DODO #Megascope brings you this week’s Highlights:

1. The collapse of SVB brought impact and insight to DeFi

2. Gearbox V3

3. The impact of the attack on Euler Finance

4. Data Check: USDC depeg

👀 Weekly Digest

DeFi

The Impact and Insight of SVB Collapse on DeFi

Impact

From March 10th to 13th, SVB suffered a bank run and collapsed, and the Federal Reserve rescued the market in an emergency. In just a few days, the market sentiment changed drastically. This event has a far-reaching impact on the Crypto market, especially DeFi. Since USDC is widely used in DeFi, such as mortgage, pricing, liquidity provision, etc., the short-term depeg of USDC has caused the entire DeFi to encounter a liquidity crisis and quotation failure.

• Liquidity crisis. In the process of USDC depeg, a large amount of USDC was exchanged into other stablecoins on chain, and at the same time, a large number of LPs withdrew USDC assets, including USDC in the lending pool, USDC in the DEX pool, etc. There are a large number of USDC sell orders in the market, and everyone is eager to sell USDC at a discount, causing USDC to drop sharply in a short period of time.

• Quotation was out of order. Due to fluctuations in the price of USDC, various trading pairs with USDC on the chain, and products used as collateral began to have large price deviations. For example, the PSM pool of Maker DAO was used as a source of arbitrage due to design problems. Afterwards, Maker DAO reacted modifying the parameters immediately.

• Increased arbitrage activity. Due to the significant deviation of the price on the chain, there are huge arbitrage opportunities among the various pools, and the arbitrage activities on the chain began to increase, which made everyone start to compete for arbitrage opportunities, and the gas fee on the chain soared, further increasing everyone's ability to operate on the chain cost.

• Panic operation. The depeg of USDC made many people eager to sell USDC on the chain, and users made mistakes in panic and suffered heavy losses. Among them, the largest amount is that a Curve LP directly exchanged LP tokens and suffered a loss of more than 2 million US dollars.

• Hedge. Out of concerns about the depeg of USDC, more users choose to switch to BTC and ETH to avoid risks. Instead, BTC and ETH have become the safe-haven to absorb liquidity, while alt coins continue to flow out.

Insight

The Fed's emergency bailout has restored market confidence and lifted the liquidity crisis. Otherwise, no one can predict where the market will go under the spread of fear. This incident has brought very important lessons and revelations to DeFi.

• Excessive reliance on centralized stablecoins. DeFi relies too much on centralized stablecoins, which leads to the risk of external financial markets being introduced into DeFi. The SVB bankruptcy has nothing to do with the design of DeFi products. Just because Circle's deposits are placed in SVB, the DeFi market suffers impairment and liquidity issues. The introduction of external risks will affect the stability of the entire system.

• The market calls for a decentralized pricing solution. DeFi needs a more decentralized stablecoin solution. In the context of the current inability to get rid of the US dollar as a pricing unit, decentralized stablecoins are even more needed. And the market will only realize the need for decentralization when there is a problem with the centralized entity, just as the FTX crash made people aware of the huge risks of centralized exchanges.

• DeFi protocols should consider the risk of depeg of centralized stablecoins in advance. At the beginning of design, many DeFi protocols did not take into account the problem of USDC's major depeg. This caused the price in the agreement to remain unchanged when the USDC is depegged, attracting arbitrageurs and causing LPs to suffer relatively heavy losses.

Gearbox V3

Gearbox Protocol disclosed the upgrade direction of V3. Gearbox Protocol is a lending protocol that allows users to deposit assets or passively borrow income while providing users with a leverage tool. Gearbox Protocol aims to be a composable and modular leverage tool. Gearbox V3 upgrade summary:

• Alpha Pool

  • Gearbox's Main Bluechip Pool supports users to deposit assets, supports credit users to borrow these assets, and earns income in protocols with low risk such as Lido and Curve;

  • Alpha Pool will be connected to more new high-yield protocols to provide users with channels to earn extra reward. Of course, users will take higher risks at the same time. Gearbox will manage which protocols are accessed by managing an allow list;

  • The dToken of the Main Bluechip Pool can be directly deposited into the Alpha Pool, which means that users can choose whether to take greater risks to earn extra income while enjoying the benefits of the Bluechip Pool.

• Quota

  • Each asset in the allow list can set a quota, and users can specify the limit when depositing assets to control their own risk exposure, thereby reducing risks.

