PayPal stablecoin built using 5-year-old Solidity version
Aug. 9, 2023
Exploring the tech behind crypto
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Hi, Bradley Keoun here, editor of The Protocol.
Today’s big news story in the blockchain tech world is the U.S. crypto exchange Coinbase’s launch of its new Ethereum layer-2 network, Base – possibly the first of its kind to be launched by a publicly traded company. Is it the start of a new era? (Please see coverage in Protocol Village, below.)
Our feature by Sam Kessler takes a look at the past two weeks’ debacle (and near-disaster) involving the decentralized stablecoin exchange Curve – and adds up the lingering risks the industry still needs to address.
Also we’re covering:
PayPal’s new stablecoin.
Huobi’s outflows (and inflows).
The squabble between blockchain developers Matter Labs and Polygon Labs over the use (and ethics) of open-source software.
As Curve Averts DeFi Death Spiral, Fiasco Exposes Serious Risks
Curve founder Michael Egorov. (Michael Egorov, modified by CoinDesk)
The worst-case consequences of last month’s Curve exchange hack seem to have been avoided, thanks to a series of side deals cut between the project’s debt-strapped founder and a handful of key crypto players.
But the events still served as an indictment of the prevailing decentralized-finance, or DeFi, narrative since last year’s collapse of Sam Bankman-Fried’s FTX crypto exchange — that centralized platforms are susceptible to greed and poor risk management while decentralized platforms keep chugging along. It turns out that DeFi is susceptible too.
Curve, a crucial decentralized exchange on the Ethereum blockchain, was hacked last month for over $70 million. The price of CRV, the exchange’s native token, dropped by more than 20% in the immediate aftermath of the exploit.
The event fueled fears around the security and viability of Curve, which is widely considered a “blue-chip” crypto exchange in a crowd of less reputable competitors. The hack also drew attention to a risky lending position from Curve’s founder, Michael Egorov, who put up 33% of the supply of CRV to bank personal loans. If CRV dropped low enough in price, that collateral could have been automatically liquidated by DeFi lending platforms and then dumped onto the open market — tanking a systemically important DeFi asset’s price.
Curve offered its exploiter a 10% bounty in exchange for returned funds, and the platform has managed to recover nearly 75% of the assets lost to the attack. The price of CRV has also rebounded slightly in the past week as the Curve founder has paid down some of his loans, meaning his massive CRV bags are at lower risk of getting liquidated than they were immediately following the hack.
PAYPAL STABLECOIN: PayPal, the peer-to-peer payments platform, unveiled its own stablecoin, PayPal USD (PYUSD), to be backed by U.S. dollar deposits, short-term Treasuries and cash equivalents. Built atop the Ethereum blockchain using the ERC-20 token standard, PYUSD is the first stablecoin to be launched by a large traditional financial company. The actual issuer of the stablecoin is Paxos, whose original stablecoin Pax dollar (USDP) has failed to gain significant market share compared with leaders like Tether’s USDT and Circle’s USDC. Paxos previously managed BUSD, the Binance-branded stablecoin, but stopped minting it in February at the direction of New York state regulators. Walter Hessert, head of strategy at Paxos Trust, told CoinDesk TV that holders of the new PayPal stablecoin might be have more protection since the company is regulated, and “customers’ assets are protected, including if Paxos were to go bankrupt.” X (formerly Twitter) filled up with snarky posts from blockchain sleuths analyzing the Ethereum smart-contract coding for the new stablecoin. One narrative focused on an “assetProtection” role that appears to allow a centralized actor to wipe balances. Another thread homed in on the project’s use of a five-year-old version of Solidity, a programming language used for Ethereum smart contracts. Scammers immediately started trying to defraud unsuspecting users by issuing fake tokens with the same trading ticker as PayPal’s. There’s some speculation that the company’s entrée might put pressure on U.S. lawmakers to push forward on stablecoin legislation. Our columnist David Z. Morris notes that the real prize for PayPal might be interest revenue from reinvesting customer deposits.
EXCHANGE JITTERS? Huobi, the crypto exchange advised by Tron’s Justin Sun, saw its stablecoin reserves decline by $49 million in a week, or about 33%, as financial media in Hong Kong reported that several executives had been taken away by police in China. (A Huobi spokesperson denied the reports.) Then on Tuesday, blockchain data showed that a large investor (a “whale” in crypto slang) made two large deposits into Huobi worth more than $200 million, boosting the exchange’s holdings of USDT and Ether. A Huobi spokesperson said that the address does not belong to Justin Sun. The address is tagged as one of the top-10 holders of TRX token.
OPEN-SOURCE, OPEN WOUND. Matter Labs, developer behind the Ethereum layer-2 network zkSync, was accused by rival Polygon of copying part of its open-source code without providing proper attribution. Matter Labs quickly acknowledged that some code was copied, but insisted that the attribution had been provided. Matter Labs CEO Alex Gluchowski later conceded that its attributions could have been more prominent, writing on X (formerly Twitter) that “there is a more standard approach to attributions, which we will wholeheartedly apply from now on.” The kerfuffle provided a lesson on the community norms around usage of open-source software – and an example of just how touchy things can get in an ultra-competitive environment.
LinksDAO, an online community that bought a golf course in Scotland earlier this year for roughly $1 million, is accepting new members.
David Rubenstein, billionaire private-equity titan, says Bitcoin is here to stay, notes that there’s demand for a form of money that can’t be controlled by governments, regrets not buying BTC at $100.
Protocol Village
Highlighting blockchain tech upgrades and developments.
Coinbase CEO Brian Armstrong, now on cusp of realizing his “secret master plan” from 2016. (Coinbase)
Base, new Ethereum layer 2 blockchain built on OP Stack by the U.S. crypto exchange Coinbase, went live on Wednesday. (Click here for our exclusive interview with Jesse Pollak, head of protocols at Coinbase, who oversaw the rollout of the rollup.)
Hi, crypto payments application with Ethereum sidechain, raises $30M in strategic investment, forges partnership with metaverse gaming and venture capital giant Animoca Brands. (Animoca)
Solv Protocol, Singapore-based on-chain fund protocol, raises $6M, to expand team and continue development of technology designed to help organizations raise money through creation, usage and sale of financial products. (Laser Digital (part of Nomura Securities), UOB Venture Management, Mirana Ventures, Emirates Consortium, Matrix Partners, Apollo Capital, HashCIB, Geek Cartel and Bytetrade Labs.)
Parrot Finance, Solana-based DeFi protocol targeted by activist investors, will buy back its PRT tokens, after community vote to return slice of treasury valued north of $70M.
DeFi Stuck in Crypto Winter, Based on Key Metric: Messari
Decentralized finance or DeFi ecosystems are still suffering through crypto winter, according to the analysis firm Messari. As a whole, the industry’s total value locked, or TVL – a key metric that represents collateral and deposits put into blockchain protocols – has been declining. On Ethereum, by far the biggest DeFi ecosystem, TVL dropped by 13% drop to $23 billion over the past 30 days. Optimism and Solana eked out gains.
