Sebastian Sinclair

<div id="highlights-block_63340b716297e" class="highlights">
 <ul>
 <li>DeFi derivatives platform Ribbon Finance is hoping to build on the success of its previous product launches</li>
 <li>Ribbon said it aims to tap into the buzz surrounding ether post-merge</li>
 </ul>
 
</div>



DeFi derivates platform Ribbon Finance announced the launch of its Ethereum-based options exchange Tuesday, allowing users to trade directly from their smart wallets.



Dubbed Aevo, the exchange’s executives are hoping to generate $100 million in daily volume within a six-month timeframe by encouraging traders to tap into more than 100 instruments with varying expirations.



That might be easier said than done considering crypto’s recent downturn and bear market cycle, which has all but sapped liquidity and sent retail investors fleeing for the exits.



Still, its founders are pinning their hopes on Ethereum’s post-merge honeymoon period, that might help warm investors around to an otherwise frosty period in the spot market.



As of September, the total trading volume for ether options has remained steady at roughly $11 billion across Deribit, OKx, Bit.com CME and Huobi. That’s down from around $15 billion seen in May, <a href="https://studio.glassnode.com/metrics?a=ETH&amp;c=usd&amp;category=Volume&amp;m=derivatives.OptionsVolumeDailySum&amp;s=1619672493&amp;u=1631836799&amp;zoom=" target="_blank" rel="noreferrer noopener">Glassnode data shows</a>.



“With the majority of total value locked in our platform coming from the Ethereum ecosystem, we have always regarded it as our home ground,” Ribbon’s CEO Julian Koh said.



Aevo will initially start with ETH options and then launch BTC as well as other contracts in the following months, Ribbon said in a statement.



This isn’t Ribbon’s first product launch. The platform focuses on structured products — a category familiar in traditional finance but on the rise in DeFi — and says it invented the concept known as <a href="https://ribbonfinance.medium.com/ribbonv2-f1e64f956692" target="_blank" rel="noreferrer noopener">Decentralized Option Vaults</a> (DOV) which allows users to generate yield through various predefined strategies. 



Before the invention of DOVs, option strategies were previously only available to accredited investors through over-the-counter trading.



It also rolled out lending and earning products that offer users principle-protected yields designed to protect against losses in the underlying asset at maturity.



To date, Ribbon said its products have traded more than $6 billion in options volume while maintaining a presence on Ethereum, Avalanche, and Solana.



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Ribbon Finance To Tap Ethereum Interest with Options Exchange

Bessie Liu

<div id="highlights-block_63067ecd6b0c2" class="highlights">
 <ul>
 <li>Hiring for Uniswap Foundation members has already begun</li>
 <li>“We recognize holding this role is a big responsibility and we do not take that lightly,” Devin Walsh said</li>
 </ul>
 
</div>



Uniswap community members have voted to create the <a href="https://cms.blockworks.co/new-uniswap-proposal-could-help-ease-the-protocols-governance-woes/" target="_blank" rel="noreferrer noopener">Uniswap Foundation</a>, an organization that will support decentralized growth and long-term sustainability of their namesake protocol.&nbsp;



The Uniswap Foundation will be an independent entity that will focus entirely on supporting the decentralized exchange’s protocol and ecosystem. 



The proposal to create the Uniswap Foundation was submitted by Uniswap community members Devin Walsh and Ken Ng, and voting on the ended August 2, with <a href="https://app.uniswap.org/#/vote/2/24?chain=mainnet" target="_blank" rel="noreferrer noopener">overwhelming</a> support from UNI token holders.&nbsp;



“We are thrilled about the support the foundation has received from the community thus far and have been so energized by the conversations we have had over the past few months,” Walsh told Blockworks.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Last night our proposal to create the Uniswap Foundation passed its final vote! 🦄🦄🦄<a href="https://t.co/B2VOAeg5is">https://t.co/B2VOAeg5is</a>&mdash; Devin Walsh (@devinawalsh) <a href="https://twitter.com/devinawalsh/status/1562496359823196160?ref_src=twsrc%5Etfw">August 24, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



“That being said, we recognize holding this role is a big responsibility, and we do not take that lightly. We look forward to building strong relationships with as many community members as possible and to welcoming in new high-value contributors as well,” she said.



The foundation wants to reduce governance friction at Uniswap for high-impact and high-value projects and improve navigation in the ecosystem and has requested 2.5M UNI tokens to participate in governance at the protocol.&nbsp;



It is also requesting $74 million from the DAO’s $3.4 billion balance sheet, which will be divided into two disbursements: $20 million will be allocated to operating expenses and grants over the next to years, and $54 million handed out by the Uniswap Treasury after the foundation establishes its legal entity.&nbsp;



Since passing the proposal, Walsh said the team at Uniswap Foundation is already hitting the ground running on its top priorities which include: building out its talent pool, scaling the Uniswap Grants program and reinvigorating the governance process.&nbsp;



“We have already met dozens of amazing candidates, are excited to announce our next wave of grants shortly, and are looking forward to publishing our first set of RFPs and working with the community on improving the community governance process,” Walsh said.



