🦄 Recap: DeFi Week of July 3

Hello Defiers! Happy Weekend!

Another one bites the dust… This week crypto got a refresher course in counterparty risk when Voyager Digital, an exchange with a ton of exposure to liquidation-bound Three Arrows Capital, filed for Chapter 11 bankruptcy protection in a U.S. court in New York. Aleks Gilbert, who’s been covering the tribulations of Three Arrows, dug deep into the court filings to write a narrative on Voyager’s sudden plunge into administration.

On Friday another explosive case broke when a Celsius partner accused the wobbling crypto bank of all sorts of unlawful activity in managing customer deposits. Sam Haig did a deep dive into that case.

Robin Schmidt and his crew also cranked out a video on the implications of the exchange’s woes and another Quick Take on the stress at Celsius and Three Arrows’ liquidation. No surprise in a bear market, trouble was a resounding theme this week.

Cami Russo interviewed Joseph DeLong, the former CTO of SushiSwap, on why DAOs fail in this week’s podcast. He shared invaluable insights on the challenging forces at work in DAO governance and operations, and a bit about the problems at SushiSwap.

And Claire Gu produced our second Bear Market Survival Guide — she writes about how MaskerDAO, Uniswap, and OpenSea built their platforms during the last bear from 2018 to 2020.

Even as the dominoes continue to fall in crypto (begun by Terra’s collapse in May), DeFi trailblazer MakerDAO continues to make surprising moves in its project to bring together TradFi and decentralized finance. Sam Haig reported on Maker members’ vote to issue a $30M loan to Societe Generale, the French banking giant, in the DAO’s latest bid to embrace real-world assets. Maker’s labors to hone effective governance and a growth strategy is rapidly becoming one of the most important stories in DeFi.

Sam also unearthed how two whales (or maybe they’re the same player) sent NFT lending volume soaring to its highest level in two months. Meanwhile, Owen Fernau delved into dYdX’s surprising decision to develop its own blockchain. The move will shift the trading protocol away from Ethereum, a risky gambit in terms of volume that may potentially drop away.

And perhaps this is bold or just crazy, but NFTs are now offering buy now-pay later plans. Yyctrader has the story in this week’s NFT Roundup.

Enjoy!

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This week:

Private DeFi With Aztec & Delta-Neutral Yield Farming

Podcast

🎙Ex SushiSwap CTO Joseph Delong on Why DAOs Fail

Joseph Delong is the former CTO of SushiSwap, one of the biggest decentralized exchanges, and the founder of Astaria, a recently created NFT lending protocol. Joseph has been heavily involved in building and managing DAOs. With the recent controversial proposals surfacing on MakerDAO and Lido, we are once again reminded of the importance of DAO governance. We begin by talking about Joseph’s analogy on what would happen if a lemonade stand was run by a DAO and reflect on some of the DAO experiments that occurred over the last couple of years.

We go on to speak about the different factors involved in forming hierarchies within DAOs and how individuals assume leadership roles. Joseph also shares insights into his experience at SushiSwap and the difficulties he encountered as the CTO. Joseph goes on to share his thoughts on reward models across different DeFi projects. He believes yield farming in the long term damage projects as costs of liquidity incentives become greater compared than revenue. A major discussion in DAO governance has revolved around token holder concentration. Joseph also discusses the current 1 token = 1 vote model and shares alternative governance systems.

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The Tube

📺 The Open Metaverse Show: The Futureverse will be built on Ripple??!!?!?!!?!!

📺 Quick Take: Voyager files for bankruptcy but Otherside load test is a smash

📺 Hot Stuff: META ditches Novi - is the Web 3 dream over?

📺 Tuesday Tutorial: Earn passive income with idle NFTs using inventory staking on NFTx

📺 Quick Take: 3AC liquidation, Celsius layoffs, Voyager freezes but BlockFi strikes a deal

Bankruptcy Saga

😩 Voyager Delivers Painful Lesson on Perils of Counterparty Risk in Bankruptcy Drama

Exposure to Three Arrows Sinks Crypto Exchange as Dominoes Fall

In which Aleksandar Gilbert unfolds the Fall of Voyager Digital…

In late June, the top executives at Voyager Digital, a cryptocurrency exchange with 3.5M users, knew they were in deep trouble. Three Arrows Capital, the Singapore-based hedge fund, owed it hundreds of millions worth of crypto and showed no signs of servicing the debt.

Voyager CEO Stephen Ehrlich and his team embarked on a mad scramble to save their four-year-old company from the type of bank run that is wreaking havoc across the crypto sector. They hired lawyers. They hired a Wall Street Investment bank to rustle up a potential savior.

And they reached out to Alameda Research, the trading firm co-founded by Sam Bankman-Fried, the billionaire crypto impresario. It agreed to provide Voyager with $200M in cash and a revolving credit line financed by 15,000 Bitcoin even though Voyager was under enormous stress.

What happened next is a cautionary tale about the perils of counterparty risk, and how crypto, despite the promise of blockchain technology, is not immune to the same dangers and mistakes that have long plagued traditional finance.

