Almost four months have passed since the devastating disassembly of a DeFi daisy chain, which saw the value of the so-called “yield vault” sector drop by over $4 billion.
Since then, many of the “risk curators” involved have kept a low profile, while others are keen to rebuild confidence.
Last week, it became clear that one such curator hadn’t managed to weather the storm.
MEV Capital dissolves
Last week, The Big Whale reported that MEV Capital would be taken over by one of its partners, Belem Capital. Citing DeFiLlama figures, the article highlights an 80% drop in MEV Capital’s assets under management, dropping from $1.5 billion to $300 million.
The drop-off was sparked by the firm’s exposure to looped-leverage yield strategies involving deUSD, which depegged in early November in response to the collapse of Stream Finance (not, as the article claims, in the infamous October 10 market crash).
Elixir announced it would discontinue deUSD shortly thereafter.
MEV Capital’s CEO Laurent Bourquin, “seems to have abruptly stepped back,” according to the article.
Additionally, asset tokenization platform Midas Capital disclosed that it had “concluded all business” with MEV Capital, handing management of mMEV and mevBTC to RockawayX.
DeFi’s ‘risk curator reckoning’
In late October, worries began to circulate over the integrity of a number of high-yield vault tokens across the DeFi sector.
Days later, one of these risk curators, Stream Finance, collapsed spectacularly after admitting it had lost $93 million. With the quality of its backing exposed, Stream’s vault token, xUSD, lost 75% of its value.
Other assets in the “daisy chain” of recursive lending followed suit, notably Elexir’s deUSD.
The resulting domino effect saw a scramble to unwind leverage across a handful of projects. In all, almost half of the sector’s $10 billion in total value locked was wiped out over the following month.
It’s since recovered slightly, sitting at around $6 billion.
Some handled it better than others, with users often waiting weeks with no news. Risk curator Re7 Labs even made legal threats to a self-styled “whistleblower” who had publicly complained on behalf of depositors.
‘Any curators reading these reports?’
November’s yield vault apocalypse hinged on recursive lending and borrowing of vault tokens between interconnected projects.
More sustainable projects, however, went unscathed. They’ve increasingly leaned into “institutional-grade” offerings of on-chain, but somewhat more tangible, real world assets (RWA).
The aforementioned Midas Capital tokenizes off-chain funds such as Fasanara’s F-ONE (as mF-ONE), for example. These come with regular reporting on the state of off-chain assets.
However, some remain unconvinced, asking “any curators reading these reports?” in response to Midas’ recent disclosure of an inaccuracy in their mF-ONE reporting. Another X user called the reporting “trash,” pointing to delays and missing information.
It should be noted that both accounts are contributors at Yearn, a fully on-chain yield aggregator platform.
Read more: Yearn hacker loses $2.4M of $9M loot as tokens burned from wallet
Off-chain risk, now on-chain
DeFi is often seen as plenty risky enough, but it’s certainly not immune from outside risks.
A detailed December report from curator Steakhouse Financial drew attention to a 2% drop in Midas-tokenized fund mF-ONE, in line with the real-world version.
The dip wasn’t enough to cause any mF-ONE collateralized positions to be liquidated, but still raised eyebrows as a novel asset class in DeFi.
Last week, risk management firm Chaos Labs revisited the episode, pointing to “a bankrupt auto-parts supplier” as the source of the shortfall.
It makes the case that “yield is risk,” and that “off-chain doesn’t mean safe by default.”
Steakhouse, whose high-yield vault is exposed to mF-ONE, said the post contained “inaccuracies and selective presentations” and accused Chaos Labs of “plagiarismgooning and fudmaxxing.”
Founder of Steakhouse, Sébastien Derivaux, insisted that mF-ONE is “fit for high yield vaults as collateral.”
Worth it?
The mechanics of bringing RWAs into DeFi are complex. They also make adhering to the maxim “don’t trust, verify,” reliant on issuers’ reporting on off-chain assets.
Even stranger, their use as collateral may even see lenders receiving lower yield than the collateral itself. Whilst assuming both counterparty and underlying asset risk.
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