👻 Scary Leveraged Loan on Aave

GM Defiers!

Happy Friday. Today we get kind of cypherpunk, kind of technical, with our content. Our leading story is on the Gauntlet team sounding the alarm on a large cbETH position on Aave which is just a 9% move away from being liquidated and potentially dragging others with it. Meanwhile, Cryptosat, a team of Stanford University academics signed a file from space to participate in an Ethereum ceremony. And lastly, a zkSync-based project got funds it raised in a token sale stuck in a smart contract — the team behind the Layer 2 network had to come to the rescue.

✍️ In today’s newsletter:

Researchers sound alarm on Aave position
Funds trapped in Layer 2 platform ZkSync
Stanford academics participate in Ethereum ceremony from space

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Liquidations

Gauntlet Flags Potential cbETH Liquidation Risk On Aave

TLDR Risk management firm Gauntlet issued a warning about a large leveraged position using cbETH, the Coinbase token representing staked ETH. A trader has borrowed nearly $39M worth of ETH on lending protocol Aave. They used cbETH worth roughly $46M to back the loan, initially posting only $7,4M worth and then repeatedly borrowed and sold ETH for more cbETH to post as collateral.

If cbETH drops by 9% against ETH the wallet stands to be liquidated.
Given the limited amount of cbETH liquidity, that sale could push cbETH’s price still lower, liquidating other smaller accounts on Aave.

SO WHAT A liquidation cascade can have negative effects on Aave. “Under certain scenarios, this can create bad debt for the protocol,” Gauntlet’s Paul Lei said.

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Far Out

Cryptosat Sends Message From Space To Help Scale Ethereum

TLDR Cryptosat, a team of Stanford University academics building satellite-based blockchain nodes, has participated in Ethereum’s KZG ceremony by signing a file from space. The KZG ceremony will pave the way for Ethereum’s future EIP-4844 upgrade, which increases the network’s Layer 2 throughput.

SO WHAT The move highlights development in the Ethereum ecosystem, with researchers building satellites to power blockchains actively participating in an upgrade meant to help Ethereum scale.

Locked Funds

ZkSync Rescues Gemholic After Botched Token Sale

TLDR Gemholic, the team behind the GemSwap decentralized exchange, will be able to retrieve 921 ETH ($1.7M) raised in a token sale, after a bug in their smart contract resulted in the team losing access to the funds on Thursday. Matter Labs, the team behind ZkSync Era, will help unfreeze the contract.

SO WHAT The project’s future hangs in the balance, with the Gemholic team announcing that presale participants will determine whether the project should continue as previously planned or return the funds and cease operating.

🔎 FROM OUR REPORTERS

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