Is the DeFi market dead? First FTX, then Terra and now the Curve hack. Who’s next – Bitcoin? Recent events have shown that things are not so straightforward in the decentralized finance sector. What do they want to show? Why is the Ethereum network secure and how does Meta Force relate to this? Let’s break it down with crypto expert Lado Okhotnikov
Money loves silence
In fact FTX collapsed not because someone hacked it but because of the management squandering. Sam Bankman-Friedman failed to provide liquidity to the native FTT token, resulting in a significant capital outflow. Later it turned out that a significant part of the funds of the exchange was under the control of Alameda Research, a fund specializing in cryptocurrency trading, investments and research in the field of blockchain.
The reason for the collapse of Terra was a coordinated attack by large capitals. Freddie Raynolds warned the community about the problems of the project long before the events, but then few people listened to him:
A few weeks ago I responded to @tbr90’s tweet with a brief outline of how a wealthy attacker could not only break @terra_money but profit heavily doing it with a Soros style Black Wednesday attack. Below I provide a detailed breadown…~$1B capital needed.https://t.co/MIbSH3Lwpq
— FreddieRaynolds (@FreddieRaynolds) November 25, 2021
Everything around Curve is ambiguous. Initially, the platform was hacked after which the attacker used an exploit in the pools of MetronomeDAO, Alchemix Finance and JPEG’d, allowing several days to freely withdraw funds.
After negotiations with the hacker, we managed to convince him to return the stolen money, to which he replied,
«There are too many versions, but none of them is correct. What I return is not related to the possible consequences. I just don’t want your project to be ruined, so I’m returning what I took. In any case for me this amount is small ($52 million) as it may seem to many.»
Recall that at the end of July there was an attack on the Curve Finance platform. As a result, the attacker managed to infiltrate stablecoin pools on the decentralized exchange. He gained access using a vulnerability found in the code of the Vyper programming language.
Vyper is a special tool that developers use when writing smart contracts on the Ethereum blockchain.
Imagine you want to create a digital «contract» between several people, which should be automatically executed when certain actions are performed. For example, you need a digital contract that automatically sends money to a friend every month.
With Vyper you can describe what a digital contract should do, what conditions it must fulfill, and what actions to take in different situations. After you write this code, it can be uploaded to the blockchain, and it will automatically start executing as soon as the specified conditions are met.
Let’s face it: there are risks in everything. For example, by the time you read this article, the price of bitcoin may rise or fall significantly. But, there are tokens that are stable and their exchange rate against the dollar practically does not change.
Fixed value tokens can be linked to any asset, commodities, price indices, real assets, and even other cryptocurrencies. However, most often they are paired with fiat. So when you hear that a stablecoin is pegged to the US dollar, it means that one unit will always equal another. In our case, one DAI is always worth one US dollar.
Many fear that the stable may fall, for example, if the fiat system collapses. Partly yes, you keep money in stablecoins just to save capital. And no, this is not a price game.
If fiat falls due to economic turmoil, a real war, or simply inflation, then the pegged value of the stablecoin will also suffer. This must always be kept in mind.
Competition is progress’s best friend
In 2008, in response to the global economic crisis, Satoshi Nakamoto creates a virtual book that many people see and edit at the same time. However, in it they cannot change or delete what is already recorded.
The amount of money in the DeFi sector.
It is possible to launch a decentralized network, where one chain contains data on transactions and events, and also has a link to the previous block.
The technology continued to develop rapidly, and cryptography became an increasingly popular and important part of this process. With the development, new encryption methods and algorithms were created that ensured the protection of transactions and personal data of users.
However, as interest increased, so did volatility. Something had to be done about this, then the idea was born to create a stable coin that would remain equal to fiat.
This is how USDT appeared, the issuer of which was Tether. But today it is not the only centralized stablecoin, as this area has grown quite a lot and there is a lot of competition here. There are other projects such as USDC, Pax, TrueUSD and DAI.
By the way, DAI is a stable cryptocurrency that is pegged to the US dollar, but at the same time is part of a decentralized financial ecosystem. This means that the token aims to maintain a value of $1 and uses various mechanisms to achieve this stability.
