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Friday Metrics Watch #9; Uniswap and DAI woes

Uniswap – Volatility in the pool

Coming out of nowhere at the turn of the year, Uniswap has been the darling of the DeFi circuit, thanks to its minimalistic design and slick UI. Uniswap’s trading volumes, however, have started to drop significantly this month. The daily trading volumes peaked at around $3 million in the last week of April and since then have been on a persistent downward trend with the volumes now at $500-600k per day, a more than 60% drop from the peak levels.

We think this might be because of the return of the BTC; BTC has rallied to north of $6000 from a low of $3400 in late January. Therefore, a lot of traders are less worried about locking up capital in Uniswap liquidity pools, and would much rather catch the BTC wave up. As we had discussed earlier, Uniswap is basically a short-vol construct; in times of rapid price volatility, liquidity providers tend to lose money, and would much rather hold crypto straight.

Source: coingecko

DAI – interest rate spikes

Meanwhile, in continuing efforts to maintain DAI’s $1 peg, MakerDAO’s decentralized governance system has decided to increase the stability further by 3 percentage points to 19.5%. That’s the seventh time that the project has decided to increase the stability fees this year after the previous increases did not do enough to resolve its stability peg debacle.

We had previously explored DAI’s struggles with price stability here and here. The rate at which the stability fees have been increasing in the past three months has seemingly left CDP holders disillusioned as they are now expected to pony up far more in stability fees (effectively, interest rates) than what they had anticipated when the CDP was first opened. For example, the stability fees was 0.5% at the beginning of this year, which incentivized many ETH holders to borrow DAI against their ETH holdings.


However, the current stability fees of 19.5% are in line with interest rates charged by unscrupulous loan sharks in the unorganized lending markets. Imagine taking out a car loan at 0.5% in January, and having to pay 19.5% on the same loan in five months! You could obviously liquidate the loan, but the liquidation penalty is also steep, at around 13% of the collateral, which is again at least 1.5x in the ETH that has been posted. If you have high interest rates, and you have capital inefficiently locked up; And you might have been better off going to your friendly neighborhood centralized bank in this scenario and taking out an 8% car loan with bells and whistles!

In addition to scrutiny from various agencies around charges of unscrupulous lending, DAI also has to contend with the specter of the SEC looking at algorithmic, crypto collateralized stablecoins to see if they should potentially be treated as securities. We are still bullish on DAI, but definitely brace for some short-to-medium turbulence here.

Ethereum Locked in DeFi

MakerDAO still accounts for a lion’s share of ETH locked up in collateral, with about 1.97 million of ETH locked up. Augur and Compound showed a moderate w/w growth of 4% and 7% ,respectively, while Uniswap and Maker declined.

Source: defipulse.com

Lightning Network Growth

Capacity per channel showed a strong growth of 4% w/w. The total number of nodes increased w/w by 1% while the total number of channels decreased by 1%.

Source: 1ml.com

(For reference, some previous articles on LN, here).

DEX Tracker

Trading volumes on DEXs have increased on a w/w basis, with the average daily trading volume averaging 35k ETH for this week. IDEX remains the biggest DEX in terms of trading volume and DAI is the highest traded cryptocurrency on DEXs.

Source: dex.watch

(For reference, some previous articles on DEXs, here and here).

Compound Loans

Total loans issued on Compound for the last week stands at approx. $760k for the week, a mild increase from $553k in the previous week. WETH is the most borrowed cryptocurrency on Compound followed by DAI and BAT.

Source: loanscan.io

Dharma Loans

Total loans issued on Dharma Lever for the last week stands at approx. $960k for the week, a moderate decline from the previous week. DAI is the most borrowed cryptocurrency on Compound followed by WETH and USDC.

Source: loanscan.io

MakerDAO Loans

DAI loans issued on MakerDAO for this week stand at ~$1.7 million, a moderate increase from last week. The total outstanding DAI debt currently stands at ~$83 million.

Source: loanscan.io

(For reference, some previous articles on MakerDao, here and here).

You can also check out last week’s Metrics Watch here.

Meanwhile in Crypto Wonderland….

“Ex Deutsche Bank Executive to Head Founders Bank”
Founders Bank, which plans to offer financial services to crypto companies, has appointed former Deutsche Bank executive Kenan Altunis as chief executive officer. The Malta-based bank, whose investors include crypto exchange Binance, is planning to serve technology companies such as startups in the blockchain and cryptocurrency markets that have had trouble securing services from traditional banks. The bank is working to get a license from the Malta Financial Services Authority and plans to offer services in Europe.

“Binance Beefs Up Security Of Its Exchange After the Hack”
Cryptocurrency exchange Binance said it is revamping security measures after losing some 7,000 bitcoin worth over $40 million in a hack earlier this week. “Significant” changes related to its application programming interface (API), two-factor authentication (2FA) and withdrawal validation are being made, Binance CEO Changpeng Zhao said in a blog post published on Friday. The exchange did not disclose more details regarding these efforts, but said it is also improving its risk management and know-your-customer procedures to fight phishing, among other additional security measures at the back-end.

“Ethereum-based Mortgages”
The blockchain technology has become a reliable ledger that hosts information for many industries including supply chains. Now, on fintech startup called Fluidity plans to launch a project that will log mortgages onto the blockchain network. On Thursday the company announced its schedule to develop the first ethereum-powered mortgages in New York and California. After all the licensing paperwork is finalized, Fluidity executives said the offering is planned for this summer.

“PayPal Reluctant To Engage in Cryptocurrencies”
The chief financial officer (CFO) of major payment system PayPal said that the firm is hesitant about getting involved in the cryptocurrency sector. Speaking about the company’s future cryptocurrency plans, PayPal CFO John Rainey pointed out that the firm previously allowed its merchants to accept bitcoin (BTC) as a form of payment, but subsequently saw the instability and volatility of the currency. Rainey also revealed that PayPal made a $500 million worth investment in transportation network company Uber, because the two companies intend to jointly develop a payments platform.

Crypto Twitter Pick

What We’re Reading / Listening To

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Could Social Media Discontent Help the Decentralized Web? Featuring Ashley Tyson

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