DAI

Euler Finance exploiter returns another $37.1M worth of ETH and DAI

The exploiter originally drained $195 million worth of ETH and tokens from the protocol but has now returned around $138 million.

The architect of the March 13 Euler Finance exploit returned an additional $26.5 million worth of Ether (ETH) to the Euler Finance deployer account on March 27, on-chain data shows.

At 6:21 pm UTC, an address associated with the attacker sent 7,738.05 ETH (worth approximately $13.2 million at the time it was confirmed) to the Euler deployer account. In the same block, another address associated with the attacker sent an identical amount to the same deployer account, for a total of 15,476.1 ETH (around $26.4 million) returned to the Euler team.

Then, at 6:40 pm UTC, the first wallet sent another transaction to the deployer account for $10.7 million worth of the Dai (DAI) stablecoin. This brings the total of all three transactions to approximately $37.1 million.

Both of these addresses have received funds from the account that Etherscan labels “Euler Finance Exploiter 2,” which seems to imply that they are under the control of the attacker.

These transactions follow a previous return of 58,000 ETH (worth over $101 million at the time) on March 25. In total, the attacker appears to have returned over $138 million worth of crypto assets since the exploit.

Ethereum-based crypto lending protocol Euler Finance was exploited on March 13, and over $195 million worth of ETH and tokens were drained from its smart contracts. Several protocols within the Ethereum ecosystem depended on Euler in one way or another, and at least 11 protocols have announced that they suffered indirect losses from the attack.

According to an analysis by Slowmist, the exploit occurred because of a faulty function that allowed the attacker to donate their lent Dai to a reserve fund. By making this donation, the attacker was able to push their own account into insolvency. A separate account was then used to liquidate the first account at a steep discount, allowing the attacker to profit from this discount.

After draining Dai through this first attack, the attacker then repeated it for multiple tokens, removing over $196 million from the protocol.

Funds stolen from Euler Finance. Source: BlockSec

MakerDAO passes proposal for $750M increase in US Treasury investments

The emergency proposal increases MakerDAO’s holdings of United States bonds by 150%, aiming to diversify the Dai stablecoin’s collateral exposure.

Lending protocol and stablecoin issuer MakerDAO passed a proposal on March 16 to increase its portfolio holdings of United States Treasury bonds by 150%, from $500 million to $1.25 billion.

The proposal aims to increase the protocol’s exposure to real-world assets and “high-quality bonds,” following its Dai (DAI) stablecoin losing its $1 peg during market volatility on March 11. The $750 million debt ceiling hike was approved by 77% of Maker’s delegates. A representative of MakerDAO told Cointelegraph:

“Under this new deployment, MakerDAO would use $750 million of USDC in the PSM to purchase more US Treasury bonds, thus diversifying its liquid assets that back DAI.”

The bonds will be purchased with equal maturities, biweekly and over a six-month period, totaling 12 slots of $62.5 million each. Under the strategy, MakerDAO said it expects to deliver a net annualized yield of 4.6% to 4.5% after custody. Maker’s revenue stream could also be boosted by trading costs, the proposal noted.

Maker’s new strategy ladder for the next six months. Source: MakerDAO

The proposal would allow Maker “to take advantage of the current yield environment, and generate further revenue on Maker’s PSM Assets, in a flexible, liquid, manner,” it read. Federal Reserve data shows that Treasury’s yields for 10-year constant maturity were at 3.64% on March 14.

Market yield on U.S. Treasury securities at 10-year constant maturity: Source FRED

The move is an extension of a current $500 million U.S. Treasury allocation managed by decentralized finance (DeFi) asset adviser Monetalis Clydesdale since October 2022. “As of January 2023, this investment strategy has brought ~$2.1 million in lifetime fees,” MakerDAO claimed. 

Participants in the governance forum, however, said that “Maker has not yet received any payment from the first half billion DAI” from Monetalis. Delegates also complained that questions in Maker’s Discord and governance forum were not answered promptly, thus not offering enough time to analyze the proposal. 