DAI is pegged to the dollar by requiring cryptocurrency collateral to create new tokens. At the same time, the coin manages to maintain liquidity without any fiat currency backing. It is backed by cryptocurrency debt, which is managed on decentralized accounts using smart contracts.
A bit of DAI history
The token was developed by a team at MakerDAO and launched in 2017. For those who don’t know, Maker is a Decentralized Autonomous Organization (DAO) built on the Ethereum blockchain.
Maker aims to develop a series of decentralized stablecoins pegged to other assets. They released two tokens: Maker (MKR) and DAI stablecoin, both compliant with the ERC-20 standard.
Maker token holders are essentially responsible for risk management in the DAI ecosystem. They can make important decisions related to the issuance of coins, determine risk parameters, set target rates, make global settlement decisions.
Imagine a coin that is always worth $1, completely under your control, no need for support, and no one needs to check the reserves. But is it good?
What will happen if the value of the collateral asset falls? As it has happened to Terra and FTX. What will be when the price of Ethereum collapses?
The first line of defense against such risks is excess collateral. The vaults are full, which means a ban on the creation of new DAI tokens if their number is more than collateral.
When the liquidation level is reached, the MakerDAO system will automatically initiate the sell protocol. The collateral asset is sold until the debt on the loan is covered.
Since the amount of pledged funds is always greater, liquidation will never occur.
When DAI was issued, the ETH token became the collateral. This meant that in order to create a stable, it was necessary to lock Ethereum. However, after several months of planning, the MCD was released to the market.
Multi-Collateral Dai was an updated version of the MakerDAO protocol behind the DAI stablecoin. MCD was introduced with the aim of expanding and improving the functionality of the original protocol in order to make the ecosystem flexible and resilient.
Now you know what DAI provides and why this coin has more prospects than Tether USD. By the way, you can read about this in our other article — «Crypto «safe haven»: is it real?»
Lado Okhotnikov, the creator of the Meta Force Metaverse, understands that cryptocurrencies must be decentralized, and relying on one single organization to maintain a stable coin is the antithesis of this idea,
«Yes, I know there are other decentralized stablecoins, but none of them has the same liquidity as DAI. I am impressed with the widespread adoption and use of this particular DeFi token. If you’ve seen my recent video, then you understand why I’m so optimistic about the future.»
Keeping money or earning rewards in DAI is essentially the same as if you kept dollars in a bank account. Except that these are dollars no one can withdraw, and you can freely move them around.
No pasarán! Lado Okhotnikov about blockchain protection
Ethereum had recently been upgraded to the next version of Shanghai. The hard fork took place this spring and is one of the biggest achievements associated with the fork.
The previous version of the blockchain worked on the principle of evidence-based work. Later, the developers decided to switch to the PoS consensus level, since the main problem of the old version was low scalability.
Bitcoin & Ethereum are among the slowest blockchains but the most secure.
Ethereum was limited to just 30 TPS. A huge number of transactions often increased gas prices, so the decision was made to carry out an update.
The main feature of the new version was the ability to refuse to solve problems. Instead, holders now stake coins and become validators. Thus, the developers achieved several goals at once: they reduced the cost of gas, increased the speed of transactions, and brought blockchain security to a new level. After all, the more participants are in the network, the more difficult it is to hack the system.
Accordingly, all projects built on Ethereum receive reliable support, and Meta Force is no exception.
The Metaverse is closer than you think
The project has huge plans and according to the roadmap there is a lot of work ahead. In the third quarter, it is planned to launch the Metaverse, the Swap platform, the marketplace, its own wallet, and the listing of the Forcecoin token.
Lado Okhotnikov is a person who does not like to make a fuss about achievements. He realizes that it is not worth talking about merit too often. Instead of flaunting his victories, Lado focuses on working and improving his skills,
«We expect the test run of the Metaverse to show good results. So far, a lot of work has been done, and now it’s time for the project participants to reap the rewards. First, we set up the work of NFT Royalty, now we are making bonus payments, and the next step will be the distribution of lands and objects in the virtual universe.»
It is important to note that the described events are unfolding in the decentralized finance sector, and this once again underlines the importance and relevance of this area. What is happening serves as a reminder of the importance of alternative financial models in comparison with traditional ones.