DAI

Devs Debate Using USDC for Collateral After DAI Stablecoin Faces Liquidity Issues

17/03/2020 by Idelto Editor

Devs Debate Using USDC for Collateral After Stablecoin DAI Faces Liquidity Issues

Since March 12, the Makerdao community has been struggling with the stablecoin DAI which has been over $4 million undercollaterized since the crypto market carnage started. On March 18, the developers plan to auction newly minted maker (MKR) tokens in order to remove the outstanding debt. However, the auction might not be enough and the Makerdao community is debating on adding the stablecoin USDC as collateral.

Also read: ETH Price Strains Defi Collateral Loans as ‘Black Swan’ Event Strikes Makerdao

Makerdao Community Debates Adding USDC for Collateral

The price of ethereum (ETH) has lost more than 40% in fiat value during the last week. News.Bitcoin.com reported on how the decentralized finance (defi) community watched Makerdao’s significant issues which resulted in over $4 million in DAI undercollateralized. Because the project uses ethereum (ETH) as collateral, the combined effects of the price of ETH falling and oracle discrepancies hurt the project’s collateralized loans.

Devs Debate Using USDC for Collateral After DAI Stablecoin Faces Liquidity Issues — The price of ethereum (ETH) has slid over 40% downwards since March 12, 2020. This has caused more than $4 million worth of loans to be undercollaterized.

To tackle the issues, Makerdao developers revealed they would be auctioning newly issued MKR to remove the debts incurred by the market bloodbath. The auctioning of new MKR is described in the project’s whitepaper as a method that can be used to stave off undercollateralized positions. However, in the eyes of a few MKR leaders, the auction to mitigate DAI liquidity risk in an uncertain market might not be enough. According to a recently published community forum post, the team is debating whether they should use the stablecoin USDC as collateral. Basically a stablecoin to make sure the other stablecoin holds its peg.

“Given the ongoing liquidity risk of DAI in an uncertain market, both the community and members of the Maker Foundation have been making noise in the official chat about onboarding USDC as collateral as an emergency measure to help mitigate this liquidity risk,” explains a post written by the MKR forum user Longforwisdom. “Naturally this would need to be confirmed by governance, and go through an executive vote, but at this stage, the Foundation is making the technical preparations to make this possible.”

‘A Band-Aid to a Deeper Underlying Liquidity Problem’

Longforwisdom also lists a number of pros and cons that would apply to the project if they leveraged USDC for collateral. A few positive examples include helping to “create DAI liquidity and push the DAI peg back towards $1,” that would “[allow] vault holders to close their vaults without eating the loss,” and it could bolster “FLIP [and] FLOP auctions.” Negatives to adding USDC would be things like “reducing the ‘purity’ of DAI,” “[it] comes with regulatory risk,” and a “‘blacklist’ risk” as well. If Makerdao was to add USDC they would need to address the stability fee, liquidation ratio, debt ceiling, and possibly getting away without using oracles, Longforwisdom underscored. “I think it’s a good idea to add USDC as collateral, to enable liquidity to be added to the market for emergencies,” the forum user Jiecart responded. “Currently DAI is trading >1.07, there’s a lot of demand for DAI liquidity.”

“To me, it sounds like a band-aid to a deeper underlying liquidity problem which ought to be solved with careful consideration,” MKR community member Aeno wrote. The Makerdao supporter added:

As to the USDC proposal itself, there are new economical risk that can sneak in with such a solution and mixing it with an otherwise decentralized system … Lastly, I echo the sentiment that I am in this project for its pure decentralized nature and would not want to see it becoming inter-mixed with USDC. If it were, I would rather just want to stick with USDC altogether.

At the time of publication, single collateral DAI is struggling to keep balance and is showing liquidity issues. The price per DAI is around $1.03 per token right now and the stablecoin has been fluctuating wildly since March 12. Sometimes a DAI can be less than $1 and other times it will trade for a few cents above like it is today. If the price of ethereum drops even further then the millions worth of ETH currently held in collateral will be liquidated. Meanwhile, the stablecoin USDC has seen significant growth since the crypto market dipped last Thursday.

What do you think about the Makerdao community members discussing whether or not they want to include the stablecoin USDC as collateral? Let us know what you think about this subject in the comments section below.

Disclaimer: This article is for informational purposes only. It is not an offer or solicitation of an offer to buy or sell, or a recommendation, endorsement, or sponsorship of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article. Cryptocurrency prices referenced in this article were recorded on Tuesday, March 17, 2020.