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Uniswap Community Votes to Create First-time Foundation

John Gilbert

Investors often claim that you can’t see the full damage of impermanent loss until funds are withdrawn. According to the experts at Amberdata though, this isn’t the case. All data is open and measurable. Anyone can provide an estimate. The real challenge is finding a precise calculation and in analyzing the risk of impermanent loss versus the reward of transaction fees.&nbsp;



The complexity of data sources makes this analysis difficult to account for all investment strategies. But a review of the basics can provide the tools necessary for such a report.&nbsp;



We sat down with <a href="https://www.amberdata.io/?utm_campaign=2022-Q3-Blockworks-Investor-Guide&amp;utm_source=Report" target="_blank" rel="noreferrer noopener">Amberdata</a>, a leader in cryptoeconomic data, to better understand impermanent loss (IL) and how to navigate it. This guide will offer context to IL by explaining the technology behind automated market maker (AMM) liquidity pools. It will explain why it happens and why it is difficult to assess. And it will detail the data resources needed to detect clues before loss occurs.&nbsp;&nbsp;&nbsp;



<h2>When does impermanent loss happen?</h2>



Impermanent loss happens when the price of a token changes relative to its pair, between the time you deposit it in a liquidity pool and when you withdraw it.&nbsp;



Think of it as primarily an unrealized opportunity cost. It’s not a real loss, because the loss is measured against the value your investment would have been if the tokens were held outside of the liquidity pool. So if you are measuring your investment in cash, impermanent loss may not cause you to lose money. And it’s unrealized because token pairs can return to the same ratio before liquidity is withdrawn.&nbsp;



<h2>Where does it occur?</h2>



Impermanent loss can occur in any decentralized exchange (DEX) that uses liquidity providers to fund pools segregated by trading pairs. But before we explain the mathematical phenomenon of the loss, we need to explain the purpose behind this new type of exchange and how it works.&nbsp;&nbsp;&nbsp;&nbsp;



<h2>Decentralized Exchanges</h2>



<h3>The purpose</h3>



DEXs were created for people to swap different tokens without a trusted third party. Unlike a centralized exchange (CEX), assets remain in your wallet and the exchange never has custody of them. They use two blockchain-based innovations to maintain decentralization: automated market maker algorithms and liquidity pools.



<h2>Automated Market Maker Algorithms&nbsp;</h2>



An automated market maker algorithm is what sets the exchange rates for specific asset pairs within a DEX.&nbsp;&nbsp;



The traditional CEXs facilitate trades through an order book. Exchange rates are set when buyers create demand and sellers offer supply. The order book matches the price a buyer is willing to pay with the price a seller is willing to accept.



In contrast to setting prices to match buy and sell orders, AMM algorithms are programmed to automatically adjust exchange rates to keep the supply of paired tokens balanced within a pool.&nbsp;&nbsp;



<h2>Liquidity Pools</h2>



Liquidity pools are smart contract enforced deposits of two tokens needed to enable swaps on a DEX. These pairs are usually set at a 50/50 ratio (but there are also uneven liquidity pools).



<h3>How they work</h3>



Imagine that you are a brand new exchange looking to open a single pool for BTC and ETH. Before anyone is able to swap BTC for ETH or vice versa, you need to attract liquidity providers to the pool.&nbsp;



<h4>The liquidity provider&nbsp;</h4>



Exchanges do this by first charging a fee for every swap and then sharing those fees as rewards with all liquidity providers in the pool. For example, if you provide 1% of the liquidity in a pool, you’ll receive 1% of the fees for that pool. Understanding the fee structure is critical to assessing the risk vs reward of adding liquidity. Because ultimately, the rewards from fees could more than offset the risk of impermanent loss.&nbsp;



In the ETH/BTC pool, a liquidity provider would need to include both tokens in their deposit. Most exchanges require a 1:1 ratio. So if a liquidity provider deposited 2 BTC and 1 BTC = 5 ETH, then you would need to match your BTC with 10 ETH. Once funds are deposited, you are given LP tokens as a representation of your percentage of the combined value of both tokens in the pool. LP tokens earn rewards from transaction fees and can be used to farm yield outside of the protocol.&nbsp;



<h4>The trader</h4>



Now that you have attracted enough liquidity providers, traders can start swapping tokens. But unlike CEXs, traders can’t toggle between their preferred token or currency in a single pool. Instead, they are required to swap one token for the other. So everytime BTC is withdrawn, the equivalent in exchange rate value is added in ETH — and vice versa.&nbsp;



<h4>How AMMs price tokens and balance liquidity pools</h4>



At a pool&#8217;s onset, AMMs use market rates to set prices and an equal balance in value between the supply of both tokens. So if 1 BTC = 5 ETH, total supply in the pool will reflect that ratio. As users swap tokens, the AMM uses a mathematic formula to adjust prices and balance the liquidity pool.&nbsp;



For example, say that there was initially 100 BTC and 500 ETH in the pool. The current price of BTC would therefore be 5 ETH. If you were to take 1 BTC for 5 ETH, the total supply would be 99 BTC and 505 ETH. This would change the price of BTC from 5 ETH to about 5.1 ETH.&nbsp;



