Weekly DeFi Report

2022–03–11 Cronje ‘Rugs’ DeFi


Tug of war between persistent inflation and central bank credibility leave markets with no choice, but thin liquidity. Headline CPI printed another 40-year high, and core CPI rose 6.4% YoY, in line with consensus. Biden blamed Putin’s aggressive actions for increased gas and energy prices, which pushed up inflation for the month of February. It is indeed quite difficult to see a near-term positive catalyst and meaningful degrossing happened over the last few months; at the same time, it makes us think that rally is possible with thin liquidity on low volume. Markets are overall pretty choppy, but interesting piece of price action was in US-listed Chinese equities suffering worst one-day sell off since Oct’08, and bringing China tech to lowest level since ‘16.

On the crypto front, bitcoin (-7%) and ether (-8%) gave back gains from Wednesday. It’s honestly crypto disheartening to see crypto trade poorly despite supportive regulatory backdrop — Biden’s executive order overcame clampdown worries, South Korea elected crypto-friendly president who pledged to deregulate crypto assets, etc. If there’s one token that’s ‘moon-ing’ through the market downturn, it would be $LUNA as token benefits from both UST demand and increase in TVL via its Anchor protocol, and also deregulation in Korea, its home-country.

- Outperformers in the Top 100 are: LUNA (+11%), WAVES (+50%), ZEC (+22%), STX (+18%), SNX (17%)

- Underperformers in the Top 100 are mostly L1s, including SOL (-13%), ADA (-11%), ATOM (-17%), ICP (-17%), FTM (-35%), FXS (-32%).

In the DeFi space,

- In terms of networks:

o Fantom suffered the most precipitous drop in TVL (-34%), while things don’t look too bright on Solana (-7%) and Osmosis (-7%) either

o Luna (+14%) is cruising through this bear market as its flagship protocol, Anchor Protocol, continues to attract deposits. However, on TVL-adjusted basis, Luna’s price action does look extended (new ATH) as price far outpaced TVL growth.

o Cheapest tokens in MarketCap/TVL multiple are still LUNA and FTM. Most expensive tokens are: NEAR, CRO, and SOL

Next up: deep dive

· Andre Cronje & Anton Nell Say Bye to Crypto

o What’s the deal: Andre Cronje — one of the most respected developer/builder in the space, and Anton Nell, senior solutions architect at the Fantom Foundation, announced that they are “closing the chapter of contributing to the defi/crypto space”, and that they would be terminating ~25 apps and services on 4/3/2022. The list of applications include: yearn.fi, keep3r network, multichain.xyz (previously known as anyswap bridge), solidly.exchange, and bribe.crv.finance. Honestly, it’s not a surprise if one has been following Andre Cronje’s medium posts (especially this), and he does have history of rage quitting DeFi. To clarify, the contract code will still be live, but UIs will be shut down — small battles of who will host the service continue.

o Market reaction: Projects related to Cronje, including $FTM (-38% in the last 7 days), $YFI (-14%), $SOLID (-56%), dove sharply after the surprise announcement. Different protocols have reacted in different extents — yearn.finance, in which Andre hasn’t worked for over a year, saw smaller drawdown compared to Solidly, for example.

· Convex Finance Bug Causes CVX Token to Sink on Forced Token Unlock

o What is Convex Finance: platform for CRV token holders and Curve liquidity providers to earn additional interest rewards and Curve trading fees on their tokens. Convex Finance has the 5th largest TVL of all DeFi protocols of $12bn (after Curve, MakerDAO, Lido, and Anchor).

o What happened: a smart contract bug forced Convex team to prematurely unlock a huge portion of its token’s circulating supply. The team has redeployed the contracts responsible for the vote-locking governance mechanism after the discovery of a bug that would have granted certain users disproportionate rewards. The redeployment caused 72% of tokens to be unlocked, and resulted in supply shock, causing price to tank (-20% in last 7 days). Again, events like this remind us that DeFi is still in a giant test phase, and codes are vulnerable.

