DeFi's Lack of Safety Nets Exposed: Platform Supposed to Protect Traders Gets Hacked

Also, Set Protocol launches V2, dYdX releases ETH-USD perp, DeFi driving record activity on Ethereum

Hello Defiers! Here’s what’s going on in decentralized finance:

  • Decentralized options platform Opyn got hacked

  • Set Protocol wants to make yield farming cheaper

  • dYdX releases ETH-USD perpetual futures contract

and more :)

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).

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Opyn Got Exploited and Lost More Than $350K

By Sebastian Aldasoro

Opyn, the first decentralized options market on Ethereum which allows investors to protect against market volatility and smart contract vulnerabilities, suffered an attack on Tuesday. The attacker exploited a system vulnerability and ran with $371K.

Opyn’s team was able to successfully recover more than $550K via a white hat attack and has temporarily eliminated the ability to buy ETH puts from its website, and removed liquidity from its  ETH put pools on Uniswap.

The attack raises the question: if the platform made to protect DeFi traders gets its funds stolen, can DeFi investors ever be sure their funds are safe? 

How did the attack happen?

Opyn’s tokens allow investors to add collateral to mint options contracts in the form of ERC20 tokens that can be sold in the open market. Options give traders the ability to buy (call) or sell (put) an asset at a pre-determined price on a future date.

In this case, the attacker was able to double exercise ETH put oTokens and steal $371K of the collateral that had been allocated by sellers of these puts. Since Opyn’s protocol is fully trustless, the team cannot shut off access to their system and had to take a different approach to mitigate the attack.

White Hats

Opyn performed a white-hat attack with support from Samczsun to drain the remaining collateral from outstanding vaults, which allowed them to liquidate the put contracts and safeguard the remaining funds. The team also removed liquidity from their ETH put pools on Uniswap to prevent users from buying them and temporarily canceled this offering on their website. 

Opyn offered ETH put holders to buy their positions at 20% above market price on Deribit exchange and said that, in the coming days, they would provide more details on full reimbursement for ETH Put sellers.

Alternative

Another alternative for DeFi investors to protect their funds is Nexus Mutual, which works as insurance against smart contract failure. There’s currently $17.8M of cover purchased on the platform, of which only $80K was for protection against Opyn failure. 

Opyn exploit raises a couple of questions. First, why didn’t Opyn’s audits cover all of its smart contracts? Even though Zeppelin was an auditor, Opyn clarified that the exploited vulnerability had been found outside of their scope.  Second, should DeFi protocols be fully trustless from the ground up, or should different levels of decentralization progressively be achieved as projects mature?


dYdX Launches ETH-USD Perpetual Futures

By Cooper Turley

dYdX delivered ETH-USD, its second perpetual contract, yesterday with a 50% discount on trading fees for the first week.

Offering 10x leverage on ETH with no expiry, the latest non-custodial future attracted $50k in volume in the first few hours after launch.

ETH Settled

As an inverse perpetual contract, ETH-USD is quoted and margined in USD but settled in ETH, unlike dYdX’s margin products in which stablecoins like USDC and DAI are used to open and settle shorts. This means traders can enter, settle, and exit the new perp only using ETH.

The new contracts feature -0.025% Maker and 0.075% Taker fees along with $200 minimum orders sizes and a 10% initial margin requirement. 

With funding rates —or the costs counterparties pay one another to establish a market value— adjusting in real-time, dYdX’s novel non-custodial contracts have seen strong demand from DeFi traders with its first BTC-USD perp averaging just over $1M in 24 volume.

Now, ETH bulls outside of dYdX’s US geoblock are likely to race to the newest contract to try and take advantage of the DeFi bull market.


Set Protocol Wants to Make Yield Farming Cheaper

By Cooper Turley

Set Protocol plans to introduce yield farming as part of the automated trading strategies offered in its TokenSets platform. 

Set will deploy yield farming strategies designed by Set Labs team and by the community. Yield farming has taken DeFi by storm with traders pouring over hundreds of millions of dollars worth of digital assets into these platforms in exchange for token rewards. But these strategies can take many steps to execute and skyrocketing Ethereum gas costs make it prohibitively expensive for those investing smaller amounts. 

While TokenSets had previously supported Compound’s interest-earning cTokens in V1, users can now benefit from yield farming by earning and distributing governance tokens like COMP, BAL, CRV and more from various strategies which use underlying DeFi protocols.

