🦄 Recap: DeFi Week of July 17

Hello Defiers! Happy weekend!

Anticipation isn’t an easy thing to measure in the markets. It’s an emotion, not a valuation or a token price. And yet the mounting anticipation for The Merge, Ethereum’s historic upgrade, clearly became a force in the crypto markets this week, with Ether jumping about 40% in the seven days through Friday. Other DeFi names — Aave, Uniswap, MakerDAO — also posted double-digit gains, shaking off the angst of a grinding bear market and spurring hope that maybe, just maybe, the worst is over.

As it happens, Ethereum’s Merge rally coincided with the rollout of the first offerings from The Defiant Terminal, our data dashboard on market action and analytics. Our crack team of reporters fanned out across the market to bring you the most market analysis we’ve ever published in a seven-day period. Aleksandar Gilbert crunched the numbers to quantify how Aave, Uniswap, and MakerDAO are outpacing the broader crypto market. And Owen Fernau tapped our terminal to dig into the travails of Yearn Finance, the yield aggregator pioneer, which is struggling to find its footing in a period of rising rates.

There was more: Jason Levin reported on the strange anomaly that Celsius, the bankrupt crypto lender, is outperforming the S&P 500 index in the last 30 days. And Camila Russo conducted a scintillating conversation on the ins and outs of The Merge with Justin Drake, a research for Ethereum. He shared insights on the challenges and opportunities of the network’s shift to Proof-of-Stake from Proof-of-Work. Speaking of Ethereum’s next act, Sam Haig covered the implications of Polygon, the Layer 2 blockchain, embracing zero knowledge proofs technology.

When it comes to the more sordid side of crypto, Aleks Gilbert filed a dispatch from the Three Arrows debacle that is rife with drama. Aleks pored over more than 1,000 pages of court filings to report how a Dutch crypto exchange and Three Arrows creditor saw the looming disaster but were left with frustration and anger instead of communication and assurance from the stricken hedge fund. Best part: the purchase of a $50 million yacht in the middle of the madness.

Meanwhile, back in GameFi, Claire Gu explored how Axie Infinity, the once red hot blockchain game, is betting a new version called Origin will revitalize its fortunes. And we are delighted to have Rahul Nambiampurath writing a series of primers for us on elements of DeFi. His detailed and lucid guides are just the thing for newbies eager to learn how DeFi works, and for veterans who want to refresh their knowledge. This week we have an explainer on the Metaverse.

And no weekend would be complete without a viewing of Robin Schmidt’s latest episodes on our YouTube channel. Don’t miss Robin’s take on the market rally and why YCC was the acronym of the week.

Enjoy!

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This week:

⍺ DeFi Alpha: Decentralized On-Chain Sports Betting with Overtime

Podcast

🎙 Justin Drake on How The Merge Helps Make Ethereum the Settlement Layer of the Internet

This week on The Defiant podcast we speak with Justin Drake, a researcher for the Ethereum Foundation. He’s at the forefront of the biggest change to happen in Ethereum's history: The transition from Proof of Work to Proof of Stake, also known as The Merge. We go into what the next steps are before this change happens, how exactly it will be executed, and what the risks are. Last week, right after we recorded this interview, fellow researcher Tim Beiko suggested the switch would happen in September.

Justin dives into how the change to PoS will impact users. Justin argues The Merge will make Ethereum the most secure blockchain out there, while reducing ETH supply, putting Ethereum on its way to becoming the settlement layer of the internet. Still, The Merge will only bring marginal improvements in scalability. Justin discusses what the roadmap is for Ethereum to be able to support millions of transactions per second, from around just 10 today.

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The Tube

📺 The Open Metaverse Show: Mom! We bought a sports team... with crypto!

📺 Hot Stuff: Is the fud over? Market is Up Only despite more 3AC fud

📺 Quick Take: Crypto bounces back. ETH DGAF. YCC is the acronym of the week

Market Rally

✊🏼 DeFi Stalwarts Buck Bear Market

Aave, Uniswap and MakerDAO Outperforming Bitcoin and Ether

Aleksandar Gilbert spotlights DeFi’s rallying protocols.

Governance tokens for blue chip DeFi protocols Aave, MakerDAO and Uniswap have outperformed Bitcoin and Ether in the three months since the crypto market began its collapse.

