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Dear Crypto Natives,
Here’s what he did:
Borrowed $2.7m of ETH for 15 seconds from DyDx
Then used that ETH to simultaneously:
Short wBTC using 5x margin on Fulcrum
Profit on the short by manipulating the wBTC price
(Above: how a DeFi pirate made $350k by Kerman Kohli)
He lowered price by market selling wBTC on Uniswap—easy to do given wBTC’s low liquidity. All this was done in one transaction using these money legos:
ETH as a reserve asset
Compound as a collateral loan
wBTC as a low-liquidity asset
Uniswap and Kyber for liquidity and price manipulation
bZx on Fulcrum for shorting
A flash loan from DyDx to execute all this a few thousand dollars 🤯
In the aftermath there’s been upset on the degree of decentralization of DeFi—it was a surprise to some (not Bankless subscribers) that Fulcrum could take actions to pause its protocol and even use its admin access to liquidate the attacker and make Fulcrum users whole. Probably worth an article.
But let’s zoom out. Because you know what I saw this weekend?
DeFi leveling up.
We have to appreciate something first. The fact that it’s possible to do a transaction like this means DeFi has already won—it’s just a matter of time. I don’t say this lightly. People have no idea the power we’ve unlocked in permissionless money protocols. This power compounds every day and with every new money lego we make.
Second, did you feel the level-ups? We saw…
The strength of our immune system. Social media sprang into action & studied all facets of the transaction in 24 hrs—we learn 100x faster because it’s all open
That liquidity is security. Attacks are easy on low-liquidity assets like wBTC—having high economic bandwidth assets is vital to reduce risk
That a new money lego—like a flash loan—can impact the security assumptions of all other protocols—DeFi is an interconnected organism
We also learned more about the pros and cons of granting developer access to the pause, restart, and withdraw buttons of a protocol. Standard disclosures about access are the thing to focus on as we simultaneously work to design protocols w/o buttons.
Lop off the head of a hydra—what happens? It absorbs the attack and gets stronger. Every attack of this kind:
Makes the DeFi immune system stronger (+20 social)
Makes DeFi protocols better (+20 oracles, +30 protocols)
Strengthens the system (+70 DeFi)
To the critics: last weekend wasn’t DeFi failing. It was DeFi leveling up. This is exactly what we expect it to look like.
What happens when you attack DeFi?
Scan this section and dig into anything interesting
ETH rockets to $260 from $222 last Monday
BTC down to $9,628 from $9,850 last Monday
DAI stability fee steady at 8% with savings rate steady at 7.75%
(Insure) Your DAI on Compound using Opyn (See “What I’m doing” for details)
(Earn) 8% on USDC at crypto.com w/ a one month term (get $50 MCO w/ Visa card)
Swap out collateral in an ETH loan w/ BAT in one transaction (beware alpha!)
Etherscan now serves 5m monthly users
What valuation models have people tried on crypto? 🔥- CoinMetrics
WHAT I’M DOING
Check out a few opportunities I’m capturing right now with my crypto money
Make time to complete this assignment before next week
Extra Credit Learning
Read my takes but draw your own conclusions
Tweet me your question—I reply to one per week
Question from Twitter:
Any tips on where to start exploring ethereum defi?
Some recent tweets…
Execute any good market opportunities you saw
Complete weekly assignment: hide garbage tokens in Etherscan
Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.
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