RelayNode NYC #40 - February 18

RelayNode
Written By David Gogel
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Welcome to RelayNode NYC Area edition! The NYC blockchain ecosystem is growing rapidly. Our goal is to harness its energy and innovation for the benefit of New Yorkers and provide a weekly curated list of interesting content, upcoming events, and local jobs.

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RelayNode NYC is curated by:

David Gogel Advisor @ Paperchain.io fmr Associate @ Techstars' Blockchain Accelerator, Co-president @ Wharton FinTech, Corp dev @LinkedIn @AIG

Hsin-Ju Chuang Founder @Dystopia Labs. Former-Head of Growth @Stellar/Lightyear, Solana. Ex-Director at Tezos (TQ)

1 Big Thing: DeFi Arbitrage & Oracle Vulnerability Exploit

On Friday, a sophisticated trader leveraged current weaknesses in the DeFi ecosystem to execute a complex trade against the Fulcrum/bZx Margin lending protocol. The trader walked away with 1193 ETH, worth $298,250 @ $250/ETH. bZx, which maintains the Fulcrum protocol, claims that no funds were lost by users on its platform. From the perspective of the protocol, someone simply took out a loan. From the perspective of the lender, this loan is like any other.

Julien Bouteloup, founder of Stake Capital, summarized the complex arbitrage in the following:

CleanShot 2020-02-18 at 08.10.11.png

The Exploit: according to a post-mortem article published by Kyle Kistner, Co-founder of bZx, the attacker used the following playbook:

  • A flash loan from dYdX for 10,000 ETH (~$3M) was opened with zero collateral.

  • 5500 ETH was sent to Compound to collateralize a loan of 112 wBTC.

  • 1300 ETH was sent to the Fulcrum pToken sETHBTC5x, opening a 5x short position against the ETHBTC ratio.

  • 5637 ETH was borrowed and swapped to 51 WBTC through Kyber’s Uniswap reserve, causing large slippage.

  • The attacker swapped the 112 wBTC borrowed from Compound to 6871 ETH on Uniswap, resulting in a profit.

  • The flash loan of 10,000 ETH from dYdX was paid back from the proceeds.

Flash Loans: You can borrow an asset without putting down any collateral (for free) but only if you pay it back in the same transaction.

Upgradeability vs Sufficiently Decentralized: The bZx team announced their intention to use the contract admin keys to seize the collateral and use it to pay back the users. Many in the community began to question whether bZx’s pauses and administrator keys are sufficiently “decentralized.” Kerman Kohli, Founder of DeFi Weekly, sums it it up wellI: “I admire a team that's worked really hard to ship something of value to the ecosystem, but in its current form bZx makes me very nervous about how they're securing their contracts from an opsec perspective, transparency of upgrades and robustness of test cases.”

Ripple Effects: Some of the victims who bought insurance from Nexus Mutual filed claims to get compensated. Given that Nexus only covers smart contract technical hacks, the claims were rejected. Opportunity to build out new types of crypto insurance coverage?

Oracle Design Deficiency: Oracles are a critical piece of infrastructure for permissionless systems but are a difficult challenge that remain largely unsolved. The trader dumped the borrowed WBTC on Kyper (the pricing oracle for bZx) to manipulate the WBTC price to realize a profit on the short position. The risk of using a single pricing oracle as a source of truth results in  incidents where oracles are exploited for profit. To conduct a similar attack on a network that uses multiple price inputs (e.g. Chainlink) would require more sophistication but is still possible. 

Potential Market Manipulation: In May 2018, the CFTC and the Department of Justice began a criminal investigation into price manipulation of Bitcoin and Ethereum by crypto traders. The investigation is focused on how traders may have manipulated commodity prices by illegal activities such as spoofing and wash trading. Given how oracle works, did the trader commit a felony for securities/commodities manipulation per 18 U.S. Code § 1348?

Bottom-line: The sophistication of the products (highly levered options and derivatives) will remain higher than the individual sophistication of the players in the markets, causing dislocations that savvy funds and individuals will take advantage of. This black swan event will go a long way in improving the overall robustness of the DeFi ecosystem. Protocols are likely to implement better standards, while more research and experimentation in trustless oracle design is vastly needed.

Go Deeper:

Things to read

🌐 Why Bitcoin / Macro?

