Group uses Flash loan for Game Maker protocol governance

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In short

  • BProtocol proposed a governance vote on the Maker protocol.
  • To make sure he was successful, he used a flash loan to borrow the necessary MKR tokens.
  • Creator teams are making changes to prevent future governance attacks.

You want something quick in decentralized finance but you don’t want to wait for all this decentralized governance thing? Just use a flash loan!

This is what BProtocol, founded behind the former CTO of Kyber, done, using a single transaction to pass his own proposal on the Maker protocol.

Flash loans allow DeFi users to take out large loans for a fraction of a percent, provided they can repay the entire amount over a single Ethereum block. They are generally used to take advantage of arbitrage opportunities, so that a trader can simultaneously buy a token at a low price and sell it elsewhere for a higher price.

Using it for governance is something new.

Here is how it worked:

BProtocol used 50,000 ETH to borrow wrapped ETH from the decentralized exchange dYdX. He put the ETH on Aave protocol packaged to borrow $ 7 million in MKR governance tokens, which allow holders to vote on proposals affecting Maker’s operations. He locked these tokens to vote for his proposal, then unlocked them to return the funds to AAVE and dYdX.

According to Maker, MKR locked in a voting contract “can only be accessed with the wallet used to set up the voting contract.” (The manufacturer has not yet returned a Decrypt request for comments on the mechanics of the voting contract.)

Although Maker said that BProtocol was frank in explaining its actions, in a forum post today, a Maker governance facilitator wrote: “[BProtocol’s] The stocks are a practical example to the community that flash loans can and can impact the governance of the system and emphasize that the liquidity of the MKR market must be actively monitored.

He noted that over 63,000 MKR are currently available for flash loans on DeFi Aave, Balancer and Uniswap platforms, so it could happen again.

As a result, Maker admins are making some changes. First, they ask MKR holders not to put their governance tokens on these platforms, lest they be used in similar governance attacks. Second, it delays plans to include Yearn Finance and Balancer as collateral for loans, measures that were slated for this week.

In addition, it requires that 100,000 MKR be needed to unlock certain network capacities, well above the exceptional liquidity available.

Which isn’t to say that someone won’t know how to play with the system again, however complex it may be. Innovation, after all, is the raison d’être of this space.

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