On March 11, the collapse of Silicon Valley Bank spread panic across markets and led to the depeg of several stablecoins, including USD Coin (USDC) and Dai. In a March 13 Twitter thread about the volatility, MakerDAO noted that its community was working on proposals to switch its stablecoin exposure to money market investments, such as U.S. Treasurys, “with the purpose of diversifying DAI’s liquid collateral.”

Debtors saved over $100M using de-pegged stablecoins to repay loans

Debtors jumped on the opportunity to grab a discount on their loan repayments when USDC and DAI de-pegged from the dollar.

The depegging of USD Coin (USDC) and Dai (DAI) from the United States dollar prompted a frenzy of loan repayments over the weekend, allowing debtors to save a total of more than $100 million on their loans.

Following the collapse of Silicon Valley Bank on March 10, the USDC price dropped to lows of $0.87 on March 11 amid concerns about its reserves being locked at SVB.

MakerDAO’s stablecoin DAI also de-pegged briefly, going as low as $0.88 on March 11, according to CoinGecko.

The USDC price briefly dropped to lows of $0.87 on March. 11. Source: Cointelegraph

The depegging, in the backdrop of broader crypto turmoil, led to more than $2 billion in loan repayments on March 11 on decentralized lending protocols Aave and Compound — with more than half made in USDC, according to a report by digital assets data provider Kaiko. 

Another $500 million in debts were paid in DAI on the same day, it noted.

Digital assets data provider Kaiko found over $1 billion in USDC loan repayments on March. 11. Source: Kaiko

This tapered off as both USDC and DAI started heading back toward their peg. The following days did not have anywhere near as many repayments, with a rough total of only $500 million in loan repayments across Tether (USDT), USDC, DAI and other coins on March 12, and roughly half of that on March 13.

Blockchain analytics firm Flipside Crypto estimates that USDC debtors saved $84 million as a result of paying back loans while the stablecoin was de-pegged, while those using DAI saved $20.8 million.

Debtors used de-pegged stablecoins to save millions in loan repayments. Source: Flipside Crypto

“Overall, DeFi markets experienced two days of huge price dislocations that generated countless arbitrage opportunities across the ecosystem, and highlighted the importance of USDC,” the Kaiko report said. 

Related: USDC depegged, but it’s not going to default

The depegging of USDC also led MakerDAO to reconsider its exposure to USDC, as crypto projects incorporating DAI in their tokenomics suffered losses due to a chain reaction.

Circle’s USDC began its climb back to $1 following confirmation from CEO Jeremy Allaire that its reserves were safe and the firm had new banking partners lined up, along with government assurances that depositors of SVB would be made whole.

According to CoinGecko data, USDC was sitting at $0.99 at the time of writing.

Aavegotchi bonding curve closes on exact day of DAI depeg

The DAI stablecoin supported the price of GHST for over two years.

According to play-to-earn nonfungible token (NFT) protocol Aavegotchi, on March 11, the entity closed the bonding curve defining the exchange rate between its Aavegotchi (GHST) token and the Da (DAI) U.S. dollar-pegged stablecoin. The same day, DAI lost its U.S. dollar peg due to the ongoing fallout from the collapse of Silicon Valley Bank and the Circle-issued USD Coin (USDC) depegging. USDC’s depeg was caused by $3.3 billion in stablecoin collateral deposits stuck in the now-defunct Silicon Valley Bank. 

In a statement to Cointelegraph, Nigel Carlos, the chief marketing officer of Pixelcraft Studios, explained that the community voted at 2 am UTC today to end a two-and-a-half-year contract sale of its native GHST token and “derisk from DAI.“ Carlos stated: 

“The vote closed a smart contract (bonding curve) that provided liquidity for the minting and burning of GHST, the Aavegotchi ecosystem’s base currency and governance token that has a market cap above $76.6 million and a total supply of 54.6 million. Which was bound to DAI and has DAI treasury in the smart contract.“

According to Carlos, GHST is now a fixed supply token and the $33 million in DAI tokens that were spent to mint GHST in the contract is “planned to go toward developing the gaming protocol’s ecosystem.“ GHST is described as an “entry ticket” into Aavegotchi. Users can use the token to purchase NFT portals, wearables and consumables within the Aavegotchi game, stake to farm rewards, and participate in decentralized autonomous organization (DAO) governance. The Aavegotchi bonding curve was created on Sept. 14, 2020, with an opening price of 0.2 DAI per GHST.

