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This Week In DeFi – December 15

This Week In DeFi – December 15

Alex Miguel
December 15, 2023

Happy Friday, DeFi readers!

This week…

Ledger loses $484K in Connect Kit exploit
SNX becomes deflationary following vote
Rainbow wallet launches “points” program
Tether freezes OFAC-sanctioned addresses

Ledger loses $484K in Connect Kit exploit

Malicious code inserted into Ledger’s Connect Kit has resulted in the loss of more than $480,000, with multiple major DeFi protocols being affected by the exploit.

Connect Kit is a piece of code that allows DeFi protocols to connect to Ledger’s hardware wallets. Ledger has confirmed that an employee had been targeted in a phishing attack, enabling the hackers to publish a malicious version of the code.

Users were advised to avoid using any dApps via Ledger until the malicious code was deactivated, which now has been achieved.

UPDATE: The genuine Ledger Connect Kit 1.1.8 is now fully propagated. Ledger and WalletConnect can confirm that the malicious code was deactivated. You are now safe to use your Ledger Connect Kit. Reminder that that we always encourage clear signing. twitter.com/i/web/status/1…
— Ledger (@Ledger)
6:45 PM • Dec 14, 2023

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SNX becomes deflationary following vote

The Synthetix community has voted to end inflation for its SNX token, through the passing of proposal SIP-2043.

The community has agreed that inflation as an incentive is no longer effective and will implement a buy-back and burn mechanism, once its Andromeda upgrade is deployed on L2 network Base.

It has been pointed out that the move will go as far as making SNX’s supply deflationary, as half of the fees generated from the Andromeda upgrade will be used to purchase and burn SNX on the open market.

PSA: You will no longer be punished for passively holding SNX. This was needed to scale the early network, but we have crossed a critical threshold. It’s still better to stake, and lower risk now, but if you don’t stake you will still benefit from the token buyback and burn.
— kain.eth (@kaiynne)
9:30 PM • Dec 9, 2023

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Rainbow wallet launches points program

Browser-based wallet Rainbow has introduced a points program, designed to reward users for activity with the wallet.

Rainbow has also allocated additional points to users of competitor MetaMask, for those who have used MetaMask’s swap service in the last year.

Although it has not been explicitly stated, users speculate that accumulating the points may make them eligible for a future Rainbow airdrop.

Welcome to Rainbow Points — the first step towards including our community in the future success of Rainbow
Every Ethereum user has been dropped points today 🌈
Claim your points and start earning more by doing the things you already do onchain
— Rainbow (@rainbowdotme)
10:25 PM • Dec 12, 2023

Tether freezes OFAC-sanctioned addresses

Tether has frozen addresses sanctioned by the US Office of Foreign Asset Controls (OFAC), in a proactive measure to “prevent any potential misuse of Tether tokens.”

New CEO and former CTO Paolo Ardorino has frozen 161 wallets in the move, however only eleven of them are reported to have been holding USDT. Tether will also freeze any new addresses added to the OFAC sanctions list in the future.

Ardorino has said in a press release that the new policy is part of a Tether expansion of cooperation with global law enforcement and regulators.

Tether Introduces New Policy to Strengthen Ecosystem Security
Read more ⬇️
— Tether (@Tether_to)
4:50 PM • Dec 9, 2023

The points pandemic – what is going on?

A multitude of projects and protocols have popped up lately, offering “points” as an incentive for using their platforms.

Here’s a handful of such projects using a points system right now:

Blast (layer-2 network)
Orbiter (cross-chain bridge)
Linea (layer-2 network)
Rainbow (wallet + DeFi)

But what is the reason for the points pandemic, and what does the community think?

In essence, points represent a measurable way for users to keep track of how much they have meaningfully interacted with a protocol, with a likelihood of being exchangeable for tokens or an airdrop in the future – all without a protocol explicitly stating monetary rewards or even announcing a token at all.

So far, the mechanism appears to be a success; users are flocking to use these platforms en masse. The mechanism is likely successful because it gives users reassurance that they are doing something productive on the platforms, and have a good chance of being rewarded for their efforts. Compare this to previous airdrops, where users would often blindly use protocols without knowing exactly how tokens would eventually be allocated. Even worse, oftentimes these platforms would not even make it known that users would be retroactively compensated for using the platforms – they simply airdropped tokens to the small handful of users that had interacted with them.

Of course, the system has its pros and cons:

Users benefit from getting a good idea of their contributions, and a rough expectation of a share of rewards. Projects benefit from getting a larger pool of active users, some of which are likely to stay and continue using the product or service. There may also be some minor legal benefits, in terms of awarding a non-monetary (and theoretically value-less) reward to users.

On the other hand, users don’t even know if the project will truly launch a token. Additionally, the influx of users may dilute the share of tokens a user receives by a large margin – resulting in smaller airdrops than historical ones. Projects also attract point-farmers, who could also be referred to as project “tourists” who are only there in the short-term to extract a return. This can bring low-quality short-term traffic, while also diluting the rewards for genuine users.

Regardless of which way you slice it, points are taking over the current landscape of new platforms – but is it a system that’s here to stay?