Experts weigh in on the Ethereum vulnerabilities after Merge: Finance Redefined

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Wel­come to Finance Rede­fined, your week­ly dose of essen­tial decen­tral­ized finance (DeFi) insights — a newslet­ter craft­ed to bring you sig­nif­i­cant devel­op­ments over the last week.

The past week in the DeFi ecosys­tem saw major devel­op­ments cen­tered around the Ethereum Merge. 

Aave (AAVE) com­mu­ni­ty pro­posed tem­porar­i­ly sus­pend­ing Ether (ETH) lend­ing before the Merge, cit­ing the poten­tial issue of high ETH uti­liza­tion that may result in liq­ui­da­tions being hard or impos­si­ble and annu­al per­cent­age yields (APYs) reach­ing neg­a­tive fig­ures. An indus­try expert shared his opin­ion on pos­si­ble cen­sor­ship vul­ner­a­bil­i­ties that the Ethereum net­work could even­tu­al­ly face in the wake of its tran­si­tion to a proof-of-stake (PoS) blockchain.

Mov­ing ahead of the Ethereum Merge devel­op­ments, some oth­er major events that made head­lines include Baby­lon Finance’s even­tu­al shut­down after months of try­ing to recov­er from the neg­a­tive momen­tum caused by the Rari Fuse exploit. The Unit­ed States Fed­er­al Bureau of Inves­ti­ga­tion (FBI) has issued a fresh warn­ing for investors in DeFi plat­forms, which have been tar­get­ed with $1.6 bil­lion in exploits in 2022. 

The top 100 DeFi tokens record­ed a bear­ish price action over the past week, with the major­i­ty trad­ing in the red, bar­ring a few tokens that have shown even dou­ble-dig­it growth.

Will Ethereum 2.0 be vulnerable to censorship? Industry professional explains

The Ethereum net­work will be able to with­stand cen­sor­ship risks both in the short and long term, accord­ing to Ethereum com­mu­ni­ty mem­ber and investor Ryan Berckmans.

The ban of Ethereum-based pri­va­cy tool Tor­na­do Cash by Unit­ed States author­i­ties ear­li­er this month left many won­der­ing whether Ethereum trans­ac­tions could also be at risk of cen­sor­ship, espe­cial­ly after Ethereum’s immi­nent tran­si­tion to a proof-of-stake system.

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Aave community proposes to suspend ETH lending before the Merge temporarily

With the Ethereum Merge on the way, the risk research and analy­sis team Block Ana­lit­i­ca pro­posed a tem­po­rary pause in ETH bor­row­ing to mit­i­gate the risks that may lead to a DeFi implo­sion in the Aave lend­ing pro­to­col dur­ing the Merge. 

The team point­ed out the poten­tial issue of high ETH uti­liza­tion, which may result in liq­ui­da­tions being hard or impos­si­ble and the APY’s reach­ing neg­a­tive fig­ures. Fur­ther­more, the uncer­tain­ties sur­round­ing the Merge and a poten­tial Ethereum proof-of-work (PoW) fork may cause liq­uid­i­ty providers to start a bank run, push­ing uti­liza­tion to even high­er levels. 

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DeFi protocol shuts down months after the Rari Fuse hack

Baby­lon Finance has final­ly announced that it will shut down after months of try­ing to recov­er from the neg­a­tive momen­tum caused by the Rari Fuse exploit. 

In a state­ment, founder Ramon Recuero explained that the plat­form expe­ri­enced an insur­mount­able neg­a­tive streak despite their team’s efforts to endure the domi­no effect caused by the hack. Accord­ing to Recuero, the pro­to­col lost $3.4 mil­lion. Fol­low­ing this, the total val­ue locked with­in the plat­form went from $30 mil­lion to $4 mil­lion. To make mat­ters worse, the Fuse pool was aban­doned, tak­ing out a lend­ing mar­ket worth $10 mil­lion, Recuero noted.

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FBI issues alert over cybercriminal exploits targeting DeFi

The U.S. FBI issued a fresh warn­ing for investors in DeFi plat­forms, which have been tar­get­ed with $1.6 bil­lion in exploits in 2022. 

In a pub­lic ser­vice announce­ment on Tues­day, the FBI’s Inter­net Crime Com­plaint Cen­ter said the exploits have caused investors to lose mon­ey — advis­ing investors to con­duct dili­gent research about DeFi plat­forms before using them while also urg­ing plat­forms to improve mon­i­tor­ing and con­duct rig­or­ous code testing.

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DeFi market overview

Ana­lyt­i­cal data reveals that DeFi’s total val­ue locked reg­is­tered a minor change from the past week. The TVL val­ue was about $61.97 bil­lion at the time of writ­ing. Data from Coin­tele­graph Mar­kets Pro and Trad­ingView shows that DeFi’s top 100 tokens by mar­ket cap­i­tal­iza­tion had a mixed week. Even though the major­i­ty of the tokens are trad­ing in red on the week­ly charts, the price change has been min­i­mal com­pared to the last week.

Lido DAO (LDO) was the biggest gain­er among the top 100 tokens, reg­is­ter­ing a week­ly gain of 5.31%, fol­lowed by Pan­cakeSwap (CAKE), with a rise of 1%. The rest of the oth­er top100 tokens reg­is­tered a sin­gle-dig­it decline over the past week.

Thanks for read­ing our sum­ma­ry of this week’s most impact­ful DeFi devel­op­ments. Join us next Fri­day for more sto­ries, insights and edu­ca­tion in this dynam­i­cal­ly advanc­ing space.

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