Look, ma: No regulations! Weâre enjoying a rare SEC-free news week at The Context. In this weekâs edition, we dive into Blastâs controversial launch, discuss the latest DeFi hack, and shed some tears over a decentralized divorce.
[Blast: Launch Failure? đ]
Upstart layer-2 blockchain Blast, founded by Pacman (the co-founder of the NFT marketplace, Blur), has pulled in over $500 million in crypto deposits since last Monday, making it the third-largest holder of staked Ether. But the early launch has generated public criticism, including from seed investor Paradigm; đ± General Partner Dan Robinson tweeted that the project âcrossed lines in both messaging and execution.â
What Journalists Said đ§âđ»:
Whatâs the problem? Andrew Hayward (Decrypt) explained: âEssentially, early users are locking their funds into a bridge that will eventually connect from Ethereum to Blastâbut the Blast network isnât actually live yet. đ And those funds cannot be withdrawn until the expected mainnet rollout in February, drawing security concerns due to the industryâs history of network bridges being exploited for vast sums of crypto.â Indeed, Robinson said Blastâs approach âsets a bad precedent.â
Some people think Blast is even worse, said Oliver Knight and Shaurya Malwa (CoinDesk). Early users get âBlast pointsââostensibly redeemable for tokens after the network launchesâwith 16% bonus points going to those who âbring in more participants, and another 8% if the second level brings in more people.â Sounds a bit like a Pyramid scheme. đŒđ«
Attacks are also coming from rival layer-2s, noted Tom Blackstone (Cointelegraph). Polygon Labs engineer Jarrod Watts argued that Blast isnât actually a layer-2. It âsimply âaccepts funds from usersâ and âstakes usersâ funds into protocols like LIDOâ.â
Why It Matters âïž:
Thereâs been a surge of new layer-2s, which batch and process transactions off of Ethereum to increase network capacity, but two playersâArbitrum and Optimismâcontrol over 77% of the market. The much-anticipated Scroll and Polygon zkEVM have yet to gain much steam, đ while third-place Base has plateaued at a 4% market share. Pacman has beaten long go-to-market odds before: Blur quickly pushed its way to the top of an active NFT marketplace by promising airdrops. Blast hopes to build hype via similar tactics.
[KyberSwap: Free Trade? đ±]
KyberSwap was exploited for $48 million, very nearly killing the decentralized exchange. A vulnerability detected in April resulted in KyberSwapâs total value locked crashing to a mere $20M before climbing to $80m in November. đ§ However, the exploit has drained much of KyberSwapâs remaining liquidity (and customers); the value locked within the protocol sits at $7 million.
What Journalists Said đ§âđ»:
âInfinite money glitch?â asked Tom Blackstone (Cointelegraph). Looks like the attacker convinced the smart contract it âhad more liquidity than it did in reality.â According to Ambientâs Doug Colkitt, the attacker targeted a âconcentrated liquidityâ feature, which allows users to set upper and lower limits for selling and buying. While the feature is common to decentralized exchanges, Kyberâs implementation proved uniquely exploitable.
Hackers are getting increasingly confident, noted Sam Reynolds (CoinDesk). âThe attacker teased that "negotiations will start in a few hours when I am fully rested." Reynolds further notes that hackers are becoming increasingly cheeky. "Hackers teasing their victims via signing transactions with strings of text is an increasingly common trend with decentralized finance exploits.â đ§”
Why It Matters âïž:
With DeFi transaction volume picking up in recent weeks over speculation that crypto ETFs are coming to the US, institutional investors may look to test the DeFi waters. âČ To feel comfortable doing so, however, they need to feel confident their funds are safe. According to Chainalysis, $3.1 billion was siphoned from DeFi protocols in 2022. While crypto crime is down in 2023, multimillion-dollar hacks remain a publicity hazard for the industry.
[Bankless: DAOvorce? đ]
David Hoffman and Ryan Sean Adams, creators of the pro-Ethereum media company Bankless, have submitted a proposal to the BanklessDAO to separate the two entities. They also say they will burn their BANK tokens, which give them voting rights in the DAO. đłïž That decision came after BanklessDAO filed a proposal with the Arbitrum DAO asking for about $1.8 million in ARB for a multilingual marketing campaignâafter Arbitrum had paid Bankless for a sponsorship.
What Journalists Saidđ§âđ»:
Bankless didnât know what BanklessDAO was up to, tweeted Hoffman, noting he heard of âworries of a cash-grab via DAO proposal.â đž He continued: âThe concern is that BanklessDAO would not be able to make such ambitious proposals without leveraging the weight of the Bankless brand, which they did not produce, is not theirs, and ought not to benefit from.â
What we have here is a âfailure to delineate,â wrote Daniel Kuhn (CoinDesk), âbetween distinct organizations that often share a name and founders, but exist for different ends.â While Bankless publishes newsletters and podcasts, đïž the DAO, âlegally speaking, is an organization that does not even exist.â The founders should have considered taking a more active role in the DAOâs operations as it âgot big by leveraging the Bankless brand.â
Why It Matters âïž:
Itâs not uncommon for a for-profit crypto project to share a name with a DAO and even a non-profit foundation. Itâs also confusing for everyone involved. If BanklessDAO were instead the Bankless Fan Club, thatâd be one thing, but a decentralized autonomous organization implies that youâre running at least part of the show. The outcome of this hubbub could provide a template for crypto brands moving forward.
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Credit: @anothercohen
[DeFi Definitions]
A segment exploring one particular aspect of DeFi.
This week: âFlatcoinâ by Debra Nita.
A flatcoin is a stablecoin that grows together with inflation, unlike regular stablecoins that are pegged to the nominal value of currencies (and are not inflation-adjusted). Flatcoins are pegged to the cost of living. This could for instance be measured through the Consumer Price Index, or a basket of various assets.
The purpose of the flatcoin design is to enable token holders to maintain their purchasing power. It could arguably be more valuable than standard stablecoins because it offers a greater return on investment to its holders.
Several flatcoin projects rose to prominence around a time when inflation was beginning to rise drastically in 2021. These include FRAXâs Frax Price Index and Truflation. Inflation continues to impact citizens globally, particularly those in the lower income bracket. The effects of this is pronounced as wages have not risen to match the rise in inflation. Effective implementations of flatcoins could therefore have a major impact on the real world, and make crypto more relevant and accessible to a wider audience.
The usual disclaimer:Â This newsletter collates the main themes and headlines of the week in DeFi/crypto/metaverse/Web3/NFT land and tries to provide unbiased context. It's aimed at anyone who wants to keep an eye on the space. It's put together by a team at YAP and doesn't contain any promotion of our clients (if one is mentioned, we'll flag that).
The team: Founder Samantha Yap and consulting editor Jeff Benson, Sam O'Donohoe, Ewan Brewster, Damian Alvarez, Andrew Wickerson, Tiffany Mac Sherry, Becky Corbel and Delon Chan. Your feedback is, as always, welcome. Ping us at thecontext@yapglobal.com. Old newsletters can be found here.
This newsletter is prepared by YAP Global, an international P.R. Consultancy focusing on helping cryptocurrency, Decentralised Finance (DeFi) and Web3 brands through impactful storytelling. Find out more about us here.