Katherine Ross

Venture capital firm Nima Capital allegedly sold more than nine million Synapse (SYN) tokens, drawing the attention of market watchers and developers.&nbsp;



Synapse Labs acknowledged the sale and liquidity removal in a post on X, formerly Twitter, saying that it is “investigating unusual activity on their wallets and are working to get in touch with them” though Synapse did not disclose who the “liquidity provider” was.&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">A Synapse liquidity provider sold their SYN tokens and removed liquidity today. We&#39;re investigating unusual activity on their wallets and are working to get in touch with them. Will update once there is more info. There was no security breach of the protocol or bridge. 4&mdash; Synapse Labs (@SynapseProtocol) <a href="https://twitter.com/SynapseProtocol/status/1698865047324291412?ref_src=twsrc%5Etfw">September 5, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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Nima Capital’s website has since gone offline, and Nima Capital did not immediately respond to a request for comment. Their account on X is locked, meaning that users must be approved to follow the account in order to access their posts.



Users quickly connected the sale to Nima Capital after user Spreek <a href="https://twitter.com/spreekaway/status/1698812822203879744/photo/1">posted</a> a screenshot of the sale.



<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">came from this mint (or bridge, idk how this token works tbh) 153 days ago <a href="https://t.co/cllIWf9zpL">pic.twitter.com/cllIWf9zpL</a>&mdash; Spreek (@spreekaway) <a href="https://twitter.com/spreekaway/status/1698814163475128479?ref_src=twsrc%5Etfw">September 4, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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The Wall Street Journal <a href="https://www.wsj.com/real-estate/luxury-homes/a-condo-on-new-yorks-billionaires-row-sells-for-around-80-million-6d1137db">reported</a> in August that a condo linked to Nima Capital was sold for roughly $80 million.  



On March 14, a proposal — which later <a href="https://snapshot.org/#/synapseprotocol.eth/proposal/0x16f029d625e7dd0f8997b3cecc4297dd4f3516424e41b129e5d2535d378c93d6">passed</a> a vote — was made by ModestFarmer to engage with liquidity providers and named Nima Capital as the first liquidity provider.



As part of the <a href="https://forum.synapseprotocol.com/d/269-advancing-synapses-liquidity-model-reducing-syn-emissions">terms</a>, Nima Capital provided $40 million of locked stablecoin liquidity over a 12-month period. In return, Nima Capital received a SYN grant for the “currently planned stablecoin emissions and 33% of bridge &amp; swap fees for the duration of the term, aligning a long-term capital partner with the DAO.”



The price of SYN fell following the sale, declining roughly 12% in the last 24 hours at the time of publication.



Synapse did not immediately respond to a request for comment.



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Synapse confirms investigation into liquidity provider’s ‘unusual activity’

Bessie Liu

DeFi liquidity protocol Balancer suffered an exploit following the discovery of a critical vulnerability in its v2 pools last week.



The Balancer team acknowledged Sunday that they are aware of the exploit and most funds in affected pools have been withdrawn. 



Meir Dolev, the chief technology officer of blockchain security company Cyvers.AI, noted in a post on X yesterday that the attacker had secured $900k from the exploit.&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">The attacker continues with his operation, approx $900K affected, more than $600K moved to this address 0xB23711b9D92C0f1c7b211c4E2DC69791c2df38c1 <a href="https://t.co/inNqH4zel2">pic.twitter.com/inNqH4zel2</a>&mdash; Meir Dolev (@Meir_Dv) <a href="https://twitter.com/Meir_Dv/status/1695786374186549540?ref_src=twsrc%5Etfw">August 27, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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Following the vulnerability’s discovery, liquidity providers were asked to exit their positions through a <a href="https://app.balancer.fi/#/ethereum/recovery-exit">proportional exit</a>. 



Read more: <a href="https://blockworks.co/news/balancer-vulnerability-detected">‘Critical vulnerability’ reported in Balancer v2 pools</a>



An earlier Balancer <a href="https://twitter.com/Balancer">post</a> noted that over 99.7% of liquidity originally at risk is now safe and only<a href="https://twitter.com/Balancer/status/1695064684620140942"> 0.08%</a> of the total value locked (TVL) remained at risk. 



Blockchain security company <a href="https://twitter.com/peckshield/status/1696185272445419961?s=20">PeckShield</a> questioned this figure in a Monday post, contending that their analysis indicates more than $2.1 million remains in affected v2 pools.



“The Balancer team has done a great job in alerting the community to remove liquidity from affected vaults, the original estimate of &#8220;only 0.08% of total TVL ($565,199) remains at risk&#8221; seems to be seriously mis-calculated,” PeckShield tweeted.&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">Our initial analysis indicates the <a href="https://twitter.com/Balancer?ref_src=twsrc%5Etfw">@Balancer</a> loss (incl. <a href="https://twitter.com/beethoven_x?ref_src=twsrc%5Etfw">@beethoven_x</a>) has been &gt;$2.1M, affecting a number of pools in <a href="https://twitter.com/ethereum?ref_src=twsrc%5Etfw">@ethereum</a> <a href="https://twitter.com/FantomFDN?ref_src=twsrc%5Etfw">@FantomFDN</a> <a href="https://twitter.com/optimismFND?ref_src=twsrc%5Etfw">@optimismFND</a> The <a href="https://twitter.com/Balancer?ref_src=twsrc%5Etfw">@Balancer</a> team has done a great job in alerting the community to remove liquidity from affected vaults, the original… <a href="https://t.co/2xiWMKOOns">https://t.co/2xiWMKOOns</a> <a href="https://t.co/5YoFvV510S">pic.twitter.com/5YoFvV510S</a>&mdash; PeckShield Inc. (@peckshield) <a href="https://twitter.com/peckshield/status/1696185272445419961?ref_src=twsrc%5Etfw">August 28, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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At the time of writing, Balancer’s native token (<a href="https://blockworks.co/price/bal">BAL</a>) was trading at $3.51, a little below $3.6 prior to the discovery of the vulnerability.



