DEFI

【Dapp Pocket】DeFi Weekly Report – Week 3 of June

2020/6/16

Dear DeFi enthusiasts, this week Coinbase released evaluations for up to 18 tokens being considered for listing. Given the "Coinbase effect" where newly listed tokens tend to surge in value, let's discuss some interesting tokens in this issue. Compound's governance token COMP is finally set to be distributed, with 2880 tokens issued per day for four years, catering to both lenders and borrowers... Are you intrigued? UMA's synthetic token completed its first liquidation last week without any controversy. Unlike traditional derivative assets, UMA only introduces price feeds from oracles during liquidation, and this successful liquidation can be seen as a morale boost for its supporters. In addition to the familiar faces of Ryan and Vitalik Buterin, there's another "big shot" who's equally active on Twitter but not just an ordinary friend, here to share his insights... This issue's special guest is one of the founders of DMM, Corey Caplan, who will talk to us about the story of DMM.

DeFi (Decentralized Finance) refers to decentralized financial services. Simply put, it operates on a decentralized management model to address issues in the traditional financial industry such as slow transaction speeds, high costs, vulnerability to hacking, and potential abuse by governments or organizations. Current DeFi services include interest-bearing loans, asset shorting, high leverage trading, and even unique flash loan services.

Table of Contents

Part One | What to Expect from Coinbase's Upcoming Listings? A Look at the Protocols Behind These Tokens

Last week, Coinbase announced that they are evaluating up to 18 tokens for listing, including popular DeFi lending platform tokens like LEND and COMP. So, what are some interesting protocols behind the tokens being considered for this upcoming listing?

Numeraire NMR

Numerai is essentially a hedge fund company that uses AI to pick investment portfolios, established in 2015. Interestingly, their trading strategies are not designed by the company, but rather through the Numerai Tournament held weekly, attracting tens of thousands of data scientists worldwide to design individual AI strategy models. Participants with outstanding performance in the tournament can earn NMR tokens (conceptually similar to stock options) and BTC (conceptually similar to dividends). Participants stake NMR and receive proportional returns when their trading performance is good; otherwise, an equivalent amount of NMR is burned when performance is poor. Through the market price of NMR tokens, the personal incentives of Numerai's scientists are closely tied to the platform because the better the hedge fund's overall performance, the higher the market price of NMR.

Keep Network KEEP

Keep is focused on improving the scalability of blockchain interaction with private data. Currently, securely managing private data on the Ethereum blockchain is not easy, which is where Keep comes in. A "keep" acts as an off-chain private data store, linking the public chain with private data and providing APIs for developers to use conveniently. Keep has already launched tBTC, an ERC-20 token pegged to Bitcoin. Keep recently initiated Stake Drop, allowing users to stake Ether to earn KEEP tokens, a work token needed for staking when verifying BTC transfers to tBTC. Keep's investors include renowned names like Draper Associates and a16z.

Origin Protocol OGN

Origin is a decentralized, peer-to-peer e-commerce platform. Users can trade goods and services on the platform as buyers or sellers, eliminating the need for traditional e-commerce intermediaries and commission fees. The OGN token is mainly used to incentivize users to verify identity, invite new users, and make purchases on the platform. Currently, Origin's network nodes are controlled by the official team, but they are developing a Staking model that will allow third-party nodes to stake OGN tokens to assist in storing, verifying on-chain information, and earning profits. In the fourth quarter of 2020, the team plans to open up the governance function of OGN tokens, allowing all holders to participate in the future decision-making of the e-commerce platform.

Part Two: This Week's Highlights

Coinbase Evaluates Listing Lend, COMP, KEEP, OGN, VeChain among 18 Tokens

Cryptocurrency exchange Coinbase is currently evaluating the listing of Aave (Lend), Aragon, Arweave, Bancor, COMP, DigiByte, Horizen (ZEN), Livepeer, NuCypher, Numeraire, KEEP Network, Origin Protocol (OGN), Ren, Render Network, Siacoin, SKALE Network, Synthetix (SNX), and VeChain, totaling 18 tokens. Coinbase aims to list and support all tokens that meet its technical and compliance requirements. Whenever a cryptocurrency is announced to be listed on Coinbase, there is often a temporary price increase, known as the "Coinbase effect," making Coinbase's listing plans highly anticipated in the market.

Compound Passes Governance Proposal 007, Distribution of COMP Begins on 6/15

Decentralized lending protocol Compound announced that governance proposal 007 had passed unanimously, starting the distribution of governance token COMP on June 15th. According to Compound's previously disclosed distribution plan, 4.23 million COMP tokens (42.3% of the total supply) will be placed in a "Reservoir" smart contract, and 0.5 COMP will be streamed out every block (approximately 2880 COMP per day, taking around 4 years to distribute the 4.23 million COMP) to lenders and borrowers on average. Subsequently, COMP will be distributed to each lending market based on the interest generated in that market, meaning the distribution ratio will fluctuate with time.

DeFi Giants Kyber and Chainlink Integrate to Enhance Token Price Feeds

Decentralized exchange Kyber announced its integration with Chainlink's oracle last Friday, allowing users to verify on-chain prices of their traded tokens. Kyber previously relied on prices provided by Kyber Network and encouraged users to verify if the trading prices were reasonable themselves. By integrating Chainlink's price data, KyberSwap enhances the reliability of key price information used to calculate slippage and further strengthens its security against price manipulation. This integration showcases Chainlink's continuous expansion in the oracle market.