When users purchase GHST via DAI, the bonding curve smart contract — powered by Aragon — ensures new GHST tokens are minted and vice versa. However, when a GHST token is purchased, each subsequent buyer will have to pay a slightly higher price for each token, leading to GHST having a higher market cap than its DAI reserve.

In what was essentially a multi-year token sale, the protocol has received a total of 30.3 million DAI. Developers first proposed in January that the DAI funds should be distributed for protocol liquidity (20%), the Aavegotchi DAO (40%) and its parent Pixelcraft Studios (40%). 

With the bond curve removed, the exchange rate of GHST is now free floating and no longer determined by DAI. At the time of publication, the token’s value had plunged 18.09% in the past 24 hours to $1.12. Meanwhile, the price of the DAI stablecoin has fallen 6.76% in the past 24 hours to $0.9314. Though no longer linked, the proceeds received from the token sale suffered a material loss due to the DAI depegging event.

MakerDAO files emergency proposal addressing 3.1B USDC exposure

“Proposal(s) implementing the above changes are expected to be posted in the next ~12 hours or less,” says MakerDAO.

According to a forum post from MakerDAO, the issuer of the U.S. dollar-pegged Dai (DAI) stablecoin, on March 11, the firm requested an “urgent executive proposal to mitigate risks to the protocol.“ Maker said it possessed multiple collaterals “exposed to USDC tail risk” in light of the extraordinary depegging of the USD Coin (USDC) stablecoin that began on March 10. MakerDAO currently has over $3.1 billion worth of USDC in collateral backing DAI.

Firstly, Maker proposes reducing the debt ceiling of UNIV2USDCETH-A, UNIV2DAIUSDC-A, GUNIV3DAIUSDC1-A and GUNIV3DAIUSDC2-A liquidity provider collaterals to 0 DAI. Next, Maker wants to reduce the daily minting limits of its USDC peg stability module from 950 million DAI to 250 million DAI, and increase the fee from 0% to 1% to prevent “excessive dumping of USDC.“ Another stablecoin module, GUSD, will also see its daily minting limit reduced from 50 million DAI to 10 million DAI if the proposal passes.

Maker also wants to eliminate exposure to decentralized finance protocols Curve Finance and Aave entirely. According to Maker, Curve “uses a fixed $1 price for USDC,“ which “presents a risk of bad debt accrual and potentially bank runs with cascading market insolvency if the market price of USDC falls significantly below the current collateral factor.“ While Aave doesn’t possess such risks, Maker nevertheless stated that its “overall risk-reward of depositing funds into the D3M are not favorable under current conditions.“

Finally, Maker proposes increasing the protocol’s debt ceiling for the Paxos Dollar (USDP) stablecoin issued by the Paxos Trust Company from 450 million DAI to 1 billion. The firm wrote:

“Paxos has relatively stronger reserve assets versus other available centralized stablecoins, consisting primarily of U.S. treasury bills, reverse repurchase agreements collateralized by U.S. treasury bonds. They face relatively lower potential for impairment versus other available stablecoins”

On March 10, USDC depegged from the U.S. dollar after its issuer, Circle, disclosed it had $3.3 billion worth of funds collateralizing the stablecoin stuck in now-defunct Silicon Valley Bank. At the time of publication, USDC is currently trading at $0.9025. In light of the news, the DAI stablecoin has also degged to $0.9235.

Circle’s USDC instability causes domino effect on DAI, USDD stablecoins

Following USDC’s depegging, three stablecoins — DAI, USDD and FRAX — also depegged from the U.S. dollar.

The stablecoin ecosystem felt an immediate effect as USD Coin (USDC) depegged from the U.S. dollar due to a subsequent sell-off after Silicon Valley Bank (SVB) did not process $3.3 billion of Circle’s $40 million transfer request. Given USDC’s collateral influence, major stablecoin ecosystems followed suit in depegging from the U.S. dollar.

