Ether is Rallying for the Right Reasons, Synthetix Slashed Trader's Wallet

Hello defiers! Here’s what’s going on in open finance:

  • Ether bulls are waking up amid increased use

  • Synthetix slashed trader’s account after he attacked the system


Ether is Rallying and It’s For the Right Reasons

Ether is up and there seems to be actual fundamentals driving the move – not just hype and scammy trading bots.

Ethereum’s cryptocurrency ether is up 14 percent so far this month and crossed $190 for the first time in three weeks over the weekend. The move in the last two weeks compares with half the gains for BTC, and last weekend’s jump happened as bitcoin declined. If the trend continues for the rest of September, it would only be the third month this year where ether will have risen more than bitcoin (the other two months were February and May).

This constant clobbering against the biggest cryptocurrency pushed the ETH/BTC ratio to 0.016 at the start of the month, the lowest since March 2017, when ETH was worth about $20. It’s impossible to tell if ETH/BTC touched its floor, but it’s been steadily climbing, in the longest up trend since February.

Image source: Trading View

A rising price in ether, beyond improving investors’ returns, drives more use to decentralized finance. DeFi platforms’s biggest use case has been traders taking leveraged long ETH positions, using ether as collateral to take borrow Dai, which they sue to buy more ether. It also protects the health of the system as declining ether price triggers loan liquidations and makes the whole space less liquid.

So what’s driving the price? It looks like it’s actual use. Ethereum’s total daily gas used is at an all-time high (thanks to Anthony Sassano for pointing out). Gas is what users of the Ethereum network pay miners for them to perform different computations and actions. In short, it directly reflects use of the platform. Gas is paid in ether, so greater gas use also means greater demand for ether.

Image source: Glassnode Studio

Another reflection of use is total fees paid. On top of gas, users of Ethereum pay miners fees for them to approve transactions. If more fees are getting paid, that’s a greater incentive for miners to continue securing the network. In another bullish sign for Ethereum, total fees are inching in on Bitcoin’s. It happened before last year, but more because Bitocoin’s fees decreased amid a bear market, than because Ethereum’s fees were increasing, like now.

Image source: CoinMetrics

Its’ been a relatively bad year for ether’s price, particularly when compared with bitcoin’s, even as innovation and actual use of the platform has been arguably more active than ever. Maybe that’s starting to change, but you know what they say about timing the market. (It can’t be done).

“C” Word Raised After Synthetix Slashes Trader’s Wallet

The team behind Syhnthetix, an Ethereum-based platform for trading synthetic assets, slashed a trader’s balance after he attacked the system. This raised concerns that the project is excessively centralized.

This is the same trader that exploited a vulnerability in Synthetix’s oracle in July and returned the money he maid in return for a $40,000 bounty. In a Reddit post, the user who goes by the online name of Onyx, said Kain Warwick, Synthetix’s CEO, told him to keep the bot running so they could fix the platform to resist his attacks.

Sythentix then implemented a “slashing condition” into the oracle so that if it detects a front-runner, it will front-run it, increasing the exchange fee rate by 99 percent, “to ensure even if they are profitable for a period there is a high likelihood they lose everything if the oracle detects this activity,” according to the documentation. Onyx triggered this front-running protection and he continued to attack the system in retaliation, until his account was slashed.

Kayne and the team decided they didn't want to pretend they had a decentralized system any more and deleted my balance. […] They can do this to anyone

Kain responded in another Reddit post that Synthetix has been transparent about its ability to upgrade the system and redeploy contracts. They keep that level of control to quickly iterate and improve the platform. He added,

To think that somehow his stolen funds should not have been at risk is frankly laughable.

The issue here is that most users of decentralized finance platform have the expectation that they’re in control of their funds and that smart contracts will run in a predictable way, not change unilaterally.

When a project does something like this, it raises questions on exactly what the “De” in “DeFi” means. Decentralization is a spectrum and there will be some projects that are more decentralized than others. A more centralized project gives management more discretion over how the platform operates and more control over users’ funds, but allows it to quickly to fix the system when needed, in this case, to stop front runners.

Users should know where in the spectrum the platform they’re using stands, and teams should be very clear about it too.


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About the author: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. 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.