Image credits: Shutterstock, coinmarketcap.com, Markets.Bitcoin.com, Fair Use, Wiki Commons, Makerdao Logo, DAI logo, and Pixabay.

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Traders Flock to Tether, USDC, PAX – Stablecoins See Great Demand After Crypto Market Havoc

16/03/2020 by Idelto Editor

Traders Flock to Tether, USDC, PAX - Stablecoins See Great Demand After Market Havoc

Stablecoins have seen massive volume and growth this month especially after the market carnage on March 12. Per usual, tether has been the king of stablecoins following the market downturn, but the 4.6 billion USDT wasn’t enough for all the liquidity needed to shield the storm. Other tokens pegged to the U.S. dollar like USDC, TUSD, and PAX have reaped the benefits as well and a few of them have joined the top trading pairs with BTC.

Also Read: Bitcoin Cash IFP Debate: ABC Kicks Off Fundraiser, 3 Mining Pools Signal BCHN Support

Stablecoins See Increased Demand and Growth After Crypto Market Wrath

It’s a well known fact that lots of traders like stablecoins and they become useful hedges for people when crypto market prices suddenly dive. Despite a number of people not liking them and the controversies surrounding stablecoins, they have continued to grow very popular during the last few years. Tether (USDT) is the most used stablecoin and the token’s market capitalization is the largest to-date. In fact, USDT is usually the top trading pair with BTC and during the last week, the token captured between 60-75% of BTC trades.

At the time of writing, USDT has a market valuation of around $4.63 billion. Coinmarketcap.com (CMC) data shows reported traded volume for tether is $40.6 billion but messari.io’s “real volume” statistics claim its only $1 billion. Either way, statistical aggregation sites like CMC, markets.Bitcoin.com (6.4B), and messari.io both show that USDT has the most trade volume on March 15 out of 5,000+ coins.

Even though tethers have and still are capturing 60-75% of BTC trades during the last few days, other stablecoins have seen growth from the crypto price downturn as well. Cryptocompare.com stats show that stablecoins like USDC and PAX have been top five trading pairs with BTC. USDC is capturing 4.1% of BTC trades and PAX has around 3% according to cryptocompare.com data.

Usually, these stablecoins are not even close to making it into the top pair trading positions with BTC. On March 14, Circle cofounder Jeremy Allaire explained how USDC saw growth over the last couple of days. “USDC surging in market demand over the past days, reaching new ATH at $568M in circulation,” Allaire tweeted. “Fascinating to see ‘flight to safety’ within the crypto macro market, but also demand for high-quality USD liquidity for markets.” Allaire continued:

While not as exciting to see markets so crushed, it’s still rewarding to see that this entirely new, entirely digital, blockchain-based monetary infrastructure is working.

Stablecoin Arbitrage and Liquidity

While Allaire discussed the situation after the wrath on March 12, Paxos Global’s official Twitter account also tweeted about the various stablecoins they offer custody for and noted that the combined projects had a market capitalization of “more than $395 million as of March 12, 2020.” The stablecoin TUSD has also seen an uptick in volume and the approximate total value of TUSD’s market cap at press time is $132 million.

Paxos is a Trust company, meaning we are a qualified custodian for USD-backed #stablecoins. We power $PAX @PaxosStandard, $HUSD @Stablecoin_HUSD and $BUSD @binance Dollar, with a total market cap of more than $395 million as of March 12, 2020. https://t.co/ZWpJ2LUNkw

— Paxos (@PaxosGlobal) March 12, 2020

News.Bitcoin.com recently reported on the incident that took place with the Makerdao defi project after ETH prices dropped more than 40% on Thursday. At that time $4-4.5 million worth of Makerdao’s stablecoin DAI were undercollateralized. However, since then single collateral DAI tokens have been doing much better and on March 15 they are priced at $1.06 per token.

Even though most of the stablecoins are supposed to remain valued at one U.S. dollar after March 12, liquidity demand made prices fluctuate for all of the stablecoins in existence. At times prices have been a touch higher and sometimes stablecoin prices have been a hair lower than the USD peg. Crypto traders have found ways to leverage the current stablecoin arbitrage, which allows them to sell the tokens for higher profits using different markets. Traders have been using stablecoins for arbitrage for years and there are various blog posts and guides on the subject.

