A few trends in DeFi

August 15, 2022 Stan

The markets are pumping. U.S. CPI inflation hits 8.5% year over year; this is below the expectations of 8.7%.

Ethereum’s final test, Goerli, is successful!

I’m getting the dopamine rush from seeing the green. But 8.5% CPI? We’re not out of the woods yet.

Older woman saying she's an optimist who worries a lot

Today We’ll be Covering:

DeFi Trends: What the cool kids are into.
Tornado Cash: Careful, it’s illegal now.
Velodrome: The SOLIDLY Fork is gaining traction.
DeFi news: BTRFLY v2, Kujira’s new stablecoins, Curve finance suffers a front end attack, and more.

CRYPTO MARKETS

Total Crypto Market Cap: $1.21T (+9.2%)
BTC Price: $24,632.85 (+7.92%)
ETH Price: $1,892.85 (+17.95%)
TVL in DeFi: $70.31B
Fear & Greed: 41 (FEAR)

“The loss was not bad luck. It was bad analysis.” – David Einhorn

The Trends in DeFi

picture of a graph with a search bar asking what's trending in defi

On July 1st, I wrote about the Cash Flow narrative. Instead of printing tokens, more protocols are starting to pay out yield in sound money like ETH and stablecoins.

I highlighted three projects:

July 1st -> Today

Joe: $0.22 -> $0.39
Umami: $13.66 -> $37.93
GMX: $15.93 -> $45.36

I don’t see this trend slowing down anytime soon.

Other tokens to watch out for: GLP, GNS, SNX, RBN

Here are some new ones:

1. BTRFLY (Redacted Cartel) just released their V2. You lock in your BTRFLY for rlBTRFLY in 16 to17-week epochs (paid in ETH).

2. Kujira is a new Layer 1 on Cosmos. Revenue (including gas) from Kujira’s internal dApps such as ORCA and FIN is sent back to stakers, as well as a portion of revenue from each external protocol that launches on the chain. Right now, it pays 0.48% APR. It should rise with the adoption of the chain.

ETH Layer 2s over Alt Layer 1s

The trend before was the Alt Layer 1 rotation such as FTM, Terra, AVAX, Solana, and more.

Terra imploded.
Harmony’s price has taken a beating since the bridge hack.
And it feels like I’m sharing bad news about Solana each week.

Right now, all eyes are on Ethereum and its Layer 2 scaling solutions.

Arbitrum and Optimism are leading the pack in TVL growth.

The 2nd Order Effects of Tornado Cash

The U.S. treasury department sanctioned Tornado Cash, the ETH mixing service. Circle has blacklisted dozens of addresses associated with ties to Tornado Cash. The USDCs in those addresses are frozen and can’t be moved.

More people are moving away from USDC. Another concern is MakerDao’s DAI.

Dai is heavily collateralized by USDC.

So, where’s the trend moving to? More adoption of decentralized stablecoins.

Sam of Frax has something interesting to say.

Saying FRAX/DAI has USDC blacklist risk is missing the point. OFAC can sanction any smart contract/DAO/entity/protocol/thing & make it illegal to use/own/help/maintain. Like it does drugs, WMDs, & Tornado.

Also applies to LUSD, RAI, or your favorite other dapps/stablecoins.

— Sam Kazemian (¤, ¤) (@samkazemian) August 8, 2022

Leading the way are LUSD and RAI, which are both backed by ETH. Remember, AAVE and CURVE are coming out with their stablecoins too.

This should be a wake-up call to the importance of privacy. I covered privacy coins back in March.

OG’s: Monero, Zcash
New Kids: Aztec (Ethereum Layer 2), Secret Network (L1 on Cosmos), Oasis Rose, Dusk

TOGETHER WITH DEFI SAVER

Automate Your DeFi Positions with DeFi Saver

I haven’t had a late fee on my credit card in years. Why? Because it’s automatically paid off each month.

What if you could bring that simplicity into DeFi?

That’s what DeFi Saver does. It’s a one-stop dashboard for creating, managing, and tracking your DeFi positions.

Here’s how it works:

You input your desired collateral and debt ratios, and it monitors your debt positions.

If the market’s good, it’ll borrow and increase your leverage to give you more exposure.
If the market’s bad, it’ll sell off part of your collateral to prevent liquidation and loss of funds.

You can even automate stop losses and take profits.

It works with Aave, MakerDao, Liquity, Compound, and more.

It’s live now on Optimism and Arbitrum! You can automate your Aave v3 positions on the two leading L2 networks with drastically lower tx fees.

Start Automating Your DeFi Positions

SHALLOW DIVE

Velodrome – The Liquidity Black Hole of Optimism

If you’ve been following DeFi recently, there’s a good chance you’ve heard the names Optimism and Velodrome.

But what are these, and why do they matter?

Optimism is a layer 2 rollup designed to scale Ethereum. There are several ETH L2s, but Optimism is #1 now with $1.13B in TVL.

Velodrome (VELO) is the largest decentralized exchange on Optimism.

Velodrome is a fork of Solidly. You might remember Solidly from its launch earlier this year on Fantom. It was a massively hyped project from Andre Cronje and Daniele Sesta.

Solidly introduced a new tokenomics model that aligned token emissions with fees generated. In this model, governance tokens can be locked as veNFTs.

These veNFTs receive new emissions and protocol fees while allowing holders to vote on which liquidity pools receive incentives. Protocols can bribe you with tokens to vote for them.

