40% of all $CREAM collateral is a single centralized exchange token.
— Spencer Noon (@spencernoon) October 8, 2020
What started as a Compound fork has since seen niche demand in providing money markets for DeFi assets that are not listed on other major lending markets due to their nascency and high-risk nature. For example, Cream was the first lending protocol to support lending for YFI, SUSHI, SWRV and UNI.
Now, Cream has come under fire after $75M worth of FTT, the native token of FTX, was used to borrow and short leading DeFi assets like YFI over the weekend. FTX’s CEO Sam Bankman-Fried recently took to Twitter to defend the use of $FTT on CREAM following many prominent community members suggesting Cream should delist FTT.
4) Let me start with a few high level remarks:
first, that I understand where this is coming from, and some version of it isn't crazy!
There's a lot of FTT on @CreamdotFinance right now.
I think that some version of a cap on single assets put there would be reasonable.
— SBF (@SBF_Alameda) October 10, 2020
In his tweetstorm, he seemed to imply that any sort of governance vote on CREAM to change FTT lending parameters would be unfair as a single address holds over 75% of all votes. Sam also goes on to provide evidence that his centralized exchange token has a lower risk of price crash compared to the basket of DeFi tokens that are listed on Cream.
Popular anon accounts pointed out that with FTT being a centralized token, Sam could manipulate it in various ways for his own profit at the detriment of other users on Cream and more broadly the entire DeFi ecosystem.
Over 40% of Cream's collateral is $78M of $FTT (25% of float)
What happens during a liquidation? Well considering $FTT only has a daily volume of $2M and a whole $6 of liquidity on Uniswap…
A downward price death spiral is created and that $78M will never be fully covered pic.twitter.com/nJnBksL1Pw
— ChainLinkGod.eth (@ChainLinkGod) October 8, 2020
The Snapshot proposal on Cream Finance decided to partially delist FTT by decreasing its borrowing power on the platform. This comes in agreement with reputable names such as Robert Leshner, founder of Compound Finance, suggesting a middle ground of adjusting FTT parameters on Cream instead of getting rid of it entirely.
An early governance vote is seeing one-sided voting to remove the asset; it's in the platform's best interest to calibrate (but not remove) FTT/SRM.
— 🤖 Leshner (@rleshner) October 10, 2020
The decision to reduce the FTT collateral goes to show that decentralized governance really rallies around large scale DeFi price swings, however these decisions historically takes multiple days to resolve in order to give everyone a fair voice.
While FTT’s borrowing power reduction can be seen as a win to the DeFi community, let’s keep in mind that these protocols are designed to support uses exactly like this, and at the end of the day DeFi remains a whale’s game to trade however they see fit.
To get more updates on Cream, follow them on Twitter.
Cooper is the Editor of DeFi Rate and an active contributor to leading DeFi media outlets like The Defiant, DeFi Pulse, and Bankless. He works with early-stage teams through Fire Eyes DAO to incubate governance models and grassroots community development. He is an ambassador to Set Protocol and an author of a weekly publication called Token Tuesdays. To stay up with Cooper, follow him on Twitter.