But say market-wide, the price of BTC is still 5 ETH. Arbitrage traders would then take that opportunity to buy BTC at a discount and sell it for ETH in the liquidity pool. This arbitrage would continue until the price falls back to market rates.&nbsp;



<h2>Examples of impermanent loss</h2>



The ultimate cause of impermanent loss is unequal price changes. Though, it is important to remember that your return is calculated after collecting fees. So even if unequal price fluctuations cause impermanent loss, you may still be able to make a profit if rewards from transaction fees cover the difference.&nbsp;



For example, let’s say an ETH/BTC pool is programmed to keep the value of both baskets set at a 1:1 ratio. Meaning, the value of all BTC should be the same as all ETH. At the time of your deposit, 1 BTC equals 10 ETH across most other exchanges, so you deposit 4 BTC and 40 ETH.&nbsp;



At the time of depositing the tokens, the size of the pool was 20 BTC and 200 ETH, so your total share of liquidity is 20%.&nbsp;



A month later, ETH doubled in value while BTC’s price stayed the same. But the value of both token baskets in the pool don’t yet reflect the ETH market-wide price of .2 BTC. So arbitrage traders rush in to buy ETH at the discount until the pool ratio and token prices match the market rate.&nbsp;



So once the pool supply reaches 20 BTC and 100 ETH, your 20% deposit will be worth 4 BTC and 20 ETH. That is a 20 ETH price difference from the initial 40 ETH deposit, resulting in an impermanent loss of 20 ETH. But it just so happened that transaction fees were extraordinarily high, providing an additional 10 ETH to your share of the pool. In this case, the loss on your return would only be 10 ETH at market value. It is impermanent because the supply of tokens in the pool can return to a 1 BTC to 10 ETH ratio in the future. The loss becomes permanent once funds are withdrawn from the pool. But if a liquidity provider gains enough exposure, rewards from transaction fees can potentially make up for the impermanent loss.&nbsp;



<h2>Is impermanent loss actually difficult to spot?</h2>



The reason many find it difficult to spot impermanent loss isn’t because it is an inherent mystery &#8211; it is a calculable math problem. The team at Amberdata explained that due to its complexity, most resources only provide estimates.&nbsp;



Say that you use your LP tokens in a yield farming endeavor that generates rewards on another protocol. Estimates on the exchange can’t account for those rewards. So even if it is showing impermanent loss, it could be that your yield farming endeavor makes back the loss.&nbsp;&nbsp;



A full assessment requires multiple data points, but if you have a clear view of what&#8217;s needed, that calculation can be precise and provide actionable investing data.



Plus, IL is different for everyone because portfolios have a different mix of tokens pairs. People also don’t deposit and withdraw at the same times or prices.



To calculate PnL for a liquidity position, you need data on:



<ul><li>Each token’s price at deposit</li><li>The amount of each token deposited</li><li>Date of deposit</li><li>Rate of reward for the liquidity pool</li><li>Estimated price of each token at withdrawal</li><li>Date of withdrawal</li><li>LP token yield farming strategies&nbsp;</li></ul>



Because there are so many variables in calculating the difference between projected gains from holding tokens versus LP fees, many struggle to make a useful conclusion about whether to enter or exit a liquidity pool.



As an added complication, the risk and reward is different for every token pair depending on each one&#8217;s volatility. The more diverse the portfolio, the more difficult this becomes.



<h2>How to calculate impermanent loss</h2>



There are detailed mathematical explanations for how to calculate IL, but in brief, a formula can be used. IL increases the more an asset’s price changes relative to its pair. This is plotted on a graph.



In this very simplified example, you can see that IL happens whether prices go up or down. But the loss is much greater as a token&#8217;s price goes down. This causes many liquidity providers to look for token pairs that are likely to appreciate at a similar rate over time.


<div class="wp-block-image">
<figure class="aligncenter size-full"><img decoding="async" loading="lazy" width="926" height="514" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Amberdata.png" alt="" class="wp-image-25712" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Amberdata.png?w=926 926w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Amberdata.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Amberdata.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Amberdata.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Amberdata.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Amberdata.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Amberdata.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/08/Amberdata.png?w=50 50w" sizes="(max-width: 926px) 100vw, 926px" /></figure></div>


<h2><a href="https://www.amberdata.io/?utm_campaign=2022-Q3-Blockworks-Investor-Guide&amp;utm_source=Report"></a>Can you avoid impermanent loss?</h2>



Since impermanent loss is triggered by unequal prices changes, the best way to avoid it is by avoiding volatile token pairs. But Amberdata stresses that there are always a wide array of investment choices in a cost-benefit analysis. For example, simply avoiding IL may not make sense when you measure a pool’s IL costs vs transaction fee rewards. The most informed decision evaluates the potential return in relation to other pools and opportunities. This comprehensive approach helps the liquidity provider find alpha.



