CeFi Credit Crisis, RFQ Mechanism and Datacheck|DODO Megascope 11.14-11.20
0x7056
November 22nd, 2022

Contents include

  • Weekly Digest:

    • Headlines

    • DeFi

    • NFTFi

    • Other Opinions

    • DataCheck

  • Bullet News:

    • Infrastructure

    • Gamefi & NFT

    • VC

👀 Weekly Digest

Headlines

FTX event continues.

Close co-investors with Alameda include Coinbase Ventures, CMS Ventures, Jump Capital, Multicoin Capital, Animoca Ventures, Spartan Ventures, Pantera Capital and Polychain Ventures, many of which have reported losses on FTX.

In the short course of Crypto's development, FTX is not the first centralized exchange to be thunderous, and I believe it will not be the last. Why do users still choose to trust centralized exchanges after so many thunderstorms? This is really a matter of trust cost and optimism bias, and DeFi is the only solution to this problem.

Former Spartan Group partner Jason Choi accused the report of misrepresenting the facts, arguing that SBF was not as ignorant of many things as the report said, but a "highly gambling" person. Dozens of tweets reveal details of how FTX teamed up with Alameda for deceptive fundraising and excessive leverage.

The New York Times published an interview with SBF, which was also the first interview SBF accepted after the FTX crash. SBF said in the interview that he does agree with critics in the crypto community that he has expanded his business footprint too quickly across the industry, and that some of his other commitments have left him with no sign that FTX is already in trouble. The article also describes SBF's reclusive lifestyle and authoritarian style, hinting at the reasons for its failure.

DeFi

  • Do DEXs need market makers?

RFQ is especially suitable for large-value transactions, benefiting from its ability to effectively avoid MEV attacks. On the other hand, the study found that RFQ is more suitable for low-correlation trading pairs, such as WETH-USDC, WETH-USDT, WETH-DAI, WETH-WBTC, and performs poorly on high-correlation trading pairs and zero-correlation trading pairs .

At present, RFQ quotations are mostly used in DEXs with aggregation functions. For example, DODO, 1inch, Paraswap, etc. have all joined the RFQ quotation mechanism.

Usually RFQ is implemented as: every time a trader requests a quote, the market maker (MM) in the RFQ system executes the quote and simultaneously checks the aggregated on-chain DEX quotes. Combine quotations provided by MM, alone or in combination with other sources, to achieve the best quotation. This quote is the "final quote" to the trader, which means there is no price slippage and is MEV resistant. In fact, there may be times when AMM quotes are better than RFQ quotes, however, slippage can make the adjusted price of AMM trades worse.

This is why, after the launch of Uni V3, there have been many products that provide active liquidity management strategies. In fact, actively managing liquidity is only one of the options for improving the efficiency of DEX funds. 0x Protocol introduced the RFQ quotation system as early as August 2020, where market makers compete with on-chain liquidity to send users custom orders that only users can accept.

Some people say that DEX does not need market makers, because the purpose of decentralized exchanges is to enable everyone to become market makers and eliminate traditional market makers. However, the fact that most LP losses on Uniswap have made DeFi players realize that not everyone can do LP well, and the value of decentralized exchanges, compared to centralized exchanges, is mainly reflected in users In terms of control over funds, professional liquidity managers or market makers can bring a smoother trading experience to DEX.

NFTfi

  • BendDAO Liquidation Crisis

On November 15th, the transaction data of the NFT blue-chip project BAYC was very unusual. The floor price fell below 50 ETH, a 24-hour drop of 8.55%, and the transaction volume surged over 2,700 ETH.

Different from the BendDAO run event that occurred in August, this event was mainly caused by the price manipulation arbitrage by the big BAYC @Franklin. Franklin is a big BAYC holder. Before the 15th, he held 58 BAYC and was the seventh largest holder. The abundant NFT holdings gave him room to implement this strategy: first, he placed a large number of orders at a price near the floor price. BAYC and sold 4 NFTs at a low price. This sparked panic among other holders, resulting in lower-priced pending orders, further pushing down the floor price. When BendDAO's oracle fed the price, the low floor price triggered BendDAO's liquidation. At the same time, Franklin put 14 BAYC into BendDAO for mortgage loan, and then used the ETH obtained by lending and selling NFT for the NFT liquidation bidding on BendDAO. After a successful low-price bid, it was quickly sold on other platforms for a 20% premium.

