Weekly DeFi Report: Arrows Pointing South

Summary

Bear market continued, with BTC plunged to near $20k. The Fed confirmed a 75 basis points rate increase on Wednesday meeting, crypto assets again showed high correlation to traditional finance under macro concerns. Ethereum continued to show weakness as Celsius and Three Arrows Capital (3AC) were at risk of insolvency.

In the last 7 days:

Out-performers in the Top 100 :

USDN (+1.5%), cDAI (+0.9%), XAUT (+0.6%), DAI (+0.4%), FRAX (+0.4%)

Under-performers in the Top 100:

DFI (-48.0%), XCN (-47.0%), NEXO (-44.5%), WAVES (-43.4%), stETH (-40.8%), AAVE (-39.5%), XMR (-39.4%), FLOW (-39.1%), GMT (-38.6%), ETH (-38.5%), RUNE (-38.3%), APE (-38.2%), MATIC (-38.1%)

In the DeFi space, total market cap dropped 25.3% to $34.9b this week, having 4.5% in crypto market dominance. Total TVL reduced to $57.9b, with MakerDAO (-20.7%), AAVE (-40.8%), CRV (-37.2%) and Lido (-38.6%) leading the decline. These are the protocols that related to Celsius’s and 3AC’s on-chain activities. In terms or activities, Defi space continued to slow down during a bear market.

Deep Dive

3AC Allegation

What’s happening: The Singapore-based crypto hedge fund giant kept exchanging stETH to ETH at discount as liquidation loomed. On 14 Jun, 3AC exchanged 38,900 stETH to 36,718.64 ETH (@0.94) to repay ETH on AAVE. Yesterday, 3AC exchanged another 5,500 stETH for ~$6.1M USDT (@1,108), leaving 14,118 stETH in the address balance. On the other side, 3AC has been targeted by 8Blocks Capital for illegally using $1M of 8Blocks’s funds to meet margin call without any notice. 3AC’s co-founder Zhu Su removed ETH tag from his Twitter profile and announced that 3AC is now communicating and working with relevant parties. On-chain data shows $186M worth of ETH will be liquidated on DeFi protocols (AAVE, Maker, Compound) if ETH price drops below $980, which is 10% below market price.

MakerDAO Halted AAVE Borrowing

What’s happening: MakerDAO, the protocol behind $DAI stablecoin, has frozen AAVE’s D3M (DAI Direct Deposit Module). This implied that AAVE could no longer generate DAI but AAVE was allowed to pay off existing debts. The act reduced MakerDAO risk ceiling as AAVE was vulnerable as of its large exposure to stETH.

Osmosis Relaunch

The process: After the exploit last week, Osmosis was ready to restart the chain. Major exploiters were collaborating to return funds. The recovery process for affected users will follow in coming days after the chain restarts. Any unrecoverable funds or accidental uses of the bug will be covered by the Osmosis developer fund.

Following

Big Money Raises/New Entrants

  • Circle issued Euro Coin ($EUROC), a euro stablecoin backed by full euros’ reserve, same reserve model as USDC’s.

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