What’s causing the pump?
Digital Assets

What’s causing the pump?

Stan
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What should you do if your protocol gets exploited? Do you threaten them with the law? Do you offer them a 10% fee and promise not to go after them?
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There’s no set playbook for this, unfortunately. That’s the situation Euler Finance finds itself in after being exploited for $195m.

Here’s what we got today:

  • Biggest hack of 2023. Euler Finance was hacked for over $195 million.
  • Why are markets pumping? Some plausible explanations for the Monday rally.
  • Aztec Connect is winding down. The best tool for using Ethereum privately is shutting down.
  • Around the web. A free email course for you explaining TrueUSD growth and more.

Reading time: ~7 minutes.

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​
Here’s your Edge ⚔️

BREAKING NEWS: I’m literally about to send out this email, but there’s some major news. Arbitrum has confirmed that there will be an airdrop of their token on March 2023. More details.
​
​Beware of scammers. There’s going to be a lot of mf’ers with fake websites trying to steal your coins. ONLY go to the official arbitrum website to claim the token when it’s time.

📉 THE MARKETS

weekly crypto market caps

​​Sources: Coingecko, DeFiLlama, Fear & Greed Index​

“And I sincerely believe, with you, that banking establishments are more dangerous than standing armies” – Thomas Jefferson

Euler Finance Hacked for $195m

What's causing the pump?

​Right after USDC started regaining its peg, everyone was ready to declare…
​
“Trust in Code!”
“Trust DeFi over Banks!”
​
But then Euler Finance, one of the most trusted DeFi protocols, was hacked within a day 🤦‍♂️.
​
What is Euler Finance? Euler Finance is a unique DeFi lending protocol. The majority of top protocols have what is called a “permissioned system.” In Aave and Compound, only certain tokens could be used as collateral.
​
With Euler, you could lend and borrow any asset. The protocol was designed to handle the risks associated with more volatile, illiquid crypto assets. While that sounds risky, Euler was one of the most trusted names in DeFi.​

How did the hack happen? Flash loans were used to exploit the “donateToReserves” function, which was only added eight months ago. More technical details are available in this post-mortem. Here’s a breakdown of the stolen funds.​

Breakdown of stolen funds in Euler Finance

​Source: BlockSec​

Euler was considered an established protocol already integrated into several other protocols. Now, those protocols are affected as well. Here’s a partial list:

  • Angle Protocol
  • Balancer
  • Temple DAO
  • Idle DAO
  • And more.

A Cat and Mouse Game​

The Euler Finance team has tried its hardest to get the funds back. What can you do?
​
Do you threaten the person?
Do you give them a larger finder’s fee?
​
There’s no set playbook for this.
​
So how do you even communicate with the hacker? Fortunately, you can see the address where the funds went, and you can send on-chain messages.
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​Message 1: “We understand that you are responsible for this morning’s attack on the Euler platform. We are writing to see whether you would be open to speaking with us about any potential next steps.”​
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​Message 2: “Following up on our message from yesterday. If 90% of the funds are not returns within 24 hours, tomorrow we will launch a $1m reward for information that leads to your arrest and the return of all funds.”
​​
Final message:

Someone sent a message to the hacker claiming they lost their life savings in Euler. In a Bizarre twist, the hacker sent 100 eth to this person.​

​Read more: Post-mortem report.​
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Right now, there’s a USD 1MM bounty for information that leads to the attacker’s arrest.
​
I’m not sure if there will be a happy ending since it looks like the hacker’s funneling the funds.

What’s Causing the Pump?

Crypto markets rallying

Crypto markets started rallying on Monday.

This was somewhat confusing as we were facing one disaster after another, including three crypto-friendly banks being shut down.

Whatever you think is going to happen in Crypto…the opposite happens!​

What are some plausible explanations?​

#1 QE speculations. Traders and investors speculate that the Federal Reserve will slow or pause rate hikes. After all, the Fed can only increase rates until something breaks. Many Crypto people view the SVB collapse as a possible sign of an impending breakdown.

There will be added pressure on the Fed to slow the rate hikes. They have already announced additional funding to banks to back deposits. And many are viewing this as a masked form of quantitative easing.

#2 Flight of Safety from Banks. 3 banks shut down last week. Credit Suisse was in danger until they could borrow $54b from the Swiss central bank. People are starting to mistrust banks and are seeing Bitcoins and Ethereums as safe havens. Remember…this was originally was Bitcoin was created.​

#3 The Binance Buy. On Monday, CZ announced that Binance was converting USD 1B BUSD into native Crypto, including $BTC, $ETH, and $BNB. This constitutes a large buy pressure.

These kinds of announcements can act as catalysts, and many people speculated that this new buying pressure would push prices up.

