The more I looked at how Optimism DeFi protocols connect to each other, the more fragile the whole structure seemed of stablecoin dependencies. This analysis examines how Mento Protocol, Sonne Finance, and Velodrome Finance create systemic risk through shared reliance on USDC and DAI—where one failure can cascade across the entire ecosystem.
The Optimism Superchain represents one of the most ambitious experiments in scaling decentralized finance. With billions flowing through its protocols, it promises faster transactions and lower fees. But this efficiency comes with a hidden cost: systemic risk concentrated around a handful of stablecoin assets.
I wanted to understand the intricate dependencies between three critical protocols that collectively demonstrate how stablecoin reliance creates cascading failure points in modern DeFi architecture.
All three protocols share fundamental dependency on USDC and DAI. A single USDC depegging event would simultaneously: devalue Mento's reserve collateral, trigger mass liquidations on Sonne, and drain liquidity from Velodrome's pools. This creates what systems theorists call "common mode failure"—where a single event disables multiple systems simultaneously.
Reserves: $65.4M backing $22M stablecoins
Collateralization: 2.96x over-collateralized
Currencies: 15+ fiat-pegged stablecoins
Migration: Celo L1 → Optimism L2 (March 2025)
Mento enables creation of stablecoins pegged to various fiat currencies—from Brazilian Real (cREAL) to Kenyan Shilling (cKES). Uses hybrid model combining over-collateralization with algorithmic minting and virtual AMM.
• Over-collateralization (2.96x)
• Algorithmic minting/burning
• Virtual AMM (vAMM)
• Dual oracle system
Critical Dependency: Holds USDC as major reserve component. USDC depeg threatens backing of all 15+ stablecoins.
Type: Compound V2 fork
Security: 2/3 multisig governance
Track Record: $20M exploit (May 2024)
Audits: No formal audits
Built as a fork of Compound Finance, Sonne launched on Optimism with promise of proven lending technology. Users deposit assets for interest-bearing tokens (soTokens), borrowers take loans against collateral.
• Attack: Donation attack pattern
• Loss: $20 million
• Method: Exploited timelock mechanism
• Weakness: Inherited Compound v2 vulnerability
Critical Dependency: Relies on USDC/DAI as safest collateral. Depeg triggers mass liquidations as collateral values become uncertain.
TVL: $128 million
Role: Primary DEX for Optimism Superchain
Model: ve(3,3) tokenomics
Innovation: Combines Curve + Convex + Uniswap
Central nervous system of Optimism DeFi. Offers stable pools (USDC/DAI), volatile pools (ETH/USDC), and concentrated liquidity. ve(3,3) tokenomics create flywheel: lock VELO → get veVELO → vote on emissions → earn 100% of fees.
• Stable: Efficient for correlated pairs
• Volatile: For uncorrelated assets
• Concentrated: Maximum capital efficiency
Critical Dependency: Largest pools involve stablecoin pairs. USDC/DAI depeg drains liquidity as panic trading overwhelms AMM capacity.
Most Vulnerable: Sonne Finance (proven exploit, weak governance)
Highest Systemic Risk: Velodrome Finance ($128M TVL, no reserves)
Most Complex: Mento Protocol (multiple attack vectors, strongest defense)
The real danger emerges not from examining each protocol in isolation, but from mapping the interconnections between them. These create cascading failure points where efficiency becomes fragility.
All three protocols converge on the same stablecoin assets: USDC and DAI. This creates "common mode failure" where a single event disables multiple systems.
USDC Depeg Impact Chain:
→ Mento reserve devaluation (threatens all 15+ stablecoins)
→ Sonne mass liquidations (USDC collateral loses value)
→ Velodrome liquidity drain (panic trading in USDC/DAI pools)
→ Ecosystem-wide contagion
Velodrome's role as primary DEX creates second-layer interconnection. Sonne uses Velodrome for SONNE token liquidity, actively bribing voters for emissions. Mento stablecoins require Velodrome pools to be tradable.
Velodrome Failure Impact:
→ Sonne loses governance token market
→ Mento stablecoins become illiquid
→ Super USDT initiative collapses
→ Entire Superchain liquidity infrastructure disabled
Both Mento and Sonne rely on external price feeds. Most DeFi protocols use the same oracle provider—primarily Chainlink. Oracle manipulation or Chainlink compromise would simultaneously affect multiple protocols.
Oracle Dependency Risk:
• Mento needs accurate exchange rates (BRL/USD manipulation → drain reserve)
• Sonne needs asset prices (false liquidation thresholds)
• Velodrome uses 30-min TWAPs (longer manipulation windows)
• Single Chainlink compromise affects all three
The most realistic and devastating attack doesn't target protocols in isolation but exploits their interconnections. Here's how such an attack might unfold:
Attacker exploits Sonne Finance using variation of proven donation attack, amplified with flash loans. Drains significant value from lending pools, triggers mass liquidations as collateral values plummet.
News of Sonne exploit spreads rapidly. USDC and DAI holders on Optimism begin withdrawing from all protocols, not just Sonne. Bank run scenario emerges across ecosystem.
Velodrome's stablecoin pools face massive one-sided selling. AMM pricing curves can't absorb this pressure, causing significant slippage and impermanent loss. Smart LPs withdraw liquidity entirely, further reducing pool depth.
As Velodrome liquidity drains, tokens used as Sonne collateral become harder to liquidate. Liquidation bots struggle to find buyers, bad debt accumulates. Reduced trading volume crashes VELO price, affecting those who used VELO as collateral.
Chaos in USDC/DAI markets stresses Mento reserves. If USDC depegs during this period, Mento's collateralization ratio effectively drops. Arbitrageurs test trading restrictions, minting at maximum allowed rates and immediately selling, slowly draining reserve.
With Velodrome liquidity gone, Sonne exploited, and Mento reserves depleted, entire Optimism DeFi ecosystem loses core infrastructure. Protocols built on these foundational layers find themselves unable to operate. Superchain vision of interconnected L2s becomes liability as contagion spreads.
Tight integration creates capital efficiency and better UX, but also correlation in failure modes. A more fragmented, less efficient system might actually be more robust.
Having both USDC and DAI doesn't meaningfully reduce risk when DAI holds USDC as significant portion of reserves. True diversification requires fundamentally different stability mechanisms and backing assets.
When a protocol becomes systemically important (like Velodrome), security requirements should escalate. Critical infrastructure needs insurance funds, conservative parameters, or circuit breakers at ecosystem level.
DeFi community needs oracle redundancy, manipulation-resistant aggregation, and fallback systems that maintain operations when price feeds become unreliable.
Perhaps not every protocol should integrate with every other protocol. Perhaps critical infrastructure needs different governance than experimental DeFi protocols. Perhaps the most efficient system isn't always the most desirable system.
The web of dependencies mapped here isn't just theoretical—it's a blueprint for the next major DeFi crisis, unless we address these vulnerabilities now.
This page presents highlights from the full research document. For analysis including detailed protocol mechanics, historical context, attack surface taxonomy, and technical appendices: