Hello Defiers! It’s a big day for crypto and DeFi today.
Ethereum is now set to launch the first phase of its transition to Ethereum 2.0 / Serenity next week. The minimum amount of ETH needed was deposited, which will trigger the launch of a new proof-of-stake chain. This has been the moment the Ethereum community has been working on ever since the launch of the original chain, as its meant to make the network more scalable and sustainable. The milestone comes amid an accelerating crypto market rally, as Bitcoin crosses its all-time high of almost $20k, and Ether rallies past $600. In today’s newsletter:
Ethereum 2.0 is already among the largest proof-of stake chains, days before its launch
Yield bouncers Yearn and Pickle merge to optimize developer talent, combine TVL, and share security expertise
Pickle finance certainly needed the security expertise; the protocol was attacked over the weekend
and more 🙂
👩💻 Also, a reminder that Harmony’s Hack the Horizon hackathon is live until Jan 17. There is $50,000 in Harmony’s ONE tokens for developers building on Horizon, a bi-directional bridge that connects Ethereum and Harmony. The first prize also includes an annual subscription to The Defiant!
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Video producer Robin Schmidt dives into flash loans in the latest Defiant video, produced in partnership with Harmony Protocol.
🙌 Together with Zerion, a simple interface to access and use decentralized finance, and1inch.exchange v2, which aims to provide the best rates by discovering the most efficient swapping routes across all leading DEXes.
Phase 0 of Eth2 is set to kick off on its targeted launch date of Dec. 1 now that more than 584,224 ETH (or about $350M) is staked in the deposit contract.
The historic threshold was needed to deploy the Beacon Chain, the new primary source of truth for Ethereum as it transitions from Proof of Work to Proof of Stake through a migration known as ‘Eth2’ or Serenity.
Among the Top
More than 2k unique Ethereum addresses have made deposits into the contract, according to Dune Analytics. There are currently over 21k validators, with total ETH deposited divided by 32 ETH per validator.
For perspective, the number of Eth2 depositors and validators is already higher than validators on some of the top proof-of-stake chains, including Tezos, Cosmos and Polkadot, which have less than 1k validators each, according to stake.fish and Polkadot.js. For Polkadot though, nominators, who delegate their tokens to validators, are at over 7k.
To be sure, Ethereum validators are those ready to stake now that the chain isn’t live yet. The number will change on next Tuesday’s launch, as 900 validators per day can be added after genesis.
The total of 688k ETH or about $410M deposited into the Eth2 contract, would make Ethereum the sixth-largest PoS chain by assets staked, according to stakingrewards.com, days before its launch.
This migration means that the network will be secured by validators staking ETH, rather than by miners running hardware machines like on Bitcoin. The transition, which in further phases will include a scaling mechanism called “sharding,” is meant to allow Ethereum to handle ‘hundreds of thousands of transactions per second’, upwards of a 1000x increase from its current throughput of ~15 tps today.
Vote of Confidence
With more than 50% of the staked balance deposited in the last 48 hours, this milestone marks a major vote of confidence in Ethereum’s most grueling upgrade to date taking place over the course of at least four phases in what is expected to last at least two years according to developer estimates.
Phase 0 stakers are committing to lock their ETH until Phase 2, expected to take anywhere from 6-12 months on the conservative end. Stakers stand to earn part of ETH issued, which results in annual returns of as high as 21.6%, decreasing as more ETH is staked.
The successful push to lock $350M worth of ETH for an unknown period of time has helped propel the price of ether to prices not seen since 2018, leaving many hopeful community members to believe the next crypto bull run is imminent.
High Reward = High Risk
Still, many eth2 staking teams have voiced that the transition is a tremendous undertaking, one that is likely to be riddled with hiccups and growing pains along the way. Whether it be the new coordination challenges brought about with sharding or the reliance on validators to be online most of the time, staking ETH today serves as a signal of trust in a highly experimental process.
High APR’s are a direct correlation to the high risk of being the first to test drive the monumental paradigm shift.
For now, the Ethereum community can celebrate knowing that locking 584k ETH is the first check mark on the path to Serenity.
Yearn Finance and Pickle Finance today announced a merger where the teams are consolidating resources and technical stack. Just a few days earlier, Pickle was attacked and ~$20M Dai was drained (more on the attack below).
The timing of the merger at the heel of a protocol attack highlights the seized opportunity these DeFi teams took to share knowledge in an effort to increase security. Pickle is brought into Yearn’s ecosystem, gaining the project’s development and security expertise, while contributing its own development talent and TVL.
Yearn is a suite of products that provides lending aggregation, yield generation, and insurance. Pickle Finance enables users to earn compounding yields on their deposits.
