The crypto industry had a tumultuous year in 2022, with coins tanking at the start of Q2 and never rallying, signalling the beginning of a crypto winter. To make matters worse, the collapse of Terra Luna and FTX led to a devastating contagion across the industry. Despite the challenges, we shouldn’t forget about the progress and achievements the industry has made. Here’s a brief recap of some of the biggest news in 2022.
Crypto’s Role in the Russia-Ukraine War (February)
During the Russia-Ukraine war, cryptocurrencies have been immensely valuable to Ukrainian refugees. Russian attacks have destroyed critical infrastructure, rendering many Ukrainians inaccessible to withdrawing money from ATM machines. Therefore, many Ukrainian refugees relied on digital currencies sent from relatives or donors abroad to purchase goods and services.
All that is needed for them to access their cryptocurrency wallets is a mobile phone and internet access, which was being provided by the thousands of Starlink satellite internet dishes provided by Elon Musk’s SpaceX at the time.
Feds Interest Rate Hike (March)
Despite Bitcoin reaching an all-time high of $69000+ in November 2021, what follows is a series of market decline. This is in part due to the U.S. Federal Reserve announcing its first interest rate hike in March to fight increasing inflation. As a result, the macro backdrop began to worsen, not only affecting crypto assets but also every other investment asset class. This also called into question Bitcoin’s reputation as an inflation hedge as Bitcoin itself started to trade in tandem with Nasdaq tech stocks, according to the New York Times.
Collapse of Terra Luna (May-July)
The collapse of the Terra Luna ecosystem in May 2022 was one of the most devastating black swan events in crypto history, wiping at least $60 billion off the market which triggered a dangerous domino effect across the industry such as the fall of several high-profile crypto firms, namely Three Arrows Capital, Voyager Digital, and Celsius Network.
Amid the crash, the UST algorithmic stablecoin, which was supposed to maintain a $1 peg via on-chain mechanisms with Terra’s native token LUNA, depegged, bottoming out at $0.006. This was caused by a massive continuous selloff on both UST and LUNA, resulting in a death spiral. Terraform Labs (TFL) developers and founder Do Kwon are facing multiple investigations as well as lawsuits into its collapse. (Canadian Pharmacy) As of now, South Korean authorities and Interpol have issued a warrant for the search and arrest of Do Kwon and his accomplices.
Recovery Plan of Terra Luna Classic (August)
As of now, the Luna Classic blockchain is managed and governed by the community after Terraform Labs (TFL) developers abandoned the chain in support of Luna 2.0. On August 26th 2022, governance was restored as citizens of Luna Classic could delegate, stake, and vote for the future of the ecosystem. Proposals and the associated implementations are being passed by the Terra Classic Decentralized Autonomous Organization (DAO).
Feds Sanction Tornado Cash (August)
On 8th August 2022, the U.S. Treasury Department imposed sanctions against Tornado Cash, a privacy-focused Ethereum mixing service that obscures the trail back to the fund’s original source. They claimed that Lazarus Group, a cybercrime group run by the North Korean government, has been using Tornado Cash to launder illicit funds.
Moreover, one of the developers for Tornado Cash was arrested in the Netherlands. The crypto community and privacy advocates bashed Netherlands authorities as the developer was simply writing code and had nothing to do with illicit activities. Ethereum co-founder Vitalik Buterin also criticized the move as he himself used Tornado Cash to make donations to Ukraine’s cause.
Ethereum Merge (September)
On 15th September 2022 at 06:42:42 UTC at block 15537393, the Ethereum Merge was completed. This meant a merger of the Ethereum mainnet execution layer and the Beacon Chain’s consensus layer, transitioning from the proof-of-work consensus mechanism to proof-of-stake. This landmark update brings major changes to the network, including a 99.95% reduction in energy consumption and a 90% cut in ETH issuance.
This is a significant achievement in the history of blockchain, allowing the Ethereum network to scale effectively as demand for Web3 and DeFi increase. Since Ethereum is the mother of all smart contract platforms, this could put Ethereum in a position to rival Bitcoin in adoption and even value.
Downfall of FTX and Sam Bankman-Fried (November)
On 11th November 2022, former FTX CEO Sam Bankman-Fried (SBF) filed FTX, FTX US, and Alameda Research for bankruptcy in the U.S. Once hailed as one of the top crypto exchanges, the sudden collapse of FTX came as a shocking blow to the entire crypto industry, setting off yet another contagion across the space. This affected 130 affiliated companies including several high-profile firms such as BlockFi, Genesis Trading, Grayscale, KuCoin, Gemini, Coinbase, Crypto.com, Sequoia Capital, and Galaxy Digital.
Apparently, SBF was misappropriating customer funds for his own benefits without customers’ consent and knowledge, conducting unethical flywheel schemes with Alameda Research. As a result, SBF had been arrested in the Bahamas, facing many criminal charges including securities fraud, money laundering, and campaign finance law violations. However, on 22nd Decemeber 2022, the disgraced FTX founder was released on a $250 million bail.
The Graph ($GRT) is a decentralized and open-sourced indexing protocol for blockchain data. Developers can build and publish different APIs, which are referred to as subgraphs, and perform queries through the GraphQL.
The platform can easily be used to look for any Ethereum data conveniently through simple queries. This addresses the common problem faced by a lot of other blockchain indexing platforms.
Blockchain applications face difficulties in keeping properties like finality, chain reorganization, and security in their process of fulfilling query tasks. These are also potential complications that applications usually address, but unfortunately make the process of querying time-consuming. The Graph has a workaround for this, and it is built exactly for that purpose.
Through “subgraphs,” The Graph indexes blockchain data, which users can access via the GraphQL API. According to the team, they will make it fully decentralized in the future, where more nodes will be involved and made responsible for maintaining the index.
The interest for the platform is steadily growing. In fact, they hit over a billion queries last June 2020. This was right at the time when decentralized finance was also gaining much institutional attention.
Background
Yaniv Tal, co-founder and CEO of The Graph, together with his team, has created an indexing protocol meant to ease the process of accessing blockchain data. Tal and his co-founders had personally witnessed themselves how difficult it was to actually create new applications on the Ethereum blockchain.
Thanks to their experience on applications, they have found out that there is actually no decentralized indexing and querying softwares yet for blockchain. The problem back then was that developers had to come up with their own method to gather data and transform them from different sources.
The mission of the platform, which Tal and his team developed, is to help create applications that require no servers and make Web3 accessible to everyone.
How Does The Graph Index Data?
To index Ethereum-based data, The Graph uses the “subgraph manifest.” This refers to the description of a subgraph containing data about smart contracts, blockchain events, and the procedure in mapping event data with one another, before they are all kept in the platform’s database.
The flow of the data from transactions, subgraph manifests, and the database follows a particular structure. All of it begins with decentralized applications that are adding data to the Ethereum blockchain through the help of smart contracts.
All of that data will contain a record of all events and transactions up until the point that they have achieved finality. Then comes the Graph Node, which scans the whole blockchain database, gathers new data, and filters out those that are relevant to the queries that users make. To make the indexing much easier, it identifies every information that answers the questions from subgraphs.
