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Concave Finance $2m payout to investors marred by ‘horrible’ and ‘stupid’ smart contract flaw

Concave Finance $2m payout to investors marred by ‘horrible’ and ‘stupid’ smart contract flaw
Concave Finance is the latest rage quit in DeFi.
  • Concave Finance agreed to a $2.1 million 'rage quit' settlement to placate unhappy investors.
  • Project failed to code the settlement contract properly and only a handful of investors claimed the funds.
  • Unlike other DeFi rage quits, Concave will continue to operate.

In the latest sign DeFi projects are taking extraordinary action to salvage their fading fortunes, Concave Finance agreed last week to pay $2.1 million from its treasury to aggrieved investors.

The settlement is what is known as rage quitting, which refers to the partial or total liquidation of a project’s treasury and the subsequent distribution of the funds to investors in the form of stablecoins.

But the deal didn’t go as planned when a handful of savvy investors managed to gobble up all the $2.1 million worth of USDC in just 30 minutes, leaving the bulk of claimants empty-handed and frustrated.

‘I am mad’

They blamed the team’s poor management of the process for the botched nature of the settlement.

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“Of course I am mad I was too late but it’s no one’s but the team’s fault,” Robster, pseudonymous crypto personality and founder of Telegram crypto channel Antirug, told DL News.

Emptying treasuries and clashing with investors has become de rigueur in DeFi as a grinding bear market takes its toll on failing ventures, and their investors.

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Not unlike the corporate raiders who targeted weak corporations during the recessions of the 1980s and ‘90s, a new breed of swashbucklers have emerged known as DAO activists. They target weakened protocols such as Concave, an Ethereum-based DeFi project that has been in freefall since its launch in March 2022.

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It’s been under pressure by activists for months. Concave’s total value locked — the total investment in the protocol — has plunged 96%, to a meagre $518,000, since its launch, DefiLlama data shows. So, too, has Concave’s native token, CNV, which trades at $3.75 and has trended downwards since April last year.

‘It was the result of poor code and poor communication, as no one realised this cash out offer would go live at the time and many people were on vacation.’

—  Adonaieth

The DeFi protocols Hector Network and Parrot Finance have also rage quit this year. Both stirred controversy when investors accused their project teams of using the settlements to execute a de facto slow-rug. That when a project team milks its treasury for compensation to contributors and fails to serve investors.

NOW READ: Alameda-backed Parrot Protocol team to rage quit after vote

The Concave team is now dealing with its own bout of controversy. The partial distribution of the treasury was supposed to take place over 10 days and permit scores of investors to take part.

That didn’t happen because the smart contract for the claims process had a serious double-count bug that failed to conform to the basic tenets of bookkeeping and prevent the duplicate counting of assets.

As a result, the contract kept on counting claimed funds as being part of the unclaimed pool, which allowed the earliest claimants to acquire all the funds.

“It was the result of poor code and poor communication, as no one realised this cash out offer would go live at the time and many people were on vacation,” Adonaieth, a pseudonymous crypto investor, told DL News.

Two minutes too late

Adonaieth wasn’t the only one who failed to act fast enough.

“I can include myself in that group as I myself was like two minutes too late to redeem my stake for $8.7 per CNV and $5 was advertised,” Robster, said.

In a twist, even the early bird investors who claimed the funds were unhappy. Pseudonymous crypto personalities DCF and Chud were the major beneficiaries, claiming 81% of the funds — $1.7 million — between the pair of them.

Chud claims that he did not make a profit on his initial investment since he bought Concave tokens at a much higher price than the settlement offer. Data from Chud’s wallet address show his average CNV cost basis was around $90 per token whereas the settlement was for $5 per token.

NOW READ: Investors rip Hector Network team after it squanders $100m treasury and ‘rage quits’ DeFi project

Concave acknowledged the botched settlement and said they would publish a post mortem on what went wrong. Yet the team stressed that there were important differences with the rage quits that executed by Hector and Parrot.

For starters, Concave says it will continue to operate while Hector and Parrot are effectively defunct. The Concave team also said it will not rage quit again.