Lower Cost, Fewer Steps

Users will only need to pay for Ethereum gas fees when entering or exiting a strategy, which is bound to reduce skyrocketing gas costs. The platform also aims to reduce the complexity of these trades, which often require interacting with multiple protocols. 

Set Protocol has grown to $24M in assets locked in its smart contracts from $500k in just over a year, according to a blog post published Tuesday by the team. 

More V2 Upgrades

The move is part of a wider upgrade. Set Protocol’s V2 will also include support for a larger array of ERC20 tokens. Only ETH, WBTC, LINK and a couple stablecoins were supported in V1. Set is also pledging to “significantly” reduce gas costs. To provide some context, V1 averaged anywhere from $15-50 to buy and sell a Set in the current gas climate.

V2 also aims to increase flexibility for Set managers to create portfolios, and includes more sophisticated investment features like margin trading, limit orders and DEX trading. Set Protocol will also be integrating popular primitives and assets offered by Aave, Balancer, Curve, and Synthetix on top of their underlying liquidity mining opportunities.

In the midst of the yield farming craziness, demand for Set’s “Set it and forget it” asset management platform has slightly slumped. These upgrades may help give the platform a boost. 


DeFi Drives Ethereum Transaction Volume to Record High

Transaction volume on the Ethereum network climbed to an all-time high $12B in July, with DeFi accounting for around 95% of the total value created on the chain, according to a DappRadar report. Compound, Aave, and Curve in July generated 48%, 14%, and 14% of transaction volumes, respectively.

Image source: DappRadar

But increasing activity has helped push gas prices higher, which is in turn, driving some users away. Daily active wallets fell to 15,200 in July, a 6% decline from the previous month. The biggest drop was in the DEX category, followed by games and market places, which took a 19% and 8% hit, respectively.

DeFi’s active wallets increased by 36%, mainly due to Synthetix, 1inch, and Aave, while MarkerDao is recovering their leadership position, according to the report.


DEX Volumes Made Up Almost 4% of Centralized Exchange Volumes in July: The Block

Decentralized exchanges experienced a record-breaking July for volume, surpassing $4 billion to hit a new all-time high. But July also saw the DEX space hit another benchmark: an increase in the ratio of DEX-to-centralized exchange volume. The Block Research found that this ratio reached nearly 3.95%, a jump from June's 2.1%. Prior to June, the ratio had never surpassed 1%.

Image source: The Block


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.

Bancor Pledges to Fix AMMs Biggest Downfall as LPs Earn +300% Returns

Also, YFI's many flavors, BAL holders vote, $ALEX mining

Hello Defiers! Here’s what’s going on in decentralized finance:

  • Bancor’s V2 upgrade claims to fix AMMs biggest downfall

  • YFI’s many flavors

  • Balancer governance hitting its stride

  • Liquidity incentives for personal tokens

and more :)

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).

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


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


Bancor Shakes AMM Fees Up With V2 Pools

By Cooper Turley

Bancor’s V2 launch is off to a strong start with its first pool, BNT/LINK, reaching its $500k cap within 48 hours.

Bancor prides itself on being able to amplify liquidity by 20x so that a $1M V2 pool is said to act like a $20M pool in terms of slippage. This propelled volume on the LINK pool to climb to $1M in 24h on Sunday, giving the token the most competitive rate on the market, even before it was integrated with DEX aggregators like 1inch.

For liquidity providers, the first pool is offering 366% APR in trading fees- all without any liquidity mining schemas in place.

How Does it Work?

By segmenting liquidity through a dynamic design based on automated market makers (AMMs), traders can enter pools with single-sided liquidity, meaning they can just deposit one of the tokens in a pool, while on Uniswap LPs need to provide 50/50 of each. Bancor V2 aims to attract more volume with less liquidity by using more flexible bonding curves, or the formulas used to calculate token pricing in many AMMs.  

Backed by automated rebalances, V2 shifts pool weights according to market demand, ensuring LPs benefit from little to no impermanent loss even as token price increases. This design provides low-slippage across most assets, even volatile ERC20 tokens like LINK.

Optimized Trading Fees

While DEXs like Uniswap are positioned as being favorable to LP’s through its 0.3% trading fees, it’s become increasingly obvious that the impermanent loss incurred from a 50/50 token pair drastically outweighs the fees collected from pool swaps.

Now, Bancor V2’s design challenges this thesis by boasting triple-digit APR’s solely on trading fees and the lack of impermanent loss.