GraphQL is the link between blockchain data and the application that a user wants to provide it with. But then again, it is through the Graph Node that users can deliver searches to the platform. After the whole process, users can finally look at the results of their query from their applications.
Basically, this is how the cycle of data query and indexing works in the platform. Users can refer to the Graph Explorer to scan through the subgraphs that are already in the platform. Each of these subgraphs have a playground where users can perform queries through GraphQL.
As of latest, The Graph can support the indexing of data coming from Ethereum, IPFS, and PoA networks. There are more networks that the platform will support in the future. But right now, they already have more than 2,300 subgraphs deployed, which developers for applications utilize. Some of these applications are AAVE, Aragon, Balancer, DAOstack, Uniswap, Synthetix, and many others.
There is a lot of institutional support for The Graph network. Michael Anderson of Framework Ventures, said in a press release that they “couldn’t be happier to back Yaniv and the team, and we look forward to helping grow the decentralized network when it launches.”
Hayden Adams of Uniswap also shared how useful the platform was for their analytics needs: “As a company we don’t manage or run our own databases. … Right now it’s pretty difficult to get historic data from the Ethereum blockchain in an efficient way.”
Their plan, apart from expanding to other blockchains soon, is to make it community-owned and governed in the future. This is also in response to the shift of many blockchain applications to a decentralized model of governance.
Key Roles
The platform’s whole ecosystem is composed of the following:
Consumers – These are the users who pay indexers for their searches. It could also be web services or any other software linked with The Graph.
Indexers – These are the nodes that maintain the indexing function of the platform.
Curators – Using GRTs, curators identify to the subgraphs the information that is valuable for the platform’s index.
Delegators – These are other stakers who delegate their GRT to existing indexers and earn a portion of the rewards run by nodes.
Fishermen – They check whether the network’s response to queries is accurate.
Arbitrators – They decide whether an Indexer is malicious or not.
The Graph Council
The Graph plans to decentralize its governance in the future. This will most likely be similar with MakerDAO and Compound. At the point of the protocol’s maturity, the team plans to launch a Decentralized Autonomous Organizations (DAO) that would allow core interest groups to participate in important protocol decisions.
Similar to other DAOs, the Graph Council, which will be the governing body for the technical parameters of the protocol, is also in charge of how The Graph Foundation allocates its native, utility tokens.
Among their basic functions include decisions on allocating grants and ecosystem funding, protocol upgrades, protocol parameters, and other emergency decisions.
GRT Token ($GRT)
The Graph Token, or $GRT, is its native ERC-20 based token, which can serve as a medium of exchange and the reward distributed to community participants who function as Indexers, Curators, and Delegators.
GRT also has a vesting and distribution schedule ranging between 6 months to 10 years depending on the bucket. Around 12.5% of the total token supply (i.e. 1,224,999,438 GRT) is expected to be in circulation at launch. However this figure is exclusive of stakeable but locked tokens.
GRT token distribution at mainnet launch
The Graph launched its mainnet at 9:00a.m. (PT) on 17th December 2020. Upon launch, GRT has been distributed to all of the participants of the public sale. Members of The Graph’s Curator Program also received an initial USD $1,000 worth in rewards, with the remainder to be distributed to them on a quarterly basis based on their contributions to the Program.
The Graph Foundation also received around 20% of the supply for the future development of The Graph. In particular, contributors who want to help building on The Graph can apply to their Grants Program, around 1% of the total supply of GRT will be allocated to support these participants in 2021.
Here’s a graph showing the GRT circulation over the course of 5 years from the date of launch (i.e. 17th December 2020 at 9:00a.m. PT)
5-year GRT circulation schedule by Bucket (Image source: The Graph)
Indexers that assisted during the Testnet phase have also ben rewarded between USD$10,000 to USD$100,000 in GRT as a reward for their contributions.
In addition, around 2% of the total GRT has been granted to several Education Programs and loans totalling around 2.5% had been made to independent ecosystem partners.
Indexer Staking
In order for users to stake in the nodes that operate the whole platform and sell their services in the query market, they have to lock their GRT. In return, they are given financial rewards. If the indexers work maliciously, like altering data intentionally, the GRT that they staked will be slashed.
Mainnet now live!
The Graph Network launched its main net on 17th December 2020 after 3 years of development! According to the team the mainnet launch includes the following components: Deployment of The Graph Network contracts on Ethereum mainnet, deployment of the GRT contract, distribution of GRT to takeovers, launch of the Bug County Program and new docs for network roles.
With the mainnet launch, Indexers will first stress test and improve performance before supporting real query volume, which will be upwards of 5,000 queries per second. Of course, there will be rewards for Indexers who will now begin earning on-chain indexing rewards and query fees.
Graph Roadmap: What’s next?
Now that mainnet has launched, The Graph will continue building. The Team has stated that the Graph Foundation will work on building a production-ready Graph Explorer dApp and Gateway that will support all network contributors.
The Graph is also open to any individuals or third-parties that want to build for the network and as mentioned previously, they an apply to the Grants Program or collaborate with other community contributors.
Conclusion
Looking at the current boom of the DeFi space, we can see how important it is for developers to be able to freely access blockchain data. Making the process faster and less difficult for everyone could potentially influence the growth of the space as well as its reliability, security, and capacity.
Everyone saw the need to create a bridge of information between applications and blockchain data. The Graph sought out to answer that.
And with the deployment of smart contracts that depend on user data, The Graph has proven itself to be easy to use, cost-efficient, and fast. The platform is seen as a promising tool to empower everyone in the community, especially those who are developing more use cases for the blockchain.
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
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.
The decentralized finance (DeFi) space has grown to include platforms in various sectors such as spot trading, derivatives, and futures. Interestingly, some networks such as Yearn Finance support yield farmers and liquidity providers through an aggregation service.
Instead of offering spot trading, lending, or borrowing functionalities, it allows users to deposit funds, then it distributes it based on projected returns and the risks involved.
However, this isn’t enough to drive meaningful DeFi adoption. Therefore, Yearn followed the partnership route to expand its ecosystem and to improve interoperability between DeFi systems.
In this article, we look at the most impactful partnerships in the Yearn ecosystem:
On November 3, 2020, Yearn’s creator, Andre Cronje, took to Medium to announce the coming together of his platform and Sushiswap. The connection between the two platforms meets as Sushi improves its automated market-making (AMM) outlooks while Yearn digs deeper into aggregating formulas. These qualities brought a need for cooperation between them, leading to:
A combination of development resources.
A rise in the total value locked (TVL) on each platform.
Working together to develop and launch Deriswap, a platform bringing together spot trading, derivatives, and futures trading.
Introducing Keep3r Network, an on-chain price oracle on the second iteration of Sushswap.
Additionally, liquidity providers on Sushi provide collateral for the Sushi money market.
Partnership with Cream Protocol
The DeFi aggregator platform partnered with Cream, a lending network similar to Aave, in developing the system’s second version. With the partnership, the Yearn and Cream team created Cream V2, which introduced or enhanced leverage and lending features. Notably, the new platform enables yield farming using leverage.
Additionally, Cream V2 acts as a springboard to power stable credit and yet-to-be-built lending functionalities. Apart from merging resources allocated towards development and seeing a rise in individual TVL, the partnership saw shares in Yearn Vaults qualify to provide collateral in Cream.