Dai (DAI), a stablecoin issued by MakerDAO, lost 7.4% of its value due to USDC’s depegging. As of June 2022, $6.78 billion worth of DAI supply was collateralized by $8.52 billion worth of cryptocurrencies, confirms data from Statista.

DAI’s total crypto assets used for on-chain collateralization as of June 27, 2022. Source: Statista

Out of the lot, USDC represented 51.87% of DAI’s collateral, worth $4.42 billion. Other prominent cryptocurrencies include Ether (ETH) and Pax Dollar (USDP) at $0.66 billion and $0.61 billion, respectively.

As a result, DAI depegged from the dollar to momentarily touch $0.897. The stablecoin recovered to trade around the $0.92 mark at the time of writing, as shown below.

DAI to USD 1-day chart. Source: CoinMarketCap

USD Digital (USDD), a stablecoin issued by Tron, and fractional-algorithmic stablecoin Frax (FRAX) shared a similar fate due to adverse market sentiments. USDD responded to the USDC sell-off with a nearly 7.5% drop to trade at $0.925, while FRAX dipped even further to $0.885.

USDD to USD 1-day chart. Source: CoinMarketCap

Other popular cryptocurrencies, such as Tether (USDT) and Binance USD (BUSD), continue to maintain a 1:1 peg with the U.S. dollar.

Related: USDC investor shells out $2M to receive $0.05 USDT trying to evade crash

The entire depegging ordeal started after Circle announced that $3.3 billion of its funds were not processed for withdrawal by SVB.

SVB was shut down by the California Department of Financial Protection and Innovation for undisclosed reasons. However, the California regulator appointed the Federal Deposit Insurance Corporation as the receiver to protect insured deposits.

MakerDAO co-founder Nikolai Mushegian dies at 29 in Puerto Rico

Mushegian was an important figure in the crypto community, contributing to multiple projects, including MakerDAO, BitShares and Balancer.

Nikolai Mushegian, co-founder of the cryptocurrency lending platform MakerDAO and the decentralized Dai (DAI) stablecoin, was found dead in Puerto Rico last week.

Mushegian died due to drowning after being dragged by sea currents on the Condado beach in San Juan, the local newspaper El Nuevo Día reported. Mushegian had no vital signs by the time his body was rescued.

The Condado beach is considered one of the world’s most dangerous places for swimmers, reportedly taking the lives of at least eight people in 2021.

The unfortunate event was reported to local authorities on the morning on Oct. 28. According to a police report, Mushegian was a resident of San Juan. The scene was reportedly investigated by the San Juan Homicide Division and a local prosecutor.

Mushegian was an important figure in the cryptocurrency community, contributing to multiple industry projects, with some referring to him as a “Dai architect.” The 29-year-old crypto developer is known for his work with MakerDAO forks Rico and Rai, as well as the proof-of-stake blockchain network BitShares. Mushegian is also a co-founder of the automated market maker Balancer.

MakerDAO founder and CEO Rune Christensen took to Twitter on Oct. 31 to say that Mushegian contributed important inputs to Maker’s development and has done some crucial work since the early days of Ethereum.

Cardano founder Charles Hoskinson wrote on Twitter that he knew Mushegian from back in the BitShares days. “He was a very young and extremely bright man who had a very wide array of interests from game theory to Urbit,” Hoskinson said, adding that the coder had a deep understanding of technology.

Tether co-creator Craig Sellars noted that Mushegian’s death came just a few days after the MakerDAO community voted to approve custody of $1.6 billion in USD Coin (USDC) with the Coinbase crypto exchange.

Related: MakerDAO revenue tumbles 86% on Ether and Wrapped BTC woes

Mushegian was an active community member on social media. His Twitter account, Delete_shitcoin, has about 5,500 followers at the time of writing. His last tweet was published just a few hours before his death, referring to suggestions of alleged blackmail from the United States Central Intelligence Agency and Mossad. Mushegian previously made similar statements on Twitter, hinting at a potential “suicide” by the CIA as one of his possible futures.