It’s likely that traders will continue to use stablecoins and ‘tether off’ in order to hedge the current storm. On Sunday, March 15, cryptocurrency markets have been lackluster and there haven’t been any huge moves. If coins like BCH, ETH, BTC, and many others see improved prices and gains soon then it’s likely traders will gradually exit their stablecoin hedge. However, if markets fall lower in the near future the ‘flight to safety’ within the cryptoconomy might be put to the test with significant stress. If crypto prices drop further liquidity issues could make dollarized tokens worth a lot more than the 5-10 cents higher we’re seeing today.

What do you think about the current market demand for stablecoins? Let us know what you think about this subject in the comments section below.

Disclaimer: This article is for informational purposes only. It is not an offer or solicitation of an offer to buy or sell, or a recommendation, endorsement, or sponsorship of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article. Price articles and market updates are intended for informational purposes only and should not be considered as trading advice. Neither Bitcoin.com nor the author is responsible for any losses or gains, as the ultimate decision to conduct a trade is made by the reader. Cryptocurrency prices referenced in this article were recorded on Sunday, March 15, 2020.

Image credits: Shutterstock, Markets.Bitcoin.com, Twitter, Fair Use, Wiki Commons, and Pixabay.

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ETH Price Strains Defi Collateral Loans as ‘Black Swan’ Event Strikes Makerdao

13/03/2020 by Idelto Editor

The price of ethereum dropping double digits on March 12 sent shockwaves through the decentralized finance (defi) community. Makerdao’s single collateral DAI has been struggling and the low price of ETH has left millions worth of DAI undercollateralized. The defi project’s undercollateralizition was also blamed on price oracle discrepancies.

Also read: The 35 Most Influential Bitcoiners Dominating Crypto Twitter by Follower Count

Makerdao Community Deals With Black Swan Event

The Makerdao project and the stablecoin DAI have been extremely popular over the last 12 months. The total value locked (TVL) in Maker touched an all-time high (ATH) on February 14, 2020. Following the ATH on Valentine’s Day, Maker’s TVL started to drop and has been sliding downward for three weeks straight. Things got a lot worse when cryptocurrency markets faced coronavirus fears and started dropping in value three days ago. Then on March 12, the cryptoconomy lost more than $44 billion rapidly and the price of ethereum (ETH) dropped below the $100 range.

@MakerDAO situation explainer thread ELI10 :
– 4.5M$ underwater due to auction fail
– Surplus Buffer of 500k eaten
Minting MKR is a seriously considered option.

Maker jargon in (), will try to use human words as much as possible

— Marc ‘aDai is Money’ Zeller (@lemiscate) March 12, 2020

Because the Makerdao project leverages ETH for overcollaterization, the falling price of ether put significant pressure on the DAI stablecoin and collateral loans. Not only was the price of ether hurting DAI, but Makerdao’s oracles had issues with exchange prices being different. While the entire crypto cap shed billions on Thursday, exchange rates for every coin were all over the place, depending on which source was used. Estimates say that around $4 to 4.5 million worth of DAI was undercollateralized due to the event.

Big problems with DAI. Liquidators are acquiring undercollateralized vaults at zero cost. Check on your vaults and avoid liquidation at all costs. https://t.co/yKXQDtCUHN

— Chris Blec (@ChrisBlec) March 12, 2020

Liquidations and Circuit Breakers

This caused serious disruption for DAI holders and the team behind the Makerdao project. According to one person’s testimony, DAI’s issues caused him to lose 1,713 ETH from a Collateralized Debt Position (CDP) that was liquidated. The team of developers behind Maker contemplated an emergency shutdown in the midst of the sell-off as well. The proposal, however, was extremely controversial and not favored by everyone.

Moreover, some defi proponents said that cryptocurrency exchanges need “circuit breakers” or “shut off” switches similar to traditional markets. “Today’s price moves in crypto are a strong argument for industry-wide circuit breakers,” Multicoin Capital’s managing partner Tushar Jain tweeted. “Crypto markets structurally broke today and leading exchanges need to work together to prevent a repeat.”

“Crypto needs circuit breakers,” professor Emin Gün Sirer tweeted on March 12. “Every market needs circuit breakers to get the negative bot interactions to slow down. Exchanges going down under load is crypto’s version of circuit breakers.”

