This Week In DeFi – June 16

This week, Tether encounters a mild de-pegging situation, Uniswap teases v4, Frax announces its own Layer-2 and a large CRV-collateralized loan scares the market.

Jun 16, 2023

To the DeFi Community,

This week, leading stablecoin Tether (USDT) deviated minorly from its peg this week, also causing a heavy imbalance to Curve’s 3Pool – indicating a sudden exodus from the token.

The move came as Tether attempted to front-run news from CoinDesk, who allegedly obtained the company’s quarterly financial reports from the New York Attorney General’s office.

According to Bloomberg, the documents confirm that the company once held securities issued by Chinese companies as part of its reserves – information that was widely speculated at the time.

USDT is still trading slightly off-peg at around $0.998 at the time of writing.

https://twitter.com/paoloardoino/status/1669686254542155777

Uniswap Labs CEO Hayden Adams has outlined the vision for Uniswap V4, the next version of the Uniswap protocol.

The draft code for V4 has been released and will be evaluated over the coming months, with new version offering greater customization through the use of "hooks" – plugins that allow developers to build pools with their own rules and functionality.

V4 also introduces a more efficient architecture that reduces the cost of creating pools by 99% and eliminates the need to transfer tokens between different smart contracts.

Uniswap V4 will coexist alongside V3 on the Ethereum blockchain, and its development and governance will be led by the Uniswap community.

https://twitter.com/Uniswap/status/1668603580184502276

Frax Finance has revealed plans to launch its own Layer 2 blockchain, called Fraxchain.

The network will focus on decentralized finance and will utilize a Layer 2 rollup model, publishing state roots to the Ethereum mainnet for security. Transaction fees on Fraxchain will be paid using the Frax stablecoin and Frax Ether, a liquid staking derivative.

Fraxchain will also feature decentralized sequencers, which will be operated by entities chosen through governance voting, allowing for a more decentralized approach compared to other Layer 2 solutions.

The chain is expected to be operational by the end of the year and will be governed by holders of Frax Shares (FXS) tokens.

https://twitter.com/FlywheelDeFi/status/1669463865116209152

Curve Finance’s native CRV token has hit a one-year low, as reports arose regarding risky loans taken by founder Michael Egorov via the Aave protocol.

According to LookOnChain, Egorov deposited 431 million CRV worth almost $250M across multiple lending platforms, borrowing more than $100M in stablecoins against the collateral.

CRV faced a possible $107M liquidation on Aave if CRV fell below a price of $0.37 – prompting Ergov to return $1.35M in USDT to Aave to reduce his debt. His position accounts for 30% of the total CRV token supply.

A controversial proposal was made to the Aave community that all CRV tokens on Aave v2 should be frozen, and the LTV ratio for CRV be adjusted to zero.

https://twitter.com/gauntletnetwork/status/1669061394874920960

The SEC continues to be a thorn in crypto’s side this week, as the public comment period comes to a close on a recent proposal that may affect a majority of DeFi platforms.

The proposal of concern includes an adjustment to the definition of “exchanges”, which may match DeFi protocols – potentially resulting in a blanket-ban of most protocols.

In addition, the SEC also recently labelled most Layer-1 blockchain native tokens as securities, triggering a sell-off on those assets.

Fortunately, innovation in the industry is still humming along nicely, with a variety of interesting developments:

Uniswap has teased version 4 of its protocol, with significant additions to customizability and efficiency.
Frax has aanounced its own Layer-2 platform, optimized for DeFi performance.
Restaking protocol EigenLayer reaches its maximum limits on the same day as its deployment on Ethereum.
Layer-3 protocol Xai prepares to launch on Arbitrum, with a focus on gaming.
Aave’s decentralized social media protocol Lens releases a new governance framework.

While market prices are reaching tough pain points for holders, development is looking strong for DeFi – providing fascinating new features and opportunities for those of us who are still active.