Curve, the robot decentralized exchange for stablecoins, is kicking off a new dividend program for holders of its governance token, CRV.
“We’ll start moving towards a cashflow-based protocol because the numbers are too sweet to not do it,” Curve founder Michael Egorov told CoinDesk in an email.
In order to participate in governance, users need to stake their CRV to the voting contract, exchanging CRV for veCRV (voting escrow CRV). Those escrow tokens will begin receiving half of all the staking fees on Curve starting today.
Each trade on the platform incurs a 0.04% trading fee, which is left in the pool until liquidity providers (LPs) remove their share. With this shift, trading fees will be split between liquidity providers and veCRV holders.
Over the last week, fees on Curve have varied between approximately $70,000 and $150,000 per day. The project just hit a new all-time-high daily volume at over $400,000,000.
For now, 2 million CRV tokens are distributed to LPs annually, though that amount will drop by 15% each year.
Volume is up in part for another reason: a vampire mining attack by Curve fork Swerve just ended. Egorov wrote, “The fork attracted non-Curve people in initially, but after their inflation ran out, they switched to Curve increasing the TVL [total value locked].”
Kava Labs has launched its first application: a yield-generating decentralized finance (DeFi) platform for bitcoin (BTC) and other non-Ethereum assets.
The product, called Harvest and built on the Kava blockchain, allows users to stake their crypto so it can be lent out to other users. Harvest will initially support deposits of BTC, BNB, BUSD and XRP. Soon, Kava Labs plans to debut automated market makers (AMMs) like Uniswap and robo-advisors like Yearn.Finance on the blockchain as well, said Kava Labs CEO Brian Kerr.
Similar to DeFi platform MakerDAO, Kava will allow users to create collateralized debt positions (CDPs) on the Kava protocol in exchange for a stablecoin, USDX, pegged one-to-one with the U.S. dollar. Unlike Maker, though, Kava works with assets outside the Ethereum ecosystem that have largely watched the DeFi craze from afar.
Kava Labs is backed by several large exchanges, including Binance, Huobi and OKEx, which stake kava tokens and participate in the blockchain’s governance.
Kerr said that Harvest was inspired by Aave and Compound, but that Harvest will bring the same capabilities that these protocols have to a larger array of digital assets.
“When we were building out Harvest, we saw the design paradigm already working,” Kerr said. “What we can bring to the table is unlocking these much larger-market-cap assets and giving them the same type of lending and borrowing functionality.”
Harvest users who borrow or lend on the app will be paid their interest and HARD tokens, the governance token of Harvest, which will also be used to incentivize liquidity on the platform.
Kava is built on the Tendermint consensus algorithm, which is also employed by the Cosmos blockchain interoperability project. Kava conducted an initial exchange offering (IEO) on Binance in October and counts Arrington XRP Capital as an investor.
DeFi is short for “decentralized finance,” an umbrella term for a variety of financial applications in cryptocurrency or blockchain geared toward disrupting financial intermediaries.
DeFi draws inspiration from blockchain, the technology behind the digital currency bitcoin, which allows several entities to hold a copy of a history of transactions, meaning it isn’t controlled by a single, central source. That’s important because centralized systems and human gatekeepers can limit the speed and sophistication of transactions while offering users less direct control over their money. DeFi is distinct because it expands the use of blockchain from simple value transfer to more complex financial use cases.
Bitcoin and many other digital-native assets stand out from legacy digital payment methods, such as those run by Visa and PayPal, in that they remove all middlemen from transactions. When you pay with a credit card for coffee at a cafe, a financial institution sits between you and the business, with control over the transaction, retaining the authority to stop or pause it and record it in its private ledger. With bitcoin, those institutions are cut out of the picture.
Direct purchases aren’t the only type of transaction or contract overseen by big companies; financial applications such as loans, insurance, crowdfunding, derivatives, betting and more are also in their control. Cutting out middlemen from all kinds of transactions is one of the primary advantages of DeFi.
Before it was commonly known as decentralized finance, the idea of DeFi was often called “open finance.”
Most applications that call themselves “DeFi” are built on top of Ethereum, the world’s second-largest cryptocurrency platform, which sets itself apart from Bitcoin in that it’s easier to use to build other types of decentralized applications beyond simple transactions. These more complex financial use cases were even highlighted by Ethereum creator Vitalik Buterin back in 2013 in the original Ethereum white paper.
