DeFi Temporarily Broke Down Showing It's Overly Reliant on a Single Provider
Also, the DeFi token "blue wave" sweeping over losses, Hegic interest soars on Yearn partnerships.
Hello Defiers! here’s what’s going on in decentralized finance,
Much of DeFi temporarily broke down after Infura suffered an outage
DeFi tokens are rebounding led by blue chips
Interest in options protocol Hegic is soaring
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Many decentralized finance applications broke down earlier today after a series of unfortunate events resulted in an outage on a key piece of Ethereum infrastructure.
The main lesson of the day is that a *decentralized* financial system shouldn’t be so reliant on a single provider.
Here’s what happened: Developers of Ethereum client Geth —one of the software implementations of Ethereum— months ago had quietly fixed a bug in their code. They did so quietly so that hackers wouldn’t exploit the bug in older versions of the software.
But the bug was triggered this morning, causing a split in the Ethereum chain, between nodes running the old, broken version of Geth, and nodes running updated Geth clients and other clients.
Here’s the problem for DeFi: Infura, a service which many Ethereum applications use to outsource running their own Ethereum nodes, was running the old, buggy version of Geth. This caused applications using Infura to break.
MetaMask, Compound Finance, Uniswap, Pool Together and MakerDAO, are just some of the applications that use Infura in some capacity.
Infura is back up at the time of writing, and so was DeFi. Neither tokens nor ETH flinched, and the market is continuing its rally.
Hopefully this will help make DeFi stronger: More applications should run their own nodes and/or use Infura back ups. Developer David Mihal put together a website outlining the alternatives. Also, everyone should be running the latest version of whatever Ethereum client they’re using.
There’s a blue wave and we’re not talking about US politics; it’s the latest meme making the rounds in DeFi as tokens with blue logos are rallying ahead of the rest this month: That’s AAVE, YFI and SNX up at least 50% just in the past 10 days.
Image Source: CoinGecko Top Gainers
DeFi tokens as of 11/11. Image source: Trading View
Blue Chip Tokens
The larger theme is that DeFi “blue chips,” that is, tokens of more established DeFi protocols, are outperforming. In the 12 DeFi tokens analyzed for this piece (included in the chart above), three of the five top-performing protocols were launched before 2019, while the five at the bottom all launched this year. Market caps for the top five was about double the market cap of the bottom five.
After a month-long drought dragging DeFi tokens down by more than 50% from their peak, according to Synthetix’s sDeFi index, traders are returning to DeFi staples. While all tokens tracked are up in November, there is less interest for newcomers and forks like Sushi and Swerve.
Limited Liquidity Mining
Taking a closer look at the top gainers, they share something else: limited token rewards meant to drive liquidity, also known as liquidity mining.
While SNX leads the pack in terms of staking at 42% APY, its rewards are vested for a year and must be claimed weekly. AAVE currently features a 5% APY for staking in the protocol’s safety module, and YFI features no liquidity mining rewards at all.
But that’s not to say that tokens offering rewards are lagging far behind. The fourth-best performer, Uniswap’s UNI, is offering unvested APYs which continue to entice yield farmers to earn tokens and sell for a profit. 2.33M UNI is distributed in rewards across four incentivized pools per week, set to end this Sunday.
Even the community's favorite farm to dump, CRV, may have found its footing as the daily amount of tokens locked in the protocol starts to reach new highs while the price is up 37% in the last seven days.
Image source: Mechanism Capital
Governance Tokens Adapt
After a summer dominated by flash farms and food coins, projects are looking to adapt to a greedy farmers’ constant supply drip, and amend the ways in which governance tokens are earned.
One example is Index Coop, a community-owned index management project, where INDEX tokens can only be earned by providing DeFi Pulse Index (DPI)/ETH liquidity. The team has stated they have no plans to add additional rewards.
If one thing is for sure, those who wrote DeFi tokens off may have spoken too soon.
However, with 2017 flashbacks like CVC and DNT soaring by more than 500% on the back of a Coinbase listing, it’s hard to tell whether or not crypto investing has become saner, or if memes like ‘blue chips’ will drive communities through the next run-up.
Hegic is back with a bang. Demand for the protocol, which temporarily suspended activity after a bug earlier this year, is soaring as its partnership with Yearn Finance’s rockstar founder compounds with increasing demand for trading protection.
The HEGIC governance token has more than doubled over the past 30 days, after founder Molly Wintermut and Yearn’s Andre Cronje announced a partnership. Hegic has 1,395 WBTC ($21M) and 38,761 ($17.5M) in available liquidity with $6M worth of WBTC deposited into the non-custodial options protocol last week, another sign of climbing interest
The protocol allows anyone to purchase options on WBTC and ETH using DAI as settlement, giving DeFi traders a means of hedging risk against market volatility while underwriters stand to earn a profit from writing puts and calls.
Yearn strategies will use Hegic to gain additional exposure to stablecoins to protect against downside risk and leverage binary options.
This would allow forthcoming Yearn V2 vaults to capture more yield while remaining market neutral, with the added protection against market volatility thanks to put and calls. More on the collaboration is detailed in this article.
The Molly & Andre Fund
Outside of Hegic Binary options, Molly and Andre are teaming up to fund developers through a new collaboration called M&A.
“$3M will be allocated in the M&A by Hegic Development Fund.” stated a tweet from Molly.
The fund plans to contribute $50K – $200K per project alongside code reviews. It also features a big disclaimer that “Andre Cronje isn’t involved in any financial operations/transactions conducted by the @mollyandandre fund and doesn’t have money in it.”
Overall, Hegic’s positioning as the largest DeFi options protocol with a native governance token has rallied strong community sentiment, setting it up to capture a high degree of interest in the wake of DeFi’s rebound.
In a company blog post on Monday, U.S.-based Gemini said it was on the hunt to work with Ethereum developers wishing to add wFIL to their own products and platforms, CoinDesk reported. Once complete, users will be able to convert FIL stored in their exchange accounts to wFIL at a 1:1 ratio, which can then be withdrawn to any Ethereum address. The wrapped token can also be exchanged back to FIL.
Blockchain investigation firm CipherTrace today published a report that shows 40% of all crypto hacks in the first half of 2020 targeted decentralized finance (DeFi) protocols and cryptocurrency exchanges, Decrypt reported. The five-year-old company found $51.5 million in DeFi-related crypto theft from January through June.
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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.