Week in Review | #32 | 2020
The new month has brought in a mixed bag of news. The market continues to expand with ETH approaching $400, and the DeFi sector making headlines. Investors appear to be ready to take on risk and so we can expect more fundraising activity to come.
However, with hacks continuing to be a problem, and the term “exit scam” reappearing on the horizon, the market looks more and more like it is entering bubble territory. Still, DeFi continues to lead, while the gaming sector impresses with its resilience, making it the sector to watch in the coming months.
Another week another milestone
According to DappRadar’s Ecosystem Report, transaction volume on Ethereum has reached $12B. Not surprisingly, most of the activity can be attributed to the DeFi sector. The sector continues to grow, and with new projects being announced it is natural to expect the trend to continue.
It is important to note, that while the number is impressive, it may at least partly be attributed to the rising asset prices. Headlines often feature dollar values and do not account for inflation, this may be overstating the level of activity in the market.
In part, this can be seen in the decrease in active user wallets on Ethereum. So, while the ecosystem appears to be growing it may not be as fast or as steady as some may think.
Trouble in paradise
There were also a number of hacks this week. At the dapp level, Opyn suffered an attack. The project is often referred to as an insurance platform, which makes the occurrence even more troubling. The project’s ETH Put contracts were exploited, but it must be noted that the project has taken steps to mitigate the negative impact of the attack on the users.
On the infrastructure level, Ethereum Classic looks to have suffered from a 51% attack. With the fat protocol thesis recently undermined, the vulnerability of layer one protocols becomes especially perilous. In 2020 focus has shifted to second layer protocols, but if the network on which an ecosystem is built becomes compromised, it may significantly disrupt growth.
Also, the frightening term exit scam has reappeared in the news, with YYFI being labeled as such. The open-source nature of DeFi projects makes it easy for them to be copied. This creates an opportunity for scammers to mix in with the crowd and pray on the bewildered retail users and investors.
More steps forward
Despite certain unpleasantries, the DeFi sector continues to build. A number of new upgrades have been in the news including dYdX’s Ether perpetual swaps, and Set Protocol’s expected update. The latter is another step towards decentralized asset management. The protocol powers TokenSets, which may remind some of eToro.
Initially, DeFi projects were focused on creating investment instruments and tools for users. Now, it appears the focus may be shifting towards enabling users to build these tools themselves.
A number of DeFi projects have also made it into Santiment’s top projects by developer activity for the month of July. However, it was also interesting to see prediction market projects Augur and Gnosis make the top ten.
While both had major releases their appearance is intriguing in terms of the decentralized oracles trend since Band Protocol also made the top ten. As more and more capital enters the dapp space, oracles are going to become more vital to the security and stability of the ecosystem.
Furthermore, there is more talk about what Cardano’s ecosystem will be able to show. Last week Jon Jordan shared his skepticism regarding Cardano’s ability to have “thousands of dapps” running by July 2021. However, the project’s code has impressed Quantstamp’s CEO, with Jaye Harrill, the auditing firm’s communication manager”, going as far as to predict that Cardano will be the most popular platform behind Ethereum.
It will be interesting to see if some of the aspiring Ethereum rivals can deliver on the hype.
Investors are showing the money
DeFi has catalyzed interest in the industry. On one hand, there are the IDOs, other forms of funding are also taking place. Some raises are small, like Hedget getting $500K in its seed round, for its project to help users hedge risk with derivatives. Other headlines are bigger, like Electric Capital raising a $100M fund and looking towards DeFi.
Furthermore, the IEOs may be back. The Sandbox will have a $3M token sale through Binance Launchpad. This is exciting for two reasons. It could signify that Binance will be rejuvenating its IEO activities, something that brought a lot of excitement into the industry.
Moreover, the project chosen is from the gaming industry and not from the DeFi sector.
The virtual real estate is often overlooked, but it is no longer just Decentraland and CryptoVoxels. As NonFungible’s S1 2020 Report on Virtual Real Estate shows, The Sandbox has already carved out a spot for itself.
Where there are profits there are taxes
The question of taxes has always been hanging over the industry. Now that the appropriate agencies have started to catch up in terms of understanding and monitoring, some are urging for policies to be lenient.
Recently, members of Congress wrote to the IRS Commissioner, to try to ensure that staking rewards are not overtaxed and don’t create an unnecessary burden on the system and users and investors.
Tax policy has often been used as a mechanism to try to incentive productive dynamics in the economy. On the other hand, a tough taxing policy can scare away businesses and set back the industry.
It is encouraging to see that there is now more understanding of the core concepts in the industry and an attempt to protect growth. With Cardano’s Shelley launched, and Ethereum 2.0 in the works, staking will start to play a more vital role in the crypto ecosystem.
NB: The information provided here is for reference and informational purposes only. This is not investment advice and should not be treated as such.