Bitcoin and other cryptocurrencies are facing intense pressure as prices drop and short-term holders offload their assets, signaling a possible capitulation phase and suggesting further downside potential. Additionally, major altcoins like Ethereum, Solana, and Cardano have witnessed a decline in their Total Value Locked (TVL) over the past week, indicating a decrease in popularity and utilization in the decentralized finance (DeFi) ecosystem.
The past week in DeFi saw the developers behind Base and Optimism protocols collaborate on a revenue and governance sharing framework, while evidence emerged regarding the $1.5 billion Multichain hack and victims search for answers, and blockchain security provider Quantstamp introduced a new DeFi tool to detect flash loan attack vulnerabilities. Additionally, Shiba Inu's Ethereum layer 2, Shibarium, is preparing for a relaunch, and the DeFi market experienced a minor dip in total value locked.
Decentralized finance (DeFi) has been heavily impacted by the crypto bear market, with the total value locked in DeFi reaching its lowest point since February 2021, as investors withdraw approximately $170 billion in deposits due to decreased yields and increased exploits. However, newer protocols like Unibot are attempting to simplify the DeFi experience and show promising signs for reigniting the DeFi space.
Hackers have targeted decentralized finance (DeFi) protocols almost 500 times since 2019, stealing a total of $6 billion, highlighting the vulnerabilities of the smart contracts that underpin DeFi platforms. The recent surge in hacks, along with declining market share and increasing interest rates, has led to the closure of several platforms and calls for regulations to prevent money laundering and enhance security measures.
The total value deposited into DeFi contracts on the Base network reaches an all-time high of $301.2 million due to liquidity mining incentives on the Aerodrome decentralized exchange, while lending protocols like Aave on the Ethereum layer-2 see scarce liquidity.
Web3 technologies, such as DeFi and NFTs, are paving the way for the tokenization of real-world assets, which could unlock a new Golden Age in blockchain and traditional finance.
Ethereum staking services have agreed to limit all validators to 22% in order to ensure the decentralization of the Ethereum network, while DeFi hacks and exploits resulted in a loss of $16 million in August, including a nearly $900,000 exploit on Balancer protocol, and Shibarium's second launch saw over 100,000 new wallets added to the layer-2 protocol. Additionally, the USDC stablecoin is set to launch on Coinbase's layer-2 platform, and the DeFi market experienced a bearish decline in response to a delay in the approval of a Bitcoin spot ETF.
Binance CEO Changpeng "CZ" Zhao predicts that decentralized finance (DeFi) has the potential to surpass centralized finance (CeFi) in the next bull run, emphasizing the positive impact of regulatory clarity and the need for broader cryptocurrency adoption worldwide.
Staking in the crypto market is rebounding, with proof-of-stake revenue generation reaching almost all-time highs, driven by the surge in total value locked for liquid staking protocols and the appeal of staking as a safer investment option in a year of liquidity challenges and DeFi hacks.
The International Monetary Fund (IMF) and the Financial Stability Board (FSB) have published a joint policy paper with recommendations for regulating stablecoins and decentralized finance (DeFi) activities, in response to the risks associated with crypto assets.
Global securities regulators have outlined a blueprint to hold participants in decentralized finance (DeFi) accountable for their actions and protect market stability, as the sector has experienced significant shrinkage and is being used for money laundering; regulators are proposing a framework to ensure investor protection, risk management, and cross-border cooperation.
According to a Bank for International Settlements (BIS) bulletin, a centralized oracle based on trust may be the only option for DeFi, but this compromises the decentralization ethos underlying crypto DeFi.
Binance CEO predicts that DeFi will surpass centralized finance in the next bull run, while the US CFTC takes regulatory action against three DeFi protocols for alleged registration failures; a report from the Bank for International Settlements argues that pure DeFi has little use case in the real world due to the need for oracles; Binance is refunding $1 million to users over a token incident, and the Shiba Inu ecosystem's layer-2 network, Shibarium, has reached over one million wallets but has yet to impact the price of SHIB token.
