Here’s why this Ethereum exchange fork lost $500m in locked value 🚨 This article is 4 years old...
Here’s why this Ethereum exchange fork lost $500m in locked value
2 min read
Updated: Sep. 21, 2020 at 1:01 pm UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
As much as it may be looked down on in the “real world,” the crypto industry is full of copycats. Because most blockchain projects open source their software, any developer can easily adapt, then publish websites, contracts, and codebases that eerily resemble that of a competitor.
This has accelerated in Ethereum’s decentralized finance space, where so much capital is flooding into the space that developers have begun taking other protocols, then forking them with slightly different parameters to make a splash.
The most infamous fork thus far has been SushiSwap, a fork of the decentralized exchange Uniswap focused on putting fees and control in the hands of holders. While SushiSwap has seen success thus far, Uniswap just shot back with the UNI token, reducing the value of this fork.
Then there was Swerve, a cleverly-named fork of Curve, a decentralized exchange focused on stablecoins and tokenized Bitcoin. Swerve’s anonymous founders announced the project by citing the controversies Curve has seen with the launch of its own coin, CRV, as CryptoSlate covered previously.
Swerve say immediate success, with its SWRV token quickly reaching a multi-million-dollar market capitalization and the value of tokens locked in the contract reaching above $600 million in the span of about a week.
For a fork, $600 million ain’t bad.
But it seems that Swerve’s time in the spotlight is up as $500 million has left its contracts. Here’s what’s going on.
Why Swerve lost $500m in locked value
Like many other DeFi projects these days, Swerve launched with a yield farming mechanism, where users would be rewarded for using the protocol and providing liquidity.
SWRV offered nine million coins for the first two weeks of the launch, then nine million in the entire year after the initial two-week period. Basically, once the first two weeks were up, rewards for providing liquidity to Swerve were around two percent of what they were prior to the first two weeks.
Once the initial rewards period ended just a few days ago, many were quick to pull their funds from the protocol. As Messari’s Ryan Watkins observed:
“Looks like the market was right. Swerve’s total value locked fell 85% after the incentive rewards dropped. The key chart you needed to watch was the one on the right – the biggest hint Swerve’s liquidity was just mercenaries searching the highest yield.”
The value of coins in the Swerve contracts fell from over $600 million to around $100 million now.
Looks like the market was right.
Swerve's total value locked fell 85% after the incentive rewards dropped.
The key chart you needed to watch was the one on the right – the biggest hint Swerve's liquidity was just mercenaries searching the highest yield.
1/ https://t.co/wWLWM24SG1 pic.twitter.com/HFyE2IsezL
— Ryan Watkins (@RyanWatkins_) September 19, 2020
This was followed by capital flooding back into Curve, thus driving down Swerve’s yields.
Assuming Swerve maintains its rewards at these low levels, it is likely that the yields will normalize.
What’s been interesting is that the communications teams of both projects have been sparing it out on Twitter.
After Swerve adjusted a parameter in its decentralized exchange pool to make the user experience better, Curve shot back with the tweet below:
Yes, the number seems correct. You've got lucky with DAI price: could have been more.
Btw the loss is permanent
— Curve (@CurveFinance) September 19, 2020
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In this article
Ethereum is a decentralized, open-source blockchain platform that enables the creation of smart contracts and decentralized applications (DApps).
Curve DAO Token
$0.92201
Curve DAO (Decentralized Autonomous Organization) is a decentralized platform built on the Ethereum blockchain that aims to provide a stable and efficient market for trading stablecoins.
SushiSwap
$1.50419
SushiSwap is an automated market-making (AMM) decentralized exchange (DEX) currently on the Ethereum blockchain.
Uniswap
$14.0612
Since its inception, the Uniswap Protocol (“Uniswap”) has served as a trustless and highly decentralized financial infrastructure.
Designed with simplicity in mind, the Uniswap protocol provides an interface for seamless exchange of ERC20 tokens on Ethereum.