Makerdao Struggles Predicted Two Years Prior

Makerdao and the stablecoin DAI have dealt with issues before when the asset struggled to hold the dollar peg in April 2019. Nothing has been as severe as the March 12th crypto carnage but Makedao’s ‘black swan’ event was predicted in June 2018. Bennett Tomlin’s blog post called “A Deep Look at Maker DAO and Dai and MKR” pretty much sums up the March 12th Makerdao issues two years before it happened. “[DAI] cannot always be collateralized in excess, because if there is a black swan event that destroys the value of ethereum that is no longer true,” Tomlin’s research highlighted. Tomlin added:

My biggest fear here is in the case of a serious, say 40% 1-hour movement in the value of Ethereum. You are going to have people selling their Ether, possibly into Dai if it is trading in a pair, creating a strong demand driving the price of us, at this same time it is now easier to collateralize and create more DAIs, but the value of the collateral is rapidly depreciating, thus leading to a greater likelihood of Dai becoming undercollateralized.

‘Keepers and Maker Buyers Should Prepare’

Defi Pulse shows that Maker’s TVL right now has around $347 million USD on March 13 following Thursday’s crypto market sell-off. The defi action yesterday spurred a number of anomalies with collateral and observers noticed all kinds of discrepancies across multiple defi platforms. The Twitter profile ‘Crypto Curious’ believes that Polychain and Dydx “tried to help Makerdao in stopping more 0$ bid in auctions for under-collateralized CDPs.”

“Around the time DAI was going up sharply to 1.05-1.09, there were many small DAI amounts coming from the Polychain address that were sent to DyDx,” Crypto Curious tweeted. “I believe they were lending DAI on the exchange in order to provide more liquidity to the system once they realized there was only one keeper bidding for the auction. By adding more DAI to the pool, they tried to reactivate the liquidation bots that had stopped working from lack of DAI liquidity.”

Defi proponent Ryan Berckmans explained during the Makerdao emergency announcement that the “social contract of MakerDAO is that MKR tokens take a haircut in the event of system failure.” “Keepers and MKR buyers should prepare for sustained high gas prices, and downward pressure on ETH and MKR — The Dow Jones hit sell-off circuit breakers three times in the past week and a half. It’s a historic week,” Berckmans conceded. The defi project Makerdao now has plans to initiate a MKR governance token auction on March 15, 2020. The plan is to offset the $4 million that’s currently undercollateralized from the wrath of Thursday’s market carnage.

What do you think about the recent problems with Makerdao dealing with the ETH sell-off? Let us know what you think about this subject in the comments section below.

Image credits: Shutterstock, Iamnomad, Twitter, Defi Pulse, Fair Use, Wiki Commons, Makerdao logo, Coinmarketcap.com, and Pixabay.

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Understanding Defi Flash Loans: Complex Attacks, Inflation and Composable Systems

22/02/2020 by Idelto Editor

Two recent flash loans on the defi platform Bzx have started a fierce debate about the subject of using uncollateralized loans in a quick trade. Essentially these flash loans are providing people with the ability to borrow crypto without relinquishing any collateral. The scheme was used to exploit funds from the Bzx platform twice, as an individual or group gathered around $954,000 in a matter of four days from well-executed flash loans.

Also Read: Get Ready for the Bitcoin Halving – Here Are 9 Countdown Clocks You Can Monitor

Flash Loans: Attack or Innovative Forms of Defi?

Decentralized finance (defi) flash loans is a hot topic right now, after the lending platform Bzx saw $954,000 siphoned from two flash loans. The first one took place on February 14 and then another Bzx ‘attack’ occurred on February 18. The method of execution called a “flash loan” has been a contentious subject because people don’t necessarily agree that flash loans are an “attack,” “hack,” or “exploit,” because the scheme merely follows the rules of the said contract and loan system. A number of Ethereum proponents believe flash loans are useful and open up new avenues of decentralized finance.

find the flash lenders:

👩🏻👩🏼👩🏽👩🏾👩🏿👩🏻👩🏼👩🏽👩🏾👩🏿
👨🏻👨🏼👨🏽👨🏾👨🏿👨🏻👨🏼👨🏽👨🏾👨🏿
👧🏻👧🏼👧🏽👧🏾👧🏿👧🏻👧🏼👧🏽👧🏾👧🏿
👦🏻👦🏼👦🏽👦🏾👦🏿👦🏻👦🏼👦🏽👦🏾👦🏿

can’t find them?

that’s because they live among us, looking like normal people. the only real difference is they now have the access to whale-like liquidity.

