Last week, we had Worldcoin’s global launch, 🚀 a potential gag order for SBF & Company, 🤐 and a Twitter rebrand. ✖️ Our 82nd edition’s cast of characters is different, but we’re pretty sure you’ll recognize the big names. But first:
The usual disclaimer: 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).
[tl;dr]
Curve suffers $60 million exploit that spreads contagion fears 🧱⛓️
Did the SEC ask Coinbase to halt altcoin trading? ❌
[Curve-ball 👁️ ⚠️]
Curve, a decentralized exchange (DEX) specializing in stablecoins, fell victim to a "reentrancy" attack due to a bug in the Vyper programming language. Several pools of assets on the platform have been drained by hackers. 🏊♀️ In a postmortem, Curve pegged the value of the losses at just north of $61 million. Other protocols using Vyper, including Alchemix and JPEG’d, were also exploited. 🎨
What Curve Said 🌎🪙:
“The exploit comes directly at the expense of Curve liquidity providers for these affected pools, although Curve is attempting to contact exploiters and recover user funds,” the DEX shared in its postmortem. Good news, though: “Thanks to a white hat, a portion of tokens from one affected pool were recovered by the DAO.” 🏊♀️ Translation: A benevolent hacker took some funds before a malevolent hacker could, meaning the final losses will likely be lower (see edition #80 for DeFi Definition on White Hat Hack). 💻
What Journalists Said 🧑💻:
The Vyper exploit messes with more than just the price of CRV, 🐍 penned Decrypt’s Liam Kelly and Nivesh Rustgi. Projects that have forked Curve’s code are also at risk, even if they’re not exploited. 🍽️ Indeed, Auxo DAO “decided to remove liquidity from Curve” and Convex watched its liquidity drop in half a day after the exploit as users veered away from applications enmeshed with Curve. ❌💧
That’s just the start, suggested CoinDesk editor Danny Nelson: “Curve founder Michael Egorov’s penchant for borrowing tens of millions of dollars in tokens against his CRV holdings has pinned a handful of on-chain lending markets up against the wall. If the price of CRV falls too low and they’re forced to try and liquidate his collateral at a time when buyers are slim, they could sell low and suffer crippling debts – creating a systemic risk for all of DeFi.” ☢️
That precise liquidation number noted The Defiant’s Owen Fernau depends on the lending platform. A price drop to $0.37 would liquidate Egorov’s $160 million in CRV on Aave.
https://twitter.com/BlockSecTeam/status/1685742026749300736?s=20
Blockchain security firm BlockSec tweeting the specific faulty functions which allowed OTHERS to also potentially exploit the fault on-chain 😬
The state of DeFi according to media: This is “shaking confidence in decentralized finance,” 🧂 wrote Brian McGleenon for The Block, starting with the CRV token itself, which fell 12% in a 24-hour period, to $0.63. [It dropped to as low as $0.50 afterwards]. 📉 Building on the sentiment, Daniel Kuhn of CoinDesk remarked in an OpEd that “DeFi died yesterday… the spirit that propelled DeFi forward the dream of disintermediating money from power and providing easy access to basic and complex financial products without fear or favor is dead. And it wasn’t the U.S. Securities and Exchange Commission (SEC) that did it, but DeFi itself.”
What Justin Sun did ☀️: Some crypto bigwigs, including Tron founder Justin Sun, are buying CRV from Egorov at a discount — but, crucially, above the liquidation price — to prevent that systemic risk from materializing. It’s a win-win, remarked CoinDesk’s Shaurya Malwa: “Wealthy participants like Sun are stepping up to community acclaim, and to possibly protect their own outsized token holdings from being hit.”
Samantha Yap’s Take: Curve's recent exploit reminds the industry that a strong need exists to educate users to take caution when using DeFi platforms.
This incident has also reminded industry players about the need for proper communications support during a crisis. Just resorting to Twitter (aka X) updates isn't enough and a post-mortem blog post is a given. But DeFi industry leaders need to prioritize clear and empathetic communication to their users and investors. Users are eager to understand the extent of the impact and the strategies deployed for recovery.
