Welcome to an overview of another action packed week in the crypto space. Let’s not waste time and get straight into it.
This week was an active week for the DeFi space, lots of new launches but also a couple of unfortunate exploits took place. We also had some movement from the regulatory side with bills being passed in the EU. A lot of new proposals were made to make additions and upgrades to the Ethereum network, and as usual, we saw millions of dollars being raised by different projects. Let’s dive deeper.
Regulatory Activity:
A couple of weeks prior, an EU parliament committee proposed a bill to subject cryptocurrency miners, specifically Proof-of-Work (PoW) blockchain miners, to very strict environmental standards. This caused market wide panic as people perceived it as the EU voting to ban PoW mining altogether which would not only harm Bitcoin but Ethereum as well. This provision was later stripped but in a recent parliament vote on Monday (March 14th), language around subjecting PoW miners to certain standards surfaced again. However, when the vote took place on March 15th, the ECON committee voted against the provision which would act as a de-facto ban on PoW mining. 32 voted against and 24 voted in favor, a narrow victory for the crypto community.
On the other side of the spectrum we have El Salvador. They made Bitcoin a legal tender in their country last year, but recently opened talks on creating a Bitcoin bond. Nothing has been finalized as yet but talks were held between March 15th – March 20th. The crypto community eagerly waits to find out what the verdict is. If it is approved, this will be a huge step forward in terms of Bitcoin adoption by nation states.
Fund Raises:
While different governments try to figure out what stance they should take when it comes to crypto, projects continue to raise millions of dollars to drive the space forward.
Consensys is company founded by Ethereum co-founder Joseph Lubin with the aim to aid in building blockchain based infrastructure. An example of one of their biggest projects is metamask. On the 15th of march they announced a $450m raise at a $7b valuation. This is one of the biggest raises and valuations for a crypto focused company.
Aptos is a new Layer 1 blockchain that hasn’t launched as yet, the team states that their focus is on safety, extensive scalability, and credible neutrality. In a recent tweet from the founder Mo Shaikh, they announced a $200m raise led by a16z featuring all the big name VCs such as Multicoin capital, 3 Arrows Capital, Parafi Capital, Variant fund, Blocktower and many more. With the announcement they also announced the launch of the devnet which is testnet made specifically for devs to test out different types of applications.
The Hex Trust is one of Asia’s leading digital asset custodians. They are a fully-licensed company offering crypto services to over 200 institutional clients. Recently they announced an $88m raise co-led by Animoca brands. The goal of this raise is to drive the adoption of crypto gaming specifically amongst users who aren’t well-versed with using blockchains.
The Mina Protocol is dubbed as the worlds lightest blockchain. They use Zero Knowledge technology to create an efficient, fast, and secure blockchain built for the next generation of DeFi apps. A problem they have been having is growing their developer community. To help expedite the process they secured a $92m investment in a round led by FTX and 3 Arrows Capital.
Optimism is Layer 2 scaling solution built on top of the Ethereum blockchain. They use a piece of technology called optimistic rollups which helps reduce gas fees and network congestion. On the 18th of March they announced a $150m raise to help continue the work they have been doing. The funds will not only be allocated to help build out their team even further, but it will also be used to help with their next major release, Optimism Bedrock. They are also going to contribute to the newest Ethereum upgrade, EIP 4844 which will be further discussed below.
EIPs & ERCs
EIP stands for Ethereum Improvement Proposal, these are general upgrades that are made to specific parts of the Ethereum network. A previous example is EIP-1559 which made multiple improvements to gas fees on Ethereum. ERC stands for Ethereum Request for Comments. It is typically a type of token standard that will be introduced to the Ethereum network. For example, all of the fungible tokens that we actively trade and use are referred to as ERC-20 tokens, while NFTs are either ERC-721 or ERC-1155. This week there were two different ERC standards proposed, and one EIP proposed.
ERC-3525 was created by Solv protocol. It is a semi-fungible token standard. This means it combines elements of ERC-20 & ERC-721 to create a token standard that will enable the creation of a suite of new DeFi products. ERC-20 tokens are fungible but carry little information while ERC-721 token carry more information but are completely non-fungible and illiquid. So ERC-3525 combines the best of both worlds. Solv protocol created this standard for their two products. One was vesting vouchers which resembled a vesting allocation in a projects token to simplify the venture fund raising process, and the second product was convertible vouchers which are NFTs that convert into either tokens or stablecoins depending on the price of the underlying token. Other products that can be built using this include DeFi bonds, structured products, and accounting systems.
