The hottest thing to emerge for Ethereum holders this week has been Yearn Finance’s yETH high-yield farming pool. It has survived its first tribulation as ETH prices dumped 14% on the day.
This week, Yearn Finance’s DeFi platform, which recently launched insurance incentives, unveiled two new high yielding vaults for Ethereum holders. One is for ETH and the other for wETH (wrapped Ethereum).
It has been called a ‘beast for ETH stacking,’ and a ‘black hole for ETH,’ by industry experts suggesting that once Ethereum has been deposited, holders will be reluctant to withdraw it and lose out on such impressive yields.
Within the first day of launch, over $100 million in liquidity had been deposited, which worked out to be more than 230,000 ETH at the time. Vault yields were as high as 95% APY, which would almost double the ETH deposited in a year.
Yearn Vault Inner-Workings
The vaults use collateral deposited in ETH or wETH to mint Dai from a MakerDAO smart contract using a collateralized debt position (CDP) at a 200% collateralization ratio. This is to protect it from liquidation should the price of ETH go down, which it has done quite violently over the past 24 hours.
In reaction to the launch, MakerDAO governance proposed an executive vote to increase the ETH debt ceiling from 420 million to 540 million. This would effectively enable more Dai to be minted for use in these DeFi vaults. Industry analysts observed that this was also bullish for MakerDAO and Dai.
The Dai stablecoin is then deposited in the yDAI vault and used as collateral on the high-yield Curve.fi Y liquidity pool to generate CRV. This is a stablecoin pool consisting of unequal weights of DAI, USDC, USDT, and TUSD, returning yCRV tokens representing the stake in the pool.
The yETH vault is now earning trading fees from the Curve pool and staking the yCRV tokens on the Curve DAO in order to farm CRV. The yETH vault periodically sells the CRV tokens for ETH on the open market through decentralized exchanges and deposits that allow ETH to flow back into the vault, increasing all yETH holders’ overall stakes.
The benefit for Ethereum holders and liquidity providers is that they do not have to do a thing and the entire process is automated. There is no need to research the best pools, harvest tokens, or pay gas fees at each transfer. It is basically a case of sitting back and accumulating ETH over time, hence the ‘black hole’ analogy.
This type of strategy would not be possible using traditional finance and is just one example of how the DeFi space has evolved this year.
There are a couple of caveats as usual. Firstly there is a 0.5% withdrawal fee that Yearn Finance imposes. Secondly, gas fees are off the chart at the moment so it will cost relatively more to make the initial deposit and withdrawal. As with most things DeFi related, it benefits the whales more than the minnows.
The third drawback is that it still carries quite a high risk due to the collateralization ratios. As pointed out by Anthony Sassano in his Daily Gwei newsletter this week, the major risk of this strategy is if the MakerDAO CDP falls to below a 150% collateralization ratio due to the price of ETH falling fast.
If this happens, the yETH vault may be liquidated resulting in the loss of ETH for liquidity providers. This would not happen instantly however as there is a mechanism that allows debt repayment. MakerDAO has a built-in system called the oracle security module (OSM) that essentially gives CDP/vault owners one hour to pay down their debts.
Over the past 24 hours, Ethereum prices have dumped around 14% and the yETH vault has not been liquidated, proving that the mechanism is working as intended.
Surviving the First Price Crunch
Ethereum prices have collapsed from around $450 at the same time yesterday to around $390 at the time of press.
The move has knocked 14% off the price of Ethereum taking it back to support levels. It has been largely induced by Bitcoin which again failed to break the psychological $12,000 barrier and dumped back to $10,100.
At the time that prices started to plummet, Yearn Finance paused yETH deposits after 70 million Dai had been minted in order to balance between best profits and best risk adjustment.
The yETH vault survived the crunch and has actually increased in terms of liquidity as ETH has got cheaper.
Crypto investor Andrew Kang [@Rewkang] observed how it survived the crash and made three rebalances in order to pay 2.7 million Dai back into the collateralized debt position:
At the time of press, there was 375,000 ETH deposited in the vault earning around 73% according to Yearn Finance stats.
