A Tough Week for DeFi
This past week has been an extremely tough week for DeFi and crypto. Unfortunately, the volatility that we have come to expect from the market has painfully spilled into yield farming, and into what should have been a low risk stablecoin farm, Don-key’s Sponsored $BUSD farm.
As all of you know, this week’s market crash and farming losses were caused by UST’s depeging and the resultant selling of collateralized Bitcoin and Luna.
Unfortunately for Don-key, the current selection of V1 farms were exposed to UST in many ways including directly in Anchor, leveraged stable positions and even AVAX/UST.
The depegging is still an ongoing event and has not been finalised yet. On May 10th Don-key was able to concentrate a ~ 20% withdrawal request at a UST price of $0.92 while adding a function to our smart contract to enable users that believed in the ability of UST to regain peg, to cancel withdrawal requests that were not yet executed.
After this point, congestion on the network and Fireblocks together with Don-key’s investment and withdrawal cycles, and of course the extreme volatility of UST prices — made it near to impossible to liquidate the exact amount of withdrawals requested and match them to the correlated spot price of UST. Moving beyond requested withdrawals, Don-key needed to liquidate larger positions and manage at moving averages in order to keep pace with anticipated withdrawal levels.
At this point all UST related holding have been liquidated. For users that didn't withdraw funds on May 10th they suffer a loss of:
Day 1: Holding in Don-key X (100%-4.8%) — Average UST price of $0.92
Day 2: Holdings in Don-key after day 1 reduction X (100%-36.55.2%) — Average UST price $0.34
The exposure of the sponsored BUSD pool to UST related assets was ~60%.
Introducing the Copy-Farmers Relief Fund
One way that the team intends to mitigate future fund loss due to hacks or unforeseen one-off events, like the UST depegging, is by deploying The Copy-Farmers Relief Fund. It will allow investors to recoup a portion of potential losses by staking a non refundable amount of $DON tokens; which will be sold into stablecoins (not UST) to build a collective Don-key Relief Fund
The amount that investors receive in the event of loss is determined by a score that equals:
(Staked Amount * Staked Multiplier) * (Duration of Stake in Minutes ) * ((Tier +1)/100)
If you are invested in a pool that has a $100k exploit then the relief fund will pay back a “relief amount” that is either 100k or up to 50% of the treasury of the relief fund (The lower value)
The distribution between affected users is the following:
This builds a system that theoretically can recoup up to 100% of investor funds after an exploit. The total amount depends on how many other users in the pool were also in the Relief Staking Pool, their score, their percentage in the TVL and the size of the exploit in proportion to the relief fund (Only 50% of the fund can be allocated for a single event).
After an exploit event all users that received a relief will have their score reset to zero and a new score will begin accumulating based on the relief received in ratio to their total investment.
The staking multipliers will start high, and go down every 21 days to encourage early movers. After an exploit event the multiplier will reset and go back up to incentivise new funds to enter the pool.
To thank investors who participated in V1 for experimenting with the platform in its earliest stage, everyone who used the platform will receive a higher multiplier by default.
The chaos of the last couple of days has exposed an unintended consequence of Sponsored Farms. Don-key’s core team never wanted to have so much control and decision making power in controlling investors’ funds via strategy design. To remedy this, the next version of Sponsored Farms will allow participants to vote on critical decisions, with their votes weighted by how much TVL they contribute.
As of right now BUSD sponsored pool, has very low amounts of liquidity deployed in third party platforms and it will remain that way until certainty returns to the market.
The Cake Sponsored pool has also been drawn back until certainty returns as most CAKE yields demand locking periods, and we don't believe that this is the time for long term locked tokens.
As a consequence, the yield will be adjusted this coming Monday to reflect the above.
With the launch of V2, community farms will become the focus of the platform. After the needed upgrade, Sponsored Farms will be reinstated with more investor decision making and strategy transparency.
The primary benefit of this is now $DON emissions will be reduced. For those concerned with token utility, V2 will come with a host of new token utilities — to be revealed in the coming prelaunch articles.
New Token Utility
The Don-key V2 is truly a rebirth for the platform, as it is the first real delivery of the core premise. With it will come a catalogue of new token utilities for both investors and farmers. This in addition with pre-sale vesting finishing and no more emissions from the Sponsored Farms will create a new era for Don-key Finance.
About Don-key Finance
Don-key.finance is the only social yield farming platform to democratize expertise in yield farming. Investors need profitable strategies and farmers need extra liquidity — Don-key brings them together in an open-source competition driven marketplace.
With just one-click everyday investors can route their liquidity — in whichever token they chose — through professionally designed strategies that are updated to chase the highest available APY while minimizing risk.
Competitive Yield Farming is a full-time job; Don-key does it, so you don’t have to.