In our conversation, Amberdata said that they offer their clients comprehensive insights across decentralized finance, and can quantify historical performance in context to other liquidity pools and investment strategies. They provide the data needed for a full risk/reward assessment that ultimately informs liquidity providers in their search for alpha.&nbsp;



One of the most useful tools for providing liquidity is <a href="https://www.amberdata.io/?utm_campaign=2022-Q3-Blockworks-Investor-Guide&amp;utm_source=Report">Amberdata’s impermanent loss endpoint</a>. With it, liquidity providers can get the exact data needed to evaluate IL risk for token pairs in specific liquidity pools on different DEXs.&nbsp;



<h3>Why comprehensive data is important</h3>



Amberdata said that their endpoint tools don’t take shortcuts when it comes to calculating impermanent loss. Their application collects liquidity pool data from across exchanges and tracks activity to get accurate, customized calculations.&nbsp;



For example, many IL calculations do not account for the mints and burns that a liquidity provider may make in a single day. Minting refers to the LP tokens that are created when funds are deposited. Those tokens are then burned when funds are withdrawn. Liquidity providers will often try to time minting and burning to avoid volatile price swings in a pool. If their IL estimate is only a 24 hour snapshot of what impermanent loss would be from the start to the close of the day, then they will not be able to measure the impact of their liquidity positions. Amberdata takes those intraday mints and burns into consideration when calculating IL.&nbsp;



While the precision of an IL calculation is critical, it doesn’t provide the full story. Even if a liquidity provider is able to avoid IL through savvy burning and minting practices, it doesn’t mean that they maximized return. Effective back-testing of liquidity provider strategies requires comprehensive data points that detail the potential transaction fee rewards when an LP is in and out of a position. Amberdata said that they built their services so that liquidity providers could use this comprehensive approach to put their best strategies forward.



This post is sponsored by <a href="https://www.amberdata.io/?utm_campaign=2022-Q3-Blockworks-Investor-Guide&amp;utm_source=Report" target="_blank" rel="noreferrer noopener">Amberdata</a>.



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The Investor’s Guide to Navigating Impermanent Loss

<div id="highlights-block_62ed6986dae78" class="highlights">
 <ul>
 <li>The pilot will run for 120 days if the vote passes</li>
 <li>At the time of writing, 3 million UNI token votes have been cast in favor of implementing the pilot</li>
 </ul>
 
</div>



A proposal to <a href="https://cms.blockworks.co/uniswaps-proposed-fee-switch-would-cut-into-liquidity-provider-payouts/" target="_blank" rel="noreferrer noopener">switch up fees</a> imposed by decentralized crypto exchange Uniswap passed with <a href="https://snapshot.org/#/uniswap/proposal/0x4dd49ee723a7e506c6c6c15c8eabc8a7057f3f0760e44ed2f475d42203c4e3e8" target="_blank" rel="noreferrer noopener">overwhelming support</a> from Uniswap’s community governance.&nbsp;&nbsp;



Meanwhile, a voting period for a so-called <a href="https://gov.uniswap.org/t/community-governance-process/7732" target="_blank" rel="noreferrer noopener">consensus check</a> to launch a pilot version of the fee implementation has begun.



The pilot proposes the test parameters will be locked in at 1/10 or 10% of select liquidity pools — meaning a 10% fee would be applied to that percentage of the selected pool, the lowest portion the code permits.&nbsp;



Pools chosen for the pilot include 0.05% of DAI-ETH, 0.3% of ETH-USDT and 1% of USDC-ETH.



Any value accrued from the pilot will remain in the protocol until the <a href="https://cms.blockworks.co/tag/uniswap/" target="_blank" rel="noreferrer noopener">Uniswap</a> governance agrees on where these funds should be allocated — details on the revenue’s distribution have not yet been provided.



Voting on the pilot’s implementation started on Aug. 4 and will end on Aug. 9 at 6 pm ET. As of publication, three million UNI token votes have been cast in favor of the pilot, with only 46 UNI votes against.



If passed, the public test would run for 120 days before being turned off.



Although the majority of voters favor the pilot, not all community governance members are sold on the proposal&#8217;s timing.



Brian Park, a community member that goes by BJP3333, told Blockworks that implementing the fee switch could potentially hurt Uniswap’s position in the current highly competitive DEX market.



“Despite Uniswap having this lead right now, it could very well change the next year or so,” Park said. “Curve v2, Sushi Trident, Quickswap and Shell Protocol are all developing their own concentrated liquidity AMMs [automated market makers].”



And monetizing fees right now could be a little early.&nbsp;



“Let’s not get so complacent with this lead where you’re now going to look to monetize fees at the expense of liquidity providers,” he said. “Dipping into their profit margin which could potentially cause them to leave at the time when the DEX [decentralized exchange] space is very competitive.”



Read more: <a href="https://cms.blockworks.co/the-investors-guide-to-navigating-impermanent-loss/">The Investor’s Guide to Impermanent Loss</a>





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Uniswap ‘Fee Switch’ Pilot Likely To Go Ahead

<div id="highlights-block_62e060b57c4c3" class="highlights">
 <ul>
 <li>The proposed fee switch could see only 0.25% of revenue going to liquidity providers, instead of the current 0.3%</li>
 <li>Uniswap delegates are determining where to test the protocol change</li>
 </ul>
 
</div>



The community governance process that oversees decentralized cryptocurrency exchange Uniswap is currently discussing whether or not it should implement a “fee switch.”



