01 June 2023 17:25, UTC
Reading time: ~4 m
The chaos at bridge-builder Multichain (MULTI) is stirring concern in the Fantom (FTM) ecosystem despite assurances from the Fantom Foundation.
DeFi protocols are trying to insulate themselves from a potential bridge outage that could devalue or even strand wrapped assets – including USDC, ETH and many others – issued by Multichain.
A handful of decentralized finance (DeFi) projects on the Fantom blockchain (FTM) began moving crypto to other networks this week out of fear that Multichain’s (MULTI) mounting bridging crisis could imperil their tokens’ value.
On Wednesday, the decentralized exchange (DEX) Beethoven X sent $300,000 in treasury stablecoins from Fantom to Ethereum; protocol builder Byte Masons did the same with ether (ETH) and USD coin (USDC) it used in trading pools. Earlier this week, DeFi yield farm Beefy sent $200,000 in tokens owned by Binance from Fantom to BSC at the request of the world’s largest exchange.
Disclosed on Discord servers, the actions showcase how Multichain’s faltering infrastructure and AWOL CEO are sending shockwaves through Fantom, the blockchain most heavily dependent on Multichain’s bridges for moving popular cryptocurrencies into and out of its on-chain economy.
For now, the moves appear precautionary: Multichain’s Fantom infrastructure worked fine at press time even as its routes to other, minor chains were failing. Michael Kong, the CEO of the Fantom Foundation, told CoinDesk the “Multichain bridge is fully operational and safe.”
But fear, uncertainty and doubt (FUD) is spreading fast. “The current FUD surrounding Multichain has severely impacted the entire Fantom ecosystem,” a contributor to the Mummy (MMY) exchange told their Discord community early Thursday, “and Mummy is not exempt from this wave.”
Multichain’s vital role at Fantom
The fears stem from Multichain’s importance to Fantom. Nearly 40% of cryptocurrencies on the Fantom network (excluding FTM itself) got there by way of Multichain’s Fantom bridges, according to quant trading firm Thanefield. If anything were to happen to that connection, those wrapped assets could de-peg and in the worst case get stranded.
A CoinDesk review of nine Discord servers for Fantom-based DeFi projects found community members and project leaders are growing increasingly concerned with the state of Multichain – the bridge-builder who can’t maintain its servers because its CEO has disappeared – and how its crisis could batter Fantom.
No one is talking about abandoning Fantom outright. On the contrary, the messages reviewed by CoinDesk showed that even those teams taking the most aggressive measures remain publicly committed to the ecosystem, a major outpost for DeFi traders. They’re looking to Fantom Foundation to broker new partnerships that would solve the current dependency on Multichain.
One surefire way to solve the crisis would be to bring a native form of the USDC stablecoin to Fantom, thereby eliminating the need for wrapped versions whose fates are dependent on the bridges who issue them. But that hasn’t happened yet, leaving Multichain’s bridged stablecoins (80% of stablecoins on Fantom are bridged in via Multichain, according to Thanefield) as the predominant trading pairs in the ecosystem.
Leaving Multichain-linked assets
Some protocols are moving away from Multichain-linked assets even now. The DEX Equalizer (EQUAL) has begun incentivizing traders toward USDC issued by bridge-builder Axelar over that of Multichain, the ecosystem’s predominant stablecoin.
The team building Hector (HEC) has told its community that stablecoin airlifts to other chains are on the table. At decentralized lending protocol Tarot (TAROT), the team said Thursday it is “reevaluating” its risk framework for integrating bridged stablecoins.
A depegging of USDC could spell trouble for derivatives protocols reliant on tokens meant to trade for $1 staying at that level, said GrapeHayz, a pseudonymous member of Equalizer’s Discord.
“I hope you can think about the domino effect if the bridged USDC token is not worth 1 dollar but maybe 60-70 cents,” he said in a Discord message invoking the fallout from Terra Luna’s collapse. “I don’t think we will get there but this is the elephant in the room.”
Beethoven X (BEETS), the decentralized exchange that’s already moved $300,000 in Fantom-based stablecoins to Ethereum, is now scrambling to further insulate itself from a potential breakdown of Multichain’s Fantom bridges. This morning its key contributors submitted an emergency governance proposal that would move $1 million in treasury-owned liquidity to other blockchains.
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