Week in Review | #40 | 2020
After months of smooth sailing, the crypto industry has encountered a bit of turbulence. In yet another ICO flashback, a major centralized exchange gets hacked, prompting all of the old questions, but also some new ones. DeFi has eclipsed $10B TVL but has quietened down a bit.
While the DeFi space has been taking a breather, NFTs picked up the slack in terms of hype, sporting exorbitant price tags, and eliciting visions of a wild tokenized world. It is not always easy navigating decentralized waters, but at least it is never boring.
A breach in the hull
KuCoin became the week’s headliner, unfortunately the news wasn’t good. The $150M hack of the centralized exchange has been one of the largest executed attacks in this year. The trading platform is one of the better known names in the industry, and the staggering sum lost is eye-opening. While KuCoin will cover users’ losses, one can’t help, but think of the old-adage, “not your keys, not your coins”.
Yet, the impact of the hack goes beyond the immediate financial hurt. On one hand, it reaffirms the need for decentralized applications and highlights one of the key advantages of DEXs. On the other hand, the actions taken by the attacker and some of the projects whose digital assets were impacted calls into question the very nature of decentralization in the industry.
The argument that crypto is used for illicit activities is not new. However, the industry’s centralized players have been working hard to institute KYC policies and come into regulatory compliance. Decentralized projects have to a large extent remained outside of regulatory oversight.
However, with DEXs now attracting significant liquidity, it appears that they can be used for money laundering activities. In the case of the KuCoin hack, over $17M in crypto assets have been passed through DEXs.
As was highlighted in DappRadar’s Q3 Flash Report, exchanges were the main drivers of growth of daily unique active wallets on Ethereum. If illicit activity on DEXs becomes a growing trend, regulators may be forced to react, and stymie the sector.
Some affected projects enacted countermeasures, freezing assets or forking their contracts to negate the losses. For projects like Tether, this was a controversial measure, but in line with their centralized status. Still, as was highlighted in DappRadar’s The State of Stablecoins in DeFi report, centralized coins currently occupy the dominant position in the industry.
Moreover, for others like Ampleforth and Ocean Protocol, the actions called into question what their decentralization truly means. While decentralization is promoted as one of the core values in the space, in reality capital flow may be controlled by only a few entities.
NFTs to the rescue
While DeFi has been dealing with its mini-identity crisis and a lack of a new big food item on its ever growing dapp menu, NFT-based projects have been stealing the show.
Over the past month the space saw over 53K trades and over $6.8M in volume. With NFTs around some popular projects like Axie Infinity being traded for tens of thousands of dollars in crypto assets, NFT sharding has seen renewed interest. The shard market is currently worth more than $500K.
Big brand names, like soccer club Paris Saint-Germain are being onboarded, which may generate more retail interest. While DeFi blocks may be too complex for an average user, collectibles and games have excited millions for years.
Different crypto universes are also coming about, as the play-to-earn model starts to mature alongside token farming. In that sense MegaCryptoPolis is an interesting example of an NFT driven environment that intends to use an ERC-20 token to help generate liquidity around some of its assets as well as help with cross chain operations.
Unfortunately, the project had to delay the launch of the MEGA token due to a potential breach discovered during the audit.
Sometimes excitement in the community goes over the top and leads to problems. Most recently the controversy around the EMN token, whose contract was exploited for $15M, revealed the ugly side of the eagerness in the space.
Reddit shows the way
Reddit has been one of the key platforms for crypto information sharing. So it is not surprising that the resource has been experimenting with crypto tokens. However, recently Reddit created a way for users to derive value from these tokens. By enabling MOON token holders to exchange them for Reddit Coins, which can be used to pay for the platform’s premium features, Reddit has given users a means to value Moon.
There are currently over 7.8K addresses holding MOON, and it will be interesting to see if the development drives additional demand for the crypto asset. The situation is also worth watching for the potential revival of the “revere ICO” concept.
Scalability and the battle for dapps
As Ethereum stumbles towards the launch of Ethereum 2.0, scalability continues to be a burning issue. Some projects like SingularityNET look to have grown tired of the lack of clarity regarding ethereum 2.0 and are looking to move to another blockchain solution. In the case of SingularityNET that would be Cardano.
Others, like Synthetix, are exploring layer two scalability solutions. The project will be working on implementing optimistic rollups, becoming yet another DeFi protocol on Ethereum looking to layer 2. With xDai also gaining popularity, it looks like layer 2 solution may be helping Ethereum get through its current scalability difficulties.
Still, with Binance launching the Panama Project to make it easier for users to move assets to their chains, and Tron looking to bring wBTC and wETH to its ecosystem, Ethereum does not have much room for error with Ethereum 2.0.
NB: The information provided here is for reference and informational purposes only. This is not investment advice and should not be treated as such.