Uniswap currently imposes a 0.3% fee for trading tokens on the platform. Revenue generated by the fee is immediately placed into liquidity reserves, and liquidity providers (LPs) receive a payout dependent on their contribution to the liquidity pool.&nbsp;&nbsp;



The proposed fee switch, otherwise known as the <a href="https://uniswap.org/blog/uniswap-v2#path-to-sustainability" target="_blank" rel="noreferrer noopener">protocol charge</a>, would direct <a href="https://docs.uniswap.org/protocol/V2/concepts/advanced-topics/fees" target="_blank" rel="noreferrer noopener">0.25%</a> of the 0.3% fee to LPs, and the remaining 0.05% will supposedly go to UNI token holders.



“Uniswap governance proposals like this one must go through and pass the Uniswap community governance process prior to being enacted,&#8221; a Uniswap Labs spokesperson said. &#8220;The Uniswap community will decide whether this proposal passes or not.”



At the time of writing, Uniswap’s 24-hour trade volume is a little over <a href="https://www.coingecko.com/en/dex" target="_blank" rel="noreferrer noopener">$1.2 billion</a>, ranking it the top DEX (decentralized exchange) by volume. This number is still significantly less than top centralized exchange Binance’s 24-hour trade volume, which reached almost <a href="https://www.coingecko.com/en/exchanges" target="_blank" rel="noreferrer noopener">​​$13.8 billion</a>, implying that traders are still prioritizing centralized exchanges over decentralized ones.&nbsp;



So far, the <a href="https://uniswap.org/whitepaper-v3.pdf" target="_blank" rel="noreferrer noopener">only certain thing</a> is that the “accumulated protocol fees can be collected by UNI governance.” But UNI token holders have long envisioned a portion of the protocol fees eventually accruing to DAO members — similar to rival DEX <a href="https://cms.blockworks.co/?s=sushi" target="_blank" rel="noreferrer noopener">Sushi</a>, which employs a staking mechanism.



Although UNI holders have the power to activate the fee through a governance vote, many are afraid that doing so could substantially drop UNI’s dominance in the DEX market as LPs begin moving their liquidity elsewhere.&nbsp;



<blockquote class="wp-block-quote">“Liquidity providers&#8217; main incentive to take on impermanent loss risk is the return on investment from trading fees, and these returns are already minimal,” Matt Fiebach, research analyst at Blockworks, said.&nbsp;</blockquote>



“Suppose the protocol fee reduces returns to the point that they can no longer turn a profit. In that case, they will be forced to move liquidity elsewhere or stop providing automated market maker liquidity altogether. In this outcome, traders may receive better prices on other DEXs, causing Uniswap dominance to fall,” Fiebach said.



Read more: <a href="https://cms.blockworks.co/the-investors-guide-to-navigating-impermanent-loss/">The Investor’s Guide to Impermanent Loss</a>



The existing <a href="https://gov.uniswap.org/t/fee-switch-design-space-next-steps/17132" target="_blank" rel="noreferrer noopener">discussion</a> prompted by community member Leighton Cusack, founder of DeFi protocol <a href="https://cms.blockworks.co/pooltogether-flocks-to-nfts-to-raise-legal-defense-funds/" target="_blank" rel="noreferrer noopener">PoolTogether</a>, suggests testing the fee switch with two of the most important pools on Uniswap: ETH/USDC and UDSC/USDT — drawing concerns from a handful of community members.



“I think using 2 of the largest and most important pools is pretty high risk,” John Palmer, Uniswap committee member, wrote in the <a href="https://gov.uniswap.org/t/fee-switch-design-space-next-steps/17132" target="_blank" rel="noreferrer noopener">discussion forum</a>. “Personally, I would prefer to try something like this on a couple of smaller but significant pools to start before going this big.”



A decentralized exchange is only valuable if it has liquidity depth, and the risk of LPs moving holdings from Uniswap could be greater than the benefits. Proposals to experiment with smaller pools on the exchange are currently popular among many community members to reduce potential loss.



“I think it would be better to start out with less important pools [or] pools that provide relatively less utility to traders,” delegate MonetSupply wrote. “If LPs are put off by the protocol fees, they may be interested to move their liquidity to the lower fee tier pools which would provide improved utility to the Uniswap ecosystem.”



Uniswap currently is not strapped for cash, a community member going by BJP3333 wrote. “Taking fees away from LPs should be a last resort. Let’s explore other income-generating ideas first that don’t have this negative effect on the LPs,” he wrote.



As Uniswap is one of the biggest DeFi protocols, many competitors will likely be keeping an eye out on the decisions the organization ultimately makes.



Updated July 27, 2022, 5:00 pm ET — Correction: Uniswap&#8217;s community governance process will decide on the fee switch. A previous version of this article stated that Uniswap was discussing the fee switch. Uniswap does not participate in governance votes.



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Uniswap’s Proposed ‘Fee Switch’ Would Cut Into Liquidity Provider Payouts

Michael Bodley

<div id="highlights-block_62c5d532d5f62" class="highlights">
 <ul>
 <li>The buy-in is $2,500 worth of the stablecoin USDC</li>
 <li>The DEX also plans to hold a series of Twitter Spaces to clue the public in on how the best traders “think about market moves,” an executive told Blockworks</li>
 </ul>
 
</div>



Decentralized exchange dYdX Trading on Wednesday kicked off its first trading competition on the cryptocurrency protocol — aiming to pit an influencer against a trader with their money, quite literally, where their mouth is.



