This week’s DeFi update covers the launch of ETH futures on CME, Ethereum market growth, rising network fees, and more.
The decentralized finance and larger Ethereum markets saw an extremely strong breakout to the upside this past week. Per OKCoin market data, ETH pushed to new all-time highs over $1,700 today as top decentralized finance cryptocurrencies passed the all-time highs they had set just this past week.
ETH’s move to new all-time highs comes ahead of the launch of ETH futures on CME, which is scheduled for this Monday, Feb 8. The fundamentals of the network are also strong as transaction demand spikes.
This past week, DeFi once again got a boost from Mark Cuban, the billionaire investor known for his involvement in the “Shark Tank” show. He announced that he thinks DeFi is one of the few industries that will see strong growth in the decade ahead.
- ETH pressed to new all-time highs this past week over $1,700
- ETH’s rally comes ahead the launch of futures for the cryptocurrency on CME, which means increased exposure to institutional investors
- DeFi also saw a notable breakout, with top tokens pushing to new highs
DeFi market surge
This past week was marked by notable growth in the DeFi asset class. Leading tokens in the space, such as Uniswap’ UNI and Compound’s COMP, shot up dozens of percentage points higher as DeFi saw an increase in users and awareness.
According to OKCoin market data, COMP is up nearly 60% in the past week as the total value locked in the decentralized lending protocol Compound spiked. The token’s of other leading decentralized lending protocols and exchanges — namely Aave’s AAVE, Maker’s MKR token, and UNI — are amongst Ethereum-based tokens that have enjoyed over 50% gains against the dollar this past week.
According to DeFi Pulse, the value locked in the decentralized financial ecosystem has reached nearly $35 billion, over double the value at the start of this year. Projects such as Maker, Aave, Compound, and Uniswap have seen their total values locked shoot higher as demand for earning yield on Ethereum increases.
As we discussed last week, prominent industry analysts have argued that when trading app Robinhood suspended trading of GameStop stock, it showed that there is a need for decentralized financial primitives.
Michael Novogratz, the co-founder of crypto investment firm Galaxy Digital and a former Goldman Sachs partner, commented that the GameStop short squeeze is “deeper than a squeeze. It’s a large group of people saying […] they don’t like a system geared to the already rich.This is a giant endorsement of DEFI.”
Mark Cuban throws weight behind DeFi
Billionaire investor Mark Cuban yet again expressed his interest in decentralized finance this past week.
Responding to the recent GameStop controversy, the billionaire owner of the NBA’s Dallas Mavericks conducted a Reddit “ask me anything” session. When asked about what other cryptocurrencies he holds other than BTC and ETH, he mentioned AAVE and SUSHI, the governance token of decentralized exchange SushiSwap.
Furthermore, when asked about what industries he thinks will outperform in the decade ahead, Cuban mentioned DeFi, along with green technology, artificial intelligence, and nanotechnology.
Cuban had previously mentioned that the rising cost of network fees on Ethereum — called “gas” — is unsustainable.
Yearn Vault exploit
Yesterday evening, popular DeFi protocol Yearn faced an exploit that reportedly led to a loss of $11 million in DAI — the USD value-pegged stablecoin from Maker. Shortly after announcing the incident on Twitter, the Yearn team published a report detailing the exploit.
The transaction in question involved large deposits in and out of Yearn’s so-called Vault products, which allow users to deposit various stablecoins and earn a yield that fluctuates with demand.
While some dismissed the transaction as a normal instance of arbitrage, it shortly became clear that something was not right. Analysts quickly identified that capital amounting to $11 million was drained out of the DAI Yearn Vault in the transaction, which allowed the attacker to pocket approximately $2.5 million due to trading fees.
Per OKCoin market data, Yearn’s governance token, YFI, fell from near $34,000 to about $31,000 within minutes of the news spreading on Twitter.
In November 2020, Yearn developers deployed a new version of the Vaults, v2 Vaults, to account for potential vulnerabilities that may have been present in the previous iteration.
OKCoin’s Earn tool supports two Yearn Vaults — DAI and, as of this week, USDT. In response to yesterday’s exploit, we’ve temporarily suspended the Yearn pools on Earn, and are investigating if existing active orders have been impacted. Please check OKCoin’s official Twitter for the latest updates.
Ethereum futures on their way
While not explicitly DeFi-related, this coming Monday, a regulated futures product for ETH will list on CME, the world’s largest derivatives exchange.
The launch of BTC futures on CME in 2017 pushed the market to its previous all-time high, though analysts think that the effects of the upcoming ETH product will be different. This week, JPMorgan strategists wrote in a note sent to Reuters that this futures product should allow more institutional investors to obtain exposure to the cryptocurrency:
“The listing of ethereum futures on a regulated exchange should serve to enhance the crypto market structure by allowing investors to gain exposure to the second most important cryptocurrency as a diversifier to bitcoin, or for simply hedging existing ethereum exposures.”
Economist and crypto-focused analyst Alex Kruger echoed this optimism in comments on the upcoming launch of ETH futures in December:
“People mostly remember how bitcoin hit its top on 2017 the exact day the CME $BTC futures launched, and proceeded to crash right after. They forget that the CME launch drove price from 6K to 20K, +225% in 2.5 months. The launch of CME $ETH futures is extremely bullish.”
Ethereum gas fees shoot higher
A key theme of the past week is the rising cost of gas fees on the Ethereum network. As the DeFi market — the majority of protocols are based on Ethereum — began to pick up immense traction this past week, the cost of transactions on Ethereum began to shoot higher due to increased demand. Many investors were sidelined this past week as it became unfeasible for them to actually transact on these decentralized networks.
A narrative arose this past week about how centralized exchanges may provide a better user experience than decentralized platforms, especially during times of network congestion.
A popular crypto trader known on Twitter as “TraderKirby” wrote “congested ETH network is bullish for centralized exchanges.”
The recent congestion on the Ethereum network has driven talk about the need for second-layer scaling solutions and potentially alternative networks to facilitate DeFi.
As reported by OKCoin last week, Reddit inked a partnership with the Ethereum Foundation to work on scaling solutions to support the site’s efforts to create a blockchain-based points system on the platform.
Kain Warwick, the founder of Synthetix, also discussed Ethereum scaling solutions this past week, tweeting: “Optimistic Ethereum native projects are coming. And sooner than you think.”
Warwick is a proponent of Optimistic Ethereum, a leading Ethereum scaling solution based on a technology called Optimistic Rollups.