Aave devs look set to receive $16.3M via retroactive funding

A proposal to reward members of the Aave Companies with $16.28 million in retroactive funding for the development of v3 of the Aave Protocol looks set to pass.

The decentralized autonomous organization (DAO) behind the decentralized finance (DeFi) platform Aave has accepted a proposal to reward members from Aave Companies with $16.28 million in retroactive funding for their role in the development of Aave Protocol v3.

Voting for the proposal began on Tuesday and, at the time of writing, has already passed 667,000 votes in favor of the funding, more than doubling the 320,000 required. The vote is set to end on Sept. 8.

According to the initial proposal, which was first pitched on Aug. 10, the Aave Request for Comment (ARC) sought “retroactive funding” for work in developing the v3 protocol.

The $16.28 million consists of $15 million for work performed by the developers over the course of more than one year and $1.28 million for costs paid to third-party auditors. The money will be given to members of the firm behind the popular DeFi protocol, Aave Companies.

The funding will be made up of a combination of AAVE tokens, Dai (DAI), Tether (USDT), USD Coin (USDC), alternative stable assets such as Frax stablecoin and higher volatility assets like Synthetix following the passing of the proposal.

While the origins of the retroactive public goods funding model are unclear, it was popularized following a collaborative post on Medium between Vitalik Buterin and Ethereum scaling solution firm Optimism on  July 21, 2021.

The post argued that the “retroactive public goods funding” model provides an incentive for developers to work on projects by allowing them to get paid after the project is completed and can be based on the value it provides.

The core principle behind the concept is that “it’s easier to agree on what was useful than what will be useful.”

Vitalik suggests in the post that it can be difficult in the beginning phase of a project to get it off the ground, with donations and grant money being insufficient to incentivize developers.

According to blockchain data provider Nansen, the Aave DAO has seen a huge drop in the value of its liquid assets throughout the crypto winter, down from over $800 million in April to around $378 million at the time of writing.

Despite this, the community has overwhelmingly voted in favor of the retroactive funding request, with community members suggesting “Aave Companies did tremendous work and should be paid for that.”

Some community members however took issue with the lack of transparency in the proposal, with one member stating in the comments, “I support the proposal, but would wish for as much transparency as possible to raise the bar for any other retroactive proposal in the future.”

MakerDAO should ‘seriously consider’ depegging DAI from USD: Founder

In light of the recent Tornado Cash and frozen USDC addresses debacle, MakerDAO founder Rune Christensen is hoping to move DAI’s collateralization away from USDC.

MakerDAO founder Rune Chirstensen has urged members of the decentralized autonomous organization (DAO) to “seriously consider” preparing for the depeg of its DAI stablecoin from the United States dollar (USD).

The founder’s comments came in light of the recently announced sanctions on crypto mixer Tornado Cash, noting to MakerDAO’s Discord channel on Aug. 11 that the sanctions are “unfortunately more serious than I first thought,” adding that they should prepare to depeg its native stablecoin DAI from the USD to avoid any risk’s relating to Circle’s recent freezing of sanctioned USD Coin (USDC) addresses.

“I think we should seriously consider preparing to depeg from USD. It is almost inevitable it will happen and it is only realistic to do with huge amounts of preparation.”

On Aug. 8, the U.S. Office of Foreign Asset Control (OFAC) officially barred residents from using the Tornado Cash protocol, while placing 44 USDC addresses linked with the platform on its list of Specially Designated Nationals.

Following the move, USDC issuers Circle froze $75,000 worth of the stablecoin linked to the 44 sanctioned addresses.

Around 50.1% of MakerDAO’s DAI is collateralized by USDC (according to Dai Stats) Christensen has raised concerns over the asset’s heavy reliance on a centralized asset in USDC, as Circle has shown that it will act in accordance with United States law in the case of Tornado Cash.

DAI is currently the fourth largest USD-pegged stablecoin in crypto with its current market cap of $7 billion, and the figure places it as the fifteen largest asset overall.

