DeFi's Lack of Safety Nets Exposed: Platform Supposed to Protect Traders Gets Hacked
Also, Set Protocol launches V2, dYdX releases ETH-USD perp, DeFi driving record activity on Ethereum
Hello Defiers! Here’s what’s going on in decentralized finance:
Decentralized options platform Opyn got hacked
Set Protocol wants to make yield farming cheaper
dYdX releases ETH-USD perpetual futures contract
and more :)
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Opyn Got Exploited and Lost More Than $350K
Opyn, the first decentralized options market on Ethereum which allows investors to protect against market volatility and smart contract vulnerabilities, suffered an attack on Tuesday. The attacker exploited a system vulnerability and ran with $371K.
Opyn’s team was able to successfully recover more than $550K via a white hat attack and has temporarily eliminated the ability to buy ETH puts from its website, and removed liquidity from its ETH put pools on Uniswap.
The attack raises the question: if the platform made to protect DeFi traders gets its funds stolen, can DeFi investors ever be sure their funds are safe?
How did the attack happen?
Opyn’s tokens allow investors to add collateral to mint options contracts in the form of ERC20 tokens that can be sold in the open market. Options give traders the ability to buy (call) or sell (put) an asset at a pre-determined price on a future date.
In this case, the attacker was able to double exercise ETH put oTokens and steal $371K of the collateral that had been allocated by sellers of these puts. Since Opyn’s protocol is fully trustless, the team cannot shut off access to their system and had to take a different approach to mitigate the attack.
Opyn performed a white-hat attack with support from Samczsun to drain the remaining collateral from outstanding vaults, which allowed them to liquidate the put contracts and safeguard the remaining funds. The team also removed liquidity from their ETH put pools on Uniswap to prevent users from buying them and temporarily canceled this offering on their website.
Opyn offered ETH put holders to buy their positions at 20% above market price on Deribit exchange and said that, in the coming days, they would provide more details on full reimbursement for ETH Put sellers.
Another alternative for DeFi investors to protect their funds is Nexus Mutual, which works as insurance against smart contract failure. There’s currently $17.8M of cover purchased on the platform, of which only $80K was for protection against Opyn failure.
Opyn exploit raises a couple of questions. First, why didn’t Opyn’s audits cover all of its smart contracts? Even though Zeppelin was an auditor, Opyn clarified that the exploited vulnerability had been found outside of their scope. Second, should DeFi protocols be fully trustless from the ground up, or should different levels of decentralization progressively be achieved as projects mature?
dYdX Launches ETH-USD Perpetual Futures
dYdX delivered ETH-USD, its second perpetual contract, yesterday with a 50% discount on trading fees for the first week.
Offering 10x leverage on ETH with no expiry, the latest non-custodial future attracted $50k in volume in the first few hours after launch.
As an inverse perpetual contract, ETH-USD is quoted and margined in USD but settled in ETH, unlike dYdX’s margin products in which stablecoins like USDC and DAI are used to open and settle shorts. This means traders can enter, settle, and exit the new perp only using ETH.
The new contracts feature -0.025% Maker and 0.075% Taker fees along with $200 minimum orders sizes and a 10% initial margin requirement.
With funding rates —or the costs counterparties pay one another to establish a market value— adjusting in real-time, dYdX’s novel non-custodial contracts have seen strong demand from DeFi traders with its first BTC-USD perp averaging just over $1M in 24 volume.
Now, ETH bulls outside of dYdX’s US geoblock are likely to race to the newest contract to try and take advantage of the DeFi bull market.
Set Protocol Wants to Make Yield Farming Cheaper
Set Protocol plans to introduce yield farming as part of the automated trading strategies offered in its TokenSets platform.
Set will deploy yield farming strategies designed by Set Labs team and by the community. Yield farming has taken DeFi by storm with traders pouring over hundreds of millions of dollars worth of digital assets into these platforms in exchange for token rewards. But these strategies can take many steps to execute and skyrocketing Ethereum gas costs make it prohibitively expensive for those investing smaller amounts.
While TokenSets had previously supported Compound’s interest-earning cTokens in V1, users can now benefit from yield farming by earning and distributing governance tokens like COMP, BAL, CRV and more from various strategies which use underlying DeFi protocols.
Lower Cost, Fewer Steps
Users will only need to pay for Ethereum gas fees when entering or exiting a strategy, which is bound to reduce skyrocketing gas costs. The platform also aims to reduce the complexity of these trades, which often require interacting with multiple protocols.
Set Protocol has grown to $24M in assets locked in its smart contracts from $500k in just over a year, according to a blog post published Tuesday by the team.
More V2 Upgrades
The move is part of a wider upgrade. Set Protocol’s V2 will also include support for a larger array of ERC20 tokens. Only ETH, WBTC, LINK and a couple stablecoins were supported in V1. Set is also pledging to “significantly” reduce gas costs. To provide some context, V1 averaged anywhere from $15-50 to buy and sell a Set in the current gas climate.
V2 also aims to increase flexibility for Set managers to create portfolios, and includes more sophisticated investment features like margin trading, limit orders and DEX trading. Set Protocol will also be integrating popular primitives and assets offered by Aave, Balancer, Curve, and Synthetix on top of their underlying liquidity mining opportunities.
In the midst of the yield farming craziness, demand for Set’s “Set it and forget it” asset management platform has slightly slumped. These upgrades may help give the platform a boost.
DeFi Drives Ethereum Transaction Volume to Record High
Transaction volume on the Ethereum network climbed to an all-time high $12B in July, with DeFi accounting for around 95% of the total value created on the chain, according to a DappRadar report. Compound, Aave, and Curve in July generated 48%, 14%, and 14% of transaction volumes, respectively.
Image source: DappRadar
But increasing activity has helped push gas prices higher, which is in turn, driving some users away. Daily active wallets fell to 15,200 in July, a 6% decline from the previous month. The biggest drop was in the DEX category, followed by games and market places, which took a 19% and 8% hit, respectively.
DeFi’s active wallets increased by 36%, mainly due to Synthetix, 1inch, and Aave, while MarkerDao is recovering their leadership position, according to the report.
Decentralized exchanges experienced a record-breaking July for volume, surpassing $4 billion to hit a new all-time high. But July also saw the DEX space hit another benchmark: an increase in the ratio of DEX-to-centralized exchange volume. The Block Research found that this ratio reached nearly 3.95%, a jump from June's 2.1%. Prior to June, the ratio had never surpassed 1%.
Image source: The Block
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About the founder: I’m Camila Russo, author of The Infinite Machine, the first book on the history of Ethereum. 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.