This Week: Stablecoins, Curve Wars, DeFi Exploits, Avalanche Sub-Nets and The Merge
A round up of things I’m reading and observing in the market
Hey everyone! This week has plenty of things going on but thematically the largest narrative has been around UST and FRAX with their new place in the curve wars. Part of these curation updates will be analysing the meta of what’s going on in the industry but I’m still iterating on the format of this. Anyways, let’s jump in!
The biggest story this week has been around FRAX and UST teaming up to create a new type of Curve pool called 4Pool and then using their share in Convex to move a majority of the incentives which are in the 3Pool to 4Pool which makes it one of the largest stable pools in DeFi. Power moves in DeFi are defined by actions like these. One of the biggest benefactors of this is FRAX which currently has a euphoric wave riding it.
Given Frax’s rise in dominance and attention with the FRAX move, Maker has been on the backpedal (from a perception perspective). However the key thing that is forgotten about the new 4Pool is that it has so much reliance on centralised stablecoins because 2 of the 4 tokens are USDC and USDT. Kind of feels like we’re just playing circular games and using narratives to justify valuations. Oh well, it is what it is. The key thing here is that DAI and FEI feel like on one team, whereas FRAX and UST are on their own. The stable battle only gets more interesting.
On the topic of stablecoins, the key weapon they all hold is the yield they provide. It’s one of the main reasons why UST has managed to gain the amount of mindshare it has so far. In UST’s case they’re playing with borrowed time and money to keep their weapon alive where as DAI has tons of organic demand meaning it doesn’t have to manufacture artificial yields.
As much as I have my doubts about Luna and UST, I do think this is a really powerful property of crypto that many under-estimate. When the Solana Wormhole hack happened there was almost half a billion dollars that stepped in to fill the remaining amount in a few hours. Which industry on planet earth has such powerful properties? I don’t think it is a healthy pattern but I do think it’s worth keeping note of.
While the contents of this tweet are simple, it highlights a more nuanced point: stablecoin protocols want DAOs to hold their treasuries in their particular stablecoin. I’d imagine bids on the asset that treasuries hold become increasingly popular as the stablecoin game heats up more aggressively.
Given the crazy complexity happening around Curve, Frax, Convex and all the others, you actually do need a PhD-like level of research and dedication to keep up with it all. I’ll be creating more content in the coming weeks to help educate everyone here on it all since there really is a lot to take in with no easy guides around.
A common theme that I’ve found over the past few weeks is the increasing chatter about the reliance on incentives for DeFi protocols. The shine around them is gone but now they’re being evaluated very critically by the market as time goes on. CVX is still number go up but I wonder when this gets re-evaluated.
This thread is a great read to understand the state of DeFi and some thoughtful perspectives from people who have spent a lot of time in the industry. I think the common consensus amongst this thread is that the amount of innovation has been very underwhelming and the number of forks has been overwhelming. Mainstream adoption sentiment is mixed but is good to understand what the market was expecting versus where we are today. Highly recommend going through it all.
Not a week goes by without DeFi exploits happening somewhere. The latest victim is Inverse Finance with a severe $15m blow. The main reason for the hack was an oracle pricing issue. Funnily enough a lot of the exploits we see happening these days are due to either reentrancy attacks or oracle mispricings. The scope of attacks outside of these two key things is pretty low from what I’ve seen personally.
Another close call, this time to the tune of $15b! While it wasn’t a highly likely attack, it was very dangerous since it meant that 2 of the 3 multisig signers on Convex could rug the entire system through a series of very specific steps. On one hand it feels scary to think about the what if but on the other hand we can celebrate because all these systems are transparent and 3rd party ecosystem partners can find vulnerabilities that save everyone.
Security has been a second class thought during the euphoria in the past 12 months, especially as the incentives on other chains has been so high.
