General manager, Tim here.
Here’s what caught my attention in DeFi recently:
- Vitalik criticizes the “ouroboros” of DeFi.
- $732 million backing the USDD stablecoin disappears.
- Everyone is enjoying the memecoin fever.
Vitalik vs DeFi
Ethereum co-founder Vitalik Buterin has set social media on fire by criticizing one of blockchain’s biggest use cases: DeFi.
At the heart of the issue is yield, a general DeFi term used to describe the returns users can earn on various crypto tokens.
“It looks like an ouroboros,” Buterin said during a discussion on X, referring to the snake that eats its own tail.
“The value of crypto tokens is that you can use them to earn a yield that is paid by… the people who trade crypto tokens.”
One problem, Buterin said, is that such a system is “fundamentally limited” by the demand for leverage in crypto tokens, and therefore cannot be the only activity that attracts new users.
> return comes from borrowers, trading fees, etc.
Well, that worries me. Because it’s like an ouroboros: the value of crypto tokens is that you can use them to earn a yield that’s paid by… people who trade crypto tokens.
Even if the answer is something clear like…
— vitalik.eth (@VitalikButerin) August 25, 2024
The Ethereum blockchain hosts the largest DeFi ecosystem in crypto, with $51 billion in user deposits.
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However, the growth of DeFi on Ethereum – as well as many other blockchains – has stagnated in recent years.
While Bitcoin’s price hit a new all-time high this year, DeFi deposits are still well below their 2021 peak.
Buterin’s opponents argue that how yield is generated in DeFi is not the issue. That’s how the traditional financial system works, after all.
Still, Buterin’s comments reaffirm the desire to see Ethereum expand significantly into other use cases, such as decentralized identity systems, credit scores, or social media.
USDD Says “Goodbye” to Bitcoin
USDD, a Tron-based stablecoin, was once backed by around $732 million worth of Bitcoin.
No more.
The Tron DAO reserve, which manages USDD, has just withdrawn 12,000 Bitcoins backing the stablecoin.
USDD is now almost entirely backed by TRX, the volatile native cryptocurrency of the Tron blockchain.
The problem, observers say, is that even though the project claims to operate as a decentralized autonomous organization — or DAO — it hasn’t held a vote on whether to withdraw Bitcoin.
Tron founder Justin Sun said there was nothing to worry about.
“Previously, the Tron DAO reserve also made frequent adjustments based on the collateral factor,” Sun said. DL Newswhile quoting his X post on the subject.
Even after Bitcoin is delisted, the value of the assets backing USDD is more than twice the value of the stablecoin in circulation, according to the USDD website.
However, the Tron DAO reserve has not provided any explanation as to why Bitcoin collateral was removed. This lack of transparency, along with other discrepancies, is a problem for some.
Rating agency Bluechip has given USDD its lowest rating and strongly advises against its use.
Memecoin fever spreads
Pump.fun, which allows anyone to design and launch their own memecoin for a small fee, has become one of the most profitable protocols in DeFi.
Following its success, others are developing their own versions of the popular Solana protocol on competing blockchains.
Tron has its own memecoin platform, SunPump, while Binance-affiliated BNB chain has one called FOUR.meme.
Trader Joe, a decentralized exchange built on Avalanche, is the latest project to jump into memecoins.
He revealed Token Mill, a platform similar to pump.fun.
Trader Joe’s hopes Token Mill can revive his fortunes.
The decentralized exchange, which once generated $2.6 million in revenue per week in 2021, earned less than $10,000 last week.
Pump.fun, on the other hand, earned a whopping $3.4 million in the last seven days, according to data from DefiLlama.
Data of the week
The so-called “memecoin wars” are escalating.
SunPump, a Tron protocol that allows users to create their own memecoins, has just surpassed pump.fun, the Solana protocol on which it is based, in terms of new tokens created.
Pump.fun does, however, generate a little more revenue.
This Week in DeFi Governance
PROPOSAL: Lido to create DAO-Adjacent ‘BORG’ for its alliance program
VOTE: Will Arbitrum DAO Sponsor Ethereum Foundation Security Audit Event?
PROPOSAL: Jupiter DAO Discusses New Micro-Grant Initiative
Article of the week
DL Research is sending Principal Analyst Ryan Celaj to the WebX 2024 conference in Tokyo on August 28-29. Please contact us if you are attending!
What we are looking at
Soneium, a new layer-2 Ethereum blockchain developed by Japanese tech giant Sony, is announcing Wednesday, August 28 as a milestone date for the project.
It is not yet clear whether the blockchain will be launched on that date, or whether the message refers to another upcoming announcement.
Got any DeFi tips? Contact us at tim@dlnews.com.