One feature added to Cream’s new version includes rotating multi-signature keys in order to improve deployment, iteration, and testing. Unchanged features include those that touch on governance and native tokens.
Akropolis and Yearn
The partnership is rather a unique one. Why? It aims to bring out the best in each platform’s team. Therefore, each team continues with their previous journey but leans on the other if they need help.
Furthermore, Akropolis users can access Yearn and a host of other networks such as Cream and Pickle. In return, Yearn investors benefit from Akropolis’s investment strategies and a pool of institutional networks. The partnership between the two platforms brought with it improvements on Akropolis.
For instance, there was a development of new vaults, an institutional application, some strategies, and a rotation of multi-signature. In addition, Akropolis’s native token was upgraded to be able to track losses.
The PowerPool Partnership
PowerPool is a decentralized protocol accumulating governance strengths in systems built on the Ethereum blockchain. In short, it brings together governance tokens from a wide range of DeFi protocols, such as Compound and Balancer.
The partnership with Yearn Finance connected YFI, the governance token on Yearn, with PowerPool’s PowerIndex.PowerIndex provides a DeFi index inspired by distributed exchange-traded funds (ETFs). The index exudes meta-governance functionalities and contains eight tokens, including YFI.
Note that the meta-governance aspect rides on concentrating user tokens from different DeFi platforms into a single contract. Next, the tokens’ voting weight is delegated to a group consensus. Notably, the contract generates a token that its holders can use to decide the other tokens’ fate in the pool.
So, what does the partnership bring to Yearn?
Having a share of the index gives DeFi lovers a share in Yearn.
It increases participation in YFI governance issues.
PowerIndex supports swapping. Thus, anyone can exchange another platform’s token with YFI and vice versa.
In return, Yearn benefits from more liquidity. Additionally, pooling YFI helps stabilize its price.
The Cover Merger
Although Cronje formally announced the partnership on November 28, 2020, the two platforms have been collaborating since Cover’s launch. The marriage between the two opens doors to advanced features targeting optimization, among other aspects.
The partnership allows Curve to provide backstop coverage to products built on Yearn. Their coming together allows Cronje’s network to enjoy Cover’s range of coverage known for supporting multiple collaterals. Yearn can mitigate risks for users through vault coverage. That’s not all. Underwriting coverage on Yearn becomes more profitable.
Fortunately, the benefits aren’t one way. For Cover, it’s hoisted to expand its wings to unchartered money markets. Additionally, it’s empowered to seek a bigger share of perpetual coverage and other products in the market. However, components such as the native COVER currency remain intact.
Pickle and Yearn
This is another key partnership in the Yearn ecosystem. Its uniqueness emanates from the fact that it’s supposed to eradicate duplicate works among the two teams. Doing so lets each team and individuals within a team work on what they’re extremely good at.
As a result, Pickle will launch new features such as reward Gauges. Governing members on the Pickle ecosystem receive DILL tokens when they lock their tokens for governance-related purposes. DILL holders share Gauge performance, withdrawal, and deposit fees.
On the other hand, Yearn users, especially Vault depositors, are incentivized to interact with Gauges through Vault shares. The depositors also receive more rewards by setting aside Pickle tokens to receive DILL. (www.chronicpainpartners.com)
Others benefits originating from the partnership include:
A merger of the platforms’ TVL.
Pickle finds its way into the Yearn ecosystem.
Pickle enjoys Yearn’s security, among other features.
Pickle’s reward Gauges rake in incentives from Yearn depositors.
The two protocols’ teams work together on strategy creation and split profits from the strategies.
There’s an overall increase in rewards for users in both circles.
Conclusion
By expanding the Yearn ecosystem, Cronje and his team seek to build an inter-connected DeFi world. With everything connected to everything, DeFi adoption naturally sets in.
Apart from interconnection and adoption, the partnerships focus on, for example, reducing the duplication of roles within teams working on DeFi projects. This encourages the birth of new products and features to help drive growth in the space.
In the process, DeFi enthusiasts benefit from enhanced products and yields, which further encourage interaction with DeFi-focused systems.
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
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.
Duck Liquidity Pool ($DUCK) is a DeFi Market Maker protocol, developed by DuckDAO, one of the biggest cryptocurrency community that provides funding and marketing support to early-stage crypto projects.
The boom of decentralized finance (DeFi) in recent months has ushered in a new profit-making strategy for crypto traders, beginners and advanced alike. Decentralized exchanges (DEX) rely on liquidity pools to help power their market-makers. While the Duck Liquidity Pool is a new entrant in DeFi, it has already captured the attention of many users in the space thanks to its high APY and token burning model.
https://youtu.be/8MNKafDgW0o
What is the Duck Liquidity Pool?
The Duck Liquidity Pool (DLP) is DuckDAO’s own market maker. The funds that supply its pool came from the sale of pre-mined tokens and can be accessible in many other protocols and exchanges. In the meantime, projects that are supported by DuckDAO will be the first to be able to tap the pool. The ticker for the pool is $DUCK.
The unique feature that distinguishes DLP from others is its “unilateral burn” strategy, or the one-sided token burn model. It is designed to burn 50% of all earned rewards (more on this later).
The APY level for DLP is high and its suppliers can receive as much as 50% of the profits from market making, airdrop of incubated project tokens, as well as non-fungible token (NFT) campaigns. Such a feature enables yield farmers the ability to earn profit by just providing liquidity to DuckDAO’s market maker.
To participate in the DLP, users have to lock their cryptocurrency holdings by depositing their funds in the pool. In return, they receive DUCK tokens as a reward for supplying funds to the pool.
DuckDAO’s Native Token ($DUCK)
DUCK token is the DuckDAO’s native utility token, which also powers the incentive model for the Duck Liquidity Pool. The token has the following use cases:
Yield farming on Uniswap pools – Staking tokens help contribute liquidity to DUCK and DDIM pools. For this, they earn profit through DLP.
Reward token for market-making profit – Half of the profit from the market maker is returned to the community who belong to the liquidity pool. If the performance of DLP is good, the profit for the yield farmers grows in proportion as well.
Project token airdrops
Non-fungible token as reward
Deflationary Farming: “One-Side-Burn”
This is touted by the team as “Yield Farming 2.0,” which is designed to support a deflationary, unilateral burning of tokens. To understand how this works, we must first look at how the current yield farming mechanism works.
The Usual Scenario for Most Liquidity Pools
Commonly, yield farming pools in the DeFi space look very advanced for the average trader. Not only does this create a psychological barrier to entry, but it also makes profit-making a little more difficult for someone new to yield farming.
Another issue that traders face is the inflationary structure of the incentive mechanism in most liquidity pools. This is because, in order to provide rewards to yield farmers, mined tokens have to be released into the market. This model isn’t designed for long-term effectiveness since with more reward tokens in supply over time, we can expect its value to depreciate as well.
Duck’s Unilateral Burn
$DUCK, on the other hand, is designed to support long-term yield farming strategies. Even beginners on liquidity pools can just stake and earn a part of the profit that DuckDAO’s market maker gets.
