Balancer's BAL Shows How Tokens Can Supercharge DeFi Protocols
Also, Ethereum user paid $5M+ in txs fees, record cover for Nexus Mutual.
Hello Defiers! Here’s what’s happening:
- Balancer’s BAL shows tokens can supercharge growth —COMP is next
- One Ethereum user paid $2.6M in fees on two separate transactions
- Nexus Mutual cover spikes to a record high
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Balancer Growth Shows Tokens Are Steroids for DeFi
Balancer Labs’s so-called liquidity mining program is proving tokenized incentives can be huge drivers for growth. Metrics across the board for the new liquidity and asset management protocol spiked since the launch of the token-based incentives program.
Balancer’s liquidity mining started in May with the initiative to distribute BAL, the protocol’s native governance token, to liquidity providers. The mechanism distributes tokens pro-rata based on total liquidity provided. The kicker with the incentive design is that liquidity pools which elect to charge a lower trading fee, earn more BAL than a pool with identical liquidity and a higher trading fee.
Balancer launched three months ago promising substantial improvements over its main competitor Uniswap. Still, there was minimal daily volume —$63K on average— one to two months since it opened for trading.
On May 15, Balancer Labs proposed the initial framework for liquidity mining, in which liquidity providers would receive BAL tokens in return. But not much happened. Volumes and liquidity remained stagnant. The protocol wasn’t planning on distributing tokens retroactively for those who participated before its mainnet launch, so there was no incentive to add liquidity yet.
But less than two weeks later, Balancer’s liquidity mining went live on Ethereum mainnet. Almost immediately, the protocol’s total liquidity, trading volumes and liquidity provider revenues spiked.
Balancer’s daily volume surged to $1.23M from ~$129k on the day of launch. Since then, the protocol has averaged ~$708k in 24H volume over the past two weeks, a 670% increase compared to last month’s average. While this growth is a positive signal for the future of Balancer, it still pales in comparison to Uniswap where daily volumes are over $10M.
Naturally with the increase in volumes, Balancer’s liquidity provider (LP) revenues also reached all time highs as cumulative revenue went near-parabolic. Prior to launching the incentive program, daily revenues across all LPs averaged only $438. Post-liquidity mining and this number swelled by 3.6x to an average of $2,019 per day.
On an annualized basis, this results in an estimated $736k in earnings for Balancer liquidity providers over the course of the next year. Again, while this growth is impressive, Balancer still has some distance to go before competing with Uniswap where liquidity provider revenues are on track to earn 2x more at $1.6M this year as of writing.
After launching its native token, nearly every fundamental metric for Balancer went up as DeFi users flocked to the protocol. It’s become clear that tokenized incentives can put emerging protocols on steroids.
That’s not to say a token is necessary for driving growth. While Maker, Aave and others were already embedded with native tokens, Compound and Uniswap have successfully been able to bootstrap sizable networks sans token. All they provided was (really) good technology for the DeFi ecosystem.
COMP is Next
But the strategy is also effective for untokenized protocols. Compound, which is following a similar token distribution model as Balancer, is a perfect example. In the coming weeks, COMP tokens will be distributed to users who borrow or supply capital to the protocol. The incentive design will likely drive more usage to the protocol as new users flood Compound’s money markets with capital in an effort to get their hands on COMP - likely to speculate on their future value.
Compound’s token distribution is set to begin on June 15th. If history serves us well, we may see the new tokenized incentives act as a similar catalyst for growth.
The key difference? Compound has a head start with $100M in value locked and over $1.5B in cumulative deposits.
Ethereum User Paid $5M+ in Txs Fees in One Day
Someone spent a record 2.6M in gas fees to send money over the Ethereum network. And they did it twice in one day. The user ended up spending ~$5.2M to send $84.5k.
