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Altchains & DeFi
TABLE OF CONTENTS

Will Doge be a DeFi Powerhouse & The FEI Saga Prolongs

5.0
| by
Shaun Paul Lee
-

Dogecoin started out as a memecoin back in 2013, having been created by Jackson Palmer and Billy Markus. It is based on the popular meme featuring a Shiba Inu, and it’s a fork of now defunct cryptocurrency Lucky Coin, which itself was a fork of Litecoin. 

Source: CoinGecko

Over the years it has gained popularity, having catapulted itself up the ranks, and is currently the 10th largest cryptocurrency in terms of market capitalization. Its cult following comprises retail traders, all the way to the world’s richest man, Elon Musk who has even proposed to accept DOGE as a payment method for Tesla cars. 

 

Dogechain to bring DeFi to Dogecoin?

However, while DOGE has managed to capture much attention (and launched hundreds of copycats and derivative tokens), and use cases to a certain extent, it has failed to penetrate one of crypto's core sectors: Decentralized Finance (DeFi). This could be attributed to the fact that the majority of DeFi is based on chains with support for dApps (which Dogecoin lacks). There are parties out there who want to change this, and with that have launched Dogechain, a chain which permits the building of DeFi protocols and more. 

What is Dogechain?

Dogechain is a new EVM-sidechain which aims to bring more utility to Dogecoin, and specifically to “transform the single-usage Dogecoin crypto into a DeFi powerhouse.” 

While the team behind it is largely anonymous, it does have some close ties to Quickswap, the leading decentralized exchange (DEX) on Polygon. For example, Roc Zacharias, the co-founder of Quickswap is one of the core contributors to Dogechain. 

The new chain is built on Polygon Edge, a custom blockchain software from Polygon allowing its users to run their own blockchain along with customizable features. As it takes features similar to that of Polygon, it comes with full EVM support. This allows any dApps on Ethereum, or other EVM networks to be ported over.

Is it officially tied to Dogecoin?

While it may seem like Dogechain is an official product of Dogecoin (which is a fair assumption), the foundation behind Dogecoin has denied any involvement with Dogechain. 

The only connection it has to the chain is the usage of DOGE as its native currency, albeit a wrapped version. As both chains don’t share the same consensus mechanism, Dogechain has to use a wrapped version of DOGE. Users simply need to send DOGE to the Dogechain bridge, and in return receive wDOGE PoS tokens at a 1:1 ratio. 

Current Protocols and Activity

Source: DeFi Llama

The chain is still relatively new, having been launched just a couple of weeks ago. However, it is already a hive of activity, and has managed to accumulate over $9 million in Total Value Locked (TVL) since across a few DEXes, according to DeFi Llama. This TVL is mainly in the form of wDOGE. However, a large portion of TVL is on Quickswap which has close to $3 million, and this isn’t accounted for on DeFi Llama. Therefore, TVL value on Dogechain is closer to $12 million.

While the chain has managed to garner some activity, it still appears to be in its infancy stage. Many projects have already either sunsetted their product, or simply abandoned them. Nothing novel has appeared out of it, with most of the projects and protocols being simple DEXes or just memecoins with a variable tax function. 

Below are a number of native Dogechain tokens which have either been abandoned, or went through rather vicious “pump and dump” cycles.

Source: GeckoTerminal

Source: GeckoTerminal

Source: GeckoTerminal

Source: GeckoTerminal

Source: GeckoTerminal

Currently, the only established protocol which has been ported over to Dogechain happens to be Quickswap. In order to attract volume and liquidity, incentivized trading pairs have been made available. On top of that, Quickswap has also launched a memecoin in the form of DogeDragon. There is no utility for this token currently, so do proceed with caution.

Dogechain also plans to launch its own token in the future, and a portion of it will be airdropped to users of the network. To be released as the Dogechain (DC) token, it will be used for governance purposes, and down the line will be used as an option to pay for gas alongside wDOGE.

Thoughts

  1. With the upcoming launch of Shibarium, Shiba Inu’s very own layer-2 network, Dogechain might be eclipsed. Unlike Dogechain, Shibarium is an official initiative by the Shiba team. This brings some sort of “official validation,” and will more likely drive Shiba holders to use the network. 

  2. For Dogechain to actually take off, it will need to pivot away from being just an ecosystem filled with memecoins, and instead bring more substantive protocols to it. Such products could include money markets, derivatives, and NFT marketplaces among others. 

  3. Wrapped DOGE is currently the native currency on Dogechain, which can only be obtained by bridging DOGE over. As it is a bridged token, it could be susceptible to bridge exploits. If the Dogechain bridge is compromised, all Wrapped DOGE will no longer be fully backed by DOGE. This would leave users stuck in the chain perpetually. 

  4. The current Dogechain season is reminiscent of the meme coin hype on BNB Chain when it first launched in 2020. These projects and tokens were akin to pump and dump schemes, and shut down within a matter of months. Meanwhile, it’s happening at an accelerated pace on Dogechain, with many pulling the plug within days of launching. Eventually, users will get tired of this cycle of pump and dump schemes, and will abandon the chain for good.

 

An aside: Is the Tribe DAO Drama Nearing its Conclusion?

A couple of months ago, we covered difficulties that were being experienced by several DAOs, among them being the Tribe DAO governance kerfuffle earlier this year. Now, the situation has further developed, and the latest events are no less controversial than ones in the recent past. 

