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Layers upon Layers of DeFi and Compound Audit Goes Public


Ethereum Price: $179.07
Ethereum Price (BTC): 0.017222BTC
Market Cap: $19.26B
ETH Network Dominance*: 70.73%
7 Day Candle**: $187.89 / $189.31 / $163.980 / $179.07

Decentralized Finance is growing in leaps and bounds with the total amount of Ether locked in the system reaching an all time high of 2.74 million ETH last week. This isn’t all that surprising, is rewarding its lenders with anywhere between 10 and 12 per cent, paid out every block and withdrawable at any time. August also saw everyone’s favorite stablecoin, DAI, reimagined with rDAI – an ERC20 token to redirect your interest earning Compound DAI (cDAI)…

All sounds a little confusing right? It’s only going to get worse as the complexity of “open finance” deepens. Unsurprisingly, this has raised a number of concerns, with those likening the growth in DeFi to what was seen in the financial crisis of 2008, when the muddied world of mortgage derivatives collapsed with disastrous effect. However, unlike traditional financial derivatives, those being built on Ethereum are based on transparent collateral that is auditable by the public – an unprecedented improvement. In fact, in the beginnings of DeFi, Maker (MKR) not only survived a 90% downturn, but came out the other side with even greater usage.

With all that said, there still needs to be a skeptical perspective here; a seemingly safe 11% interest – even in a transparent system – should raise eyebrows. And’s public audit from OpenZeppelin last week certainly did. While the audit summarised with:

Overall, we are happy with the security posture of the team and health of the codebase.

the audit did raise some very serious concerns. Firstly, the decisions made within the dApp’s system are – at this stage – governed by the Compound Team. Not only do users have to trust the team to behave honestly, they also have to trust that the relevant private keys are stored securely and kept away from malicious individuals. If used improperly, an administrator could well “censor transactions or steal all assets from the system”.

Then of course, there is platform risk – Ethereum is unlikely to bail out a failed DeFi project and there is a non-zero chance of an undiscovered security hole being found within the protocol’s network of smart contracts. 11% interest on funds that could simply disappear suddenly looks a little less appetizing and perhaps 2% on a FSCS protected deposit may have more appeal.

The layers upon layers being built on DeFi is incredibly exciting; yet as we saw with The DAO of 2016, catastrophes do happen and are quite possibly inevitable. Despite all this, the DeFi space is transforming at a marked pace and there are no doubt opportunities to benefit from the unprecedented rates being offered – but perhaps (for the time being) with only a modest allocation.

– Nick, Owner

Brave competing with MetaMask

The privacy-focused web browser, Brave, announced in a blog last week that it is developing a wallet – Crypto Wallet – which will support a number of Ethereum based tokens including its own native token BAT, as well as collectibles and ETH. The wallet will also enable users to interact with Ethereum dApps, offering similar functionality to the likes of MetaMask and others but with the full browser experience.

Brave was reported to have 5.5 million monthly active users in January 2019.

Ethereum Out-Tethers Bitcoin

Ethereum-based Tether is on yet another move. A substantial migration of the dollar-backed token has been taking place recently from Bitcoin’s OMNI layer to Ethereum resulting in a boom of USDT-ETH wallet addresses.

The latest stats from CoinMetrics show a sharp increase last week in the USDT-ETH addresses while the amount of USDT-Omni active addresses declined steadily over the same period.

Both Binance and Poloniex announced they will be migrating their Tether addresses from OMNI to ERC20. According to Anthony Sassano, an Ethereum developer, the number of USDT as ERC20 on Ethereum has significantly increased and is now up to almost 40 percent of the total amount of USDT on OMNI.

* calculated as: (ETH Market Cap / Ethereum Network Market Cap)
** open / high / low / close

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Nick Founder