UMA Synthetic Token ETHBTC Successfully Liquidated with No Controversy

Ethereum-based financial contract infrastructure UMA announced the successful liquidation of the synthetic token ETHBTC. UMA introduced the synthetic token ETHBTC two weeks ago, tracking the relative value of ETH and BTC, aiming to verify if the fee-less design mechanism is viable in real-world scenarios. In the ETHBTC token experiment, a total of 75,204 Dai was issued as collateral, minting 2,004,251 ETHBTC tokens. UMA's fee-less synthetic token mechanism provides a unique liquidation process, allowing anyone to liquidate undercollateralized positions without needing an oracle unless there is a dispute. The successful liquidation without controversy signifies an early victory for this model.

Other highlights include:

Part Three: Data Indicators

This week's data covers the period from 2020/06/09 to 06/15, with the price extracted around 7:00 PM as a guideline. TVL stands for Total Value Locked, representing how much value is locked in the platform. Data Source: DeFi Pulse.

DeFi Lending Platform Scale

Part Four: Insights from the Experts

Ryan Sean Adams: Canada's Largest Crypto Bank Runs Away with Your Money, What Should You Do?

In response to the recent recognition of Canada's cryptocurrency exchange QuadrigaCX as a Ponzi scheme, Mythos founder Ryan Sean Adams shared his thoughts on Twitter. He mentioned that Canada's largest crypto bank "stole" $200 million from users from 2016 to 2019, and the money is gone forever. What to do? One way is to entrust money to more rigorously regulated traditional banks. Another is to put money into DeFi, where protocols make it impossible for people to steal your money.

Vitalik Buterin: High Fee Incident, Hackers May Have Partial Key Permissions

Regarding the recent incident of a million-dollar fee transaction, Ethereum founder Vitalik Buterin expressed his opinion on Twitter. He suggested that the hackers could have obtained partial key permissions, allowing them to change gas fees at will, threatening to burn all funds unless compensated, even though they can't withdraw the funds.

ETH Robot: Value Growth of ETH2 Will Surpass Bitcoin

AI robot ETH Robot, representing the top 100 advocates in the Ethereum and Bitcoin fields, released a tweet last Friday. The tweet mentioned that the value brought by Ethereum 2.0 will surpass BTC, positioning it as the ultimate safe haven due to its value transfer being more fluid and extensive coverage. Traditional finance is inherently predatory, filled with various biases, while DeFi offers equality to all users.

Part Five: Expert Visit

In this expert visit, we invited one of the founders of DMM, Corey Caplan, to discuss the story of DMM. DMM, short for Defi Money Market, is a DeFi money market protocol that provides loans backed by physical assets, with interest generated from the loans used to pay interest to fund lenders, currently offering a fixed annual return of 6.25%. In March this year, DMM received an investment from the prominent figure Tim Draper. Readers interested in the detailed design of DMM can refer to their whitepaper.

Introduction to DMM and its Current State

Corey: DMM is a DeFi money market protocol built on Ethereum, where cryptocurrency holders can deposit assets to earn interest. These assets are used for loans, with borrowers required to provide physical cars as collateral. The lien on the collateral is held by DMM's DAO. Currently, DMM has tokenized around 912 cars, totaling the value of these physical assets at $8.5 million. Borrowers enjoy a fixed annual interest rate of 6.25%, while lenders receive a 12% annual interest rate. The amount lent by DMM will never exceed the value of the physical cars used as collateral, maintaining an overcollateralized state. The current collateral ratio is 162%, calculated as the sum of the "value of physical assets + value of cryptocurrency deposits" divided by the "total value of loan certificates over the year."

How does DMM determine interest rates?

Corey: Several factors are considered: profitability, ensuring the project is profitable after deducting the interest paid by borrowers, service fees, and interest income; team expertise, with founders having years of experience in traditional finance, especially in the car collateral loan market, understanding the distribution of loan rates in that market; and attractiveness to borrowers, where DMM's stable 6.25% interest rate competes with MakerDAO's volatile 5-10% DSR rate.

Which third parties does DMM collaborate with?

Corey: Black Book is the industry benchmark for car valuation in the US, providing valuations for borrower cars to DMM based on factors like mileage, age, wear and tear, recalls, geographic location, and auction prices of used cars in major US cities every two weeks.

Chainlink is the industry standard for decentralized oracles. DMM uses Chainlink's price signals to price the cryptocurrency assets in the protocol. Chainlink and DMM jointly set up a custom data pipeline, aggregating loan contract data and collateral price data provided by Black Book on-chain, providing real-time, clean collateral ratio data, enabling protocol management based on DAO.

DMM's smart contracts are audited by SECBIT and several DeFi teams. Professional third-party smart contract line-by-line audits provide an additional layer of security for the contract.

What are the risks of using DMM, and how does DMM address them?

Corey:

Smart contract vulnerabilities — DMM contracts undergo professional auditing.
Ethereum ecosystem security, if the system behind DAI has issues or the US dollar pegged by USDC starts to fluctuate, it would affect DMM's stability — DMM obtains transparent and reliable asset price data through Chainlink and closely monitors ecosystem dynamics to respond promptly when needed.
Protocol governance — DMM is cautious about incorporating any assets and gradually decentralizing protocol governance through DAO.

Future plans for DMM?