🦄 Recap: DeFi Week of June 26
Hello Defiers! Happy Weekend! The joys of labor. That’s the theme we’re reveling in as Americans fire up the grills and crack open the beers on this long, 4th of July weekend. Yes, yes., yes… the crypto market (and everything else) is mired in the muck an...
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Weekly RecapHello Defiers! Happy Weekend!
The joys of labor. That’s the theme we’re reveling in as Americans fire up the grills and crack open the beers on this long, 4th of July weekend. Yes, yes., yes… the crypto market (and everything else) is mired in the muck and portfolios are bleeding and scandal is blaring from the headlines as big projects fail and creditors jockey for scraps. But let’s celebrate the joy of rolling up our sleeves and grabbing the toolkit and doing the hard work to build, to refine, to advance the cause. That’s what the best of us do.
This week, our reporters fanned out across DeFi and brought home insightful stories showing the toil at play. There was a fascinating debate and votes around bold proposals to restructure MakerDAO. Owen came back with a dispatch showing how Maker wrestles with the thorny issues of governance in a cooperative structure. Truly a must-read! Owen also reported on the SEC’s rejection of Grayscale’s Bitcoin ETF proposal, and what that means for the GBTC trust (spoiler: not good).
Likewise, Sam Haig dared to venture into the charred landscape of Axie Infinity, the play-to-earn pioneer that has suffered steep losses across all fronts in the last few quarters. Sam discovered that gaming guilds are jumping into the breach to assist players, and chronicled the hopes that Axie’s next iteration, Origin, will revive the blockchain-based game.
Sam also reported on the hard work at Polkadot — major upgrades at Gavin Wood’s blockchain project are in play, as is a big change to vest a “fellowship” of users with more rights. Jason Levin reported on how Ethereum hackers are all about NFTs, if the latest edition of ETHNewYork is a good indication.
Meantime, Aleksander Gilbert continued his intrepid reporting of the disaster unfolding at Three Arrows Capital, the $10B hedge fund that was placed in liquidation this week. Aleks also covered 3AC’s near $700M default with Voyager Digital. And Owen reported that Voyager halted withdrawals just days after it had sounded alarms about the unpaid debt.
Defiant Chiefess Cami Russo interviewed Hasu, the influential researcher, to unpack the forces at work in Lido’s Staked ETH and whether it poses a systemic risk to DeFi.
Robin Schmidt and his team brought it all home with a dive on the $100M hack that befell Harmony, a dive on the NGRAVE hardware wallet, and a roundup on what we learned at NFT.NYC.
Enjoy!
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Podcast
🎙 Hasu: Lido's Staked ETH Poses No Systemic Risk to DeFi
This week on The Defiant Podcast we speak with Hasu, strategic advisor at Lido, strategy lead at Flashbots, MakerDAO delegate, researcher at Paradigm and host of the Uncommon Core Podcast. That’s a lot of titles and it goes to show just how deeply plugged into DeFi and crypto this anon researcher is. In this episode, we’ll focus on Lido, as it’s become a crucial piece of infrastructure for Ethereum.
Lido currently has the highest share of deposits in Ethereum’s proof-of-stake chain, at 32%, significantly larger than any other party. This is a growing concern in terms of security and it’s prompted an ongoing discussion on the protocol’s governance forum. Hasu talks about how big a risk this is, and what checks and balances can be introduced. Also, in the past few weeks, staked ETH has started trading below ETH. Hasu discusses what the potential outcomes of this are, and how investors can take advantage of this situation.
Lastly, this last cycle has prompted a lot of experimentation around DAOs and governance, with much room for improvement. Speaking from his own experience with Lido and Maker, Hasu discusses his key learnings and provides his take on how DAOs can become a truly better model for organizing businesses.
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The Tube
📺 Hot Stuff: The NGRAVE is the most secure hardware wallet ever made. But is it any good?
📺 Tuesday Tutorial: NFT marketplaces are stepping up, here are some new tools you may not know about
📺 Quick Take: Harmony hacked, Yuga strikes, BlockFi on the rocks
📺 The Defiant Weekly: Ryder Ripps is in deep trouble. Here's why
DEEP DIVE
🧐 MakerDAO Jolts its Members with Bold Governance Proposals
Storied DeFi Player Struggles to Balance Growth and Decentralization
In which Owen Fernau reports on the implications of three crucial votes by MakerDAO’s membership this week…
The great DAO test has begun. There were always bound to be challenges running a new kind of business that relies on democratic decision-making. Companies, after all, tend to run optimally when they have clear, hierarchical control from a senior management team and chief executive.