$DUCK One-Side-Burn Deflationary Model (Source: DuckDAO website)
One-Side-Burn is a deflationary model that is designed to burn 50% of the carry pair as soon as the liquidity provider decides to cash in a portion of his stake.
What happens in such a situation is that users lose one side of their liquidity as the tokens are burned. And when someone decides to exit the pool completely, his entire liquidity is also burned and further lowers the DUCK tokens in supply.
While this model may seem counterintuitive for profit-earning at first, over-time, the value of the tokens is going to be greater than what it was when a user has staked in the pool. That is why DLP’s design appears to be much better in the long run.
Duck Liquidity Pool Market-Maker Models
Project Token Purchase
DLP purchases tokens in order to facilitate buy and sell liquidity.
DeFi has enabled the birth of new profit-making strategies for traders in the space. However, whether existing liquidity pools can support long-term yield farming models is another question altogether. DLP’s model, which is powered by the ‘unilateral burn’ design, appears to be more promising.
To be fair, like many other pools, the profit it can generate for stakers is also influenced by the number of users joining the pool. This is why it is important to look into that as well before deciding to lock your tokens and supply liquidity to the pool.
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
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.
Taipei Blockchain Week, the largest Web3 event in Taiwan, was held last week from December 12-17, 2022. Similar to TOKEN2049 Singapore, the event features a series of keynotes, panel discussions, workshops, and meetups with some of the leading developers and entrepreneurs in the Web3 industry. Speakers of the event included core team members from Avalanche, Solana, Filecoin, Moongate and many more, where they talked about the real-world applications of blockchain technology and the future landscape of crypto.
Moongate, in particular, has introduced an end-to-end solution for brands and businesses to create customized NFTs for ticketing and memberships. In fact, Moongate is the official ticketing partner of Taipei Blockchain Week, having issued 4000 tickets for the event’s attendees. Despite the NFT industry getting a bad rap, Moongate helps bring meaningful and productive application of Web3 into the Web2 world with real utility NFTs that can greatly benefit everyday retail consumers. Let’s take a look at what they have to offer.
What is Moongate?
Moongate provides an end-to-end, no-code solution for brands and businesses looking to transform their user engagement experience via Web3. Its user application covers (1) membership and loyalty programs, (2) events and conferences, and (3) NFT projects. All customers will be able to own their membership as NFTs which unlock token-gated rewards and access.
CEO of Moongate Jonathan Mui told Boxmining that they have helped brands, businesses, conferences, and sports leagues with NFT-empowered memberships and tickets. So far, Moongate has 30+ live programs, 50+ ecosystem partners, and 5000+ end customers. Notable partners include Polygon, SimpleHash (backed by Y Combinator), DTTD (backed by Animoca Brands), Limewire and many more.
How Does Moongate’s App Work?
Moongate’s User App is very easy to use, catering to both Web3 and Web2 users. You can create an account, which is also your crypto wallet, with your email, phone number or social media account. For experienced Web3 users, you can instead use your self-custodial wallet such as MetaMask to sign up.
Private Key Security Features
To onboard Web2 users more easily, there won’t be any traditional Web3 private key management such as seed phrases. Moongate understands that with traditional private keys, users can never get their NFTs back if they lose their key. This can be a problem for most Web2 users who are not used to Web3 interfaces.
Instead, Moongate is collaborating with some of the top endpoint security solutions to implement a next-gen key management architecture. Its security infrastructure involves two independently-created mathematical secret shares, eliminating the single point of failure for traditional private keys. The wallet is still non-custodial as users have full control over their NFTs but it also allows them to restore their account safely if they delete the App or lose their phones.
User App Interface
In the App, users can enroll in membership programs via one-click join/redemption. Users can view and claim exclusive benefits tied to their NFT memberships. Tiered rewards can be earned, and benefits will increase overtime with increased spending/usage. Moreover, users can earn token rewards by completing promotions, and use tokens to claim extra rewards across partnered brands.
Mui said that it is important for Moongate to integrate blockchain technology with legacy systems so that it would require less steps and create less friction for Web2 users to get onboard while reaping the benefits of Web3. Since most retail customers are accustomed to Point of Sale (POS) systems, Mui said that adopting some of the Web2 approaches can help make their product scalable and viable.
Merchant Setup for Moongate’s App
Apart from retail customers, brands and businesses with no Web3 knowledge can also easily manage their Moongate account. NFT projects can keep track of the holders engagement for future rewards and airdrops, without requiring holders to reveal personal information.
NFT Design and Minting
Users can create, deploy, and mint their own NFTs without any coding knowledge. Moongate’s smart contract builder is a simple drag-and-drop deployment. It supports dynamic NFT integration and can be issued on multiple chains. Moongate’s mint site builder provides customized storefront design with personalized information. Users can checkout with fiat or crypto via Web2 social logins or crypto wallets.
No-code dashboards are available for merchants and projects to set the parameters of online or offline token-gated content, access, and discounts across different tiers of membership. There are also key applications on offline discounts, exclusive events, and online e-commerce stores. Additionally, off-chain data can be captured to support corresponding changes to dynamic NFTs.
Moongate has a one-scan solution to complete real-time, on-chain NFT ownership verification across multiple blockchains including Ethereum, Polygon, and Solana. Users will have their own ephemeral QR code for merchants to scan and verify as it supports whitelabel integration with other apps or third-party scanners. Moreover, it is also compatible with near-field communication (NFC) “phygital” gateways, which are essentially physical cards that hold the QR code verification.
Moongate provides data analytics for merchants and projects to monitor membership usage in real-time and post-attendance. It can integrate with traditional technology stack such as POS and CRM (Customer Relationship Management) marketing software. The portal also displays API for data integration with other sites, supporting tracking of spending credits.
Moongate introduces a new paradigm in customer loyalty while maintaining positive business impact. It changes how businesses can build better branding and how customers approach purchasing goods and services.
Since customers can truly own their NFT membership, they can also choose to sell the NFT along with all the rewards stored in it, as the NFT is a transferrable token. That way instead of “spending”, customers are actually investing because they are creating value for their NFT. This also helps businesses better connect with the next generation of customers, lowering their Customer Acquisition Cost (CAC). After all, that is what Web3 is all about — ownership by users.
Ledger, one of the top hardware wallet providers, has announced the launch of its new Ledger Stax wallet in partnership with Tony Fadell, co-creator of the iPod and iPhone. This is a significant initiative as Fadell being one of the world’s foremost tech engineer is stepping in to bring clarity and confidence to owning digital assets following the collapse of FTX.
Pre-order your Ledger Stax Wallet here!
Key Features of Ledger Stax Wallet
Fadell realized that existing hardware wallets are difficult to use for mass consumers. Therefore, he drew inspiration from his iPod design to bring a more user-friendly experience for wallet users.
Ledger Stax resembles a small smartphone and has a monochromatic E ink display which covers the front and curves around the spine. That way users can easily view complete transaction details as well as their NFT collections even when the wallet is off. This works in conjunction with integrated magnets, allowing multiple Stax devices to stack, hence its name. This is particularly useful for Ledger owners who have different portfolios since they can look at the labels displayed on the spine, like books on a shelf.