Deep Dive

🧐 Industry Insiders Weigh In On dYdX’s Planned AppChain

Owen Fernau analyzes the protocol’s bold move to develop its own blockchain.

dYdX’s decision to deploy its own blockchain took much of the crypto world by surprise. On June 22, the derivatives trading protocol laid out plans to use Cosmos’ SDK and the Tendermint Proof-of-Stake consensus protocol. Both these technologies are fundamental to the broader Cosmos ecosystem and fall outside of the Ethereum-centric DeFi space.

dYdX’s move away from Ethereum comes after its previous iteration, called V3, is a flagship deployment on StarkEx, which is a Layer 2 scaling solution for Ethereum.

Now, with its team planning to build out its next version on Cosmos, experts around the industry are mulling over what dYdX’s move means for the broader crypto industry.

Crypto Cases

🏛 Celsius Partner Details Inner Workings of ‘Ponzi Scheme’ in Lawsuit

Asset Manager Claims Celsius Engaged in 'Gross Mismanagement' of Deposits

Samuel Haig digs through an explosive lawsuit that claims to lay bare Celsius practices.

The crisis engulfing Celsius, the embattled centralized crypto lending platform, took a strange turn on July 7 when a former partner that helped manage assets for the firm accused it of running a “Ponzi scheme.”

In a lawsuit filed in New York Supreme Court, KeyFi Inc., a New York-based asset management firm, pulled back the curtain on the inner workings of Celsius, a company that manages $11.8B in assets and rocked the market last month when it blocked customers from withdrawing their crypto deposits.

KeyFi claims Celsius engaged in the “gross mismanagement of customer deposits” and failed to pay it millions for asset management services.

The suit argues that Celsius used customer deposits to engage in risky trading strategies while falsely claiming to be hedging against potential losses. It also alleges that customer funds were used to manipulate the price of Celsius’ CEL token, which rallied 11,400% between March 2020 and June 2021, according to CoinGecko.

Opinion

🛠 Make NFTs a Gaming Tool Instead of a Sales Hustle

Guest writer David Kim argues that game creators should harness the utility of NFTs instead of just hyping them to players.

Decentralized technologies such as blockchain networks, cryptocurrencies, and non-fungible tokens (NFTs) are swiftly becoming an inextricable part of the internet, media and gaming sectors.

Yet as new doors open and possibilities unlock, innovations such as Web3 and the metaverse may become just another set of overhyped buzzwords with nothing underneath them.

This is especially true for the global gaming industry. It has been relying on tried and tested frameworks and solutions for decades — disrupting it is no trivial task. While numerous game developers are integrating NFTs and “blockchain elements” into their projects, the very first question that comes up is: “Are they really necessary?”

Bear Market Survival Guide

🥶 Survivors of 2018-20 Crypto Winter Show the Way Through New Bear Market

By Claire Gu

It’s no secret that crypto markets can be brutal. In 2018, Bitcoin cratered 80%, and many lesser-known projects didn’t survive. For the next two years, the market endured a crypto winter.

Forget trying to predict these severe downturns. Timing the market has long been a fool’s errand. It’s wiser to accept the cyclical nature of the market and prepare for a bearish period. To learn how, we draw lessons from the past in the second installment of our Surviving a Bear Market series of guides.

After spending years on the fringe of the financial world, the cryptomarket exploded in 2017 and its market capitalization multiplied 46 times, reaching $829B in January 2018. But that month it suddenly crashed and lost 70% of its value in four brutal months.

Source: Pantera Capital

Friday

News

• Aave Bucks Stablecoin Fear with Proposed New TokenWhile Terra’s collapse may have cast a shadow over stablecoins, one big DeFi player doesn’t appear to be deterred.
• Celsius Pays Off MakerDAO Debt, Moves $500M of Bitcoin to FTXEmbattled crypto lender Celsius Network has paid off its debt to MakerDAO, a sign the platform is recovering from its recent near-death experience.
• Polygon Scores Deal with Reddit for New NFT MarketplaceIf building your project during hard times is the true test of DeFi, then Polygon is off to a good start in this bear market as it solidifies its position as a leading Ethereum scaling solution.
• Aztec Launches Private DeFi Platform on EthereumUsing data compression techniques called zero-knowledge rollups, privacy-focused startup Aztec aims to allow Ethereum applications to offer users improved privacy and lower costs on transactions.
• Three Arrows Capital Owes Blockchain.com $270M It’s the gift that keeps on giving, or rather, people kept on giving to Three Arrows Capital. The saga goes on as revelations about creditors of the crypto hedge fund continue to pour in.

Elsewhere

• Celsius Lost $390M of Client Funds From ‘High-Risk’ Levered Trading: Arkham Report: Decrypt
• Web3 activists fight for reproductive rights with NFTs, DAOs and protests: CoinTelegraph
• Aping into Progress: A Report on Crypto Philanthropy: Other Internet
• Are you interested in the EF’s Fellowship Program? Drop by the office hours session, learn more about it and clarify your questions!: Ethereum

Thursday

News

• MakerDAO Members Vote on Issuing $30M Loan To Societe GeneraleMakerDAO is intensifying its strategic shift to embrace real world assets. The Maker community will soon vote on whether to issue a 30M DAI loan to SG Forge — a blockchain-focused subsidiary of Societe Generale, the No. 3 bank in France with €1.5T ($1.5T) in assets.
• Celsius Pays Down 183M DAI in Debt to Stave Off LiquidationCelsius, the embattled CeFi lending platform, is aggressively paying down its debt and freeing up assets previously locked in MakerDAO, a collateralized debt protocol.
• Ethereum Closes In On Proof-of-Stake After Sepolia Testnet MergeEthereum is one step closer to The Merge, the network’s highly anticipated transition to a proof-of-stake (PoS) consensus mechanism.

