[YIP-74] YFI Wintermute Loan & CRV Plans

Personally view this proposal as a statement that Yearn is a docile redacted potential partner. While I typically view Wintermute as good actors, that doesn’t preclude them from making bad/exploitative proposals.

Wintermute has acquired a significant amount of CRV and needs to maximize profit. It can be assumed since delta neutral that they have some form of large CRV short open to match this new exposure.

They have acquired their bag, at a discount, too large to market make against majors and have a commitment not to dump (secured by rep).

CRV has built an ecosystem around long term locks as earning opportunities rather than low friction opportunities. Really their only options to earn outside of market making are veCRV, cvxCRV, yCRV, sdCRV, and a few other very small players which are probably off their radar due to size constraints.

If we look at CRV’s onchain trading volume we can see that it primarily trades against WETH. Then its derivatives make up the rest of the rest with cvxCRV being significantly large, followed by yCRV then sdCRV.

(Units are in CRV and exclude WETH )




cvxCRV has a total supply of 309,424,464
yCRV has a total supply of 52,253,547 (but slightly diverged from underlying CRV)
yCRV has roughly 6x less supply but maintains > 6x less volume so actually pretty decent on that front.

We see Wintermute is pressured into making plays which market make CRV LSDs but need to offset their exposure to price impact on exits on 2024-07-31.

In order to offset that future price impact, Wintermute is asking for a virtually free uncollateralized loan of YFI where Yearn inherits all the operational risk of Wintermute and would need a legal entity to deal with any unfulfilled promises.

A potentially better alternative is to loan Wintermute the underlying ycrvDAO token which is wrapped by yCRV.

If the yCRV contract can use strategies it can deploy its underlying ycrvDAO to a lending protocol or custom option contract which uses CRV as collateral. The interest rate should be set above the expected revenue earned from ycrvDAO. This allows Yearn to take a small share of profits from the MM operations of Wintermute in the form of interest to increase the yield earned by yCRV holders while having all components of the deal handled on chain.

Lending YFI against yCRV is dangerous, as CRV natively makes unsafe colllateral and yCRV is even less liquid without the ability to arb downside market price pressure.

Lending ycrvDAO against CRV is super safe since liquidation is just locking the CRV, and ycvDAO can’t really pump vs CRV since an arb is available to correct that price.