Now MakerDAO, one of DeFi’s oldest and most prestigious lending protocols, is searching for a way to balance business efficiency with the egalitarian ethos of decentralized autonomous organizations.
Its effort may very well show the way for the rest of the DAO community. If the actions this week are any guide, it’s going to be a complicated and fraught process.
“The status quo is not working,” tweeted Sam MacPherson, the author of a proposal that would have formed a “Growth Task Force” at MakerDAO and a member of the Protocol Engineering Core Unit. “The DAO is not currently set up to make high level decisions which is leading to decision paralysis or less informed parties making sub optimal calls.”
LOVE-001 would give the new Core Unit uniquely powerful input when onboarding new collateral.
Bear Market Drama
🌊 Three Arrows to be Liquidated as Teneo Takes Control of Assets
In which Aleksandar Gilbert chases the fall of a $10B crypto fund…
In what is believed to be the biggest failure of a crypto fund of its kind, Three Arrows Capital, the $10B hedge fund, will be taken over and its assets distributed among creditors after a court in the British Virgin Islands ordered its liquidation Monday, according to a person familiar with the matter.
Two employees at Teneo, a New York-based consulting firm, have been appointed to handle the liquidation, according to the source, who was granted anonymity to discuss the sensitive deal. In the British Virgin Islands, a U.K. overseas territory in the Caribbean Sea, an appointed liquidator takes control of the company in question.
Liquidation is the process of closing a company and distributing its assets among creditors. In recent weeks, Three Arrows, a onetime high-flying institution that evangelized for a “super-cycle” in crypto, has suffered heavy losses from major positions in Terra’s failed UST stablecoin, Grayscale Bitcoin Trust, and Lido’s staked ether.
Whale Protection
🐋 CoinFLEX Sets $47M Token Sale to Save Itself From Sinking Whale
In which Samuel Haig reports on the actions exchanges are taking to protect themselves from breaching whales…
When a whale went went sideways on a massive position in CoinFLEX, the centralized crypto exchange should have been able to automatically liquidate the investor’s holdings and protect the platform from further damage.
But it couldn’t because of a novel feature — the whale has a “non-liquidation recourse account.” Translation: The exchange agreed not to close out the whale in return for “stringent personal guarantees.” So now CoinFLEX, a centralized crypto exchange with a 24-hour trading volume of $1.1B, is taking a radical step to offset the massive exposure — it’s rolling out a new token.
CoinFLEX will issue the “Recovery Value USD” (rvUSD) token in a bid to offset the losses from the investor whose account fell into negative equity, according to a white paper released on June 27.
Opinion
🧐 Puncturing the Hype About Illicit Finance in Crypto
Data Shows TradFi Remains the Channel of Choice for Dirty Money
Guest writer Alex Shipp argues crypto is getting a bad rap from the media when it comes to financial skullduggery.
From the BBC to Reuters, the world’s leading mainstream media outlets steadily deliver provocative headlines implicating cryptocurrencies as primary facilitators of illicit activity. The edgy, sensationalized narratives would appear to warrant universal, uncompromising surveillance of all public citizens that engage decentralized systems built on blockchain, but the hard numbers tell a very different story.
According to Chainalysis’ 2022 Crypto Crime Report, transactions involving illicit addresses accounted for only 0.15% of total cryptocurrency volume in 2021, with some competitors’ estimates falling as low as 0.10%. The figure represents yet another major decline as part of a multi-year down-trend from 0.6% in 2020, and a whopping 3.4% in 2019. Indisputably, illicit addresses constitute an ever-diminishing slice of the crypto pie.
For a modern news cycle that is starved for a feel-good headline, it’s worth acknowledging that in the last three years, cryptocurrency’s growth and evolution has been primarily directed toward emergent mainstream use cases. As for the bad actors themselves, a light investigation of the facts and figures is all that’s needed to discern why they remain warm and cozy confining their operations to legacy financial systems.
Opinion
🏛 Allaying Regulators’ Concerns about MEV is Doable and Necessary
Block Validators and Block Builders To Play Key Role After The Merge
Guest writer John Jefferies unpacks the implications of the BIS’s take on Maximum Extractable Value…
On Jun 16, 2022, the Bank for International Settlements (BIS) released a well-researched bulletin titledMiners as intermediaries: extractable value and market manipulation in crypto and DeFi. This bulletin provides a good overview of Ethereum’s Maximum Extractable Value (MEV) mechanism. MEV is the additional profit delivered to miners to prioritize the ordering of blockchain transactions within a given block.
The bulletin compares subtle forms of transaction order manipulation on the blockchain to broader market manipulation, equating MEV to insider trading. Yet, both of these comparisons stretch the similarities.
