Finance Redefined: The crypto renaissance is finally here, March 3–17

Editor's note

After taking a bit of a break and skipping a week for the newsletter, I’ve returned with the feeling that something big is brewing for the crypto space.

To people who follow me on Twitter or here, it is probably no secret that I believe the fate of the crypto market is strongly tied to that of the tech sector and stock market as a whole. After showing really strong signs of a pending crash, it seems that markets are well on their way to a recovery. If you look at the S&P 500, it’s actually been making new highs last week. The actual source of the uncertainty was the Nasdaq 100, the tech-heavy index, which is now making a solid recovery as well.

A favorable stock market environment is key to maintaining the crypto bull run. We obviously don’t know how long all this will last, but it seems that the initial panic subsided and likely won’t return for at least a month or two. As always, not financial advice and I may very well be wrong.

The stock market recovery has of course been reflected in the crypto markets as well. Over these past few weeks, I’ve realized just how far crypto has come in popular perception. NFTs have a lot to do with that reputation improvement, although I can’t imagine it being the only demand driver like with 2017 ICOs.

Technology advances are setting us up nicely for an explosive rest of the year. Between Ethereum layer-two, Polkadot’s parachains and Cosmos’s Stargate all coming online now or in the near future, we should have plenty of bandwidth to let developers build exciting new crypto primitives.

We’re still in very, very early stages of DeFi and crypto adoption. All we’ve seen so far is a lot of Ponzi games with maybe a few small nuggets of something real. The Ponzi games have definitely served well to develop the infrastructure and attract a lot of money, but I’m mostly excited about what’s to come. My hope is that we’re not far off from that promise.

New DeFi building blocks keep coming

I wanted to highlight a couple of really interesting new projects in DeFi these past two weeks. The first is WETH10, a new wrapper for Ether. As you may know, all DeFi projects use a tokenized form of Ethereum in the backend. WETH assimilates Ethereum itself, which is not a token, to the ERC-20 standard. This lets smart contracts perform actions on it.

The new WETH10 iteration upgrades ETH with all the bells and whistles of more recent token standards, allowing things like gasless transactions and the transferAndCall function, a way to get rid of the cumbersome and unsafe token approval mechanic.

The most important feature, however, is the Flash Mint. It’s exactly like a flash loan, only it creates new tokens out of thin air instead of drawing them from a liquidity pool. There are practically no limits to how much you can create, making arbitrage strategies even more effective and cheaper. Of course, this also means simplifying hacks and exploits, but here we come back to the age old argument of “flash loans good” vs. “flash loans bad.” I’m firmly of the former stance, since a protocol would’ve still been weak to exploits even without help from flash loans.

Another exciting new primitive is Alchemix, a protocol that lets you draw a loan backed by your future yield. You can basically speed up your yield income and get most of it right away, which could be incredibly useful if you have a large expense coming up.

To be fair, Alchemix’s concept could have already been reproduced with a platform like Cream Finance. It supports yCRV or yETH, interest-bearing tokens by Curve and Yearn.finance, respectively. Just deposit those tokens, draw Dai or another stablecoin, and repay the loan over time from your yield. But Alchemix does expand this concept and, most importantly, automates it. From a niche and little-known trick, this “instant gratification loan” becomes an easily accessible DeFi tool.

In other news

• What’s easy to make is also easy to destroy. Yearn and Cover suddenly “unmerged” over development disagreements.
• Solana concludes its DeFi hackathon with a few innovative ideas being rewarded.
• 1inch releases V3 of its aggregator, which is cheaper than using a DEX directly.
• Snapshot and Gnosis release SafeSnap, a way to execute governance votes automatically.
• Furucombo releases IOU token as part of a hack compensation plan.
• Alameda “invests” $20 million in Reef, in what was apparently just an OTC deal. The subsequent drama is a can of worms I’d rather not touch.
• PancakeSwap and Cream suffer a DNS spoofing attack, which routed users to a fake phishing website.