Hello Defiers! hope you’re having a great day. In today’s issue:
I explore how crises highlight how much power centralized institutions have over us, strengthening the case for a more decentralized future
Uniswap reveals V2 details, including flash swaps and improved price feeds
Dharma last week announced P2P payments
MakerDAO is close to raising enough Dai to heal bad debt
📢 Also, help me scale up The Defiant team by donating to my Gitcoin Grant! Just 1 Dai goes a long way 🙂
Crises Strengthen Case for Decentralized Future
Extreme situations, such as the global pandemic we’re living in, highlight just how much control institutions have over individuals, and how they’ll use it when generalized fear erodes the usual checks and balances.
We’re not speculating about the power of central banks to print infinite amounts of money, they’re actually doing it. We don’t have to theorize about governments limiting personal liberties, they already are. We don’t have to imagine that corporations can censor their users, they’re cracking down.
By seeing these actions unfold, some may want to consider an alternative.
Governments Tighten Grasp
China is the clearest example of how governments will strengthen their grasp on their people in a crisis. Individual liberties, which are already limited in the authoritarian state, have been curtailed further with movement and travel bans, entire cities sealed off, and public transport shutting down. Authorities in the Hubei province, in an effort to identify and quarantine infected citizens, ordered pharmacies to report the name, address, and other personal details of people who bought fever and cough medicine.
But it’s not just China. The US government wants to have the ability to ask chief judges to detain people indefinitely without trial during emergencies, according to Politico. And while everyone’s distracted with the deadly virus, lawmakers are seeking to pass a bill which would ban strong encryption and make tech companies responsible for content users post on their platforms, limiting free speech and privacy.
Central Banks’ Printing Press
Central banks’ response has been drastic too. Bankers from the US, to Europe and Japan have slashed already low interest rates and approved unprecedented stimulus measures, including buyings ETFs and pledging to pour unlimited cash in the economy through bond purchases. This has often been met with government fiscal stimulus and corporate bailouts. Even so, markets have continued to slide because the bottom line is: For stimulus to work, there needs to be something to stimulate, and the global economy is shut down. Without demand to borrow, invest and spend, the cash central banks are pumping in the economy risks inflating prices and devaluing currencies, instead of boosting growth.
With markets in free-fall, false information feeding a panicking public, and diverging views on how to best handle the pandemic, corporations and financial institutions have often chosen to restrict personal freedoms too. Banks in Poland limited foreign currency withdrawals, while there were reports that some US and German branches were also restricting how much cash clients could take out. Medium took down a post which argued the public is over-reacting to coronavirus, while Messari founder Ryan Selkis said he has been shadow banned from Twitter and his company’s MailChimp account is experiencing degraded service for his coverage on coronavirus.
In all these cases, power that’s been centralized at the top of a few entities is harming individuals. Cryptocurrencies, Web3 —a blockchain-based and more decentralized version of the internet— and open finance can offer a way out.
As central banks devalue their currencies, cryptocurrencies offer an independent monetary system, which doesn’t depend on bureaucrats in a room deciding to create currency out of thin air. In the case of Bitcoin, there’s a limit to how much coins will ever be created, in the case of Ethereum, monetary policy is the minimum issuance to secure the network. In the case of Dai, the stablecoin is always over-collateralized with other digital assets.
The near-zero and negative rates can be complemented with investment alternatives in decentralized finance, where rates currently are many times those in the developed world. That’s because the system is risker and less liquid, and also because it’s global, matching borrowers and lenders from different economies.
DAOs & Open Source
In the case of over-reaching corporations, decentralized autonomous organizations are able to create more democratic structures, where there are lower barriers to owning a piece of the organization and participating in its governance. DAOs’ rules written in code and can’t be change, unless its owners agree. Blockchain-based apps built on open source protocols will limit censorship, as some information will be stored on-chain, and platforms will be more easily replicated, giving users greater leverage. A great example is what’s happening with the Steemit social media Dapp: a large part of the community split from the project after co-founders sold it to Justin Sun, the founder of the Tron blockchain.
Some are already taking advantage of the immutable and permissionless qualities of blockchain technology to fight censorship from the Chinese government surrounding the virus: pieces of code were uploaded to the Ethereum network in the shape of a monument of Dr. Li Wenliang, the whistleblower of China’s coronavirus outbreak.
