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Traders Getting Rekt as DeFi Liquidations Spike
Also, ETH shorts climbing, DeFi whale surfaces on Twitter, another Yearn development, FEI is latest Ethereum stablecoin
Hello Defiers! Here’s what we’re covering today,
DeFi liquidations spike
ETH shorts at highest since 2019
New DeFi whale spotted
Leverage comes to Yearn finance
FEI to join stablecoin party
and more :)
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🙌 Together with Zerion, a simple interface to access and use decentralized finance, Neutrino, an algorithmic price-stable protocol that enables the creation of stablecoins tied to real-world assets, Value DeFi Protocol, a suite of DeFi products including the Value Liquid AMM, which allows anyone to create trading pools with flexible ratio pairs, and Cartesi, an optimistic roll-ups solution that aims to revolutionize smart contracts by allowing developers to code with mainstream software stacks, has just launched CTSI Reserve Mining.
Crypto Market Rout
TLDR Total liquidation volume jumped to $14.6M on Jan. 10, almost tripling from the previous day, according to data compiled by DeBank.
The spike underlines the risk of taking on leverage in crypto, one of the most volatile asset classes out there.
BREAK IT DOWN Compound accounted for 58% of the liquidations, Aave V2 followed at 25%, Ave V1 at 9.3%, and Maker at 3.1%.
CONTEXT PLEASE This is the highest volume of liquidations in DeFi since the massive $88.6M Compound liquidation on Nov. 11, when Dai price spiked to $1.3 on Coinbase, leaving some borrowers under collateralized. It’s the fourth-highest liquidations spike ever.
Piling on the Correction
TLDR Ether short positions on Bitfinex, a top-five spot exchange in terms of volume according to CoinMarketCap, are at the highest level since March 2019.
📉 WHAT DOES THAT MEAN Traders are betting ether’s plunge isn’t over yet, with many of them opening positions where they stand to profit if the value of ETH continues to fall.
CONTEXT PLEASE The spike in short volume comes after ether price nearly doubled, breaking through $1,000 just a stone’s throw away from its all-time high, only to plunge by over 20% in the last two days. Short sellers are piling on this correction.
New DeFi Whale
TLDR A wallet holding over 1% of the $20B total value locked in DeFi, has surfaced on crypto Twitter. The whale (ether address 0xB1AdceddB2941033a090dD166a462fe1c2029484), has a net worth of ~$324M, with $467M in assets and $142M in debt, according to DeFi wallet tracker DeBank.
SO WHAT The wallet and Twitter account offer a rare insight into how dedicated DeFi traders and yield farmers operate, which dapps they’re using, and how much they’re making.
🚜 INDUSTRIAL FARMING 97% of the wallet’s capital is being supplied to DeFi protocols, ranging from well-known protocols like Compound and Uniswap, to lesser-known projects like YFLink and Dodo. The wallet is earning between $200k-$400k daily, just through yield farming or “industrial farming,” as crypto analyst and Defiant contributor Nick Chong said in a recent thread.
“They hold a majority of their holdings in WBTC or ETH,” Chong said. “They’re a big fan of Chainlink.”
TOTAL RETURN UNCLEAR It’s unclear whether the wallet has actually made money. Twitter user 0xLeeDOT pointed out that the wallet’s value has almost halved to $219M from $420M million in August, according to Ethplorer, while Zerion shows an upward trend in the wallet’s balance. (BTW, we reached out to 0x_b1 for comment and hope to report back on this.)
💓 MORE THAN $$$ It could be that 0x_B1, as the wallet identifies on Twitter, is seeking more than just material gain. Their predictions tweetstorm ended with the words “We the knights of 0x_b1 will continue to tirelessly work to accelerate the real-world applicability of DeFi in ways we think we can.”
TLDR Yearn is getting another tool: leverage. Users will be able to employ cross-platform strategies to gain 90x leverage on stablecoins and 80x with ether.
Yearn Finance, pioneer of yield aggregation, has started what participants hope to be a synergistic relationship with DeFi project Alpha Homora by way of its partner projects, C.R.E.A.M. and Sushiswap.
IT’S COMPLICATED With the Yearn integration, users of leverage protocol Alpha Homora will be able to “deposit DAI and borrow an equivalent dollar amount of ETH via C.R.E.A.M, and enter SushiSwap liquidity pools utilizing Alpha Homora’s leveraged yield-farming product,” according to the project’s newsletter. Previously, Alpha Homora only had ether as a pair.
BOTTOM LINE DeFi traders will be able to take on even more risk, with even more crypto assets.
TLDR Fei released details of its plans to launch a decentralized stablecoin protocol in Q1. FEI is an algorithmic stablecoins which uses crypto collateral. The difference with other pegged currencies is it introduces the concept of “Protocol Controlled Value,” to make sure the protocol isn’t at the mercy of fickle whales.
🔒 PROTOCOL CONTROLLED VALUE Fei’s key innovation is the concept of ‘Protocol Controlled Value’ (PCV for short) or the premise that when users deposit ETH as collateral, it is owned and managed by the protocol, different fro Total Value Locked, which can be removed at any time by the depositor.
Rather than selling FEI into the protocol’s bonding curve, holders can trade it elsewhere in the secondary market.
“PCV is any asset directly owned by the protocol,” Fei founder Joey Santoro told The Defiant. “Like a subset of TVL with no IOU.” He added that FEI was founded because other stablecoins like ESD, “incentivized whale games and volatility, and was upset at how little the LPs were incentivized and how quickly they left in contractions.”
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Staking on ETH2 is now live on the Argent wallet via an integration with Lido. Lido uses smart contracts which let users deposit however ETH they want (not in multiples of 32, required when staking directly). In return users receive the sETH token representing their stake. The Lido system applies a 10% profit fee, which is distributed between node operators, the Lido DAO, and an insurance fund. sETH can be withdrawn from Lido after Phase 2 of the ETH 2.0 rollout, but it can be traded back into ETH via a DEX.
BitGo saw a record 11,613 wrapped bitcoin (WBTC) swapped for real bitcoin in December, the first month that “burns” outnumbered “mints.” Diminishing yields in decentralized finance (DeFi), a primary use case for WBTC, and increased trading activity on traditional cryptocurrency exchanges amid bitcoin’s recent eye-popping surge are likely reasons for the increase in burns and slowed rate of minting, CoinDesk reported.
Daniel Larimer, CTO of crypto project Block.one, the firm behind EOS, announced his resignation on Sunday. "I do not know exactly what is next, but I am leaning toward building more censorship resistant technologies," The Block reported, citing a blog post by Larimer.
🧑💻 ✍️ Stories in this newsletter were written by Daniel Kahan, Owen Fernau, and Cooper Turley, and edited by Camila Russo. Video was produced by Robin Schmidt and Alp Gasimov. The podcast was led by Camila Russo and edited by Alp Gasimov.
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, while free signups get only part of the content. Click here to pay with DAI (for $100/yr) or sub with fiat by clicking on the button above ($10/mo, $100/yr).