The UST collapse has made everyone in crypto press pause.
Since the $18 billion stablecoin depegged, we’ve all thought about how we can rebuild DeFi for the better, and provide a stronger backstop the next time a Black Swan ripples our waters.
At DeversiFi, we invited our users to pursue a yield opportunity based on UST, and a huge number of people took up the opportunity. Frustratingly, as a self-custodial DeFi hub, we then had to watch as many of you lost the funds you had put in, without being able to help.
If this was your first major loss in DeFi, don’t give up. DeFi is still in a very early stage, and so losses, mistakes, and crashes can still happen.
But DeFi has much to offer. It has the potential to revolutionise finance, and help ordinary people access opportunities that can completely change their financial situation.
We don’t want these losses to be what people think of when they hear about DeFi. We don’t think that this one event defines what we are building as an industry, and what DeFi is capable of achieving.
And that’s why I, as founder of DeversiFi, will personally donate up to $1,000 in USDT to anyone who lost money on our anchor UST (aUST) yield opportunity.
It’s a start, not a finish. The DeversiFi team continue to analyse the collapse and figure out how we can better prepare ourselves in future. My team and I held UST ourselves, and we’ve lost money too.
But it’s not enough to tell you we care; we have to show you.
What we’ve found so far
Earlier this year, DeversFi opened up a yield opportunity for our users. The opportunity was provided via the Anchor lending protocol on Terra – the blockchain used to build and host UST.
Previously users would have faced the hassle of creating a new wallet on Terra, funding it with the native token, Luna, and then transferring funds there. But we removed this hurdle, allowing yield-hunters to receive cross-chain passive income directly from an Ethereum wallet such as Metamask, gas-free.
By opening up the Anchor UST (aUST) opportunity, we had lots of small users who started accessing high DeFi yields for the first time. And unfortunately, those same users were all impacted by the collapse. Many lost all of their funds that were held in aUST, or were forced to sell at a loss back to other stablecoins.
We’ve spent countless man-hours analysing the debacle. What could we have done better to help our users avoid this risk? And in future, how can we design yield opportunities on DeversiFi to give the best possible outcomes for our users?
First off, in retrospect we were slow to react. We monitored the peg closely, but we didn’t initially think it was going to drop as fast and as far as it did.
We also found that when we did begin to notify our users, we weren’t able to communicate with all of them as quickly as we needed to. On DeversiFi, you connect with your own wallet; this is key to our identity as a self-custodial platform. But this limited our ability to send out urgent messages and notify our users about what was happening in real time.
Finally, we analysed the impact of the depeg itself, which was so drastic that our user interface initially stopped working. Looking back, we found that while we’d built in some protections (for example against bad price feeds or high volatility), when the collapse actually happened it took us time to fix.
We realised that while the platform was designed really well for normal operating scenarios, it didn’t have enough checks and balances for extraordinary events like this.
Of course, we had no idea that this would happen; it was a real bolt from the blue. Going forward, however, we need to make sure that we design DeversiFi’s yield function to handle this kind of extreme event better.
One idea that we’re exploring is to give all our users, as soon as they enter a yield opportunity, the option to pre-sign a transaction that will exit the opportunity if a collapse starts to unfold.
Again, it’s important to bear in mind that we are a self-custody platform, and this means we can’t remove users’ funds from yield opportunities without them coming online and signing with their wallet. What we could do, however, is ask users to sign over this power in advance, enabling them to exit the yield opportunity at the same price they went in.
Had this feature been in place before the UST collapse, we would have been able to withdraw our users’ funds from the aUST opportunity and transfer them into other stablecoins. For many users, particularly those who don’t check the crypto markets everyday, that would have been invaluable. So we’re going to explore this option further, and we’re going to look at other potential options too.
But we also want to provide an immediate gesture, especially for our smaller users. The DeversiFi team pride ourselves on providing an exchange that is for everyone, not just whales, and we feel a particular sense of responsibility to the smaller holders on our platform.
And so I’ve decided to make a personal donation to all those who have lost out through our aUST opportunity. The donation will be capped at $1,000 worth of USDT and will be based on what the user put on, as well as their overall loss experience. All those who held funds in aUST on DeversiFi on Saturday 7th May will be eligible.
This means that if you lost less than $1,000 (valued in USDT), you will receive the full amount lost. And anyone who lost more than $1,000 in USDT will be able to claim the full donation.
We hope this persuades everyone to stick with DeFi, even those smaller users who have only just started to use it.
This sentiment stretches right across the DeFi and wider crypto community. Vitalik Buterin, one of the architects of Ethereum, has called for relief for those UST smallholders who were misled by certain influencers in the crypto space. The Terra community itself has presented a proposal that would reimburse smaller UST holders first.
Believe me, the events of the last few days have shocked us too; we made aUST available on the platform because we thought it was a relatively safe place for people to earn yield.
But I feel strongly that, in the long run, DeFi will continue to evolve. It will get better, and stronger, from these sorts of experiences.
And a few years from now, we’ll all enjoy a financial system that’s transparent, accountable, and provides access to opportunities that many people don’t have now. That’s our direction of travel, and I hope you all continue the journey with us.
To claim your USDT donation, click the button below.