Author: Jody McDonald

Jody is a Brisbane-based freelance writer who specialises in writing about business, technology, and the future of work.

Categories
Celsius Crypto Staking DeFi Ethereum Lido stETH

Celsius and the Risk Posed by Staked ETH Losing its Peg

After pausing all withdrawals, swaps and transfers between accounts on June 13, there are now fears the popular staking platform Celsius is facing a more serious liquidity crisis triggered by the declining value of Lido Finance’s staked ETH token relative to the value of real ETH. 

If the value of staked ETH doesn’t regain parity with ETH, it is feared Celsius may be left unable to pay out all users wanting to withdraw their funds.

Staked ETH, which is used extensively by Celsius, started to lose parity with ETH when DeFi markets were sent into chaos last month in the wake of the Terra ecosystem collapse.

What Is Staked ETH?

Staked ETH (stETH) is an artificial representation of ETH created by the DeFi platform Lido Finance. When users stake their ETH through Lido, it’s not locked up as it would be if it were staked directly to Ethereum 2.0. 

Rather, any ETH users who stake through Lido receive the equivalent amount of stETH in return, allowing them to then lend, stake or trade their stETH for other tokens. This kind of staking is known as liquid staking because the users’ assets effectively stay liquid.

Regular crypto users along with other DeFi platforms can use Lido Finance to stake real ETH in return for stETH. Celsius is one of Lido Finance’s major clients, staking large amounts of ETH through Lido on behalf of its users, and in the process generating staking rewards, with which it in turn pays its users’ annual percentage yield (APY). 

This system of liquid staking works well while stETH and ETH maintain parity. But once stETH starts to drop in value, as it now has, the system starts to unravel.

What Does This Mean for Celsius?

According to blockchain analytics platform Nansen Research, Celsius has over US$475 million worth of stETH and has been sending large quantities to exchanges over the past few days, presumably to sell in an attempt to increase liquidity. 

Unfortunately, this also has the effect of reducing the price of stETH, exacerbating the disparity between stETH and ETH. Other whales have also been selling large amounts of stETH over the past few days, which has further suppressed the price of stETH and increased pressure on Celsius.

In addition, according to Jack Niewold, founder of the Crypto Pragmatist newsletter, only around US$1.5 billion of the $US10 billion worth of customer assets held by Celsius are currently accounted for on-chain, a rather large discrepancy that has further spooked users.

It’s not known if Celsius has the remaining user funds and, if it does, where they are exactly. Niewold provides a fascinating breakdown in a detailed Twitter thread:

How can Celsius resolve this crisis? Niewold says there are four major possibilities:

  • it receives external funding;
  • it gets a loan;
  • it’s acquired by another company with enough capital to deal with this situation (Nexo has already expressed interest); or
  • it simply declares bankruptcy, ending the crisis but leaving users very much high and dry.
Categories
Justin Sun Markets Stablecoins TRON USD Coin

Tron to Deploy $2 Billion to Stabilise Broken USDD Stablecoin Peg

Tron blockchain founder Justin Sun has declared that US$2 billion will be deployed to “fight” investors shorting Tron’s native currency, TRX, in an attempt to stabilise the Tron-based algorithmic stablecoin USDD:

USDD lost its US dollar peg on June 13, dropping as low as US$0.91 on the KuCoin exchange. 

Many investors now fear the Tron ecosystem may follow in the wake of Terra, which spectacularly collapsed last month after its algorithmic stablecoin, UST, suddenly and dramatically depegged. At the time of writing USDD had still not regained its peg. CoinGecko was reporting its price as US$0.98.

USDD Over-Collateralisation Fails to Prevent Depegging

The launch of USDD was first announced in April, just days before UST began to lose its peg. 

In the wake of the Terra collapse, Tron announced USDD would become an over-collaterised stablecoin – that is to say that each USDD would be backed by more than US$1 in assets held in the Tron DAO Reserve. This move was intended to shore up investor confidence in the new stablecoin and to prevent the kind of depegging event we are now witnessing.

