Atomic Wallet Exploited For More Than $35M

CFTC Sees ‘Significant Risks’ From Digital Assets 

 it was the latter that had the last word this week.

 hawkish stance on the “pain” to come as the central bank raises rates to combat inflation punished the equities and crypto markets going into the weekend. Spooked investors sold off top tokens, 

Don’t count out The Merge — or more precisely, the raft of improvements coming to 

in its wake. Even factoring in this week’s selloff, ETH is still trading 41% higher than it was on June 30. With The Merge 

 transition to a Proof-of-Stake consensus mechanism remains the No. 1 story in DeFi.

As Sam Haig explains, it may not be The Merge but a related development 

. Likewise, Robin Schmidt and his crew explored the question of 

In other news this week, Aleksander Gilbert reported on how online sleuths are finding evidence 

 that’s been buzzing around DeFi for the last couple of weeks — the third version of 

. And Sam Haig continued his groundbreaking coverage of the governance drama at 

, Sam reported on how the community voted to cut the salary of its next “head chef” more than 37%.

With the U.S. government’s sanction of 

still reverberating, Camila Russo caught up with 

in this week’s podcast why the U.S. Treasury’s actions impacted free speech protections and challenged privacy rights in DeFi.

Meanwhile, Rahul Nambiamopurath continued to crank out his thorough and invaluable primers on DeFi: this week he explained 

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Jake Chervinsky on Tornado Cash Sanctions: The Rightful Outrage and the Need to Further Decentralize DeFi

This week on The Defiant Podcast we speak to 

 the executive vice president and head of policy at 

, a non-profit trade association representing the crypto industry in Washington DC. Jake is one of the most qualified to discuss the US Treasury Department 

, a development that’s caused shockwaves through crypto.

We talk about what these actions are, who is at risk and what is the significance of it all. Tornado Cash got sacntioned because it was used to launder funds, specifically by North Korea’s Lazarus Group. Still, Chainalysis found that 23% of all activity was linked to illicit funds — a large percentage but also not the predominant use of the platform. We discuss all the legitimate reasons why individuals may want to use a mixer.

There is an indication that these sanctions go against not just the right to privacy, but potentially also free speech, as an Amsterdam-based Tornado Cash developer recently being arrested for, what looks like, just writing code. Jake provides context to this arrest and on whether constitutional rights were infringed with these sanctions.

The ramifications have been quick and widespread. DeFi users have found themselves locked out of their Tornado Cash accounts while many dApps have blacklisted all wallets with any prior contact to the Tornado Cash smart contract. Jake discusses what the alternatives are for developers and users in DeFi, and what the next steps are.

The Defiant Weekly: ⚠️Why The Merge Might Fail

Livestream: Esports joins the block & how to produce The Degen Trilogy

Tuesday Tutorials: TORNADO CASH ALTERNATIVES

⚔️ Fei Community Up In Arms Over Dissolution Plan

Team Cites Technical Challenges And Future Regulations As Risks

 delves into the latest tussle in DeFi stablecoin governance.

Amid “mounting technical, financial, and future regulatory risks,” the team behind Fei, the 

 stablecoin by market capitalization, is ready to call it quits.

, which would only partially repay victims of an $80M hack and compel Fei holders to redeem their tokens for DAI, the largest decentralized stablecoin, has been met with fury from some of the project’s earliest backers.

Shortly after the proposal went online Friday, Sam Kazemian, the founder of Frax Finance and an early Fei supporter, called it “a new low for DeFi.” Fei co-founder Joey Santoro is yet to respond to The Defiant’s request for comment.

Critics say the Fei protocol has the money to fully reimburse everyone that lost money in the 

. Instead, skeptics claim that the team has proposed a partial redemption for hack victims while retaining much of the project’s remaining capital for themselves.

Traders Shun On-Chain Leverage In Volatile Market

Aave and Compound Liquidated Just $850K Of Collateral As Ether Dropped 25%

 analyzes one of the most telling developments in a topsy-turvy market…

DeFi money markets have liquidated tens of millions in crypto collateral following each nosedive in the crypto markets this year. But traders are unscathed in the wake of last week’s industry-wide selloff.

Aave and Compound, two of the three largest lending protocols with a combined $14.6B in total value locked, liquidated just $850,000 of collateral in the past week, according to 

 from The Defiant Terminal. Ether fell 25% during the period after briefly trading above $2,000 on Aug. 14.

That sum is a far cry from the amounts liquidated during other sharp downturns this year. Meanwhile, centralized exchanges saw over 

Between June 9 and June 13, Ether lost a third of its value as 

now-defunct hedge fund Three Arrows Capital

 sold its digital assets in a last-ditch attempt to remain solvent. On June 13, Aave liquidated more than $34M in collateral, while LUSD issuer Liquity liquidated $22M. Five days later, after Ether dropped below $1,000, Liquity sold off another $77M.

The Merge Won’t Drive Big Scalability Gains For Ethereum, But EIP-4844 Might

Proto-Danksharding Could Boost Throughput Of Layer 2 Rollups By 100x

In our latest article looking at the Post-Merge landscape, 

 reports on a little-understood scalability innovation…

All eyes may be on Ethereum’s forthcoming transition to Proof-of-Stake consensus, but there is a lesser-known upgrade that’s set to cut Ethereum’s transaction costs, improving scalability – unlike the so-called Merge.

