🦄 Recap: DeFi Week of Aug. 28
One of the truisms in investing is “follow the smart money”. Contrarians who place outsize bets when the market looks bleak are often ridiculed as fools at the time, and then prescient when the investments pay off down the road. Crazy as it sounds, such might be the case with NFTs.
How else to explain the flurry of investment activity this week in a space many traditional players still don’t understand. Leave it to the wildly ambitious and well-funded VCs at a16z to triple down on non-fungible assets. As Owen Fernau reported, partners Miles Jennings and Chris Dixon rolled out a novel licensing strategy to solidify its disparate investments across the space and place itself at the center of the ownership debate in the marketplace.
A16z made the move on the heels of its $50M funding round in Proof Collective, the firm behind the popular Moonbirds collection. In our NFT Roundup, yyctrader wrote about Moonbirds’ plans for new collections and a DAO.
NFTs were a hot topic with Robin Schmidt and his crew as well. In The Defiant’s Tuesday Tutorial, Robin unpacked how to stay on top of NFT projects with an app called Lifeboat Fi. Speaking of tutorials, Rahul Nambiampurath penned a few more this week, including a superb explainer on how NFT investors use a strategy called “Sweep-the-Floor”, plus a superb explainer on DAI and another on, what else? The Merge.
NFT Land was pretty copacetic compared with other precincts in crypto. There was heavy legal drama early in the week: Aleksandar Gilbert covered the story of accusations that an attorney who represents protocols such as Avalanche was using lawsuits to kneecap rivals. Ouch.
And Owen Fernau dug into one of the little-covered corners of crypto to report on how Hetzner, a German data center giant roiled Ethereum by enforcing a ban on mining. Needless to say, Defiers were not pleased, but infrastructure risk is something that has to be managed.
Meanwhile, Sam Haig delivered his latest scoop on the leadership crucible at SushiSwap: the exit of Arca, a major whale in the DEX’s token. Sam has also been all over the similar soul-searching at MakerDAO, and filed a great read on Rune Chistensen’s call for DAI to float. Whoa.
Rounding out the week is a fascinating podcast by Camila Russo with Zcash’s Zooko on one of the most urgent topics in crypto: privacy. Zooko makes his case for why crypto users need to have a choice when it comes to transacting anonymously.
Oh, and we’re excited to introduce out Premium Defiant Story series. Everyday paid subscribers to The Defiant Newsletter will receive an exclusive bonus story.
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This week on The Defiant podcast we speak to Zooko, the founder of Zcash.
He’s a crypto OG who wrote the first-ever blog post about Bitcoin and contributed to its early development before starting the privacy-focused blockchain.
Privacy remains one of the hottest issues in crypto after the U.S. Treasury’s recent move to sanction Tornado Cash. And when using the biggest blockchains, Bitcoin and Ethereum, transactions are publicly visible on-chain. Zooko wonders if users really want all their financial information out in the open.
Zcash aims to provide users with the choice to transact privately in crypto. Zooko believes the ability to consent to what information is made public is more about freedom than privacy and he thinks that eventually, this will be expected in the blockchain space.
We explore what a private transaction using ZEC actually looks like, with shielded addresses visible only to the sender and receiver.
The level of control governments have managed to exert on a space that was seen as censorship resistant has sent crypto enthusiasts spiraling. We talk about what this means for the future and if Zooko is concerned about governments imposing sanctions on Zcash.
Finally, Zooko talks about The Electric Coin Company’s future plans, which include moving Zcash from proof-of-work to proof-of-stake, a standalone wallet, and improved interoperability between different blockchains and apps.
After Shaping Sushi’s Reform Plan Arca Hits the Exits
In his latest installment on the leadership crucible at the DEX, Samuel Haig reports on the departure of a whale and the community response.
Arca, a crypto-focused asset manager, appears to have sold its $3.1M position in SushiSwap’s token. And many of the crypto exchange’s community members couldn’t be happier.
On Aug. 30, a transaction from a wallet associated with Arca was flagged in the SushiSwap community Discord for withdrawing more than 3.1M SUSHI from staking and transferring the tokens to FTX, a centralized cryptocurrency exchange.