Finally, a lasting effect of being locked up at home for weeks might be a greater propensity to work remotely and live generally more virtual lives. Museums are opening virtual exhibits, comedy clubs are streaming performances, even tour guides are offering virtual strolls through Central Park. This will get people to dip their toes in the water of virtual reality, and it will be just a small step from there to creating an avatar for Cryptovoxels or Decentraland.
Maybe one of the lessons of this crisis will be that some people will start to think it’s not so crazy to want to hold at least part of their savings in a system that’s completely independent from their central bank and government. They’ll understand why decentralized organizations and open source applications can better safeguard their liberties. And if they’re not, why it’s important that it’s easier to leave. Even if most are happy to go back to the way things were, at least some will know, there is an alternative. And even if they’re stuck with repressive governments, they can always go to a freer world, where no one can touch their digital assets, from Bitcoin to CryptoKitties.
Uniswap Unveils V2 With Flash Swaps, Potential Protocol Fees and Better Price Feeds
Uniswap yesterday announced details of its highly anticipated second iteration, or V2, which it expects to launch in the second quarter, pending a successful formal verification. Developers can already start building with Uniswap V2 on different Ethereum testnets. Uniswap V1, a venue for pooled, automated liquidity on Ethereum, will continue to work “for as long as Ethereum exists,” Uniswap co-founder Hayden Adams wrote in a post.
These are the main user-facing features of Uniswap V2:
ERC20/ERC20 pools: In Uniswap V1, all liquidity pools are between ETH and a single ERC20 token, allowing users to swap any ERC20 for any other ERC20 by routing through ETH, the most liquid Ethereum-based asset.
The introduction of ERC20 token/ERC20 token pools “can be useful for liquidity providers, who can maintain more diverse ERC20 token denominated positions, without mandatory exposure to ETH,” Hayden wrote.
Improved price feeds: Uniswap V2’s price feeds are harder to manipulate as they accumulate historical data, allowing external smart contracts to create gas-efficient, time-weighted averages of Uniswap prices across any time interval.
“Despite closely tracking the real-world price most of the time, Uniswap V1 cannot be used safely as a price oracle because the price can move significantly in a short period of time,” the post said.
Flash swaps: Similar to flash loans on other protocols, Uniswap V2’s flash swaps allow users withdraw as much of any ERC20 token as they want without upfront costs. They can then use those tokens for whatever they want provided that by the end of the transaction execution, they pay for or return all the tokens withdrawn. A 0.3% fee for liquidity providers is paid when tokens are returned.
“Flash swaps are incredibly useful because they remove upfront capital requirements and unnecessary constraints on order-of-operations for multi-step transactions that use Uniswap.
Potential for protocol fees: At launch, the protocol charge will default to 0, and the liquidity provider fee will be 0.30%. If the decentralized governance process deployed after the Uniswap V2 launch decides to turn on the protocol charge, it will become 0.05% and the liquidity provider fee will be 0.25%.
“This feature, including the exact percentage amounts, is hardcoded into the core contracts which remain decentralized and non-upgradable,” the post said. “Without any additional growth, it will generate more than $5 million in liquidity provider fees this year. If the protocol charge was on, ~$830,000 of this would instead go to a decentralized funding mechanism used to support contributions to Uniswap and its ecosystem.”
Dharma Announced P2P Payments
Blockchain-based lending platform Dharma on Thursday announced users will be able to make peer-to-peer money transfers on its app. Because Dharma uses cryptocurrencies, payments can be between any two people in different parts of the world, unlike other payment apps like Venmo or Lydia. Deposits on Dharma, which can be made via debit card wherever Wyre is available, gain interest from Compound Finance lending pools.
MakerDAO Close to Raising Enough Dai to Heal Bad Debt
MakerDAO has raised 4.3 million Dai at MKR auction, compared with a total 5.6 million of underwater loans the system needs to pay off. About 17k MKR has been sold at declining prices, with the latest highest bids going for ~230 Dai, compared with ~$270 current MKR price, according to Dune Analytics.
Image source: Dune Analytics.
The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money. Sign up to learn more and keep up on the latest, most interesting developments. Subscribers get full access at $10/month or $100/year, while free signups get only part of the content.
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About the author: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. (Pre-order The Infinite Machine here). I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.