The year gone by had many ups and even more downs, mainly due to the global outbreak of a devastating virus that has crippled nations and killed millions. But for those in the crypto and blockchain community, 2020 finally showcased the true potential of the technology.
There were, arguably, more developments last year that will have long-lasting positive effects on the industry than during the entire history of distributed ledger technology and Bitcoin (BTC). So, here are the top five developments of last year in the decentralized tech sector that will leave a lasting memory and a strong legacy for years to come.
BTC price breaks $20,000
Bitcoin price did a lot more than just break the $20,000 price mark that was originally set during the 2017–2018 bull run. First, the $20,000 mark fell. Soon after, so did $30,000. And now, even the $35,000 mark has been taken over.
Those seemingly wild predictions of a $45,000 Bitcoin price by the end of 2021 may not be so distant after all. What’s more is that the infamous stock-to-flow model developed by crypto trader PlanB, which predicts a $100,000 price for Bitcoin, is playing out as suggested.
So, yes, prices go up, but they can also go down. This has happened before and may happen again, right? In theory, however, many things have changed, not least the general perception of Bitcoin. This has been evidenced by the shift in demand from retail investors to institutional ones.
Bitcoin welcomed numerous high-profile companies that joined the industry for their own various needs, from firms choosing to hold BTC as a reserve, like Microstrategy, to the rise of crypto investment funds like Bitwise and Grayscale — and who knows which individuals are investing through those. All that is known is that they are willing to put billions into crypto. And then in late October, the real big news arrived…
PayPal launches crypto option
PayPal, a company that was originally founded with similar fundamental beliefs to Bitcoin itself, not only announced its foray into but actually entered the crypto space in 2020, at least in the United States. Additionally, it has been reported that PayPal is now one of the biggest buyers of Bitcoin as the company builds up reserves to satisfy customer demand.
The single word that sums up this development is “adoption.” Some 28 million merchants and over 361 million users all around the world will now be exposed to the “baby” version of owning and using crypto. According to the company, it is the custodian and is essentially just selling shares in its BTC holding. In doing so, it’s not following the traditional way of how people own crypto, and that’s fine.
To the average user, crypto is way too difficult to comprehend — all the cold and hot wallets, the passcodes, the 12-word recovery phrases, etc. PayPal is offering an easy-to-use way to get into the ecosystem, and once that happens, some may actually go the full way to discover more about how this technology should be utilized.
The Bitcoin halving was touted to be the big make-or-break moment for the crypto industry. It took place, yet not much actually happened. Various commentators expected BTC’s price to pump then crash, while others foresaw a drop-off in the network hash rate. Although those things did happen to a certain extent, it was nowhere near as dramatic as expected, and that was a very good thing.
The Bitcoin mining reward halving is an event that happens roughly every four years and cuts in half the amount of BTC that miners earn for discovering a block. This is a hard rule coded into the blockchain that limits the supply to just 21 million BTC and, in doing so, mimics gold’s finite supply.
Ultimately, the fact that Bitcoin’s price and fundamentals remained almost unaffected has led some to believe that the industry has reached a certain level of maturity. Perhaps this resilience was what ultimately led some of the biggest corporations, economists and investors to reconsider their stance on cryptocurrencies in general. The fact that the supply of Bitcoin is running out became even more apparent as the year went on.
It’s now in fashion for companies to go public, so it’s great to see that some crypto-native companies such as Coinbase are also joining in on the fun. It was half expected that such a move would come soon due to the overall regulation-open approach employed by the company, which was clearly set to appease U.S. regulators when the time was right.
What the move means, in essence, is that traditional investors will be able to sink millions into Coinbase equity — as much as $28 billion, in fact, according to Messari. The draft of the listing was also carefully timed with the jump in the price of top cryptocurrencies, and this will hopefully play into the exchange’s hands as it will no doubt face intense scrutiny from the Securities and Exchange Commission.
Ultimately, Coinbase can shine light into a dark alleyway leading up to mass adoption by investors and users alike. Other so-called “unicorns” may follow its example in 2021, so in a way, Coinbase is sticking its neck out. But it may pay off if they are granted the initial public offering and become the first truly major crypto company to do so.
Ethereum and DeFi
Bitcoin has investors, and Ethereum has its users, and the latter certainly stepped up in 2020 to make the decentralized finance boom a reality, finding use cases for all those decentralized applications that had been touted to change the game for some time.
All was calm before the month of July when it was announced that a highly anticipated project by the name of Compound launched its own token, COMP. It proved to be an instant hit, securing numerous listings on high-profile exchanges and establishing a new trend in DeFi.