As crypto companies that once managed billions in user assets declare bankruptcy, established DeFi protocols have, thus far, stayed afloat amid choppy waters.

Crypto markets have, by and large, followed stocks in a broad decline this year. But crypto was also rocked by the implosion of Terra and its UST stablecoin in May, which set off a chain reaction that has culminated in the liquidation of hedge fund Three Arrows Capital and the bankruptcies of Voyager Digital, a publicly-traded cryptocurrency platform, and crypto lender Celsius.

The Defiant Terminal

😣Yearn Finance Struggles to Find its Footing as Rates Rise

The Yield Aggregator Trailblazer is Lagging Other DeFi Stalwarts and Ether

Owen Fernau taps our new data tool to unpack the troubles at Yearn.

Yearn Finance is being left behind. Even as other DeFi heavyweights such as Aave, MakerDAO, and Uniswap are outperforming Ether, the pioneering yield aggregator is losing support and value.

This week, as Yearn celebrated its two-year anniversary, the project has fallen out of the public eye as total value locked (TVL) has dropped even in ETH terms by 51% year-to-date, according to DeFi Llama. USD-denominated TVL has dropped by 86% in the same time span as depressed crypto prices contribute to the fall.

Yearn’s YFI token hasn’t fared much better as it has underperformed the top five assets in the DeFi Pulse Index as well as BTC and ETH year-to-date, according to The Defiant’s newly released terminal.

Yearn Finance performance in grey. Source: The Defiant terminal

Special Report

😠 Frustration Turned to Anger For Creditor Who Foresaw Three Arrows Collapse

In which Aleksandar Gilbert delves into the drama surrounding the fall of Three Arrows and finds loans gone bad, ghosting, and a $50M yacht…

On June 14, concern among executives at crypto firm Deribit turned to frustration. “As requested before,” Luuk Strijers, Deribit’s chief commercial officer, said in a Telegram group chat, “any sign of life would be appreciated.”

The target of Strijers’ ire was Kyle Davies, co-founder of Three Arrows Capital, the $10B crypto hedge fund that was then beginning its death spiral. The day before, Davies had ignored pleas from Strijers and other Deribit executives to provide a status update on a multimillion-dollar loan they’d given him, according to screenshots of the chat made public this week.

Three hours later, frustration turned to anger. “You really need to start communicating,” another executive said to Davies. “Deribit legal team is preparing for the worst now, including [a] plan of seizure of your assets and stocks. … Don’t do anything stupid and please communicate.” Now they’ll have to get in line.

NFT Roundup

💣 Minecraft Torpedoes NFTs While Final Fantasy Forges Ahead

By yyctrader

It’s no secret that gamers have it in for NFTs. But yesterday, Microsoft-owned Minecraft gave the NFT space a reason to fire back. The team behind the game released a statement that essentially bans NFTs from integrating with its platform, going on to say that it has “no plans of implementing blockchain technology into Minecraft right now.”

A variety of NFT projects have been developing virtual worlds and accessories that are compatible with Minecraft, with plans to integrate with the actual game in the future. Chief among them is NFT Worlds, a collection of 10,000 metaverse lands.

Minted for free in October 2021, the NFTs surged to a floor price of nearly 18 ETH in February at the height of GameFi fever. Following the news, prices crashed by over 80% from 3 ETH to 0.5 ETH. The project’s WRLD token dived more than 60%.

World #5080

DeFi Essay

🧐 The Center Will Not Hold: How Decentralization is Reshaping Technology and Governance

Part One: A Convergence of Forces Disrupts the Logic of Centralization

Guest writers Bruno Lulinski and David Kerr deliver a definitive three-part essay on how decentralization is disrupting business, culture, and technology.

This article is part of a limited series of overviews on DAO fundamentals, a collaboration between the DAO Research Collective and The Defiant. Visit www.daocollective.xyz for more information and continue following The Defiant for future pieces on DAO governance, treasury management, community, employment and other topics.

Decentralization is a concept that historically describes local governance structures where the responsibilities of planning and decision-making are not made by a centralized authority, but rather distributed throughout its membership.

Although the terms “centralization” and “decentralization” were not coined until the 19th century in relation to significant political upheaval across Europe, the concepts have existed since the very inception of society. In spite of the obvious benefits of decentralization regarding inclusivity, representation and personal freedom, human history has primarily been a study in centralized authority because of the benefits it provides in efficiency in making decisions and its ability to be effective over large geographic areas.

