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The Tally Newsletter, Issue 48

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The Tally Newsletter, Issue 48

October 14, 2021

monetsupply
Oct 15, 2021
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The Tally Newsletter, Issue 48

newsletter.tally.xyz

Welcome back for issue 48 of the Tally Newsletter, a publication focused on all things decentralized governance. We’ll keep you updated on key proposals, procedural changes, newly launched voting systems, shifting power dynamics, and anything else you need to know to be an informed citizen. 

This week we cover:

  • MakerDAO Considering a Shift to Zero Fee Stablecoin Trading

  • Sybil Attack on Ribbon Airdrop Leads to Review of Prior Token Distributions

Plus some brief ecosystem updates.


MakerDAO Votes on Eliminating Stablecoin Trading Fees

TL;DR: Reducing the fee parameters for Maker’s Peg Stability Module should strengthen the DAI<>USD peg, but could also have unpredictable impacts on other defi platforms and asset flows.

MakerDAO is considering an initial proposal to reduce stablecoin trading fees to zero. With the current Peg Stability Module (PSM) parameters, trading from DAI to another supported stablecoin such as USDC or USDP is free, but a fee of between 0.1 to 0.2% is charged for those trading from an external stablecoin into DAI. This effectively manages DAI’s peg against fiat stablecoins (and therefore USD price) between $1 and $1.001.

Source: Coingecko DAI Chart

While this narrow trading range is a substantial improvement over 2020 price dynamics, where DAI frequently traded several percent above the peg, it still causes challenges for DAI adoption and integration. As an example, a 0.1% trading fee between DAI and USD leads to a nearly 0.5% increase in annualized borrowing costs for a 3 month loan. Additionally, many centralized trading platforms and OTC desks consider DAI as a volatile currency instead of a fully exchangeable stablecoin, which leads to worse execution and higher costs for users. These challenges together make DAI far less appealing, particularly those in the real world asset lending industry.

Source: Curve 3pool

Reducing the fees to zero as proposed would lead to significant changes in DAI usage and the wider stablecoin and defi markets. Full exchangeability will drive inflows into the PSM to equalize DAI price throughout the market. Looking at Curve Finance and other decentralized exchange platforms, there is over $200-300 million in liquidity available to sell DAI above $1 (equalizing the quantity of DAI versus other stablecoins within liquidity pools), which should be immediately utilized through arbitrage transactions. Including markets on centralized exchanges and additional defi platforms, inflows of USDC and Paxos Dollar could easily reach over $1 billion. 

With Maker offering no fee stablecoin swaps, this could also draw trading volume away from decentralized exchange platforms such as Curve and Uniswap. This would counteract Maker’s planned transition from direct stablecoin holdings to indirect holdings through liquidity pool tokens such as the G-UNI-DAI-USDC vault. In summary, removing PSM trading fees would make MakerDAO more vulnerable to targeted blacklisting by fiat stablecoin issuers, with an increase in direct exposure and reduction of potentially viable alternatives.

While PSM fee reductions are likely to increase DAI supply, it could have unpredictable impact on DAI demand. Nearly 1 billion DAI is currently deposited within automated market maker liquidity pools such as Curve and Uniswap. Undercutting these platform’s fees could reduce demand for DAI due to fewer available options for earning passive yield.

Source: MakerDAO Forum

So far, these concerns don’t seem to have dissuaded many community members. The forum poll is live until Monday October 25, and if passed in the forum and through subsequent on-chain voting, it would mark a significant change in Maker’s stablecoin strategy. Instead of externalizing stablecoin holdings into other protocols like Curve and Uniswap, Maker will need to focus on real world assets and credit investments beyond the crypto ecosystem.

Community Members Uncover Sybil Attacks in a Range of Defi Airdrops

TL;DR: While the Ribbon Finance distribution was remediated, newly uncovered incidents call into question the viability of retroactive airdrops more generally.

Ribbon Finance, a protocol for structured products and sustainable yield generation, recently enabled governance with a distribution of RBN tokens to past protocol users. Since Uniswap’s token launch last year, retroactive user distributions have formed a key part of token launch mechanisms, helping to reward early adopters and bootstrap a financially aligned community from day one. But recent events in the RBN distribution question the viability of these airdrops going forward.

Shortly after Ribbon Finance enabled transferability of their RBN governance token, some community members noticed unusual trading activity that led to uncovering a large-scale sybil attack on the token distribution.

Twitter avatar for @gabagooldoteth
Gabagool.Ξth 🥀 @gabagooldoteth
this @divdotvc analyst @_bridgeharris has made 652 $ETH and counting from @ribbonfinance airdrops, quite impressive. finding wallets like their's and copytrading them is probably the best way to make it tbh etherscan.io/address/0x2866…
3:31 PM ∙ Oct 8, 2021
827Likes140Retweets

After reviewing transaction data, it became clear that certain sybil accounts led back to Divergence Ventures, a private investor in Ribbon who may have had access to non-public information about the airdrop mechanism. 

