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The DEX Brief No. 11

A breakdown of the recent Nomad attack, the future of crypto funding, and other ongoing developments within the DeFi space.

Written by

Mark Lurie

Published on

August 4, 2022

Top of mind at Shipyard:

The latest news in crypto is the Nomad bridge hack. It’s especially bad, not just because of the funds lost but because of the existential question it raises for bridging, and a multichain world.

Prior to Nomad, nearly all of the bridges that have been hacked used a trusted security model, where funds were essentially secured by a multisig, and users rely on the reputation of the bridge operator to ensure the security of funds. For example, Ronin required 5 out of 9 total validators to approve deposits and withdrawals (and Sky Mavis controlled 4 of the validators at the time). A hacker was able to take control over 5 of the validator wallets and withdraw funds from the bridge contract. Similarly, the Harmony bridge was secured by a 2 of 5 multisig and a hacker was able to take control of 2 of the addresses to drain the bridge. While regrettable, ‘trustless’ bridge models were already in development, and the future of bridging felt bright. Nomad was a shining example of a trustless model.

Nomad’s exploit, however, shows that even trustless bridges are susceptible to exploits. This is depressing because we don’t have an alternative model to give us hope. Any bridge as they are currently architected is going to create (a) an enormous honeypot on one side and (b) systematic risk for the entire ecosystem that is reliant on the bridge. We need a new paradigm for bridge design.

Believe it or not, we might be able to draw lessons from TradFi. Bridging between chains feels an awful lot like exchanging sovereign currencies between countries. In TradFi, the correspondent banking system and FX market handles day-to-day ‘bridging’, while periodically banks and countries settle up with each other through their respective central banks. Back when the world was on the gold-standard, countries would periodically settle up by moving gold back and forth. Perhaps this is how bridging should work in the multichain world. Day to day bridging could be done via a marketplace of private actors with capital on both chains. Periodically, big chunks of net value could be shifted from one chain to another in a very unwieldy but very secure process, perhaps built into the security model of the chains themselves. Perhaps the dream of a trustless & secure bridge for day-to-day amounts of money is simply unnecessary.

Shipyard Insights:

The SEC is looking into Coinbase amid allegations of listing unregistered securities and insider trading, which highlights the challenges facing centralized exchanges but more importantly illustrates the ongoing regulatory ambiguity facing the crypto industry. Yahoo Finance recently published a rundown of the situation, with commentary from Shipyard’s very own Mark Lurie.

The infusion of VC capital has been key to the growth of the overall crypto ecosystem, but deep-pocketed investors are not core to the founding tenets of this technology. In this recent article, Mark gives his take on why Dao-Governed crypto VC platforms could be the solution to achieving true decentralization. Of course there are certain risks and benefits to mixing venture capital and crypto, which Mark and others touch on in this Cointelegraph piece.

Mainstreet crypto degens are always going on about how NFTs are so much more than digital art, but it's rare to hear the arguments laid out by a sober hedge fund manager running one of the world's most successful investment firms. So where do these NFTs get their value and how does smart money trade them? Tune in to this episode of the WTF, Crypto podcast to find out.

Stablecoins are one of the most popular crypto utilities in terms of active use cases, but there have also been several high-profile stablecoin project imposions in recent months. If you’re not sure what to make of this, listen to this episode of WTF, Crypto to learn more about the most successful approaches to stablecoin deployments today.

DEX headlines that caught our attention:

Sushi launches SushiXSwap, a cross-chain swap AMM built on Stargate and LayerZero

Celo is now available on Uniswap, along with other major networks like Ethereum, Optimism, Arbitrum, and Polygon.

sudoswap launches sudoAMM, a flexible, gas-efficient, and fully on-chain marketplace that rethinks NFT liquidity and trading

0x introduces Slippage Protection, a new feature in 0x API that enables MEV-aware smart order routing for DEX trades.

What we're reading:

DeFi users who are interested in new developments beyond the Ethereum ecosystem will enjoy this in-depth report on the state of Osmosis over the past quarter, which includes everything from a post-Terra stablecoin analysis to updates on Osmosis’ governance particulation. Cosmos continues to be one of the most interesting L1 competitors to Ethereum, and Osmosis has and continues to play an integral role in its growth.

2022 has been a wild ride for the crypto space, and many people, even DeFi proponents, have concerns about the future of DeFi and other crypto-based ventures. This Substack article presents the bull case for DeFi in very honest, practical terms, and focuses on major challenges and opportunities in the space. The article is rooted in the belief that we need to build new tools while basing them on the lessons of history, and it’s a very informative read.

Clipper updates:

New Clipper community liquidity pool: Clipper’s liquidity providers have been able to capture some incredible LP yields, and in early July Clipper’s new community liquidity pool was opened for more deposits. Clipper’s LP fee APR weighed in at a whopping 71.2% just before the new pool opened, and it’s great to see Clipper users create value through the exchange whether it’s through liquidity provision or active trading.

OP token distribution plan: Clipper recently received 300,000 OP tokens, and the main priority is to distribute the tokens across Clipper’s community in a way that rewards active community members while prioritizing Clipper’s and Optimism’s long-term growth.

Written by

Mark Lurie

Published on

August 4, 2022

March 29, 2024

What are stablecoins used for?, Clipper expands to Base, the latest AdmiralDAO proposals, and more.

February 28, 2024

A positive omen for DeFi derivatives, Clipper's new facelift, the latest AdmiralDAO proposals, and more.

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