  • Kraken released its Bitcoin Volatility Report for January 2020. BTC’s +30.3% price appreciation marked its best start to the year since 2013. Stronger 1-month correlations with gold, oil, and US treasuries suggest that the Iran-US conflict and the coronavirus outbreak impacted bitcoin, supporting the notion that bitcoin continues to mature as an alternative asset class to traditional “risk-on” financial assets. Looking back to 2011, January volatility was 38 percentage points below the monthly average of 96%; should February follow trend, we can expect a continued uptrend in price and less volatility. Last month confirmed that address balances between 10 BTC – 100 BTC are in an “accumulation” phase, while those with a balance of 1,000 BTC – 10,000 BTC are exiting a “wait-and-see” phase. History suggests that as both cohorts exit their respective phases, volatility tends to re-enter the market. Shifts in sentiment and open interest in January indicate greater volatility in the coming weeks or months.

  • A collaborative report on the state of adoption in crypto in 2019/2020 was released by a collection of analysts, VCs, and startups. The report covers developments in institutional adoption, applications & adoptions, mining, staking & validating, exchanges, and regulation. Many interesting data points. Highly recommend taking a look.

💰 Funding, M&A, & Exits

  • BlockFi, a crypto-backed lending platform. raised a $30M Series B, led by Valar Ventures, with participation from Morgan Creek Digital, CMT Digital and Castle Island Ventures, among others. The firm grew revenues more than 20x in 2019, and now boasts more than $650M in deposits.

  • Amber Group, a Hong Kong-based startup offering integrated crypto trading services, including market making, OTC trading, electronic sales trading, lending, and treasury management, raised a $28M Series A, led by Pantera and Paradigm, with participation from Coinbase Ventures, Fenbushi Capital, Polychain Capital, and Blockchain.com. Funds will be used to expand operations and add new features to its platform.

  • Elliptic, a crypto analytics and enterprise risk management startup, raised $5M from Wells Fargo Strategic Capital. The capital brings Elliptic’s total Series B funding to $28M. Elliptic looks to expand in Asia and hire resources to sell its newly launched Discovery solution, which helps banks to decide which crypto exchanges to do business with.

  • AnChain.AI, an emerging leader in blockchain security and analytics, raised a $4.3M pre-A round, co-lead by Amino Capital and Susquehanna International Group. Funds will be used to expand the team and further scale the business.

  • Circle Internet Financial Ltd. agreed to sell Circle Invest, a digital-asset-investment app for individual investors, to Voyager Digital for a 4% equity stake in the company. Voyager will add more than 40,000 retail accounts, bringing its customer base to over 200K. The transaction is expected to close by end of March. After initially focusing on retail-oriented crypto businesses, Circle is doubling down on the USDC stablecoin. Circle recently divested its Circle Trade OTC trading business and Poloniex exchange. According to the Block, Circle is also seeking a buyer for SeedInvest. 

  • According to Reuters, JPMorgan Chase is in talks to merge its blockchain unit Quorum with Brooklyn-based startup ConsenSys. A merger with Quorum would align with ConsenSys’ shift toward growing its software division.

🔓 DeFi / OpFi

  • Complex securitizations are coming to DeFi. Lucas Vogelsang, Co-Founder of Centrifuge, announced Tin & Drop, two investment tokens on the Tinlake platform. These two tokens behave very similarly to how tranches are modeled in the traditional finance world. The Tin token can be seen as the junior tranche and token holders that own these tokens take second priority to the Drop token holders when money flows from borrowers back to funders, but depending on the performance of the pool also have the potential to generate a much higher return on their token value than Drop token holders.

  • Opyn introduced an options-based insurance market for investors to hedge against black swan events and insure Compound deposits. Opyn is built on top of a generalized options protocol called the Convexity Protocol. It works by creating tokenized put options known as oTokens which offer the right to sell a stablecoin for a dollar in the future. The tokens themselves are priced on the open market and traded on Uniswap. The insurance is provided by ETH holders who want to earn the premium paid by those looking to gain insurance.

  • Dharma announced they will “deploy a new system of smart contracts, called dTokens, which are a wrapper around Compound cTokens.” Similar to rDAI, these dTokens are interest-bearing stablecoins that are backed by their respective cTokens on Compound.

💸 STOs / Stablecoins / Tokens / DAOs

  • FC Barcelona signed a global partnership with Chiliz, a blockchain–based fan engagement platform for sports and entertainment. Fans around the world will be able to purchase ‘Barça Fan Tokens’ through a Fan Token Offering (FTOTM). They will also be able to collect the digital currency Chiliz $CHZ and Barça Fan Tokens periodically for free, via Token Hunt, the platform’s augmented reality feature. The token is scheduled to roll out in Q2 of this year.

