Tldr: Agave submitted a proposal on the Gnosis DAO forum for a reimbursement and recapitalization plan for Agave. It’s selling 25,000 AGVE tokens in an auction and this post is meant to kickstart the discussion on whether or not DXdao should participate and under what conditions. Keen to hear feedback from the community.
- Agave exploited for $5.6m, 44% of lost funds are GNO
- Sophisticated reentrany attack enabled in part by callbacks in token implementation on Gnosis Chain, as the attack wouldn’t work on other EVM chains
- Appears Gnosis is ready to compensate a portion of the funds and then a capital raise (selling AGVE tokens from the treasury) will cover the rest + provide runway. Proposal from Agave in Gnosis’s forum
- Gnosis will participate in the capital raise through an auction and hope other parties will participate
- AGVE is a fairly low market cap token ($2.5m circulating, $9m FDV) and there are not too many lending protocols out there (especially on Gnosis Chain).
- A significant stake in a lending protocol would be a major value add to DXdao’s product suite. Integrations with other DXdao products would be beneficial, but the biggest value may come from the ability to add assets as collateral. DXD, of course, but this could be a huge offer of the DXdao product suite (lending protocol listing is the new CEX listing)
- Growing a community - already lots of overlap between DXdao and Agave community and further integration would establish DXdao as a leader of the “xDai community”
- Work together more closely with Gnosis
The need to recapitalize Agave represents an opportunity for DXdao to purchase a large portion of Agave tokens at a reasonable price. DXdao could participate in the auction, buy AGVE tokens on the open market or even fund future product development in exchange for AGVE tokens.
Gnosis Auction will be used, which is a Dutch auction, so all winning bidders will pay the lowest bid accepted. It’s expected that Gnosis will put a minimum floor bid that would buy all 25,000 tokens and then allow anyone else to also bid.
Current estimation is that $750k could purchase 10% of Agave’s circulating supply (after the new issuance). DXdao could also purchase AGVE on the open market, where it’s relatively cheap, through a similar structure to the DXD buyback.
- Expand the DXdao product suite, establish DXdao brand as suite of DeFi apps
- Product integrations into Swapr, Carrot, DXgov, Jolt
- Governance influence on adding collateral - a huge value add to attracting new projects to DXdao product suite
- Grow the value of the treasury
Agave has suffered a big exploit and the funds raised will be used to pay back depositors first. After this, it’s not clear that Agave has a robust governance structure to fund and continue development. The participation of Gnosis DAO, with its large financial resources as well as technical expertise and desire to see Gnosis Chain succeed, help alleviate this concern. The auction will first and foremost help refund the lost funds, but there may be additional funding needed to support product development.
Purchasing a token as illiquid as Agave comes with its own sets of concerns and risks. Token prices could decline dramatically.
There is also a question of how this will affect the NAV of the treasury as it relates to the DXD buyback program.
There are still a number of outstanding questions. The specifics for the auction are not laid out in the proposal and the details on how the funds would be used to recapitalize are not fully developed. And then there is a further question of how to “restart” the protocol. These issues should be further explored before DXdao makes a capital commitment.
There should also be additional due diligence into the Agave team, governance structure and roadmap. At the moment, there are a couple community members managing the Agave community and some developers managing the product but it’s important for additional due diligence to be conducted on understanding the team and the roadmap.
[Disclosure: Caney Fork had 1,975 xDai in Agave at the time of the hack and holds a miniscule amount of Agave (from their farming rewards)]
Feel free to post thoughts, comments or criticisms below. Also follow along the discussion in the Gnosis Forum.