Since USDD lost its peg this week, the Tron DAO Reserve has added another US$650 million worth of USD Coin to its reserves in what it describes as an attempt to “safeguard the overall blockchain industry and crypto market”:

Sun Confident USDD Will Recover Peg

In his tweet about the depegging of USDD, Sun indicated that the massive shorting of TRX was the cause and he believes the deployment of US$2 billion to protect TRX will be enough to swiftly restore USDD’s peg. 

Although Sun’s big talk may appease some Tron diehards, it likely won’t comfort the broader market. The Terra-based algorithmic stablecoin experienced a similar ‘minor wobble’ the day before it depegged catastrophically, with no amount of spending by the Luna Foundation Guard, the Terra equivalent of the Tron DAO Reserve, sufficient to save it.

Categories
Australia Payments Ripple Stablecoins Stellar

Australian Giant Novatti Set to Launch AUD Stablecoin with Stellar and Ripple

Leading Australian digital payments company Novatti has announced that it will be partnering with Ripple to bring its Australian dollar stablecoin, AUDC, to the XRP ledger.

The company had previously announced a partnership with Stellar in May to bring the stablecoin to the Stellar blockchain.

Novatti’s AUDC stablecoin will be dollar-for-dollar backed by real Australian dollars – which seems a wise decision, given the recent chaos surrounding under-collateralised algorithmic stablecoins.

Development to be Largely Funded by Ripple, Stellar

Announcing the Ripple partnership, Novatti CEO and managing director Peter Cook said that much of the cost of developing the AUDC stablecoin will be borne by Ripple and Stellar:

Ripple and Stellar are largely funding the development work and even some of the marketing work that we do to get our stablecoin service out.

Peter Cook, CEO and managing director, Novatti

Cook said grant funding from the two blockchain networks would underpin the project until it started generating sufficient transaction fees to amass revenue on its own.

“For the next year at least, revenues will be from a number of payments from Ripple and Stellar for their grant programs that ameliorate our tech build costs and some of our marketing costs. As we start to monetise later this year, we’ll start to get transaction fees from the stablecoin service as well.”

Novatti Sees Opportunity in Stablecoins

Cook said the creation of AUDC and partnerships with Stellar and Ripple provide Novatti with the opportunity to expand its traditional payments business into the world of digital assets, potentially broadening its market and the use cases for its platform.

“Stablecoins for us is essentially a major foray into digital assets – we are still a payments company, a traditional payments company, but this now gives us a major entree between cryptocurrency, which goes up and down and is subject to other market forces, and real utilitarian crypto-based assets,” Cook said.

“So we build the stablecoin, it becomes part of our ecosystem or our infrastructure, which is licenses, tech, commercial partnerships, and from there we leverage and monetise it for either our financial services customers or end business type customers,” he added. 

We will provide services such as stablecoin-as-a-service and also holding and transacting of funds for things such as cross-border payments, on-ramps/off-ramps for cryptocurrencies, and other services yet to be seen. 

Peter Cook, CEO and managing director, Novatti

Both Stellar and Ripple have been active recently in partnering with organisations to develop use cases for their tech. In early June, Stellar announced it had partnered with MoneyGram to facilitate stablecoin remittance payments and last November Ripple joined forces with Pacific island nation Palau to develop an eco-friendly digital currency.

Categories
Crypto News Crypto Staking Ethereum Vitalik Buterin

ETH Proof-of-Stake Goes Live on Ropsten Testnet, One Step Closer to the Merge

Ethereum developers completed a significant milestone towards Ethereum’s eventual full transition to a proof-of-stake blockchain on June 8, by merging the Ropsten testnet’s original proof-of-work chain with its new proof-of-stake chain: 

The planned merge of the Ropsten testnet was first announced on June 3, when it was described by Ethereum developer Tim Beiko as a “dress rehearsal for node operators”. 

Ethereum co-founder Vitalik Buterin has previously said that if all goes well with the Ropsten merge, he anticipates the mainnet merge will take place around August of this year.

Merge Will Reduce Energy Use by Orders of Magnitude

Ethereum is currently a proof-of-work chain, which means miners use large amounts of energy to solve complex mathematical puzzles to verify new transactions, in the process earning ETH. This process is energy-intensive, largely due to the fact that the energy used by miners that don’t solve the puzzles is essentially wasted. 