  • Overstock.com, Inc. (NASDAQ:OSTK) stockholders voted to approve the proposed changes for the company to move forward with the issuance of its previously-announced Series A-1 Preferred Stock dividend on a 1:10 basis. The shares, which will be registered with the SEC, trade exclusively on the tZERO ATS under the symbol OSTKO.

  • ConsenSys Codefi’s “Activate” launched with the purpose of setting standards for the purchase, distribution, and use of utility tokens. Activate's "proof-of-use" protocol requires tokens to be usable at or immediately after selling tokens to participants -- and that tokens are used for their intended purpose. Activate, along with its first customer, SKALE, announced the upcoming launch of the SKALE Network, a decentralized elastic blockchain platform for securely scaling Ethereum based dApps.

  • MetaCartel Ventures, the first for-profit investment DAO, launched on the Ethereum mainnet. Built using Moloch v2 smart contracts, MCV brings a suite of new additions to the widely popular Moloch framework. MetaCartel Ventures introduces a legally compliant framework for shareholders to make profit-focused investments including equity and token positions in early-stage startups.

🌉 Infrastructure

  • Coinbase announced its new margin trading feature providing up to 3x leverage for individual investors in 23 U.S. states. The leverage is also available to institutional traders in 44 states and nine countries. The 3x leverage matches Coinbase's previous margin offering from 2017.

🍰 Layer 1 

  • On February 13, IOTA shut down its network in order to deal with an ongoing attack against its Trinity wallet. After finding the exploit, the team is currently working on a strategy to mitigate any further risk for token holders and resume complete network operations. Most evidence is pointing towards seed theft, cause still unknown and under investigation. Between $300K to $1.2M worth of IOTA tokens are believed to be stolen.

⚖️ Legal

  • An advisory body on technology issues created by the CFTC will hear presentations on self-regulatory organizations (SROs) for the crypto industry. The CFTC's Technology Advisory Committee will "hear presentations on stablecoins, audit trails, compliance solutions, and cryptocurrency self-regulatory organizations, insurance, and custody."

Highlighted Industry Jobs (non-exhaustive list for NYC / remote):

If you would like to highlight jobs or internships in future editions, please email links here.

Events this week

CryptoMondays NYC - An Evening Celebrating NFTs Ahead of NFT.NYC (Free)

When: Tuesday, February 18, 2020 6:30 PM to 8:30 PM

Where: The Ainsworth, 64 3rd Ave · New York, NY

NFT.NYC, the leading conference on NFTs (which we believe are a thing).

The event is in NYC on Feb. 20th, at the Edison Ballroom in Times Square. As there are going to be a lot of NFT luminaries in NYC this week, we're excited to host a night devoted to all things NFT featuring the founders of NFT.NYC Jodee Rich and Cameron Bale, together with their partners at OpenSea, Devin Finzer and Alex Atallah. They'll be giving a an overview of the NFT ecosystem and the massive impact it's going to have.

NFT.NYC is the leading event for the Non-Fungible Token space. Their 2019 show was huge - 2020 will be hosted at the Edison Ballroom in Times Square on February 20. Members can use the code CRYPTOMONDAYS to get 30% if you register by Friday Feb 14.

BitDevs: Whitepaper Series 12: CoinJoin (Free)

When: Wednesday, February 19, 2020, 7:00 PM to 9:00 PM

Where: Baruch College, 151 East 25th Street Room 750 · New York, ny

Proposed in 2013 by Greg Maxwell, CoinJoin is a multi-party input aggregation protocol that breaks the “common-input-ownership” heuristic, a blockchain analysis technique commonly applied to Bitcoin’s transaction graph. Why CoinJoins work and under what circumstances they can fail are important questions. This event will start from the beginning: we will learn about the history of CoinJoin, how research has evolved in the space and what the differences are between the currently available implementations.

For a full event description and a list of discussion topics, please see here:

https://bitdevs.org/2020-02-19-whitepaper-series-11-coinjoin

Token Taxonomy Initiative Workshop Summit (Free)

When: Wednesday, February 19, 2020, 1PM – 5PM

Where: Microsoft 11 Times Square, New York, New York, 10036

The Token Taxonomy Initiative is offering a half-day introduction to the Token Taxonomy Framework, including detailed workshops using the TTF to define specifications for tokens. If you’re planning to attend the NFT.NYC conference on the 20th, or just happen to be in NYC that day, this Summit will deliver all the information you need to begin working with the TTF.