However, recent technological advancements have allowed for decentralized principles to be utilized more effectively and many of the historical limitations are no longer applicable as robust mechanisms of governance utilizing decentralization are now available.

Opinion

🦊MetaMask Girds for Crypto Winter by Drawing Lessons From the Last One

MetaMask's Co-Founders Reflect on Six Years of Building Their Crypto Wallet Venture

In this exclusive column for The Defiant, Aaron Davis and Dan Finlay share insights into what comes next for their project, and DeFi.

From our humble beginnings as a pair of starry-eyed techies eager to make a in a brand-new industry, it’s hard to believe how far MetaMask has come over the last six years. While this anniversary is worth celebrating, we also want to reflect on MetaMask’s growth and how our journey has shaped the ethos of this project.

Our shared history goes back to 2013 when we both worked on an open source project called VoxelJS. We then worked at a startup called MochaLeaf, which was acquired by Apple. We bonded over a project called VoxelJS. It was a software engine that allows you to create Minecraft-type browser games. Over the next few years, we dabbled in other areas, including peer-to-peer networking, and came up with a whole bunch of crazy, ambitious ideas for changing the world.

We were both drawn to many of the concepts swirling around the crypto space, particularly at the convergence of technology, politics, and data sovereignty. Ideas like creating more effective and participatory systems of governance and being able to democratize the distribution of wealth seemed daring and intriguing.

Opinion

📲 Three Trends to Watch As the SocialFi Era Dawns

You've Heard of DeFi and GameFi... Here Comes SocialFi and the Fusion of Web3 and Social Media

Guest writer Li Gong highlights the forces at work in crypto’s next phase.

SocialFi is web3’s answer to social media — combining networking and finance to create decentralized social applications. It is one of this year’s fastest-growing blockchain segments even in the face of a severe bear market.

This merging of decentralized finance and social media promises better data control, freedom of speech and the ability for users to monetize their online following. Fulfilling these ambitions is far from certain, and it remains to be seen whether SocialFi is just another fad or the next big thing.

Whether the segment booms or bombs depends on three key areas: the user, the metaverse, and the experience. Let’s explore… What’s a social network without users? SocialFi must attract crypto and non-crypto users to give life to the online platforms. Currently, the segment counts many platforms similar to web2 giants such as Facebook and Twitter.

DeFi Research

⚙️ IntoTheBlock: Stablecoin Yields Reveal the Inner Workings of DeFi

Stablecoin Yields Mirror Speculative and Deleveraging Cycles

On-Chain Markets Report by Pedro Negron, IntoTheBlock

The crypto market plunge of 2022 is littered with bankrupt projects. Coupled with challenging macro conditions crypto investors are confronting a tough period. DeFi has been hit equally as bad, although its key protocols performed surprisingly well in contrast with the performance seen in the last market shock when the Covid pandemic struck in March 2020.

There is a third endogenous factor that has made the fall even worse — a massive deleveraging of the system. If this is truly happening, how do we measure it?

The most direct metric to measure the capital allocated in DeFi is usually total value locked (TVL). Both the Ethereum price as well as the in DeFi have decreased in dollar terms by around 75% from their all-time highs. It makes sense considering that if the assets that are locked in DeFi decrease in price, equally the TVL metric decreases. DeFi decrease in price, equally the TVL metric decreases:

ETH price and TVL in dollars. Sources: IntoTheBlock and Defi Llama

Friday

News

Feds Turn Up the Heat on Crypto with Insider Trading Case Against ex-Coinbase EmployeeThe U.S. Justice Department’s crackdown on crypto just ratcheted up a notch. On Thursday, Federal prosecutors accused a former Coinbase employee and two others in the first-ever case of insider trading involving cryptocurrencies.
SushiSwap Triggers Dustup During Launch of Market Making FeatureSushiSwap is trying to reverse its declining market share by enabling cross-chain swaps across seven major chains.
With The Merge on the Verge Buterin Previews The SurgeThe Merge is on the verge of becoming reality. And mounting expectations of a new, more powerful and cleaner Ethereum have sparked a most welcome rally across DeFi in the last week.
Curve Finance Has a Stablecoin in the WorksA stablecoin from leading automated market maker (AMM) Curve Finance may be around the corner.