The DeFi industry needs to openly and compassionately work together to rebuild trust and stability in the industry.
[The SEC said what? 🗣️]
According to a report from Scott Chipolina of the Financial Times, the U.S. Securities and Exchange Commission asked Coinbase to stop listing every non-Bitcoin cryptocurrency. The article quotes Coinbase CEO Brian Armstrong as saying, “They said, we’re not going to explain it to you, you need to delist every asset other than bitcoin.”
What Journalists Said 🧑💻:
“Gensler has made it clear he believes most cryptocurrencies should be classified as securities,” wrote Fortune’s Chloe Taylor, “but he has conceded that bitcoin is an exception that ought to be classed as a commodity.” 📔
This is “definitely a sort of escalation in the war of words between SEC Chair Gary Gensler and Coinbase CEO Brian Armstrong” 🪖💬 contributing editor-at-large Zack Seward said on CoinDesk TV. Maybe we’re hearing it because the SEC’s case against Coinbase has lost some steam after a partial victory for Ripple against the agency.
What Coinbase Said 🪙⚾ :
Yes, but. “The interview … omitted critical context regarding our conversations with the SEC in the U.S.," a Coinbase spokesperson told CoinDesk’s Amitoj Singh. "Whether deliberately or as a result of an oversight, 👓 the author implied that the SEC ordered Coinbase to 'halt all trading of every crypto asset other than Bitcoin.’”
But also: "The views shared in the FT article may have represented the views of some staff at the time, but did not represent those of the Commission more broadly. We continue our discussions with the Commission.”
What the SEC Said 🏦: “SEC staff does not ask companies to delist crypto assets. In the course of an investigation, 🔎 the staff may share its own view as to what conduct may raise questions for the Commission under the securities laws,” an SEC spokesperson told CoinDesk.
Why It Matters ⁉️:
Coinbase is defending itself against an SEC lawsuit. While the Ripple ruling probably gives it some room to talk publicly, Coinbase’s PR team must be on the same page with its CEO.
[Tweet of the week]
[Tidbits]
Bald Token Rugpull May Have Links to Sam Bankman-Fried’s Alameda, Data Shows. CoinDesk (Sam Reynolds and Shaurya Malwa)
Flashbots Bags Biggest Funding Round as Crypto Investments Jump 30% — We Ranked Who Won Most in July. DLNews (Eric Johansson)
SEC Charges Hex Founder Richard Heart With $1 Billion Unregistered Securities Offering. Decrypt (Liam J. Kelly and Connor Sephton)
‘Barbie’ star Margot Robbie on Bitcoin and ‘big Ken energy’. Fortune (Jeff John Roberts)
[DeFi Definitions]
A segment exploring one particular aspect of DeFi.
This week: “ATOM Economic Zone” by Sara Peoples
The ATOM Economic Zone (AEZ) is an interconnected system of specialised appchains at the centre of the Cosmos ecosystem. Enabled by the launch of Replicated Security (RS) back in March (see edition #69 for DeFi Definition on Replicated Security), its design allows the Cosmos Hub and its consumer chains to work collaboratively on economic security through their aligned use of Cosmos’ native ATOM cryptocurrency. To briefly recap, RS is a security model that enables the Cosmos Hub to provide security by lending its validators to these specialised consumer chains.
The AEZ is deemed a crucial architectural vertical to the Cosmos ecosystem as it provides utility to ATOM and encourages collaboration between projects. As with any Web3 economy, it has been designed to include a variety of appchains and projects that encompass all existing pillars of DeFi. At present, the AEZ has onboarded Neutron, an interchain smart contract platform; and Stride, a liquid staking protocol.
While open to other forms of security models such as Opt-in Security and Mesh Security, the AEZ is still incredibly new and will continue to develop along with the rest of the wider Cosmos ecosystem.
The team: founder Samantha Yap and consulting editor Jeff Benson, Sam O'Donohoe, Damian Alvarez, Tiffany Mac Sherry 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.