Stackable Ledger Stax wallets with displayable screen on the spine (Source: Ledger)
Users can store more than 500 cryptocurrencies or NFTs on Ledger Stax. Developers are also planning to allow users to explore Web3 applications through the Ledger Live app. Users can connect the Ledger Live app on (1) laptops via secure USB-C or (2) smartphones via bluetooth. This new user interface will enable clear and intuitive interaction for all mainstream users.
Ledger Stax also has good energy efficiency and supports wireless Qi charging. Its battery can last as long as few months with a single charge.
How to Get Ledger Stax Wallet?
Ledger Stax is now available for preorder at $279 and will begin shipping by the end of March 2023. It will also be available from select retailers such as Best Buy in the U.S. Those who purchase the wallet will also receive an Infinity Pass, which provides users with a free utility NFT.
Additionally, a Ledger Stax NFT Bundle is available to mint on [Ledger] Market for 0.22 ETH to redeem a free Ledger Stax device. It also unlocks access to exclusive NFT artwork from Ledger’s network of hand-picked artists. However, Genesis Pass holders and PREMINT Collabs have special mint-priority, and there are only 10,000 bundles available.
Key Takeaway
“Not your keys, not your crypto” — there is a great risk of losing all your crypto if you park it on a centralized exchange. Hardware wallets are great self-custodial solutions because only you have control over your funds. But the problem is it can be quite daunting to operate one, especially for beginners.
Ledger Stax will revolutionize this by bringing the familiar user experience of smartphones into hardware wallets. This is a big step towards a decentralized financial future as more people are opting for self-custodial solutions. If you are interested in other hardware wallets, feel free to check these out:
Pre-order your Ledger Stax for only $279 and get it by end of March 2023!
What is the Ledger Stax wallet?
The Ledger Stax wallet is a new hardware wallet developed in partnership with Tony Fadell, co-creator of the iPod and iPhone. It has a unique and innovative design in the style of high-end Samsung cell phones, and lets users view their NFT collections even when the wallet is off.
When will the Ledger Stax be available for sale?
Ledger Stax is now available for reorder at $279 and will begin shipping by the end of March 2023.
What features does the Ledger Stax offer?
The Ledger Stax wallet is an easy-to-carry device about the size of a credit card, which allows users to store more than 500 cryptocurrencies or NFT collections. It also features an E-Ink touchscreen for viewing NFT collections, and a battery that can last for weeks or even months with a single charge.
Are there any incentives for purchasing the Ledger Stax?
Yes, those who purchase the wallet will be eligible for various prizes, such as a “Magnet Shell” protective case and an NFT from the “The Art On Ledger Stax Collection.”
“Not your keys, not your crypto” — this decade-old mantra has taken full effect after the FTX collapse. Crypto users have lost faith in centralized exchanges (CEXs) and are migrating to decentralized exchanges (DEXs) instead. Though a non-custodial option seem to be an ideal solution, it would likely take a long time until price discovery shifts from centralized to decentralized platforms. Let’s take a closer look.
Impact of FTX Collapse on Centralized Exchanges
Almost every centralized platform in the crypto industry had done business with FTX, and some companies bore the brunt of the collapse such as BlockFi, Genesis Trading, and KuCoin. Crypto users around the globe found they could no longer withdraw assets from several crypto exchanges as the contagion spreads.
FTX’s collapse is a symptom of a problem inherent to centralized exchanges, also known as custodial exchanges. Customers’ tokens parked on the platform are exposed to the risk the exchange could go bust. Because crypto has no government depositary schemes to cover losses, customers of insolvent exchanges must wait for bankruptcy courts to regain what remains of their funds — if there is any left after other investors claim their share.
Given the circumstances, all crypto exchanges including Binance have been implementing proof-of-reserves to verify they have enough assets to cover all customers’ funds. Though it is a good transparency initiative, investors still fear for the safety of their funds. As a result, many CEX customers rushed to withdraw their funds, opting for non-custodial solutions. This is where DEXs come in.
Rise of Decentralized Exchanges after FTX Collapse
Soon after FTX’s downfall, decentralized exchanges saw a vertical spike in trading volume. According to DeFi Llama, the monthly DEX volume showed an increase of 80% from $57.6 billion in October to $103.8 in November. At the time of writing, Uniswap had the largest trading volume with 60%, followed by Curve (9.6%), PancakeSwap (9%), DODO Exchange (8%), and Balancer (3%).
Moreover, Uniswap also surpassed Coinbase in daily ETH trading volume on November 14 ($1.1 billion vs $600 million). This is significant as CEXs have always been dominant in trading large market cap coins given their deep liquidity. It strongly indicates traders are moving away from CEXs.
This is compounded by the fact that Bitcoin (BTC) has been exiting CEX wallets at a record pace. According to on-chain data analytics Glassnode, BTC withdrawals from CEX to self-custody wallets is unfolding at a historic rate of 106k BTC monthly. This accounts for $3.7 billion worth of Bitcoins over the past week. Simultaneously, hardware wallet providers such as Ledger and Trezor reported its highest sales day. Check out some of these wallets:
Decentralized exchanges, also known as non-custodial exchanges, are decentralized finance (DeFi) protocols that allow users to trade directly with other users via smart contracts, without handing over management of their funds to an intermediary or custodian.
They are non-custodial, which means users have full and exclusive control of their wallet’s private keys. This is the opposite of putting your assets on CEXs as they hold onto the wallets and keys on your behalf. This feature makes it impossible for centralized players to siphon user funds, and is why people are doing their trading on DEXs instead.
Transactions on DEXs are facilitated through the use of smart contracts, and liquidity pools are funded by other users. As such, there is significantly reduced counterparty risk — you do not need to trust other users, only the code. There are three types of DEXs that uses different protocols: automated market makers (AMM), order book DEXs, and DEX aggregators. But they are all programmed to determine the best price for an asset, all while offering a better rate for users compared to CEXs.
Moreover, anyone can earn passive income if they provide liquidity to the protocol. On the other hand, CEXs are managed by a centralized organization such as a bank or a small handful of professional trading firms or market makers. In this case, since liquidity is concentrated in these actors, CEX maker and taker fees are much higher than DEX swap fees. Additionally, they can also choose to withdraw their assets during periods of volatility, restricting trades when users need it most.
Challenges Facing Decentralized Exchanges
Despite the many critical advantages DEXs offer, it has several downsides that hinders widespread adoption:
Relies Heavily on Centralized Exchanges
Most DEXs are dependent on price oracles (i.e. Chainlink) that source data from CEXs. As such, an attacker can manipulate the price of an asset on a particular DEX, leading to inaccurate price data being fed to all protocols which rely on that DEX as a price oracle.
A flash loan attack is a common method to trick price oracles. In such events, attackers essentially create false arbitrage opportunities by instantaneously borrowing, swapping, depositing large numbers of tokens, tricking price oracles that the target token’s price is being moved on a single exchange.
This creates a disparity which can then be arbitraged, allowing the sale or purchase of assets at above or below market price. Polygon’s Quickswap was a victim of this attack in October 2022.
DEX Transactions are Slower than CEX
Trading on DEXs are often much slower because all trades take place on the blockchain. It takes time for blocks to be validated and transactions to go through. On the other hand, CEX trades are almost instantaneous because they take place on proprietary matching engines instead of the blockchain. These engines are complex software that synchronizes and combines data from thousands of trading pairs at the same time.
