Recent Reflections on DeFi: DeFi Deregulation, Repeal of the Broker Act, etc

DeFi deregulation, the repeal of the Broker Act, the CAKE governance attack, and the continued de-pegging of sUSD, resuming recent thinking on DeFi.

Author: Chen Mo

1/ Why hasn’t sUSD been unanchored for a long time?

Since the adoption of the SIP-420 proposal at the beginning of the year, sUSD has been de-anchored, and has recently entered a serious de-anchoring range of less than $0.9, and the key change in this proposal is the introduction of “delegation pools”, which are designed to encourage users to mint sUSD through this mechanism, and the benefits are

• 200% collateral ratio ( originally designed at 500%+)
• Debt can be transferred linearly to the agreement
• Users do not need to repay after all transfers
• Agreements resolve debt through means of profit and $SNX appreciation

The advantages are obvious, improving the minting efficiency of SNX, while eliminating the risk of liquidation for borrowers, and if the market has strong confidence in SNX, it will enter a positive cycle.

But the problem was also immediately revealed:

• The market still has a strong PTSD for endogenous collateral such as SNX-sUSD
• Lack of confidence and due to the increased minting efficiency of SNX, which has caused additional sUSD to flow into the market, the Curve Pool has deviated significantly
• Due to the design of the “delegation pool”, users no longer actively manage their debts and cannot repay their debts by buying low-priced sUSD in the market

The question that everyone is most concerned about is whether it can be re-anchored, which is very dependent on the project party, because it is necessary to increase the demand or incentive of sUSD, which @synthetix_io is also very clear, but the market is unknown whether the algorithmic stablecoin of this endogenous collateral will pay, and the sequelae of LUNA are still too big, but purely from a design point of view, the design of synthetix is still advanced, and it may be favored if it is born in that period of stability and recklessness.

(This does not constitute a recommendation to buy or sell, only states the reason why something happened for study and research)

!

2/ veCAKE governance attack, cakepie protocol faces removal

Dramatically, the ve model itself was designed to prevent governance attacks, but veCAKE was killed by centralized sanctions.

Without going into details, the main controversy is Pancake’s belief that @Cakepiexyz_io directing CAKE to liquidity-inefficient pools through governance power is a “parasitic” act that harms Pancake’s interests.

However, this result does not violate the principle of operation of the ve mechanism, cake emissions are determined by cakepie’s governance token, vlCKP, which is the representative of governance power and can form a bribery market, which is the meaning of protocols such as cakepie and convex.

The relationship between Pancake - cakepie and Curve - Convex is basically the same, Frax and Convex benefit from growth by accumulating a large number of veCRV votes, and the design of the ve model does not directly correlate fees with emissions, cakepie was pointed out that the problem of unreasonable guidance of emissions is the result of insufficient competition in governance rights from the perspective of the market, and the conventional practice is to wait for or promote market competition, if human intervention is necessary, There are actually better ways to adjust artificially, such as capping the pool on incentives, or encouraging more people to compete for vecake tickets.

3/ Continuing with the veCAKE governance attack above, @newmichwill, the founder of Curve, gave a quantitative calculation method:

• Measure the number of CAKES locked as veCAKE via Cakepie (these CAKES are permanently locked).
• Compare a hypothetical scenario: if the same veCAKE is used to vote for the “Premium Pool”, and all the proceeds are used to buy back and burn CAKE, what will be the amount of CAKE burned?
• Through this comparison, it is possible to judge whether Cakepie’s behavior is more efficient than directly destroying CAKE.

In Michael’s experience, on Curve, the veToken model is about 3x more efficient than directly burning tokens in terms of reducing CRV token circulation.

4/ BUIDL continues to grow, 24% increase in 7 days

(1) Last time it exceeded 2 billion, it is now close to breaking 2.5 billion

(2) The most recent $500 million increase didn’t come from Ethena

(3) may have attracted a new group of investors

Judging (4) on-chain traces, it may come from Spark, a lending protocol owned by Sky(MakerDAO)

The RWA business has always been growing, but it has not been well integrated into the DeFi Lego, and is currently in a state of “disconnection from the market and irrelevance to retail investors”.

!

5/ The IRS DeFi Broker Act is officially repealed

On April 11, U.S. President Donald Trump has signed a bill announcing the official repeal of the IRS DeFi crypto broker rules.

The DeFi sector has risen, but not much, and I personally believe that it is actually a major positive for DeFi, and the regulatory attitude is loosening restrictions on DeFi, which may release more possibilities for application innovation.

6/ Unichain Launches Liquidity Mining, $5 Million in $UNI Tokens Rewards 12 Pools

Tokens involved: USDC, ETH, COMP, USDT0, WBTC, UNI, wstETH, weETH, rsETH, ezETH

It has been 5 years since Uniswap last liquidity mining, the last time was in 2020 with the launch of the UNI token, and this time the goal is to channel liquidity for Unichain. It is estimated that many people will dig for the opportunity to obtain UNI tokens at a low cost.

7/ Euler expands to Avalanche and TVL has entered the top 10 lending protocols

(1) TVL increased by 50% in one month

(2) Most of the growth came from incentives, mostly from Sonic, Avalanche, EUL, and others.

!

!

8/ Cosmos IBC Eureka is officially launched

(1) Based on IBC v2

(2) The gas consumed per transaction $ATOM burned

(3) supports cross-chain between Cosmos and EVM

(4) currently supports mainstream assets on the Ethereum mainnet and Cosmos, and has not yet been extended to L2

(5) Cosmos hub has seen $1.1 billion in cross-chain inflows in the last 1 week

With the introduction of strong empowerment for ATOM, any chain in Cosmos can attract a large amount of capital to enter, which will likely drive the value growth of ATOM, and the situation that the ecological explosion that occurred during the LUNA period and the inability to relate to ATOM will be improved.

While there have been significant inflows in the recent week, sustainability needs to be looked at if the fundamentals of ATOM are to be transformed.

!

9/ Repo

(1) AaveDAO began to officially buy back tokens

(2) Pendle’s proposal to list PT tokens on Aave

10/ Berachain farming

(1) Updated POL reward distribution rules to cap 30% on the distribution ratio of a single Reward Vault

(2) Berachain governance update introduces a new Guardian Council, which is responsible for reviewing and approving RFRVs

(3) OlympusDAO responds to the new rules and prepares to move part of the POL liquidity to maintain high incentives for the $OHM pool

(4) Yearn’s $yBGT landed on Berachain

After Berachain experienced gold in March, the coin price and TVL have entered the adjustment, and the official modifications and restrictions have been made to the unreasonable distribution of incentives exposed, although TVL has been flowing out in large amounts in the past few weeks, but it is still one of the most DeFi chains. Keep an eye out for more protocol integrations, as well as TVL inflows.