Carbono Insights #73 | Crypto is lava
Is there a heatwave where you live? We’re melting where I’m at. You start sweating the moment you set one foot outdoors, so your best chance of comfort is to stay very still on your couch, under your roof. This might be how crypto feels these days, as we’re experiencing a time of historically low volatility.
And it’s not like nothing is happening in the space or the economy. For the first time in history, a rating agency, Fitch, has downgraded US debt from AAA to AA+ (due to concerns about extended erosion of fiscal stability and escalating debt levels). Meanwhile, news from China suggests we might be entering a period of weakness. This news could impact crypto in both positive and negative ways. We’ve seen in the past how macro uncertainty renewed crypto’s reputation in the eyes of investors, but also how it has diverted funds away from alternative investments. These days it’s all stillness.
Crypto is searching for the next catalyst while interesting developments continue within its realm. Keep reading to stay updated on Curve’s hack and its consequences, Base’s initial steps, potential new ETFs (not related to Bitcoin), and the latest updates from Binance, Maker, and the platform formerly known as Twitter.
1. DeFi| Curve hacked
Curve’s third-party-created pools (also known as factory pools) experienced a hack worth around $60 million. Thieves exploited a bug in an older version of the compiler (akin to the protocol’s code foundation) and exploited the vulnerability. White hat hackers also used the same vulnerability to stop further losses and halt the drama. But the damage had been made -$CRV plummeted, and Curve lost over $1B in TVL.
While the Curve hack has been resolved in recent times, its consequences linger. It was already known that Curve’s founder, Michael Egorov, had substantial multimillion-dollar loans spread across DeFi platforms. These loans face potential liquidation if the token’s price continues to decline. Delphi provided an insightful explanation in the following thread.
To sum it up succinctly, Egorov had loans amounting to approximately $100 million secured with 427.5 million $CRV tokens, which account for 47% of the circulating CRV supply. If CRV’s price dropped by 33% more, the loans would trigger an automatic liquidation that would send CRV to hell.
Some crypto OGs stepped in to help mitigate the situation. Justin Sun, DCF God, and others bought CRV directly from Egorov, reducing the risk of contagion. However, this risk hasn’t disappeared entirely, and the impact on Curve’s trustworthiness remains to be seen. While Curve is a prominent stablecoin exchange, and its crvUSD has been well-received by the market, the tech vulnerabilities and the revelation of a significant single point of failure in Egorov have stained Curve’s reputation.
2. Layer 2 | Unveiling Base
Coinbase’s Layer 2 (L2) solution has gone live, and its reception has been characteristically crypto: an influx of memecoin trading. During its initial hours, while there was still no proper user interface to transition funds into Base and no functionality at all to move them back to Ethereum, traders engaged in frenzied activity involving $BALD, a memecoin with no purpose beyond playful gambling.
$BALD provided a week’s worth of amusement (there were even suspicions of Sam Bankman-Fried’s involvement in its launch, a notion that garnered amusement), yet this isn’t what we anticipate from Base.
Coinbase is officially launching its L2 this week (on the 9th), featuring Coca-Cola and Atari in its launch event. We’ve already witnessed its ability to attract significant frivolous memecoin trading. Let’s observe what Base’s unique blend of Ethereum compatibility and institutional engagement can contribute to crypto.
3. Real World Assets | MakerDAO
Maker has been on an upward trajectory recently. In October of the previous year, they voted to proceed with their Endgame plan, and in May of this year, they outlined five steps for its execution.
Lately, two advancements have materialized within this plan:
- The Smart Burn Engine a tactic to utilize surplus DAI from their reserves to burn MKR tokens via Uniswap.
- A reduction in the reliance on USDC as collateral and a heightened emphasis on RWAs (Real-World Assets). MakerDAO has quadrupled its profits by reducing USDC holdings from nearly 50% to 9%, replacing them with RWAs.
4. TradFi | ETH Futures ETF
Could ETFs be the catalyst crypto has been awaiting? Our latest surge of confidence emerged from Blackrock’s proposal for a bitcoin spot ETF earlier in the summer. Currently, we’re witnessing a surge of applications for Ethereum futures ETFs.
The SEC’s concerns mainly pertain to spot ETFs, but they have previously approved future-based funds (the SEC sanctioned Bitcoin futures ETFs in late 2021). Thus, this approval could be more straightforward.
“If granted approval, these ETFs could go live within 75 days of filing. Consequently, the Volatility Shares’ Ether Strategy ETF might launch on October 12, followed by Grayscale, Bitwise, Roundhill, and ProShares ETFs on October 16.”BSC News
5. Social media | Find the X
Continuing the narrative of Twitter’s transformation, an interesting take is circulating. To be fair, although Twitter was already a household name, Elon Musk is attempting to imbue it with a vision that extends far beyond the (already broad) concept of a social media platform for brief, immediate communication.
One particular aspect of Musk’s future vision is especially thrilling for crypto enthusiasts. Elon Musk envisions constructing a payment highway integrated into Twitter’s social fabric. And considering his stance on crypto, this sparks considerable interest.
Musk has directly denied some of the allegations contained in this thread, but it’s still an interesting view.
6. Regulation | Binance, too big to fail
Numerous events transpired this week, but one of the more disconcerting stories revolves around a report indicating that the DOJ is contemplating filing criminal fraud charges against Binance, albeit with reservations about the potential “exchange run.”
Evidently, the Department of Justice views Binance as too significant to collapse. Rumors suggest that US regulators already hold a strong view on compliance breaches within the main centralized exchange. Nevertheless, they seek a legal angle to approach Binance that would circumvent collateral damage — specifically, a run that is potentially larger than FTX’s.
