The Ethereum 2.0 update inches closer, Synthetix dabbles in layer 2, and tBTC launches again
It’s been a volatile week for the crypto market as the US dollar continues to swing back and forth, inducing volatility in bitcoin and altcoins. Here’s what you need to know this week about DeFi and Ethereum:
- Bitcoin, altcoins, and other markets underwent a correction over the past week due to the strength of the US dollar.
- Top DeFi tokens such as Yearn.finance and Compound have shed dozens of percent since last week’s highs — OKCoin recently listed support for both of these assets.
- Analysts expect this only to be a temporary correction, citing a variety of fundamental trends that suggest the prevailing trend for DeFi will be growth.
- Case in point: DeFi Pulse reported this week that the value of cryptocurrency locked in all verified decentralized finance applications passed $10 billion this week.
- Ethereum 2.0, the all-encompassing Ethereum upgrade also known as ETH2 or Serenity, moved closer this week as audits took place.
- xDaiChain, Synthetix, and Ethereum are among the projects that have announced notable developments this week, further boosting the DeFi narrative.
- This week, we listed Uniswap’s UNI token and announced listing for Compound’s cTokens.
Despite the volatility in the DeFi market, analysts are optimistic about what’s to come next for this segment of the cryptocurrency industry. This optimism has been cemented with a number of developments announced by leading DeFi applications.
What’s next for DeFi after the correction?
Analysts are confident that the ongoing correction in the market for DeFi tokens is only a temporary blip in a long-term trend of growth.
Spencer Noon, head of DTC Capital, voiced his opinion earlier this week that the fundamentals for DeFi “have never looked better” despite the drop. Noon explained that the drop in the cryptocurrency market was one driven by macro factors as opposed to issues within the industry.
One reason why Noon remains optimistic is due to the high yields offered on capital in the space. With products such as Yearn.finance’s Vaults, users are offered the opportunity to earn yields on deposits far above those offered through traditional financial vehicles.
Andrew Kang, the founder of Mechanism Capital, echoed Noon’s optimism in his own analysis of the state of DeFi. Kang’s latest assessment of DeFi comes just months after he predicted the ongoing parabolic explosion in this space on July 1st.
The long and the short of the analysis is that structurally, DeFi coins should begin to recover as institutional funds are deploying capital into the space and as market data suggests DeFi future markets are overextended to the downside. Kang added that technical development in the DeFi space continues at a blistering pace, which should drag prices higher over time.
“So what happens over this next period? Probably some consolidation and range trading (Index +/- 30%) for a few weeks as overexposed players continue to rebalance and some new funds flow in buying these re-rated assets. All the while, development & innovation will continue.”
Corroborating the optimistic assertions of these fund managers, Ethereum data site DeFi Pulse just reported that the value of cryptocurrencies locked in DeFi just crossed over $10 billion for the first time ever. At the start of the year, this metric was around $500 million.
In reality, the value of capital locked in DeFi has actually been above $10 billion for a while. DeFi Pulse only captures protocols that have been vetted and are stable over longer periods of time.
xDai gains traction
With Ethereum transaction fees still a pressing concern, users have been quick to adopt promising solutions that will allow them to interact with DeFi at a cheaper cost.
One such solution that has recently gained traction is xDai Chain. Recently gaining nearly $2 million in deposits, xDai Chain is an Ethereum sidechain that has a five-second block time, low transaction fees, and its own token called xDai. xDai is a tokenized version of DAI, MakerDAO’s sometimes controversial stablecoin that is pegged to $1 through monetary policy. xDai Chain also has another native token, STAKE, which is the governance token of this network.
Developers can leverage xDai and STAKE to create decentralized applications that are relatively cheap compared to their competitors on the main Ethereum network.
For instance, there’s now an exchange called Honeyswap that replicates the Uniswap experience while leveraging the speed and low costs of the xDai Chain.
Ethereum 2.0 update inches closer
Ethereum 2.0, the all-encompassing Ethereum upgrade also known as ETH2 or Serenity, moved ever closer this week.
The Ethereum Foundation’s Danny Ryan revealed that audits are ongoing for the final ETH2 spec. This week, the audit of a tool that will allow users to easily deposit their ether into ETH2 for staking completed. No major issues were found but there were 10 code quality recommendations shared.
