DeFi Die-Hards Call Time-Out: They'll Give Founders Money in Exchange for Safer Launches
Aave becomes top DeFi protocol amid flurry of firsts, dYdX launches LINK perp.
Hello Defiers! Here’s what’s going on in decentralized finance:
DeFi natives announce Fair Launch Capital so that fewer startups will launch without auditing their code
Aave becomes DeFi platform with most value locked amid flurry of firsts in the past week
dYdX launched its third perpetual futures contract with LINK
[UPDATED to add context on Aave’s fiat on-ramp KYC]
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DeFi Frenzy Prompts Call for Safer Token Launches
In the past few weeks the broad sentiment in DeFi has gone from: anti-token, to tokens only when it’s absolutely necessary in a tried and tested platform, to tokens designed to drive (crazy) activity which results in (crazy) speculation, to token before there’s even a platform.
While this has attracted a flood of capital and traders to the space, it’s also spurred a fair amount of concern as releasing protocols with no audits is no longer frowned upon, but almost sought after by yield-hungry traders. Meanwhile, vegetable-themed coins are flying about, and the crazier and “ valueless” the token is, the more money it attracts.
It’s got some ICO veterans clutching their pearls, but not only that. It’s also prompted a group of DeFi investors to take action.
Not a VC
Gavin McDermott and Joe Gerber, investors at IDEO CoLab Ventures, and renowned crypto advisor Reuben Bramanathan today announced Fair Launch Capital — but don’t call it a VC fund. The group provides fair launch capital, as in money that goes towards funding audits before platforms go live.
Image source: fair launch capital website
The aim is to provide another option for founders, who today often have to choose between distributing a token before their project is safe enough for users, and raising money from VCs, with the likely result of concentrating ownership of their protocol.
No Strings Attached
The team makes a no-strings-attached grant for founders to cover the costs of audits, without taking an early allocation of tokens or equity. Fair Launch investors have the option of buying tokens along with everyone else in the market.
The group, which beside the core team is made up of advisors including Aave’s Stani Kulechov, Synthetix’s Kain Warwick (and, disclaimer, myself), will also help founders find the right partners and builders for their projects.
Pay it Forward
After the launch, the project’s community decides via a governance vote whether it will pay the grant forward to the next project that wants to do a Fair Launch. Teams could decide to pay part of the grant, the full amount, or more than what they were awarded.
While investors will be buying tokens along with everyone else, there’s the potential for them to meet quality crypto teams early on, and also the value that’s gained from belonging to a group of DeFi natives sharing ideas and connections.
Fair Launch Capital highlights at least two trends we’ve covered recently in The Defiant; it’s an example of how the sharing economy is the yin to crypto capitalism’s yang, and it shows that communities are becoming increasingly valuable, whether the group comes together because of shared goals, or because they all hold a vegetable-themed tokens.
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Aave Climbs to the Top of DeFi Amid a List of Firsts
Aave yesterday became the DeFi protocol with the most value held in its smart contracts at $1.5B, overcoming the sector’s founding protocol, MakerDAO.
It’s been an exponential rise for the lending protocol, which launched just eight months ago and in that short time was able to climb the ranks of the famed DeFi Pulse TVL leaderboard. It’s done so pushing DeFi forward by driving innovation in flash loans, delegated credit lines and yet-to-be-launched mortgages.
Image source: DeFi Pulse
This past week was no exception as the TVL milestone came amid a flurry of announcements: first DeFi fiat on-ramp, and first credit-default swap.
First DeFi Fiat Onramp
Aave is set to offer the first DeFi fiat onramp following the approval of an Electronic Money Institute (EMI) license.
The approval makes London-based Aave Limited the third crypto company in the UK outside of Revolut and Coinbase to receive the license, solidifying its status as a key player in the growing DeFi landscape.
Aave will rollout its fiat onramp in the UK as a pilot, offering users the ability to go from fiat to stablecoins or select supported assets in the Aave ecosystem. A placeholder website for the onramp has been set up here. Following the UK, Aave will seek to offer fiat onramps to the wider European market.