Competitors must buy in with $2,500 worth of the stablecoin USDC, an amount they receive back&nbsp; — along with any profits made — after the event. There are also exclusive non-fungible tokens (NFTs) and cash prizes, denominated in stablecoins.



The growth lead of the decentralized exchange (DEX), Corey Miller, told Blockworks a lot of traders hype up their ability to derive alpha via Telegram groups and Twitter, but there’s not necessarily a public “good way to objectively measure how well people perform.”



Rankings for the savviest traders will be measured both in dollars won and lost and percentage gains and dips. The latter is a bid to eliminate whales coming in and parking their voluminous assets in safe plays to generate medium yield on a large amount of cryptocurrency.&nbsp;



The idea is for participants to test their mettle across a wide range of liquid cryptocurrencies, including DeFi digital assets.&nbsp;



The DEX also plans to hold a series of Twitter Spaces to clue the public in on how the best traders “think about market moves,” as well as delve into relevant macro topics.&nbsp;



The launch comes as crypto markets continue to wobble, having lost trillions of dollars in market capitalization since their record highs, following the demise of Terra stablecoin UST and, more recently, the collapse of insolvent crypto lenders, including Celsius and Voyager.



An argument can be made, however, that traders — and especially those of the retail variety — now more than ever are hungry for access to reputable information.&nbsp;



The team — which has been adding staffers, even as a number of high-profile crypto companies have been forced to make steep cuts — has an iPhone app and is now working on an Android sister product. The end goal is to make the experience of buying and selling digital assets on dYdX as seamless for traders as it is logging on to centralized exchanges such as Coinbase and executing a transaction.



Though DEXs have come a long way in terms of usability and accessibility, industry participants say, in the murky, difficult-to-understand world of DeFi (decentralized finance), there’s still much work to be done.&nbsp;



Despite the market downturn, though, Miller said he’s optimistic DeFi is here to stay. 



“How does DeFi win?,” he asked. “It’s about creating a product people will actually want to use.”



The exchange also has its own DAO, complete with a native governance token that dictates how the DAO (decentralized autonomous organization) operates on a day-to-day basis.&nbsp;



On the whole, DEXs such as dYdX have cut into the trading volumes of centralized titans, including Coinbase and Kraken, in a notable way. But, in Miller&#8217;s mind, the “most likely scenario is that the two coexist for a while.” And some DEXs have lower fees than centralized market makers — another potential boon to traders.



The team is also working on the next iteration of its native protocol, an endeavor expected to take six months or so that would, ideally, result in a completely decentralized platform, with the company largely taking a back seat to the community.



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Decentralized Crypto Exchange Kicks Off Contest in Pursuit of Real Alpha

<div id="highlights-block_629d4ab9fdace" class="highlights">
 <ul>
 <li>The main DEX deployed on the Elrond Network has been taken offline amid an investigation of &#8220;suspicious activity&#8221;</li>
 <li>The DEX&#8217;s native token fell more than 90% late Sunday evening while Elrond Network&#8217;s token dropped 7%</li>
 </ul>
 
</div>



The native token belonging to smart contracts platform Elrond Network shed more than 7% of its value Sunday as Maiar, the decentralized exchange deployed on Elrond, underwent maintenance.



Founder and CEO of Elrond, Beniamin Mincu, <a href="https://twitter.com/beniaminmincu/status/1533598583001337863?s=20&amp;t=0E71Kn4fh82CgGhECLwXHw" target="_blank" rel="noreferrer noopener">tweeted</a> Sunday his team was investigating &#8220;suspicious activity&#8221; on Maiar and would provide an update &#8220;soon.&#8221;



&#8220;Identified the potential issue, and working on an emergency fix,&#8221; Mincu said in a later <a href="https://twitter.com/beniaminmincu/status/1533658926557847552?s=20&amp;t=-39Uw2aZDaIjSAtvkeKpAw" target="_blank" rel="noreferrer noopener">tweet</a>.



Blockworks confirmed that Maiar has gone offline by way of a &#8220;<a href="https://maiar.exchange/" target="_blank" rel="noreferrer noopener">scheduled maintenance</a>&#8221; with an accompanying message on its site claiming that &#8220;operations will resume shortly.&#8221; The exchange has remained offline for more than seven hours.



Speculation is mounting, with some Elrond proponents alleging a potential <a href="https://twitter.com/BoomerRang54/status/1533642437402427397?s=20&amp;t=adDFW2mg1ryYrJc5l8apIQ" target="_blank" rel="noreferrer noopener">exploit</a>. Elrond is promising to update users once a fix has been implemented.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">This might be an exploit of the Maiar DEX or SC async calls (problem reported earlier by some devs on Lottery type Smart-Contracts) There might be a way to &quot;hide&quot; some transactions / call funds out of nowhere (still under investigation) Waiting for the team&#39;s official response&mdash; ⚡Anduu.elrond (@AnduTabacu) <a href="https://twitter.com/AnduTabacu/status/1533638069458550784?ref_src=twsrc%5Etfw">June 6, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Both the Elrond token (EGLD) and the native token of the Maiar DEX (MEX) are down on the day, with MEX having yet to recover from a considerable drop in price where it shed 90% of its value late Sunday evening. 



