DeFi Token DIA's DEX Offering Shows the "New ICO" Comes With New Problems Too

Hello Defiers! Here’s what’s up in DeFi:

• DIA sale highlights DEX offerings’ issues
• Aave executes first delegated loan
• Crypto fundraising picks up

and more :)

You’re a free subscriber, which means you’re getting a partial version of today’s newsletter.

The open economy is taking over the old one. Subscribe to keep up with this revolution. Click here to pay with DAI (for 70 Dai/yr vs $100/yr).

Subscribe now

🎙Listen to this week’s podcast episode with Olaf Carlson-Wee here:

📺 Also, The Defiant’s YouTube Channel Launched! New Video Out:

🙌 Together with DeversiFi, a professional-grade, self-custodial exchange.

Lessons From The First-Ever Initial DEX Offerings

Ethereum-based projects are increasingly skipping centralized trading platforms and listing their tokens on decentralized exchanges first. But the process isn’t always smooth and the DIA sale on Gnosis Protocol this week is the latest example.

Image source: DIA blog post

DEXs allow projects to list tokens without paying hefty fees required by CEXs and, because these protocols are permissionless, tokens are available for anyone in the world to trade. Liquidity pools —rather than order books— dominate these platforms, which facilitate the exchange of smaller coins. While ICOs and IEOs dominated crypto companies’ fundraising in the past, it seems that Initial DEX Offering are becoming the preferred method to distribute tokens and raise capital in DeFi.

But the method is still highly experimental and it’s only been three months since the trend started picking up steam, which means there are lessons to learn.

UMA, BZRX Front-Running

Synthetic assets platform UMA was one of the first IDOs, listing its token on Uniswap in April. UMA put 2% of total token supply and provided 535k$ of ETH into a liquidity pool for a starting price of 0.26$, the same that seed investors paid two years ago.

Image source: UMA blog post

But because token pricing on Uniswap works with a bonding curve, as investors lined up to buy the token, its price quickly moved up. Traders tried to front-run others, paying higher gas costs, and that led to UMA jumping to more than $2 minutes after the launch, before stabilizing at around $1.2, which made some buyers complain about getting a higher price than pre-sale investors.

bZx’s buyers ran into the same front-running problem on Uniswap. The lending platform’s token BZRX jumped 12x from its listing price less than 60 seconds after the Uniswap liquidity pool was seeded. The main winners were those running scripts to purchase BZRX in the same block it became available.

Ring-Trades to the Rescue

Gnosis Protocol’s Mesa exchange aims to solve the front-running issue plaguing these DEX offerings. Mesa uses a so-called ring-trade mechanism, where traders set a limit for the price they’re willing to pay so they get *at least* the price they asked for. When orders start coming in, they get filled in batches, instead of in the order they’re placed. Orders are settled on-chain, and then the next batch auction begins.

After seeing UMA’s and bZx’s experience, some issuers including for DMG and MTA tokens, listed on Mesa. But DIA proved the Gnosis-based exchange doesn’t guarantee a smooth listing.

DIA’s Troubled Sale

DIA, an open-source oracle platform, started its 14-day sale of 30M DIA tokens (15% of supply) on Aug. 3, with the initial price of $0.05. The first batch had an average price of $0.64. In a private sale 10M tokens were sold at $0.50.

An additional piece needed to understand what happened is that DIA used a bonding curve pricing mechanism to enable the determination of a fair market price. This allows buyers to buy and sell back instantly.

Also, the team said in its communications they would accept ETH, DAI and USDC, but only provided buy and sell orders replicating the bonding curve in USDC, expecting Gnosis Protocol would have enough liquidity for ETH and DAI through its liquidity providers.

No ETH Liquidity

But there wasn't enough ETH liquidity for high volumes which meant that ultimately the wETH/DIA price ended up being higher than the USDC/DIA price.

