📣 Announcing: The Defiant's DeFi 101 Series. Watch The Pilot Episode!

Hello Defiers! This is what’s going on in decentralized finance,

• MKR holders choose to not compensate Balck Thursday Vault owners
• Synthetix takes first step in move to Optimism’s Layer 2
• Secret Network releases roadmap for private DeFi
• Fairmint launches CAFE, a rolling equity offering

If you’re receiving this email, that means you’re a paid subscriber of The Defiant, (thank you!) You’re getting the full content of this newsletter, while free subscribers are getting only a portion of it. Subscribers also get exclusive access to The Defiant’s Discord chat group for the community, here’s a new link to join.

🎙Listen to this week’s podcast episode with Jihoz from Axie Infinity:

📺 Check Out The Pilot Episode of The Defiant’s DeFi 101 Series!

DeFi 101 will serve as an introduction into decentralized finance, with 30 planned episodes. This is not intended to be the first episode of the series but rather a standalone episode to test the ground for the future of this series. So feel free provide feedback. The video was produced in partnership with Alp Gasimov, Robin Schmidt of Harmony Protocol and DeFi Tutorials with DeFi Dad.

🙌 Together with Zerion, a simple interface to access and use decentralized finance, Perpetual Protocol, which provides decentralized perpetual contracts for any asset, and HackAtom V, a two-week virtual hackathon organized by Cosmos.

Maker Votes to Not Compensate Black Thursday Victims

By Cooper Turley

MakerDAO traders who had their collateral wiped out during DeFi’s so-called Black Thursday, received bad news from the protocol’s decentralized court this week: they won’t be getting a penny (or gwei) back. Their only hope now lies in traditional/centralized courts.

On March 12th, DeFi experienced its worst day on record as prices tanked by more than 50%. Amidst the crash, projects offering leverage were hit the hardest. In particular, MakerDAO and its Vault owners using ETH as collateral to mint DAI were wiped out with mass liquidations as collateral ratios quickly dropped below the 150% minimum threshold.

100% Loss

Instead of the collateral being liquidated for a 13% haircut, the system resulted in a shortage of Keepers - or actors who purchase collateral at a discount to collateralize the system - which allowed one actor to purchase ~$6M worth of ETH for just 1 DAI.

In the wake of this event, hundreds of Vault owners lost 100% of their collateral, leaving the system with $2.5M in bad debt. Maker quickly recovered by hosting a series of auctions where new MKR was minted and sold for DAI to recapatilze the system.

Since Black Thursday, a select few ‘victims’ have been working on a class-action lawsuit to compensate those affected by faulty Keeper auctions.

On Tuesday, the hopes of those pleas to be resolved through decentralized governance came to a close with less than ideal outcomes. While a discussion with the Maker Foundation is still ongoing, MKR holders will not be reimbursing losses through newly minted tokens.

Compensation Plan

“Vaults that were liquidated at auction or self-liquidated their positions between 3/12/2020 12:00 UTC and 3/13/2020 13:40 UTC will be considered for compensation.” Source.

While the details of the plan have changed over time, the latest proposal suggested that new MKR would be minted and distributed to Vault owners who could prove they were wrongfully liquidated for 100% of their collateral.

Outlined in the latest forum post, the amount of MKR to be minted was put to a poll, with the winning result moving to an executive vote to ratify the decision.

0% Compensation Won

Of the 10 options available, “0% compensation” won with 65% in favor, while the next most popular option at almost 17.6% was for 18% compensation.

Image source: vote.makerdao.com. 12%, 21%, 9%, 6%, 3%compensation (which all got 0% of the vote) missing from the image.

It’s important to note that this decision was not made by the Maker Foundation, rather by MKR holders, who stood to be diluted if the options to compensate Vault owners passed. There was no hack or exploit and this compensation was a sign that the MakerDAO community recognized that the Keeper auctions did not pan out as intended.

“While the vault compensation plan didn't pass, the ability of a protocol to consider actions beyond its core code is already kind of revolutionary,” Vault Compensation lead MonetSupply told The Defiant. “I'm optimistic for the future of decentralized governance.”

Vote With Their Feet

Still, some Vault owners aren’t as sanguine, with a few of them criticizing that the poll was decided by a few large holders, and questioning the validity of this week’s vote after a separate poll showed most were in favor of compensation.

“Lawsuit or not, people will vote with their feet if there is no trust,” Vault owner who goes by the name of ItsGus in the forum wrote. “People should take note and be wary of future interaction as Maker has proven to go against its own decisions.”

For MKR holders, the common theme appears to be ‘know the risks’ of using leverage.

DeFi’s poster child is going through a difficult time in terms of community support, at a time when it continues to slide in DeFi Pulse’s TVL leaderboard and as MKR lagged other DeFi tokens which went parabolic over the summer, even as Dai supply is at an all-time high.