A sudden influx of volume was spotted on FTX shortly after, with the price of SUSHI abruptly sliding from $1.10 to $1.07 over the course of a single three-minute candle. The asset has since traded between $1.02 and $1.07 in the past 24 hours
On July 17, 2021, Arca’s chief investment officer, Jeff Dorman, tweeted that the firm was “one of the largest xSUSHI holders” and controlled 7.5% of its circulating supply.
Hetzner’s Decision Spurs Debate About Decentralization of Crypto Infrastructure
In which Owen Fernau explores a new risk in DeFi…
Struggles to decentralize have long shaped the development of smart contract and governance layers in the crypto ecosystem. Last week something else struck: Hetzner, the second largest hosting provider for Ethereum, clarified that crypto miners may not use its server farms to support the blockchain network, or any other crypto venture.
“Using our products for any application related to mining, even remotely related, is not permitted,” Hetzner said in a message to its customers. It said both Proof-of-Stake and Proof-of-Work activities are prohibited. “Even if you run just one node, we consider it a violation of our [terms of service].”
The development highlighted the power of a centralized player in blockchain infrastructure. Hetzner, a 25-year-old company based in Gunzenhausen, Germany, is one of the biggest data center operators in Europe. It maintains hundreds of thousands of servers in Germany, Helsinki, and in Virginia in the U.S.
AVAX Has Fallen 15% Since Friday
Aleksandar Gilbert digs into a bitter legal fight roiling DeFi.
In a series of brief, undercover videos published on a little-known website Friday, lawyer Kyle Roche bragged of his close ties to the founder of the Avalanche blockchain and seemed to suggest he had filed frivolous lawsuits in a bid to weaken its competitors.
Avalanche’s native token, AVAX, has fared worse than other major cryptocurrencies over the weekend, dropping more than 15% since Friday, according to data from The Defiant Terminal. AVAX is one of the world’s 20 largest cryptocurrencies by market capitalization.
On Monday, Roche and Avalanche founder Emin Gün Sirer fired back. In a statement, Sirer called a report accompanying the videos a “scurrilous hit-piece” and said Roche had misrepresented his work for Ava Labs, the company behind Avalanche, in an attempt to “impress a potential business partner.”
Proof Collective Bags a16z Cash and Phantom Offer Scam Roils NFT Market
Institutional investors continue to place bullish bets on NFTs despite the current bear market in digital assets.
Proof Collective, the company behind the popular Moonbirds collection, said on Aug. 30 that it had raised $50M in a Series A funding round led by venture capital behemoth a16z. Other investors include Seven Seven Six, True Ventures, and Collab+Currency.
The news came just a day after Limit Break revealed that it had raised an eye-popping $200M to build Web3 games. The company’s DigiDaigaku NFT collection commands a floor price of 12.3 ETH ($19,000) at the time of writing.
In a livestream on Tuesday, Proof CEO Kevin Rose outlined the company’s plans, which include a third NFT collection of 20,000 profile pictures (PFPs), called Moonbird Mythics, and a $PROOF token. Both are expected to launch in 2023.
A16Z’s Latest Bet on NFTs: Free Licenses for Everyone Who owns what when someone owns an NFT? It’s not always clear. When Actor Seth Green’s Bored Ape was stolen, for instance, it brought plans for a show with the animated character into question.
Crypto Markets Hold Up As Stocks Swoon Despite moving in unison for much of the year, Ether has outperformed major U.S. stock indices this week.
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Seven Traders Raked in $114M in Profits via MEV Stratagem Just a handful of players are profiting handsomely from Maximal Extractable Value at the expense of ordinary Ethereum users, an analysis of Dune Analytics data shows. In the last 12 months, six transactions account for half of the $163M extracted by bots through MEV, an arcane trading strategy in the crypto market.
What Is DAI? After the collapse of Terra’s UST stablecoin in May and the wipeout of $60B in market capitalization it has become increasingly urgent to see how stablecoins are backed. DAI, one of the earliest stablecoins, is one of the most important such tokens in DeFi.
Compound ETH Market Frozen Due to Upgrade Bug Despite three separate audits, an update to crypto lending protocol Compound contained a software bug, freezing the protocol’s $800M Ether market when it took effect Tuesday.
