👻 Aave and the Stable Wars
Also, read about Voyager’s bankruptcy, new farming opportunities on Optimism, behind the STEPN hype, and more!
🧶Week in Review: July 3rd
Aave proposes to launch a USD-pegged stablecoin called GHO
A new proposal was posted on the Aave governance forums for GHO, a native decentralized stablecoin pegged to the US dollar & backed by collateral deposited on Aave (aTokens). Aave is trying to enter into the massive $150 billion stablecoin market by leveraging its existing money market protocol, which is currently deployed on almost all major chains. Additionally, over $6 billion in available deposited liquidity on Aave can be used as collateral to issue GHO.
Aave’s massive advantage here is that Aave depositors can issue GHO against their collateral without losing the yield they are already getting on their assets. Another byproduct is that GHO can be issued against any aTokens, which means that the collateral backing the stablecoin will be pretty diversified, albeit subject to Aave’s quite strict risk management practices.
Besides the GHO stablecoin, the proposal's first significant change is a preferential interest rate for GHO minters who stake Aave tokens. This could create more organic demand for the Aave token & increase its utility. Furthermore, it will help harden the protocol overall by potentially increasing the amount of staked Aave, which acts as a backstop for any defaults/shortfall events.
The second big change the proposal introduces is the function of “facilitators.” These are entities that are entitled to issue & burn GHO based on certain criteria and subject to governance approval. The Aave protocol on Ethereum will likely be the 1st Facilitator, but there will be others for different collateral (real word assets, treasury backed assets, credit score backed, and so on). Check the graphic below:
It is very interesting to note that this proposal comes less than one month after Maker stopped the Aave direct deposit module, which was a direct way for Aave to issue Maker’s DAI stablecoin. The $150 billion stablecoins space is still heating up in an area still dominated by centralized stablecoins like USDT & USDC, and the first decentralized stablecoin that scales will get a chance to challenge the existing centralized ones. - Nassim
Voyager Digital filed for Chapter 11 bankruptcy
Voyager Digital, a CeFi company, filed for bankruptcy on July 5th, 2022. Voyager is a cryptocurrency company that provides services like broking, which involves locating the cheapest rates for cryptocurrencies that clients want to buy or sell, as well as borrowing customers' digital assets in exchange for yields of up to 12% and then lending them out.
The publicly-traded cryptocurrency bank became involved in making enormous uncollateralized loans of $660M to the "too-big-to-fail" cryptocurrency hedge fund 3AC, which in turn was engaging in various risky leveraged bets of its own. As a result of failing to meet margin calls, 3AC is on the verge of insolvency after incurring at least $400 million on liquidations. On the other hand, Voyager still has $110M in cash and $1.3B in assets. However, due to the bankruptcy filing, Voyager clients' assets might not be fully repaid.
An important point of note is that, unlike 3AC, Voyager filed for Chapter 11 bankruptcy, which is governed by the US Bankruptcy Code. So, what is Chapter 11 bankruptcy and how does it work as a shield for Voyager? - Guneet
🗓️Upcoming events to keep an eye on 👀
Jul 15 – Merge community call #5
Jul 17 – EF Fellowship program applications close
Jul 18 – Devcon wave 01 tickets
Jul 19-21 – EthCC 5 (Paris)
Jul 22-24 – EthCC Hackathon (Paris)
🎯 The Sector Pulse
Crypto market sentiment through Scalara’s indices.
📉DeFi Pulse Index (DPI): $76.94 (-0.77%)
📈 ETH 2x Flexible Leverage Index (ETH2X-FLI): $4.67 (+%)
💲PONY Index (PONY): $1.10
While finishing the 7-day period ending July 12 mostly flat in US Dollar terms, DPI continued its rally against Ethereum: Measured in ETH, DPI gained 7% over the same time period. Since early May DPI outperformed ETH by an even more staggering 75%. Main active return contributors over the last week have been DPI’s two largest components, Uniswap and Aave, who both recently surprised the market with product news, Aave’s GHO stablecoin announcement and Uniswap’s entering of the NFT market respectively.
PONY Finance’s PONY index token crossed the $1M AUM mark and continues to incentivize concentrated liquidity against USDC through its liquidity mining program on xToken. PONY is a basket of auto-compounding stablecoin vaults. Its rigorous selection criteria prevent any exposure to algorithmic stablecoins.