That’s because of Ethereum’s platform for smart contracts – which automatically execute transactions if certain conditions are met – offers much more flexibility. Ethereum programming languages, such as Solidity, are specifically designed for creating and deploying such smart contracts.
For example, say a user wants their money to be sent to their friend next Tuesday, but only if the temperature climbs above 90 degrees according to weather.com. Such rules can be written in a smart contract.
With smart contracts at the core, dozens of DeFi applications are operating on Ethereum, some of which are explored below. Ethereum 2.0, a coming upgrade to Ethereum’s underlying network, could give these apps a boost by chipping away at Ethereum’s scalability issues.
The most popular types of DeFi applications include:
Decentralized exchanges (DEXs): Online exchanges help users exchange currencies for other currencies, whether U.S. dollars for bitcoin or ether for DAI. DEXs are a hot type of exchange, which connects users directly so they can trade cryptocurrencies with one another without trusting an intermediary with their money.
Stablecoins: A cryptocurrency that’s tied to an asset outside of cryptocurrency (the dollar or euro, for example) to stabilize the price.
Lending platforms: These platforms use smart contracts to replace intermediaries such as banks that manage lending in the middle.
“Wrapped” bitcoins (WBTC): A way of sending bitcoin to the Ethereum network so the bitcoin can be used directly in Ethereum’s DeFi system. WBTCs allow users to earn interest on the bitcoin they lend out via the decentralized lending platforms described above.
Prediction markets: Markets for betting on the outcome of future events, such as elections. The goal of DeFi versions of prediction markets is to offer the same functionality but without intermediaries.
In addition to these apps, new DeFi concepts have sprung up around them:
Yield farming: For knowledgeable traders who are willing to take on risk, there’s yield farming, where users scan through various DeFi tokens in search of opportunities for larger returns.
Liquidity mining: When DeFi applications entice users to their platform by giving them free tokens. This has been the buzziest form of yield farming yet.
Composability: DeFi apps are open-source, meaning the code behind them is public for anyone to view. As such, these apps can be used to “compose” new apps with the code as building blocks.
Money legos: Putting the concept “composability” another way, DeFi apps are like Legos, the toy blocks children click together to construct buildings, vehicles and so on. DeFi apps can be similarly snapped together like “money legos” to build new financial products.
Lending markets are one popular form of DeFi, which connects borrowers to lenders of cryptocurrencies.
One popular platform, Compound, allows users to borrow cryptocurrencies or offer their own loans. Users can make money off of interest for lending out their money. Compound sets the interest rates algorithmically, so if there’s higher demand to borrow a cryptocurrency, the interest rates will be pushed higher.
DeFi lending is collateral-based, meaning in order to take out a loan, a user needs to put up collateral – often ether, the token that powers Ethereum. That means users don’t give out their identity or associated credit score to take out a loan, which is how normal, non-DeFi loans operate.
Another form of DeFi is the stablecoin. Cryptocurrencies often experience sharper price fluctuations than fiat, which isn’t a good quality for people who want to know how much their money will be worth a week from now. Stablecoins peg cryptocurrencies to non-cryptocurrencies, such as the U.S. dollar, in order to keep the price under control. As the name implies, stablecoins aim to bring price “stability.”
One of the oldest DeFi applications living on Ethereum is a so-called “prediction market,” where users bet on the outcome of some event, such as “Will Donald Trump win the 2020 presidential election?”
The goal of the participants is, obviously, to make money, though prediction markets can sometimes better predict outcomes than conventional methods, like polling. Centralized prediction markets with good track records in this regard include Intrade and PredictIt. DeFi has the potential to boost interest in prediction markets, since they are traditionally frowned upon by governments and often shut down when run in a centralized manner.
How do I make money with DeFi?
The value locked up in Ethereum DeFi projects has been exploding, with many users reportedly making a lot of money.
Using Ethereum-based lending apps, as mentioned above, users can generate “passive income” by loaning out their money and generating interest from the loans. Yield farming, described above, has the potential for even larger returns, but with larger risk. It allows for users to leverage the lending aspect of DeFi to put their crypto assets to work generating the best possible returns. However, these systems tend to be complex and often lack transparency.
Is investing in DeFi safe?