Most MEV is a result of well-informed investors and high-frequency traders taking advantage of arbitrage opportunities. Arbitrage is natural in most markets and is the mechanism that many economic systems use to achieve equilibrium. Arbitrage communicates price information across markets.
Friday
News
- Axie Infinity Guilds Rush to Aid Players as GameFi Pioneer CratersAxie Infinity’s moment in the sun is over. That much is clear. In the last 12 months, the trailblazing play-to-earn gaming project has lost almost 90% of its market value and the days when players boasted about earning a living purely from their participation in Axie seem long ago.
- Three Arrows is Under Investigation in Singapore for Providing False Information to the Country’s Central BankAuthorities in Singapore are investigating troubled crypto hedge fund Three Arrows Capital, the country’s central bank announced Thursday.
- GBTC Discount Widens to 36% as Legal Fight With SEC LoomsIn a sign of the depths of the bear market, the Grayscale Bitcoin Trust, a bellwether security that has long provided investors with an easy way to bet on the No. 1 cryptocurrency, is trading at an all-time discount.
- Crypto Broker Voyager Suspends Withdrawals and Trading After 3AC’s Loan DefaultVoyager, a crypto broker, has suspended withdrawals, trading, deposits and loyalty rewards from its app following Three Arrows Capital’s default on its loan.
- FTX Reaches Deal to Acquire BlockFi for Up to $240M as CeFi Lenders Buckle Under Market Pressure FTX, the second-biggest cryptocurrency exchange by trading volume, has signed an option to purchase crypto lender BlockFi for as much as $240M, BlockFi CEO Zac Prince said Friday.
- Polygon and Fantom Services Restored After Phishing AttackBlockchain networks Polygon and Fantom suffered a DNS attack Friday that directed users to malicious websites created to steal the keys to their digital wallets.
Elsewhere
- Better days ahead with crypto deleveraging coming to an end: JPMorgan: CoinTelegraph
- Here’s What Was So Bad About Three Arrows Capital - Ep. 368: The Chopping Block
- # 42 | Valkyrie: MakerDAO and Our Side of History: Dirt Roads
- You’ve heard about three new technologies devs are bringing to Solana: Solana
Thursday
News
- Polkadot to Form ‘Fellowship’ of Tokenholders as Part of Major UpgradeGavin Wood, the founder of Polkadot and former CTO of Ethereum, said major upgrades are coming to the governance underpinning Polkadot and its experimental, sister-chain Kusama.
- North Korea’s Lazarus Group Linked to $100M Harmony Bridge HackNorth Korea’s notorious state-backed hackers, Lazarus Group, may have been behind last week’s $100M attack targeting Harmony’s cross-chain bridge, according to blockchain intelligence firm, Elliptic.
- Arbitrum Pauses Odyssey as Gas Prices SpikeArbitrum, the Layer 2 scaling solution, has abruptly paused its Odyssey program after it launched last week. The project cited a heavy load of transactions and spiking gas fees as reasons for the decision in its Twitter thread. Sysyphus, an influential voice on Twitter, highlighted that a swap on Arbitrum briefly cost more in gas than on Ethereum.
Elsewhere
- FTX walked away from a deal with Celsius after seeing state of its finances: sources: The Block
- Genesis Faces ‘Hundreds of Millions’ in Losses as 3AC Exposure Swamps Crypto Lenders: Sources: CoinDesk
- OpenSea hit by data breach after email delivery partner leaks addresses: The Block
- FTX seeks to acquire troubled crypto lender BlockFi: sources: The Block
- An update on Aave V3 Harmony after the @harmonyprotocol Horizon bridge exploit: Aave
Wednesday
News
- Optimism’s TVL Doubles as Trading Activity Surges on Layer 2sAdoption of Ethereum’s top two Layer 2 chains are gaining traction as lower ranked rivals are losing market share. Optimism, Ethereum’s second-largest L2 by total value locked (TVL) with $741.5M, rocketed to new highs at the end of May, tagging a record $1.02B on June 2, double its level on May 28, according to L2beat. It overtook dYdX as the second-largest L2.
- Digital Wallet Maker Dynamic Raises $7.5M from a16zDevelopers are continuing to work on new infrastructure for the web3 ecosystem despite the bear market. On June 28, Dynamic Labs, a team working to make digital asset wallets a single sign-on device (SSO) for use across the web, launched in closed beta.