Ethereum prices may well correct further, but Yearn Finance appears to have its finger on the pulse and has managed one 15% slide without hassle. Additionally, collateral continues to increase in the yETH vault indicating investor confidence in the product.
DeFi Markets Beat a Retreat
The crypto market crash has resulted in the first major decline in DeFi total value locked since March. An all-time high of $9.5 billion was hit on Sept 2 according to DeFi Pulse.
Traders and yield farmers have been pulling out since the top, resulting in an 8% decline to around $8.75 billion. Over the past 30 days, DeFi markets are still up a whopping 92%, so a correction was inevitable.
Uniswap is the top protocol in terms of TVL at the moment with $1.68 billion and a market share of just below 20%. Maker and Aave, coming in second and third places respectively have declined in TVL while Curve and Yearn have increased slightly, mostly due to the yETH vaults launched this week.
Additionally, it appears that yield farmers could be slowly wising up to the dodgy DeFi food meme tokens that have flooded the scene in recent weeks.
Smart contract exploits are more ethical than hacking… or not?
There has been a lot of talk about the recent “hacks” in the decentralized finance realm, particularly in the cases of Harvest FInance and Pickle Finance. That talk is more than necessary, considering hackers stole more than $100 million from DeFi projects in 2020, accounting for 50% of all hacks this year, according to a CipherTrace report.
Some point out that the occurrences were merely exploits that shined a light on the vulnerabilities of the respective smart contracts. The thieves didn’t really break into anything, they just happened to casually walk through the unlocked back door. By this logic, since the hackers exploited flaws without actually hacking in the traditional sense, the act of exploiting is ethically more justifiable.
But is it?
The differences between an exploit and a hack
Security vulnerabilities are the root of exploits. A security vulnerability is a weakness that an adversary could take advantage of to compromise the confidentiality, availability or integrity of a resource.
An exploit is the specially crafted code that adversaries use to take advantage of a certain vulnerability, and to compromise a resource.
Even mentioning the word “hack” in reference to blockchain might baffle an industry outsider less familiar with the technology, as security is one of the centerpieces of distributed ledger technology’s mainstream appeal. It’s true, blockchain is an inherently secure medium of exchanging information, but nothing is totally unhackable. There are certain situations in which hackers can gain unauthorized access to blockchains. These scenarios include:
- 51% attacks: Such hacks occur when one or more hackers gain control of over half of the computing power. It’s a very difficult feat for a hacker to achieve, but it does happen. Most recently in August 2020, Ethereum Classic (ETC) faced three successful 51% attacks in the span of a month.
- Creation errors: These occur when security glitches or errors go overlooked during the creation of the smart contract. These scenarios present loopholes in the most potent sense of the term.
- Insufficient security: When hacks are done through gaining undue access to a blockchain with weak security practices, is it really as bad if the door was left wide open?
Are exploits more ethically justifiable than hacks?
Many would argue that doing anything without consent cannot possibly be considered ethical, even if worse acts could have been committed. That logic also raises the question of whether an exploit is 100% illegal. For example, having a U.S. company registered in the Virgin Islands can also be seen as performing a legal tax “exploit,” though it isn’t considered outwardly illegal. As such, there are certain gray areas and loopholes in the system that people can use for their own benefit, and an exploit can also be seen as a loophole in the system.
Then there are cases such as cryptojacking, which is a form of cyberattack where a hacker hijacks a target’s processing power to mine cryptocurrency on the hacker’s behalf. Cryptojacking can be malicious or nonmalicious.
It may be safest to say that exploits are far from ethical. They are also entirely avoidable. In the early stages of the smart contract creation process, it’s important to follow the strictest standards and best practices of blockchain development. These standards are set to prevent vulnerabilities, and ignoring them can lead to unexpected effects.
It is also vital for teams to have intensive testing on a testnet. Smart contract audits can also be an effective way to detect vulnerabilities, though there are many audit companies that issue audits for little money. The best approach would be for companies to get several audits from different companies.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Pawel Stopczynski is the researcher and R&D director at Vaiot. He was previously the R&D director and a co-founder at Veriori and at UseCrypt. Since 2004, Pawel has been involved in the development of 18 IT projects in Poland and the United Kingdom, focusing on the private sector. He was a speaker at several IT conferences, and the organizer of two TEDx conferences. For his work, Pawel was awarded a gold medal at the Concours Lépine International Innovation Fair 2019 in Paris, and a gold medal of the French minister of defense.
