⛓ Axie is ctrl + z'ing their hack, Tesla enters DeFi

Tesla took out a $7.8M DeFi real estate loan, Axie has raised money to return all the hacked funds to their users.

FTX US Buys Stake in Stock Exchange IEX
Crypto traders come to the NYSE

FTX US Buys Stake in Stock Exchange IEX

Centralized crypto exchange FTX US bought a stake in IEX Group, operator of US stock exchange Investors' Exchange (IEX). IEX announced the deal on April 5, 2022, and pending regulatory approval, will close next month. The terms of the deal are not public, but FTX has claimed off the record that it is acquiring a “significant” stake in IEX.

IEX is a stock exchange owned by buy-side investors, positioning itself as a pro-investor exchange that is focused primarily on institutional investors. For instance, IEX publishes the matching rules used in its automated order matching engine. It also combats high-frequency trading in its dark pools by not allowing co-location of trading firms' internet equipment near its base and artificially slowing down trading. IEX refuses to pay for order flow, which means the exchange doesn't offer kickbacks to brokers for routing trades through their platform.

IEX is only 10 years old, and while its market share is growing, the exchange is tiny compared to the NYSE and Nasdaq. The exchange likely sees institutional crypto trading as an untapped income source and a new growth area in which it can capture market share.

IEX CEO Brad Katsuyama believes a partnership with FTX US adds a strong foundation for trading cryptos in a legally compliant manner. While much of FTX's product line is illegal to trade in the United States, FTX US is completely legal–which is why its offerings are so limited compared to the worldwide version of FTX.

Sam Bankman-Fried, CEO of FTX, has long been a proponent of regulating cryptos in the United States, because he believes regulation will open the crypto markets to massive institutional liquidity. Within that context, IEX seems like a strong American partner for FTX US.

MakerDAO is Diversifying Into the Real World by Issuing Loans to Tesla
Photo by David Barajas / Unsplash

MakerDAO is Diversifying Into the Real World by Issuing Loans to Tesla

Over the past few weeks, crypto legend MakerDAO has been in the news a lot. Mostly, this has been because Terra’s (LUNA) founder Do Kwon has been publicly saying he’s trying to kill MakerDAOs algorithmic stablecoin, DAI. Almost in direct contrast to Terra’s announcements of buying up Bitcoin (BTC) and Avalanche (AVAX) to back their stablecoin UST, MakerDAO announced that they have made a $7.8M loan to Tesla.

This is a direct example of the two warring camps in crypto stablecoins. One side thinks crypto stablecoins should be backstopped by crypto assets to keep the ecosystem exposed to more decentralized assets, while the other camp wants to diversify into assets that are less correlated. The problem with backstopping stables with cryptocurrency is that, generally, the crypto market as a whole moves together. When Bitcoin goes down, most other cryptos go down. We saw this in recent months, with BTC, LUNA, and AVAX all seeing massive drops to 3 month lows at the same time.

MakerDAO is betting stable companies working in the real world will be a more secure backstop when crypto hits hard times. This is not the first loan that MakerDAO has made, they also have loans out to O'Reilly Auto Parts, Wawa, and Service King.

The loan to Tesla is being made to build a new repair and collision center, and they’re expecting the credit line to increase to $14.2M later this year. Tesla is already the second largest publicly-traded holder of Bitcoin in the world, and their CEO, Elon Musk, has been increasingly interested and vocal for his support of cryptocurrency.
These deals are made through a company called 6s Capital, a commercial lender which is powered by DAI vaults, who is a loan origination customer of RWA Company, which “serves as a bridge between institutional investors and decentralized finance.” The structure of the fees between each of these companies originating and facilitating the loans is not clear.

Crypto VC: NEAR Protocol Will Launch Its USN Stablecoin with 20% APY
Photo by Sharon McCutcheon / Unsplash

Crypto VC: NEAR Protocol Will Launch Its USN Stablecoin with 20% APY

NEAR Protocol will launch its own native algorithmic stablecoin, called USN. Crypto VC Zoran Kole says USN will launch with staking yields around 20%.