The preconditions for this series of operations to be profitable are: 1. The FTX incident aroused market concerns about the assets of BAYC's parent company Yuga Labs, which led to a decrease in the floor price and caused market panic; 2. According to Franklin's expectations, the BAYC floor price will rebound quickly. Or there is a premium in other markets, otherwise its strategy of buying low and selling high will not work.

After the liquidity crisis in August, BendDAO lowered its liquidation line from 95% of the floor price to 80%, although its original intention was to improve the efficiency of the liquidation mechanism, encourage lenders to repay loans, and increase the flow of funds in the pool and ETH deposits. people's confidence. However, considering that the arbitrage costs include blue-chip NFT royalties and market transaction fees, the lowering of the liquidation line provides arbitrageurs with more arbitrage space, which also paved the way for this manipulation event. Whether the liquidation line is too high or too low will cause problems, which has to make people think about whether BendDAO’s floor price feeding mechanism is really a good solution.

Other Opinions

  • Most Layer1 consensus mechanisms are not suitable for Sequencer decentralization. At present, there are two ideas: 1) Find several nodes to take turns to be fast, jointly produce blocks and supervise each other, similar to Metis, but joining fast nodes requires application and official approval, similar to the alliance chain; 2) ETH Layer1 is researching memory The pool encryption technology encrypts all transactions, and the packaged nodes face encrypted data, but the specific implementation is currently inconclusive.

    https://twitter.com/Wuhuoqiu/status/1592748957285101568

DeFi revenue aggregator Yearn finance has launched yBribe, a new Curve protocol vote bribery platform. It is designed to provide a two-way trading platform for users who wish to buy/sell veCRV votes.

Datacheck

As the impact of FTX collapse continues, this week's #DataCheck focus on outflows from the CEXs, and also variation of on-chain TVL.

$ETH continuously outflows from CEXs. From nearly 24.56 million coins on Nov. 14 to 23.53 million, a one-week decrease of 1.03 million, representing a 4.2% loss.

As the chart shows, CEX stablecoins flows reversed from outflows to inflows on Nov.20. Between Nov.14 and Nov.19, the total amount of CEX stablecoins declined from $44.55 billion to $43.07 billion with an outflow of $1.48 billion, 3.3% loss. On Nov.20, it rose to $43.98 billion, adding $900 million in one day, finally decreasing by $570 million compared to the previous Monday.

Assets continued to flow out of the CEXs, but the on-chain TVL did not show a significant increase, but instead showing a obvious drop from Nov. 6, then TVL maintained stability after Nov. 10, with no change in the last week.

Take a look of on-chain TVL of L1/L2s. Solana is the most noteworthy. Its TVL is down 66% one month, fallen 97% from its peak of $10 billion a year ago to just under $300 million for now, and it ranks 11th among all public chain ecosystems.

On the contrary, value locked in DEXs and Lending have not changed significantly in the last week. Value locked in DEXs fell significantly on Nov. 7 and remained stable after Nov.11; Curve, which has the largest locked value, lost a third during this period. On the Lending side, AAVE experienced a drop from Nov.8, However, a small rise after Nov.10 and then remained stable.

About Liquidity Staking, the continued outflow of $ETH from CEXs has not resulted in a significant growth on it. Lido, which has the largest market share, has remained stable since Nov.11. Its APR reached 10% in the last week, showing a dramatic increase, but quickly returned to approximately 5%.

🚄 Bullet News

Infrastructure

  • Circle now allows partner businesses to accept Apple Pay as a payment method.

  • Solana developers are forking Serum to create a new protocol not controlled by FTX.

VC

  • Binance Labs announced a $4 million strategic investment in Web3 sports gaming platform Ultimate Champions.

  • Yakoa, an NFT fraud detection startup, raised $4.8 million in seed funding, with participation from Uniswap Labs.

GameFi & NFT

  • Sony filed a patent in 2021 for a system for tracking digital assets in video games using blockchain technology, mostly NFTs. Sony has also established a subsidiary in Singapore to engage in NFT-related contract development and consulting.

  • Nike launches Dot Swoosh, a Web3 ecosystem platform.


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