“We’ve only scratched the surface of what’s possible with AMMs” Head of Growth Nate Hindman told The Defiant “The volume generated by this first LINK pool is incredibly exciting as we prepare to deploy the next pools with gradually raised and ultimately removed caps.”

Next, Bancor is set to roll out V2 pools for LEND, REN, renBTC and SNX - all of which will feature a $500k liquidity cap while the upgrade is in beta. This comes in lieu of a BancorDAO which will offer BNT staking in a few weeks’ time.

Contention

Bancor is no stranger to contention, enduring constant criticism after its $153M 2017 ICO. The token sale drama is behind it, but it still got some flak for its upgrade, with  Uniswap developers suggesting Bancor had copied their interface code. Bancor’s Hindman denied they had “forked” the code, while admitting they had been “inspired” by their design. 

“You guys can be inspired by our formulas, smart contract code and invention of AMMs and we can be inspired by your front-end,” Hindman tweeted.

What’s DeFi without a little drama. Regardless, it’s worth keeping an eye on as new pools roll out in the coming weeks.


YFI Clones: When One Wifey Is Not Enough

By Sebastian Aldasoro

The success of yEarn’s YFI token is rapidly spurring a crop of copycats, with varying degrees of legitimacy. Some of them have turned to be outright scams, others have already gone inactive, while one is being celebrated as the first successful Chinese DeFi token.

Since many DeFiprotocols are forkable and the barrier to entry for competitors is low, it wouldn’t be surprising if, as the market enters a new stage, more copycats show up to get a piece of the $4.3B of total value locked (TVL) DeFi pie.

YFII, From China With Love

yfii.finance launched the YFII token on July 26 as a fork of YFI, yEarn’s token. The fork includes the upgrade proposal YIP 8, which didn’t pass YFI’s governance. The update doubles the total supply up to 60K and adds a halving mechanism similar to Bitcoin.

The Chinese DeFi token instantly faced headwinds as part of the community went vocal about the project being a scam and Balancer decided to blacklist it. With $20M in its liquidity pools, the move raised questions about how decentralized DeFi is and whether all of the DeFi platform’s components should be fully trustless or not.

The pool was relisted and yearn.finance deployed a strategy to farm YFII using Curve’s y pool. 

Valentin Mihov @valentinmihov
YOLO of the day: @iearnfinance just deployed a strategy to farm the Chinese clone $YFII using the yVault pool.
etherscan.io/address/0x8816… On the serious note, that might be a good strategy after all. DYOR. Not an investment advise.

YYFI, First DeFi Exit Scam

YYFI was launched July 29 as yet another YFI token copycat but was quickly identified as a scam. Once the fork got enough liquidity, the owner minted 1M YYFI and started draining the Balancer Pool. 

The risk of YFI creator Andre Cronje minting an unlimited number of tokens since he was the sole owner of the contract was raised within hours after its launch. But Cronje handed control to community members to protect from that risk. 

YFFI, Another Scam

Other copycats, such as YFFI seemed to have been launched as a scam from the ground up. After an initial liquidity raise, the team burned a handful of tokens that had been pre-mined to drive community confidence. Later on, they began withdrawing the remaining pre-mined tokens without burning them to exit the investment. The token is down from $619 to $2.62 in four days. 

C.R.E.A.M & WIFEY

Wifey.finance, which announced its WIFEY token on Monday as a “YFI clone that gives you the most,” joined forces with the C.R.E.A.M protocol for the distribution of the token —“wifey” is a play on the way some pronounce YFI. C.R.E.A.M is the first project that forked Compound’s lending protocol specifically to leverage the yield farming trend. 

Here’s how WIFEY distribution works: Users stake funds to the Curve yCRV pool and receive yCRV tokens in exchange. Then they supply their yCRV to C.R.E.A.M and receive crYCRV tokens in exchange. Finally, users stake their crYCRV tokens at Pool 1 in wifey.finance and, well, get WIFEY rewards for providing liquidity.

As DeFi keeps attracting capital and yields remain attractive, more protocols are bound to get forked. The impact is already being felt across governance systems, incentive mechanisms designs, and even in the political decisions that have to be made when choosing whether a given project can leverage other Ethereum protocols to gain traction. DeFi is getting riskier, and investors must be cautious when interacting with forked protocols that promise to deliver high yields. Even the best talents in the space can get “rekd.”

Luckily, these kinds of experiments will push DeFi harder and help it evolve towards a more stable and reliable system that can gain mass adoption.


Balancer Votes to Adjust Liquidity Mining Factors

By Cooper Turley

As Balancer crossed the  $500M total liquidity milestone across its automated asset management platform, BAL token holders are making changes to the way governance tokens are distributed.