No, it’s risky. Many believe DeFi is the future of finance and that investing in the disruptive technology early could lead to massive gains.
But, it’s difficult for newcomers to separate the good projects from the bad. And, there’s been plenty of bad.
As DeFi has increased in activity and popularity through 2020, many DeFi applications, such as meme coin YAM, have crashed and burned, sending the market capitalization from $60 million to $0 in 35 minutes. Other DeFi projects, including Hotdog and Pizza, faced the same fate, and many investors lost a lot of money.
In addition, DeFi bugs are unfortunately still very common. Smart contracts are powerful, but they can’t be changed once the rules are baked into the protocol, which often makes bugs permanent and thus increasing risk.
When will DeFi go mainstream?
While more and more people are being drawn to these DeFi applications, it’s hard to say where they’ll go. Much of that depends on who finds them useful and why. Many believe various DeFi projects have the potential to become the next Robinhood, drawing in hoards of new users by making financial applications more inclusive and open to those who don’t traditionally have access to such platforms.
This financial technology is new, experimental, and isn’t without problems, especially with regard to security or scalability.
Developers hope to eventually rectify these problems. Ethereum 2.0 could tackle scalability concerns through a concept known as sharding, a way of splitting the underlying database into smaller pieces that are more manageable for individual users to run.
How will Ethereum 2.0 impact DeFi?
Ethereum 2.0 isn’t a panacea for all of DeFi’s issues, but it’s a start. Other protocols such as Raiden and TrueBit are also in the works to further tackle Ethereum’s scalability issues.
If and when these solutions fall into place, Ethereum’s DeFi experiments will have an even better chance of becoming real products, potentially even going mainstream.
Bitcoin as DeFi
While Ethereum is top dog in the DeFi world, many proponents of Bitcoin share the goal of cutting the middleman out of more complex financial transactions, and they’ve developed ways to do so using the Bitcoin protocol.
Companies such as DG Labs and Suredbits, for instance, are working on a Bitcoin DeFi technology called discreet log contracts (DLC). DLC offers a way to execute more complex financial contracts, such as derivatives, with the help of Bitcoin. One use case of DLC is to pay out bitcoin to someone only if certain future conditions are met, say, if the White Sox win their next baseball game, the money will be dispensed to the winner.
Bitcoin has lost its market momentum. Meanwhile, the amount of cryptocurrency locked in decentralized exchange Uniswap was nearly doubled on Friday.
Bitcoin (BTC) trading around $10,867 as of 20:00 UTC (4 p.m. ET). Slipping 0.42% over the previous 24 hours.
Bitcoin’s 24-hour range: $10,812-$11,039
BTC below its 10-day and 50-day moving averages, a bearish signal for market technicians.
Bitcoin was only able to eclipse the $11,000 level briefly Friday before dropping to as low as $10,812 on spot exchanges such as Coinbase.
“Markets are looking weak on drying-up liquidity on exchanges while BTC hardly managed to reach back above the $11,000 level and couldn’t sustain it,” said Jean Baptiste Pavageau, partner at trading firm ExoAlpha.
Indeed, major USD/BTC exchange volumes are looking feeble, with Friday tallying a $211 million total so far while daily averages the past month have been $364 million.
Rupert Douglas, head of institutional sales at crypto brokerage Koine, is concerned stock markets are in for a correction, potentially hurting crypto as investors look to unload risky assets.
“I think equities are headed lower and if that happens digital assets will get sucked down, too,” Douglas told CoinDesk. “The tech shares are too frothy,” he added
Stock markets globally were mixed to cap off the week:
Another factor crypto investors are tracking: Bitcoin dominance, a measure of its market capitalization as a percentage of total cryptocurrencies. September has seen bitcoin hit 2020 dominance lows, hovering around 60% Friday.
“So far, bitcoin dominance has largely been sliding downwards since the beginning of 2020,” said Andrew Tu, an executive at crypto quant trading firm Efficient Frontier. “It will be interesting to see if we see a short-term reversion of the bitcoin dominance back upwards.”
ExoAlpha’s Pavageau says decentralized finance, or DeFi, is captivating the crypto market, and that is causing weakness for bitcoin.
“The market is focused on DeFi. It seems that locking value is also draining liquidity from exchanges as traders are noticing higher slippage when executing in the market,” Pavageau said. “A question to ask might be: Is the total value locked a threat to market liquidity for active traders?”