EGLD remains down from around $75 seen at 9:00 pm UTC to $72.30.



Launched late last year, Maiar coincided with a liquidity incentive program totaling $1.29 billion in MEX tokens in a bid to curry activity on the new exchange. Smart contracts built for Maiar and deployed on Elrond were touted at the time of the launch as having undergone &#8220;<a href="https://elrond.com/blog/elrond-superwave-1-billion-usd-incentive-maiar-dex/" target="_blank" rel="noreferrer noopener">rigorous auditing and formal verification</a>.&#8221;



Blockworks attempted to contact the team at Elrond but did not receive a reply by press time.



This story is developing and will be updated accordingly.



Correction on June 6, 2022, at 3:40 am ET: Elrond&#8217;s token trades as EGLD.



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Elrond’s Native Token Drops 7% as Maiar DEX Goes Dark

Macauley Peterson

<div id="highlights-block_623b301d7086e" class="highlights">
 <ul>
 <li>Whirlpools promises higher returns for liquidity providers while benefiting traders with lower slippage across a selection of trading pools</li>
 <li>Today Uniswap has roughly $7.5 billion in total value locked, compared to Orca’s $350 million, according to DeFi Llama</li>
 </ul>
 
</div>



The Orca AMM DEX is launching a concentrated liquidity feature for the Solana ecosystem, dubbed Whirlpools, which debuts today, kicking off a two-week beta phase.



The basic idea of concentrated liquidity is that by allocating capital within a custom price range rather than a uniform distribution from zero to infinity, an AMM (automated market maker) can provide increased depth to handle larger volumes with far less total capital.&nbsp;



Whirlpools is designed to bring higher returns via capital efficiency for market makers while providing traders with low-slippage trades.



“It’s still anyone’s game for bringing concentrated liquidity into Solana,” Orca Co-founder Grace Kwan told Blockworks in an interview. She and her co-founder, Yutaro Mori, Orca’s head of engineering, were attracted to Solana in 2020 when FTX CEO Sam Bankman-Fried began ramping up his support for the Solana ecosystem.



“Yutaro’s superpower is always being able to find an area where we have an edge,” Kwan said. “Being able to build one of the key primitives on Solana is a great opportunity.”



In DeFi, Ethereum remains the dominant blockchain platform, with a higher TVL (total value locked) than all other blockchains combined. The DEX (decentralized exchange) world is no different, with Curve and Uniswap accounting for about $28 billion of the $122 billion in TVL.



Uniswap, which allows creation of liquidity pools for any two assets, debuted the feature of concentrated liquidity in its <a href="https://uniswap.org/blog/uniswap-v3" target="_blank" rel="noreferrer noopener">version 3</a> AMM exactly one year ago, which dramatically increased capital efficiency for liquidity providers.



With concentrated liquidity, trades involving similar assets, such as between stablecoins, can have a tiny price range. Initially, however, Orca Whirlpools will be deployed across a selection of three more volatile assets, all trading against the USDC stablecoin: MSOL-USDC, SOL-USDC and ORCA-USDC.



MSOL is a flavor of liquid staked SOL, a derivative from <a href="https://marinade.finance/" target="_blank" rel="noreferrer noopener">Marinade Finance</a>, which currently has a market cap of about $600 million <a href="https://www.coingecko.com/en/coins/marinade-staked-sol" target="_blank" rel="noreferrer noopener">according to CoinGecko</a>. ORCA is the DEX’s governance token, which was launched in August 2021 and is managed by a decentralized autonomous organization (DAO), the site’s <a href="https://learn.orca.so/token" target="_blank" rel="noreferrer noopener">token page</a> states. But more pools will be opened up following the beta phase.



One of the project’s anticipated innovations is what the team calls “community listings” — essentially the ability for anyone to create new asset liquidity pools independently — or “<a href="https://cms.blockworks.co/events/permissionless/" target="_blank" rel="noreferrer noopener">permissionless</a> pools” in crypto jargon. Orca will provide a “very simple guided experience for creating community listing pools,” Kwan said, which will be possible at far lower cost than Uniswap pools and with a much simpler process compared to current options on Solana, involving the Raydium AMM and Serum DEX.



That feature should debut in a few weeks, following the completion and publication of two security audits from Kudelski Security and Neodyme. The team developing Orca also intends to open-source the platforms’ smart contracts at that time, a step commonly seen as necessary to establish the credibility of new DeFi (decentralized finance) products.



Orca’s developers are focused on improving the user experience of an AMM, Kwan noted, referring to her previous role as an interaction designer at <a href="https://www.ideo.com/" target="_blank" rel="noreferrer noopener">IDEO</a> in Tokyo.



“I’m pretty shocked by the types of UX you see on most DeFi applications,” she said.



