$8 000 000 USD

SEPTEMBER 2020

GLOBAL

SWERVE FINANCE

DESCRIPTION OF EVENTS

"Swerve is a community-owned and governed fork of Curve Finance, an AMM-based decentalized exchange specializing in efficient stablecoin swaps. Swerve was originally launched in 2020 with just one pool of stablecoins (DAI, USDC, USDT and TUSD) which allowed Swerve to cut gas costs down dramatically for interactions."

 

"When users provide liquidity to Swerve, they receive swUSD tokens which can be staked in the Swerve DAO to earn SWRV tokens. 100% of SWRV tokens were distributed and "farmed" by the community. Swerve DAO members propose and vote on protocol changes such as adding new liquidity pools."

 

"Both Swerve and Curve are decentralized exchange protocols for trading stablecoins. The key difference between the two protocols is that Swerve is "100% community-owned and governed," meaning its users started generating SWRV tokens with their deposits from day one. Curve, on the other hand, did not launch its CRV token on day one. In fact, Curve was forced to launch CRV earlier than its planned schedule, after an anonymous developer front run and deployed smart contracts without the knowledge of the Curve team."

 

"Swerve Finance, an unaudited fork of decentralized finance (DeFi) protocol Curve Finance, has amassed over 40% of Curve's deposits within four days of its launch."

 

"Swerve Finance is not the fair-launch, community-owned fork that they claim to be. They simply used the fair launch narrative as a cash grab scheme. If there was any long-term vision to the plan, the past two weeks of excess distribution would never have been included."

 

"Swerve was simply a lazy fork with Curve’s founder token allocation stripped out, only to be reallocated amongst whales and VCs through a quick 25 minute “UI fault” premine, and a 2 week token binge."

 

"If the code was unaudited, how did they gain $31,000,000 in deposits in the first 35 minutes, from just 37 different addresses??? That’s 37 whales who deposited an average of ~$837,000 EACH into this “anonymous” developer’s project..."

 

"Framework Ventures had over $6M in Swerve for the majority of the first two weeks. Pantera Capital and Three Arrows were also quick to promote Swerve as a "fair launch" Curve."

 

"When the Swerve team tried to start making changes to the protocol, it was either ignorance or apathy that allowed for the passing of SIP-5, which aimed to reduce the A factor from 1000 to 100, in a misguided attempt to increase pool reserves of DAI."

 

"Changing the A factor so drastically would change the virtual prices so much that it would allow for a huge arbitrage opportunity, resulting in a permanent loss for the ~$850,000,000 TVL in the pool at that time."

 

"Even when members of the chat calculated the loss to be around 0.8%, which at the time would have been over $8M, Swerve took no action to protect their users."

 

"Now the two week distribution period has ended, whales have dumped their tokens, 80% of their liquidity has left, and Swerve governance votes are struggling to pass quorum."

 

"Currently, things are not looking good for Swerve. They inflicted a permanent loss for their users through their own incompetence, and are currently struggling to pass quorum on any governance votes as whales have dumped their tokens and left the platform."

The story goes that a bunch of venture capitalists decided to create a fork of the Curve protocol, called Swerve. They copied the code with minimal change. They had huge amounts of money to start up the liquidity. And a great marketing plan - pretend to be a single anonymous developer and fake a fair launch.

 

Except that they launched on a transparent blockchain, and poorly managed the project. Most of the capital fled, and anyone holding the token faced losses, after settings were adjusted poorly. The whole thing took a couple of weeks to play out.

 

It seems that the team split up and a new site was formed, which is running presently. The project Github is closed down. There is no activity since November on Discord or Twitter. Total value locked are minimal presently.

HOW COULD THIS HAVE BEEN PREVENTED?

Our proposal requires projects be run by known developers and subject to two independent validations prior to launch, which would tend to detect this kind of deception. The token is most likely a security, and any smart contract hot wallets would come from funds of the team or have to be insured.

 

Check Our Framework For Safe Secure Exchange Platforms

Sources And Further Reading

 For questions or enquiries, email info@quadrigainitiative.com.

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