However, nobody can explain market behavior with 100% certainty. So, take these explanations with a grain of salt. The point is to try to explain big price movements. That is how we train our mental models.

Analysis Apprentice: A Free Email Course

Analysis apprentice: free email course

​We’ve created a free 7-day email challenge to make you better at evaluating projects.​

You’ll receive 7 lessons over 7 emails. Each email will introduce a component of an overall larger framework for evaluating projects.​

In each component, you’ll:

  • Learn why it’s an important part of your evaluation,
  • Learn how to form your evaluation with real case studies, and
  • Be challenged to apply the theory.​

After this challenge, you’ll have enough confidence to start making your own calls.​

Get instant access to the Analysis Apprentice.

Aztec Connect is Closing

Sunsetting Aztec Connect

​If you wanted to use Ethereum privately, Aztec Connect was your best bet. But now the team has announced that they will shut Connect down.​

What is Aztec Connect? For users, it was a portal that allowed them to use DeFi services fully and privately. Aztec Connect provided an SDK for protocol developers to integrate their protocol into Aztec’s private rollup. It was also known as ZK Money.​

The deposit function will only remain available until March 21. You can withdraw funds forever, though the team will keep the sequencer running for only one more year. After that, you’ll have to rely on a sequencer run by the community.

Since the protocol is open-source, so we can expect many forks and airdrops.

Why are they closing down? Considering that the Tornado Cash developer is still in jail, many instantly thought this shut-down was perhaps due to regulatory pressures. However, the team has denied this, saying there is no regulatory pressure. They simply don’t have enough resources to keep supporting Aztec Connect and their other projects on an ongoing basis.

What’s in store for the future? This doesn’t mean that the team has been disbanded. They are still working on two other exciting projects:

  • Noir. This is an accessible and flexible language for developing ZK-provable programs.
  • Aztec V3. This is the holy grail of privacy-layers for Ethereum and their next generation encrypted zkRollup.

So, there’s no need to worry. We can still hope for a private layer 2 smart contract platform on top of Ethereum.

​Read more about it here.​

📊 Oh, it’s True. TUSD is Rising!

table of top 10 stablecoins

​This table shows the top 10 stablecoins. Among these, TrueUSD (TUSD) stands out.

  • 115% monthly increase
  • 60.33% weekly increase
  • No red indicators. Everything is green.​

​What is TrueUSD?

  • It is the national digital currency of Dominica.
  • It is a stablecoin fully backed by the US dollar.
  • It is the first stablecoin to implement Chainlink Proof-of-Reserves.

Why this massive growth? Last weekend was a nightmare for Crypto. Top stablecoins such as $USDC, $DAI, and $FRAX depegged started a flight from those stablecoins. But $TUSD didn’t break the peg. As a result, a lot of people ended up in $TUSD.​

Even Binance moved zero-fee Bitcoin trading from BUSD to TUSD. Before, the BTC/BUSD pair was free to trade. Now, this has been replaced with the BTC/TUSD pair. Of course, this hugely boosted demand.​

Even though $ TUSD’s market cap is still very low compared to $USDC and $USDT, it is becoming a major contender in the centralized stablecoin space.

🌍 What’s Happening?

📰 Industry News

Meta is ditching its NFT program on Instagram and Facebook. They said that they’re looking into other monetization opportunities for creators.

Binance will suspend deposits and withdrawals of GBT on May 22. This was because its payment partner, Paysafe, said it would no longer support the feature.​

CoinFLEX rebranded as Open Exchange (OPNX). This follows their restructuring. And they are partnering with 3AC founders.

New York Attorney General Letitaia James alleged that $ETH is a security in the KuCoin Lawsuit. This is the first time a regulator has claimed that in court.​

NounsDAO decided to fund a feature length NFT movie. It will be an animated film based on the Noun characters.

🍿 DeFi Bites

Convex is now live on Polygon. This is its third home, after Ethereum and Arbitrum. And it has already attracted more than $13 MM in TVL.​

MakerDAO deployed several parameter changes to limit the exposure to centralized stablecoins. This was in response to $USDC repeg.​

DYDX passed a proposal to reduce the trading rewards by ~45%. This will significantly reduce token inflation.

Hedera, a PoS smart contract platform, was hacked on March 9. The attacker targeted liquidity pool tokens on DEXes. The consensus layer was not affected.

Lido Finance is considering the closing of liquid staking on the Polkadot and Kusama ecosystems. This indicates the downfall of these ecosystems.

​Worldcoin unveiled the World ID protocol, their identity protocol. It can be used to prove the existence of a unique human behind digital accounts.​

Dopex announced the migration of their LP farm to the Sushiswap Earn platform. DPX and rDPX LP stakers can now earn SUSHI incentives and DPX emissions.

🧠 Twitter Alpha

😂 Meme

stablecoins dip

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