In the latest round of BAL-based voting, the community passed a vote to reduce the wrapFactor on soft-pegged pools from 0.7 to 0.2. In essence, pools which feature soft-pegged pairs like sETH/wETH, USDC/mUSD and renBTC/WBTC had their BAL reward allocation drastically diminished.

The thesis of promoting useful liquidity suggests soft-pegged pools take on less risk from an impermanent loss standpoint while bringing little to no volume to the platform.

While the vote originally saw some contention, the final results of 94% Yes votes goes to show BAL holders were drastically in favor of the new wrapFactor.

BAL voters also chose to include a 1.5x multiplier on BAL-based liquidity and an adjusted feeFactor to award BAL to high-fee pools, which previously were receiving little to no token incentives. 

Balancer is starting to find its stride with its snapshot-based governance polls bringing about significant changes to the BAL distribution in its few weeks of being live.


Personal Token Yield Farming

By Cooper Turley

With liquidity mining campaigns heating up, entrepreneur Alex Masmej is joining the movement through the advent of an $ALEX Yield Round.

Starting this Friday, LP’s who provide liquidity to the ALEX/ETH Uniswap pair over the course of the next month stand to earn a pro-rata share of 100,000 ALEX. 

Citing illiquidity as a common issue for those seeking to join his ecosystem, a 2.5 ETH trade was said to incur 5% of slippage at the time of writing. Now, less than 24 hours after launch, more than $10k worth of new liquidity has entered the pool, representing a 30% increase in capital.

The launch of a liquidity mining campaign falls perfectly in line with Masmej’s tendency to spin up innovative experiments regarding his personal token - most notably a “Control My Life” governance poll in which $ALEX holders voted to have the Frenchman run 5 kilometers per day for the month of July.

“To sustain excitement around $ALEX, I keep experimenting every month or so, adapting to new market trends.” Masmej told The Defiant “Liquidity mining has always been on my mind since personal tokens are known to be particularly illiquid— so this incoming DeFi bull run felt like the right time to do it.”

While the initial program is only set to run for one month, Alex has hinted at subsequent rewards pools to follow - both for Uniswap and rising contenders like Balancer.

To learn more about the program, token holders with more than 1 $ALEX can join this permissioned chat group to discuss all things Masmej.


DeFi-Focused Derivatives Platform Hedget Raises $500K in Seed Funding: CoinDesk

According to a press release issued Monday, the round was led by FBG Capital and NGC Ventures, both Asia-based venture firms, CoinDesk reported. Hedget is a new Ethereum layer 2 solution for decentralized options trading, allowing users to buy and sell derivatives using collateral to hedge risk when holding crypto.

Coca-Cola’s bottlers are testing out DeFi on Ethereum: Decrypt

CONA Services (Coke One North America,) the tech partner of the largest Coca-Cola bottlers in the region, will establish a “Coca-Cola Bottling Harbor” to reduce technical barriers for suppliers, Decrypt reported. The project is enabled by The Baseline Protocol, a middleware solution for large companies. It enables them not only to communicate and transact privately on the Ethereum public blockchain, but also to access DeFi applications, and tokenize assets.


ETH2 Medalla testnet launched successfully!


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.

Click here to pay with DAI. There’s a limited amount of OG Memberships at 70 Dai per annual subscription ($100/yr normal price).

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.

Recap: DeFi Week of July 27 🦄

Hello Defiers! hope you’re having a great weekend!

Summing up this past week: Governance updates were what’s up, with Synthetix dissolving its foundation and turning control over to three DAOs, and Aave implementing “Aavenomics.” yEarn’s YFI token continued making headlines, this time as many forks of it popped up. As ETH continued to rally, easily crossing $300, more than 70% of ETH holders have now made money with their investment. Augur released its long-awaited V2, Dharma integrated with Uniswap, Coinbase users will now earn 2% on their Dai. Also, FTX launched a DEX on Solana, Polkadot raised $43M in private token sale and Mainframe acquired Sablier. This week’s podcast episode was with Polychain Capital founder Olaf Carlson-Wee, who spoke about an internet-sovereign future. And there’s more :)

📺 Also, The Defiant’s YouTube Channel Launched! Subscribe!

Here’s the 2nd video of a DeFi series with Robin Schmidt of Harmony Protocol:

That was just one week. Subscribe to get the latest DeFi news and analysis straight to your inbox and you don’t miss a thing. Free-signups get partial content, paid subscribers (only $10/month, $100/year) get everything. Click here to pay with DAI ($70/year).