Once the network transitions to proof-of-stake, there will no longer be miners – they’ll be replaced by validators. Validators will also verify transactions, but rather than relying on massive computing power to do so, validators will be selected based on the amount of ETH they’ve staked and the duration they’ve staked it.

It’s estimated the switch to proof-of-stake could reduce Ethereum’s energy use by up to 99.95 percent.

Buterin Optimistic About Mainnet Merge

Speaking on a livestream before the Ropsten merge, Buterin was hopeful that a smooth test merge would demonstrate how far the developers have progressed along the path towards proof-of-stake, and suggested if all goes well the upgrade could be applied to mainnet fairly easily:

We’re hoping it’s going to be a good demonstration of just how far we’ve come. If everything goes well, it basically means that we’re just a bit of polishing away from the merge being able to happen on mainnet. 

Vitalik Buterin, Ethereum co-founder

Ropsten is Ethereum’s oldest testnet and is considered the testnet most similar to the Ethereum mainnet, meaning that theoretically any changes on Ropsten should transfer smoothly to mainnet.

Categories
Aurora Crypto News Ethereum Hackers

Whitehat Hacker Paid $6 Million After Preventing $330 Million Hack

Aurora, an Ethereum bridging and scaling solution that runs on the NEAR Protocol, announced on June 7 that it had paid a reward valued at US$6 million to a whitehat hacker for finding a bug that could have resulted in the loss of up to US$330 million worth of users’ funds:

The bug was reported to Aurora on April 26 through ImmuneFi, a leading Web3 bug bounty platform. The hacker who found the bug has been identified only by their Ethereum domain name, pwning.eth. 

Aurora has confirmed that this bug was patched before any user funds were lost.

Bug Would Have Allowed Attacker to Mint Infinite ETH

The bug was described by Aurora as an “inflation vulnerability”. If exploited, the bug would have allowed an attacker to mint an unlimited supply of artificial ETH, which they then could have used to completely drain the real ETH from Aurora’s bridge contract – over 70,000 ETH, valued at more than US$200 million. 

Other assets with ETH pairs valued at around US$130 million also would have been at risk. In total, up to US$330 million of assets could have been stolen.

Fortunately for Aurora, the hacker decided to report the bug and claim the US$6 million reward, the largest offered by Aurora and the second-largest bug bounty paid in crypto history.

The Aurora payout follows a US$2 million bug bounty paid in February to a whitehat hacker who identified a vulnerability in the Ethereum scaling solution, Optimism, which if exploited would have allowed an attacker to mint unlimited ETH.

Vulnerability Patched, Source Code Released

The vulnerability has since been patched on both the Aurora testnet and the mainnet, and the source code has been added to GitHub so external developers can confirm the bug no longer exists.

Aurora Labs, the organisation responsible for Aurora’s development, expressed disappointment that it allowed this bug to get into a mainnet release, but was happy the bug bounty program worked as intended:

Such a vulnerability should have been discovered at an earlier stage of the defence pipeline, and Aurora Labs has already started improving its methods to achieve that in the nearest future. However, this event ultimately proves that the ecosystem created around Aurora Labs’ security mechanisms actually works. 

Aurora Labs statement

Bug bounty platform ImmuneFi says it has paid out more than US$40 million in bounties to date, which it claims have prevented over US$20 billion in potential damage from hacks.

Categories
Blockchain Crypto News Terra

Whistleblower Claims LUNA ‘Isn’t Community-Owned’ After Token Drops 56%

A Terra whistleblower has taken to Twitter to rubbish claims by founder Do Kwon that the newly launched Terra 2.0 network is “community-owned”, accusing Kwon and his company, Terraform Labs (TFL), of holding substantial amounts of LUNA 2.0 in what he (the whistleblower) calls “shadow wallets”: 

These accusations follow a rough week for LUNA 2.0 in which it lost over 50 percent of its value. At the time of writing, CoinGecko shows LUNA 2.0 valued at US$4.59, down from its recent high on May 31 of US$10.24, a drop of 56 percent in seven days.

