USDC Fallout: DeFi Week Mar. 12

The aftermath of USDC and DAI violently losing their peg over the weekend dominated the news cycle this week.

Both stablecoins crashed below $1 after FUD swept the web3 sector in response to Circle, the company behind USDC, confirming it held 8% of the reserve assets backing its stablecoin with the failed Silicon Valley Bank.

But after tumbling to $0.88, USDC and DAI quickly regained their pegs after U.S. financial regulators assured they would backstop depositors’ funds at the failed bank.

However, the week ended on a bullish note, with top crypto assets rebounding to local highs after the fears surrounding Circle and USDC subsided.

Arbitrum also announced that its long-anticipated airdrop will take place on March 23, distributing 11.5% of ARB’s supply to users. The news coincided with a new all-time high for daily activity on Layer 2, which beat out the Ethereum mainnet by 48%.

DeFi lending protocol Euler was hit by a $200M flash loan exploit.

In this week’s podcast, Tegan Kline spoke with Sreeram Kannan, the founder of the hyped Ethereum restaking protocol, Eigen Layer, and the director of the University of Washington’s Blockchain Lab. They dive into Sreeram’s background in academia, how blockchain piqued his interest, and the hype surrounding Eigen Layer.

Enjoy!

Podcast

Everything you need to know about Eigen Layer – Sreeram Kannan Interview

Sreeram Kannan is the founder of Eigen Layer and the director of the University of Washington’s Blockchain Lab. His research at UW focuses on distributed computing, information theory, queuing theory, networking, coding theory, and game theory of blockchain systems. Eigen Layer is a proof of stake validation marketplace that reuses state capital and existing validation infrastructure. With Eigen Layer. Ethereum can enable permissionless and modular innovation across all blockchain layers.

Today, we dive into Sreeram’s background in academia, how the blockchain space piqued his interest, and the hype around Eigen Layer. But first, Sreeram is going to tell us exactly what he’s up to at Eigen Layer and how he merges both a data availability layer and a restaking platform.

DeFi Alpha

Earn 50% APR On Tricrypto With Convex On Arbitrum

Best of the Week

As Aleksander Gilbert reported, the spate of fintech-focussed bank failures left the crypto sector with limited banking options in the U.S. However, experts predict that smaller and offshore financial institutions may step in to fill the void.

Aleks also explored the implications of the $200M exploit suffered by Euler, a popular DeFi lending protocol, on Monday.

Owen Fernau continued his ongoing coverage of Worldcoin, exploring how the newly released ChatGPT-4 could intersect with the controversial digital identity project. Both projects share the same founder Sam Altman.

Samuel Haig covered the final testnet deployment for Ethereum’s forthcoming Shapella upgrades. The upgrade will activate the long-awaited withdrawal feature for staked Ether, allowing ETH holders to exit staking positions for the first time.

Sam also documented Meta’s exit from the NFT space. The social media giant bailed on nonfungibles less than one year after beginning to roll out support for NFTs on Instagram and Facebook.

Defiant Video

How Stable are Stablecoins? A Breakdown of the Options

After some of crypto’s largest stablecoins lost their peg to the dollar this weekend, many in the crypto world were left facing an important question – just how stable are stablecoins?

How To Decentralize a Fortune 500 company

Today we host a triple threat of guests to give us a deep dive into the launch of Base, Coinbase’s Layer 2 that just launched. We have Jesse Pollak, senior director of Engineering at Coinbase, Eva Beylin, the director of the Graph Foundation, and Ben Jones, the director of the Optimism Foundation.

How Top Stablecoins Depegged After The Second Largest US Bank Failure

USDC depegged from a dollar to as low as $0.88 on Saturday, before bouncing fully back to its dollar peg on Monday. Today we’re looking back over the wild weekend and figuring out what a depegged stablecoin and failing banks could signal for DeFi.

Never Lose Your Crypto Again? ERC-4337 Explained

Rummaging through a garbage dump for the private keys to access over half a billion dollars of Bitcoin is hardly an optimal user experience. Now, with a new phenomenon called account abstraction, the days of searching for lost keys and seed phrases could become a thing of the past.