Long story short, Solidly failed. But why did it fail?

There was no dedicated team, and Andre Cronje (the founder) left the DeFi space.
Exploitative token-holders directed emissions to themselves.

Velodrome aims to keep Solidly’s useful innovations while fixing its mistakes

Whitelisted Pools: Only approved pools can receive emissions.
Retail-Focused Emissions: More emissions go towards retail investors and last longer.
Dedicated Team: A core team is dedicated to the protocol.

The team behind Velodrome previously created veDAO, a project in the Solidly ecosystem. veDAO attracted $2.6 Billion in TVL and became a hub for Fantom DeFi.

Why is it Trending?

Velodrome launched back in May. Why is it trending now?

It comes down to incentives.

“Show me the incentives, and I’ll show you the outcome” – Charlie Munger

Optimism is paying OP tokens to DeFi users. This has attracted over a billion dollars in deposits.

The cumulative effect of this is that Velodrome TVL has grown from $14M in July to $129M now. Velodrome’s trading volume has even surpassed Uniswap on Optimism.

How to Farm on Velodrome

Velodrome’s high APRs have attracted yield farmers. For example, the ETH/USDC pool currently pays 23.54% APR.

If that sounds interesting, here is how you can get started:

Go to the‘Pools’ tab on Velodrome to find a liquidity pool.
Swap on Velodrome for the tokens in that pool.
Click the ‘Manage’ button next to the chosen pool and deposit your tokens.
Collect your VELO rewards.

Know the Risks

Before jumping into Velodrome, be sure to account for the risks:

The VELO token has already increased in price significantly.
Weekly VELO emissions started at 15M (3.75% of the initial supply) and decay at 1% per week. This amounts to over 150% inflation in the first year.
A lot of new money on Optimism entered because of OP incentives. There is no guarantee that this money will stay when those incentives end.

Full transparency: Neither Edgy nor Patrick own Velo tokens.

About the Author: Patrick is a yield farmer, farmer (in real life), Harvard economics graduate, and the founder of the Dynamo DeFi YouTube channel. There he shares analyses of DeFi and crypto.

📰 The Fast Five

Coinbase Misses Q2 Earning Estimates: Coinbase reported a net loss of $1.1 billion in Q2 2022. The exchange also missed analysts’ revenue estimates – it generated $808.3m vs the $832.2m expected. The exchange said that it would continue doing targeted M&A and venture investing.

Tornado Cash Blacklisted by US Treasury: The US Treasury added crypto-mixing service Tornado Cash to the OFAC list (Office of Foreign Assets Control).

What’s the OFAC? OFAC is tasked with keeping a list of sanctioned and blacklisted entities. The list also contains various Ethereum addresses that have interacted with Tornado Cash.

This is the first time open-source software was added to the list instead of persons or entities. Circle, the issuer of USDC stablecoin, has frozen said addresses associated with Tornado Cash. This increases the number of banned USDC addresses to 81.

Curve Suffers Frontend Hack: The largest DEX for stablecoins suffered a front end hack.

Hackers were able to steal roughly $570,000. The issue has since been found and fixed by the Curve team. If you have approved any contracts on Curve during this period, please revoke them (you can use Revoke.cash).

Reddit Chooses Arbitrum and FTX: Reddit users can now move Community Points to Arbitrum-based ETH wallets. FTX Pay will help users pay gas fees using fiat when transferring the Community Points. Currently, Community Points are only available for r/cryptocurrency and r/fortnite, with plans to expand the offerings.

Reddit is the 6th largest website in the world. More momentum for Arbitrum.

BlackRock Partners With Coinbase: The world’s largest asset manager with $10 trillion assets under management has partnered with Coinbase. Coinbase will be integrated with Aladdin, BlackRock’s investment management system. This means BlackRock’s clients can now use Coinbase’s services to trade and manage their crypto portfolio.

What’s Happening in DeFi

Optimism Liquidity Mining is Live: 8,200,000 OP token is allocated across Celer Network, Aave, Chainlink, and Thales. The liquidity mining program serves to reward users and encourage adoption. AAVE receives the most from this allocation, with 5.3 million OP tokens allocated for the money market.

Redacted Cartel (BTRFLY) Migrates to v2:BTRFLY made a huge splash last year. They used the re-basing model to quire governance tokens such as CRV/CVX. Now they’re switching over to the V2. You lock up your rlBTRFLY and get paid in ETH.

Kujira Launches a Stablecoin ($USK): Kujira was a project on Terra Luna. Since Terra’s implosion, they moved to create their own Layer 1 on Cosmos. They are launching a $USK stablecoin. It’ll be overcollateralized, soft pegged to USD, and initially backed by the Cosmos ATOM token.

I like this team. They were the first Terra Dapp to declare independence, and they’ve been moving fast. I’m keeping a close eye on this project.

Beanstalk Stablecoin Relaunches: The stablecoin that was hacked for $182m four months ago has relaunched. It aims to be a decentralized stablecoin that uses credit, not collateral, to maintain parity with the USD. What’s new? The new code has been audited by two firms, and governance has been moved to a community-run multi-sig.

Decentralized stablecoins are interesting, but I’m staying away from this with a ten-foot pole.

Arbitrum Nitro Coming Soon: Ethereum L2 scaling solution Arbitrum will undergo a major upgrade on August 31. Named Nitro, the upgrade will provide faster transactions and lower fees for the network. In short, this makes for a better user experience and a better environment for developers to build applications.