For instance, Whirlpools will offer “first class support for liquidity mining,” meaning that, unlike Uniswap, options to incentivize liquidity providers beyond trading fees are built into the smart contracts. Users won’t have to deposit a liquidity provider token elsewhere to receive additional rewards.



Kwan thinks the crypto-native nature of an AMM still has plenty of room for innovation. “One of the reasons why we love the AMM model is it’s so radically simple” compared to a centralized order book design, Kwan said.



“The potential has really been shown by Uniswap V3’s adoption, but we’re really just at the tip of the iceberg.”



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Orca Whirlpools Brings Concentrated Liquidity to Solana

Jacquelyn Melinek

<div id="highlights-block_61f19d9467ff2" class="highlights">
 <ul>
 <li>The total value locked across layer-1 protocols jumped 1,237% from $18.7 billion at the beginning of 2021 to about $250 billion by year-end, according to DeFiLlama data </li>
 <li>Uniswap accounted for the &#8220;lion&#8217;s share&#8221; of volume with $779 billion traded on its protocol</li>
 </ul>
 
</div>



The number of clear-cut use cases for cryptocurrencies ballooned last year in a trend Coinbase expects to continue in 2022 — especially when it comes to DeFi, NFTs, the metaverse and play-to-earn gaming.



“We’ve now started to see the real use cases start to emerge, compared to a lot of old rhetoric that people rely on about Bitcoin and store of value,” David Duong, Coinbase’s head of institutional research, told Blockworks.&nbsp;



In the exchange’s institutional arm’s “<a href="https://www.coinbase.com/prime/2021-year-in-review?utm_source=twitter&amp;utm_medium=organic&amp;utm_campaign=in_i_m_w_m_awa_twi_soc_0_institutional-2021-year-review" target="_blank" rel="noreferrer noopener">2021 Year in Review</a>,” Duong said an area to watch is the U.S. regulatory landscape, which is “primed for more clarity in 2022.” Meanwhile, the move toward Web3 technologies is accelerating, he said.



“Well now we have a completely different environment we’re seeing new layer-1 chains and networks being developed, hosting a number of programs and platforms that really are going to represent a new shift for the world away from Web1, Web2 to a <a href="https://cms.blockworks.co/metaverse-will-empower-creators-ceo-says/" target="_blank" rel="noreferrer noopener">Web3</a> world,” Duong said.&nbsp;



 The total value locked (TVL) across layer-1 protocols jumped 1,237% from $18.7 billion at the beginning of 2021 to about $250 billion by the end, according to <meta charset="utf-8">DeFiLlama <a href="https://defillama.com/" target="_blank" rel="noreferrer noopener">data</a>.



<div class="wp-block-image"><figure class="aligncenter size-full is-resized"><img decoding="async" loading="lazy" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Coinbase-2021-report_Img0.png" alt="" class="wp-image-16084" width="835" height="424" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Coinbase-2021-report_Img0.png?w=758 758w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Coinbase-2021-report_Img0.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Coinbase-2021-report_Img0.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Coinbase-2021-report_Img0.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Coinbase-2021-report_Img0.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Coinbase-2021-report_Img0.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Coinbase-2021-report_Img0.png?w=50 50w" sizes="(max-width: 835px) 100vw, 835px" /></figure></div>



The majority of the TVL is pooled into lending and borrowing protocols such as <a href="https://cms.blockworks.co/aave-arc-to-provide-30-financial-institutions-access-to-private-pools-of-defi-liquidity/" target="_blank" rel="noreferrer noopener">Aave</a> or Compound, as well as decentralized exchanges like <a href="https://cms.blockworks.co/uniswap-delegates-consider-liquidity-mining-to-kickstart-ethereum-layer-2-adoption/" target="_blank" rel="noreferrer noopener">Uniswap</a> and Curve, according to Duong.



Duong expects volatility to persist as crypto remains in the nascent stages of Web3 adoption.



As of Jan. 25, the total TVL on DeFi protocols declined about 19% from the end of 2021 to $201.9 billion.&nbsp;



“Overall it’s still a growth number. These things will fluctuate like anything in the world — there’s no straight linear growth,” Duong said. 



Decentralized exchanges (DEXs) gathered over $1 trillion in cumulative volume last year, with Uniswap taking “the lion’s share,” the report found. For reference, the Uniswap protocol has traded over $779 billion across 86 million trades, according to its <a href="https://uniswap.org/" target="_blank" rel="noreferrer noopener">website</a>.&nbsp;&nbsp;



Though DEX trading volumes typically trail centralized exchanges, there have been instances where Uniswap surpasses Coinbase in trading activity.&nbsp;



Duong declined to share projections for DeFi protocol TVL levels for 2022, but said, “I do think it’s going to continue to grow. The space as a whole has a lot of opportunities still with DEXs, AMMs, and liquidity pools, which are in their initial stages.” 



He expects more users to turn to DEXs like Uniswap as the yield possibilities of liquidity pools rise and there’s less concern about token volatility.&nbsp;



“If you look at Uniswap and returns from liquidity pools compared to traditional finance, those yields are very attractive and people are starting to realize that more and more,” he said. “That search for yield has definitely benefited crypto and Uniswap is evidence of that.”.



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