“The highest price difference between wETH and USDC occurred In batch 4: a wETH buyer purchased at 1.50 USD tokens worth USD 309,729 while USDC buyer acquired worth USD 55,724 tokens at USD 1.21, leading to a spread of 23,87% in that transaction,” DIA founder Paul Claudius told The Defiant.

The result is disgruntled ETH/DIA buyers. They are upset enough to have formed a separate Telegram channel in which they have even come to discuss the possibility of legal action.

Break-Even

It may be of some relief to those buyers thatDIA’s price has more than doubled just in the past day, and with the token now trading at $2.2 they could get the chance to break even or more likely, sell at a profit.

Image source: Dune Analytics

Claudius says he feels responsible for what happened, and “regrets the way he reacted,” as the project’s initial blog posts didn’t acknowledge ETh buyers’ frustration, saying the mechanism worked as intended. He says a big lesson learned is to more clearly communicate how the different providers they’re working with work and their risks.

Gnosis co-founder Martin Koppelmann told The Defiant an improved interface should make it easier for more market makers to participate in Mesa listings the future.

“I am pretty sure in the next sale more market makers will be attracted,'“ Koppelmann said. “For issuers/ sellers - I think they should either sell for multiple tokens or let buyers know that they are selling only for one token and if they want to buy with another token they need to rely on liquidity in Gnosis Protocol.”

Liquidity Providers Made a Killing

The big winners of the day were liquidity providers.

“Every liquidity provider for WETH/USDC profited from the lack of liquidity,” Koppelman said. “One trader alone made >$100k in a few hours.”

Aave Issues $500k Unsecured Credit Loan to DeversiFi

By Cooper Turley

Aave christened its credit delegation feature by issuing a $500,000 unsecured line of credit to the Layer 2 DeFi exchange DeversiFi.

Fundraising in Crypto is Picking up Amid Bull Market

Crypto projects are taking advantage of improving market sentiment to close deals, and investors are lining up. Just yesterday, at least four crypto companies announced they raised a combined $27M in funding from big VCs including Andreessen Horowitz, Union Square Ventures, well-known dedicated crypto funds like Coinbase Ventures, BlockTower and Paradigm, and even NBA stars.

Here are the deals:

DeFi Saver Launches Interface for Aave

Here’s the great thing about composability: One project is able to create an interface for an entirely different project, adding new features and design.

DeFi Saver yesterday introduced a new interface for users to manage their portfolios on lending platform Aave. The platform allows users to increase leverage or pay back debt in one transaction. The DeFi portfolio manager plans to introduce automation int the coming weeks.

DeFi Saver @DeFiSaverOur fully fledged @AaveAave dashboard is NOW LIVE!🥳 💻New interface for Aave portfolio management 🚀1tx Boost & Repay available for Aave for the first time ever 🤖Automation support coming soon!™️ Full introduction: medium.com/defi-saver/int…

medium.comIntroducing the DeFi Saver Aave dashboardStarting today you can fully manage your Aave portfolio using DeFi Saver!🎉5:33 PM ∙ Aug 6, 2020189Likes55Retweets

Hermez is Latest zk-Rollup

A heads up about the latest Layer 2 solution that’s being developed to help scale Ethereum dapps: Hermez, the zk-rollup born out of Iden3’s labs.

From their blog post:

• A zk-rollup using SNARKs for validity proofs and with on-chain data availability
• Able to scale Ethereum to 2000 transactions per second
• It’s being built by the team who built the Circom and SnarkJS libraries that power Tornado Cash, Semaphore and Zkopru, among others.
• It’s being built after a couple of iterations in the Goerli testnet.

Dan Robinson of Paradigm has an ironic take on an attack on Ethereum Classic.

Dan Robinson @danrobinsonI was told that this was the immutable chain https://t.co/GidrGkF9u9

CoinDesk @CoinDeskBREAKING: Ethereum Classic has suffered a 4,000-block long reorganization, its second such incident in five days. @eth_classic @sebsinclair1989 https://t.co/t1kLqM1gzE5:19 AM ∙ Aug 6, 2020304Likes25Retweets

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.