Nearly four months have passed since the devastating dismantling of a DeFi chain, which dropped the value of the so-called “yield vault” sector by more than $4 billion.
Since then, many of the ‘risk curators’ involved have kept a low profile, while others are keen to restore trust.
Last week it became clear that such a curator had failed to weather the storm.
MEV Capital dissolves
Last week, The great whale reported that MEV Capital would be acquired by one of its partners, Belem Capital. Citing figures from DeFiLlama, the article highlights an 80% drop in MEV Capital’s assets under management, from $1.5 billion to $300 million.
The pullback was driven by the firm’s exposure to looped-leveraged return strategies involving the USD, which were unleashed in early November in response to the collapse of Stream Finance (not, as the article claims, during the infamous October 10 market crash).
Elixir announced that it would discontinue USD shortly afterwards.
Laurent Bourquin, CEO of MEV Capital, “seems to have taken an abrupt step back,” the article said.
Additionally, asset tokenization platform Midas Capital announced that it had “completed all business with MEV Capital” and transferred management of mMEV and mevBTC to RockawayX.
DeFi’s ‘risk curator settlement’
In late October, concerns began to circulate about the integrity of a number of high-yield vault tokens in the DeFi sector.
Days later, one of these risk trustees, Stream Finance, collapsed in spectacular fashion after admitting to losing $93 million. As the quality of the backup became visible, Stream’s vault token, xUSD, lost 75% of its value.
Other assets in the “daisy chain” of recursive lending followed suit, most notably Elexir’s theUSD.
The resulting domino effect led to a scramble to scale down the influence of a handful of projects. In total, almost half of the sector’s total $10 billion value was wiped out in the following month.
It has since recovered slightly and is at about $6 billion.
Some handled it better than others, with users often waiting for weeks with no news. Risk curator Re7 Labs even issued legal threats against a self-described “whistleblower” who had publicly complained on behalf of depositors.
“Have trustees read these reports?”
November’s yield vault apocalypse revolved around the recursive lending and borrowing of vault tokens between interconnected projects.
More sustainable projects, however, remained unscathed. They have increasingly focused on “institutional quality” offerings of on-chain, but slightly more tangible real-world assets (RWA).
The aforementioned Midas Capital tokenizes off-chain funds, such as Fasanara’s F-$A (as mF-$A), For example. These come with regular reporting on the condition of off-chain assets.
However, some are still not convinced and wonder if there are curators who read these reports? in response to Midas’ recent revelation of an inaccuracy in their mF$A reporting. Another X user called the reporting “trash,” pointing out delays and missing information.
It should be noted that both accounts contribute to Yearn, a fully on-chain returns aggregator platform.
Read more: Yearn Hacker Loses $2.4M in Loot of $9M as Wallet Tokens Are Burned
Risk off-chain, now on-chain
DeFi is often seen as sufficiently risky, but it is certainly not immune to outside risks.
A detailed December report from curator Steakhouse Financial drew attention to a 2% decline in the Midas tokenized fund mF-$Ain line with the real version.
The dip was not enough to detect any mF$A collateralized positions had to be liquidated, but still raised eyebrows as a new asset class in DeFi.
Last week, risk management firm Chaos Labs revisited the episode and pointed to “a bankrupt auto parts supplier” as the source of the shortage.
It states that ‘reward is risk’, and that ‘off-chain’ does not necessarily mean safe.
Steakhouse, whose safe is exposed to mF with high efficiency$Asaid the post contained “inaccuracies and selective presentations” and accused Chaos Labs of “plagiarism and fudmaxxing.”
Steakhouse founder Sébastien Derivaux emphasized that mF-$A is “suitable for high-yield safes as collateral.”
Worth it?
The mechanisms for bringing risk-weighted assets into DeFi are complex. They also make adherence to the “don’t trust, verify” maxim dependent on issuers reporting on off-chain assets.
Even stranger, using it as collateral can even result in lenders receiving a lower return than the collateral itself. Both counterparty risk and underlying asset risk are assumed.