EIP-4844 upgrade is set to introduce ‘proto-danksharding’ alongside the next Ethereum fork following The Merge, which is tipped to boost the scalability of Layer 2 rollups by up to 100 times while paving the way for full sharding to be implemented.

This is key, as Ethereum’s current roadmap is banking the network’s burgeoning Layer 2 ecosystem will handle scalability and fee mitigation, until sharding is implemented further down the track. Sharding will split Ethereum’s computational load across an ecosystem of small chains working in parallel, with Layer 2 chains expected to become the network’s shards in the future.

, simple token transfers cost roughly $0.1 on Ethereum’s leading rollup networks, with swaps estimated at around $0.15. But this isn’t good enough, says 

, Ethereum’s co-founder and chief scientist, who tweeted in May that transaction fees on L2 must be below $0.05 “to be truly acceptable.”

Feds Didn’t Just Sanction Tornado — They Forgot Code is Free Speech

Legal Precedent Says Code is Protected by First Amendment

 argues the authorities ran roughshod over key precedents…

The U.S. Department of the Treasury’s sanction of Tornado Cash on Aug. 8 was a remarkable development. It wasn’t just the sweeping scope of the action. Pulling the plug on an entire crypto platform isn’t something you see everyday. It was the fact that the authorities blacklisted a piece of code — not a person or a corporate entity.

This is just the latest event demonstrating the long reach of regulators, even in the decentralized precincts of the internet.

We at Swarm, a decentralized exchange based in Berlin, agree with other leaders in crypto that sanctioning Tornado Cash is unconstitutional and a startling act of overreach from regulators.

,” a U.S. federal court established “source code as speech,” which means it’s protected by the First Amendment of the U.S. Constitution. It is the leading case that applies this hallowed standard to encryption issues. safely protect their customers assets then it’s safe to say its brand as a truly innovative proposition will be tarnished.

How Maker and Frax Are The Diplomats of DeFi

Stablecoins Face Challenges In Wake Of Tornado Sanctions

 explores more important questions around stablecoins…

Earlier this month, the crypto world was rocked by the Office of Foreign Asset Control’s move to 

 44 addresses associated with Tornado Cash, putting the decentralized protocol on their Specially Designated Nationals and Blocked Persons list.

With the announcement, it became outright illegal for US citizens to access the privacy-preserving protocol or otherwise face hefty fines and jail time. As a preemptive measure, Centre, the consortium behind USDC, 

 $75,000 worth of USDC that were located in Tornado Cash’s smart contracts and nearly doubled the number of their banned addresses. The aftermath of the sanctions has resulted in intense discussions among crypto community members about censorship risks that exist throughout the ecosystem.

In particular, stablecoins have been a flashpoint of this debate and for good reason. Stablecoins have proven to be one of the most utilized application areas of crypto. Today, there are over $150 billion worth of stablecoins in circulation and tens of billions of dollars in volume. Although the majority of activity comes from traders, stablecoins have been increasingly used for everyday activities such as salaries, remittances, payments, etc. Whatever the case, stablecoin use is growing and will continue to grow as more and more participants are onboarded to DeFi.

Yet, as the shadow of the USDC blacklisting looms, heated discourse online has fueled an array of emotional reactions. Decentralization purists have blasted DAI and FRAX for having USDC as collateral and have espoused alternatives that boast their anti-centralization prowess. Do they have a point though? What good is a stablecoin if it could be censored as simply as with an off switch? The answer is much more nuanced than what has proliferated.

Synthetix Community Considers Ditching Inflationary Tokenomics

On Aug. 25, Kain Warwick, the founder of Synthetix, published a 

 advocating for capping the SNX supply at 300M tokens in two and a half months.“Inflation was intended to bootstrap the network, it has done this extremely effectively,” the proposal said.

Stargate’s STG Token Surges Ahead Of FTX Listing

Rocket Pool To Incentivize rETH Liquidity

The community behind Rocket Pool, the second-largest Ethereum liquid staking protocol, is rallying to increase traction for the project’s staked ETH token in a bid to narrow the gap with Lido, the liquid staking leader.

On August 25, Thirdweb — a startup behind a developer toolkit to launch blockchain-based apps including games, NFTs, DAOs and marketplaces — raised a 

 Series A funding round led by Haun Ventures with participation from Coinbase and Shopify.

Every technology goes through generational cycles, including the internet. When a critical threshold of upgrades is crossed, it marks the beginning of a new generation. This moment, and its significance for the marketplace, can prove confusing.

SEC Delays VanEck’s Bitcoin ETF Decision Another 45 Days: Decrypt

Singapore Steps Up Crypto Questioning as Firms Brace for Changes: Bloomberg

Japan Looks at Corporate Crypto Tax Breaks to Entice Startups: CoinDesk

Hello Defiers! Happy weekend!

In the battle between The Merge and the Fed it was the latter that had the last word this week.

Jay Powell’s hawkish stance on the “pain” to come as the central bank raises rates to combat inflation punished the equities and...

🦄 Recap: DeFi Week of Aug. 21