Now Binance Has an Ethereum Stablecoin Too, No-Loss Lottery Take Two, More on Compound Risk
Happy Friday defiers! Here’s what’s up in decentralized finance:
Binance announced an Ethereum-based stablecoin
Pool Together launched version two of their no-loss lottery
Ameen Soleimani digs into Compound Risk and Robert Leshner replies
For weekend reading: Disruptive DeFi post
Ethereum Stablecoin Dominance Keeps Strengthening
Another day, another stablecoin launches on Ethereum. This time by the biggest crypto exchange, Binance.
Binance announced yesterday it’s creating Binance USD (BUSD), an ERC20 token which will be pegged 1:1 to the U.S. dollar. Paxos, which has its own stablecoin, will be BUSD’s issuer and fiat reserves custodian, The Block reported.
The announcement comes as Tether, the most widely used stablecoin, continues to shift to Ethereum. The ERC20 token version of USDT is about to surpass the Omni/Bitcoin version on number of addresses with more than $10 and most other major metrics, according to a recent Coin Metrics report.
[Read my post on how Tether is increasingly Ethereum based]
The most used stablecoins after Tether, are all ERC20 tokens: Coinbase’s USDC, Gemini’s GUSD, TrueUSD, Paxos, and of course, MakerDAO’s Dai.
Why does this matter? 1) There’s a reason the biggest cryptocurrency companies are choosing to issue assets on Ethereum, and that’s faster transaction times and more programmability than Bitcoin, and a longer track record, bigger community and more infrastructure than Ethereum killers. 2) A greater diversity and volume of ERC20 stablecoins will give users more options when using DeFi, as most of decentralized finance is built on Ethereum. One example is that BUSD could eventually used as collateral on Maker and Compound.
An Improved No-Loss Lottery
Pool Together, which created a smart-contracts based lottery where users pool their money together for a chance to win a prize and get their money back if they lose, has released a version two.
These are the main changes according to Leighton Cusack:
A prize is now awarded every 7 days (previously it was every 18 days)
Tickets are now automatically re-entered for every prize (previously users had to withdraw and repurchase)
All Dai in the pool is always earning interest (creating larger prizes)
People can withdraw your money at anytime (previously they to wait until the “open” period)
Users can buy tickets for the next prize at any time (previously they could only buy during the “open period)
Ticket price is now 1 Dai (previously was 20 Dai)
So far 67,118 tickets have bought to participate in the current pool, which is so far holding 197 Dai that’s earning interest. The prize will be awarded in six days.
[Read my post for a more detailed explanation on Pool Together]
Ameen Soleimani Digs Into Compound’s Risk
Ameen Soleimani of SpankChain and MolochDAO teamed up with a smart contract security expert to inspect Compound Finance, the second-biggest DeFi lending protocol.
Ameen: The smart contract security seems legit.
Robert: On smart contract security, we agree that it’s “legit” but it’s still a constant focus for us, and we’re not going to rest. There are more audits coming, and we encourage the community to participate in ensuring the security of the protocol
Ameen: Compound is a CUSTODIAL system, all lending pools can be trivially drained if their admin private key is compromised.
Robert: Compound IS.NOT.CUSTODIAL. - we don’t directly have access to user funds, and I don’t think it’s fair to equate admin privileges over a system, with custody. There’s an administrative key with strong privileges, utilizing an offline multi-party security process. Totally agree with the community that moving this to a time-enforced contract address (if only for others to verify the processes) would be a big win. ON IT.
Compound is planning to migrate to an admin-less, decentralized, fully autonomous system. The urgency has accelerated based on how quickly Compound Finance has grown. Excited for your Moloch experience to be a part of this process.
Ameen: When you lend on Compound, you are NOT guaranteed to be able to withdraw whenever you want. If you try to withdraw your funds and all the money is locked up in outstanding loans, your withdrawal transaction will fail.
Robert: The protocol incentivizes liquidity, it does not guarantee it. This is the core tenet of the white paper, and twice since launch, liquidity in the DAI market approached near-zero. It's an important process for folks to monitor. As the protocol has grown, this risk has declined.
The larger the market, the less risk of illiquidity. There are now 10,660 cToken suppliers / users, and there is currently ~11,000,000 DAI of liquidity (cDAI is the largest holder of DAI).
Recommended Reading: Information Asymmetry in Crypto
Smart Money founder Jonathan Joseph’s Medium post yesterday made great points about how decentralized finance already has working prototypes with huge potential to disrupt from the Lightning Network to non-DeFi fintechs. I recommend reading it, but leaving you with two quotes:
Today, the LN is a long way from being ready for primetime, still working on the fundamental and mission critical handling of persistence. Has a single Ethereum developer’s hack made the Lightning Network obsolete? I don’t know. Perhaps. But more importantly, not a single LN startup or developer I’ve spoken to in the past few months had even heard of it.
This bears some resemblance to the Blockbuster/Netflix history, but Netflix was still a mail order company at the time and streaming was years away. How much worse would it have looked if Netflix had v1 of the streaming product and Blockbuster still dismissed it? DeFi startups have early prototypes of a variety of Fintech killers. Which Fintech companies do I think have existential threats emerging? All of them.
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About the author: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. 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.