Liquidity Issues and Impermanent Loss
DEXs cannot yet compete with large CEXs in size as they cannot offer as much liquidity. When they do not have enough liquidity, large orders can incur slippages in which the buyer pays above-market prices on their order. As such, a lack of liquidity can deter institutional participation as large orders are likely to suffer from slippage.
On another note, liquidity providers are exposed to a risk of impermanent loss when depositing two assets for a specific trading pair. In most cases, liquidity providers end up withdrawing more of the token that lost value and less of the one that gained value because the ratio of tokens held in the pool changes as trades occur.
Smart Contract Vulnerabilities
Although there is significantly reduced counterparty risk when using DEXs, there is still the issue of smart contract vulnerabilities that can be exploited by hackers. Smart contract codes are publicly available and anyone can review their code. Therefore, exploitable bugs can still slip past audits and other code reviews.
In the wake of FTX’s collapse, users’ confidence in centralized exchanges are waning and the crypto community expects a shift toward decentralized platforms. However, according to JPMorgan and several other financial analysts, centralized exchanges will continue to control the majority of global digital-asset trading volumes. Although DEX trading volume has surged over the past month, it is a possibility that it reflects the automatic liquidations following the FTX collapse, and does not indicate the start of a long-term trend.
DEX users are still confined to a relatively small base of niche traders and investors, and their interfaces can be difficult to navigate. At this stage, CEXs still provide a better user experience, fiat gateways, and deeper liquidity. To date, Uniswap has a total of 4.5 million users cumulatively, whereas Coinbase has a total verified user base of 108 million.
With that being said, DeFi is still in its infancy. Development in liquidity protocols, safekeeping mechanisms, and user interfaces is needed to fully realize the potential of non-custodial trading services. As long as DEXs can compete with CEXs in terms of liquidity and speed, we may start to see widespread adoption or even a full-on switch to DEXs. After all, decentralized infrastructures are key to preventing centralized collapses, something we, as the community, has had enough of for the past year.
In light of the FTX collapse, cryptocurrency exchanges are implementing proof-of-reserves (PoR) as a form of on-chain accounting that shows their entire holdings and customers’ assets. As centralized entities, this is a big step towards a more transparent crypto ecosystem, but some argue it might not be enough to regain investor trust. In this article, we will explain how PoR works and why it matters.
Proof-of-reserves (PoR) is a cryptographic method to verify that an exchange has enough assets to cover all customers’ deposits. In doing so, the exchange ensures customers they have sufficient liquidity on hand to process all withdrawals, should a bank run occur.
This has left the crypto community wondering what other crypto exchanges might be doing with customer assets. As a result, Binance CEO Chengpeng Zhao (CZ) urged all crypto exchanges to do PoR, albeit Kraken was one of the first exchanges to prove their reserves in February 2022.
All crypto exchanges should do merkle-tree proof-of-reserves.
Banks run on fractional reserves. Crypto exchanges should not.@Binance will start to do proof-of-reserves soon. Full transparency.
Proof-of-reserves essentially involves taking a snapshot of all balances held on the exchange which are aggregated into a Merkle tree — a data structure designed to encapsulate and encrypt data. These Merkle trees, also known as hash trees, function as a map of the exchanges’ assets and liabilities (customers’ tokens).
From there, a Merkle root is obtained, which is a cryptographic fingerprint that uniquely identifies the combination of these balances at the time when the snapshot was taken. Afterwards, digital signatures produced by the exchange are collected, which prove ownership over the on-chain addresses with publicly verifiable balances. To put it simply, the exchange discloses these addresses and provides proof that they have access to the associated private key.
Because Merkle trees are part of blockchain technology, anyone can compare and verify if these balances exceed or match the customers’ balances represented in the Merkle tree. In the case of crypto exchanges, this process is either self-attested by the exchange or carried out by an independent third-party audit. As of now, most crypto exchanges have been working with Nansen, a blockchain analytics platform, for their PoR audit.
1/ We are working with exchanges to display proof-of-reserves on @nansenportfolio for everyone to track their token holdings and transactions.
Here's the current list of exchange portfolios and we will live update this thread with more, so make sure you are following! 🧵
Although proof-of-reserves is certainly a step in the right direction, there are still several improvements that could be made to enhance transparency and trust.
Proof-of-Reserves are Pointless without Proof of Liabilities
A proof-of-reserve audit without disclosure of total liabilities, not just customers’ tokens, does not paint a full picture of an exchange’s solvency. This would include anything the exchange owes such as debts and taxes. Kraken CEO Jesse Powell expressed that Binance’s PoR is pointless without liabilities. This is also in reference to other platforms publishing their PoR without mentioning any liabilities. He also added that accounts with negative balances must also be included in the sum of total liabilities.
However, the problem is that these liabilities are NOT on-chain, which means an independent auditor has to step in. At that point, crypto exchanges will have to provide the same proof as all public and regulated companies provide — audited financial statements. (Clonazepam) Coinbase is one of the few exchanges to do this. Since they are a public company subject to U.S. regulations, they have already been proving their reserves using balance sheets audited by the SEC.
Therefore, the most reliable way to prove an exchange’s assets are more than its liabilities is via third-party auditors. In fact, CZ responded to Powell’s comments that Binance would involve third-party auditors to audit their PoR results.
Proof-of-Reserves Audits Can be Falsified
Although the cryptographic proof do not lie, it can be manipulated and framed to look healthy. There is the issue of crypto exchanges moving their funds right after the snapshot for the audit was taken. Recently, Crypto.com mistakenly transferred 280,000 ETH to a Gate.io address after it released its proof-of-reserves audit. Many speculated that exchanges were borrowing assets to show a healthy balance sheet, only to return them after the snapshot.
Moreover, a PoR audit is only as good as its verifier. There is also the issue of exchanges colluding with third-party audits to produce false results. Unless the exchange is audited by a reputable source such as the Big Four accounting firms, we will just have to take their word for it.
Proof-of-Reserves Do Not Prevent Customer Fund Misappropriation
Even then, audits and attestations may not suffice. At its core, crypto exchanges are not the same as banks — crypto is not insured by government depositary schemes. Even if all the steps are done correctly, customers can still lose their crypto if mishandled.
Merkle tree-based PoR would not prevent the misappropriation of customer funds completely. It only tracks the money, providing information. It does not provide customers with greater control over their funds. If the exchange is caught in the act, you would not be able to get your crypto back as it is likely to be tied up in litigation.
At the end of the day, proof-of-reserves is the first step towards a more transparent crypto ecosystem. In effect, it functions as a verification tool to filter out fraudulent crypto exchanges, albeit not completely.
By leveraging blockchain technology, PoR brings crypto exchanges closer to the treasuries of DeFi protocols, allowing anyone to trace funds on-chain at any time. However, there is much to improve in this aspect. But with on-demand, real-time tracking of exchange reserves, the industry is working towards a decentralized and trustless system, where customers do not need to trust the institution, only the math.