Finoa, a Berlin-based cryptocurrency custody firm, is expanding its services to include decentralized finance (DeFi) through its custodial wallet infrastructure, offering regulated institutions access to a curated list of web3 platforms and permissioned DeFi applications.
Coinbase CEO Brian Armstrong advocates for decentralized finance (DeFi) protocols and suggests legal action to establish a legal precedent, while MakerDAO's founder believes decentralized stablecoins could dominate the crypto market, and Polygon CEO acknowledges the success of their $1 billion investment in zero-knowledge proof rollups. Additionally, market surveillance firm Solidus Labs reveals that decentralized exchanges have become a hotspot for wash trading, and a DeFi advocacy group petitions to stop a patent troll from targeting DeFi protocols. Despite a mixed week for the top 100 DeFi tokens, the total value locked into DeFi protocols remains above $49 billion.
The decentralized finance (DeFi) ecosystem experienced a decline in on-chain economic activity in August, with exchange volume decreasing by 15.5%, the DeFi Index falling 21%, and the total value locked decreasing by 8%; however, positive developments such as stablecoin growth were observed.
Crypto's most important commercial highway, Ethereum, risks being overwhelmed by the surging demand for staking, which could lead to network strain and a shortage of Ether for transactions. Developers are working on short-term measures to slow down the influx and exploring longer-term solutions to manage staking more effectively.
The concentration of assets in decentralized finance (DeFi) could pose a risk if stablecoins surpass the market capitalization of the native tokens of their underlying blockchains, creating a potential for double-spending and control by token holders, highlighting the need to rethink distributed ledger technology (DLT) architecture and explore alternatives to blockchain such as directed acyclic graphs (DAG).
Decentralized finance (DeFi) projects in the US face significant regulatory risk, according to Synthetix founder Kain Warwick, who believes that US regulators are neglecting the advantages of transparent and open infrastructure in financial markets and that it will be left to the courts to resolve these issues.
Summary: Economic activity in the DeFi sector dropped by 15.5% in August, according to an analysis by investment management fund VanEck, while blockchain capital announced two new crypto-focused funds totaling $580 million, and Balancer protocol attributed its recent exploit to a vulnerability in its DNS service provider. Additionally, Chainlink and Arbitrum have partnered for decentralized application development, and the top 100 DeFi tokens experienced a bearish week.
Cryptocurrency faces regulatory challenges that could shape its future, but despite these challenges, the industry holds promise with developments such as increased institutional adoption, central bank digital currencies (CBDCs), DeFi innovation, interoperability, and expected regulatory clarity.
Decentralized finance (DeFi) derivatives ecosystem Avantis Labs has raised $4 million in a seed funding round led by Pantera Capital to grow its flagship product Avantis, a perpetual-trading and market-making protocol that aims to enable forex and commodities to be hedged and traded on-chain without the need for tokenization, with plans to expand its capabilities beyond perpetual trading to include options trading in the future.
The Ethereum staking industry has seen significant growth, with over $40 billion worth of staked assets and $1.6 billion in staking rewards, attracting institutional interest, but there are potential challenges ahead as adoption rates may slow down and concerns about dominance by leading staking provider Lido arise. However, the future of the Ethereum staking industry still appears promising, with increasing momentum and new opportunities for institutional investors and DeFi users.
Ethereum's transition to proof-of-stake introduced a native interest rate, and the adoption of a standardized staking rate could unlock new financial instruments, total return products, risk management tools, derivatives markets, and valuations, driving global adoption of crypto.
Stablecoin issuer Circle Internet Financial has released Perimeter Protocol, an open-source smart contract codebase that allows for the development of tokenized credit markets, enabling various credit use cases such as invoice factoring, payroll advances, instant settlement, and credit trading for institutional investors. This move comes as the tokenization of real-world assets gains momentum, with tokenized assets predicted to grow to a $5 trillion market in the next five years. Circle aims to leverage the protocol to enhance the utility of its stablecoin USDC and Euro-pegged token EURC in decentralized finance (DeFi) credit platforms.
Interest-bearing stablecoins are becoming increasingly popular in the DeFi sector as they offer attractive yields generated from real-world assets, such as T-Bills and government bonds, providing a transparent and auditable alternative to traditional banking systems.
