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Category: Decentralised Finance (DeFi)

Decentralized Finance (DeFi) is a sector within the cryptocurrency and blockchain space which aims to provide a decentralized version of the products available in traditional finance- without central control and at a lower cost with potentially higher returns. These products include loans, interest-bearing deposits and borrowing services.

The advantages of decentralized finance are that it addresses the problems we have with the traditional banking system. For example, decentralized finance protocols are controlled by multiple people, and all participants are required to abide by the rules written into the smart contracts underlying the protocols.

  • Synthetix ($SNX): Everything you need to know about this top DeFi project

    Synthetix ($SNX): Everything you need to know about this top DeFi project

    Synthetix (SNX) is one of the top Decentralised Finance (DeFi) platforms in existence. According to Coinmarketcap their native token $SNX ranks no.7 in terms of market capitalisation compared to other DeFi tokens. Synthetix itself is primarily a decentralized exchange but also a synthetic asset issuance platform.

    The platform enables users to issue and trade synthetic assets — digital assets that represent other real assets like stocks, fiat currencies, commodities, or cryptocurrencies. It also has a staking mechanism that incentivizes users to provide liquidity and maintain the platform.

    The Synthetix Protocol was originally conceived as Havven back in 2017 by Kain Warwick. Warwick is currently also a Non-Executive Director of blueshyft- a network of over 1200 retail locations around Australia.

    What is Synthetix?

    Simply put, Synthetix is an Ethereum-based DeFi ecosystem that functions as a deentralised exchange (DEX) and asset issuer that is maintained via a staking incentive scheme.

    Users can speculate on any real-world asset by creating synthetic assets that track their prices in real-time via oracle feeds. And unlike traditional financial systems, Synthetix requires no KYC. You don’t even need to create an account.

    Yet anyone could gain exposure to Tesla stocks, high premium bonds, real estate, and just about anything. This can be done simply by depositing SNX tokens into the platform.

    Furthermore, those that mint synthetic assets can earn passive income from the fees generated by people buying the assets.

    One of the most exciting aspects of the Syntethix system is that it can siphon a huge chunk of the trillions of dollars of assets from traditional markets and bring them to the Ethereum network.

    Synthetix Network (SNX) Token

    SNX is the utility token of the Synthetix ecosystem and is necessary to create synthetic assets called Synths. Users can buy SNX tokens from several crypto exchanges and deposit them in a compatible wallet in order to stake them.

    Once they are locked up, new Synths can be minted. The token’s supply used to be deflationary until it was updated in March 2019. The update saw the implementation of an inflationary monetary policy to encourage stakers to create more Synths.

    By 2025, a total of 250 million SNX tokens will be minted. SNX has surged drastically in the last couple of months. It went from $0.79 at the beginning of June to around $3.32 on the 25th of July 2020.

    Synth Tokens

    Synth tokens are synthetic assets that track the price of real assets. They are minted by locking up SNX tokens.

    Synths can come in any form and they are denoted by ‘s’. For instance, fiat synths would look like these: sEUR, sUSD, SRMB. Other variations of Synths include sAAPL (synthetic Apple), sTSLA (synthetic Tesla), sAu (synthetic gold), sBNB (synthetic Binance Coin), sDEFI (synthetic DeFi Index), and many more. (https://www.furtenbachadventures.com/)

    Whenever new Synths are minted, stakers create a debt. Therefore, they need to pay back the same value in Synths before they can withdraw their locked-up SNX tokens. And the value of Synth will likely change over time.

    As a result, users may need to pay a different amount of Synths by the time they withdraw their locked up tokens. 

    Fortunately, users are not required to pay the same type of Synth that was initially minted. As long as the Synth used to pay has the same market value, the system will accept it. For instance, a Tesla share Synth can be used to pay in the place of a Bitcoin Synth as long as they have equal value.

    One thing to note is that Synth tokens are not exactly the same as the assets they represent. They are known as synthetic assets for a reason. 

    For instance, if you hold an sAAPL token, you will be exposed to the volatility of Apple shares. However, unlike owning real AAPL shares, you won’t be receiving dividends like real Apple shareholders enjoy.

    Collateralization 

    The Synthetix system requires a collateralization rate of 750%. For instance, if you want to mint 100 sUSDT, you need to deposit $750 worth of SNX tokens as collateral. 

    This rather high collateralization rate is imposed in order to hedge the platform against extreme market price swings.

    Staking SNX

    Staking is currently where most people are making money out of the Synthetix protocol. But like any money-making schemes, staking Synthetix bears some degree of risk.

    How to stake SNX

    If you truly want to make money staking SNX, there are a few easy steps involved.

    1. First, you need to buy Synthetix in any exchange and connect to a web3 wallet.
    2. Visit Mintr, the best portal interface for minting and managing Synths.
    3. Connect your web3 wallet to Mintr.
    4. Click ‘Mint’ and choose what type of Synth you want to mint.
    5. Remember the collateralization ratio of 750%
    6. Input the number of Synths you want to mint.
    7. Click ‘Mint Now’.
    8. Confirm the transaction in your web3 wallet.

    Afterward, your SNX token will automatically be staked. You will now be able to enjoy rewards generated from trading fees. Furthermore, you are also subject to inflation rewards.

    These rewards, however, come with a price. When you mint Synths, you get to own a portion of the platform’s debt pool — the total value of all Synths. And this debt can increase and decrease regardless of the original value of your minted Synths.

    Synthetic DEX

    Synthetix has a built-in DEX interface that enables users to trade without an account. The DEX currently offers 19 assets to trade and 31 trading pairs.

    All you need to do is visit the Synthetix exchange and connect any web3 wallet like MetaMask. It has a slick but simple interface that eases users’ experience while trading.

    Synthetic exchange charges both maker and taker fees with 0.30% which is higher than the industry standard of 0.05-0.25%. The fees will be used to reward the stakers for providing liquidity to the platform. 

    Furthermore, users will also be charged Gas fees by the Ethereum network. For now, all these fees could add up which might be a hindrance from the greater market to fully adopt DEXes for all their trading needs.

    In time, when Ethereum finally scales, gas fees should be low enough to become negligible.

    DEXes like Synthetix don’t require withdrawal fees (except for Gas) since trades are conducted directly from wallet to wallet.

    The Takeaway

    As a leading DeFi protocol, Synthetix has a lot of potential. It has enabled users across the world to create and trade synthetic assets more than any platform to date. However, nothing is guaranteed to last in the crypto space.

    DeFi protocols like Synthetix have seen enormous growth in the last couple of months. Whether or not this is sustainable, only time will tell. 

    But considering the trillions of dollars floating in Centralized Finance (CeFi), it is not far-fetched to assume that DeFi’s disruption is far from over.

    Decentralised Finance (DeFi) series: tutorials, guides and more

    With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. As well as a deep dive into popular DeFi topics such as decentralized exchanges, borrowing-lending platforms and NFT marketplaces

    The DeFi series on this website also covers topics not explored on YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

    Tutorials and guides for the ESSENTIAL DEFI TOOLS:

    More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel so you can be notified as soon as they come out!

    Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.

  • Balancer Finance Guide and Review ($BAL)

    Balancer Finance Guide and Review ($BAL)

    Balancer ($BAL) is an automatic market maker (AMM) protocol that reduces the cost and slippage between trades of different cryptocurrencies. Balancer is a decentralized replacement for the traditional market-maker, a 3rd party entity that provides liquidity to traded assets. Balancer protocol can be called upon by different decentralized trading platforms to automatically figure out the best rates and trading prices using Smart Order Routing (SOR). The protocol also provides the funds necessary to complete the trade, using the funds from available Balancer Pools. Balancer Finance was Launched in September 2019 by Mike McDonald and Fernando Martinelli, since then the Company had a successful seed round with $3 million invested.

    Balancer Exchange Interface

    Balancer uses the N-dimensional invariant surface that is built upon the Uniswap dapp. They also use Automated Market Makers (AMMs), much like UniSwap, which are built off computer algorithms to regulate the market. Their Pools are doing away with portfolio management fees with users instead of collecting fees from traders, who re-balance the portfolio by “following arbitrage opportunities”.

    Balancer has shifted itself into a prominent position within the Decentralized Finance (DeFi) hierarchy, as it’s BAL token caught the coattails of Compound Protocol’s governance tokens rise at the start of 2020. This saw increased attention on the exchange and has been earmarked as a competitor in the DeFi field. This perception coincides with an increase in popularity for DeFi projects and their mining qualities, something highlighted in a recent Forbes report on “DeFi Yield Famers”. So, if you are a budding or curious yielder or someone looking to understand the emerging DeFi market, this is the guide for you. In this article we provide a full breakdown of the project, what it is and explain the benefits of using this DeFi exchange and protocol.

    To learn more about Balancer including its strengths and weakness, check out our video:

    Balancer Finance: What you MUST know about this DeFi platform

    Balancer’s Pools Explained: What are they?

    Balancer pools are collections of user supplied funds that are used to provide liquidity to trades and transactions. These pools can total up to more than $11 Million USD (eg, the USDT, BAT and COMP pool). This collection of funds will be called upon during cryptocurrency trades as the as the counter-party to the transaction, thus providing liquidity to traders.

    Controlled/Private Pools: These are when a fixed state is over the pool and the creator can set out the tokens and weights. This is usually done for private actors who don’t want outside liquidators, for example third party liquidators working with large quantities.

    Finalize/Shared Pools: These pools are open for all actors to add liquidity and is a one way transition. They can not be amended and have a fixed parameter, unlike controlled pools and are usually for the general public to liquidate and make profits.

    Alongside the two main subcategories of pools, there are other more specific smart pools that you can use. For example, Liquidity Bootstrapping Pools (LBPs) give the opportunity for teams to release a project token while at the same time building deep liquidity. Other examples include stablecoin pools with zero impermanent-loss, which founder Martinelli wrote an extended explainer here.

    Pool creator tool
    Balancer’s Pool creator tool

    $BAL Token

    In its initial launch, Balancer didn’t have their own native token but this changed this year, with the company revealing their governance token $BAL. The Company began distributing the token on June 23rd 2020 and will be distributed on a weekly basis for liquidity providers on the site.

    However, there is no economic value to BAL tokens, rather they are currency for governance rights on the protocol. These rights allow the holders to have a say on the structure of Balancer protocol, with weight in terms of implementing new features, protocol fees, and larger structural changes like layer 2 scaling as well as contracts on other blockchains.

    There are 100 million tokens created but 25 million of them have already been allocated to the founding members, core developers, advisers, and investors. The rest though are free to be mined by Balancer users who add liquidity.

    According to Balancer’s website: “Every week 145,000 BALs, or approximately 7.5M per year, are distributed to liquidity providers. This means in the first year of BAL’s existence there would be 30% supply inflation off the initially allocated supply of 25M tokens.” So, how can you earn the weekly BAL allocation? This is done through BAL liquidity mining, which is discussed below.

    BAL Liquidity Mining: How to earn $BAL tokens?

    Liquidity mining has become one of the most popular topics of conversation in the space of decentralized finance (DeFi) in recent weeks. At its core, liquidity mining is essentially when users supply liquidity of assets to a DeFi protocol in exchange for some kind of reward. That reward may be various tokens, including governance tokens of the underlying DeFi protocol (which may end up having monetary value – like COMP). It basically offers a way for users to earn money on assets that they hold.

    The main way to earn $BAL tokens is through Liquidity Mining. Essentially, Balancer rewards liquidators who pay into their pools in the form of $BAL tokens. The Company’s proposal is to give out BAL tokens in proportion to the amount of liquidity each address contributes relative to the total liquidity on Balancer.

    Another way to make BAL is through creating a pool and reaping the benefits of trading fees. These are handed out in the form of $BAL. This system also incentivises the pool creator to lower fees as the lower the fees are, the more BAL they receive. Balancer’s fee gives pool creators a short term or a long term option, and they hope it will encourage lower fees so that traders are lured onto the exchange.

