Week in Review | #33 | 2020
The past seven days were filled with exciting headlines. Investors and users are seeing green and throwing caution to the wind. The requirements for being a usable/investable project become lower every day. It is still important to have something functional, but audits may no longer be a necessity. The hype around DeFi is turning a sector-wide “beta test” into a potential bubble the size of which has not been seen since the ICO days.
Still, the industry is growing, and DeFi is starting to show up on more networks. The possibility of astounding returns may breathe life into smaller networks that have had a harder time competing with Ethereum over the past few months.
After YFI captivated the DeFi community with how quickly its TVL has grown and how fast the governance token appreciated in value, other projects were bound to try and follow in its footsteps.
This week YAM made all the noise. The project introduced an elastic supply coin, similar to Ampleforth, combined with the liquidity mining and governance token features of YFI. The token distribution model that rewards everything to the users has gained favor in the community. YAM price skyrocketed as did its TVL, which has approached $600M.
All of this for “10-day project from start to launch”. There was no formal audit of the code, the community saw a blog post, a site, and the prospect of gains and jumped in.
Two days later the YAM team found a critical error in the code, and since it was already a community governed project needed to pass a proposal with a fix. Price reacted accordingly. The vote went down to the wire and required the involvement of several other projects, to save YAM in time.
It is unlikely that the community will take this as a lesson. The allure of profits appears to overcome all caution. This is dangerous not only because it inflates the DeFi bubble but because it deteriorates the concept of best practices. As the amount of capital in the ecosystem increases the price of mistakes grows, while the development approach appears to be deteriorating.
However, the trend of projects being launched without a premine, founder or VC shares is an interesting one. It is curious if other projects decide to follow the same path as we see with YAM, how they will finance their businesses.
DeFi outside of Ethereum
The most noise has been made by Serum, a DEX being built on the Solana network. Besides an impressive price chart, for its governance token SRM, the project is interesting because it shows DeFi branching out to smaller younger networks.
IOST has set up a $1M Noah Oracle Fund, to help catalyze the growth of DeFi on the network. Given the sums DeFi projects on Ethereum have been attracting over the past months the amount does not appear dynamic altering. However, it shows intent, which is important.
From a more technical angle, Blockstack PBC and Algorand have been working on a smart contract language, Clarity, to mitigate some of the issues that have made the DeFi space vulnerable as it expands.
More on the cooperation front, Waves and Ontology have decided to work together to build “cross-chain communication infrastructure for DeFi”. Both projects are top 50 based on market capitalization on CoinMarketCap, and boast sizable communities. With several older projects significantly lagging behind Ethereum, it would not be surprising to see more partnerships in order to pool resources and user bases.
The rising costs
Ethereum’s competitors are increasing their activity, at the same time as transaction costs on Ethereum are rising. While the launch of the Medalla testnet brings Ethereum 2.0 closer, the current level of transaction costs is worrisome.
Second layer solutions have been talked about as a potential solution for some time, but implementation has been slow. Iden3 has recently launched Hermez, a zk-rollup solution for scalability. However, it is tough to say if and when projects will invest time and effort to utilize it. Especially given the expectations for Ethereum 2.0.
Launches and raises
1inch made a number of headlines both attracting capital and announcing a new product. The DEX aggregator attracted $2.8M in the round, for new hires, product development, and marketing. It is interesting that 1inch went with a more traditional investment route and has not (at least yet) launched a governance token.
The project has also released an automated market maker Mooniswap. Aggregators are becoming popular in the space as they simplify user interaction with the various dapp components.
In that spirit, APY.Finance has announced its product, for optimized liquidity mining. The ecosystem is growing and the number of different blocks is increasing as is the complexity of different interactions. So, aggregators simplify the user experience for users. However, it is abstracting away risk.
IDEX, another major player in the DeFi space, has attracted $2.5M to build a 2.0 version and open itself up to market makers and algorithmic traders.
Given the current popularity of DeFi, it would not be surprising to see more projects announce updates as the level of competition increases.
Digital art makes headlines
The results of Nifty Gateway’s July auction were mentioned in the media. The gaming and collectibles sector is having a tough time in the shadow of DeFi, especially on Ethereum. However, collectibles and art may have an easier path forward. High transaction costs disincentivize low-value operation. For games that’s a problem, but for expensive art, not so much. So the sale of Trevor Jones’ “Picasso’s Bull” for $55,555 is noteworthy.
If a market for digital art continues to mature we may see more investor capital move into the space.
NB: The information provided here is for reference and informational purposes only. This is not investment advice and should not be treated as such.