LINK Rebounds After Flash Crash - But It's Not Out of the Woods
Also, Cover Protocol hack, Opyn's v2, 1inch token launch
Hello Defiers, happy almost last day of 2020! If you want a recap of everything that happened, read the year in review we published together with DappRadar. Today we’re covering,
LINK recovers from flash crash but it’s not out of the woods
The definitive summary of the Cover Protocol hack
Opyn launches v2 upgrade
1inch’s new token
🎁 Merry DeFi! Get The Defiant’s $100 annual subscription for $80. Offer expires Dec. 31s. Get full access to Defiant content and community as a gift for yourself or for others.🎄
The Link marines are on the backfoot after last week’s flash crash to $7 pushed investors towards a risk-off stance.
The cryptocurrency trades just under a pivotal $12-$13 order block, signaling that the market wipe might not be over yet.
Chainlink entered a sellers’ market on Dec. 23 as the altcoin succumbed to industry-wide bearish sentiment following the US SEC filing against XRP. The revelation sent ripples across the entire industry given the cryptocurrency’s high ranking position in market cap terms ($10.3B per data from CoinGecko).
However, Link Marines seemed unfazed by the industry trauma, as single-digit Chainlink prices quickly turned into double digits.
Pivotal Order Block
At the time of publishing, LINK trades at $11.27 as the market attempts to find a directional bias. The crypto trades just under a pivotal order block just outside an ascending channel delineated in a prior report.
Bulls would like nothing more than to reclaim the order block and the channel, where Link would be priced above $13. This would in turn open the flood-gates to re-testing the local top ($15.7) last seen on Nov. 24.
On the flipside, a clear rejection from the pivotal order block opens the door to retesting the $7 floor. At press time, LINK is sliding into bearish territory, risking accelerating sell-side action back towards single-digits.
Will the Link Marines show up in time to scoop up the flash sale?
The decentralised oracle provider’s co-founder, Sergey Nazarov, revealed to media sources that the network will focus on security and reliability in order to scale to tens of billions of dollars in value.
The oracle network, which enables smart contracts to access off-chain data feeds, web APIs, and legacy finance streams, is banking on being the go-to verified data provider in the blockchain space for 2021.
Following various flash loan cyber attacks, Sergey is convinced that the only way to guard against DeFi threats is to implement an oracle service like Chainlink. Since data is pulled from hundreds of exchanges instead of one, this mitigates the prospect of nefarious flash loan and arbitrage attacks.
For perspective, in the last few months, Harvest Finance lost $34 million, Cheese Bank lost $3.3 million; Akropolis suffered a $2 million loss; Value DeFi lost $6 million; Pickle Finance lost $20 million; and Warp Finance lost $8 million.
The ball is in your court, Link Marines.
DeFi’s rising insurance protocol Cover Finance was exploited for $9.4M worth of user funds after a group of hackers used a faulty smart contract to mint quadrillions of COVER tokens.
Cover Finance allows users to buy smart contract protection on supported DeFi protocols by buying CLAIM tokens that can be redeemed in the event of a hack on the contract in question. Liquidity providers, or LPs, provide capital in exchange for NOCLAIM tokens, and earn fees when CLAIM tokens are purchased and no hack occurs during the claim window.
To incentivize the insurance pool, Cover has been running what it calls a Shield Mining program, allowing LPs to earn COVER tokens for providing liquidity to select smart contracts.
Over the weekend, a hacker noticed they were able to exploit the Shield Mining rewards contract to mint more COVER than what they were technically owed. The flaw allowed them to mint a theoretically infinite number of tokens, which they could then sell on the open market. After the hacker started the exploit, others jumped on the infinite-mint loophole as well.
COVER token plunged by more than 90% to $6.8 currently, from over $900 before the attack.
Grap Hat Attack
With the Cover team asleep, Grap Finance took the opportunity to act as a white hat, exploiting the bug attack to drain the remainder of the liquidity pools for 4350 ETH, worth roughly $3M, which are currently in this address.
“Next time, take care of your own shit,” stated the transaction which sent the remaining ETH from Grap Finance back to the Cover team.