The basic methodology behind Compound is simple: The platform acts as a decentralized lending protocol that pays interest to users that add their crypto to the pool. However, once funds are added to the pool, the platform issues an equivalent amount of cTokens that can be used as collateral on a loan, meaning that one token of any kind can be used twice.
As COMP’s price started to pump, it wasn’t long before other projects caught on to this new trend and began to unveil competing protocols or projects that supported the ecosystem. Just over one month later, Yearn.finance was launched and took the yield farming phenomenon to a whole new level.
Then came the decentralized exchange Uniswap, which also joined in on the action by opening up its own pools, and with its open listing policy, countless DeFi projects flocked in to list their tokens on the exchange. However, it also made an impact through its use of automated market makers, an idea developed in 2017 by Bancor. 2020 was really the year that AMAs took off through driving users to make transactions in tokens that are built upon the Ethereum blockchain. This ultimately brought thousands of active users onto the Ethereum network.
What’s more is that the Ethereum 2.0 upgrade was finally initiated after several lengthy delays. The combination of Eth2, the recently renewed interest in altcoins and the DeFi boom has certainly brought back interest in Ethereum and the Ether (ETH) token itself, propelling it to well over $1,200, a level not seen in almost two years, and close to its all-time high of around $1,450. Now, just seven days into the new year, some are certain that $2,000 will be coming fairly soon.
Puff, puff, pump on 4/20! April 16-21st
Loyal Finance Redefined readers:
Hi, I’m Andrew. My inestimable colleague Andrey, the previous compiler of this newsletter, is stepping away from Cointelegraph in order to build [REDACTED], leaving me to take over lettering the news. While I’m thrilled he’ll be keeping around the DeFi ecosystem, I’m also infuriated that there’ll be yet another gigabrain trading against me.
Also: journalists quitting their jobs to do DeFi stuff. Talk about top signals. While DeFi tokens and ETH prices in particular have largely rebounded from dispepsia-inducing lows, I remain antsy.
Nonetheless, the highlights of the week:
4/20 Haze It
In the 4/21 hangover today, a new crop of crypto investors are discovering some cruel market realities. Hopefully, they’ll learn to laugh about them.
Yesterday, the Dogecoin community cashed in on some of their growing (if likely destined to be short-lived) cultural capital, attempting a hostile “unofficial holiday” takeover of 4/20 — a social media push to snatch the date away from stoners and rebrand it as “Doge Day.”
To some degree, it worked: Elon Musk, the meme superstar who happens to run a few tech companies, ratioed some disbelieving Boomers, and noted celebrity sex tape participant Dave Portnoy himself bought a bag that prompty tanked in price. DeFi-ers shouldn’t care too much about the meme currency aside from its utility in predicting wider altcoin runs, but Dogecoin day did feature a few other pump-and-dump absurdities.
— Dave Portnoy (@stoolpresidente) April 20, 2021
Self-styled DeFi tokens like $SAFEMOON and $SHIB hit the zenith of multiweek pumps on 4/20, along with projects like $ASS following suit. The moonshots led to some remarkable on-chain stories of guppies growing into whales essentially overnight on paltry initial investments:
so this guy bought $shib for +/- 10eth 180 days ago
guess how much it’s worth rn?
4 fucking millionhttps://t.co/aCzfDrORDV
— UniHax0r ~ (@UniHax0r4000) February 1, 2021
Then, as it always does, the other shoe dropped. At the time of writing, $SAFEMOON is down a whopping 41.95% on the day, $SHIB in the red 38.48%, and $ASS looks like ass.
— ⓗathor.chuck (@BloodyChuck) April 21, 2021
These pump-and-dumps stand out for two reasons: how little effort went into them, and how much interest they managed to attract anyway. SAFEMOON features a token burn and redistribution on every sale; classic pumpanomics with little by way of novelty. SHIB’s utility is still in the formation stages, with a DEX and an “artist incubator” in the works (though they are donating… something? Somehow? To animal rescue organizations), and features a companion coin, LEASH, a synthetic rebasing DOGE that no one needs or asked for. I don’t know what ASS does and refuse to find out.
SAFEMOON in particular bears superficial similarities to the Bill Drummond money experiments like $XAMP and bonding curve ponzis like $TRIB that dominated late last year. I remember those for being fun; everyone knew that it was musical chairs that you played with real money, but dived into games with the zeal of kindergarteners anyway (XAMP’s case, the project emerged from a pseudonymous dev whose namesake is famous for literally burning piles of money — no one was trying to fool anyone else). It was a string of absurd schticks acted out in what often feels like a fundamentally absurd space.