    Speaking on the issues concerning distribution of BAL and governance rights, founder Martinelli said: “By far the most important factor or reason why we are doing that is because we want this thing to be decentralized. We believe in a decentralized, trustless future, and we want Balancer to do that. We need the distribution to be in a healthy way.”

    Balancer Yield Farming & Best Pools

    Top liquidity pools on Balancer are currently returning up to 30% APR on Return on Liquidity. These rates have drastically improved after the Cap Factor update on July 5th 2020.

    The best way to find the current best rates and return on liquidity is via the Predictions Exchange Chart.

    Balance Coin Whitelisting

    In order to quality for airdrops of $BAL Balancer Governance token, pools need to have at least two coins that are on the whitelist. Coins are added to the balancer whitelist on a weekly basis. The amount of $BAL being distributed depends on the trade volume and total liquidity, with a maximum of $

    Trading on Balancer’s Exchange

    Alongside their liquidity and pools, Balancer is first and foremost a decentralized exchange. With no KYC or signups, the anonymity and privacy is upheld. All you need to start trading on there is a wallet like MetaMask. Learn how to set up a Metamask account here.

    The Exchange has a number of tokens available to trade. These include: Ethereum (ETH), DAI, MKR, USDC, REP, BTC++, WBTC, WETH, BAT, SNX, ZRX, LINK, DZAR, UMA, LRC, REN, LEND, KNC, COMP, OCEAN. The Exchange also has a number of tokens without pools such as tBTC, ANT, cUSDC, cDAI, imBTC, pBTC, sBTC, sUSD, PNK, AST and RPL.

    Balancer: are there any risks?

    Decentralized exchanges are often associated with high risks. This sort of ability to trade so easily with high interest rates is a concern. This was highlighted more recently by Ethereum founder, Vitalik Buterin, who cautioned that they were “flashy DeFi things” which sometimes come with “unstated risks attached”.

    Tweet from Vitalik Buterin

    Balancer has acknowledged the risks, with their website warning users that: “Balancer is a very new protocol. Although we are taking every precaution and doing extensive audits, this is still very much a beta product. Use small amounts of funds to start.”

    Conclusion

    Overall, Balancer has position itself as a powerful tool to automate marketing making and reduce transaction fees for different cryptocurrencies. It’s leading the liquidity pool market with the ability to create n-dimensional liquidity pools which is a market first. With their unique formula which negates and actively discourages large fees, Balancer has created a decentralized project that could potentially be a self-sufficient system with a community emphasis.

    For now though, the main target for Balancer is to create stiff competition for UniSwap and make themselves the industry leaders in the AMM field on Ethereum. Many believe this is possible as the DEX functionality on Uniswap is the same as Balancer, as one Uniswap token-for-token pool is equal to the Balancer pool with two tokens set to 50/50, or 1:1, value.

    Decentralised Finance (DeFi) series: tutorials, guides and more

    With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. As well as a deep dive into popular DeFi topics such as decentralized exchanges, borrowing-lending platforms and NFT marketplaces

    The DeFi series on this website also covers topics not explored on YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

    Tutorials and guides for the ESSENTIAL DEFI TOOLS:

    More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel so you can be notified as soon as they come out!

    Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.

  • What is Compound Finance ($COMP)? A guide to hacks and tips on the latest DeFi platform

    What is Compound Finance ($COMP)? A guide to hacks and tips on the latest DeFi platform

    Compound Finance is a leading decentralised finance (DeFi) protocol which allows users to deposit and borrow cryptocurrencies, and earn interest whilst doing so. How Compound does this is by creating liquid money markets for cryptocurrencies by setting interest rates with the use of algorithms. They are popular mainly because they are cryptocurrency exchange Coinbase‘s first ever investment into a crypto project and prices for their $COMP token had more than doubled in the past week. In this Compound guide we cover topics such as what is Compound, how to use the platform profitably and how to earn more of their $COMP token.

    For an overview, check out our explainer video on DeFi and Compound:

    What is Decentralised Finance (DeFi)?

    Decentralised Finance (DeFi) was designed to “cut out the middle man” i.e. banks and reduce the cost of traditional financial operations such as taking out a loan or buying property. The aim of DeFi is so that people, particularly the unbanked can have open access to every financial service on the internet with their smartphones, without needing the banking system. Smart contract platforms such as Ethereum opened the door to DeFi, whereby programs running on the blockchain can self-execute when certain conditions are met. Developers can make use of these smart contract platforms to build decentralised apps (Dapps) with various functions. Developers brought the concepts of Dapps and DeFi together by bringing functions traditionally served by banks onto smart contract platforms. Compound is an example of a DiFi app, it is a blockchain-based Dapp which allows deposits and taking out loans of cryptocurrencies on its platform.

    How does Compound work?

    Compound operates similar to a bank. You can deposit various cryptocurrencies and earn an annual interest on your deposits, similar to depositing your money into the bank. However, Compound’s main difference is that it does not have custody of your cryptocurrency deposits. Instead, you are actually sending your crypto to and interact with a smart contract, rather than another company or user. This feature is important because it means that no person or authority can control or take your funds.

    What makes all of this so interesting is that since Compound is a DeFi platform, it does not have to follow the Federal Funds Rate. It can do something completely different and cannot be shut down since there is no central authority.

    How to supply (deposit) cryptocurrencies onto Compound and earn interest

    On Compound’s website you can earn interest when you deposit (Compound refers to this as “supply”) cryptocurrencies onto their platform. To do this, first load an Ethereum account with any of the cryptocurrencies supported by Compound. Then on the Dashboard, choose which cryptocurrency you wish to supply to the platform by clicking on it.

    Supply cryptocurrencies
    Choose which cryptocurrency you wish to supply to the platform

    In the below image you can see that we will be depositing USD Coin (USDC) which generates an Annual Percentage Yield (APY) of 0.12%. So you can earn 0.12% per year if you supply USDC to the platform. Input the amount you wish to supply and confirm by clicking “SUPPLY”. A metamask window will pop up where you will interact with the smart contract and confirm the transaction. You will be charged gas fees for interacting with the smart contract. In our case we were charged USD$1.