NFT.NYC 2020 ($75 for devs - $299 general)

When: Thursday, February 20, 2020

Where: The Edison Ballroom - Times Square

NFT.NYC 2019 saw over 450 attendees and 85 speakers meet in New York City's iconic Times Square to discuss the emerging NFT Ecosystem. NFT.NYC is back in 2020 with debates, thought leader talks, workshops and industry briefings from the leading names and brands in blockchain.

DeFi Gaming Happy Hour (Free)

When: Thursday, February 20, 2020, 7:00 PM to 10:00 PM

Where: Playwright Irish Pub & Lounge, 27 West 35th Street, New York, NY 10001

Community Gaming & DeFi NYC are bringing together blockchain industry leaders, entrepreneurs, and game devs for a Networking Happy Hour! DeFi and Gaming are two of the hottest areas of crypto in 2020. Many startups have begun to parlay the two to build a whole new world of DeFi-enabled games with Play2Earn mechanics enabling skilled players to earn supplemental income. Community Gaming, New York City’s largest gaming community, and DeFi NYC, a NYC-based community focused on fostering decentralized finance, have come together to host the DeFi Gaming Party after this year’s NFT.NYC conference.

Upcoming events

How to Create a Supply Chain Blockchain App (Free)

When: Monday, February 24, 2020, 6:30 PM to 9:00 PM

Where: LMHQ, 150 Broadway 20th floor · New York, NY

Blockchain increases visibility and efficiency in the supply chain like the coffee trade. See how blockchain can assist farmers, roaster and everyone between, bring you a fresher and fairer cup. Come out and we will walk you through design, development, and deployment of an illustrative blockchain network and application. In this hands on workshop, you will learn about...

- Developing a supply chain blockchain application with VS Code

- Deploying it on the IBM Blockchain Platform.

- Successful Blockchain applications in the Supply Chain space such as IBM Food Trust and others

- Best practices for developing blockchain applications today and looking forward to the future

Paxos Stablecoin Master Class (Free)

When: Wed, February 26, 2020, 5:45 PM – 8:00 PM EST

Where: Paxos HQ, Near Union Square, Details in confirmation, New York, NY 10011

The Paxos Stablecoin Masterclass is a mixed education and collaboration session for professionals seeking to understand and apply stablecoins and blockchain technologies to current and future products. The session will consist of learning the fundamentals of blockchain technology and stablecoins from a regulatory, operational and technological perspective. Afterwards there will be a more informal session to discuss, collaborate and network.

  • 5:45pm - 6:15pm: Dinner and drinks

  • 6:15pm - 7:15pm: Core stablecoin/blockchain fundamentals (Blockchains, stablecoins, private chains, regulatory outlook, applications)

  • 7:15pm-8:00pm: Q&A, information discussion, collaboration and networking

A Fireside Chat w/ Gabriel Anderson, M.D. Tachyon/Consensys Accelerator

When: Monday, March 2, 2020, 6:30 PM to 9:00 PM

Where: The Ainsworth, 64 3rd Ave · New York, NY

This CryptoMondays NYC features a Fireside Chat with Gabriel Abderson, the Managing Director of Tachyon Accelerator which brings together a highly selective group of Web 3.0 founders for an intense 12-week sprint to hone their value proposition, test their assumptions with real customers, and prepare for the next phase of investment and growth. Tachyon is part of Consensys Labs, which is the venture arm of Consensys.

Secure Location Services - An Overview & Demo of FOAM (Free)

When: Wednesday, March 4, 2020, 7:00 PM to 9:00 PM

Where: CoinShares, 101 Fifth Avenue Suite 605 · New York, ny

Time for a mesh meetup! We're excited to host Ryan John King, co-founder and CEO of FOAM. He'll share an overview on the project and tech stack, show the physical device used by FOAM, and present on the results and documentation of the current tests and demos, planned Brooklyn test net and network launch details. We'll also talk about privacy, since privacy in location is a major part of FOAM, giving users the ability to obtain fraud proof location claims that are privacy preserving and to be in control of whom it is revealed/sold to.

Notable Conferences

Postponed

2020

Nothing written in RelayNode NYC is legal or investment advice and should not be taken as such. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence.

David Gogel https://www.definancier.com
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