An additional ~91 ETH was returned by other hackers.
Now, Cover is planning a reimbursement program for LPs using a snapshot prior to the hack occurring. It will distribute 4,441.8 ETH returned by hackers proportionally to depositors in eligible liquidity pools. The team also plans to mint a new COVER token, and reimburse those who had COVER in their wallets at the time of the attack at 1:1, according to a post.
With COVER profits wiped out in an instance, some DeFi degens may start to feel like ‘being rugged is a DeFi rite of passage’.
The exploit shows that even audited protocols can have vulnerabilities, and users should be prepared to lose 100% of the funds they deploy into these nascent financial tools.
Decentralized insurance platform, Opyn, announced the release of “Gamma Protocol,” second version of its options protocol. The new upgrade aims to add capital efficiency and liquidity to the DeFi options market.
Among the changes, Gamma Protocol provides mint options without collateral as long as they are burned before the end of the transaction - similar to a flash loan. The update also allows users to delegate control of their vaults to third-party smart contracts, provides users with the ability to add yield-earning assets as collateral, in addition to enabling anyone to create new options.
Gamma Protocol also adopted European options, which means that option holders can exercise the options only when the contracts expire. The update also enables margin improvements by allowing secure spread creation, and allows for call options without any multipliers so 1 call option oToken will correspond to 1 unit of the underlying asset.
It is worth noting that Opyn was hacked last August, with the attacker managing to steal $ 370,000. Opyn announced a package of measures to prevent the recurrence of the accident, in addition to compensating those affected.
DEX aggregator 1inch surprised DeFi users with a holiday treat with the release of the 1INCH governance token on Christmas Eve.
1INCH features a total supply of 1.5B tokens, which unlocks every 6 months over the course of the next 4 years. Tokens were airdropped to all wallets that made at least one trade before Sept. 15, at least 4 trades in total or at least $20 in total volume.
After spiking to ~$3 per token, or a $4.5B FDV, the price of 1INCH has since settled at around $1 at the time of writing, meaning airdrop participants received on average around $1,000 worth of tokens.
90% of Volume
1inch has routed over $8B of volume since starting as an ETHNY hackathon project, recently closing $12M in funding earlier this quarter. It accounts for nearly 90% of all DEX aggregator volume, according to this Dune Analytics query.
6% of the 1INCH supply was unlocked at inception, used to govern a 1inch DAO which covers key parameters such as Swap Fees and Governance Rewards.
The well-received present was followed by a two-week liquidity mining program, allowing 1INCH holders to provide liquidity to key trading pairs (1INCH/ETH, 1INCH/DAI, etc.) to farm 0.5% of the total supply.
Still, DeFi’s notorious Lobster DAO pushed the 1inch team to justify key elements of the protocol, inquiring about how fees are collected and the core team’s role in profit sharing and distribution. A transcript of the Q&A can be found here.
1inch responded to criticism that it was keeping positive slippage for itself, by saying “token holders have full governance over the detailed distribution of Spread Surplus.”
Others May Follow
The release comes as the first DEX aggregator to release a governance token, a signal that others like Matcha and Paraswap may follow suit in the coming months. For DeFi users, it’ll be interesting to see how the DEX landscape unfolds in 2021, and if retail users are loyal to household names like Uniswap, or if they’d always prefer to find the best price using an aggregator like 1inch.
“The growth of degen finance has created a massive increase in TVL in many novel open financial protocols, some with staying power, and has led to the rise of what I call regenerative finance. Regenerative finance is a cultural preference for the funding of community and the public good over (or in parallel to) projects that are expected to produce a return for the funder,” Owocki wrote.
Punk 3307 bought for 189.99 ETH ($137,522.37 USD) by 0x7224a1 from 0xe8723d.
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. Get The Defiant’s $100 annual subscription for $80. Offer expires Dec. 31s.
About the founder and editor: Camila Russo is the author of The Infinite Machine, the first book on the history of Ethereum, and was previously a Bloomberg News markets reporter based in New York, Madrid and Buenos Aires. She has extensively covered crypto and finance, and now is diving into DeFi, the intersection of the two.