    Supply cryptocurrencies
    Supplying cryptocurrencies to the platform generates interest

    Once you have supplied cryptocurrencies onto the platform, you would be able to use Compound’s other features such as using these supplied cryptocurrencies as collateral to take out loans.

    An important point to note is that Compound has floating interest rates which are subject to change. How Compound determines the interest rate is similar to the Federal Reserve, Compound would analyse the supply and demand for a particular cryptocurrency and then set a floating interest rate that will adjust based on market conditions. Compound also takes a 10% cut off your earned interest. Users can take back their cryptocurrencies at any time with a 15 second lag between executing the instruction and receiving their crypto.

    How do I take out loans/ borrow cryptocurrencies on Compound?

    You can use your deposited cryptocurrencies as collateral to borrow other cryptocurrencies. Compound requires users to put up 100% of the value of your intended loan. There are risks of doing this though which will be explained below where we look at Compound’s liquidation clause.

    Borrowing cryptocurrencies does also require you to pay fees. For example in the below image you can see that taking out a loan of BAT will cost you a whopping 29.4% per year.

    Borrowing cryptocurrencies
    Borrowing cryptocurrencies requires you to put up collateral and pay fees

    You can also see from the above image how Compound makes money, since there is a spread between the amount of interest generated from depositing, say BAT and the amount of fees you need to pay for borrowing the same.

    What is $COMP token? How can I earn $COMP?

    Since May 2020, Compound has transitioned to community governance. This means holders of Compound’s token, $COMP can make proposals and vote on decisions relating to how Compound is to be developed or run, e.g. what kind of collateral should Compound support, or what the interest rates should be.

    There is a total supply of 10 million $COMP, of which 42.3% is reserved for distribution to users to earn when they use Compound e.g. by supplying or borrowing cryptocurrencies. For every Ethereum block, 0.5 $COMP is distributed across Compound’s 9 markets in proportion to the interest accrued in the market. And within each of these markets, the amount of distributed $COMP is divided 50:50 between suppliers and borrowers of that particular cryptocurrency. Hence the cryptocurrency which is earning the most COMP per day is always changing. Users should check Compound’s User Distribution page, where they can see the amount of interest paid per day as well as the amount of $COMP distributed to suppliers and borrowers.

    You can also earn $COMP by voting on various governance proposals concerning how Compound should be run.

    $COMP can be traded on various exchanges, such as Coinbase or FTX Exchange. And there was certainly a lot of attention focused on $COMP since prices for the token recently shot up from USD$60 to over USD$300 in a matter of days.

    $COMP prices
    $COMP prices

    How are people using the Compound platform to earn 100%+ APR?

    Users earn COMP when they supply or borrow cryptocurrencies on the platform. So in the below image we deposited 500 USDC and borrowed 300 USDT to get a net effective interest of -12.27% which on the face of it does not look profitable.

    Net interest
    In our case, depositing USDC and borrowing USDT generated a net interest of -12.27%

    BUT at the same time we are also earning $COMP. This calculator shows you how much $COMP would be distributed depending on the type and amount of tokens supplied or borrowed. So as seen in the below image, whilst the net interest was -12.27% per annum, we EARNED 13.94% APY of $COMP. Basically, you are being PAID to take out a loan.

    $COMP mining: Another way to potentially earn more $COMP

    $COMP mining goes beyond simply supplying cryptocurrencies and profiting off the interest rates on Compound. Rather it is about getting as much $COMP rewards as possible in the shortest amount of time. Some methods even allow you to multiply your earnings by folding your position 4x.

    In a nutshell, people have have been finding ways to do this by first depositing USDC, borrowing USDT and then converting the USDT to USDC. Then depositing the USDC onto the platform, leveraging it, withdrawing USDT and depositing it onto the Compound platform several times over.

    What cryptocurrencies does Compound support?

    Compound currently supports 9 cryptocurrencies, namely: Ether (ETH), USD Coin (USDC), Basic Attention Token (BAT), Tether (USDT), 0x (ZRX), Wrapped BTC (WBTC), Dai (DAI), Augur (Rep) and Sai (Legacy DAI) (SAI).

    Available markets on Compound
    Available markets on Compound

    What are the risks of DeFi platforms?

    DeFi, and any such platforms such as Compound has the main feature of being decentralised. Yet, it is decentralisation that brings associated risks. This is because instead of trusting a central authority to supervise the transactions, we are trusting the code which the smart platform was built upon. If there is a mistake in the smart contract e.g. the conditions for release of funds are set incorrectly, there is no overriding body which can correct this mistake or any customer service representative that can help. And the biggest risk of all is if the developer did not code the contract correctly making it vulnerable to hackers. An example of this was the dForce hack where hackers exploited a well-known exploit of an Ethereum token, resulting in losses of USD $25 million worth of customers’ cryptocurrencies.

    Risks of using Compound: Compound’s liquidation clause

    For Compound, there are risks associated with trying to earn $COMP through borrowing on the platform. Compound has a liquidation clause that kicks in when borrowing on the platform. For instance if the cryptocurrency you are borrowing increases in value and exceeds the value of your collateral, your borrowing account will become insolvent. In such case, other users can step in and repay a portion of your outstanding loan in exchange for a portion of your collateral at a liquidation incentive. This liquidation incentive is the discount at which other users can receive your collateral. So if the liquidation incentive at the time is 8% (subject to change through voting on Compound’s governance system), then other users can receive your collateral at 8% off the market price when they help repay your loan. Hence there are serious incentives for users on Compound to liquidate others and this will result in the person being liquidated to potentially suffer huge losses.

    What is Compound’s aim for the future?

    Currently, Compound only deals in cryptocurrencies on the Ethereum blockchain. However the Company eventually wants to expand and move into carrying tokenised versions of real-world assets, for example the US Dollar, Japanese Yen or stocks in companies such as Google.

    Decentralised Finance (DeFi) series: tutorials, guides and more

    With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. As well as a deep dive into popular DeFi topics such as decentralized exchanges, borrowing-lending platforms and NFT marketplaces

    The DeFi series on this website also covers topics not explored on YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

    Tutorials and guides for the ESSENTIAL DEFI TOOLS:

    More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel so you can be notified as soon as they come out!

    Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.

  • Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

    Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

    Decentralized Finance (DeFi) has been the breakout trend of 2020. With prices of standout DeFi tokens surging and terms like “Yield Farming” getting mainstream attention, the DEFi field has taken off. This next step in the evolution of finance uses public blockchain technology and has a wide range of sub- divisions that make up the growing field. The most notable and popular of these DeFi services are decentralized exchanges, decentralized stablecoins, decentralized money markets, decentralized synthetics and decentralized insurance. To understand this emerging field, first a definition on what decentralized means must be had. 

    Learn more about DeFi, and liquidity pools such as Balancer, Uniswap and Curve with our video:

    What is decentralized and what does it mean?

    Decentralized is a term you will have definitely heard thrown around even if you are relatively new to the cryptocurrency scene. Be it on Twitter, with the various profiles espousing the benefits of decentralization and calling out centralized cryptocurrency projects, or in articles online. To give a little context, the decentralized v centralized argument is akin to economic arguments on political systems between capitalists and communists. 

    Part of the reasoning for many supporters of decentralization is that blockchain technology at its core was made to be decentralized. Blockchain is reliant on open source networks and has no central entity controlling it. Rather, the computer power and the overall network is split up, which is why it is decentralized. The benefits of this system are that it doesn’t have a single point of failure, making cyber attacks and poor leadership somewhat irrelevant. 

    As such blockchain has been earmarked as the breakout technology of the 21st century. Companies, governments and financial institutions are all clambering to bring developers on board as blockchain continues to be viewed in an increasingly glowing light. Yet, how does blockchain’s decentralized foundation play into the emerging DeFi field?

    DeFi Explained

    For many, blockchain is the embodiment of the DeFi field and is the promised land of finance that Satoshi Nakamoto first imagined when he created Bitcoin. The term DeFi has turned into an all encompassing term for a range of projects, but the core values of each are pretty clear. These are open access to anyone, resistance to censorship, privacy and an open democracy of finance away from singular control. The majority of DeFi sites are run through decentralized apps or Dapps, which allow for financial services to be created and be used easily by anyone. 

    The DeFi Market

    The DeFi market is a field that has grown massively in recent months as billions of dollars are handled every hour in the sub industry. Part of DeFi’s popularity is down to its transformative effect on almost all aspects of finance. From loans to remittance markets and even insurance, the DeFi field could give financial access to people around the world as all they need is an internet connection. The technology could have an impact on the third world, where many of the population is unbanked or even in more developed financial societies as governments and financial institutions continue to lose credibility as they go from recession to recession. Sold on DeFi now? Well if so, read on for a closer look at the different blockchain applications in the field and the top companies within each subcategory. 

    What is a Decentralized Exchange?

    Exchanges are the heartbeat of the cryptocurrency traders. Most of you will have an idea of the more famous centralized exchanges like Binance and Coinbase, but decentralized exchanges (DEX’s) may be less so. The main difference between the two is that there is no central authority over decentralized exchanges, rather governance is determined in various ways, like through earning native tokens. 

    Focusing on namely cryptocurrencies, the decentralized exchanges offer a range of benefits. The first is security as you are not trusting a centralized exchange which could be susceptible to hacks with your funds. Instead trades are done through a peer to peer (P2P) trading network and a range of methods are used to facilitate this. Some DEX’s use proxy tokens, others multi-signature escrow systems and some use shares. Popular DEX’s are dYdX, Uniswap and Kyber network.

    Decentralized Stablecoins

    Much like DeFi applications, stablecoins have also seen a rise in popularity and usage in recent times. Put simply, stablecoins are less volatile tokens that are usually backed by a currency, commodity or a collection of both that enables them to keep a steady price, unlike the often wild swings of other cryptocurrencies. Some stablecoins are centralized but there is a growing amount of stablecoins that have become decentralized. These include industry favourites like DAI, USDC and Tether (USDT). To be classed as a DeFi stablecoin, there needs to be no central figure ruling the tokens or single point of failure as well as a resilient network.

    What is a Decentralized Money Market?

    Money markets are markets for borrowing and lending assets. The decentralized element means that users can borrow and lend cryptocurrencies without the control of a central figure. The lack of central authority is fixed using smart contracts and algorithms to determine the markets function. Decentralized money markets put interest earning potential in the hands of anyone with an internet connection in the world. Popular examples of decentralized money markets include Aave, Compound, MakerDao and Balancer. This area of DeFi has gained the most traction in recent times, especially with the bearish crypto market. This is because there are lots of profits to be made, with “Yield Farmers” churning in large sums from interest earned.

    Decentralized Synthetics

    Decentralized synthetics is another growing sector of the DeFi field. Synthetics or derivatives as it is also known refers to the tracking of a value for an asset. This means traders can get an insight into an asset without physically investing themselves. This representation of the asset allows traders to make educated investment decisions. There are a number of decentralized synthetic companies, the most popular ones being UMA and Synthetik. Expect more companies to pop up in the future too.

    Decentralized Insurance

    As blockchain gains exposure, more and more use cases appear, from accounting to product tracking. One industry that has taken to the technology is insurance. The bureaucratic side of the industry is perfect for blockchain technology and smart contracts, with a wide variety of usages for the technologies. The technology has the ability to revolutionise the insurance field as it cuts out added fees and reduces smart contract risk. Notable decentralized insurance companies include Nexus Mutual and Opyn.

    Conclusion

    Overall, it would appear that the DeFi field is growing and most importantly, is here to stay. People around the world are increasingly seeing the problems of a centralized method, especially in the cryptocurrency industry which has a long history of customers’ funds being lost due to hacks of centralized exchanges. Partner this with an increasingly more aware population with regards to internet privacy, you have the makings of the next big thing in the cryptocurrency industry and possibly the wider financial field. 

    Although the industry is in its infantile stage, there are a number of interesting projects and options, most strikingly in the decentralized exchange and money market area, which users can partake in. Boxmining has a number of guides which can help you decipher more clearly which is the best project for you. For more DeFi related information and other cryptocurrency news, subscribe to our YouTube channel and newsletter. 

    Decentralised Finance (DeFi) series: tutorials, guides and more

    With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. As well as a deep dive into popular DeFi topics such as decentralized exchanges, borrowing-lending platforms and NFT marketplaces

    The DeFi series on this website also covers topics not explored on YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

    Tutorials and guides for the ESSENTIAL DEFI TOOLS:

    More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel so you can be notified as soon as they come out!

    Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.

  • THORChain ($RUNE) information and guide

    THORChain ($RUNE) information and guide

    Among the growing list of emerging decentralized exchanges lies THORChain and their RUNE token. The Company is one of many decentralized finance (DeFi) options in a field that is creating much buzz within the industry. The decentralised liquidity network, whose successful seed funding was completed last year, is one that should not be missed by those who are looking into this field. After a successful mainnet launch, the cross blockchain answer to Uniswap was made official in the first part of this year. As such we have compiled a complete guide to EVERYTHING you wanted to know about THORChain, answering questions like ‘What is THORchain?’, ‘Who Uses THORChain’ and other important topics.

    What is THORChain? 

    First imagined in 2018, THORChain offers a wide range of services on its decentralized permissionless network. It allows for swapping of assets like Bitcoin and Ethereum as well as providing continuous liquidity pools for users. The platform uses a cross chain and can be used on any blockchain/with any asset, unlike other decentralized exchanges. 

    Their development paper outlines the core conception of THORChain, saying: “THORChain is a liquidity protocol designed to connect all blockchain assets in a marketplace of liquidity through cross-chain bridges and continuous liquidity pools secured by economically incentivised validators.” 

    THORChain’s consensus is Proof-of-Stake and built on Tendermint, with network validators required to bond (lock up) their native token, $RUNE. Validators are punished for bad behaviour by having their stake slashed, which in turn disincentivises such actions.The network’s data is calculated and overseen using Midguard API service and is secured and bonded by ThornNode, which also powers the network. The nodes make vaults and validate the transactions on the site.

    Who uses THORChain?

    Users

    These are the main participants and they usually use the cross chain services between the pools with them paying a slip fee. The fee is paid due to gas fees on external services and for fast execution. However, swapping is non custodial and unrestricted on different chains. 

    Liquidity providers

    These are secondary participants who add liquidity to the various pools which is then bound with RUNE in a separate vault. Using the continuous liquidity pool means the network does not need oracles or have a price feed. Liquidity rewards are earned through fees generated from pools and are paid out when users withdraw. As the THORChain website explained, “liquidity is provided by stakers who earn fees on swaps, turning their unproductive assets into productive assets in a non-custodial manner. Market prices are maintained through the ratio of assets in pools which can be arbitraged by traders to restore correct market prices.”

    Nodes explained

    Nodes are the basis for THORChain’s services. They have three main functions, these are: to Bond RUNE, create vaults (which are like wallets) and witness transactions/produce blocks. They are all run by node administrators who are also rewarded for their work through bond rewards. For a full breakdown of node operators, please click here.

    In terms of THORChain, as previously mentioned, nodes earn two-thirds of the System Income and they make vaults and validate the transactions on the site. Nodes are anonymous, with plausible deniability on all transactions. The nodes are created every three days and compete to enter with bonded capital. The oldest nodes are churned out and replaced when necessary. This allows the nodes to stay fresh and keeps the network constantly updating itself.

    RUNE token: what is it?

    Another integral part of the system and the nodes that run it is THORChain’s native token, RUNE. Available through Binance Chain, the token is a BEP2 token.The RUNE token is used in all liquidity pools and is bonded by nodes. All RUNE tokens are at a 1:1 ratio to asset value and this allows for pools to be linked. RUNE is also the rewards for pools, with the equivalent of 1/3rd of the System Income providing continuous liquidity incentives. 

    Alongside providing on chain liquidity, RUNE is also an important part of the THORChain security. This is because it protects against malicious actors by offering them a larger benefit for liquidating then they would receive from corrupting the system, as nodes earn 2/3rds of the System Income. Thus all transactions using RUNE on the system have double the amount at a 67% to 33% ratio. The other third is for liquidity providers. Not only that, but in terms of security nodes are also closed when malicious activity is detected. 

    RUNE has a total supply of 500 million tokens. Of which 100 million will be sold to the public in 3 stages, 150 million has already been allocated throughout the team, community and operational reserves, and the remaining 220 million is saved for the emissions reserve. 

    How to earn RUNE?

    RuneVault: Liquidators and users of RUNE can have access to the RUNEVault feature which allows you to store and stake the token, with returns on investment. Using a Binance Chain Feature, users can “freeze” their tokens even if they have staked them meaning that the currency is always in the wallet. Earnings are based on weekly RUNE staked, but this weekly taking is reset should you withdraw any amount. 

    Rewards

    THORChain offers rewards for all participants on the network. The rewards are paid out through the distribution of system income. This is worked out by Swap fees plus Block rewards. Swap fees are paid by users when swapping assets and Block rewards are worked out on an emission schedule. As mentioned previously, the system income is paid 67% to the nodes and 33% to the liquidator. However, this ratio is officially worked out by the incentive pendulum. 

    Governance on THORChain

    THORChain attempts to have a minimal governance model. Instead staked capital is the main driver of the market and developers respond accordingly. New assets are easily listed and this means there are rarely many governmental decisions to undertake and it is truly decentralized in many ways. 

    Who is the team behind THORChain?

    The team behind THORChain is purposefully pseudoanonymous. According to their website, “figureheads, personalities and founders undermine a project’s ability to decentralise,” and that, “transparency is demonstrated in other facets (treasury, code, research)”. That being said, there are 10 employees listed on LinkedIn and 12 team members listed with 6 additional advisors on ICOBench. 

