In our latest DeFi update we look at Ethereum 2.0 timing and the blockchain’s fundamentals, how Pickle Finance was exploited, and the new product release from Andre Cronje
Ahead of the Ethereum 2.0 upgrade, ETH is experiencing significant momentum. Over the past week, the price has increased 30% to a high today of $597. On Monday, when the ETH2 deposit contract was announced, ETH surged by about 10%.
Decentralized finance (DeFi) finally underwent a period of consolidation after top industry coins such as Aave’s AAVE and Yearn.finance’s YFI surged over 100% from their local lows. According to CoinGecko, top DeFi players such as YFI, AAVE, THORChain’s RUNE, and Nexus Mutual (NXM) are down 2-10% over the past seven days.
This consolidation comes as bitcoin has pushed toward new year-to-date highs at $19,500. This latest leg higher in the leading cryptocurrency resulted in altcoins pausing.
While almost all altcoins underperformed bitcoin on the day it pushed to $19,500, DeFi has actually underperformed a majority of altcoins this past week. Coins such as XRP, stellar lumens (XLM), and others gained dozens of percent this past week. What seems to have happened was that these coins, which have largely performed poorly through 2018 to now, are catching up with BTC and DeFi.
That’s not to say that not all DeFi coins dropped. 2017-era DeFi coins such as the Kyber Network’s KNC, 0x’s ZRX, and Ren Network’s REN all gained over 20% over the past week. It was just that the DeFi “blue chips” that many have grown to love over recent weeks have underperformed.
- Ethereum 2.0 was confirmed to take place on December 1st this past week after months of anticipation.
- DeFi coins finally began to consolidate this past week after an extremely strong surge from the October lows.
- Top decentralized finance players such as AAVE and YFI are down a few percent on the week.
- The consolidation in the DeFi market comes as bitcoin has pushed to new year-to-date highs at $19,500.
- This DeFi consolidation comes in the face of a number of positive news events.
- Andre Cronje, the founder of Yearn.finance, released a new DeFi concept this week that may revolutionize the space.
- Finally, the fundamentals of the Ethereum blockchain are stronger than ever.
ETH2 confirmed to take place starting December 1st
The biggest news in Ethereum and DeFi this week, hands down, is the confirmation that the first phase of the Ethereum 2.0 (a.k.a. Serenity) upgrade will take place starting on December 1st.
To confirm the upgrade’s December 1st launch date, Ethereum users looking to run validator nodes on this new network, which replace miners, had to collectively deposit a minimum of 524,000 ETH threshold into the ETH2 Deposit Contract. The threshold is in place to ensure that this new network has a sufficient number of validator nodes to be decentralized and stable.
On-chain data suggests that Ethereum founder Vitalik Buterin and ConsenSys, amongst other large players in the space, were among the depositors. There was also a large contingent of anonymous depositors.
Early validators of Ethereum 2.0 will earn an annualized yield of 5-20%, though will not be able to withdraw their staked ETH or validator rewards from ETH2 until a later phase.
Many see this upgrade as a crucial step forward for the blockchain, which has faced congestion issues over recent weeks.
We covered ETH2 extensively in a previous blog, check it out.
On-chain analyst: Ethereum is clearly in a bull market
Ethereum is clearly in a bull market, according to DTC Capital founder and on-chain analyst Spencer Noon.
The investor recently shared to his Twitter feed eight on-chain trends that indicate the Ethereum blockchain and ether itself is in a bull market. Some of those are as follows:
- Ethereum daily active address count now sits close to 500,000, up 100% year to date.
- Ethereum miners earn more in transaction fees than even Bitcoin.
- $16 billion worth of stablecoins has been issued on Ethereum.
- There are now nearly one million DeFi users on Ethereum.
- There is now nearly $3 billion worth of Bitcoin represented on Ethereum.
Chainlink CEO says DeFi is playing a role in driving Bitcoin & crypto higher
Speaking to Yahoo Finance, Chainlink chief executive and founder Sergey Nazarov explained what he thinks is driving bitcoin and the rest of the cryptocurrency market higher.