ERC-4626 recently went live. This is the tokenized vault standard. Lending markets, aggregators, and interest-bearing tokens all require vaults, but building vaults from scratch is complex and time-consuming which inevitably leaves them prone to hacks and exploits. ERC-4626 was made to standardize the process of creating vaults and make it easier for developers to implement them. It is already being used by DeFi giants such as Yearn, Balancer, Rari, Alchemix, Maple, and Convex.
EIP 4844 is an upgrade to Ethereum called danksharding. Danksharding in as improved version of the regular sharding approach that is set to be launched with ETH 2.0. Regular sharding on Ethereum involves dividing the blockchain into multiple shards so network congestion can be offloaded to the various shards and data-availability can be increased to allow rollups to continue to function at their best. The difference between regular sharding and danksharding is that instead of having different block proposers for each shard, you have one block proposer for all shards at a given time who chooses all the transactions and data that goes into a specific shard. Vitalik Buterin just proposed his version of danksharding called proto-EIP 4844. The main difference here is the addition of blob-carrying transactions. A blob-carrying transaction is a regular transaction that carries an additional piece of data called a blob. This will provide significantly larger scalability improvements.
A Frenzied Week for DeFi
With the majority of attention shifting to NFTs and GameFi, the DeFi space is starting to go slightly unnoticed. However, over the last week the DeFi space was very active.
Getting the bad news out of the way first, there were 3 major exploits. Agave and Hundred Finance are 2 protocols that are on the Gnosis chain and both of them were exploited through similar ways on the 16th of March. Agave is a fork of Aave and Hundred Finance is a fork of Compound Finance. They both fell prone to something called a reentrancy attack. Essentially, the exploiter was able to misuse a function in the contract which allowed him to borrow more debt than the value of assets they deposited in collateral. They were able to rinse and repeat this process multiple times and made off with millions of dollars.
Deus Finance is a multichain DeFi protocol that allows users to build different types of decentralized financial instruments using the infrastructure they provide. On the 16th of March they were victim to a $3m flash loan attack. The exploiter targeted the stablecoin lending contract where they managed to manipulate the price oracle (a tool used to provide price information to the blockchain) to make the positions of multiple users insolvent thereby allowing the attacker to run away with $3m.
Moving on to the good news, MakerDAO is an OG DeFi protocol that made the first ever crypto-collateralised stablecoin DAI. It allowed users to borrow DAI using ETH as collateral. Recently, MonetSupply proposed an upgrade to the tokenomics of their native governance token MKR. The changes is to introduce stkMKR. So now users can only participate in governance by locking up their MKR tokens to get stkMKR. To withdraw back into MKR there will be a certain unbonding period before the tokens are made available for use (2-3 days for example). This change improves general protocol security and prevents governance attacks. Additionally, users can get MKR rewards through auto-compounding in exchange for locking up their tokens with the protocol.
Another exciting piece of news is the launch of LayerZero. LayerZero is a protocol that is set to change the cross-chain bridging game. Rather than operating as a bridge that takes in a native asset and gives out a wrapped asset or a middleman chain/protocol that requires tokens to be transferred through them to go from one chain to another. LayerZero approaches the problem as a communication protocol by using a type of messaging technology to make it such that native assets from one chain are instantly transferred to native assets on another chain without needing a middleman. All that is required is for the LayerZero smart contract called endpoint to be integrated on both chains.
Sigma Protocol released their whitepaper on the 19th of March which means that the launch of the protocol is coming soon. Sigma enables the usage and creation of collateralized options on the Terra blockchain. Terra, LUNA, and the founder Do Kwon have been in the news a lot lately. Terra recently announced that they will be buying $3b worth of Bitcoin for the Luna Foundation Guard to act as a reserve asset for the native stablecoin UST, LUNA has made all-time highs in price despite bearish market conditions, and the founder Do Kwon has made bets with people on crypto twitter amounting to a total of $22m regarding LUNA price. Now seems like the perfect time for the Terra blockchain to get even more usage and the Sigma protocol is providing a great product to do just that.
That is all for this weeks newsletter. Tune in next week to get your weekly recap of what has happened in the crypto space.