    What sets THORChain apart? What are its benefits?

    THORChain takes a little while to understand the basics and the nodes that run the network. However, once you get the hang of the exchange then THORChain has a number of benefits. 

    The main benefit is that with their cross chain feature, any asset can be swapped and a pool created around it. That gives users a huge amount of variety and does not hem them in unlike other decentralized exchange options do. This opens a whole new world of possibilities for DeFi users and one that should be applauded. 

    Conclusion

    For those who are fans of Uniswap, then this decentralized option could be a great alternative. Yet, as Balancer has shown with their recent security scare, the often precarious nature of DeFi security does cause concern. Perhaps though, THORChain with their incentivized payments negates this risk. However, until more is known about the site and they are around for longer it will be hard to make a final judgement. 

    Decentralised Finance (DeFi) series: tutorials, guides and more

    With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. As well as a deep dive into popular DeFi topics such as decentralized exchanges, borrowing-lending platforms and NFT marketplaces

    The DeFi series on this website also covers topics not explored on YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

    Tutorials and guides for the ESSENTIAL DEFI TOOLS:

    More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel so you can be notified as soon as they come out!

    Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.

  • Cover Protocol ($COVER): peer-to-peer coverage market for DeFi

    Cover Protocol ($COVER): peer-to-peer coverage market for DeFi

    Cover Protocol ($COVER) is one of those projects that can really have a solid impact on the future of decentralised finance (DeFi). Why? Because users want to sleep well knowing that in case of exploits, they won’t lose their money. Trusting the protocols and the team behind them is not enough anymore.

    With the dawn of decentralized finance, more smart contract risks have arisen. Most contracts aren’t audited, and if they are, malicious actors are always on the lookout for a vulnerability in the code. As we have seen in 2020 nothing is really secure, whether it is a protocol built by one of the best developers in crypto space ($EMN) or the code has been audited. Anything can be exploited, and we need to remember it.

    Therefore, investors are cautious of interacting with DeFi protocols for fear of losing funds.


    What is Cover Protocol?

    Cover Protocol is a blockchain-based peer-to-peer coverage market for decentralized finance. The platform allows DeFi users to hedge against risks due to smart contracts’ fallacies (especially useful when farming or staking). Thanks to fungible cover tokens and letting the market itself set coverage prices, the protocol shifts from the need of relying on a bonding curve to determine the cost of being insured.

    Insurance guards against hacks and bug exploits that lead to loss of deposited assets. Notably, Cover doesn’t blindly allow DeFi protocols on their platform. It performs a thorough background check considering its security measures, total value locked and other features, all necessary to determine user risk levels.

    Background

    The project is led by a team with vast experience in blockchain programming and traditional finance. Among the team members we also find Andre Cronje as their advisor.

    Cronje is the founder of Yearn Finance, one of the most successful DeFi protocols. Other notable names associated with the project are PeckShield, Hacken, Farming Lord, and The Arcadia Group, all as CVC (more on them below).

    How does Cover help Defi users?

    Coverage protocols are the solution. These are platforms incentivizing DeFi users and developers to provide decentralized insurance. An excellent example of such a platform is Cover Protocol.

    Cover lets people buy “insurance” for products like Yearn Finance ($YFI) (Learn more about the yEarn Finance ecosystem) and other systems in the DeFi ecosystem. By ensuring systems and users, the protocol provides a critical missing link between DeFi and conventional finance.

    Here we examine how Cover handles insurance in a decentralized industry. In addition, we shall take a look at who’s eligible to use the platform.

    How are Fungible Cover Tokens used?

    Fungible Cover tokens are minted on the platform, when users interacts with the smart contract. Cover determines the protocols to be covered, type of collateral needed, amount of collateral, and insurance length.

    Diagram by Cover Protocol core dev, crypto_pumpkin
    Diagram by Cover Protocol core dev, crypto_pumpkin

    Once a deposit is made into the contract, two types of tokens can be created; CLAIM and NOCLAIM. For the moment, Cover only supports DAI as collateral and keeps a 1:1 ratio between collateral provided and the tokens.

    The two minted tokens work in opposite ways in the system. The CLAIM token enables its holder to receive a payout once a contention is approved. On the other hand, NOCLAIM enables holders to redeem the collateral when a filed petition fails to go through or the token expires after nothing notable has happened to that particular project within the expiration date.

    Each CLAIM-NOCLAIM tokens refer to only one project and provide unique info. Example of denomination (with $CURVE):

    COVER_{Protocol}_{Expiration Date}_{Collateral Currency}_{Nonce}_{Direction}

    Example tokens for a coverage on Curve (has no accepted claim) that expires 12/31/2020:

    Symbol for CLAIM token

    COVER_CURVE_2020_12_31_DAI_0_CLAIM

    Symbol for NOCLAIM token

    COVER_CURVE_2020_12_31_DAI_0_NOCLAIM

    Usually, one DAI equals to one CLAIM + one NOCLAIM token. As such, it gives its holder exposure to both outcomes during a petition. Depending on the result of a filed allegation, the values change. If a claim is approved, CLAIM value goes to 1 and NOCLAIM to 0. The opposite is true viceversa. Holders can deposit the two token types on the Balancer pools.

    Cover Protocol creates two Balancer pools; one with 80% CLAIM coins and 20% collateral token (DAI) and the second with 98% NOCLAIM and 2% DAI. In this way, IL (Impermanent Loss) is minimized. The pools are created once a new cover is launched on the protocol.

    Types of Participants in The Cover Ecosystem

    To give life to the platform, Cover encourages the participation of market makers, insurance providers, and insurance seekers.