Ditching USDC backing

Following the call, Yearn.finance core developer @bantg suggested that MakerDAO was considering converting all its USDC from its peg stability module into $3.5 billion in ETH, which would result in more than 50% of DAI being backed by Ether (ETH), a massive jump from the 7.3% currently.

Related: DeFi platform Oasis to block wallet addresses deemed at-risk

The proposed idea drew criticism from the community, comparing MakerDAO to the beleaguered Terra (LUNA) project, which aggressively bought Bitcoin (BTC) to back its Terra USD stablecoin before the project ultimately imploded.

Ethereum co-founder Vitalik Buterin also chimed in, stating:

“Errr this seems like a risky and terrible idea. If ETH drops a lot, value of collateral would go way down but CDPs would not get liquidated, so the whole system would risk becoming a fractional reserve.”

However, Christensen later clarified that what he actually “wrote in the maker governance discord was that yoloing all the stablecoin collateral into ETH would be a bad idea.”

Though he confirmed that a “partial yolo” could still be a good idea, noting:

“I think slowly DCA’ing some collateral into ETH is an option that can be considered depending on the severity of the blacklisting risk, which I personally think is much higher after the TC blacklist… it would exchange blacklist risk for depeg and haircut risk.”

MakerDAO should ‘seriously consider’ depegging DAI from USD — Founder

In light of the recent Tornado Cash and frozen USDC addresses debacle, MakerDAO founder Rune Christensen is hoping to move DAI’s collateralization away from USDC.

MakerDAO founder Rune Christensen has urged members of the decentralized autonomous organization (DAO) to “seriously consider” preparing for the depeg of its Dai (DAI) stablecoin from the United States dollar.

The founder’s comments came in light of the recently announced sanctions on crypto mixer Tornado Cash, noting to MakerDAO’s Discord channel on Thursday that the sanctions are “unfortunately more serious than I first thought,” adding that they should prepare to depeg its native stablecoin DAI from the USD to avoid any risk’s, relating to Circle’s recent freezing of sanctioned USD Coin (USDC) addresses:

“I think we should seriously consider preparing to depeg from USD. It is almost inevitable it will happen and it is only realistic to do with huge amounts of preparation.”

On Monday, the U.S. Office of Foreign Asset Control (OFAC) officially barred residents from using the Tornado Cash protocol, while placing 44 USDC addresses linked with the platform on its list of Specially Designated Nationals.

Following the move, USDC issuers Circle froze $75,000 worth of the stablecoin linked to the 44 sanctioned addresses.

Around 50.1% of MakerDAO’s DAI is collateralized by USDC, according to Dai Stats. Christensen has raised concerns over the asset’s heavy reliance on a centralized asset in USDC, as Circle has shown that it will act in accordance with United States law in the case of Tornado Cash.

DAI is currently the fourth largest USD-pegged stablecoin in crypto with its current market cap of $7 billion, and the figure places it as the fifteen largest asset overall.

Ditching USDC backing

Following the call, Yearn.finance core developer bantg suggested that MakerDAO was considering converting all its USDC from its peg stability module into $3.5 billion in Ether (ETH), which would result in more than 50% of DAI being backed by ETH, a massive jump from the 7.3% currently.

Related: DeFi platform Oasis to block wallet addresses deemed at-risk

The proposed idea drew criticism from the community, comparing MakerDAO to the beleaguered Terra project, which aggressively bought Bitcoin (BTC) to back its TerraUSD Classic (USTC) stablecoin before the project ultimately imploded.

Ethereum co-founder Vitalik Buterin also chimed ind, stating:

“Errr this seems like a risky and terrible idea. If ETH drops a lot, value of collateral would go way down but CDPs would not get liquidated, so the whole system would risk becoming a fractional reserve.”

However, Christensen later clarified that what he actually “wrote in the maker governance discord was that yoloing all the stablecoin collateral into ETH would be a bad idea.”

Though he confirmed that a “partial yolo” could still be a good idea, noting:

“I think slowly DCA’ing some collateral into ETH is an option that can be considered depending on the severity of the blacklisting risk, which I personally think is much higher after the TC blacklist… it would exchange blacklist risk for depeg and haircut risk.”