guilty and demanding swift punishment. Would be a tough venue to show up to present his case.

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“Our national problems usually do not cause nearly as much harm as the solutions.” Thomas Sowell

Thank you for taking the actions to in a temporary emergency way to disable the gauge.

I will be using my small vote to vote “no” on restoring them a gauge. I don’t know what efforts can be done to prevent bad actors in the future but there is certainly a lot of factory junk now on curve. I don’t know why I feel that way because obviously uniswap allows every coin out there. But anyway—thanks for the actions by the emergency DAO!!