• Interest for Quota

  • Borrowers will pay additional interest on their borrowed quota, which is part of Alpha Pool's additional income.

• Minimum Viable Tokenomics

  • To control the distribution of profits through the game theory. GEAR holders can vote to determine the distribution of profits, once a week.

  • Holders can vote on max interest rate.

The attack on Euler Finance

Euler Finance was attacked and lost $197 million (source). Euler Finance stated that the vulnerability allowed attackers to create unsecured token debt positions by depositing funds into the protocol's reserve fund. The vulnerability remained on-chain for eight months. Many projects have established positions in Euler Finance, and this incident has had a wide-ranging impact. According to Cointelegraph, Euler Fniance has affected at least 11 projects.

• The Balancer bbeUSD pool was affected and approximately $11.7 million was sent to Euler.

• Angle Protocol suffered a $17 million loss, which could lead to insufficient reserves of the euro stablecoin agEUR. The minting and redemption of agEUR has been suspended.

• Idle Finance lost approximately $5.9 million, and the protocol has suspended all Euler-related pools.

• Yearn Finance stated that it has no direct risk exposure to Euler, and indirectly exposed risks through Angle and Idle, with a loss of about 1.38 million US dollars. The team stated that if Angle and Idle cannot compensate for this part of the loss, Yearn Treasury will bear the compensation.

• The liquidity of the Yiled Protocol is built on Euler, and the main network application has been suspended. The team said that the loss was less than 1.5 million US dollars.

• Inverse Finance lost more than 860,000 US dollars, and DOLA was temporarily depegged.

• The above are protocols with heavy losses, and other protocols have been more or less affected. Please pay attention to the social media of each agreement to follow up and understand the specific losses of each protocol.

Datacheck

With the collapse of SVB, the Crypto world experienced a turmoil over the weekend. The price of USDC was once around $0.87. Today’s #Datacheck take a look at the important aspects of this event.

1/ Price of Top6 Stablecoins

• USDC, DAI, FRAX dropped from $1 to below $0.9 on March 11th

• Price of USDC, DAI, FRAX gradually recover to around $0.99 on March 13th

• USDT has a slight value premium in the latest 3 days

• BUSD and TUSD fluctuated slightly around one dollar

2/ Trading Volume of DEXes on Ethereum

• Daily trading volume reached $19.4 billion on March 13, and Uniswap occupies $11.8 billion, experienced its ATH trading volume in history. Curve followed and had about $6.7 billion in volume.

3/ Trading Volume of Stablecoins on Ethereum

• Swaps between USDT-USDC reached a total trading volume of $6.9 billion and USDT-DAI had a trading volume of $1 billion on March 11th;

• 36% of the total trading volume is USDT - USDC, and 5.4% is USDT-DAI;

• Mainly transactions included changing DAI and USDC for USDT, and purchasing USDC and DAI at the relatively low price by the arbitrageurs.

4/ Volume between USDC/DAI and ETH/WBTC on Ethereum

• Trading volume of USDT-ETH reached $4.3 billion on March 11, which is about 62% of the USDT-USDC trading volume;

• Volume of USDC- WBTC or DAI - WBTC on Ethereum is quite low, which indicates that the mainly swaps of selling USDT for BTC are in centralized exchange platforms.

5/ Liquidity in 3Pool

• The percentage of USDT in 3pool of Curve dropped gradually from March 10, only 1.5% was left on March 11th;

• TVL of 3pool decreased by about 150 million on March 11;

• Most of USDT was withdrew or swapped to other coins, the total amount dropped from 180 million to only 10 million.

6/ Amount of USDC held by Smart Money Wallets

• Amount of USDC held by Smart Money wallets dropped from $660 million earlier this month to $490 million dollars on March 13th, decreased by 15%.

• Total amount of USDC held has not risen in recent days, which means Smart Money is not buying USDC, repeg may be retail-driven.

🚄 Bullet News

Infrastructure

• Aztec Network announced the shutdown of Aztec Connect and will disable deposits to the Aztec Connect contract from zk.money and other frontends. Users will continue to be able to withdraw funds for free for one year. Its sequencer will gradually reduce the frequency of fetching roll-up blocks and will end on March 21, 2024, at which time the sequencer will no longer be running. Aztec is now open source.

Market

• According to The Block, DeFiance Capital completed an eight-figure US dollar fundraising and will start investing this month.