The news comes as a major win for DeFi enthusiasts who have long had to convert fiat into crypto through a centralized exchange like Coinbase or Binance, requiring an additional trade and a subsequent withdrawal to tap into lending protocols and DEXs alike. It also means fully permissionless Aave will now KYC users of its fiat/crypto on-ramp. Users of the protocol itself will continue accessing it permissionlessly.
Aave is also gearing up for its Genesis Governance poll in the coming weeks, giving LEND token holders the ability to vote on the migration to AAVE alongside the first round of Safety Incentives for securing the protocol through a newly introduced Safety Module.
DeFi’s First Credit Default Swap
Opium Exchange is pushing DeFi composability to its limits through the advent of Credit Default Swaps on Aave’s unsecured credit line to DeversiFi.
A few weeks ago, Aave entered a $500k credit delegation agreement with DeversiFi. The privacy-preserving L2 exchange borrowed 20 WBTC which is payable back in February of 2021.
Now, users can trade fractions of that obligation thanks to Opium Protocol’s derivatives exchange - Opium.Exchange.
Understanding CDS
“A Credit Default Swap (CDS) is a financial derivative that allows an investor to “swap” or offset his credit risk with another investor.”
The lender (Aave) can offset the risk of the borrower (DeversiFi) defaulting on their loan by buying a CDS from an investor. For the investor taking on the default risk by selling a CDS, they stand to earn an extra return on their collateral.
For this specific CDS, sellers lock collateral in 0.1 WBTC increments as a guarantee to the buyer. Buyers pay an upfront premium and in the event of a credit default, (like DeversiFi only repaying 30% of the 20 WBTC loan) 70% of the seller’s collateral is paid out to the buyer.
This solution gives lenders like Aave a means of hedging potential risk or the ability to simply speculate on the grade of the credit line.
CDS are an integral part in traditional markets with trillions of dollars traded each year, as investors use the instruments to hedge against and speculate on credit risk. They have drawn their share of criticism too because of their complexity and the opaqueness of the market, which is traded over-the-counter.
As DeFi lending continues to evolve, these financial instruments are bound to become a key part of the burgeoning ecosystem, with the added improvement of being traded in a public and transparent network.
dYdX Offers the Ability to Short LINK
Non-US users can now trade LINK with up to 8x leverage and no expiry date.
dYdX’s new LINK-USD contract comes as the third perp after BTC and ETH, giving LINK marines the ability to go long or short on one of DeFi’s most polarizing assets starting with just 15 LINK (or roughly $300 at the time of writing).
The market features USDC as a settlement asset with 50% off trading fees for the first 7 days courtesy of dYdX.
Chainlink Integration
The partnership comes with dYdX integrating Chainlink’s LINK/USD oracle for price tracking, citing that the project “provides the highest quality price data, delivered by the largest and most decentralized group of independently run, Sybil-resistant oracles”.
LINK’s meteoric runup got some additional fuel after Barstool Sports founder Dave Portnoy, known for his retail geared day-trading through Davey Day Trader Global, publicly bought some of the tokens.
Supplemented by a highly publicized short (and subsequent liquidation) from Zeus Capital, claiming that LINK is ‘severely overvalued’, the introduction of the LINK-USD market provides a means to short one of crypto’s most hyped assets now sitting at $5.5B in market cap according to CoinGecko.
ConsenSys Acquires J.P. Morgan’s Quorum: ConsenSys
On August 25th, 2020, JP Morgan and ConsenSys announced that the Quorum open source project would be acquired and managed by ConsenSys as part of a strategic investment by JPM. “The acquisition is a major step in the acceleration of enterprise adoption of blockchain technology and Ethereum-based solutions. By using Quorum with ConsenSys’ other enterprise product offerings, businesses can build highly customizable, secure, and performant solutions,” the ConsenSys announcement said.
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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.