Elsewhere
- Maker governance is voting to invest $500 million in US Treasury bills: The Block
- Toys, Secrets, and Cycles: Lessons from the 2000s: Chris Dixon
- Investment Firm Cypherpunk Holdings Sells All of Its Bitcoin and Ether: CoinDesk
- These four Collateral Onboarding Applications are taking their final steps toward the full implementation into the Maker Protocol: MakerDAO
Tuesday
News
- Lido Voters Reject Limiting Growth In Key Move For Eth2After four days of voting, Lido, the largest liquid staking protocol on the Ethereum network, appears poised to reject calls to limit its own growth.
- Solana Labs Has About 10 People Working on Its Saga Mobile PhoneSolana Labs is dedicating a large part of its team to building its mobile effort, according to an exclusive interview with the company’s head of communications.
- Ethereum Developers Were All About NFTs at ETHNewYorkEthereum developers are all about NFTs now, at least if the latest ETHNewYork is a good indication.
- DEX Lets Customers Make $100,000 Transfers with No Identity CheckBig money transfers? With no know-your-customer requirements? In the TradFi world that would be impossible. In DeFi, it’s part of the anonymous ethos. Now a new deal is testing the expectations of both sides of finance.
Markets
- Creditor Says Three Arrows Defaults on $700M LoanThree Arrows Capital, the troubled $10B crypto hedge fund, has defaulted on a nearly $700M loan from Canadian crypto exchange Voyager Digital, the latter announced Monday.
DeFi Dustups
- Yuga Fires Back at #BURNBAYC CreatorOver the last week, #BURNBAYC has been trending on Twitter after a rumor flew around that the design for the Bored Ape Yacht Club is based on Nazi symbolism. The BAYC team adamantly states this is not true.
- Nexo Demands Anonymous Twitter Account Stop Maligning FirmIn a dustup that demonstrates the rising tension in crypto, Nexo, a lending platform, demanded Monday that an anonymous Twitter account stop disparaging the firm in an incendiary thread.
Elsewhere
- Dissecting the DAO: Web3 Ownership is Surprisingly Concentrated: Chainalysis
- Tether CTO refutes stablecoin FUD as short-sellers circle: CoinTelegraph
- More Hedge Funds Are Betting Against Tether as Crypto Melts Down: The Wall Street Journal
- We’re still floating from the energy of ApeFest ‘22: BAYC
💜Community Love💜
Thanking all the amazing Defiers for the support and love this week (and always)!
The Defiant @DefiantNewsIn today's Defiant ✊ 🔴 @optimismPBC TVL doubles as trading activity surges on L2s 💰 @dynamic_xyz raises $7.5M in a round led by @a16z 👮 Puncturing the hype about illicit finance in crypto Get free daily DeFi news straight to your inbox 📥👇 https://t.co/1EuhbYfbkS4:15 AM ∙ Jun 30, 202288Likes18Retweets
nolan romero green @nolanrgreen1/ Went on a walk listening to @CamiRusso @hasufl @DefiantNews...ended up sitting on a curb a block away thumbing notes in my phone 😂 Great catch up episode on @LidoFinance. Thx Camila and Hasu! Intern notes below, paraphrasing from Hasu: 📝👇🏼. Listen: open.spotify.com/episode/2P5k2U…1:35 AM ∙ Jun 30, 202253Likes9Retweets
Camila Russo @CamiRussoLoved this week's pod with @hasufl Hasu talks @LidoFinance in depth and drops some DAO gems 🔥 "DAOs are afraid to make a profit primarily for regulatory reasons (..) Either they stay pre-revenue forever (..) or they're micromanaged by their token holders." Exactly.6:23 PM ∙ Jun 29, 202260Likes8Retweets
youtube.comNFT.NYC is over but what have we learned?NFT NYC is over. In this video we review the highlights of the week. Our sponsorshttps://defi.valktech.io/https://rpc.edennetwork.io/https://nexo.io/Follow T...6:04 PM ∙ Jun 24, 2022351Likes111Retweets
1:58 PM ∙ Jun 29, 202254Likes9Retweets
Camila Russo @CamiRussowe're all defi 🌍👨🚀🔫👨🚀12:57 AM ∙ Jun 30, 2022187Likes18Retweets
🧑💻 ✍️ Stories in The Defiant are written by Owen Fernau, Aleksandar Gilbert, Claire Gu, Samuel Haig, Jason Levin, and yyctrader, and edited by Edward Robinson, yyctrader and Camila Russo. Videos were produced by Robin Schmidt and Alp Gasimov. Podcast was led by Camila, edited by Alp.
The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money. Sign up to learn more and keep up on the latest, most interesting developments. Subscribers get full access, while free signups get only part of the content.Click here to pay with DAI (for $100/yr) or sub with fiat by clicking on the button above ($15/mo, $150/yr.