The first factor he cited is the ongoing monetary stimulus going on, which he suggested will drive inflation in the long haul. The amount of money in the global financial system has skyrocketed; the only reason why inflation hasn’t spiked is due to a low velocity of money amid the pandemic. The second factor he cited was along the same lines, namely how the ongoing trend of inflation is driving institutions to bitcoin and crypto.
And finally, he suggested that the yields offered by DeFi protocols within the space are likely driving involvement in the space much higher as institutional asset managers seek yield in a world where many bonds are actually yielding negative returns.
Pickle Finance hacked, then merged into Yearn.finance
Another exploit hit the DeFi market this past week, adding to the five major ones seen over the past three weeks.
The exploit affected Pickle Finance, a food-themed DeFi protocol focused on aggregating yields between DeFi protocols, giving depositors of stablecoins and other cryptocurrencies a regular yield. Pickle Finance is a competitor to Yearn.finance, which is also focused on aggregating yields for the average DeFi user. But unlike Yearn, all of Pickle’s developers are anonymous.
To keep it short, Pickle’s DAI Jar, where users deposit DAI to earn a yield, was hacked for approximately $20 million in DAI.
What happened was that an attacker exploited a flawed function in the Pickle system that allowed anyone to swap capital from the DAI Jar to a contract that looked like the DAI Jar. Those funds were subsequently drained by the attacker. One absurd fact about the attack was that the flawed function was live for a month before it was exploited, showing how some things bypass auditors and the developers themselves.
Although this hack did affect many DeFi users, it did have some positive side effects.
Firstly, it marked the first time that the Cover Protocol was put into action. Cover Protocol is a decentralized insurance protocol focused on allowing DeFi users to hedge their risk against the countless attacks and exploits taking place in the space. CVC holders validated the claim with the collateral on the protocol.
Secondly, the hack seemingly accelerated an acquisition that was in the works. This week it was announced that Pickle’s developers will now be absorbed into the Yearn.finance ecosystem in the first acquisition of a decentralized protocol by another decentralized protocol.
Yearn announced on November 24th:
“Pickle and Yearn developers have worked out a structure to allow the two projects to work together in symbiosis. This is done to reduce duplicate work, increase specialization, and to leverage shared expertise.”
The acquisition is a bit complicated, though will involve Pickle developers becoming Yearn contributors, the integration of a governance gauge system popularized by Curve, and increasing returns for users through boosted rewards.
It isn’t clear if this acquisition was planned prior to the attack, though the complexity of this merger seems to suggest it was.
There has been push back against this move: some YFI holders argue that they should have been able to vote on this decision, seeing as it represents a big move in the Yearn ecosystem. But according to a member of Yearn.finance’s design team, this is a flawed belief. He wrote on Twitter that Pickle developers are like regular Yearn contributors at this point, which YFI holders do not need to vote for in the first place.
Andre Cronje releases new DeFi early-stage product
Speaking of Yearn, YFI founder Andre Cronje this week released an early-stage protocol for the DeFi ecosystem that many see as a big step forward.
The product is known as Deriswap, which will combine decentralized exchange, derivatives known as options, and decentralized loans into a single protocol. An issue right now is that liquidity is fragmented across different protocols; for instance, some capital is on Uniswap while some is on Aave.
In launching Deriswap, liquidity providers can make more by yield farming/providing liquidity, and users can access more financial products within a single platform.
Deriswap will not launch as part of the Yearn.finance ecosystem. It is currently being audited prior to its launch.
Mike Novogratz throws weight behind Ethereum & DeFi again
In an interview with Peter McCormack, a bitcoin podcaster and investor, Wall Street veteran Michael Novogratz said that he thinks ethereum will play a key role in the future of finance.
While Novogratz is a large bitcoin holder, he admitted that ethereum is naturally a better platform for building financial applications, as seen with DeFi.
He did admit that ETH remains a venture bet, though, referencing how it remains relatively unproven compared to bitcoin.