🍇 DeFi Pulse Happenings
DeFi Pulse is excited to kick off a new video series, Traversing the Merge. Join Scalara’s Nathan Howard and Index Coop’s Allen Gulley, for a discussion on how the largest change in the Ethereum ecosystem will impact DeFi.
🗓 July 21st ⏰ 6:00 pm UTC/2:00 pm EST
Save your seat here.
🐼 Getting Ready for The Merge
Some misconceptions about The Merge that you need to be aware of:
You may have heard that the Ethereum blockchain will undergo a significant update that will alter its infrastructure and increase its energy efficiency. Still, there are a few myths circulating that ETH stakeholders should be aware of:
Running a node requires staking 32 ETH: Running a block-producer validator node requires 32ETH. Every 32ETH increases the likelihood that your node will be selected to create a new block and receive a reward. But you don't need any ETH to host a validator node that doesn't produce blocks. Read more on running your own node here!
Gas fees will be reduced after The Merge: The Merge won't directly cut gas prices (product of network demand relative to network capacity) because it only modifies the consensus procedure and does not increase network capacity or throughput. However, some marginal increase in throughput will come from reducing the block time to 12 seconds (currently averaging 13 seconds and even reaching 16 seconds just before the Gray Glacier fork that happened during the last week). Read more on gas and fees here!
The chain will suffer downtime following The Merge: A tremendous amount of effort has been expended to prevent the network and its users from being disrupted by the switch to proof-of-stake. As a result, there will be no downtime on Ethereum.
Transactions will be noticeably faster after The Merge: Blocks will be generated 10% more frequently on proof-of-stake than on proof-of-work. However, users are not likely to notice this relatively modest modification. As a result, on Layer 1, transaction speed will remain largely unchanged.
There will be a “new ETH token” following The Merge: Unfortunately, scammers have tried to deceive customers by informing them to exchange their ETH for 'ETH2' tokens or that they must transfer their ETH before the ETH2 update. However, this is untrue; Ether (ETH), the existing native token used by Ethereum, will remain unchanged.
Validators won't get any liquid rewards in ETH until the Shanghai upgrade: The consensus and execution layers of Ethereum are treated differently when accounting for ETH. On the Ethereum Mainnet, users must pay ETH for gas when they execute transactions, along with a tip for the validator. This ETH is already available to the validator as it remains on the execution layer. Therefore, rewards will be immediately available to the validators.
Staking APR is expected to triple after The Merge: According to recent blockchain activity, roughly 10% of all gas fees are presently being paid to miners as a tip, with the remaining 90% being burned. The APR for staking is predicted to rise to 7%, or around 50% more than the base issuance APR, by extrapolating the 10% number to the average recent network activity (as of June 2022).
What’s Hot Around The Merge🔥
Prysm v2.1.3: merge fixes.
EIP-5202: Standard Factory Contract Format
Tim Beiko summarizes the latest devs call:
Block times are now back to normal.
Two small miners shifted to the upgraded chain.
A TTD-related setup error caused a sharp decline in validators immediately following The Merge.
Consensus layer (CL) clients can remove all non-canonical forks from their database by using LVH (Latest Valid Hash).
Mainnet-shadow-fork-9 will merge on July 14, plan to test MEV (Maximal extractable value) boost.
In the Web3 world, this is how you responsibly disclose vulnerabilities🤗
HOPR 🟡 @hoprnetETH2 validators have a major attack vulnerability that is worse than what is currently known And with the Merge coming closer, this problem should be talked about – but it needs some background: A thread 🧵
🧠 Behind The Hype
How exactly did STEPN's economic strategy/model, which produced quick gains, abruptly change and lead to its demise?
Today, we are aware of numerous NFT revenue models. Notably, NFT holders are rewarded with the "reward" token in Play-To-Earn or Move-To-Earn models. With the help of the lifestyle app STEPN based on the Solana network, it entered the Move-To-Earn market.