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


Interview

"We're at the Early Stages of a Truly Novel Structure That Can Organize Humans and Money:" Olaf Carlson-Wee

Olaf Carlson-Wee joined Coinbase as the exchange’s third employee, right out of college, enamored with the idea of bitcoin and cryptocurrencies. After helping scale the operation to millions of users, he left in 2016 to start Polychain Capital, a venture fund designed to invest in digital assets. He managed to grow Polychain into the largest crypto fund, at one point crossing the $1 billion mark. 

He was already telling Wired magazine about programmatic finance back in 2016, so it’s no surprise Olaf is very excited about the growth and promise of DeFi. He thinks smart contracts are enabling different ways of organizing people and capital, turning traditional corporations into internet-sovereign corporations. He believes that given a compelling underlying product, liquidity mining will be an incredibly effective mechanism for accelerating network effects, which will be applicable to many different types of business models even beyond financial services.

🎙Listen to the interview in this week’s podcast episode here:


Thursday

Dives

Aavenomics Now Rule DeFi’s Third Largest Lender: DeFi lending platform Aave is upgrading its protocol’s internal economics and incentives with a focus on safety.

Bytes

Ethereum Turns Five: Ethereum, the distributed network that serves as the base layer for most of DeFi, launched five years ago and it’s already supporting all the applications imagined in its whitepaper.

Dharma Enables Token Trading With Uniswap Integration: Users of crypto wallet Dharma can now trade more than 2,000 tokens thanks to an integration with Uniswap.

Holders of Decentraland’s MANA Can Now Mint Dai: MakerDAO’s MKR holders voted in a July 28 Executive Vote to accept MANA as a new collateral type that can be used to generate Dai.

The market cap of Ampleforth's AMPL token has tanked by over 60%: The Block

The inside story of YFII: China's celebrated DeFi knockoff: Decrypt

Wednesday

Dives

There Are Now More ETH Addresses Making Money Than Total Addresses Holding BTC: More than 73% Ether addresses are making money in their position. This means that the number of Ether addresses profiting (31.86 million) has surpassed the total number of Bitcoin addresses with a balance (30.83 million)

Blacklisted YFI Copycat Spurs DeFi Soul Searching: Censorship is the talk of DeFi this morning as automated asset management protocol Balancer blacklisted YFII, the fork of yEarn’s governance token YFI.

Bytes

Coinbase Users Will Now Earn 2% on Dai Deposits: Coinbase is introducing Dai Rewards, with 2% APY for customers in the US, UK, Netherlands, Spain, France, and Australia.

Bitcoin Wallet Ledger’s Database Hacked for 1 Million Emails: Decrypt

Tuesday

Dives

The DeFi Holy Grail: Synthetix Dissolves Foundation: Synthetix, the third-largest DeFi platform by assets locked, is now under the control of community-owned organizations, or DAOs.

Augur Debuts Long-Awaited V2 Release: Augur, the first permissionless prediction market in the world, has had trouble scaling to the mainstream since its July 2018 launch, while competitors mushroomed. Co-founder Joey Krug is planning to change that with the upgrade unveiled today. 

Bytes

Mainframe Pivots to Lending With Sablier Acquisition: Mainframe today announced it acquired payments platform Sablier, rebranding its decentralized communications platform in favor of a new fixed-rate tokenized debt market 

FTX Announces Solana-Based DeFi DEX Serum: FTX , the 5th largest derivatives exchange according to CoinMarketCap, is playing their hand at DeFi through the advent of a cross-chain DEX called Serum.

Blockchain Project Polkadot Raises $43 Million in a Private Token Sale: The Block

Ethereum Futures Open Interest Reaches All-Time High of $1 Billion: Decrypt


💜Community Love💜

Thanking all the amazing Defiers for the support and love this week (and always)!

Doug Molina @doug_molinam
@smpalladino @DeFi_Dad YT videos are great he is the GOAT
youtube.com/channel/UCatIt… @BanklessHQ has great writes up and keeps up to date as well as @CamiRusso the Defiant. Those are good starters, if he is a developer i guess he can dive deep into the this 😅 github.com/iearn-financeyearn.financeDeFi made simple. yearn.finance has 14 repositories available. Follow their code on GitHub.github.com

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.

Click here to pay with DAI. There’s a limited amount of OG Memberships at 70 Dai per annual subscription ($100/yr normal price).

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.

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