— stani.eth ’Flash Loans Maximalist’ Kulechov 👻 (@StaniKulechov) February 20, 2020

During the first big flash loan, the so-called hacker got 10,000 loaned ETH from the application Dydx and snagged 112 wrapped bitcoin (WBTC) from the defi protocol Compound. The individual then sent around 1,300 ETH to Bzx’s Fulcrum trading platform and then borrowed 5,637 ETH via Kyber’s Uniswap for around 51 WBTC. From here, that particular move caused significant slippage (the difference between the expected price of certain trades and the price of trade execution) within the market. After that, the individual made a profit from the 112 WBTC loan they first obtained from Compound and raked in roughly $318,000 in profit. This single transaction allowed the individual to easily pay back the 10,000 ETH from Dydx.

1/ WHAT WE KNOW SO FAR: There was a second attack. This attack was completely different from the first. This time it was an oracle manipulation attack, a modified version of the original exploit we worked closely with @samczsun to fix: https://t.co/lDcyDQf44i

— bZx (@bzxHQ) February 18, 2020

Now as confusing as all that sounds, basically a flash loan is the ability to leverage uncollateralized defi capital in order to profit from a well-executed dex trade. The process is done very quickly and efficiently in order to curb the risk of losing funds during execution. The person performing a flash loan can use their assets to drop the price across markets in order to trigger defi apps with oracles to sell at the desired spot price. Defi apps like Bzx, Dydx, and Compound use price oracles to determine the prices across various decentralized exchanges (DEX) like Kyber’s Uniswap.

Behind the scenes of a @MakerDAO collateral swap using @AaveAave Flash Loans, @UniswapExchange and @chainlink oracles 📸 @daveytea @RyanSAdams @econoar @nanexcool @EthereumMemes $LEND $LINK $ETH #Woah pic.twitter.com/NyKo1JHV6x

— Jordan LG 👻 (@JordanLzG) February 20, 2020

The pricing information often has large discrepancies across exchanges, which allow for market anomalies like slippage and arbitrage. The speed of a flash loan’s execution is so fast because the loan, trade, settlement, and profits are executed simultaneously in a single transaction. The individual who performed the first massively sized flash loan against Bzx simply borrowed funds from the defi platform’s smart contract without any collateral and they were able to pay the loan back in a single transaction.

Flash Loan Demos, Inflation and Deflation, and the Flavors of Flash Loans

Following the two massive flash loans that took place on Bzx’s Fulcrum trading platform, the crypto community continues to debate the topic on social media and forums with great fervor. There has been deep analysis and studies done on the subject of flash loans and people debating about whether the acts are malicious. Moreover, some individuals have shown the public how simple it is to execute a flash loan using a defi platform and DEX.

Flash loans are communism. Only rich ppl are allowed to manipulate markets

— Joseph Delong (@josephdelong) February 18, 2020

On Twitter, Fiona Kobayashi showed crypto enthusiasts how she executed a small flash loan. In a single transaction, Kobayashi got a loan of ETH from the platform Aave with no collateral. She then exchanged it for BAT tokens on Uniswap and moved the BAT to Makerdao platform as collateral and withdrew ETH collateral from Maker. After that, Kobayashi repaid her loan on Aave and used Rosco Kalis’ revoke.cash platform to “revoke the original vault’s ERC allowances.”

“Not sure why I ended up with an extra $4.70 worth of DAI, it was supposed to be a net neutral flash loan,” Kobayashi tweeted.

A few people think flash loans can cause inflation, similar to how central banks lower circulating supply and then they simply adjust rates. “Inflation happens, but so does deflation too, [the] Fed can lower circulating supply at any time and raise interest rates,” an individual remarked after the Bzx flash loan. “Flash loan exploit inflation is crazy,” another person tweeted on February 18. The reason people believe that flash loans could cause erratic inflation and deflation is because when a flash loan is executed, the profits are being taken from somewhere within the chain of events in the single transaction. Oracles are easily being gamed and developers may have to come up with new ideas to gather verifiable price data.

Can someone flash loan attack ProgPoW?

— eric.eth (@econoar) February 22, 2020

Emilio Frangella from the Aave Protocol wrote a blog post about the subject on February 12 and he said that flash loans were innovative. “Flash Loans have especially captured the attention of the defi crowd and we expect other defi protocols to follow our lead and implement their flavors of flash loans as well. Like any other building block of Ethereum composability, flash loans quickly allowed new creative ideas to become reality,” Frangella wrote. The Aave Protocol team member further added:

Prime examples of this are Arbitragedao (a DAO with the goal to market make arbitrage opportunities by leveraging the flash loans) and the Maker Vault collateral swapper (which allows you to swap your collateral from ETH to BAT in one transaction).

What do you think about flash loans in the crypto world? Let us know what you think about this topic in the comments section below.