“This cash offer is a one-time event where Concave token holders may opt to exchange owned CNV for USDC at a fixed rate, but forgo any additional interest in Concave,” the team said.

Concave representatives did not immediately return requests for comments.

‘Not a DAO’

As for the activist investors who called for the action, Concave dismissed them as a “vocal subset of community members.” Such players go by names such as Risk Free Value “RFV” Raiders and have been known to act independently or collectively when taking failing DeFi project teams to task.

These activist investors criticised the Concave team of fiscal irresponsibility and pointed to the project’s ailing financial health.

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The project’s market capitalisation stands at $558,000 and it pales in comparison to its $10 million treasury.

A DeFi project whose token market capitalisation is much lower than the value of its treasury is often a prime target for DAO activists.

These activists force a rage quit by quickly acquiring the governance tokens of these DeFi projects to force a vote to liquidate the treasury once they own sufficient governance power.

‘My view is that DAO raiders are looking for an edge in the game.’

—  Robster

Concave, in a bid to forestall its demise, leaned on its nomenclature as a co-op and not a DAO where investors have governance rights that may include administration of the treasury.

“It should be restated that this is not a DAO,” Concave said. “Concave has always and will always be a Co-Op and any such attempts at ‘governance’ based attacks will fall flat here.”

Botched settlement

Rage quits rarely go off without issues.

Hector Network’s team has gone silent since the liquidation and Parrot Finance engineered a lopsided settlement that left investors with $27 million to share among themselves while its leadership team made off with $47.5 million.

NOW READ: DAO raiders accuse Hector Network of ‘slow-rugging’ investors as treasury dwindles

Concave’s rage quit introduced a new farcical flavour to DeFi rage quits as its smart contract failed to work properly during the claims process.

Diogenes Casares, CEO of proprietary trading company Patagon Management called the bug a “horrible error.” Patagon Management held a “relatively minor position in Concave,” Casares told DL News.

“The team coded it super badly and only did one $10 onchain test which was super faulty and minutes later they loaded $2.1 million into the contract,” Robster said.

Adonaieth called the bug a “a very simple and stupid double count issue.”

The botched compensation meant the funds did not go round to other potential claimants including, much to their chagrin.

Raiders vs activists

The Concave situation has turned up the heat on DAO activists.

Detractors call them opportunists who act for their own benefit and violate the cooperative ethos of DeFi. Supporters counter their behaviour is a necessary part of investing.

NOW READ: Aragon’s $200m activist battle ignites DAO debate: ‘Lining up soldiers doesn’t mean an attack’

“Any investor who isn’t only out for themselves and who is not seeking to turn a profit is not a good investor,” said Adonaieth. “Most of the time, RFV is done with teams that are burned out and want to move on, and communities that are tired of seeing the price of their token sink lower and lower.”

For his part, Casares of Patagon Management told DL News that DAO activism is a healthy response to incompetent DeFi teams. “These investors keep the financial systems of DeFi from clogging,” he said.

Eat that opportunity

Others view DAO activists as savvy investors who have found a niche investment thesis and profiting off it.

“My view is that DAO raiders are looking for an edge in the game,” Robster said. “And if there is a imbalance like treasury is worth more than the market capitalisation of a token then it’s an RFV play and if a group of people figure that out and join the project to eat that opportunity I think it’s only fair.”

Whether raiders or activists, for some, these groups of investors are playing the same game as those who farm airdrops or use MEV bots to extract rewards from high-value transactions.

Playing the game

“As for RFV Raiders, I think they’re just playing the game, if founders and insiders can drain funds they see a chance for themselves too,” Wazz, a pseudonymous crypto commentator told DL News.

Wazz, in the summer of 2022, predicted the current spate of rage quits.

“DAOs in their current state are doomed, something has to give,” Wazz told DL News. “Standards and the way of doing things have to change for it to be different.”

Osato Avan-Nomayo is our Nigeria-based DeFi correspondent. He covers DeFi and tech. To share tips or information about stories, please contact him at osato@dlnews.com.