Aries Market is a decentralized cryptocurrency exchange built on Move, the same programming language used by Aptos to build its blockchain. Aries Market provides a wide range of decentralized finance (DeFi) products such as borrowing, lending, and margin trading on 1 single platform. Products include lending, borrowing, margin trading, swapping, and account risk management.
What is Aries Market?
Aries Market is a decentralized crypto exchange offering a wide range of DeFi products on a unified platform. On Aries Market, users can have a unified margin account on which they can borrow from various liquidity pools, earn interest on deposits, and do swaps and trades.
What products are available on Aries Market?
Aries Market is currently in a “soft launch” phase where all its features are not available yet. At present, the following products are available on Aries Market: lending, borrowing, swaps, and global account management. Notably, trading features are not yet available on Aries Market.
There are, however, deposit limits for the available asset pools on Aries Market. The limits are as follows: 4 million zUSDC (LayerZero), 4 million USDC (Wormhole Bridge), 500,000 APT, 10,000 SOL.
Aries Market
Supported assets
Aries Market currently supports the following assets: zUSDC (LayerZero), USDC (Wormhole Bridge), APT and SOL. The team expects more assets to be listed soon.
Coming soon on Aries Market
The Aries Market team expects the following features to be available in the coming months:
Full set of features will be available on Aries Market;
integration of Aries Market with Aptos; and
Gamified events and campaigns on the Aries Market and Aptos community.
Celsius Network was one of the largest gateways to crypto with $864 million worth of venture capital raised. They also had over $3 billion worth of funds held in custody for 1.4 million customers. Offering attractive yields, simple to use UI, and promises of security and transparency, it was truly the perfect crypto on-ramp for less experienced crypto users. They abstracted away the complexities of DeFi (Decentralized Finance), and offered only pure and straightforward DeFi yields.
However, their questionable asset management practices have recently come to light. Celsius Network’s risk management strategy heavily relied on continued bullish crypto narratives pushing prices upwards. Which left them unprepared for significant drawdowns. They also engaged in “degenerate trading” strategies which put them at risk of liquidation and potential bankruptcy.
Some believe Celsius will be another big platform to collapse during this bear market, potentially pushing crypto prices even lower than before. And likely resulting in a further liquidation cascade that could destroy protocols, VCs, investment funds, and others.
For another perspective on the situation on Celsius Network and how events may unfold, check out Michael’s analysis:
https://www.youtube.com/watch?v=xGbCX-AdiY4
Celsius Network – Then And Now
What is Celsius Network?
Celsius Network ($CEL) is a one-stop shop fintech app that offers the ease-of-use benefits of CeFi (Centralized Finance) with the best DeFi offerings. They are a centralized DeFi platform allowing users to deposit funds into custodial wallets on the platform. They also offered a range of DeFi services. These included token swaps, high yields on stablecoins and cryptocurrencies and crypto-backed lending and borrowing.
Celsius had a straightforward dashboard, free inter-account crypto transfers and a variety of DeFi features. Hence, Celsius managed to offer a truly incredible product to over a million customers, attracting industry respect and venture capital. So what went wrong?
The Demise of Celsius Network?
Celsius’ demise can be summed up in three parts. Firstly, its problems really started to surface during the LUNA collapse, then followed by a slow unravelling of Celsius’ overleveraged. Finally, poorly planned out WBTC and ETH/stETH positions led them to a complete lockdown of their platform.
LUNA/UST Giga Yields
Luna, through its Anchor protocol, promised a “risk-free” 20% interest on their USD-pegged stablecoin, UST. This was a highly popular product right up until its collapse. However, Celsius was also taking advantage of these high yields, which allowed them to offer high yields to customers while taking some profit.
Although this was denied by Celsisus’ founder, on-chain investigations by firms such as The Block Research, Hoptrail, and Nansen revealed that Celsius was staking up to $535 million worth of UST on Anchor protocol. Reportedly, prior to the full depeg of UST, Celsius managed to withdraw their funds with minimal damage. This left the Terra ecosystem with half a billion-dollar hole in their pockets. It seems that Celsius managed to get out of that situation mostly unscathed. However, this should’ve served as a red flag that indicated what kind of risk Celsius is willing to take on.
WBTC as DAI collateral
This one’s also pretty straightforward. Celsius used customer’s WBTC (wrapped BTC on Ethereum) as collateral to borrow DAI on the Maker protocol. This is so they could stake the DAI stablecoin for very favorable yields. Everything had been going great until BTC prices rapidly tumbled after the UST collapse. As prices tumbled, it was cheaper to keep adding collateral instead of paying off their DAI debt, losing some capital and the DAI yields. This did this likely in hope for a trend reversal or possibly a short-lived BTC relief rally. However, customers’ funds were subsidising this collateral.
stETH & locked ETH
Celsius offered their customers an attractive <8% yield on ETH while the best ETH staking deal one could get was by staking their ETH on the Ethereum PoS Beacon chain, which offers ~4.2% yield at best. So how could they possibly deliver such an incredible deal for their customers?
The solution was staked ETH (stETH) which is a liquid ETH derivative offered by Lido Finance. stETH is a fully collateralized representation of ETH staked on the Ethereum PoS Beacon chain. After the Merge, when users can withdraw staked ETH, 1 stETH will be redeemable for 1 ETH. This allows anyone to earn a yield on ETH offered by the Beacon chain without running the staking infrastructure. But, stETH’s dollar value is not pegged to ETH’s dollar-value. Also, stETH cannot be redeemed for ETH.
So Celsius was doing three things with their customer’s ETH to generate the exorbitant yields:
Lending out ETH and earning interest on DeFi protocols (27% of their total ETH);
Swapping them for stETH to generate ETH staking yields and at the same time lending out stETH to provide liquidity and earn interest on Curve Finance, a decentralized crypto exchange. (44%); and
Staking ETH on Beacon chain, rendering it illiquid for at least a year or whenever The Merge happens and the ETH gets unlocked. (27%).
The current issue Celsius is facing is the fact that while swapping an equivalent amount of ETH for stETH, stETH currently is not trading for the same dollar value as its ETH equivalent. This is due to several reasons. As a result, they’re currently in possession of roughly $0.94 for every $1 worth of ETH owed to their customers. On paper. In reality, it’s much worse than that. Celsius holds ~445k stETH, currently valued at $540 million and cannot all be swapped for ETH on the Curve Finance pool due to lack of liquidity.
So, Celsius was lending 27% of their ETH on DeFi, and swapped 44% of their ETH for stETH. However this stETH is now worth less than ETH. stETH also cannot even be fully exchanged for ETH. As a result, most of Celsius’ ETH is illiquid.
Celsius Liquidity Crisis
The situation is getting direr by the day for Celsius. Whilst BTC and ETH prices were tumbling, their ETH liquidity was drying up. Hence they had to top up their WBTC collateral several times from 22k all the way down to 14k to avoid margin calls.
To do this, they’ve put all withdrawals, swaps, and transfers between accounts on hold since 12th June 2022. Thereby completely locking users out of their assets. This was to prevent a bank run, which would’ve completely drained Celsius of their holdings.
Celsius files for Chapter 11 bankruptcy
On 13th July 2022, Celsius Network filed for bankruptcy in the Southern District Court of New York. In its announcement that Celsius had filed for Chapter 11 protection. The filing of Chapter 11 bankruptcy protection means that Celsius can continue operating its business and restructure its obligations.
