Uh-Oh! Moonwell’s Got a $1.8M Liquidity Gap

So, here’s the skinny: Moonwell, our not-so-friendly decentralized lending protocol, just dropped a plan that seems to be more about avoiding problems rather than fixing them. Yep, you heard it right! They’re proposing zero cbETH repayments while sitting on a juicy $1.77 million net shortfall in the Base market for Coinbase Wrapped Staked ETH. Yikes!

What Happened with the Reserves?

According to those number-crunchers over at Anthias Labs, this allocation plan was as exciting as watching paint dry. They reported that, months after a February oracle screw-up dropped some bad debt on us, Moonwell still has 2.8095 cbETH just sitting there, collecting dust. Talk about a missed opportunity!

Current State of Affairs

Fast forward to August 25, and you can tell that the problems are still fresh, like your morning coffee that’s gone cold. A peek at Moonwell’s Base markets API showed a mismatched situation with $1.93 million supplied versus $1.94 million borrowed. And if you’re doing the math, that means an $8,223.63 liquidity hole and a utilization rate of over 100%. Oops!

What Are Users Saying?

We’ve also got some disgruntled users scratching their heads. One non-liquidated supplier, with a position of 1.05 cbETH and no borrowing history, found they could withdraw a grand total of nada—0.0000000001 cbETH! If that doesn’t scream “problem,” I don’t know what does! Another user chimed in with a similar issue, but hey, it’s unclear how many are in the same sinking boat.

So, What’s the Plan?

As per Anthias Labs, the repayment plan will kindly remain within each mToken market. When the reserves hit a dry spell, they’ll distribute them among borrowers like a buffet but with some rules: no dollar action below $1,000, and capping repayments at the lowest of either reserves or current debt. Sounds a bit complicated, doesn’t it?

Bad Debt: The Root of the Problem

The bad debt saga traces back to a February 15 oracle misstep, which mispriced cbETH at around $1.12 instead of its more accurate value of about $2,200. That’s quite a blunder! Liquidators had a field day grabbing 1,096.317 cbETH, hitting the protocol hard with an initial bad debt tally of around $1.8 million.

The Aftermath

Minding the balance books, a recovery proposal later indicated a grand total of $2.7 million in losses from about 181 liquidated borrowers. That’s some serious cash flying out the window! The plan proposed using treasury funds followed by protocol-revenue repayments, but are we seeing any of that magic happen? Spoiler alert: not yet!

What Does It All Mean?

Moonwell has mentioned that withdrawals depend on available liquidity, and the ongoing confusion hints that not all is well in the crypto neighborhood. As of now, Moonwell and Anthias Labs have been a little quiet, not responding to community threads by the time we hit the afternoon of August 25.

Wrapping It Up

And there you have it, folks! Coinbase Wrapped Staked ETH is apparently on a positive track, with a cute little +1.15% over the past 24 hours, which feels more like a band-aid on an open wound here. So, stay tuned for the ups and downs in this wild crypto ride!