Controversy Erupts Over Wintermute's Proposal to Borrow Yearn Finance (YFI)
On August 13, Wintermute announced a proposal to borrow YFI from Yearn Finance’s reserve fund. This proposal quickly garnered attention and sparked a debate within the DeFi community.
Wintermute's Proposal Details:
- Proposal: Titled "YFI Loan and CRV Plan by Wintermute," the proposal includes:
- A loan of 350 YFI (worth $2.18 million) from the DAO Treasury to Wintermute Trading for 12 months at an interest rate of 0.1%.
- Wintermute's commitment to use 3 million CRV to buy yCRV and support liquidity for the yCRV-CRV pool on Yearn for at least six months.
Community Reaction:
- Concerns: Many in the DeFi community fear that this loan could enable Wintermute to short YFI with an excessively favorable funding rate of 0.1% over 12 months. Additionally, the loan is perceived as "unsecured" since it does not require collateral.
- Accusations: Critics argue that the proposal might be a ploy for Wintermute to manipulate the market.
>350 YFI ($2.1m) loan
— Hsaka (@HsakaTrades) August 16, 2023
>Uncollateralized
>0.1% interest rate (??)
>"will be used exclusively for trading purposes"
oh look, it's sophisticated actors again
great trade for wintermute
yearn community (the 2-3 whales that will determine the decision) would be redacted to accept https://t.co/mUVkkwvEl2
Response from Wintermute’s Founder:
- Evgeny Gaevoy's Defense: Evgeny Gaevoy, founder of Wintermute, took to Twitter to refute these allegations, asserting that Wintermute has never and will never engage in "pump and dump" schemes. He emphasized that market makers like Wintermute play a crucial role and should not be viewed with suspicion.
1.3 Wintermute can’t pump and dump for shit. We have no clue how to do it, we never did it and if we did it would most likely end up losing us money because we don’t have a single person hired who knows how to do this idiotic shit
— wishful cynic (@EvgenyGaevoy) August 16, 2023
Gaevoy’s Clarifications:
- CRV Strategy: After conducting an OTC transaction with CRV, Gaevoy outlined potential strategies:
- Hold CRV in a multisig wallet: Seen as inefficient due to capital lock-up.
- Stake CRV and participate in governance: Deemed time-consuming and complex.
- Third-party Staking Solutions: Wintermute plans to stake half of its CRV in Convex while considering the yCRV solution on Yearn.
- Liquidity Issues: Gaevoy highlighted the current low liquidity in the yCRV-CRV pool as a challenge. He mentioned that Wintermute had traded YFI by holding spot and selling futures but was cautious of CEX impacts post-FTX. The proposed strategy involves providing liquidity to the yCRV-CRV pool and maintaining a delta-neutral position with the YFI loan.
2.10 so we got creative – what if we commit to get into yCRV pool and get YFI loan in turn
— wishful cynic (@EvgenyGaevoy) August 16, 2023
- Wintermute gets to deploy CRV to earn yield AND extra YFI to market make with
- Yearn gets much needed liquidity on yCRV (improving slippage from 8% to 1-1.5%!)
Gaevoy’s Assurance:
- Neutral Position: Gaevoy assured the community that Wintermute would maintain a neutral stance on YFI for the next 6-12 months and dismissed the notion of borrowing YFI to short it as "ridiculous."
Broader Context:
- Market Maker Scrutiny: Recently, market makers have faced increased scrutiny amid market manipulation accusations and operational downsizing. Jane Street and Jump Crypto announced scale-back plans, and on August 14, GSR followed suit, coinciding with the departure of key executives.
Wintermute's proposal has stirred significant debate within the DeFi community, reflecting broader concerns about market manipulation and the role of major liquidity providers. The coming months will be crucial in determining the impact and acceptance of such strategic proposals.