NEAR Protocol (NEAR) ($11.2B market cap) is a Proof of Stake layer-1 blockchain that can process around 3,000 transactions per second with sub-2 second finality. Among Ethereum competitors, NEAR Protocol is similar to Solana. NEAR Protocol is also a VC darling, having raised $500M in VC funding since January 2022, with more raises expected to be announced over the next few weeks.

Stablecoin adoption has exploded over the last couple years. Decentralized finance (DeFi) relies heavily on stablecoins, and investors now stake and farm stablecoins to earn yields. Last year, the Terra ecosystem and its UST algo stablecoin rose to prominence, due in large part to Anchor Protocol offering ~20% yields on UST. This year, Terra has the second highest total value locked (TVL) among all DeFi blockchains, at $19B. Anchor represents 78% of Terra's total TVL.

Rumors of 20% yields for NEAR Protocol's new stablecoin are no coincidence. Anchor's ~20% yields are abnormally high for an established DeFi project on a top blockchain, and there's no doubt that last year's sideways market made high-yield stablecoins attractive to investors. Unfortunately for UST holders, Anchor has admitted it can't sustain such high yields for UST, and the protocol announced it will decrease its yields soon.

This small decrease in Anchor yields opens the door for NEAR Protocol's USN stablecoin. Kole believes USN yields around 20% will draw significant capital into the NEAR DeFi ecosystem, possibly at the expense of competing L1s. It's easy to see how he reaches that conclusion, as NEAR appears to be following Terra's growth playbook. Today, NEAR has an $11.2B market cap but only $345M TVL, which suggests its DeFi ecosystem has a lot of room to grow.

Terra's CEO, Do Kwon, believes that stablecoin investors will migrate to pools and protocols offering the highest yields, as he demonstrated by starting a Curve war with Maker DAO. It's unclear at the moment if Terra will prop up Anchor for a while to prevent its UST holders from migrating to NEAR Protocol's USN stablecoin.

Sky Mavis Raises $150M to Compensate for Ronin Hack
Source: Axie Infinity Substack

Sky Mavis Raises $150M to Compensate for Ronin Hack

A few weeks ago, Axie Infinity’s sidechain Ronin was hacked for over $600M. The hacker walked away with 173,600 Ethereum and 25.5M USDC, and no one noticed for a week. The hack originated due to poor security practices, as opposed to the typical compromised contract hacks that we’re used to. Mechanically, the Ronin sidechain requires 5 of their 9 nodes to reach a consensus to validate the transaction that the hacker performed. The hacker was able to get keys for 5 of the 9 nodes due to poor security practices (unencrypted keys stored on the cloud, while they should be encrypted and kept offline).

Now the makers of Axie Infinity and their Ronin sidechain, Sky Mavis, have raised $150M to help make all of their users whole from the recent hack. The funding round was led by Binance, and included Animoca Brands, a16z, Dialectic, Paradigm, and Accel. According to the Sky Mavis team, they will be making users whole using this $150M and the Axie balance sheet funds, fully reimbursing lost funds.

The Ronin Network bridge has been shut down since the hack was discovered, and there is no timeline for when it will be brought back online, but the team has said “the Ronin Network bridge will open once it has undergone a security upgrade and several audits, which can take several weeks.” For now, Binance is giving support by allowing ETH withdrawals/deposits for Axie users.

Sky Mavis is expanding their amount of validator nodes up to 21, and presumably changing their key management practices, though best practice would include us not knowing what changes there.
Sky Mavis is continuing forward with their planned release of Axie Infinity: Origins, which is their third version of gameplay upgrades and includes free starters, new features, and upgraded art and animations.  Axie Infinity remains the largest player in the NFT gaming space, with 4x the market cap of the next largest player, NBA Top Shot.

How was today's email?