The TLDR of it is that at the end of last year,  the largest DAO merger occurred between Fei Protocol and Rari Capital, forming part of a collective known as Tribe DAO. Unfortunately, a few months later Rari’s Fuse pools were exploited to the tune of nearly ~$80 million. Subsequently, a governance snapshot vote to fully reimburse affected Fuse users was overwhelmingly passed in May this year. However, just a month later when the proposal made its way on-chain, which outlined the next steps for a reimbursement plan, it was suddenly defeated, with the largest voters consisting of early investors and team members. While the snapshot vote was non-binding, the outcome of the on-chain vote defied the expectations of the community which were set after the snapshot vote in May, sparking suspicion and outrage amongst the broader community.

Fast forward to 20th August, the Fei team suddenly announced their plans to wind down the protocol and exit Tribe DAO, citing a challenging macro environment as well as challenges imposed by the Fuse exploit. In conjunction with that, they also submitted TIP-121 outlining their proposal for hack victims’ reimbursement as well as Tribe DAO’s future direction. 

Very briefly, TIP-121 proposes a wind-down process for Fei Labs and Tribe DAO which comprises three core components:

  • Consolidation of remaining protocol-controlled assets

  • (Partial) reimbursement of Fuse hack victims

  • Final redemption - where FEI convert into redemption receipts for DAI, and TRIBE tokens convert into redemption receipts for a pro-rata claim on remaining PCV (protocol controlled value) 

At face level, all seemed fair and civil, with the initial announcement by Fei Labs founder Joey about the unwind receiving some positive feedback and response, even from big names such as Aave Founder Stani Kulechov.

However, it didn’t take long before many voiced their strong disapproval of the proposal Fei Labs put forth. In particular, the component regarding the reimbursement of Fuse hack victims is what many parties were opposed to. Most notable of these criticisms were from Frax Founder Sam Kazemian. 

The crux of the issue is that this proposal, if passed, would reimburse fully small retail users which lost roughly <$240k (which made up most of the victims), but not the wealthier users or DAOs such as Frax and Olympus DAO which comprised the top 26 wallets. Together, the top wallets make up ~90% of the losses or ~$44.9M, but would only receive ~14% or ~$6.1M of the hack reimbursement value (assuming a ~$50M hack repayment as per @dcfgod figures). This would mean that early backers such as Frax / Olympus would only be reimbursed literal pennies to the dollar. 

The controversy here is that the PCV is sufficient to honor redemptions for all user-owned FEI for DAI, reimburse Fuse hack victims completely, and have enough leftover to distribute $0.16 from the remaining PCV for each TRIBE. Instead, the project suggested a full pro-rata distribution of the PCV (i.e. not using any PCV to reimburse hack victims), which would amount to $0.25 for each TRIBE.  Clearly, Fei’s proposal prioritizes TRIBE tokenholders, instead of repaying hack victims. Many members of the community have accused the Fei Team for fraud and greed, suspecting that the pie is sliced this way solely to enrich / prioritize early backers and team members as opposed to making all victims whole, as they are the ones with the largest TRIBE holdings. Community members also suspected insider trading, as some have pointed out suspicious buying activity of TRIBE which occurred several hours before the proposal was published.

@dcfgod has also been quite vocal regarding the matter, but shares more balanced takes by outlining the outcomes of different paths that the Fei/Tribe DAO community could theoretically take.

One interesting, theoretical solution DCF God put forth for top holders to be repaid their hack losses is that the top holders could band together to form a fund to accumulate TRIBE in order to swing DAO governance decisions. As per observation above, from previous proposals only ~32M TRIBE, worth ~$5.5M at time of writing, would be required to essentially decide the outcome of any vote, which is much less than what they all collectively stand to lose if the current proposal passes. Even if the fund somehow lost the vote, their 32M TRIBE ownership would entitle them to a claim of remaining PCV which is more than what they would have paid for it. More optimistically if the vote passed, they would get reimbursed fully for their losses, again more than what they would have paid for TRIBE tokens. 

The situation is still currently developing, but the best recollection of relevant Twitter/Discord conversations (of which some tweets have been deleted by their authors) have been documented by @DAdvisoor in a blog post here.

Thoughts

  1. An arbitrary discrimination on who gets paid, especially when it may disproportionately benefit only a particular segment of victims,  seems unfair. While DAOs may be considered whales and make up the top wallets, the funds within them are collectively owned/controlled by smaller users as well. 

  2. A common argument angle for those who support the full repayment of hack victims is that in traditional liquidation proceedings, creditors are repaid first, and equity holders last. Many noted the proposal by Fei Labs seems to be the reverse of this. While those opposed to repaying hack victims may claim that depositors are not ‘creditors’, it is a matter of fact that early depositors are the ones to bootstrap the protocol with liquidity, taking on the risk of impermanent loss with a promise of APY return. While there may be no guarantees for reimbursements following a protocol exploit, there should not be a scenario (like the one currently playing out) in which TRIBE token holders are paid more than hack victims, especially if the largest holders consist of those who developed the vulnerable contracts in the first place. 

  3. It is worth noting that the above proposal will still need to be put to a vote, but it will be important how this situation ends up playing out as it would set a precedent for current and future DAOs.

 

This article was produced in collaboration with Weng Dee. You can follow her on Twitter here.

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Shaun Paul Lee
Shaun Paul Lee
Shaun is a Research Analyst at CoinGecko, who has lived and breathed crypto since 2017. Previously a community manager for Synthetix and RedFOX, he dived down the crypto rabbit hole to grasp a better understanding of the industry. He now spends copious amounts of time on Crypto Twitter and Telegram, searching for the next idea for CoinGecko Research. Follow the author on Twitter @ShaunPaulLee

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