Markets

Ether On Exchanges Plummets To 4-Year Low Ahead Of The MergeEther held on cryptocurrency exchanges such as Coinbase hit a four-year low on Thursday.

Elsewhere

Thursday

News

Polygon’s Embrace of Zero Knowledge Proofs Cranks Up the Heat in Scalability RacePolygon just made an audacious move — it tapped zero-knowledge (ZK) technologies, a cryptographic breakthrough, to scale Ethereum as the network prepares its biggest upgrade ever.
Axie Infinity Faces Biggest Battle as It Rolls Out Vital UpgradeNo amount of Smooth Love Potion is going to restore Axie Infinity’s healthy glow. But something else might — Origin, the most significant upgrade in the GameFi pioneer’s short history.
Proposal To Turn On Uniswap ‘Fee Switch’ Gains Early SupportWhen will Uniswap, DeFi’s leading decentralized exchange in terms of trading volume, start to make money for itself?
ZK Roundup: Ethereum Scaling Projects Are Forging AheadOn Wednesday, a trio of unaffiliated companies said they have made progress toward building zero-knowledge protocols capable of scaling Ethereum. Ethereum sidechain Polygon released the source code for its Polygon zkEVM, short for zero-knowledge Ethereum virtual machine.

Markets

Rally Pushes Crypto Market Capitalization Above $1TCrypto markets’ recent rally reclaimed an old milestone on Wednesday, as overall market capitalization surpassed $1T for the first time since June 12.

DeFi Explainers

What Is a Metaverse?Forty years ago Neal Stephenson enriched the dictionary with the term “metaverse.” In his novel Snow Crash, a virtual space is depicted as an escape hatch from a dystopian reality. Since then, many movies and video games have tried to capture the essence of this haven, which is now called the metaverse.

Elsewhere

Wednesday

News

The Merge Set For Dress Rehearsal as Anticipation Builds for Launch Virtually all that’s left before The Merge takes place is a dress rehearsal. The final testnet deployment for the next iteration of Ethereum is set to go live on the Goerli network in three weeks. Ethereum’s devs hope the code for The Merge will undergo minimal changes between launching on Goerli and hitting the mainnet.
U.K. Government Takes Step on Making Stablecoins a Form of PaymentOn July 19, Nadhim Zahawi, the chancellor of the Exchequer in the U.K., said the government will introduce a bill to set out how stablecoins may be used as a means of payment.
Buterin Likes the Idea of ‘Network States’ Built Around the BlockchainCrypto investor Balaji Srinivasan’s book The Network State was released on July 10 and centers around creating startup societies that are founded in the cloud, use an integrated cryptocurrency, and crowdfunded physical territories.

DeFi Essay

The Center Will Not Hold: How Select Crypto Projects are DecentralizingFor almost any complex project, a certain level of activation energy is necessary to get the project off the ground.

Elsewhere

Tuesday

News

Rocket Pool to Offer Staking Services in Race to Catch LidoIn a bid to improve its capital efficiency, Rocket Pool, the second-largest liquid staking provider representing 4.3% of the sector’s capital, is cooking up a series of upgrades designed to improve capital efficiency and expand its market share, said Marceau.eth, a DAO member of Rocket Pool, in a tweet “scaling thread” on July 17.
Lido To Expand stETH To Layer 2 NetworksLido, the largest liquid staking protocol, plans to bring its stETH token to Ethereum’s layer 2 (L2) networks. “For Ethereum stakers, this means staking with lower fees and access to a new suite of DeFi applications to amplify yields,” Lido said Monday in a blog post detailing the expansion.
New Token Standard Lowers Costs for NFT CreationThe trope that bear markets are for building may have the benefit of being true. Case in point: Charged Particles, a project that allows users to deposit digital assets into NFTs, introduced a new token standard called ERC721i on July 15.

Markets

Bankrupt Celsius’ CEL Token Is Up 30% Since Halting WithdrawalsDespite crypto lender Celsius halting withdrawals on June 13 and declaring Chapter 11 bankruptcy on July 13, its native $CEL token has risen 30% since all hell broke loose.
Ethereum Hits Five Week High as DeFi RalliesMaybe these are famous last words, but the weekend rebound in crypto doesn’t feel like a dead cat bounce. Ether surged to its highest level in five weeks and other DeFi names finally shook off the doldrums and posted handsome gains of their own.