The Company also states it has US$167m cash on hand to support operations during the restructuring processes. It hopes that through the process, it would stabilize its business to maximize value for all its stakeholders.
Will Celsius users get their cryptocurrencies back?
Celsius’ Directors justified its earlier decision to pause trading and withdrawals to “… stabilise its business and protect its customers”. This is to prevent customers who did not quickly withdraw their funds from being left waiting for Celsius to come up with the liquidity.
In an interview with Cointelegraph, Danny Talwar, Head of Tax at Koinly expressed concerns that Celsius may be like Mt.Gox. Mt. Gox collapsed in 2014 and users still have not seen any of their funds returned.
Celsius has not made any announcement as to whether or not they will reopen the platform to allow withdrawals. In their blog post on 14th July 2022, Celsius stated that:
“Most account activity will be paused until further notice. Withdrawals, Swap, and transfers between accounts will remain paused, and rewards will stop accruing as of the date of the filing. Celsius is not requesting authority to allow customer withdrawals at this time.”
Looking forward, Celsius “…intend[s] to put forward a plan that restores activity across the platform, returns value to customers, and provides choices.”
Celsius lawyers: Users gave up legal rights to their cryptocurrencies
Celsius Network’s lawyers stated that users with Celsius’ Earn and Borrow accounts gave up the rights to their crypto under its terms of service.
According to a tweet from Kadhim Shubber, a Financial Times reporter, Celsius Network’s lawyers stated the recovery plan would involve HODLing. They believe customers would be interested in hodl-ing throughout this bear market. Then they would realise their recovery when the market recovers.
Celsius to run out of money in October/November 2022?
Celsius was initially expected to run out of money in October 2022 according to their Weekly Cash Flow Forecast filed with the Court. However, an updated Forecast filed on 6th September 2022 shows that the Company will still have US$42 million in cash left by the end of November 2022.
Celsius weekly cash flow forecast
Profiting off the Celsius collapse? What is #CelShortSqueeze?
Twitter hashtag #CelShortSqueeze has been trending even before Celsius Network filed for Chapter 11 bankruptcy protection. #CelShortSqueeze appears to have been set up as a grassroots movement by $CEL token supporters or traders liquidated by $CEL backed loans.
The #CelShortSqueeze movement is an attempt by Celsius supporters to make it harder to short the $CEL token. This is by encouraging others to buy $CEL on exchanges such as FTX or Uniswap, and send the tokens to private wallets. The purpose of this is to take the $CEL tokens out of circulation of centralized exchanges. Hence spot short traders intending to borrow $CEL from exchanges are forced to use decentralized exchanges. This is because on decentralized exchanges, users can set the sell prices.
The #CelShortSqueeze movement seems to be effective in propping up $CEL token prices at or over 80 cents. This is despite the news of Celsius filing for bankruptcy protection. Whilst prices initially dipped to 48 cents right after news of the bankruptcy came out, #CelShortSqueeze supporters helped bring back prices to 80 cents and over.
In a win for #CelShortSqueeze supporters, prices of $CEL pumped to $1.42 on 29th July 2022, the highest in almost 1 month.
The #CelShortSqueeze movement shows what retail investors can be capable of when they band together through the power of social media. There is a lot of uncertainty right now as to what will happen to the $CEL token as Celsius Network is figuring out how to restructure and rescue the company. The restructuring process can take years and it is unknown when Celsius will re-open withdrawals to customers. So Celsius holders are certainly hoping that the #CelShortSqueeze movement does not lose steam until then.
Celsius seeks to open withdrawals for some customers
On 1st September 2022, Celsius filed a Court motion to open certain accounts for customers to withdraw their funds. However, Celsius’ motion only applies to Custody and Withold Accounts and for assets with a value of US$7,575 or less. Celsius’ Custody and Withold Accounts are basically storage wallets and users still retain legal ownership of their cryptocurrencies. In contrast, Celsius’ Earn and Borrow Accounts offer borrowing and annual crypto earnings services. If the Court grants this motion, around US$50 million (out of the US$225 million held in the accounts) will be released to customers.
Whilst some have reacted positively to this news, there are others who point out that this is hardly fair to affected Celsius users. Commentators have pointed out that in any event, under US law, Celsius is unable to avoid transferring sums under this amount if creditors so request.
Celsius co-founder declares shares “worthless“
Daniel Leon, one of the co-founders of Celsius is seeking a Court declaration that his equity in the Company is “worthless”. Leon is a substantial shareholder of the Company and holds 32,600 common shares. Shareholders make these declarations during bankruptcy proceedings when they do not think they will receive any further distribution for their holdings. The result of this declaration is that the shares can be used as a tax write-off.
Celsius will be revived as Kelvin- a crypto custody service?
According to an announcement at a Celsius employee meeting on 8th September 2022, CEO Alex Mashinsky and Head of Innovation and Chief Compliance Officer Oren Blonstein plan to revive Celsius. The plan is to launch a project called Kelvin, which will store users’ cryptocurrencies and charge fees for specific transactions.
This is a departure from Celsius’ existing business model, where Celsius does not charge any fees for transactions, withdrawals, origination, or early termination.
Latest: Celsius leaks customers’ personal data-where is the info now?
On 5th October 2022, Celsius filed publicly available court documents revealing personal data on thousands of its customers. The court documents filed by Celsius revealed, among others, customers’ names, and transaction information such as transaction amounts, times, types, and descriptions. According to Henry de Valence, Founder of Penumbra Labs, the information leaked by Celsius is sufficient to “dox all the on-chain activity” of any Celsius user by matching the dates and amounts to the blockchain transaction data.
However, this saga is far from over, as the customers’ data has recently been made publicly available on a website called Celsiusnetworth.com. The website lets people search the names of Celsius users, along with their cryptocurrency holdings on Celsius. It also included a leaderboard that listed which customers suffered the greatest losses.
Celsius executives and founders withdrew nearly US$35 million before withdrawals were frozen
As a result of Celsius’ court filings, it has been revealed that its executives had already withdrawn funds totaling nearly US$35 million in the weeks before withdrawals on the platform were frozen. Filings revealed that ex-CEO and co-founder Alex Mashinsky withdrew around US$10 million from the Celsius platform in May 2022. Meanwhile, co-founder and former chief strategy officer Daniel Leon withdrew around US$7 million, and current chief technology officer Nuke Goldstein around US$550,000.
Celsius paused its withdrawals weeks later in June 2022 before filing for Chapter 11 bankruptcy in July.
A spokesperson for Alex Mashinsky states that the US$10 million withdrawal was planned even before Celsius intended to pause withdrawals, as the funds were used to pay taxes. Also, Mashinsky’s family still had US$44 million worth of cryptocurrencies frozen on the Celsius platform.
Conclusion
What becomes of Celsius going forward is unclear. However, what is clear is that time and time again we get to witness the extreme importance of the age-old rules of crypto – be wary if something seems too good to be true, and never put in more than what you can afford to lose.
It is easy to become swept up in the hype, so doing your own research is incredibly important. Thinking critically and understanding the fundamentals can help you avoid a lot of heartache in the future.
