Omelettes & Breaking Eggs đł
EDITION N°11 | 4 November 2021
As the saying goes, you canât make omelettes without breaking some eggs. For the DeFi ecosystem, the broken egg running net total [via protocol exploits] has reportedly reached a dollar value of $680m year-to-date [sigh]. So itâs no surprise that after the Squid Game coin rug-pool [aka scam] this week, the âWild Westâ depiction of DeFi has been regaining momentum⌠But then, DeFi TVL acceleration has also been picking up speed, soaring as the âgrande omeletteâ of the analogy, now at $256bn.
In spite of some grumbles, itâs been another cracking week [ouch] in digital asset land, with VCs pouring more money into the space, Avalanche launching their own $200m incubator fund and Zuckerbotâs âMETAâ rebrand throwing gallons oâ fuel on the gaming / NFT fire. If you thought October was exciting, wait until weâre looking back on November⌠Welcome back to DeFi Insights!
1. The Wild Wild West
It is âwildâ that there have been 70 DeFi exploits so far this year, accounting for $680m of stolen funds. However, the fact that the exploits were initially over double that amount [$1.4bn] with $760m of assets subsequently returned by the hackers, is perhaps even more remarkable. We have commented before on the interesting feature in DeFi where stolen funds are occasionally returned by âwhite hatâ hackers - as was the case for Poly Networkâs $612m hack returned in full. Itâs sometimes hard to remember DeFi is still a nascent, experimental emerging market and with creative tools like flash loans providing ammunition for disruption, battle-testing smart contract code is critical. As a case in point, take C.R.E.A.M. finance, which has been hacked twice since we began writing DeFi Insights (in addition to the February hack).
However, while âWild Westâ is not inaccurate in terms of the lack of current regulatory oversight, it doesnât highlight the level of advanced innovation currently taking place in decentralized finance. Also, returning to the initial analogy of omelettes and breaking eggs, the $680m impact shrinks somewhat when placed alongside the ~$230bn [DeFi Llama] of total value locked [TVL] added to the DeFi ecosystem since the beginning of 2021.
Yes, we are still in the âconstruction phaseâ of on-chain finance and as G. Gensler helpfully points out, there is considerable room for oversight. Yet while the community waits patiently for the SEC to âbring the digital currency market under its investor protection frameworkâ, policy proposals [Coinbase], risk warnings and the âDYORâ slogan are still the best protection for retail newcomers.
2. Everyone wants a piece of the crypto pieâŚ
⌠and itâs a race to the top. From VCs throwing $6.5bn at new projects in Q3 alone, to the Commonwealth Bank of Australia (CBA) partnering with Gemini exchange to capture slices of the crypto trading revenue pie, itâs all go go go. Also, L1s are not just launching DeFi builder incentive funds anymore; Avalanche just unveiled their $200m âBlizzardâ (not the game studio) incubator fund to sit alongside their âRushâ program launched back in August. Arguably MicroStrategy wants the biggest piece of the pie though and have accordingly increased their Bitcoin holdings to 114k BTC or ~$7bn. Note: MicroStrategyâs market cap today is $8.28bn, although DCG just raised $700m at a $10bn valuation, soâŚ
As for exchanges themselves, Coinbase are flexing their product offerings to now include loans of up to $1m against Bitcoin holdings (they only just unveiled plans for an NFT trading platform), while Binance is dropping a casual $116m initiative to grow the French crypto ecosystem. Note: âEurope has the biggest cryptocurrency economy in the world, receiving over $1 trillion worth of cryptocurrency over the last year, which represents 25% of global activityâ [Chainalysis âGeography of Cryptocurrencyâ report pg 49] and this initiative with French Fintech is a strategically-focused push into the area. As we have said before, itâs an exciting time in digital assets but companies are compelled to release innovative product features all the time to drive growth via new users and consolidation of their positions in the space. Keep an eye on Kraken too.
3. Is the Metaverse really just bs?
You know the term âMetaverseâ is hitting the mainstream when Mark Zuckerberg coordinates a full rebrand / strategy shift towards the ânew worldâ and PC Gamer chime in with a perfectly contrarian view.. The first few paragraphs of the article are immensely amusing, but a partially valid point is made: âThe metaverse is bullshit because it already exists, and it's called the internetâ.
Except that statement isnât quite true. Web3 facilitates the ever-expanding Metaverse and is an enhancement of the internet, with verifiable, trustless, self-governing, permissionless, distributed and robust and stateful characteristics. Web3 applications run on blockchains that are facilitated by peer-to-peer nodes; a decentralized internet. Arguably, Zuccâs âMetaâ presentation pushed some sceptics over the edge, but it also led to major excitement into existing Metaverse projects, as it was a household name / leading blue-chip confirmation that âyes, this is a real thingâ.
Perhaps the Metaverse wonât be one thing, but rather a âconceptual collection of open worlds and settings joined by interoperable assets and experiencesâ as Decrypt suggest. To some extent, it doesnât matter how it is defined, itâs about how itâs experienced, and with so many of us engaged in screen time all hours of the day, the experience is gradually becoming more and more⌠immersive. Time to become a âsolarpunkâ.
And now for something that reflects quite how mainstream crypto is going:
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