Elswehere

• Uprise lost 99% of client funds while shorting LUNA during its price crash: SE Daily: The Block
• How a fake job offer took down the world’s most popular crypto game: The Block
• Reddit to Launch NFT Avatars Built on Polygon: Decrypt
• Get ready to build Coming soon: Solana

Wednesday

News

• Compound Goes Multi-Chain in Major UpgradeCompound Finance, the pioneering DeFi money market, published the code for its forthcoming third iteration, called Comet, on June 30.
• NFT Lending Volume Soars on Action by WhalesNFT lending volume surged to its highest level in two months over the weekend, with $3.5M worth of nonfungibles changing hands on July 3 via NFTfi, a marketplace for loans collateralized by NFTs.
• Nexo To Acquire Competing Crypto Lender VauldJust one day after suspending customer withdrawals, Singapore-based crypto lending firm Vauld has struck a deal to be acquired by rival company Nexo.

Elsewhere

• Celsius Repays $183M on DeFi Exchange Maker, Gets Back Collateral, Blockchain Data Shows: CoinDesk
• Crypto Miner Core Scientific Dumps $165M Bitcoin to 'Enhance Liquidity': Decrypt
• How Wall Street Escaped the Crypto Meltdown: The New York Times
• During June we hit a new all-time high in monthly average unique voters per poll: MakerDAO

Tuesday

News

• MakerDAO Members Vote On $100M DAI Vault for BankThe MakerDAO community is voting on whether to provide a DAI vault to Huntingdon Valley Bank, a 151-year-old lender in Pennsylvania with $500M in assets.
• SushiSwap Votes to Let Traders Offset Carbon EmissionsThe decentralized exchange SushiSwap is partnering with blockchain-based carbon credit protocol, KlimaDAO, to allow traders to offset their carbon emissions on the Polygon network.
• FTX Reaches Deal to Acquire BlockFi for Up to $240M as CeFi Lenders Buckle Under Market PressureFTX, 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.

Elsewhere

• Nexo starts process to potentially acquire troubled crypto lender Vauld: The Block
• Crypto Lender Celsius Cuts 150 Jobs Amid Restructuring: Report: CoinDesk
• HTC launches metaverse phone with Ethereum, Polygon support: Yahoo Finance
• gm, everyone! It's a good day to build: Solana Mobile

💜Community Love💜

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

DeFi Dad ⟠ defidad.eth @DeFi_Dad"What's the Merge everyone's keeps talking about?" @IamSuperMassive and @DefiantNews got you covered.

The Defiant @DefiantNewsHere's the best Ethereum Merge explainer you'll ever see 🔗 https://t.co/HbbyTthLHk2:55 PM ∙ Jul 6, 202224Likes3Retweets

taterdao @taterdaoIn this episode ⁦@josephdelong⁩ talks about the bridge of RWAs on chain with ⁦@CamiRusso⁩ of ⁦@DefiantNews⁩. We agree with the goal and look forward to on-boarding #realestate.

podcasts.apple.com‎The Defiant - DeFi Podcast: Ex SushiSwap CTOJoseph Delong on Why DAOs Fail on Apple Podcasts‎Show The Defiant - DeFi Podcast, Ep Ex SushiSwap CTOJoseph Delong on Why DAOs Fail - Jul 6, 20227:34 PM ∙ Jul 7, 202212Likes7Retweets

Brady Dale @BradyDaleThis graphic from @PanteraCapital that @DefiantNews repubbed is just a gut-punch wow The top of the chart in the 2017 boom

3:16 PM ∙ Jul 6, 202224Likes3Retweets

yyctradΞr @yyctrader1Congratulations to the winners of @DefiantNews inaugural engage-to-win challenge!🥳 🥇@RhizenCrypt 🥈@NFTxDeFi 🥉@pat_rick45 We appreciate your support!🙌 Please DM your Ethereum addresses and I'll transfer your Defiant Pillars🎁

4:53 PM ∙ Jul 3, 202226Likes9Retweets

Camila Russo @CamiRussoThank you @DefiantNews team for the early bday cake!! You’re the best 💚

11:28 PM ∙ Jul 6, 202293Likes3Retweets

Hasu⚡️🤖 (is hiring! jobs.flashbots.net) @hasuflAnd the final shoe drop for today -- this has been a great interview with @CamiRusso on all things @LidoFinance: - how it works - stETH/ETH price dynamics - the self-limiting debate - our LDO+stETH dual governance proposal - and my thoughts on DAOs in general

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, 202259Likes8Retweets

🧑‍💻 ✍️ 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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