Borrowers Pull USDC from MakerDAO, Switch to WBTC & ETH Instead
Also, DeversiFi launch, buying ETH on Dharma, Compound's governance.
Hello Defiers! Here’s what’s happening in DeFi:
- USDC collateral in MakerDAO collapses
- DeversiFi launches Layer 2 Dex
- Compound’s governance move
- Buying ETH on Dharma
- The “Coinbase Effect”
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The Case of the Missing USDC
Something very interesting has happened in the last 10 days that has gotten very little coverage: USDC’s size as a collateral asset in MakerDAO’s CDPs (Vaults) has collapsed more than 80%.
Compare these two screenshots taken from https://daistats.com/:
May 22nd, 2020
June 2nd, 2020
The culprit is to be found in the relative attractiveness of DAI vs. USDC in the lending markets. DAI used to routinely command yields 30% to 50% above USDC yields. As a result, USDC holders could deposit their USDC in a CDP, generate DAI, lend DAI and capture this yield differential.
Collateral ratio = X
Yield differential = (DAI APR - Stability fee) /USDC APR
If Yield differential > X, then you should open a CDP with your USDC, generate DAI and lend the DAI out. Otherwise, just lend out your USDC directly. (X depends on your risk appetite: USDC-backed CDPs liquidation ratio is 120%.)
So where are we now? This is the current market on dYdX:
Yield differential = 1.10% - 0.75% /1.85% = 19%. This says it all: why would you deposit USDC in a CDP, run the risk of getting liquidated in a massive DAI rally scenario, all that to receive an asset (DAI) that yields LESS than your USDC? Market participants were quick to realize the yield landscape had shifted, and as a result closed out of their USDC CDPs in droves.
Where did the money go?
Those CDPs re-emerged as ETH-backed CDPs (+5M DAI) and WBTC-backed CDPs (+0.5M DAI). Readers of The Defiant have been following the dramatic growth of WBTC since it got added as a collateral asset for CDPs: the asset is so popular that it has almost reached its debt ceiling in just 30 days since its addition.
Some keen observers might point out that the vast majority of WBTC locked up in CDPs come from a single CDP (#9167). This, in my opinion, is the best vote of relevance for the existence of WBTC in Maker: an institutional-sized user is willing to risk more than $25M of its BTC holdings to get access to the world’s most prominent decentralized stablecoin.
We should probably see an executive vote in the near future to raise the WBTC debt ceiling and allow more user to put their idle WBTC to work to unlock more of DeFi.
DeversiFi is Latest Scalable Dex to Launch on Ethereum
DeversiFi wants to bring centralized exchange performance to decentralized trading. The platform, which relaunched Wednesday as DeversiFi 2.0, says it’s the first to integrate StarkWare’s zkSTARK technology, which enables it to process thousands of transactions per second.
DeversiFi 2.0 can settle 9,000 transactions per second and has the “ability to massively increase this rate, if required,” according to the company’s press release. While this lags centralized exchanges —Binance, the largest CEX by volume, can process 1.4 million transactions per second— it’s an improvement from Dexes which rely on Ethereum’s 15 tps.
The non-custodial platform is using a protocol in the Zero-Knowledge Proof family, which validates batches of trades in the cloud and submits a proof of each batch, which is then verified on the Ethereum blockchain.
Centralized exchanges can usually deliver higher throughput because their orders settle off-chain, which means they don’t need to rely on a decentralized network to confirm transactions. So-called Layer 2 scaling solutions take trades off the Ethereum blockchain before committing them on-chain, which allows for greater speed.
DeversiFi has more than 15 markets, its fees range from 0% to 0.2% and trades are private by default, according to its website.
Compound’s New Step Towards Trustless Governance.
Compound got a little closer to becoming fully trustless. The lending system’s team abdicated the protocol Guardian Functionality on Monday. This functionality would have allowed them to remove governance capabilities from its users in case of an emergency. Once Compound’s governance token named COMP is distributed, all protocol upgrades will be submitted and implemented by holders.
Compound @compoundfinanceOur team is confident that Compound Governance is reliable; we've abdicated our Guardian functionality, which would have allowed us to disable Governance in an emergency. COMP holders now have complete, censorship-resistant control over the protocol. 📈 etherscan.io/tx/0x851e0dc00…9:53 PM ∙ Jun 1, 2020180Likes32Retweets
A total of 4,299,949 COMP tokens will be distributed for free across users and applications being built on top of Compound. Tokens will be evenly split between suppliers and borrowers across each market, proportionally to the market’s balance in the system.
Token holders with at least 1% of COMP delegated to their addresses will be able to submit system upgrade proposals. All holders will be able to vote and delegate their voting power to any other address or application. The COMP distribution process is being tested on Ethereum’s Kovan’s testnet.
Compound recently enabled community-led protocol upgrade proposals and changes such as DAI’s interest rate model update, which was submitted by Dharma, were implemented. Compound’s governance can be monitored here.
