Curve Finance Governance Attack

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Curve Finance

Curve Finance provides liquidity pools especially tailored for stablecoins. The Mochi protocol has a stablecoin USDM which could be freely minted by the team. They used incentives to gain liquidity in their pool, minted additional Mochi, used the Mochi to mint USDM, swapped the USDM to DAI, then swapped the DAI to CVX. The CVX could then be used to vote for higher incentives, creating more liquidity allowing the process to be repeated. The Twitter account associated with project leader Azeem has apparently since been deleted.

This is a global/international case not involving a specific country.

About Curve Finance

"Curve is a decentralized, UniSwap-like exchange for stablecoins. By focusing on stablecoins, it’s able to offer traders extremely low slippage, and liquidity providers enjoy little-to-no impermanent loss." "As is the case with many other decentralized finance protocols, Curve wasn’t fully decentralized at launch, run by the Curve team, led by Michael Egorov, the founder of NuCypher with a Ph.D. in Physics."

"Curve supports DAI, USDC, USDT, TUSD, BUSD and sUSD, as well as BTC pairs, and it lets you trade between these pairs extremely quickly and efficiently. When stablecoins or stable assets are involved, Curve’s prices are usually the best in the business."

“The key aspect of Curve is its market-making algorithm, which can provide 100-1000 times higher market depth than Uniswap or Balancer for the same total value locked. This dynamic helps both traders and liquidity providers because fundamental returns for those are higher than on Uniswap and alike by the same factor as the market depth.”

"Mochi, a platform similar to asset-backed stablecoin issuers Spell and MakerDAO, gave users incentives to deposit assets in a Curve pool that included USDC, USDT, DAI and Mochi’s native stablecoin USDM leading into Wednesday night’s events, ultimately attracting over $170.2 million in liquidity at its peak, according to Azeem." The "[p]rice oracle for $mochi is literally just a number set by a hot wallet. The mochi token is upgradeable by a 1-of-3 multisig ("multisig") with no timelock. The same multisig owns 99.5% of all mochi." "Whereas Curve Finance reports that Mochi’s USDM factory pool reached $100 million in liquidity, other sources suggest that the pool reached $170 million in total value locked (TVL)."

"A final key cog in the events is Convex Finance. Convex is a protocol designed to maximize CRV rewards, and the protocol is now the largest veCRV holder with 136.58 million tokens, which is more than a third of CRV’s circulating supply. Users who lock Convex’s CVX token have the right to vote proportionally on how the protocol’s tokens are used for boosting the rate of rewards."

"On Wednesday night, a young project – memecoin-flavored Mochi Inu – executed a series of transactions that tilted CRV rewards in its favor by using a token-locking mechanism in Convex Finance, a yield farming protocol built on top of Curve." "This jockeying for CRV emission rewards is a common practice among protocols and is often referred to as the “Curve Wars.”" "The USDM stablecoin protocol Mochi launched a governance attack against the stablecoin transaction protocol Curve, caused USDM liquidity users to face a loss of $46 million."

"Last night, some unusual price action on CVX was brought to our attention. This came from an address which had just swapped 46M USDM to DAI in a factory pool 144. After some research, along with Yearn and Convex, we realised those were the actions of the person behind the Mochi protocol."

"The Mochi project party purchased Convex’s CVX tokens, voted to increase the USDM pool reward to increase the liquidity of USDM and other assets, and then exchanged the large amount of USDM tokens owned by the project party into DAI after the liquidity increased."

"Mochi used bribes in their own token (MOCHI) to vote in a gauge receiving CRV. Mochi incentivised votes to its gauge via Convex until the factory pool reached $100m liquidity. Mochi minted a huge amount of tokens to themselves 105, Mochi has no minting cap or tokenomics. Deposit those tokens onto the MOCHI which has a custom price oracle set by the Mochi team 64 (meaning the Mochi team could mint as many tokens as they wanted if there was enough liquidity to trade it for stables that aren’t backed by air) and 90% LTV and mint $46m USDM."

"Swap those USDM to DAI on Curve. Use those DAI to purchase Ethereum and ultimately buy 1.05m CVX 37. At that point, several people aware of the situation including Andre Cronje and myself tried to warn Mochi against locking those CVX as they would have been in a position to unfold their position and make LPs of that pool whole if the acquired CVX had remained liquid. Mochi eventually locked the CVX."

"Few more bits about Mochi and findings: 99.5% of the circulating supply is owned by “the team”. This likely means USDM undercollaterized. There are serious security and decentralization conderns with Mochi and Azeem. Those newly purchase CVX wil likely be used to give the USDM pool more incentive eventually creating more liquidity for the Mochi team to sell their undercollaterized USDM to LPs unaware of the situation."