Close to $10 Billion Worth of Crypto Longs Wiped off the Market Amid Sudden Crash
It’s been a rough Sunday for the cryptocurrency market.
$7.8 Billion Liquidated in an Hour
The “up only” sentiment in the digital asset market took a major hit today as more than $7 billion in crypto long positions were liquidated within an hour in a sudden market wide crash.
According to data from bybt, more than $9 billion worth of crypto long positions were liquidated in the past 12 hours while more than $8 billion were wiped off the market in the last 4 hours.
Specifically, bitcoin’s price started trending downwards early Saturday but the sharp free fall commenced around 3:00 UTC on Sunday.
After recording new ATH day after day, bitcoin and other cryptocurrencies’ price witnessed a steep downfall today almost touching the $50,000 mark. At the time of writing, bitcoin has regained some support and trades at $55,300.
According to crypto analyst Lark Davis, bitcoin breached the 50-day moving average during the unanticipated crash which is a rare event during a bull run. For context, BTC breached the 50 day MA only a few times during the 2017 bull market. In retrospect, all such dips proved to be immensely profitable buy opportunities.
Overleveraged Longs get REKT
While it typically pays to long in a bull market, investors must be cautious of too much optimism and avoid being long in an already overbought market to not get rekt in sudden market crashes like that of today.
Being long in a market with less liquidity is particularly dangerous as the order books are thin and a sudden dump can cause the price of the underlying asset to go down much more than in other liquid markets.
The Block’s Larry Cermak noticed this on Perp Protocol where the price of ether (ETH) reached as low as $900 due to low liquidity.
Crypto derivatives exchange FTX’s CEO Sam Bankman-Fried share some interesting facts about the exchange during today’s crash.
According to SBF, the exchange witnessed trading volume close to $26 billion which was another all-time record volume day for FTX. At the same time, FTX had close to $250 million of liquidations today.
Kraken Daily Market Report for April 17 2021
- Total spot trading volume at $2.51 billion, 57% above the 30-day average of $1.6 billion.
- Total futures notional at $667.9 million.
- The top five traded coins were, respectively, Bitcoin, Dogecoin, Ethereum, Tether, and Siacoin.
- Strong returns from Nano (+51%) and Siacoin (+20%).
|April 17, 2021
$2.51B traded across all markets today
Crypto, EUR, USD, JPY, CAD, GBP, CHF, AUD
#####################. Trading Volume by Asset. ##########################################
Trading Volume by Asset
The figures below break down the trading volume of the largest, mid-size, and smallest assets. Cryptos are in purple, fiats are in blue. For each asset, the chart contains the daily trading volume in USD, and the percentage of the total trading volume. The percentages for fiats and cryptos are treated separately, so that they both add up to 100%.
Figure 1: Largest trading assets: trading volume (measured in USD) and its percentage of the total trading volume (April 17 2021)
Figure 2: Mid-size trading assets: (measured in USD) (April 17 2021)
Figure 3: Smallest trading assets: (measured in USD) (April 17 2021)
#####################. Spread %. ##########################################
Spread percentage is the width of the bid/ask spread divided by the bid/ask midpoint. The values are generated by taking the median spread percentage over each minute, then the average of the medians over the day.
Figure 4: Average spread % by pair (April 17 2021)
#########. Returns and Volume ############################################
Returns and Volume
Figure 5: Returns of the four highest volume pairs (April 17 2021)
Figure 6: Volume of the major currencies and an average line that fits the data to a sinusoidal curve to show the daily volume highs and lows (April 17 2021)
###########. Daily Returns. #################################################
Daily Returns %
Figure 7: Returns over USD and XBT. Relative volume and return size is indicated by the size of the font. (April 17 2021)
###########. Disclaimer #################################################
The values generated in this report are from public market data distributed from Kraken WebSockets api. The total volumes and returns are calculated over the reporting day using UTC time.
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