Week In Review | Week #7, 2021
This has been another exciting week for the crypto market. BTC has crossed $52K, ETH briefly crossed $1.9K and the DeFi market has climbed over $83B according to CoinGecko. Still, progress has not been without challenges, with the yearn ecosystem facing a second exploit, over a short period of time.
NFTs continue to attract attention across a number of sectors, and bring in celebrities into the industry, which may help attract retail users to the crypto space faster.
Alpha Homora is exploited and CREAM takes a hit
The yearn ecosystem suffered from another exploit, this time more severe and potentially more concerning than the earlier Dai vault one. Alpha Homora suffered around a $38M loss from the attack, which also dragged down the value of CREAM.
The attacker took advantage of the Alpha Homora’s vulnerabilities and the project’s integration with CREAM’s Iron Bank to conduct the exploit, by engaging an “evil spell” and borrowing from the Iron Bank.
There are several things that are concerning about the attack and the way the events unfolded. Multiple attacks against the yearn ecosystem, raise the question of whether the pace of growth has left it too vulnerable. Given the increasing level of integration between the projects, the effect of any exploit could be magnified.
Also, this event highlights the fact that the industry may not be ready for uncollateralized credit lines. Even though the Iron Bank is whitelisting projects, the projects themselves could be vulnerable with loans then serving as an instrument in the attack.
Finally, this has shown that social media can confuse and exacerbate the issue creating a domino effect where there maybe should not have been one. Initially, it was thought that CREAM was exploited and that the project has lost $38M in assets. However, it is Alpha Homora that was attacked and that now owes CREAM’s Iron Bank a significant amount.
Nevertheless, both projects’ underlying assets suffered 20%+ losses according to CoinGecko, but CREAM suffered much heavier TVL losses, dropping from over $740M to under $200M. While it appears that there is nothing structurally wrong with CREAM, and Alpha Homora actually owes the project money, it is suffering from massive capital flight.
With composability increasing, and ecosystems forming, this is a worrisome signal.
Insurance may get more attention
Nexus Mutual raised $2.7M through a token sale, with the Nexus platform looking to sell $1B in insurance, covering 30+ projects this year. With exploits once again coming into the spotlight, insurance looks to become an important part of DeFi.
As TVL grows and financial operations become more complex, there will need to be some protection against attacks. If losses mount, projects may find it difficult to execute bailouts without undermining the value of their underlying assets.
Institutional investors can get exposure to DeFi
Bitwise has announced the launch of the Bitwise DeFi Crypto Fund, with initial assets being from some of the top projects in the DeFi space. Providing institutional investors with index exposure to DeFi could potentially increase capital inflow into the sector.
The DeFi index is not a new concept, for instance, the DeFi Pulse index has been operating for some time. However, providing a gateway to institutional capital opens new liquidity opportunities. If successful, the industry could see other sector base indexes.
Ethereum rivals moving forward
Polkadot released a plan for the parachains launch, indicating that it is currently in the testnet rollout stage. There are a total of three stages with the next one being the rollout on Kusama. Given that Kusama has matured to be more than just a testing sandbox for Polkadot, this could catalyze more activity in the ecosystem.
Meanwhile, Cardano is expecting to go through the Mary hardfork in early March. With Ethereum gas fees continuing to be an issue, competing blockchains have a window of opportunity to convince projects to try their blockchain solutions.
Binance Smart Chain continues to mature, and now has over $8B TVL, and 3 projects with over $1B TVL. While these are still significantly lower than the figures on Ethereum, BSC is showing a solid growth pace. BSC is a particularly interesting rival because of its EVM compatibility. Also, given the strong infrastructure of the centralized business, BSC may have the best-centralized support system of all of the L1s.
Crypto art taking the next step
The segment continues to capture headlines with spectacular sales results. Most recently the collaboration between Two Feet and FEWOCiOUS netted over $1M at the Nifty Gateway auction. More and more the traditional art institutions are paying attention to crypto art, and now Christie’s is partnering with MakersPlace on an auction of Beeple’s NFT piece. Beeple is currently the number one crypto artist in terms of total artwork value at over $9.3M.
Still, not everyone is thrilled by the rising prices for crypto art. Charlie Lee calls NFT’s “Non-Finite Tokens” and questions their value. Nevertheless, his experiment with the “Litecoin chikun” avatar sold for 1 ETH.
Demand for virtual events is growing
The need for viewing and interacting has catalyzed the virtual events segment. More and more of these are being set up in the different metaverses like Cryptovoxels, Decentrland, and Somnium Space.
Some of the recent ones include the Charged Particles launch party and the Rare Effect vol1 from Art Progression Now. Users today have limited opportunities to visit traditional museums and galleries and virtual events may be able to capitalize on that need.
The Sandbox, a key player in the metaverse segment has recently had its first public land sale which brought in around $1.49M. Metaverses and the virtual events hosted in them, may provide the much-needed capabilities for long-distance interaction and improve cooperation within the space.
The information provided here is for informational purposes only. This is not investment advice and should not be treated as such. Strategic Round Capital and/or the author of this article holds a position in BTC, ETH, YFI.