1. Pickle Jars & Yearn’s v2 Vaults merge
Yearn’s vaults are capital pools that automatically shift deposits into the highest-yielding opportunities in the market. Similarly, Pickle Jars are yield farming robots that earn returns on user deposits. Merging vaults and storage lessens redundancy in capital storage.
2. Pickle introduces reward Gauges
Pickle tokens are now distributed through staking Yearn Vault tokens in Pickle gauges, where depositors can earn additional rewards.
3. Pickle Governance participants get voting power by locking Pickle
Token holders locking Pickle for set maturity dates receive a new token called DILL. The longer the time that Pickle is locked in for, the more DILL they receive.
4. Additional token rewards
Depositors can earn additional rewards by locking Pickle for DILL, up to 2.5x, the more DILL they hold the greater the rewards
Gauge deposit, withdrawal, performance, and protocol fees go to DILL holders.
5. Victim compensation
A new token, CORNICHON, tracks losses from the recent Evil Jar exploit, distributed proportionally to victims of the attack.
Pickle stated they would not be able to replace lost funds, as any remaining balances are reinvested back into the growth of the project. Yearn stepped in to help distribute CORNICHON to pay back victims’ lost funds. CoinDesk contributor Ajit Tripathi considered this M&A as Defi’s first example of a bailout.
On the day of the attack on Pickle, the Pickle token plunged to $8.70, compared with its all-time high of over $85. After the announcement of Yearn and Pickle’s synergy, the token jumped by almost 80% to $15.55. Yearn Finance’s YFI token meanwhile shows little change.
The rebounding sentiment for Pickle should precede increasing total value locked as the merger comes after Yearn’s debt ceiling on MarkerDAO was raised to $20M Dai from $7M. The raised limit means more YFI-based Dai loans can now be issued.
The latest affected project in a series of DeFi exploits is Pickle Finance – an automated yield aggregator with a mission to make stablecoins stable. Over the weekend, a hacker was able to exploit Pickle’s code to transfer $19M worth of Dai to an ‘Evil Jar’, leaving most LP’s in a pickle.
The project allows users to deposit stablecoins into interest-earning contracts called ‘Jars’ – Pickle’s spinoffs of strategies coined by Yearn Finance ‘Vaults’.
Not Fully Audited
After launching during the DeFi food craze, Pickle has amassed over $100M in TVL and received an audit. However, the introduction of Jars was not fully audited, allowing one hacker to execute one of the most complex series of transactions to date and transfer funds from the primary Dai Jar into an ‘Evil Jar’. A full recap of the exploit can be found here.
While many were quick to assume the hack was yet another use of flash loans, further investigation showed it was actually a complex arbitrage opportunity. The hacker was able to exploit the lack of whitelists to give themselves the ability to swap funds to and from the main Jar, bypassing a series of checks and balances to make off with $19M in the process.
Now, insurance protocols are voting on whether or not the ‘exploit’ deserves to be compensated through governance. The leading cover provider Nexus Mutual does not support Pickle Finance. Still, a new spinoff called Cover Finance does, and its Snapshot vote has passed to cover the claim. This means that affected users that hold CLAIM tokens will be reimbursed when the redeem tab goes live in the following days.
A group of white hat hackers came together to re-engineer the hack, open sourcing their findings in the process in the hopes of letting other teams learn from Pickle’s mistakes. As for Pickle users, there will not be an IOU issued. However, this morning’s announcement that Pickle Jars will be merging with Yearn means the project lives on.
CoinDesk is “spinning up a validator for the upcoming launch of Ethereum 2.0 as part of a fact-finding mission,” via Bison Trails, the media company reported. “The goal is to deepen CoinDesk’s editorial coverage to better serve our readers. Running our own validator will give us a direct, real-time window onto Ethereum’s transition to a proof-of-stake (PoS) consensus mechanism.”
Bitcoin surpassed $19,000 for the first time since 2017 “amid wider institutional acceptance and greater interest among mainstream firms. PayPal Holding Inc.’s October decision to allow customers to access cryptocurrencies led the coin to spike above $13,000 for the first time in over a year. And Fidelity Investments launched a Bitcoin fund over the summer,” Bloomberg reported.
Mike Novogratz is liking DeFi — a lot.
I’ve been up since 2am trading crypto. Haven’t touched $BTC. Im HODLing there. Can’t tell if the alt squeeze is over but feels like it might be. I like Defi more than ghost chains. A lot more. The top 10 market cap coins will look 50percent different in 18 months.
November 24th 2020
101 Retweets1,372 Likes
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.
About the founder and editor: Camila Russo is the author of The Infinite Machine, the first book on the history of Ethereum, and was previously a Bloomberg News markets reporter based in New York, Madrid and Buenos Aires. She has extensively covered crypto and finance, and now is diving into DeFi, the intersection of the two.