Safemoon, by contrast, has a slick marketing campaign underway that likely includes considerable PR heft (a journalist can spot organic narratives; Google Safemoon’s news coverage and tell me what you see). Likewise, the sums of money made and lost in the bygone era of Drummond all of six months ago are anodyne compared to the sea of cash that lifted these shittokens on 4/20. It’s still fun and games — all a big joke, really — but the investors don’t seem to totally understand that.
At my most idealistic, I believe mass adoption of DeFi could be as beneficial to the advancement of the human species as mass literacy; on days like 4/20, however, I think it’s an unusually efficient mechanism for parting fools of their money.
Scams Pump The Hardest Lesson 1:
Scams will pump so high you will question your reality and wonder whether it is actually a scam.
– Fontase, 2013
Scams Pump The Hardest Lesson 2:
– Newton, 1687
— ∞ CO฿IE (@CryptoCobain) April 20, 2021
From chapter 49 of Moby-Dick, “The Hyena”:
“There are certain queer times and occasions in this strange mixed affair we call life when a man takes this whole universe for a vast practical joke […] And as for small difficulties and worryings, prospects of sudden disaster, peril of life and limb; all these, and death itself, seem to him only sly, good-natured hits, and jolly punches in the side bestowed by the unseen and unaccountable old joker.”
I have endured pump-and-dumps. I have learned that, like Ishmael’s god, the market often acts as predator cackling as it tenderizes your ribs. The best — and maybe only — way to stick around is to cackle right back, smile at the sea of red in your portfolio, and carry on.
I’d like to welcome the new crop of investors who have taken (or are still taking, as SAFEMOON rebounds-and-dumps) their first ride on the euthanasia rollercoaster. To you, my stimulus check-investing, Tik-Tokking friends! You’ve been hazed, you got through it, and I hope you hang in there. Avoid rebase games and remember that boring old 10% APY stablecoin farming is always an option.
DeFi is better when you can laugh about it.
What’s going on with Aave?
Perhaps the biggest story of the week somehow went largely unnoticed: money market and lending giant Aave is considering a move into social media.
The bizarre shift was first teased by Aave’s official Twitter account on Saturday:
What if there was a social media protocol built on top of a DeFi Protocol..?
— Aave (@AaveAave) April 17, 2021
I followed up immediately with Aave co-founder Stani Kulechov to confirm that the Tweet wasn’t the work of a ponderous intern celebrating 4/20 early. He gave me a short statement, one whose visionary heft raised more questions than it answered:
“At Aave we believe in a thesis that eventually interactions in web3 realm will become finance, whether its likes, sharing pictures or moments, everything will become user-owned value that can be empowered with Aave Protocol.”
I’m reminded of that tortured plotline in The Office where Dunder-Mifflin’s paper company sales website introduces social media features. How would it work, what synergy if at all does it have with decentralized lending, and, really, why?
Aave’s head of integrations, Bily Zeller, gave some additional background, implying that there would be a pay-per-post model in which interest on deposits could be used to post:
What if the cost of that tx represent a few seconds of interest on a double digits deposit?
— Marc ‘七 Billy’ Zeller (@lemiscate) April 17, 2021
This doesn’t necessarily translate to the “posts-as-value” model that Stani laid out, however. At the moment, I’m skeptical: if Stani ever responds to my DMs I’ll be interviewing him to get more background. I look forward to being convinced.
Pivots to entirely new industries aside, the protocol is firing on all cylinders.
Yesterday, Stani teased an image of the money market with bolstered yields from Aave token distributions, part of testing for a liquidity mining program currently live on the Kovan testnet:
— stani.eth =(⬤_⬤)= (@StaniKulechov) April 20, 2021
Aave is already a core layer in many retail and protocol-level farming strategies; adding AAVE token rewards for lending and borrowing would supercharge TVL metrics. I’m somewhat concerned for token price (look at what governance token rewards did to CRV last year), but suspect the program could bolster the ecosystem considerably.
Bright, if sometimes puzzling days ahead for the protocol.
Other big headlines:
Pancakeswap on the rise
Uniswap v3 hits testnets
CRV’s rise could mean bumper crops for yield farmers
Why one trader says ETH/BTC looks ‘absolutely insane’
Ether (ETH) price is seeing green in its Bitcoin (BTC) pair on April 21, reaching the highest levels since early February. Given the technical breakout of ETH/BTC, traders are beginning to expect a strong rally in the foreseeable future.
During the first two weeks of April, ETH was outperformed by Binance Coin (BNB), the native token of Binance Smart Chain.
The high transaction fees on Ethereum coupled with the high user activity on Binance Smart Chain led BNB to gain momentum against Ether.