Twitter avatar for @juliankoh
Julian 🤹 @juliankoh
.@divdotvc has returned ~1.9M RBN to the DAO. The Divergence team is (physically) getting to the other wallets in the next few hours and will send the remaining RBN to the DAO, totaling 100% of the RBN farmed from the protocol.
7:39 PM ∙ Oct 9, 2021
451Likes58Retweets

Over the following day, Divergence was pressured to return the airdropped funds as well as donate their investment holdings to a non profit organization, leaving them with no remaining ownership of the Ribbon protocol. Additional recipients also returned airdropped funds to resolve potential conflicts of interest:

Twitter avatar for @gabagooldoteth
Gabagool.Ξth 🥀 @gabagooldoteth
.@tomhschmidt of @dragonfly_cap returned ~444k worth of $RBN to the Ribbon Treasury multisig, voluntarily. v cool etherscan.io/tx/0x81b3b8f3d…
Image
11:19 AM ∙ Oct 12, 2021
279Likes24Retweets

As the Ribbon Finance drama began to abate after funds were returned, researchers’ attention passed to other projects with similar retroactive airdrops that rewarded funds on a per address basis. These include the FORTH and DYDX airdrops among several other projects.

Twitter avatar for @sungjae_han
Sungjae @sungjae_han
this address gaming $FORTH airdrop prob also needs public attention: bit.ly/30clPVW 1. receives 200 eth from tornado cash 2. sends small amounts of ampl and eth to over 5000 addresses 3. claim $FORTH airdrop 100 days later and profit ~28 million at the time of airdrop
Image
1:49 PM ∙ Oct 9, 2021
651Likes137Retweets
Twitter avatar for @statelayer
state @statelayer
jesus christ lol. 6 pages of 4K DYDX farmed airdops like this, 80K worth each time
Image
Twitter avatar for @0xbilll
Billl 📜 @0xbilll
woah, this chap also massively sybil'd the dydx airdrop looks like 289 accounts for >1.7mm dydx (~$38mm today) https://t.co/U2yESYTN5K https://t.co/FVEj1ITIUX https://t.co/NrRFE6NNEd
7:06 PM ∙ Oct 13, 2021
175Likes17Retweets

All of these compromised drops shared a common feature of giving sub-linear returns based on amount of capital committed - this allows single parties to earn a higher share of rewards by splitting their funds into small pieces to appear like many independent users. Protocols typically target drops in this way because it decentralizes governance power among many community members quickly. But the ability to game the distribution, particularly with private information, creates substantial risk.

As a result of these uncovered issues, projects may need to revisit their token distribution plans. This could include a reduced focus on per account rewards, along with better screening for sybil accounts and changes in investor communication practices to avoid sharing sensitive information.


  • SEC releases comments on funds holding Bitcoin futures, deepening speculation on a potential Bitcoin ETF approval:

Twitter avatar for @SEC_Investor_Ed
SEC Investor Ed @SEC_Investor_Ed
Before investing in a fund that holds Bitcoin futures contracts, make sure you carefully weigh the potential risks and benefits. Check out our Investor Bulletin to learn more:
go.usa.govFunds Trading in Bitcoin Futures – Investor Bulletin | Investor.govThe Securities and Exchange Commission’s (SEC’s) Office of Investor Education and Advocacy (OIEA) and the Commodity Futures Trading Commission’s (CFTC’s) Office of Customer Education and Outreach (OCEO) urge investors considering a fund with exposure to the Bitcoin futures market to weigh carefully …
6:02 PM ∙ Oct 14, 2021
7,565Likes2,063Retweets
  • Indexed Finance suffers from exploits on DEFI5 and CC10 indexes:

Twitter avatar for @ndxfi
Indexed Finance @ndxfi
Circuit breaker has been triggered to disable swaps within DEGEN, NFTP and FFF pools as a precaution: these were all pools on the Sigma controller with this functionality. Still investigating.
Twitter avatar for @ndxfi
Indexed Finance @ndxfi
We're aware of an incident that has just taken place within the DEFI5 and CC10 pools. Looking into it.
7:31 PM ∙ Oct 14, 2021
26Likes6Retweets
  • Uniswap funded Defi Education Fund considers moving assets to centralized custodian:

Twitter avatar for @fund_defi
DeFi Education Fund @fund_defi
FYI: In order to initiate a snapshot temperature check on this idea, DEF will delegate 1k UNI (the min threshold required to start a snapshot) votes to this wallet: 0x7f416e7a586d45ed2A4e77877E1d253f48105491. Once initiated, the delegation will be revoked.
Twitter avatar for @fund_defi
DeFi Education Fund @fund_defi
We’re considering moving the DEF’s assets from a multsig to a custodial wallet that can be viewed on-chain. Until a product like Tally’s Safeguard can be implemented, a custodial wallet will present less risk. Let us know your thoughts on this idea here: https://t.co/eHdpdvKf2L
7:59 PM ∙ Oct 14, 2021
  • Compound proposal 65 resolves last outstanding issues from rewards bug:

    Twitter avatar for @tylerether
    Tyler Loewen @tylerether
    Compound Proposal 65 introduces a one-off function to correct over-accrued COMP, called through a governance proposal containing verifiable data. Once executed, it will correct all over-accrued COMP and restore COMP claiming functionality for all users.
    10:48 PM ∙ Oct 11, 2021

Thanks for joining us for issue 48 of the Tally Newsletter. Be sure to check out the Tally governance app and join us on Discord for the latest updates!

Anything we missed? New developments or protocols you’d like to see covered? Drop us a line at newsletter@withtally.com 

Best,

Nate, Tally

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