This Week In DeFi - May 13

This week, LUNA and UST enter a death spiral, Aurora launches a $90M development fund and Bancor 3 goes live.

May 13, 2022

To the DeFi community,

This week, TerraUSD took center stage for unfortunate reasons, as the third-largest stablecoin lost its peg – sending Terra’s native LUNA token into a “death spiral”. Kick-started by an apparent attack on the system, a significant de-pegging of UST to the dollar resulted in a rush to the exits by token holders. The outcome was a minting of an exponentially-increasing quantity of LUNA tokens as UST was redeemed, diluting the price to a mere fraction of a cent as supply reaches the trillions. 

A potential bail-out fell through, while selling reserves wasn't sufficient or quick enough to stop the bleeding. The Terra team has since accepted its unfortunate fate, making adjustments to protect the network and ultimately accelerate the UST exit process for holders.

Aurora, the EVM layer on NEAR Protocol, has launched a $90 million developer fund to boost DeFi adoption on the network, in an attempt to bring on more Ethereum-based developers. NEAR Protocol’s DeFi arm, Proximity Labs, will manage the funds and provide grants to developers building DeFi DApps on Aurora.

The latest version of the Bancor protocol, Bancor 3, has gone live. The new protocol boasts 100% impermanent loss protection for liquidity providers, single-sided staking (as with Bancor 2) and lower gas fees. It will also have an auto-compounding mechanism, ensuring that fees and rewards are auto-compounded without transaction costs.

Shiba Inu has provided an update on new developments, which are full of active planning and development. Plans for the ecosystem include a Layer-2 scaling chain for Ethereum, as well as a “SHI” stablecoin that is reportedly close to completion. Interestingly, the SHI stablecoin appears to be targeting a peg of one cent, rather than one US dollar.

The crypto bear-market cleanse is in full swing, as unviable projects begin to be weeded out from more sustainable protocols amidst market volatility and real world stress-testing. The first major casualty came sooner than expected, as Terra's LUNA and UST reach the conclusion of their grand experiment with an unfortunate de-pegging and inflationary spiral. Multiple protocols and crypto-related funds also suffered immensely from the Terra contagion.

Regulators are taking keen notice of these downside risks coming to fruition, with a lot of commentary arising following the UST collapse. Tether also appears to be continuing its opacity over reserves, which may eventuate in an interesting story. Expect fresh regulation and new market rules on the horizon, as regulators across the world collaborate to put some reigns on the crypto world.

It's not all bad news, however, as development and innovation continue under the radar across the industry. Bancor 3, fresh funding for new projects and entire ecosystems are still chugging along. The cleanse will eventually provide us with truly valuable and sustainable projects emerging from the rubble – while the rest take their tumble.

Thanks to our partner:

Nexo – Unlock the power of your crypto with up to 17% interest and borrowing starting at 6.9%. Read our Nexo review.

Interest Rates

Highest Yields: Nexo Lend at 10% APY, BlockFi at 8.50% APY

Cheapest Loans: Celsius at 0.87%, Aave at 3.50% APY

MakerDAO Updates

DAI Savings Rate: 0.01%

Base Fee: 0.00%

ETH Stability Fee: 0.50%

USDC Stability Fee: 1.00%

WBTC Stability Fee: 0.75%

Highest Yields: Nexo Lend at 10% APY, Gemini at 7.99% APY

Cheapest Loans: Celsius at 0.54%, Aave at 3.19% APY

Top Stories

Stat Box

Total Value Locked: $61.56B (down 18% since last week)

DeFi Market Cap: $50.3B (down 53%)

DEX Weekly Volume: $39B (up 129%)

DAI Supply: 6.01B (down 426%)

Bonus Reads