- A new project by yearn.finance inventor Andre Cronje has received $6 million despite warnings.
- Cronje published an article about his participation in the DeFi sector and about losses presented by users of its protocols.
Yearn Finance creator Andre Cronje’s “test in prod” method has become one of the most controversial development processes in the crypto space. The most recent launch of a Cronje project on the Ethereum mainnet has rekindled this criticism. Deployed approximately 48 years ago, the experimental smart contracts have received nearly $6 million despite Cronje’s warnings.
The project received attention after a publication in Medium entitled “Crypto Economics, Perpetual Liquidity and IL offsets”. Its purpose is to experiment with a platform that offers a solution to mitigate “Impermanent Losses” (IL) through an inflationary-based token of liquidity with liquid governance. That way, liquidity providers could generate higher trading fees and “mitigate IL as much as possible”.
Impermanent Loss is intrinsic to Automated Market Makers (AMM) and occurs when there is a divergence in the price of a token used to provide liquidity in a pool. When there is a price variation, liquidity providers lose a percentage of their profits unless the token returns to its initial price. Cronje’s platform proposed the creation incentives to mitigate this problem:
(…) create an arbitrage incentive for traders.
The goal with this design is not particularly around token value, however around token volatility, liquidity providers generate income via high volume trades, and this system promotes that outcome.
At the end of the publication of the article, Cronje stated that the token would be a bridge for the interaction of multiple exchanges. At the same time, he published the core contracts of his solution. The native token of the referred contracts is called Liquidity Income (LBI).
Cronje warns, but Ethereum users rush in
A solution to mitigate the impermanent losses would have a positive impact on the Ethereum DeFi sector. With the emergence and importance of platforms such as Uniswap, discussion of this problem has intensified. However, Cronje stated in an update to his article:
This is 100% valueless, not in the meme sense, as in this is an experimental concept to be further developed and co-collaborated on. This won’t be used in the future… Don’t put funds into it. I promise, I will create things for you to use your funds for, but this is not it.
Users ignored Cronje’s warnings. After a few hours, the smart contracts had over $6 million in total value locked (TVL). One of the many users who participated in the experiment deposited 1,000 ETH to acquire the token which then presented a 90% loss.
A short story, featuring a 1000 $ETH buy of $LBI, a subsequent return of 50 ETH, and then a disgruntled 100 $YFI sell. pic.twitter.com/3RPfls6buH
— Hsaka (@HsakaTrades) October 14, 2020
Within the Ethereum community, the developer has been criticized and defended. Via his Twitter account, Cronje himself has posted some of the harshest comments that qualify him as a bad actor or accuse him of negligence. In that sense, his most recent publication in Medium has been written to establish a stronger position.
In the post, Cronje states that he does not build for speculators, nor to “make a number go up”. However, the developer seems to regret using the phrase “test in prod” which he originally said as a warning, but that some users interpret as an opportunity to make profit by “pumping and dumping”, as Cronje further elaborated:
People confuse price with functionality. LBI is a perfect example, people bought LBI off of uniswap, inflating the price, something that a rational actor that understood how the system worked should never have done, this caused a price decline, and this is seen as LBI being a “failed” project. It isn’t, I’m still actively working on it, and it will become the basis of a much bigger product that will be part of the yearn brand (if they wish to adopt it).