· Avalanche Multiverse Program

o The incentive gravy train does not stop — Avalanche Foundation’s new Avalanche Multiverse programme will be funding 4 million AVAX tokens (~$[]mio) to encourage the growth of subnets on its network. And what is subnet? Subnets are blockchains linked to Avalanche, but customizable to suit the requirements of specific apps (blockchain-as-a-service).

o First subnet to receive the incentives is DeFi Kingdoms ($15M incentives), a successful GameFi project on Harmony.

· Kava Rise: $750M Developer Incentive Programme

o What is Kava: L1 blockchain that aims to offer a foundation for cross-chain DeFi applications

o The incentive programme is a rather interesting one — for every KAVA emitted, 62.5% will be distributed to Developers and 37.5% to stakers, highlighting its emphasis on prioritizing builders. The initially proposed allocation of 200M KAVA over 4 years for Kava Rise funds is: 30M KAVA annualised for DeFi protocols on Ethereum Co-Chain, 15M KAVA annualised for Cosmos Co-Chain, 5M annualized for NFT and GameFi incentives on both Co-Chains. The incentive programme will be initiated with the Kava 10 upgrade, which will launch on both the Ethereum and Cosmos Co-Chains on mainnet.

· Aave Governance: Add Terra USD (UST) to AAVE v2

o What’s the deal: UST has been facing skepticism from Ethereum users, as being non-ETH native/non-backed stablecoin that have risen extremely quickly. Adoption of UST on Ethereum remains low, but with the governance proposal passed, this is again bullish for UST/LUNA.

· 2 Lending Protocols on Aurora Go Live

o What’s happening: The Aurora ecosystem has been lacking a lending protocol, but the launch of 2 competing lending protocols, Aurigami (live on 3/1), Bastion Protocol (live on 3/7) completed part of the ecosystem. Aurigami currently has ~$140M in TVL, while Bastion has ~$87M in TVL. Aurora is enjoying good growth in its TVL from ~$100M in start of December to current level of ~$610M.

· Wormhole Adds 8th Chain on the Wormhole Network: Fantom

Following: Big Money Raises

· A16z invests $70M in Lido

· StarkWare set to hit $6bn valuation in new funding round

o After raising $50mio Series C @ $2bn valuation just 5 months ago (Nov’21), StarkWare is set to raise at least $100mio at $6bn valuation.

o What is StarkWare: zero-knowledge proof layer-2 solution. Until now, StarkWare’s technology has only been available through its scaling engine StarkEx, but the company is planning on full deployment of the StarkNet platform, which will let anyone build blockchain apps using StarkWare’s technology.

· Thetanauts Finance raises $18M in Seed Round, led by Three Arrows Capital, Deribit, QCP Capital, and Jump Crypto

o What is Thetanauts Finance: crypto derivatives trading platform, offering structured products

· Cega raises $4.3mio seed round at $60M valuation

o What is Cega: protocol for exotic derivatives on Solana. The project will launch in beta later this month, but has plans to expand to EVM-compatible ecosystems. First product would be fixed-coupon note

· Hubble Exchange Raises $3.3M, led by Framework Ventures

o What is Hubble Exchange: Perpetual futures DEX on Avalanche. It launched its testnet in October, and plans to launch on Avalanche mainnet in April.

Other things we are reading (or had no time to read)

· The Many Escapes of Justin Sun: our favourite read of the week

· Full Research Report on GMX

· Vesta Finance — Capital Efficiency on Arbitrum

· Saber and the Saber Wars: a deep dive

Chart 1: Bitcoin, Ethereum, Defi
Chart 2: Smart Contract Platforms
Chart 3a: ETH Ecosystem
Chart 3b: BSC Ecosystem
Chart 3c: Polygon Ecosystem
Chart 3d: AVAX Ecosystem
Chart 3e: SOL Ecosystem
Chart 3f: TERRA Ecosystem
Chart 4: Algostables
Chart 5a: DEX Ecosystem
Chart 5b: Lending Ecosystem
Chart 5c: Synthetic Ecosystem



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