LD Track Weekly Report [2023/07/31]

【Summary】

Lending: EraLend suffers from a hacker attack, causing significant liquidity flight; Maker DSR interest rate may increase to 8%.

LSD: Last week, the ETH staking rate rose to 20.87%, up 1.70% week-on-week. 25.09 million ETH were locked in the beacon chain, corresponding to a staking rate of 20.87%, a consecutive four-week increase; with 698,600 active validation nodes, up 2.14%, and 81,200 nodes in the validation queue, down 1.64%.

Ethereum L2: Layer2 TVL total surpasses $10 billion once again. Driven by worldcoin, Op Mainnet’s TVL increased sharply by 28.15%. Yesterday, a large influx of funds flowed into Base, with a single-day inflow of $58.557 million.

DEX: Dex combined TVL is $13.15 billion, down 1.6 billion from last week. Dex 24-hour trading volume is $2.26 billion, 7-day trading volume is $11.15 billion, down 8.1 billion from last week. Multiple old versions of Curve’s underlying Vyper compiler experienced recursive lock faults, versions 0.2.15, 0.2.16, and 0.3.0 have not been fixed. Theoretically, any protocol using these Vyper versions could be attacked. Affected protocols include Curve’s alETH/msETH/pETH pools and CRV ETH pool, among others, including deBridge, Ellipsis pools, resulting in a cumulative loss of $52 million, including $21 million in ETH, $26 million in WETH, $5.3 million in CRV, and $70,000 in WBNB.

Derivatives DEX: Last week (July 24 to July 30), the overall trading volume of derivatives DEX continued to decline. The weekly trading volume of 9 major derivatives DEX protocols was approximately $7.4 billion, down about 2% from the previous week’s $7.6 billion. The shrinkage in trading volume is substantial, nearing levels seen at the end of May and early June 2023, as well as the end of December 2022, occupying a relatively low position.

【Lending】

EraLend: Native lending protocol Eralend on zkSync Era suffered a hacker attack on July 25, losing $2.76 million from the USDC pool through price manipulation via the oracle. After the incident, TVL dropped from $18.51 million to $5.5 million in a single day, a decrease of over 70%. Liquidity continued to withdraw thereafter, leaving only $2.83 million currently locked in the protocol.

To limit further impact, EraLend has temporarily halted borrowing, USDC supply, and SyncSwap LP supply, and significantly reduced the USDC pool’s interest rate to protect the affected borrowing positions from potential liquidation during this period.

MakerDAO

On July 28, the Maker community approved a proposal introducing an Enhanced DSR (EDSR), which adjusts the DSR deposit rate based on DSR utilization. EDSR is a one-way temporary mechanism, initially set to the maximum and decreases with rising DSR utilization. However, once utilization drops, the DSR will not increase again.

According to the utilization standard above, the total DAI supply within DSR is 358 million, around 8% of the total issuance (4.29 billion), so the DSR interest rate may increase to 8%.

Maker’s purpose is to stimulate Dai adoption by directly increasing deposit interest, stabilizing the continually declining Dai size. In the long run, it helps the growth of Dai demand. However, the greatest challenge is the direct increase in Maker protocol’s expenditure, requiring subsidy from protocol revenue for this interest part, resulting in about 10 million extra costs annually.

Alchemix

Due to the Curve Vyper compiler vulnerability, Alchemix was informed that its alETH/ETH pool might be attacked. Alchemix acted swiftly, removing AMO-controlled liquidity from the Curve pool via the AMO contract. Removing liquidity required three actions: 1. Unstaking LP tokens from Convex; 2. Extracting alETH from the Curve pool; 3. Extracting ETH from the Curve pool. The first two actions were executed, unstaking LP tokens from Convex and removing 8,000 alETH from the Curve pool. However, there’s still about 5,000 ETH liquidity in the Curve pool controlled by AMO. During the process of removing the remaining liquidity, the alETH/ETH Curve pool was attacked by an assailant. Currently, the alETH reserves have lost about 5,000 ETH. Nevertheless, the funds in the Alchemix vault are secure, and all Alchemix contracts are unaffected.

【LSD】

Last week, the ETH staking rate rose to 20.87%, a week-on-week increase of 1.70%. 25.09 million ETH were locked in the beacon chain, corresponding to a staking rate of 20.87%, growing 1.70% week-on-week, and marking a consecutive four-week increase; with 698,600 active validation nodes, up 2.14%, and 81,200 nodes in the validation queue, down 1.64%.

The total staking volume increased for four consecutive weeks.