Elsewhere

💜Community Love💜

Thanking all the amazing Defiers for the support and love this week (and always)!

Degenerarti (J) @DegenerartiThis is the most informative conversation on the Ethereum Merge that I’ve heard thus far. ⁦@CamiRusso⁩ ⁦sits down with @drakefjustin⁩ and breaks down the Merge and what it will mean for the future of ⁦@ethereum⁩. TLDR: BULLISH AF

podcasts.apple.com‎The Defiant - DeFi Podcast: Justin Drake on How The Merge Helps Make Ethereum the Settlement Layer of the Internet on Apple Podcasts‎Show The Defiant - DeFi Podcast, Ep Justin Drake on How The Merge Helps Make Ethereum the Settlement Layer of the Internet - Jul 20, 2022 8:02 PM ∙ Jul 21, 202222Likes4Retweets

Crypto-Gucci.eth ᵍᵐ🦇🔊 @CryptoGucciIf you only listen to one podcast today, make sure it’s this one with @drakefjustin and @CamiRusso Justin goes into everything you need to know about the Merge

newsletter.thedefiant.io🎙 Justin Drake on How The Merge Helps Make Ethereum the Settlement Layer of the InternetThis week on The Defiant podcast we speak with Justin Drake, a researcher for the Ethereum Foundation. He’s at the forefront of the biggest change to happen in Ethereum’s history: The transition from Proof of Work to Proof of Stake, also known as The Merge. We go into what the next steps are before…7:30 PM ∙ Jul 21, 202236Likes11Retweets

DoubleB.eth 🏴 🦇🔊 @DoubleB_eth Do you have questions about #Ethereum's transition from Proof of Work to Proof of Stake? 🔊🎙️🎧 EF researcher @drakefjustin joins @CamiRusso on The Defiant podcast to chat about the #merge and its execution, risks and future $ETH upgrades - podcastaddict.com/episode/142722…11:03 PM ∙ Jul 20, 202232Likes12Retweets

Degenerarti (J) @Degenerarti“Not every project needs to go down the same path in order to be considered a success long term” - @gmoneyNFT Just getting caught up with @DefiantNews and @CamiRusso’s conversation with gmoney was 🔥🔥🔥10:37 PM ∙ Jul 19, 20224Likes1Retweet

DAO Research Collective @DAOResearchCo Decentralization supposedly lies at the heart of DAOs and crypto but what does it mean? @BLulinski & @David_M_Kerr explore why the crypto community values and organizes around the concept of decentralization in a paper for the @DAOResearchCo. thedefiant.io/decentralizati… TL;DR 🧵

thedefiant.ioThe Center Will Not Hold: How Decentralization is Reshaping Technology and Governance - The DefiantDecentralization is a concept that historically describes local governance structures where the responsibilities of planning and decision-making are not made by a centralized authority, but rather distributed throughout its membership.4:40 PM ∙ Jul 19, 202253Likes19Retweets

JM Criptos @jmcriptosQue bueno este podcast para entender el #Ethereum #merge @CamiRusso conversa con @drakefjustin y aclaran todos los detalles. Imperdible!

EthCC - Ethereum Community Conference @EthCCThis week @YAPGlobalTeam interviewed @CamiRusso, author and executive producer of @ETHMovie and editor of @DefiantNews for #EthCC voices. Cami shares that EthCC played a key role during her research about the Ethereum community & culture for the Infinite Machine movie 🧵 (1/4)1:26 PM ∙ Jul 18, 202216Likes2Retweets

Camila Russo @CamiRusso 📢 @DefiantNews is looking for a NYC-based video producer to join our stellar team Details here 👇 thedefiant.io/senior-video-p…

thedefiant.ioSenior Video Producer - The DefiantJob Summary Are you a Senior Producer with avid interest and knowledge of the exciting world of cryptocurrencies and blockchain? If yes, then The Defiant could be the perfect place to put that to work writing, creating, and editing films that capture the zeitgeist. We are looking for someone with en…4:05 PM ∙ Jul 14, 202219Likes5Retweets

Silka @silkargGot some new reading material 🤓 @CamiRusso

12:10 AM ∙ Jul 21, 202244Likes3Retweets

🧑‍💻 ✍️ 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.

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🦄 Recap: DeFi Week of July 17

Good reporting. Delivered.

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