The Ethereum-based exchange liquidity pool Curve Finance DAO initiated a proposal to remove all UST gauges saying that Curve (CRV) should no longer incentivize UST pools upon Terra’s crash.
The proposal goes on to say that the value of UST has plummeted by 90%, and the Terra ecosystem has $9 billion in debts. Furthermore, it is apparent that there is no hope of sustained recovery of the peg.
The proposal reads, “how exactly weaknesses were exploited and if these vulnerability vectors will persist even in the case of a successful bailout,” referring to Terra founder Do Kwon’s plans to implement a hard fork into blockchain and split it into two different chains to revive the ecosystem.
Curve Finance faces two issues as a result of the current circumstances. One is that Curve pools are incentivized solely to attract exit liquidity for UST, thus soft-rugging new liquidity sources.
The other one is that entities aiming to extract value from the Curve DAO through CRV emissions may fill empty pools as a result.
A liquidity provider might then proceed to farm solely CRV and repeatedly vote or bribe the pool, providing neither liquidity nor volume to the DAO.
This scenario would be problematic because the UST has depreciated drastically, allowing the hostile organization to deposit liquidity in an uneven manner.
Due to excessive slippage and/or provision of UST exit liquidity for the fraudulent entry, this will hinder additional LPs from entering the pool.
If the proposal is approved, all CRV emissions from pools with UST would be eliminated, effectively eliminating all incentives for anyone to contribute their UST to Curve.
More than 50% of the voters in the Curve DAO community are required to support the proposal and more than 30% of the users are required to at least engage with the proposal.
11 users have voted in support at the time of writing taking the total percent of support to 100%. But only 2.36% of the community has interacted with the proposal. There are five days left for the voting to end and for the results to be declared.