Since its launch, STEPN has had a tremendous "run," if you'll excuse the humor here. For example, during the first STEPN buzz, the price of GST began to rise in March, reaching a peak of about $8 in late April before falling with the rest of the cryptocurrency market. After disclosing that STEPN was restricting users in China, the price dropped even more. An oversupply of GST tokens has also contributed to the current price drop.
🤝 Sharing is Caring
As an advocate of the DeFi sector, we feel obliged to protect our readers. So, we want to make you aware of a brand-new NFT scam that is luring people into a fake "mint deal” where users need to surrender their most priceless non-fungible tokens.
⚠️Please be careful and always double-check what you are signing up for!
🗓️ Planning for the Long-term
Create an asset: A way to survive the volatile markets
New to cryptocurrency? Or have you been battling it out here for a while? Whatever your current position is, we all struggle while dealing with an industry as volatile as crypto.
The fear of losing money mostly originates from the expectation of becoming an overnight millionaire. However, you cannot expect to be profitable every day of the year in a sector as unstable as cryptocurrency. It's challenging to combine trading with typical day-to-day professional work because you need to be well-informed about what's happening in this space since it makes trading easier.
So let me tell you that "trading is not the only option to enter this space and get compensated in return." One can deal with this by applying for jobs as part of the "Create an Asset" rule. No matter the industry, consumers are constantly utilizing services. And in the cryptocurrency space, these services include (but are not limited to) news, creating content, trading signals, project analytics, blockchain consulting, creating Twitter threads, Discord conversations, Telegram groups, YouTube videos, etc.
By providing any of the services, you are creating an asset (a skill) that helps you become a part of the community and earn money too!
Therefore, having a career in this industry is really helpful. The nice thing is that you can primarily work from home, giving you the freedom to balance your family and work efficiently.
⚖️ Key Crypto and DeFi Regulatory Updates
📖 Stories of The Week
Ethereum testnet Merge mostly successful — ‘Hiccups will not delay the Merge.’
TLDR: With the completion of its second-to-last significant Merge trial on the open test network Sepolia, Ethereum is now ready to switch to the proof-of-stake (PoS) consensus method;
Argentinian crypto exchange Ripio to launch Ethereum sidechain, Web3 wallet
TLDR: The Latin American exchange Ripio is working on Ripio Chain, an Ethereum sidechain, whose testnet is live and based on Polygon technology. Additionally, a Web3 wallet with multi-chain functionality will be launched to allow users to quickly access the metaverse;
TLDR: Beginning on June 21st, 2022, and reaching a high on June 27th, Hop saw a sharp rise in the volume of transactions. This caused numerous problems for Hop and its partners, which caused certain transfers to be delayed. No transfers were ever lost or in danger of being lost, and all transfers were eventually completed;
Ethereum Devs delay difficulty bomb — ETH 2.0 contract surpasses 13 million Ether deposits
TLDR: The Gray Glacier update postponed the network's impending difficulty bomb, delaying The Merge at least until September 2022. In the meantime, there are currently over 13 million Ethereum locked onto the Beacon Chain, valued at $15.8 billion at the current prices;
Vitalik Buterin: Public blockchains are beneficial
TLDR: The fact that the infrastructure has been so rigorously stress-tested against various attacks is a crucial benefit of using public blockchains.
👀 Alpha Leaker
💭 Closing Thoughts
So many of the decisions we make every day are informed by lessons we have learned in the past. Whether it’s your first time navigating a down market cycle or your third, there will be valuable lessons learned that you will carry forward. This knowledge is power.
Take the time to look back at the decisions you have made and ask yourself what you would do differently. Dig into the headlines and study the projects making the news. Seek to understand their strategies along with what worked and what didn’t. The stories of today will become the case studies of tomorrow.
All of these learnings will give you an edge when faced with similar situations the next time around. Don’t take this learning opportunity for granted. Your future self will thank you for it !— @jilliancasalini (CMO at DeFi Pulse)
All info in this newsletter is purely educational and should only be used as research. DeFi Pulse is not offering investment advice, endorsement of any project or approach, or promising any outcome. This post is prepared using public information (which does not account for specific goals or financial situations) and links provided to third-party sites are for informational purposes. Such sites are not under the control of DeFi Pulse, so DeFi Pulse or the author are not responsible for the accuracy of the content on such third-party sites. Be careful and keep up the honest work!