Uniswap crosses $1.5 billion locked
Ether (ETH), the second-largest cryptocurrency by market capitalization, was down Friday, trading around $379 and slipping 2.3% in 24 hours as of 20:00 UTC (4:00 p.m. ET).
The amount of cryptocurrency “locked” in decentralized exchange Uniswap has crossed $1.5 billion for the first time since Sept. 7. Investors have been quickly plowing crypto into Uniswap’s smart contracts over the past 24 hours, an 80% increase in value locked for that time period.
The dynamics of Uniswap have changed due to the decentralized exchange’s decision to release its own token, known as UNI, said Brian Mosoff, chief executive officer for investment firm Ether Capital.
“Users are likely locking ETH into Uniswap because they want to farm the $UNI token,” Mosoff said. “Many crypto users see Uniswap as the category leader, and rightfully so given the team and its backers. Users want to participate financially in the growth of the platform.”
Digital assets on the CoinDesk 20 are mixed Friday, mostly in the red. Notable winners as of 20:00 UTC (4:00 p.m. ET):
Notable losers as of 20:00 UTC (4:00 p.m. ET):
Oil is flat, in the red 0.10%. Price per barrel of West Texas Intermediate crude: $40.90.
Gold was in the green 0.34% and at $1,950 as of press time.
U.S. Treasury bond yields were mixed Friday. Yields, which move in the opposite direction as price, were down most on the two-year bond, in the red 2.8%.
You’re going to have to wait a little longer for the liquidity mining–powered savings account from Korean stablecoin maker Terra.
The savings account’s returns will be based on various proof-of-stake currencies, plus additional yield over the first five years in the form of its growth token. The system is called Anchor and was originally expected to go live in October; the latest update from the company has pushed that back to late November.
That said, the project is riding forward on a wave of momentum. The firm’s Chai payments app, in which the Terra stablecoin is prominently featured, now has over 2 million accounts.
“Growth over the last couple months has been largely driven by volume lift from COVID-friendly categories,” Terra co-founder Do Kwon told CoinDesk via email. “For example, some of the high performing recent integrations include [Korean food-delivery service] Yogiyo and [online grocer] Hello Nature, both of which have seen tremendous growth in the recent months.”
Taking a page from Square’s playbook, Terra has a card called the Chai Card. Users accumulate points and can redeem them for outsized rewards with specific merchants who are seeking user acquisitions, much like Boosts on Square’s Cash App.
Terra should soon have more visibility in the Western market as it bridges to Ethereum, offering a wrapped version of its stablecoin on the leading decentralized finance (DeFi) blockchain.
Kwon noted, “USDC and tether have non-trivial seizure and collateral risks, as the underlying USD deposits can either be seized or censored.” Further, DAI lags demand, he said, because it’s too costly to mint.
Terra has the additional advantage of offering versions that mirror several other fiat currencies beyond U.S. dollars, with Terra-based stablecoins for Korea, the Philippines and Mongolia.
“Wrapped Terra stablecoins will become available on Ethereum starting mid-October soon after our Columbus-4 mainnet upgrade on [Oct. 3],” Do wrote, adding:
“We are already in conversations to integrate wrapped Terra stablecoins with a range of popular DeFi primitives as well as centralized exchanges, so look forward to seeing Terra as a serious contender for stablecoin dominance on Ethereum.”
The cryptocurrency and security token exchange’s blockchain IPO is the first of its kind and gives observers and issuers a ground-level view of what’s going on through the Etherscan block explorer.
The public can see roughly the number of investors receiving INX tokens after putting money into the sale by watching the number of holders on the token tracker. (Some of these are internal operational transactions, however, like when Tokensoft loads the distribution smart contract.)
Traditionally, to get information on who beneficially owns an interest in shares held at central securities depositories like the Depository Trust Company, investors or issuers would have to go to the investment banks or broker-dealers who coordinated the sale.
“I love that investors can purchase and get the tokens directly from the issuer the same day,” said Mason Borda, CEO of Tokensoft. “Over time, as our technology and processes mature, this will all occur in real time.”
Per INX’s IPO prospectus, the company was required by U.S. regulators to first raise $7.5 million before being able to distribute tokens or raise funds in the form of crypto.