Accusation of Shadow Wallets

The accusations of TFL holding secret stashes of LUNA come from Twitter user and prominent Terra critic FatMan. On June 6, FatMan posted a Twitter thread laying out his evidence that TFL and Kwon secretly hold large quantities of LUNA. FatMan listed several Terra accounts linked to TFL and Kwon which collectively hold approximately 42 million LUNA, currently valued at around US$200 million:

This is a serious accusation as Kwon has repeatedly insisted the newly launched Terra blockchain is community owned and controlled. According to FatMan, his evidence shows this claim is not true, tweeting:

“Do Kwon has stated numerous times that TFL has zero new LUNA tokens, making Terra 2 ‘community-owned’. This is an outright lie that nobody seems to be talking about. In fact, TFL owns 42M LUNA, worth over $200m, and they’re lying through their teeth.”

Claims Secret Holdings Used to Manipulate Governance

FatMan further claimed that Kwon used his LUNA holdings to influence governance of the new blockchain and approve his own proposal, claiming in another tweet:

“Do [Kwon] used his shadow wallet to approve *his own proposal* through governance manipulation (TFL is not supposed to vote), told everyone it would be a community-owned chain, and then gave himself a nine-figure score. These are just the verified wallets – there are many others.”

Terra 2.0 Dogged by Issues

Most responses to FatMan’s thread expressed concern about the alleged dishonesty and called for Kwon to be held accountable:

However, some users also questioned the significance of these allegations and accused FatMan of conspiratorial thinking:

Terra 2.0 was launched in late May following the collapse of the original Terra ecosystem. Since its launch the new blockchain has struggled, losing almost 80 percent of its value immediately after going live and continuing to be dogged by accusations of shady practices.

Categories
Crypto News Justin Sun Stablecoins TRON

Tron Stablecoin Over-Collaterises 200% to Prevent UST-like Collapse

TRON has announced that its recently launched algorithmic stablecoin, Decentralised USD (USDD), will be over-collateralised by a ratio of at least 130 percent in an effort to prevent a UST-style depegging event and to inspire confidence in the new coin.

When USDD launched on May 5, just before the Terra collapse, it was structured like most other algorithmic stablecoins with little in the way of collateral backing its value. Since then, TRON has prioritised increasing USDD’s collateralisation – according to data on the TRON DAO Reserve website, the ratio at the time of writing was 219.8 percent.

Ratio Among Highest In Crypto

The claimed guaranteed minimum 130 percent collaterisation of USDD touted by TRON makes it perhaps the most highly collateralised stablecoin in all of crypto, outdoing the previous standard bearer, DAI, with its collateralisation ratio of 120 percent.

According to TRON, the TRON DAO Reserve (TDR) currently consists of around US$1.37 billion of what it describes as “highly liquid assets”, including 10,500 Bitcoin (BTC), 240 million Tether (USDT), and 1.9 billion in TRX, TRON’s own coin. Currently there is around US$667 million USDD in circulation.

Move Intended to Instill Stability, Confidence

TRON founder Justin Sun says the over-collaterisation of USDD is one of several strategies being used to maintain the coin’s stability and promote market confidence:

Spearheading the Stablecoin 3.0 era, the upgraded, over-collateralised USDD will add more diversified features to underpin its stability. The US$10 billion reserves pledged by the TDR will enable USDD to become the most reliable decentralised stablecoin with the highest collateral ratio in blockchain history. Currently, the 200%+ collateral ratio offers USDD a very strong safety net.

Justin Sun, founder, TRON

As seen with the catastrophic collapse of Terra, having collateral as backing is no guarantee that an algorithmic stablecoin won’t suddenly and spectacularly lose its peg. During Terra’s collapse, the Luna Foundation Guard deployed billions in Bitcoin and other assets to restore UST’s peg, to no avail.

Since the launch of USDD, TRON has become the third-largest blockchain for DeFi by total value locked (TVL), soaring to over US$6 billion and promising intrepid users Terra-like annual rates of return of over 20 percent.