    • Market makers – They provide liquidity and hold both types of minted tokens. Market makers receive rewards from fees charged in the respective liquidity pools. Fees charged usually range between 2-3%. Notably, they can liquidate either token at will.
    • Coverage providers – Unlike market makers, they are insurance providers and only hold NOCLAIM coins. Note that they receive both token types like everyone else when they deposit collateral in the system. However, they can sell CLAIM tokens for a premium and retain NOCLAIM coins.
    Coverage Providers (CP) on Cover Protocol
    Coverage Providers (CP) on Cover Protocol

    Fees charged on the NOCLAIM pool act as their incentives. Cover encourages teams seeking insurance for their platform to be insurers to boost trust and confidence in their offering. In the event of a claim payout, they would lose all their funds, since NOCLAIM tokens would become worthless.

    • Insurance seekers – They hold CLAIM coins and insure their deposited funds. Apart from being covered, they’re rewarded for providing liquidity in the CLAIM pool.

    How Does Cover Protocol Handle Claims?

    Allegations are a normal occurrence in insurance-focused products. The network provides a petition filing window of 72 hours after an incident. Although Cover is a decentralized platform, it handles contentions in four simple steps.

    First, a case is brought against an insured product after paying a fee, which Cover calls the Claim File Fee. However, to keep spam attacks and malicious actors at safe distance, the network increases the cost each time a new allegation is filed against an insured product.

    The second phase involves a vote from $COVER holders (more on the token later). If the community votes unanimously in favour of the submission, it goes through to the third step.

    At the third “level”, the Claim Validity Committee (CVC) or Auditors review the petition to determine whether it meets all the requirements. The CVC also deliberates on the payout percentage , which can be up to 100%.

    Note that five auditors review a single contention and half of them must vote in favour of it to be accepted. The last step is for $COVER holders to redeem their payout for the accepted allegation.

    Note that if a case is rejected during the community voting phase, it can be re-filed as a Forced Claim, which is much more expensive. A bulldozed submission goes through the first, third, and fourth steps.

    Cover Token and Governance

    The native currency on Cover Protocol is $COVER. $COVER acts as a governance token and gives access to the Balancer pools. Additionally, as we saw, it allows holders to participate in the claims management subsection.

    System users can use COVER tokens to provide liquidity on SushiSwap via interacting with the ETH-COVER liquidity pool. Depositing the platform’s native currency in this pool opens the door to receiving a percentage of fees from traders plus additional $COVER through staking the LPs on Cover Protocol.

    What makes Cover different from other Insurance Projects?

    Cover Protocol is not the only project users can refer to when looking at ways to protect their investments. The leader in this space is probably still Nexus Mutual.

    As the name implies, it acts more like a classic insurance company. A user looking for a coverage should go on their website and find the right one to buy. He can choose how much to cover and for how long. A key difference is that, to be able to complete the process, a KYC is required. Moreover, this is the only way to buy $NXM, as you can’t find them anywhere else. For general investors who believe in the project but don’t need coverage, there is a wrapped version of the token which is normally tradable, $WNXM.

    CLAIM/NO CLAIM tokens, unlike $NXM, are just normal tokens and are not connected to any identity (no KYC needed). At will, they can be traded or given to anyone you want. Their utility won’t change.

    DEVELOPING STORY: $COVER exploit/hack?

    On 28th December 2020 an attacker exploited a bug in the protocol’s smart contracts. The exploit appears to be an abuse of the minting exploit where the attacker managed to mint 40 quintillion COVER tokens and sold around USD$5 million worth of COVER tokens. Several hours later, one of the attackers returned the stolen funds (i.e. 4,350 ETH) with the message “Next time, take care of your own shit.” and burned the remaining tokens.

    The Team are still investigating the exploit and mentioned they are looking into providing a new $COVER token and how to return the stolen and returned ETH to affected LP tokens.

    Most importantly, the Team are urging people not to buy $COVER tokens. Exchanges such as Binance have stopped trading on $COVER, particularly as a large trading group of 16,000 members had dumped the price to short the token.

    In a community-driven effort to mitigate the damage, Leo Cheng of CREAM has sent out a “call to action” on behalf of COVER and available developers from the yEarn Ecosystem have come together to lend help and support to the Cover Protocol team.

    Post-Mortem and snapshot

    In the following hours, the Cover team has released a post-mortem article to explain what happened in details and confirming that the exploit affected the minting contract and the token only. The lines of code “incriminated” have been always present in the code and went unnoticed during the audit.

    The team acknowledged their fault too in missing the “amplifier”, that allowed for extra rewards to be minted, and announced a snapshot to distribute a new token and the returned funds. The snapshot will will be taken at block 11541218, one block before the first major exploited mint.

    Compensation Plan and new Token

    Affected users of the attack can check their compensation eligibility on this page. Basically, all $COVER holders and liquidity providers of the /ETH pair could be compensated, even those who were keeping their tokens on a CEX. Unfortunately, unclaimed rewards are impossible to withdraw as as the minting rights from the Blacksmith have been removed.

    The team, consequently to brainstorm with advisors including Andre Cronje, has decided to discard the idea of new shield mining. The total supply, with the launch of the new token, will be the same amount that is eligible for migration.

    The Cover v2 Core contracts are undergoing an internal review at the moment and the exploit hasn’t affected the core contracts, so the project will continue with its development.

    On January the 5th the new $COVER token was made available for claim. All the details can be found on the medium page of Cover Protocol.

    Conclusion

    With DeFi smart contracts repeatedly experiencing hacks and exploits from malicious actors, Cover Protocol provides a critical service by allowing DeFi users to insure their deposits and not be worried anymore. Furthermore, encouraging a product team to provide coverage offers insights into whether it believes in its own protocol security. Consequently, it boosts DeFi adoption.

    Incentivized liquidity provision allows coverage providers, seekers, and market makers to receive trading fees charged on respective pools and rewards while helping other users at the same time.

    Updated on January 6

    Decentralised Finance (DeFi) series: tutorials, guides and more

    With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. As well as a deep dive into popular DeFi topics such as decentralized exchanges, borrowing-lending platforms and NFT marketplaces

    The DeFi series on this website also covers topics not explored on YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

    Tutorials and guides for the ESSENTIAL DEFI TOOLS:

    More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel so you can be notified as soon as they come out!

    Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.