However, in the past few days, ETH price has started to rally against both Bitcoin and BNB, the first and third largest cryptocurrencies in the global market, respectively.
Why is ETH rallying against Bitcoin?
In the past 24 hours, led by Ether, the altcoin market gained against Bitcoin, causing the Bitcoin Dominance Index to fall to 50.7% on CoinMarketCap, the lowest level since summer 2018.
One main reason why the altcoin market is rallying is because altcoins generally saw sharper drops than BTC following the Coinbase listing.
Hence, when Bitcoin began to consolidate and stabilize, altcoins started to see a relief rally, led by Ethereum and BNB’s momentum.
After the futures market recovered, following over $10 billion worth of liquidations on a single day, the appetite for risk-on assets within crypto also likely rose.
This drove the demand for Ethereum, BNB, Dogecoin (DOGE), and many other cryptocurrencies with relatively high volume and valuation.
In the near term, traders say that the breakout of the ETH/BTC pair could lead to a broader parabolic rally, particularly for altcoins.
A pseudonymous trader known as “Crypto Capo” expressed optimism towards ETH’s breakout against BTC. He said:
“$ETH/BTC is going to redefine the concept of parabolic.”
Similarly, a cryptocurrency derivatives trader NekoZ said that ETH is showing strong momentum, which would likely spill over to altcoins.
The trader noted:
“Love the reaction we are having so far. Should carry nicely into the week and build momentum around alts.”
Another respected cryptocurrency derivatives trader known as “Bluntz” said that ETH/BTC looks “insane” after a massive capitulation event.
A capitulation event refers to a scenario when an asset’s price bottoms out after a sharp drop.
Bluntz emphasized that ETH is demonstrating a double bottom chart, which in technical analysis often points toward a short-term trend reversal.
“ETH double bottom on 4h, and ETH/BTC looks absolutely insane again. Wow that was the greatest capitulation event I can remember for a long time. Even i capitulated most of my lev trades.”
On-chain data is also bullish
According to the data from CryptoQuant, the amount of ETH being staked in the Ethereum 2.0 deposit contract is rising.
This decreases the circulating supply of ETH on exchanges, which should put upward pressure on the price of ETH.
The increase in fees, which is verifiable through on-chain data, also indicates that activity continues to rise on Ethereum despite the already high fees.
Aftab Hossain, an Ethereum and investor, said:
“Ethereum / DeFi has focused heavily on infrastructure, which BSC was able to copy and centralize to make it faster with an incentive to focus on integrated UX i think cheaper L2 tx’s will enable for greater scaling and will allow for critical smart contract wallet innovation.”
Binance Smart Chain and other layer ones have been performing strongly against Ethereum, but the release of Eth2 and layer two solutions could make Ethereum more compelling for casual users in the months to come.
Simple steps to safeguard your wallet from unlimited ERC-20 allowance risks
Participating in the decentralized finance space often necessitates the need to grant projects certain permissions to spend tokens from one’s own wallet.
These permissions — called ERC-20 allowances — help to simplify the smart contract interaction processes that allow users to send funds to a contract while simultaneously calling a state change function.
However, malicious actors can utilize this allowance to drain funds from an unsuspecting trader. To understand this risk vector, it is perhaps important to explain how ERC-20 allowance permission works.
Upon first interacting with a new DeFi project, traders need to allow the decentralized application the access to spend funds — usually Ether (ETH) or a stablecoin like Tether (USDT) — from their wallets.
This allowance is often unlimited to eliminate the need for future approval steps by the trader when executing subsequent transactions. Under normal operating conditions, the DeFi project will only spend the specified amount set by the trader.
However, abnormal operating conditions can emerge as has been seen on numerous occasions in the DeFi space. Smart contract bugs like the kind suffered by Bancor back in June 2020 can expose this vulnerability and drain funds from user wallets.
During the 2020 DeFi mania, rogue actors also exploited this vulnerability to steal funds from unsuspecting traders. One such example was the UniCats where the project developers themselves stole Uniswap (UNI) tokens from their users.
One useful practice traders can adopt is to review their existing allowances on their wallets. Platforms like revoke.cash and approved.zone can be used to identify ERC allowances associated with an address as well as options to revoke or lower such allowances.
Another method that can be used is during the initial first interaction stage where instead of unlimited, traders can select custom spend limits on their MetaMask wallets when approving spend limits for new tokens.
With ERC-20 the de facto standard for the DeFi space, users will still have to contend with the unlimited allowance risk. However, traders can adopt these useful practices to minimize the dangers associated with this potential vulnerability.
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