Just weeks ago, Daniele Sesta was hailed as one of DeFi’s golden boys.
His Frog Nation, a collective of multi-chain DeFi projects like Abracadabra, Wonderland and Popsicle Finance, was scaling new heights, and Abracadabra’s innovative UST Degenbox strategy was the place to be for stablecoin yields. Earlier this week, Frog Nation made headlines by adding SushiSwap to its ecosystem and Sesta vowed to “clean up” the struggling exchange.
Now, he’s getting death threats from angry investors in the wake of revelations that Frog Nation’s CFO was a co-founder of defunct Canadian crypto exchange QuadrigaCX, which collapsed in 2019 causing at least $190M in investor losses.
January hasn’t been kind to rebase tokens, with OlympusDAO and its many forks suffering massive drawdowns amid the crypto sell-off. Wonderland was no exception, and by Jan. 24, it’s TIME token had fallen to $800 from $3500 at the beginning of the year.
A popular strategy among TIME holders is to leverage their staked tokens using Abracadabra’s Degenbox in order to increase their exposure and resulting yield. This is referred to as the (9,9) strategy, a supercharged degen version of (3,3).
While the strategy paid off handsomely in 2021 as TIME soared, falling prices triggered a series of cascading liquidations. This refers to a vicious cycle in which users’ collateral is liquidated and sold into an already weak market, exacerbating selling pressure and fueling more liquidations.
One such event took place on Jan 17, causing the price of TIME to fall from roughly $2,000 to under $1,000.
Naturally, many borrowers were liquidated by the swift 50% drop and the Wonderland team assured investors that the so-called ‘backing price’ would be defended using Treasury funds.
But on Jan. 25, TIME plummeted to $360 from $800 in a matter of hours, well below the backing price. The buybacks didn’t happen and another cohort of borrowers were liquidated, including the founders themselves.
In response, the team announced that users who got liquidated behind them would be made whole, either through buybacks if authorized by the DAO, or with personal funds.
A proposal was then floated to merge Wonderland with Abracadabra, citing operational synergies. It called for a buyout of the Wonderland treasury through a token swap of all TIME/MEMO tokens for 98B SPELL tokens.
While the proposal initially garnered some support, recent forum posts show that it’s now unlikely to materialize.
The most recent announcement in the Abracadabra Discord server emphasizes that the two are separate entities.
Prominent DeFi investor Tetranode tweeted that he would continue to support Abracadabra as long as it remained an independent project.
“As long as Abracadabra functions as a trust-minimized smart contract, there should be no problem,” he told The Defiant over Twitter DM.
Investors have been exiting MIM, Abracadabra’s stablecoin, at a rapid pace.
The MIM-3CRV pool on Curve is the primary source of MIM liquidity. Users can swap MIM for DAI, USDC or USDT with minimal slippage, thanks to Curve’s stableswap algorithm coupled with an extremely high amplification coefficient of 2000.
Prior to the news, the pool was well balanced with $2.7B in liquidity.
And here’s what it looks like now.
Liquidity providers have exited their positions en masse, including $525M reportedly from crypto hedge fund Alameda Research.
MIM has depegged by just 2% despite the severe pool imbalance, a testament to Curve’s stableswap invariant.
Of course, it won’t be able to stem the bleeding forever if more MIM continues to be sold into the pool. Kanav Kariya of Jump Finance has released a useful Twitter thread on the mechanics.
Developer Andre Cronje, who expressed support for Sesta yesterday, has removed his Twitter banner that previously showcased their collaboration on SolidSwap, a new project on the Fantom blockchain.
What this means for the future of ve(3,3), as the project is informally known, remains to be seen.
Disclosure: The author holds SPELL tokens and his TIME position was liquidated on Jan. 25 with his fellow frogs.