The owner of Ethereum address 0xcdd6a2b9dd3e386c8cd4a7ada5cab2f1c561182d first sent 0.55 ETH (~$132) at a transaction fee of $2.56M, and hours later sent 350 ETH (~$84k) at a transaction fee of $2.57M.
Oddly, the same address has been sending from around $100 up to several thousands in ETH every few seconds for exactly 0.00126 ETH in gas fees, for the past few days. The transactions mentioned above are outliers in what looks like an automated process.
While Ethereum gas prices are high, they’re not that high. The current price to pay for a fast transactions is at $0.276, according to ETH Gas Station.
One explanation could be that they confused the amount to send with the transaction fee and switched those fields —maybe they were meaning to send $2.6M for $100 in fees.
But that “fat finger” theory is less likely considering the transactions were likely automated, said Alex Manuskin of ZenGo, and that it happened twice.
A possibility that comes up mentioned whenever an unusually/unnecessarily high transaction fee is paid, is that the address owner is laundering money. The scheme would involve some level of coordination with the miner that picks up the transaction. The miner takes a cut and sends the rest to another address controlled by the money launderer.
But this theory doesn’t hold up very well in this case as two separate mining pools, Sparkpool and Ethermine, picked up each transaction, and they have offered to resolve the issue with the sender.
A third theory is that there’s a bug in the script automating these transactions, “using web3.utils.toWei (508034850, "Gwei") as gasPrice instead of amount,” wrote Manuskin. “That would be ~0.5 ETH which is in line with other transactions from the same address.”
If that’s the case, the unlucky developer will hopefully realize what’s going on soon. Meanwhile, everyone else watching in horror just learned a new lesson in the double edged sword of blockchain immutability.
DeFi Protection on Nexus Mutual Surges to Record High
Nexus Mutual reached an all-time high in total cover amount on Wednesday. Total value in the blockchain-based insurance platform has more than doubled in the past 90 days to over $4M, according to Nexustracker.io. The largest covers so far are for $484k on Balancer Labs and $387k on Aave, Nexus Mutual tweeted.
Image source: Nexustracker.io
Nexus Mutual offers a community-driven alternative to insurance for the Ethereum network. Users access the platform and pay a 0.002 ETH fee and go through a KYC & AML validation process to become members of the mutual. With the platform’s native NXM token, users can purchase covers for smart contract failures, stake to earn rewards by supporting contracts they believe are secure, stake to assess claims submitted by other members, and participate in the mutual's governance.
Opyn is another alternative for Ethereum and DeFi users to protect their investments. The decentralized options platforms allow users to protect the value of their deposits on Compound Finance, and to hedge against ETH volatility. Opyn’s notional value, or the number of options times the price of the underlying asset at the time of trade, has grown by five times just in the past month, cofounder Alexis Gauba said in a recent interview with The Defiant.
As the Ethereum network continues to grow and total value locked in the DeFi reaches $1B again, insurance and hedging alternatives should continue gaining traction, as they’re a key piece in all markets, but especially in a new and untested system.
Sequoia-Backed Band Protocol Creeps Onto Chainlink’s Turf With Oracle Product: CoinDesk
“Band Protocol 2.0 launched Wednesday with its mainnet oracle solution, BandChain, leveraging the Cosmos SDK, according to a release from the firm. The project’s revamp comes 10 months after listing as an initial exchange offering (IEO) on Binance Launchpad and a $3 million 2019 seed round led by Sequoia India,” CoinDesk reported.
Check out Dune Analytics’s updated DEX volume data.
Dune Analytics @DuneAnalytics👨🔧 We've pushed a major overhaul of duneanalytics.com/dex 🌪 DEX volume for 2020 so far $3,6B - up 50% from the 2019 total. March saw $1B alone 🤯 💫 More stats are now included 🚨 Under the hood, there's massive news for all Dune query writers out there 👀 Lil thread👇
5:48 PM ∙ Jun 10, 202097Likes20Retweets
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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.
About the founder: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. (Pre-order The Infinite Machine here). I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.