"As this constitutes a clear governance attack and the emergency DAO deemed the LPs in that pool to be at risk, the emergency DAO agreed to kill the gauge so it stops receiving CRV emissions immediately. Those locked CVX would undoubtedly be used to deepen liquidity in the USDM pool to recreate the attack with Curve LPs left holding the bag and we urge Convex governance to take action against Mochi."

"In an interview with CoinDesk, Banteg, a pseudonymous Yearn core contributor and one of the nine members of the Curve Emergency DAO, said the flywheel was dangerous given USDM’s dubious backing."

“Internal thinking was around mitigating the feedback loop Andre described when he first drew attention to the issue. With high concentration of votes towards one pool, it could cut into other pools, ultimately hurting Curve [liquidity providers],” Banteg said. “We know for a fact USDM is a worthless collateral. In retrospect, Curve DAO should’ve done a better due diligence on it.”

"Shortly after the transactions, however, the Curve Emergency DAO, a nine-person group using a multisignature scheme with limited governance powers over CRV reward emissions, cut off Mochi’s rewards, and in a governance forum post, semi-anonymous Curve contributor Charlie wrote that Mochi’s overnight actions were a “clear governance attack.”"

"Nonetheless, the decision from the decentralized autonomous organization, or DAO, has prompted much community debate, as some have argued that the protocol should not single out any one user and that blacklisting another protocol runs against DeFi’s open, permissionless ethos."

"This is a good reminder that blindly accepting money from protocols for gauges or veCRV weight is a risky business especially with anyone being able to deploy Curve pools in the factory. Permisionless pool factories and permisionless gauges are meant to empower governance which comes with serious responsibilities."

“Curve definitely doesn’t want to be gatekeepers or protectors, but we gotta draw the line somewhere when it comes to bad behavior. Mochi crossed it seven times over last night.”

This is a global/international case not involving a specific country.

The background of the exchange platform, service, or individuals involved, as it would have been seen or understood at the time of the events.

Include:

• Known history of when and how the service was started.
• What problems does the company or service claim to solve?
• What marketing materials were used by the firm or business?
• Audits performed, and excerpts that may have been included.
• Business registration documents shown (fake or legitimate).
• How were people recruited to participate?
• Public warnings and announcements prior to the event.

Don't Include:

• Any wording which directly states or implies that the business is/was illegitimate, or that a vulnerability existed.
• Anything that wasn't reasonably knowable at the time of the event.

There could be more than one section here. If the same platform is involved with multiple incidents, then it can be linked to a main article page.

The Reality

This sections is included if a case involved deception or information that was unknown at the time. Examples include:

• When the service was actually started (if different than the "official story").
• Who actually ran a service and their own personal history.
• How the service was structured behind the scenes. (For example, there was no "trading bot".)
• Details of what audits reported and how vulnerabilities were missed during auditing.

What Happened

The specific events of the loss and how it came about. What actually happened to cause the loss and some of the events leading up to it.

Key Event Timeline - Curve Finance Governance Attack

Date	Event	Description
November 10th, 2021 3:14:59 PM MST	Main Event	Expand this into a brief description of what happened and the impact. If multiple lines are necessary, add them here.

Technical Details

This section includes specific detailed technical analysis of any security breaches which happened. What specific software vulnerabilities contributed to the problem and how were they exploited?

Total Amount Lost

The total amount lost has been estimated at $46,000,000 USD.

How much was lost and how was it calculated? If there are conflicting reports, which are accurate and where does the discrepancy lie?

Immediate Reactions

How did the various parties involved (firm, platform, management, and/or affected individual(s)) deal with the events? Were services shut down? Were announcements made? Were groups formed?

Ultimate Outcome

What was the end result? Was any investigation done? Were any individuals prosecuted? Was there a lawsuit? Was any tracing done?

Total Amount Recovered

There do not appear to have been any funds recovered in this case.

What funds were recovered? What funds were reimbursed for those affected users?

Ongoing Developments

What parts of this case are still remaining to be concluded?

General Prevention Policies

Curve Finance functions as a large smart contract hot wallet, which subjects the assets to potential ongoing risks. A treasury, industry insurance fund, or smart contract insurance, should be set up to protect all investors against black swan events. One option is to place some assets in cold storage to reduce the risk.

Individual Prevention Policies

No specific policies for individual prevention have yet been identified in this case.

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

Policies for platforms to take to prevent this situation have not yet been selected in this case.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

No specific regulatory policies have yet been identified in this case.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.