There are two interesting trends to follow: The potential of “governance politicians” to arise from delegated voting, and how the distribution of governance tokens like COMP will look like across other markets such as Uniswap.
How to Buy ETH in Under 60 Seconds with Dharma
The Dharma wallet just unveiled the ability to buy ETH thanks to an integration with Uniswap! Dharma is one of my 2 favorite self-custody Ethereum wallets because it's dummy-proof and such a pretty user interface.
With Dharma, you are 100% in charge of your assets like ETH and DAI, which means this is a reliable fiat on-ramp that results in ETH (or DAI) that you 100% own and no one can ever take custody of once confirmed on the blockchain. As of June 3rd, 2020, another advantage is Dharma does not charge you gas (transaction fees) to send ETH or DAI to another Ethereum wallet. It does cost 2% in fees when you buy or sell ETH using Dharma.
Watch my tutorial below and try out Dharma yourself at: https://www.dharma.io/ Just a few precautions: If you deposit fiat before buying ETH, that fiat is not available to purchase ETH or withdraw in the form of DAI until your bank settles in 5-7 days. Just a reminder, you are paying a 2% fee when you buy or sell ETH on Dharma even though they kindly cover the gas (transaction fees) when you send DAI or ETH to another wallet.
Disclaimer & Risks: As always, Dharma did not pay me to produce this video. This is not financial advice and you should approach all DeFi applications, wallets, and protocols with caution. Please be aware there is always risk in using the Dharma, including technical risks (ie smart contracts hacks), financial risks (ie liquidity crises), and potentially admin risk (admin key compromise, governance vulnerabilities). For future DeFi tutorials, subscribe to The DeFi Dad Youtube channel here. - Follow @DeFi_Dad on Twitter - Subscribe to DeFi Dad's YouTube channel here: https://www.youtube.com/channel/UCatItl6C7wJp9txFMbXbSTg
On-Chain Markets Update by IntoTheBlock
This Week: The Coinbase Effect
The so-called “Coinbase Effect” is back. Cryptocurrencies recently listed for trading on Coinbase seen significant returns. This term was coined in 2017 after prices of Bitcoin Cash and Litecoin doubled shortly after getting listed on the San Francisco-based exchange. While Chainlink (LINK) benefited from this in June of 2019, a few weeks ago it was OMG Network’s token, OMG, and more recently MakerDAO’s governance token, MKR.
Aside from price increases, the Coinbase Effect has a deeper effect on on-chain activity as demonstrated by IntoTheBlock’s network and financial indicators. This week we dive into the impact on token holders, active addresses and address profitability for OMG and MKR following their Coinbase listing and announcement, respectively.
- OMG Holders Reaches an All-Time High
OMG’s Coinbase listing was announced via Twitter on May 14, prompting a 20% increase in price right away. After being listed on May 19, OMG’s price managed to increase over 200% throughout the following three days. The result seen on-chain was a point of inflection for the total of addresses with a positive balance of tokens.
The number of addresses holding OMG tokens surpassed its previous high from early January 2020. Since the announcement of the Coinbase listing, over 4,000 additional addresses hold OMG in just over two weeks as can be seen below:
- MKR Daily Active Addresses Reached an All-Time High
On May 29, Coinbase announced support for MakerDAO’s governance token MKR. Following the price increase seen by OMG a few weeks earlier, crypto markets drove the price of MKR up by 40% within the same day in anticipation of its June 8 Coinbase listing. Additionally, the number of addresses making an MKR transaction within a 24-hour period surpassed 1,000 for the first time since its inception.
- Half of MKR Holders Making Money
For the first time since Black Thursday, over 50% of MKR holders were making money on their positions, at least on paper. This is remarkably high in comparison to most ERC-20 tokens. For instance, only 4.4% of OMG addresses were making money on the day prices peaked following the Coinbase listing.
The graph below shows how the percentage of addresses profiting on their MKR positions jumped above 50% after the Coinbase announcement but dropped shortly after:
Following the market-wide drop seen on June 2nd, the percentage of addresses profiting on their positions fell to 32% and 3.3% for MKR and OMG holders, respectively. While it’s still too early to tell if MKR price will increase after it begins trading on Coinbase, blockchain data shows the announcement already had a significant effect on MKR holders’ network activity and profits.
Grayscale’s ETHE continues to trade wildly above the value of the assets it holds, a sign institutional investors are willing to buy ETH at a huge premium.
Alex.eth @AlexanderFisherGrayscale #Ethereum trust (ticker $ETHE) is trading above $170 today. That's $170 per share of ETHE which represents 0.09402547 ETH per share.👀 In other words, these ETHE buyers are valuing ETH at over $1800. 🔥 tradingview.com/x/arbvjD3e/2:40 PM ∙ Jun 2, 2020325Likes74Retweets
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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.