Greetings community,
Today, the decentralized stablecoin CMST over on Harbor Protocol experienced an exploit that effected multiple vaults (stOSMO, LUNA, wMATIC). This directly impacted the solvency of the CMST stablecoin. Our internal estimates state every CMST has ~$0.71 worth of backing instead of (at a minimum) $1. To protect liquidity providers on ShadeSwap, the CMST/SILK Liquidity Protections were activated via the ShadeSwap core contributors. This allows liquidity providers to unstake and withdraw, while rejecting any trades across the pool.
Exploit tweet: https://twitter.com/Harbor_Protocol/status/1692836252498723154
The net benefit of Liquidity Protections is that it removes ShadeSwap as a venue for folks dumping CMST for SILK (such as the exploiter). If trading is allowed to be open, it will result in the liquidity providers being left holding only CMST (which is on the path to a potential full depeg to $0.00 without exploit / economic resolution) and no SILK. In summary, they will be left holding nothing. To be clear, liquidity providers always have full access to withdraw or unstake while protections are active. This only closes the pair off as a trading venue.
If the CMST exploit is resolved and the peg is restored, the ShadeSwap core contributors will move to deactivate the Liquidity Protections and allow trading to resume. We will carefully be monitoring the situation. At Shade Protocol, we put liquidity providers first which is why this feature exists in the first place. Once v1 of Shade governance is live, we will outline the Liquidity Protections and formalize when/if at all they should be used and ratify the consensus via a governance vote. In the interim, the core contributors of ShadeSwap moved rapidly in the interest of protecting its liquidity providers.
Kind regards,
Carter Woetzel (Lead Researcher at Shade Protocol)