Rumors of insolvency are circulating around EVODeFi, a bridge in the Oasis Protocol ecosystem that may be $66 million short of funds.
Possibly $66 Million in Unbacked Funds
On June 7, various users on Twitter suggested that EVODeFi could have a multi-million dollar discrepancy in its protocol.
Specifically, those reports suggest the project has 18 million USDT but needs 96.8 million USDT to remain solvent. Likewise, they suggest that it has 91.5 BTC but needs 293 BTC for solvency. At current prices, EVODeFi could be underfunded by approximately $84 million.
However, EVODeFi also supposedly has an excess of other assets in addition to the above shortages. The protocol has 27 million USDC but needs only 10.8 million USDC; it also has 4229 ETH but needs only 3421 ETH. Those excess funds are worth $18 million, an amount that would drop the overall shortage to $66 million.
The Rug Doctor, who leads the DeFi safety and education project RugDoc, gave support to the above estimate. “I’m assuming they have about $50 million of varying debt just from chatting with their team today,” she told Crypto Briefing.
The Rug Doctor believes that the project minted unbacked Tether (USDT) to buy back other assets, thereby supporting itself and ValleySwap during a period of financial desperation.
She shared with Crypto Briefing an on-chain transaction apparently showing a simultaneous USDT withdrawal to five different wallets within the same transaction. The unfeasible nature of that transaction—though unverified—suggests that the assets are unbacked.
EvoDeFi Has Frozen and Restored Services
EVODeFi responded to the turmoil by pausing their bridge on June 7, claiming that “too many speculations” and volatile asset prices were hindering the bridge’s ability to withdraw user funds safely. EVODeFi has now resumed operation as of June 8.
The protocol has also stalled for time by requiring users to fill out a KYC form before processing users’ withdrawal requests.
The Rug Doctor gave a more general warning, stating that bridges are “generally the weakest point of any DeFi protocol” and should be “a last resort after a careful risk-benefit analysis.” She added that the EVODeFi crisis is “an unfortunate example of how an anonymous team can abuse their governance privileges to ultimately hurt users.”
The Rug Doctor said has worked with Binance to freeze EVODeFi’s account and is compiling information to send to law enforcement.
Crisis Has Wider Impact on Prices
Rumors around EVODeFi’s Tether shortage caused USDT to lose its $1 price peg on certain Oasis-based exchanges. USDT crashed to $0.16 on June 6, rebounded to approximately $0.63 on June 7, and is now currently trading at $0.14 on ValleySwap and YuzuSwap, two of Oasis’ largest decentralized exchanges.
The Oasis Foundation has issued a statement attributing those losses to FUD rather than protocol failures. It says that Oasis stablecoins have not lost their peg; rather, it says that “EvoDeFi-bridged assets are trading below their expected value on ValleySwap due to fears that they are not backed one-to-one.”
Oasis also distanced itself from EVODeFi and ValleySwap, stating that it is neither affiliated with nor is it supporting either project. It previously warned users about EVODeFi and connected protocols in April.
Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.