Danger “curator” Re7 Labs has despatched a stop and desist letter to a “whistleblower,” through its authorized consultant Pillsbury Winthrop Shaw Pittman LLP.
The letter is available in response to accusations that Re7 Labs failed in its duty for managing threat in sure vaults.
Depositors to those vaults have been uncovered to final month’s Stream Finance collapse and the next domino-effect that hit related tasks.
The allegations consult with Re7 Labs’ actions earlier than, throughout, and after the collapse.
The “whistleblower” contacted Protos Leaks on behalf of a bunch of affected depositors who declare to have misplaced cash lending into Re7 Labs’ tether (USDT) market on Euler Finance, a DeFi lending platform.
The allegations
Of their tip, the whistleblower particularly lists as Re7 Labs’ failings:
Asset choice and LTV configuration
Monitoring irregular borrowing or focus threat
Proscribing borrowing throughout suspicious exercise
Executing liquidations or parameter modifications when collateral deteriorates
Incident disclosure and communication with customers and companions
Re7 Labs has taken challenge with a earlier report, which was forwarded to media shops and requested the suspension of the fund’s (in the end unsuccessful) nomination for the HFM European Efficiency Awards.
The report, which additionally prolonged to different corporations, described an “attacker” borrowing massive portions of USD1 and USDT towards USDX.
Later, a collection of enormous USDX gross sales “intentionally” crashed USDX’s value, depleting on-chain liquidity and inflicting liquidation of the collateral to fail. The funds have been allegedly sourced from addresses linked to Stables Labs, the issuer of USDX.
It additionally slams Euler Finance, which it claims “failed to implement safeguards,” and Binance, which was “allegedly unresponsive to requests from victims to freeze” the proceeds.
The response
A consultant of Re7 Labs instructed Protos that the allegations are “serious, inaccurate and unsubstantiated, and distract from the ongoing legal process and genuine recovery efforts.”
It insists that “responsibility lies with Stream Finance and/or Stables Labs” and that, as a “fellow lender,” it has “also suffered losses.”
The stop and desist letter, seen by Protos, denies any “wrongdoing, misconduct, or breach of any legal or other obligation… in the strongest possible terms.”
In addition to the stop and desist demand, the letter additionally requests a “formal written apology” and corrective assertion, affirmation of identification, and the deletion of messages containing the allegations.
Neither response instantly addresses the precise claims made by the whistleblower, nevertheless.
Protos despatched a follow-up pushing for a response to the precise accusations round collateral choice, and consciousness of “abnormal” borrowing, however hasn’t but acquired a reply.
Yield vault armageddon
In late October, issues over a “daisy chain of circular lending” started to flow into amongst DeFi yield farmers.
Then, on November 4, Stream Finance introduced a lack of $93 million, triggering a scramble to withdraw and unwind dangerous positions throughout the DeFi yield vault ecosystem.
As confidence in vault tokens akin to Stream’s xUSD, Elixir’s deUSD and Stables Labs USDX evaporated, a mass depegging adopted.
The tokens had been broadly used as collateral to borrow mainstream stablecoins. Together with the collateral’s worth, debtors’ incentive to repay their loans additionally evaporated.
Some customers really feel that lending platforms and vault ‘curators’ didn’t do sufficient to guard depositors, and that dangers have been opaque. Receipt tokens for stablecoin vaults, many with USD within the identify, have been seen as pseudo-stablecoins producing yield from “delta-neutral” methods.
In the end, as we noticed final cycle, producing excessive yields on stablecoin deposits requires dangerous ranges of leverage.
Earlier statements from Re7 Labs have indicated at the very least $27 million of publicity to depegged property deUSD and USDX.