Categories
Australia Banking Blockchain Regulation Stablecoins

ANZ Bank Pushes Forward With Stablecoin A$DC, But Isn’t That Bullish On Crypto Yet

The Australian and New Zealand Banking Group (ANZ) wants to extend the usage of its cash-backed stablecoin, A$DC, amid demand for access to it from its institutional customers. It also seeks to target additional use cases through a pilot program with the federal government and extensive engagement with regulators.

A$DC was launched by ANZ in March and has so far been used primarily to ease crypto trading for one of its major corporate clients, Victor Smorgon Group. It’s a fully collateralised stablecoin, unlike the recently collapsed Terra-based UST which was an algorithmic stablecoin.

Stablecoin to be Extended to More Institutional Customers

Speaking to the Australian Financial Review, ANZ executive Nigel Dobson said the bank was looking to extend the use of A$DC to a wider number of institutional customers, driven largely by customer demand:

Are we going to extend it [the A$DC]? Yes, absolutely we will. And this will be based on our institutional customers’ demand, as they reveal, increasingly, their own tokenisation strategies.

Nigel Dobson, ANZ executive
ANZ executive Nigel Dobson. Source: financeasia.com

Increasingly, real-world assets, such as real estate and art, are being tokenised and traded on blockchains. Dobson believes this trend will continue and will provide several advantages over the way these assets have traditionally been traded:

“We believe that tokenised assets can be inexorably developed to deliver greater efficiency, speed, transparency, and value for customers over time,” Dobson said.

Pilot to Collect Excise Tax, Plans for Carbon Credits

A$DC is also being used in a pilot program, in cooperation with the federal government, designed to ease the collection of excise tax in the distilling industry. The program uses smart contracts to facilitate the collection of excise – according to KPMG, this single-use case could result in the recovery of at least A$45 million per year in lost tax revenue.

Another application on the horizon is the use of stablecoins to increase liquidity in carbon credit markets, an area in which ANZ sees huge potential for growth:

We think that’s going to have exponential growth over the next 10 years, and the elements of tokenisation that can be applied to that marketplace to make it much more efficient, more global and, frankly, more available to a wider range of consumers but certainly to institutional investors.

Nigel Dobson, ANZ Executive

As part of its push for increased usage of its stablecoin, ANZ has been working closely with several regulators, including the Australian Prudential Regulation Authority (APRA), the Securities and Investments Commission (ASIC) and financial intelligence agency AUSTRAC, to develop a framework for the use of stablecoins in the Australian economy. 

Dobson said that so far, the conversations with regulators have been positive, explaining that “it is nice to see APRA, ASIC and AUSTRAC all on the same virtual call together. We’ve got this kind of coalition of the curious going on at the moment, which I think is wonderful, and you know, the integrated interactions have been incredibly constructive.”

ANZ into NFTs, Crypto Not So Much

ANZ seems to be focused more on the potential of tokenised assets and NFTs rather than cryptocurrencies such as bitcoin. The bank sees its role primarily as providing a stablecoin that can streamline transactions and simplify the sale and purchase of assets.

“We believe stablecoins form a very important element of the settlement value and the settlement process,” Dobson said.

Initially A$DC will only be offered to institutional customers, but in the longer term, retail customers may well gain access to the coin to simplify crypto trading and the purchase of both metaverse-based digital assets and tokenised real-world assets:

We think that the growth area is not going to be so much in crypto, but in NFTs. NFTs are already in the market around sports memorabilia and [can extend to] anything digitally created. 

Nigel Dobson, ANZ Executive

ANZ Bank has had an interest in developing stablecoins and CBDCs for some time; last September, the bank was one of 15 finalists in the Monetary Authority of Singapore’s Global CBDC challenge, which attracted more than 300 submissions from 50 countries.

Categories
Crypto News DeFi Hackers Mirror Protocol Terra

DeFi Protocol ‘Mirror’ Exploited for $2 Million Due to Buggy Code

Terra-based DeFi app Mirror Protocol has suffered an estimated US$2 million exploit related to the recent rebrand of the original Terra blockchain as Terra Classic. 