Bitcoin Dominance Drops Under 40% For The First Time Since January Bitcoin dominance (BTC.D), which is the market capitalization of BTC relative to that of all digital assets, has fallen below 40% for just the second time since 2018 and stands at an eight-month low, according to data from CoinMarketCap.
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Mt. Gox Trustee Repayment Announcement Triggers Fear in Bitcoin Market Is Mt. Gox, the notorious exchange that crashed spectacularly in 2014, about to rise from the dead and flood the market with Bitcoin? Or is an arcane legal document that surfaced on Wednesday being widely misunderstood?
What is The Merge? In 2020, Ethereum launched Beacon Chain, a Proof-of-Stake (PoS) network that differed from the original. Up until that time, Ethereum has used the same type of consensus mechanism to maintain its blockchain as Bitcoin — Proof-of-Work. Beacon introduced a new way to add blocks of data to the chain — staking.
What Is a Sweep-the-Floor NFT Trading Strategy? As speculative assets go, NFTs are at the riskier end of the spectrum. And they’ve fetched astonishing sums in the marketplace. From Yuga Labs’ Bored Ape Yacht Club to Chiru Labs’ Azuki, a dozen NFT collections recorded $400M in total sales. Even after May’s market crash in 2022, the floor price of top collections remained at around 70 ETH.
Christensen Calls For MakerDAO to Float Stablecoin In what would mark a dramatic strategic reversal, Rune Christensen, the founder of MakerDAO, is calling for the DeFi stalwart to reduce its exposure to real-world assets and freely float the value of its stablecoin, DAI, against the dollar.
FBI Says ‘Complexity’ Makes DeFi Vulnerable to Hacks The FBI warned investors on Monday to approach decentralized finance with caution, citing the growing share of crypto hacks that target DeFi protocols.
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Arbitrum Executes Nitro Upgrade in Push to Scale Ethereum Arbitrum, Ethereum’s leading Layer 2 network, has kicked off its major Nitro upgrade, in a bid to further bolster the scalability of the Layer 2 (L2) rollup network.
Market Cap vs. Circulating Supply The most common way to rank cryptocurrencies is by using their market capitalization. This is the value of all the coins or tokens available for purchase on the market.
Compound III Launches With Emphasis On Simplicity One of DeFi’s oldest lending protocols has launched a major upgrade. Compound Finance, one of DeFi’s oldest lending protocols with $2.72B in total value locked (TVL), deployed Compound III on Aug. 25 following a successful governance vote.
Ether Dives 10% As Powell Signals More Rate Hikes To Come Hinting at another sharp interest rate hike in September, Federal Reserve Chairman Jerome Powell sent crypto markets tumbling Friday.
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Web3 Games Infested by 200,000 Bots: Report Web3 games are teeming with bots, and many games residing on Binance are seriously compromised, according to research released on Aug. 30 by Jigger, a bot detection tool.
What Is Aave? Just a decade ago, the notion that one could borrow money without banks was in the realm of fantasy. After Bitcoin laid the groundwork for Ethereum and other smart contract platforms, this was no longer the case.
Thanking all the amazing Defiers for the support and love this week (and always)!
The Defiant @DefiantNewsAlpha Alert ⚠️ In this week's DeFi Alpha by @DeFi_Dad and @yyctrader1 👨🏫 ⭐ Lend $USDT to @StargateFinance on @arbitrum for 136% APY with @picklefinance 🦋 Optimize DeFi lending yields on @MorphoLabs Premium subs get access to new ⍺ every Friday 📥 https://t.co/Vr2tpB740Y
CALE_ 🎬 🎬 🇧🇷 @eduardocalegariVery happy to see my art on the big screen, being shown at the @ethlatam in @camilarusso's presentation talking about @ETHMovie project. Proud! If you know my artwork you will find it! https://t.co/xRvyxy3upZ
🧑💻 ✍️ Stories in The Defiant are written by Owen Fernau, Aleksandar Gilbert, Samuel Haig, and yyctrader, and edited by Edward Robinson, yyctrader and Camila Russo. Videos were produced by Robin Schmidt and Alp Gasimov. Podcast was led by Camila, edited by Alp.
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