Disclaimer: This article is for informational purposes only. It is not an offer or solicitation of an offer to buy or sell, or a recommendation, endorsement, or sponsorship of any products, services, or companies. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

Image credits: Shutterstock, Etherscan, Twitter, Fair Use, Bzx Fulcrum, and Pixabay.

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Defi Market Surpasses $1 Billion – But There’s a Catch

07/02/2020 by Idelto Editor

The total value locked (TVL) in decentralized finance applications has surpassed $1 billion, prompting celebrations from the Ethereum community. Not everyone has been swift to toast the milestone, however, with suggestions that the true value locked into defi protocols is materially lower. Meanwhile, creeping competition from centralized lenders shows that defi will have to innovate if it is to retain its value proposition.

Also read: Bitcoin, Tesla Stock, Tron: How Warren Buffett Got His First Bitcoin

A Big Day for Defi

The moment decentralized finance advocates had been awaiting for weeks arrived on February 6, when the TVL of all assets in defi protocols exceeded $1 billion. At press time, that figure has receded slightly and is sitting at $997M. Defipulse.com, which tracks ecosystem growth, records Maker’s dominance to be 60%. The crypto collateralized stablecoin network is to defi what bitcoin is to the crypto market, its shadow looming large over proceedings.

Many of the decentralized lending, derivatives, and trading protocols draw their liquidity from Maker’s sai and dai stablecoins, which in turn draw theirs from ethereum. In a short blog post toasting the achievement, Defi Pulse proclaimed “$1 billion marks an important milestone for Defi to be celebrated. It illustrates the progress we’ve made towards our community’s vision of decentralized finance and the future of the world at large.” One year ago, the defi market was valued at less than $280M. Today, lending alone accounts for $766.5M.

Centralized Lenders Eye Defi’s Market Share

Just as centralized exchanges have commercialized staking, squeezing out dedicated masternode and staking services, there is a risk of crypto lending following suit. Lending is at the heart of decentralized finance, accounting for five of the top 10 dapps (Maker, Compound, Instadapp, Dydx, and Bzx). Centralized finance (cefi) lenders are making inroads into this lucrative vertical, however.

This week, Binance rolled out the 13th phase of its lending products, offering rates of 6% on USDT, 8% on BUSD, and 15% on ERD. Then there are cefi lenders like Cred and Squilla Loans to factor in, whose business model requires zero knowledge of decentralized finance protocols, and boasts a superior UX. In the case of Squilla, for instance, borrowers and lenders can simply enter the amount they are seeking and the desired loan period to receive an instant quotation. Decentralized finance applications are improving, but they will struggle to match the user experience and rates offered by centralized crypto companies.

Is defi’s $1 billion TLV the first milestone of many, or will observers look back on this moment as its apotheosis, the high water point before value flowed into centralized crypto competitors? Speaking of the $1 billion figure, not everyone is convinced that the numbers add up…

Picking Apart the $1 Billion Valuation

“Defi Pulse monitors each protocol’s underlying smart contracts on the Ethereum blockchain,” explains the website whose defi valuation is referenced by the entire industry. “Every hour, we refresh our charts by pulling the total balance of Ether (ETH) and ERC20 tokens held by these smart contracts. TVL(USD) is calculated by taking these balances and multiplying them by their price in USD.”

It’s a methodology which mimics the way in which the market cap of cryptocurrencies is calculated. However, market cap has long been regarded as an imperfect reckoner, and the same accusation has been levied against defi. “What percent of the “$1 billion dollars” that’s “locked up” … is: 1) made up of ICO tokens (illiquid?) 2) not fluffed by Consensys or Ethereum foundation/Ethereum founders?” protested one bitcoiner.

“$1B isn’t locked up in Defi,” weighed in crypto legal commenter Preston Byrne. “At least $300mm of that is in ether that early investors don’t want to sell and thereby incur the tax hit, if Dai proponents are to be believed. It’s the difference between saying “Jeff Bezos is worth $100bn” and saying “Jeff Bezos has $100bn in cash.” Defi doesn’t have $100BN locked in it, it has ether that early holders didn’t want to sell, the value of which is appreciating in the middle of a nascent bull market.”

Others demurred, however, with Ethereum advocate Nathaniel Whittemore calling the feat “one hell of a milestone.”

Do you think the defi market can keep growing? Let us know in the comments section below.

Disclaimer: This article is for informational purposes only. It is not an offer or solicitation of an offer to buy or sell, or a recommendation, endorsement, or sponsorship of any products, services, or companies. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

Images courtesy of Shutterstock.

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