Synthetix Takes First Step in Move to Ethereum Layer 2

Synthetix said it’s planning to move to Optimism’s Layer 2 scaling solution, with the first phase of the transition starting today.

This first phase is a testnet to trial SNX staking on Optimistic Ethereum, an L2 solution developed by Optimism, which uses Optimistic Rollups to take computation and transactions off the Ethereum network.

High Gas Prices

High Ethereum gas prices, which have locked some users out of the network, prompted the move, according to a blog post.

“Launching SNX staking on OE is a crucial step towards full scalability for the burgeoning DeFi ecosystem, truly allowing anyone around the world access to open financial infrastructure without the friction of high gas costs,” the post said.

The synthetixDAO will provide 50,000 SNX per week for four weeks as staking rewards for participating in the Optimistic Ethereum testnet. Only addresses holding between 1 and 2500 SNX, which staked at least once will be able to participate.

The move comes amid Optmistic Ethereum’s own phase 1 of release. The first phase of the testnet will be limited to a subset of features, which means that while it’s open to the public, deposits and withdrawals haven’t been enabled yet.

Privacy-Preserving DeFi is Being Built on Secret Network

By Cooper Turley

Secret Network, a proof-of-stake blockchain built on top of the Cosmos SDK, yesterday released its DeFi roadmap, detailing how it hopes to become the rails of a privacy-preserving open financial system.

Supported by the Enigma project, Secret Network allows users to transact in DeFi without revealing their public address. But unlike other transaction mixers, the network also enables private computation and smart contracts.

Secret Tokens

Secret Network has a token standard similar to the ERC-20, called SNIP-20 tokens. So-called Secret Tokens allow for the balance of holders and transactions to be fully encrypted. The Secret Network community hopes that SNIP-20s become “the building blocks of Secret DeFi applications with composable value structures and privacy network effects,” according to a blog post published yesterday.

The protocol is governed by the SCRT token, an asset that can only be earned by burning Enigma ENG or by running a node.

DeFi Use Cases

While the project is still in its infancy, the team has mapped out a number of use cases such as Secret Bridges to connect with Ethereum and other blockchains, Staking Derivatives and Secret Markets, all of which benefit from DeFi composability without sacrificing privacy or anonymity.

As DeFi continues to scale into wider audiences, the need for privacy-preserving primitives has never been stronger, and Secret Network is here to pave that path.

Fairmint Launches Continuous Equity Offerings

By Cooper Turley

DeFi primitives are revolutionizing legacy fundraising vehicles.

Fairmint, a platform for innovative funding mechanism,yesterday released its blueprint for Continuous Agreement for Future Equity, or CAFE.

Under the CAFE agreement, anyone in the world who qualifies to participate under applicable law, can purchase shares in supported companies in an ongoing fashion. For teams, this means that fundraising can happen more passively, with a broad range of potential investors able to purchase shares directly in a few clicks.

Digital Security

CAFE was also created as a digital security with the potential to be traded on decentralized exchanges, giving investors easier and faster access to liquidity on their investment. Issuers are able to program incentivization plans to let their key stakeholders earn CAFE according to the rules they set.

“Software is finally eating equity,” the blog post says.

Each team leveraging a CAFE is given its own website to walk users through what a CAFE is and why it’s unique. From there, qualified users can purchase shares directly in-app, representing real future equity in the company that the issuer is obligated to fulfill by law.

CAFE may very well enable teams to fundraise without undergoing extensive cycles that distract from shipping.

Liquality is Latest Bitcoin to Ethereum Bridge

ConsenSys-backed Liquality launched on mainnet yesterday, enabling users to hold balances across BTC, ETH, and ERC20s and swap between those pairs without going through KYC and always maintaining control of their private keys and funds.

The release comes one week after Keep Project’s tBTC mainnet release, and as Bitcoin on Ethereum crosses $1B. Unlike other solutions, Liquality’s doesn’t offer wrapped Bitcoin, but rather the ability to use Bitcoin on Ethereum dapps via atomic swaps, which enable cross-chain transactions — for example, users will be able to go from Bitcoin to a Yearn vault in one click.

Liquality software has already facilitated over $3 million in swap volume through its atomic swap interface. The team hopes the new wallet extension will make cross-chain interaction more accessible.

Brice Berdah from Monolith highlights that Dai is now mostly backed by USDC and not ETH.

TokenBrice.eth @TokenBriceThere are now more $DAI created from $USDC that $ETH. That's it: sadly, that's the tweet. Out of the 891M circulating DAI: 541M (~60%) are minted from vaults using tokens requiring trust, such as $wBTC, $PAX $USDC $TUSD daistats.com/#/

12:25 PM ∙ Sep 25, 202034Likes16Retweets

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 at $10/month or $100/year, while free signups get only part of the content.

About the founder: I’m Camila Russo, author of The Infinite Machine, the first book on the history of Ethereum. 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.