Ryan also noted that he and Vitalik Buterin, founder of Ethereum, have published the Ethereum Improvement Proposal for Serenity Phase 0. This EIP is “one of the final remaining milestones before mainnet.”
While Serenity is inching closer, not all users are excited about the upgrade.
A Twitter user known as Chase Wright caused quite the stir this week when he released an extensive thread outlining why he doesn’t think staking ether in ETH2 is a good idea. Wright is an IT specialist that claims to have participated in all Ethereum 2.0 testnets that have launched thus far.
Wright cited multiple reasons for his hesitance. These include but are not limited to a bug in the Medalla testnet that made most validators unprofitable, low yields relative to offerings within DeFi, and a lack of testnets that will resemble what the mainnet will look like.
tBTC launches again
With a market capitalization nearing $200 billion, bitcoin becoming a reserve asset or at least collateral within DeFi has been seen as critical by developers.
This has begun with the introduction of Wrapped Bitcoin and RenBTC, which allow users to deposit bitcoin into a designated address, then receive a tokenized version in their Ethereum wallets to interact with DeFi. By some estimates, more than 0.25% of all BTC in circulation is now represented on Ethereum. A key issue with the current solutions, though, is that there’s some aspect of trust in the storage of the BTC and the data, meaning addresses involved in this conversion.
tBTC (using threshold signatures), built by Keep Network, Summa, and the Cross-Chain Group, is attempting to change this. After a botched launch earlier this year due to a smart contract bug, tBTC relaunched just this week after audits and tweaking to the protocol. tBTC is the first fully-decentralized tokenized version of bitcoin currently in operation.
Matt Luongo, a founder of the development group behind the Keep Network, is working on integrating tBTC into many of DeFi’s top applications, including decentralized insurance provider Nexus Mutual, decentralized loan provider MakerDAO, and decentralized exchange Curve.
Synthetix testing layer-two tech
Announced just hours ago, Ethereum development group Optimism rolled out the testnet for Optimistic Ethereum, a second layer to the Ethereum network that leverages a technology called Optimistic Rollups.
A rollup is a second-layer sidechain that maintains the security of the main Ethereum blockchain while increasing the speed and decreasing the cost of transactions. The idea is to migrate decentralized applications and certain smart contracts to a secondary layer, thus reducing stress on the main Ethereum blockchain.
Joining Optimism for the testnet is Synthetix, a decentralized liquidity protocol where users can gain synthetic exposure to many crypto-assets and real-world assets.
Synthetix users have long voiced their concerns that transaction fees on the main Ethereum blockchain were unsustainable. One Reddit user with the handle “Lukazo” expressed his dismay on Reddit earlier this year when he spent $8 to stake $230 worth of Synthetix’s SNX token.
This testnet will allow users with 1–2,500 SNX to try interacting with the Synthetix ecosystem through Optimistic Ethereum. This is only a testnet launch, of course, with limited functionality and only a small portion of DeFi allowed to onboard, but it’s a start. Should the testnet operate well, Synthetix intends on allowing all of its users to use Optimistic Ethereum in the future.
On the ramifications of the upgrade for DeFi, Synthetix wrote:
“This is a huge milestone for Synthetix, Optimistic Ethereum, and indeed the entire Ethereum space… Launching SNX staking on OE is a crucial step towards full scalability for the burgeoning DeFi ecosystem, truly allowing anyone around the world access to open financial infrastructure without the friction of high gas costs.”
It is rumored that Uniswap is looking to integrate with Optimistic Ethereum or its own iteration of Optimistic Rollups once the technology is finalized.
We listed Uniswap’s UNI and are preparing to list Compound’s c-Tokens
This week, we listed Uniswap’s UNI token and are preparing to list cUSDC and cUSDT from Compound.
As we covered in last week’s “DeFi this Week” blog, UNI is the governance token for Uniswap, a decentralized exchange that rapidly has become the most prominent application on Ethereum. UNI allows its holders to collectively determine in which direction the protocol will move by changing fees, dictating the use of the treasury, and so on.
cUSDC and cUSDT are yield-bearing assets from Compound, a decentralized money-market protocol where users can lend and borrow stablecoins and other Ethereum-based assets. We are the first licensed exchange to support Compound’s c-tokens; we are also exploring the addition of COMP to our offerings as well.
We’ll continue to update you on the state of DeFi every week. Want to participate? Buy Ethereum, buy DeFi.