Friday

• Synthetix Perpetual Volumes Hit Record $200M As Optimism Incentives Near Synthetix, a derivatives protocol with over $600M in total value locked, plans to distribute over $8M of Optimism’s governance tokens to active users of its perpetual swaps platform. Daily trading volume on the protocol’s V2 iteration hit a record of almost $200M on Mar. 13, according to a Dune query.
• TrueUSD Moves $1B in Reserves To The Bahamas After U.S. Banking Failures The company behind TrueUSD, the fifth-largest stablecoin, moved $1B of the company’s reserve assets to a Bahamas-based financial institution citing the tumultuous state of the U.S. banking sector on Wednesday. The Bahamas-based bank now holds $1.4B of the stablecoin’s reserves, according to an attestation from TrustExplorer.
• Uniswap v3 Launches On BNB Chain After Months of Infighting Uniswap, the leading decentralized exchange, went live on BNB Chain following months of infighting on Wednesday. Uniswap Labs announced the launch of its v3 protocol on BNB Chain, saying the blockchain “typically offers faster and cheaper transactions than Ethereum,” making the exchange accessible to a broader user base.
• Euler Hack Shines Light on Promise – and Peril – of DeFi Composability Euler Labs is offering a $1M bounty for information that leads to the arrest of a hacker who stole more than $200M from the Euler protocol on Monday. Despite the massive sum, the U.K.-based company offered the hacker an escape hatch: return 90% of the stolen funds by Thursday, and we’ll drop charges, it told the hacker via a message embedded in an Ethereum transaction.
• Arbitrum To Airdrop Long-Awaited ARB Token On March 23 Arbitrum’s founding team will relinquish control of the Layer 2 blockchain next week with an airdrop that will distribute billions of newly minted governance tokens among users, a decentralized autonomous organization (DAO), investors, and the team that built the protocol. Tokens on the Arbitrum blockchain outperformed the broader crypto market Wednesday.
• Worldcoin’s Digital Identity Protocol Goes Live Alongside GPT-4 Worldcoin, a project which aims to build digital identity via biometrics stored on-chain, on Tuesday launched World ID, a protocol that aims to provide tools for developers to prove that there is a real person behind a digital action. OpenAI, which developed the AI-powered chatbot ChatGPT, released a major upgrade, GPT-4, on the same day.

Thursday

• Ethereum’s Shapella Upgrade Passes Final Testnet Deployment The final dress rehearsal for Ethereum’s Shapella upgrade was executed on the Goerli test network on Tuesday, paving the way for staked ETH withdrawals to activate on mainnet. The Goerli testnet was upgraded at around 10:25 pm UTC but initially suffered from low network participation, as less than two-thirds of validators had upgraded their software clients in time.
• MakerDAO Passes Emergency Measures To Reduce USDC Exposure MakerDAO, the issuer of the DAI stablecoin, will execute emergency governance measures to reduce the protocol’s exposure to USDC on Tuesday after bank failures over the past week highlighted the risk of centralized stablecoins. “The proposed changes are intended to limit Maker’s exposure to potentially impaired stablecoins and other risky collaterals,” the proposal said.
• Filecoin Launches Ethereum-compatible Smart Contracts Filecoin, a blockchain built to store data, has enabled Ethereum-style smart contracts, the final step in its “master plan” to disrupt Amazon Web Services and other legacy cloud computing and data storage platforms. The Filecoin Virtual Machine is compatible with Ethereum, meaning existing Ethereum applications can be brought to Filecoin without major code modifications.

Wednesday

• Aztec To Sunset Privacy Protocol Aztec, a team working on privacy-focused scaling solutions for Ethereum, plans to sunset the Aztec Connect Layer 2 network. Aztec said it will disable the deposit contract for its Connect product on March 21, preventing users from transferring assets onto the network. The rollup will continue operating for 12 months to facilitate user withdrawals before its sequencer is retired on March 21, 2024.
• Meta Abandons NFTs After Less Than A Year Meta has decided to abandon support for NFTs across Instagram and Facebook less than a year after it began rolling out features supporting digital collectibles. Stephane Kasriel, the commerce and fintech lead at Meta, broke the news via Twitter on Monday. He said the firm will redirect its resources to other products, including Meta Pay.

Tuesday

Markets

• Crypto Markets Surge As Investors Predict Fed Pause A rally that began over the weekend was given a boost Tuesday morning, with the release of US inflation data that hardened investor expectations of a quarter-percent interest rate hike at the Fed’s March 22 meeting. As of noon Tuesday, the global market capitalization of digital assets jumped more than 23% from a Friday low, according to data from CoinMarketCap.

News

• DeFi Lender Euler Suffers $200M Exploit A rally that began over the weekend was given a boost Tuesday morning, with the release of US inflation data that hardened investor expectations of a quarter-percent interest rate hike at the Fed’s March 22 meeting. As of noon Tuesday, the global market capitalization of digital assets jumped more than 23% from a Friday low, according to data from CoinMarketCap.
• Silvergate, Signature Collapse Leaves Crypto with Few Bank Partners Crypto’s go-to banks collapsed last week, and it left U.S.-based players in the embattled industry with few remaining links to the traditional financial system. It’s the latest blow to an industry under siege in the United States, where bank regulators have issued repeated warnings regarding crypto’s risk profile. There are few remaining banks willing to work with crypto companies, according to experts, and there are significant obstacles to those willing to fill the void left by Silvergate.

Monday

• USDC Finds Stability Near $0.97 After Crashing on SVB Concerns USDC is edging closer to its peg after its issuer, Circle, said it would stand by the stablecoin. USDC, the second-largest stablecoin, traded within a one-cent range near $0.97 over the past six hours after crashing to as low as $0.88. Many users rushed to trade their depegged stablecoins for Tether’s USDT, the largest centralized stablecoin, and Liquity’s LUSD, a decentralized and overcollateralized stablecoin exclusively backed by Ether.
• Markets Recover After U.S. Regulators Backstop Deposits At Failed Banks The crypto markets are rebounding after Circle, the company behind the USDC stablecoin, assured investors that its reserves held with the failed Silicon Valley Bank are safe. DeFi assets surged, with Synthetix (SNX) up 33%, Maker (MKR) rallying 30%, Lido (LDO) bouncing 22%, and Frax (FXS) recovering 16% over the past day.