Veil Shuts Down, Liquidations Pick Up, MakerDAO Loses Dominance

Happy Friday! Here’s what’s going on in decentralized finance:

• Lessons for dapp teams from Veil’s decision to shut down
• Loan collateral liquidation are picking up
• MakerDAO losing market dominance
• DeFi loans more than doubled in the second quarter

Augur Interface Veil Shutting Down Shows Middle Ground can be Risky

Veil, an interface for predictions market protocol Augur, is shutting down just six months after launching on the Ethereum mainnet, the team said in a blog post yesterday.

The project, which was backed by investors including Sequoia Capital and Paradigm, said some of the reasons for closing shop were:

1. The decentralized web community today is too small for the product they were trying to create.
2. They tried to do too much; betting, derivatives, insurance, etc. Focusing on just one of those use cases might have been better.
3. They failed to make the platform accessible enough, especially non-crypto holders.
4. They were neither fully decentralized, nor fully regulated. There’s a market for both sides of the spectrum, but not for something that’s in the middle.

These are all valuable lessons for dapp teams, but the fourth is especially interesting because it’s not heard as often as the rest. In theory, it might be appealing to take a measured approach, which leads to adopting some decentralized elements and some degree of centralization, which needs to be regulated. The risk is losing the freedom of fully decentralized platforms –Veil wasn’t available in the U.S., Cuba, and other regions, for example– without ever being able to completely satisfy regulators.

Veil shutting down shows that while financial products like lending are gaining steam in the blockhchain space, and games occasionally become viral, prediction markets, which are a sort of gamified finance, haven’t caught on. Users and volume on Augur itself are dwindling. Maybe just like the centralized/decentralized question, people want either games or finance, not a mix of both… or maybe UX/UI still isn’t there yet.

Collateral Liquidations Picking Up

The most direct impact of a sliding ether price on decentralized finance is that the collateral upon which the entire ecosystem is based becomes less valuable and as a result, loans get liquidated.

That’s what’s happening right now. Almost $1.9 million of collateral was liquidated between Wednesday and Thursday, the second-highest amount for a two-day period this year, according to LoanScan.

Image source: LoanScan

One risk in the system is that if ether has a prolonged period of sharp drops, the rising amount of liquidations would put additional pressure on ether, as the ETH collateral is sold to pay off loans, which would prompt even more liquidations, and so on.

But the system is far from that scenario, as more ether is being locked up that liquidated. Almost $11.5 million in collateral was added yesterday.

MakerDAO Losing Market Share

More than $5.3 million in DeFi loans were originated yesterday, the most for a single day in three weeks, and only 35 percent were on MakerDAO, according to LoanScan. Almost half were created on dYdX, and the rest were on Compound.

Maker raised borrowing rates by one percentage point to 18.5 percent this week, compared with 13.7 percent rates for DAI loans on Compound, which explains the rising appeal of Compound. InstaDapp’s bridge connecting both protocols means borrowers can easily switch.

Rates on dYdX are higher at 20.5 percent, so unclear on what’s driving more borrowers to the platform. If you have a theory, leave a comment!

Loans on DeFi More Than Doubled in Q2: LoanScan Report

Loans originated through decentralized finance protocols surged more than 130 percent in the second quarter from the first three months of the year, according to LoanScan’s Q2 report. Continuing with the trend described above, while MakerDAO had a clear lead until the first quarter, newer lending platforms accounted for most of the gains.

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