Since the collapse of Terra, there has been a series of reactions in the crypto market.
First, the CeFi lending platform Celsius experienced a liquidity crisis, suspending customer transfers and withdrawals. Afterwards, the crypto asset hedge fund Three Arrows Capital suffered a large liquidation and almost went bankrupt. CEX platforms AEX and Hoo suspend withdrawals. Today, the influence spreads to the DeFi world, exposing DeFi to its evil side.
Bancor suspends ILP
On June 20, decentralized exchange protocol Bancor issued an update on market conditions, saying that Bancor’s Impermanent Loss Protection was temporarily suspended due to poor market conditions.
Bancor said the temporary measure to suspend the ILP is to give the protocol some breathing room and recovery, and will be restarted later as the market stabilizes. Also emphasize:
- There are no attacks, and funds on the protocol are safe.
- Users who remain in the protocol will continue to receive earnings and receive the equivalent amount of impermanent loss protection during the period upon reactivation (withdrawals performed during this period will not be eligible for impermanent loss protection).
- Transactions remain active across all liquidity pools on the network.
- Deposits are not currently accepted in order to prevent confusion through direct contract interactions where information on suspension protection is not visible.
Bancor noted that addressing impermanent losses with additional token rewards results in significant selling pressure during periods of high market volatility:
- The accumulated token reward sell-off over the past 18 months resulted in the need to suspend the ILP.
- Impermanent loss protection further leads to token devaluation.
The above was exacerbated by the collapse of Three Arrows Capital and Celsius. As long-term LPs in Bancor V2.1, Three Arrows Capital and Celsius are the main beneficiaries of BNT liquidity mining rewards. In order to repay the debt, the two quickly liquidated BNT positions and withdrawn large amounts of liquidity. Another unknown institution opened a large number of BNT short orders on the FTX exchange.
Hasu, head of strategy at FlashBots, said Bancor’s IL hidden game is crashing. They mint new BNT to compensate for “underwater” LP and call it “IL protection”. The cost is transferred to BNT holders through inflation, which leads to further IL to all other BNT trading pairs, and leads to further inflation. A death spiral.
Chainlink Community Ambassador @ChainLinkGod: Bancor is betting that Celsius is in desperate need of liquidity and won’t wait for the ILP to re-enable. However, this required disabling the ILP for everyone, which severely damaged Bancor’s reputation for LPs. Best case Celsius exits with no ILP reward, then Bancor re-enables ILP and protects users again; worst case is when confidence wanes, Celsius stays stable and waits for Bancor to re-enable ILP, worst case ILP re-enables, BNT Trapped in a death spiral.
Solend redefines DeFi
On June 19, Rooter, founder of Solend’s ecological lending protocol Solend, posted on social media that a giant whale has SOL deposits worth $170 million and Stablecoin debt positions worth $108 million on Solend. Rooter shouted that he hoped that the giant whale would repay the position as soon as possible.
Then, unexpectedly, Solend proposed an amazing decentralized governance proposal – granting Solend Labs emergency power to temporarily take over the whale’s account to help it complete off-site manual liquidation. The tough move made the community explode in an instant. pot.
Solend said in response to the proposal: “If the whale is liquidated, it will be partially liquidated up to 20% of the outstanding loan (about $21 million). Most liquidators on Solend are DEX liquidity robots. , a massive sell-off would further reduce SOL prices and cause chain liquidations, and eventually, the protocol’s liquidity dries up and even bad debts.”
Dylan LeClair, senior analyst at UTXO Management, said: “A so-called ‘decentralized’ lending protocol based on Solana has ‘voted’ to take over a whale account with emergency powers to eliminate the chance of forced liquidation. ‘Decentralization’ is only in name Up.”
Terra researcher FatMan believes that while it is for the safety and health of the protocol, Solend uses its own discretion to act. But I can’t really agree with this, it feels like a major breach – it’s beyond the scope of the advice.
Finblox changes withdrawal limit
On June 16, Finblox, a crypto savings yield app, issued an announcement stating that Three Arrows Capital, for its investors and major institutional borrowers, has partnered with 8 partners and protocols, including 3AC, to generate yields and distribute them as evenly as possible. Spread risk. Based on currently available information and the priority of maintaining the integrity of the platform, the following actions were decided, while pursuing all available options to assess the impact of 3AC on liquidity and ensure fair treatment of all user assets in the system.
- Suspend reward distribution for all users on the Finblox platform.
- Change the withdrawal limit for users of all levels from $500 per day to a maximum of $1500 per month.
- Delayed Referral Program and Deposit Rewards.
- Disable the creation of encrypted addresses for newly registered users.
In the past, practitioners in the crypto world took the rough and the fine on TradFi, created DeFi and infinitely improved and innovated. People are bashing TradFi, but in DeFi and CeFi where everything is happening right now, it’s ironic.