The co-founder of Aptos believes that a universal identity application, stablecoins, and decentralized finance (DeFi) innovation are the key factors that could attract a billion new users to the digital assets space.
Decentralized finance (DeFi) has the potential to revolutionize wealth building globally, and the use of Artificial Intelligence (AI) can address challenges such as liquidity, language barriers, regulatory compliance, and security to further enhance its adoption and growth.
Yield Protocol, a decentralized finance (DeFi) lending protocol, has announced its decision to shut down due to a lack of business demand and global regulatory pressures, including unfavorable crypto regulations in the United States, Europe, and the United Kingdom.
The rise of Ethereum staking has led to increased centralization and lower yields, with the top five liquid staking providers controlling over 50% of staking on the network, according to a report by JPMorgan. This centralized control poses risks to the Ethereum network and its security.
September became the biggest month for crypto exploits in DeFi, with over $300 million in losses, the popular DeFi lending protocol Yield announced its permanent closure by December, and Polygon co-founder Jaynti Kanani stepped down from his day-to-day roles at the firm, while decentralized autonomous organizations (DAOs) were praised for their potential in helping scientists find funding and community.
The European Securities and Markets Authority (ESMA) released a report on decentralized finance (DeFi) and its risks to the EU market, highlighting the liquidity risk, counterparty risk, vulnerability to scams, and lack of recourse mechanisms as key concerns, although it concludes that DeFi currently does not pose significant risks to financial stability due to its small size and limited interconnectedness with traditional financial markets.
The European Securities and Markets Authority (ESMA) has warned of the "serious risks" of decentralized finance (DeFi) despite its early stage, citing concerns over investor protection, operational vulnerabilities, and lack of a responsible party. ESMA plans to further investigate this nascent market that defies traditional regulatory frameworks for centralized entities like banks and exchanges.
The total amount of capital locked in decentralized finance (DeFi) protocols has dropped to its lowest point since February 2021 as traders seek higher yields and less risk in traditional finance products, leading to a decline in the DeFi sector during the ongoing cryptocurrency bear market.
The French Central Bank has concluded its consultation on the regulation of decentralized finance (DeFi), finding that it is more appropriate to refer to DeFi as "disintermediated" finance due to the persistence of centralization patterns and the operational risk of high concentration in blockchain infrastructure. The majority of respondents support continued deployment of DeFi on public blockchains, with regular auditing and regulation of intermediaries and smart contracts. The European Securities and Markets Authority (ESMA) also highlighted the benefits and risks of DeFi in a recent report.
Summary: European securities regulators have released a report highlighting the risks and benefits of decentralized finance (DeFi), Uniswap has launched an Android wallet beta, Star Arena recovered 90% of stolen tokens after offering a bounty, Platypus Finance fell victim to another flash loan attack, and the total value locked in DeFi protocols reached $45.67 billion.
Crypto finance, despite its claims of decentralization and independence from state-backed money, is heavily dependent on centralized platforms and is a vehicle for financial speculation rather than a means of escape from state control, according to Ramaa Vasudevan, professor of economics. Moreover, the growth of crypto will compound the volatility of global capitalism and its environmental impact is significant due to the energy-intensive process of mining and validating crypto tokens. The rise of stablecoins has been crucial in the development of crypto finance, but it is ultimately dependent on conventional currencies for stability. The recent crash of crypto finance has revealed its fragility and the absence of central banks as lenders of last resort exacerbates financial instability. Crypto finance fits into the wider picture of financialization and asset-price bubbles, promoting inequality and concentration of wealth. Ultimately, the politics of money and its relationship with the state are contested in the crypto sphere, as it neither depoliticizes nor democratizes money. Finally, crypto finance has become a battleground in the economic competition between the United States and China, with both countries striving for dominance in the digital currency space.
Decentralized finance protocol ether.fi has introduced a liquid staking token (LST) that enables users to earn rewards by staking Ether (ETH) on the blockchain without traditional intermediaries, with the staked Ether automatically restaked on EigenLayer, while users receive the protocol's LST (eETH) to generate further yield across the DeFi ecosystem.