This is the second major exploit of Mirror Protocol to be revealed in the past week:

During the attack, the pools for mBTC, mETH, mDOT and mGLXY were virtually completely drained – and initially there were fears all asset pools could be drained, before developers belatedly patched the exploit.

What is Mirror Protocol?

Mirror Protocol is a DeFi app that allows for the creation of digital ‘mirrors’ of real-world assets, such as stocks and other cryptocurrencies, which closely track the price of the assets on which they’re based. 

Mirror is built on the Terra Classic blockchain, but its assets are also available on other chains such as Ethereum and Binance Smart Chain.

Attacker Exploited Confusion Caused by New Terra Chain

The attack was initially discovered by a user of the Mirror Protocol forum known as Mirroruser and was shared on Twitter by Terra analyst FatManTerra.

FatManTerra explained the exploit was possible because many Terra Classic validators were running outdated software and reporting the price of the new Terra (LUNA), which at the time was valued at about US$9.80, rather than the price of the original Terra Classic (LUNC), valued at around US$0.0001. This discrepancy allowed the attacker(s) to acquire US$1.3 million of collateral, such as mBTC, for every US$1000 in LUNC they spent:

There were initially fears that the exploit wouldn’t be fixed before US stock markets opened, allowing the attacker to drain stock-based asset pools such as mAAPL and mAMZN: 

Fix Put in Place Before Trading Begins

However, this was narrowly avoided as the developers were able to fix the incorrect pricing information just before US markets opened. The devs also disabled the usage of mBTC, mETH, mDOT and mGLXY, meaning the attackers couldn’t use their ill-gotten assets to drain any other pools.

This was the second major exploit of Mirror Protocol revealed this week. Just days ago, FatManTerra reported an attack that occurred on October 8, 2021 and went unnoticed for an astonishing seven months, resulting in the loss of more than US$88 million in assets.

The past month has been rough for DeFi, with the chaos surrounding the collapse of the Terra ecosystem causing large discrepancies across platforms in the price of Terra-based stablecoin UST, leading to significant losses for some DeFi apps such as Blizz Finance and Venus Protocol. 

DeFi exploits have also become increasingly commonplace of late; just weeks ago, Fortress Lending was taken for an estimated US$3 million.

Categories
Crypto Staking Ethereum Markets NFTs

Ethereum Transaction Volume Down 80% Amid Decreasing NFT Interest

Crypto analytics firm IntoTheBlock reports that Ethereum transaction volume is down 80 percent from the same period last year, due in large part to plummeting interest in NFTs. 

Other important metrics, such as fees collected and daily active addresses, mirror the drop in transaction volume.

This pattern is similar to what was observed during the last bear market where activity declined significantly across the entire crypto market.

Interest in NFTs Drops, Prices Follow

Following the huge NFT hype of the early part of 2022, interest has since declined enormously with Google search data showing a 75 percent reduction in searches for the term NFT, contributing significantly to the drop in transaction volume on Ethereum.

NFT search volume. Source: IntoTheBlock

Similarly, NFT prices crashed in May with most collections recording decreases of at least 50 percent, significantly more than ETH itself, which dropped about 30 percent over the same timeframe.

ETH HODLers Accumulate During Crashes

As ETH transactions and its price have plunged, long-term HODLers (addresses that’ve been holding ETH for over a year) have started to accumulate and now hold over 50 percent of total ETH supply. It’s the first time this mark has been reached since 2020.

ETH HODLers marshal their resources. Source: IntoTheBlock

In the latter part of 2021 and into early 2022, HODLers had been selling. But they’re now buying the dip with a view to maximising their gains when (they hope) the market recovers.

ETH 2.0 Staking Grows

According to IntoTheBlock, the single largest holder of ETH is currently the Ethereum 2.0 staking contract, which now holds over 7.84 million ETH. 

Of course, HODLers of many other cryptocurrencies also have the option of staking and earning rewards – for example, late last year Swyftx became the first Australian-based exchange to offer staking for the popular Solana blockchain.

In the Australian context, over 80 percent of crypto investors say they’re HODLers, which is comparable to figures from many other parts of the world.