ETH staking yield rate is 4.27%

Among the three major LSD protocols, LDO fell by 6.1%, RPL by 4.8%, and FXS by 0.1% in terms of price performance over the week. From the perspective of ETH collateral, Lido increased by 1.60%, Rocket Pool by 0.18%, and Frax by 0.97% in a week. Last week, LDO’s early investor KR1 continued to sell 500,000 LDOs. After Nexus’s large deposit, RPL saw a large-scale unlocking of 6,720 ETH, leaving a balance of 2,750 ETH in the Rocket Pool deposit pool. The Mini Pool queue has been cleared, and the RPL collateral rate is 47.34%. FXS expects to release FRAX V3 within a month. Meanwhile, founder Sam mentioned in an interview with Ouroboros Capital that Frax is entering the RWA field and will soon announce business progress. In addition, SSV will hold its second mainnet conference call at 1 PM UTC on August 1, entering the Limited Launch stage and introducing partner operators.

【Ethereum L2】

TVL

The total Layer2 TVL increased by $600 million compared to last week, with a total locked value of $10.55 billion, breaking $10 billion again.

Op Mainnet’s TVL surged by $480 million, up 28.15%, driven by worldcoin. The newly launched layer2 base, mantle, linea pose a challenge to zksync and starknet. The TVL of Zksync era has been declining for a month in a row. Starknet’s TVL ended its continuous upward trend and reached a turning point, falling by 22% last week.

The newly emerged layer2 TVL is growing rapidly

Base mainnet is expected to be officially released in early August. Even though the mainnet has not officially been released to users, a large amount of funds has already poured into Base (currently cross-chain funds can only enter, not exit). On July 30th, Base’s single-day inflow was $58.557 million. The meme $BALD on Base caused a stir with its daily increase of a thousand times.

On-chain activity

【DEX】

Dex combined TVL stands at 13.15 billion, down 1.6 billion from last week. The 24-hour Dex trading volume is 2.26 billion, and the 7-day trading volume is 11.15 billion, down 8.1 billion from last week.

Multiple older versions of Curve’s underlying Vyper compiler experienced recursive lock faults, with versions 0.2.15, 0.2.16, and 0.3.0 still unresolved. In theory, any protocol using these Vyper versions could be attacked. The affected protocols include Curve’s alETH/msETH/pETH pools and the CRV ETH pool, among others. Other pools, including deBridge and Ellipsis, have collectively lost $52 million, including $21 million in ETH, $26 million in WETH, $5.3 million in CRV, and $70,000 in WBNB.

Since the incident, Curve’s TVL has decreased by 1.5 billion, a decrease of 44%. Due to Curve Founder Michael pledging a large number of CRVs to borrow stablecoins, the main four were: borrowing $65 million on Aave with a liquidation price of $0.37; borrowing 21 million FRAX on FRAXlend with a liquidation price of $0.4; borrowing $18 million on Abracadabra with a liquidation price of $0.39; borrowing $7 million on Inverse with a liquidation price of $0.4. The market may see another battle between bulls and bears. As an important infrastructure for stablecoins, RWA, LSDfi, and other sectors, Curve’s major attack event poses a significant challenge and test to DeFi.

Ethereum

ETH L2/sidechain

Driven by Base, OP has risen, leading to a dual increase in Velo’s volume/TVL.

BTC L2/sidechain

Alt L1

【Derivatives DEX】

Last week (from July 24th to July 30th), the overall trading volume of derivatives DEX continued to decline. The weekly trading volume for the nine major derivatives DEX protocols was approximately $7.4 billion, compared to $7.6 billion in the previous week, a drop of about 2%. The shrinkage in trading volume is quite significant and has reached levels close to those seen at the end of May and early June 2023, as well as at the end of December 2022, positioning it at a relatively low point.

GMX’s trading volume decline was the most severe, showing similar performance during the drop at the end of May and beginning of June 2023. SNX’s 7-day trading volume was $1.7 billion, while GMX’s was only $330 million. This has resulted in SNX protocol’s revenue surpassing GMX. Contract trading on SNX (through front-ends like Kwenta, etc.) includes OP tokens as incentives. Recently, OP has been strong, garnering a significant amount of trading volume. The incentive is set to end on August 30th, and it is not yet clear whether the incentive will continue.

Besides SNX, GMX also faces challenges from second and third-tier perpetual contract projects. Trading on these second and third-tier perpetual contract platforms often includes not only transaction fee rewards but also token incentives, offering higher returns.

In terms of TVL, the overall TVL in the derivatives DEX track is also declining, with funds in a slow outflow state over the past 7 days.

LD Capital is a leading crypto fund who is active in primary and secondary markets, whose sub-funds include dedicated eco fund, FoF, hedge fund and Meta Fund.

LD Capital has a professional global team with deep industrial resources, and focus on develivering superior post-investment services to enhance project value growth, and specializes in long-term value and ecosystem investment.

LD Capital has successively discovered and invested more than 300 companies in Infra/Protocol/Dapp/Privacy/Metaverse/Layer2/DeFi/DAO/GameFi fields since 2016.

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