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This Week In DeFi – March 8

This Week In DeFi – March 8

Alex Miguel
March 08, 2024

Happy Friday, DeFi readers!

This week…

Wormhole to airdrop 6% of W token
Dencun may significantly reduce L2 fees
Uniswap fee proposal passes temperature check vote
Hedgehog protocol enables hedging against ETH fees

Wormhole to airdrop 6% of W token

Cross-chain bridging project Wormhole has introduced an airdrop eligibility tool in anticipation of its upcoming $W token launch, allowing DeFi users to see if they are eligible for the airdrop – along with how many tokens they may receive.

617 million tokens have been allocated to community members and users of Wormhole-linked protocols before February 6.

The allocation represents a little more than 6% of W’s total supply of 10 billion tokens, with some futures markets already speculating on the token’s price.

Enter the Wormhole.
airdrop.wormhole.com
— Wormhole (@wormholecrypto)
Mar 6, 2024

Dencun may significantly reduce L2 fees

A research report by Fidelity Digital Assets says that Ethereum’s awaited Dencun upgrade on March 13 will significantly lower fees for Layer-2 users.

While the upgrade promises fee reductions primarily for layer-2 users without directly benefiting base Ethereum blockchain users, it's expected to encourage a shift towards layer-2 platforms, despite some trade-offs in decentralization and security in the short term.

Layer-2’s are already having a good year in 2024, as activity across L2 platforms reaches new weekly highs of around 3.5 million active users.

🚨According to #Fidelity, the upcoming $ETH #Dencun upgrade is expected to usher in an era of practically-zero fees on L2 (#Layer2) networks. This significant development could greatly enhance the #scalability and affordability of transactions on the #Ethereum#blockchain.
— Paweł Łaskarzewski (@PawelSynapse)
Mar 7, 2024

Uniswap fee proposal passes temperature check vote

The Uniswap Foundation's proposal to modify Uniswap's governance and fee structure – aimed at rewarding users for delegating and staking UNI tokens – has successfully passed a temperature check vote with unanimous support.

This preliminary vote, which gauged the community's sentiment towards the proposal, sets the stage for an upcoming on-chain vote scheduled by the Uniswap Foundation.

If the on-chain vote passes, it will enable the activation of fees on the Uniswap protocol, allowing for the automatic collection and distribution of these fees to active, voting UNI holders.

The market has reacted with enthusiasm after a @Uniswap proposal, by @UniswapFND, brought about the idea of turning on the illusive "Fee Switch", which will bring revenue to token holders
Were there any short-term highly profitable $UNI traders?
Let's take a look...
— Nansen 🧭 (@nansen_ai)
Feb 28, 2024

Hedgehog protocol enables hedging against ETH fees

Hedgehog has raised $1.5 million in a pre-seed funding round to develop a derivative token aimed at mirroring and hedging against the volatile prices of crypto transaction fees.

The innovative protocol seeks to mitigate the unpredictability faced by protocols and businesses from fluctuating transaction fees on networks like Ethereum.

By creating an asset that reflects the moving average price of transaction fees, Hedgehog offers a mechanism for users to long or short this asset, providing a strategic tool to hedge against future changes in network costs.

🚀🦔 We're thrilled to announce that Hedgehog Protocol has successfully closed its pre-seed funding round!
Our commitment to simplifying and optimizing blockspace and gas markets has earned the support of key figures and institutions. This gives us a boost to further develop… twitter.com/i/web/status/1…
— Hedgehog Protocol 🦔 (@TheHedgehog_io)
Mar 6, 2024

Stablecoin yields are pumping

The wider crypto and DeFi market has been on a tear, including everything from ETH to meme coins.

Along with this, stablecoin yields (as well as borrowing rates) have been pumping – likely due to traders doubling down on leverage to boost their exposure to the bull-run.

While yields for stablecoins during the bear market were consistently in the low single-digits, we’re consistently seeing double-digit APY returns on USDC and DAI over the last several weeks.

Funds borrowed from Aave have also nearly doubled since the beginning of the year:

For those who haven’t done this themselves, sophisticated traders will often use DeFi lending services to create synthetic leveraged positions on crypto. This often involves using a lending protocol to borrow stablecoins against one asset (for example, ETH), and then using those borrowed stablecoins to purchase more ETH on the open market.

This provides the trader with extra exposure to ETH, and therefore extra profits if ETH rises in the short-run. In turn, this extra ETH can be sold once it appreciates in value, with the trader paying back the stablecoins and pocketing the profit made (minus any interest paid on the stablecoin loan).

Of course, when too much leverage is taken across the market – especially in turbulent market conditions – this can lead to some precarious liquidation scenarios when things go the wrong way.

Fortunately, following some close calls in previous market crashes, most protocols are better equipped to limit exposure and losses in any large-scale liquidation events.

Will we see any close calls following this bull market?