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Balancer pools exploited after last week’s vulnerability reveal

Trader Joe, the largest decentralized exchange (DEX) on proof-of-stake blockchain Avalanche, has launched on Ethereum mainnet.&nbsp;



The pseudonymous <a href="https://twitter.com/cryptofishx" target="_blank" rel="noreferrer noopener">Fish</a>, co-founder of Trader Joe, told Blockworks that the DEX’s decision to launch on Ethereum now was driven by the opportunity to capture the stablecoin markets on the network amid the upheaval around Curve.&nbsp;



Curve, a well-known stablecoin DEX, <a href="https://blockworks.co/news/curve-suffers-exploit">suffered an exploit this week</a> that saw over $70 million in various digital assets attacked due to a bug in Vyper, the coding language used by Curve.&nbsp;



This latest exploit has led many liquidity providers to sell their holdings of CRV, Curve’s native token. At the time of writing, CRV currently has a <a href="https://defillama.com/protocol/curve-finance?volume=false&amp;tokenLiquidity=true&amp;events=false&amp;tvl=true" target="_blank" rel="noreferrer noopener">token liquidity</a> of $6.75 million, a significant dip from $70.42 million before the hacks.



“LPs (liquidity providers) are moving to other pools, so you’re seeing a lot of volume go to other DEXes,” Fish told Blockworks. “We want to join and put ourselves into that mix.”



<h2 class="wp-block-heading">Capturing the stablecoin market</h2>



Fish notes that Trader Joe’s initial plan was to deploy on Ethereum in a month or two, around the beginning of Q4, after working on improving its <a href="https://joecontent.substack.com/p/auto-pools-automated-liquidity-built" target="_blank" rel="noreferrer noopener">auto pool</a> technology.



“But this opportunity came up, and we felt this is the best time to deploy,” he said.&nbsp;



Auto pools are designed to help automate the balance of liquidity for users passively.&nbsp;



“Ethereum runs a little bit slower, it is gas intensive, and our AMMs also use a lot of gas,” Fish explained. “If you’re managing positions in a concentrated liquidity AMM, which requires you to rebalance often, and make a lot of transactions every day, then for the average Joe it’s going to be very uncomfortable for him to market make.”



Luckily, managing positions in a stable stablecoin market is relatively simple, Fish said.



“The price of USDC and USDT isn’t going to vary that much,” he said. “So in most cases, people can just deploy in that range and then earn fees from within that range.”



Trader Joe’s initial launch on Ethereum will include stablecoin pools USDC/USDT and USDC/DAI.



<h2 class="wp-block-heading">How Trader Joe compares to Uniswap</h2>



Like Uniswap v3, Trader Joe is a <a href="https://app.blockworksresearch.com/research/trader-joe-liquidity-book-the-next-chapter-in-amm-evolution" target="_blank" rel="noreferrer noopener">concentrated liquidity AMM</a>, providing constrained liquidity within a tight range for its users.



Compared to its competitor, its unique edge is that it offers dynamic fee components, Fish noted.



On Uniswap v3, liquidity providers are offered three fee tiers, ranging from 0.05%, 0.3% and 1%.&nbsp;



By contrast, on Trader Joe, there is a base fixed fee and a variable component which is dependent on the volatility within the past few seconds to minutes.&nbsp;



Trader Joe is currently deployed on Avalanche, Arbitrum and BNB chains.



According to <a href="https://defillama.com/protocols/dexes/Avalanche" target="_blank" rel="noreferrer noopener">data</a> on DeFiLlama, Trader Joe has a $57.45 million TVL on Avalanche, making it the largest DEX on the network.



On Arbitrum, however, it sports a TVL of <a href="https://defillama.com/protocols/dexes/Arbitrum" target="_blank" rel="noreferrer noopener">$31.9 million</a>, a significantly less amount compared to Uniswap v3, which currently reports volumes of <a href="https://defillama.com/protocols/dexes/Arbitrum" target="_blank" rel="noreferrer noopener">$261.7 million.</a>



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Avalanche DEX favorite Trader Joe is launching on Ethereum

Darren Kleine

Uniswap, the largest crypto decentralized exchange by volume, recently broke news of a series of planned updates, including the introduction of a single contract pool structure.



The “<a href="https://blockworks.co/news/uniswap-labs-dex-v4">singleton contract</a>” is not yet implemented on <a href="https://blockworks.co/tag/uniswap">Uniswap</a>, but similar technology can already be found on the Ambient decentralized exchange, or <a href="https://blockworks.co/tag/dex">DEX</a>.&nbsp;



Founder of the competing DEX, Doug Colkitt, spoke to Blockworks on an upcoming episode of the 0xResearch podcast (<a href="https://open.spotify.com/show/0rGocvZ7oZR6vuy0UHKAON?si=522d824d27c74f03">Spotify</a> / <a href="https://podcasts.apple.com/us/podcast/0xresearch/id1651683074">Apple</a>) about the advantages of the new slimline design.



“The big deal” with the new architecture, Colkitt says, is that in previous DEXs, “every time you had a new pool, you had to stand up a new contract.”



“It meant that every single contract was individually managing its own collateral.”



“Standing up a pool,” Colkitt explains, is a relatively “heavyweight” task that deploys a costly contract to the mainnet.&nbsp;



“You&#8217;re talking about a few hundred dollars,” which isn’t much for a larger-scale project, but to experiment on the cheap, he says, “it’s not great.”



More importantly, Colkitt says, a single contract allows a DEX to behave like one market rather than a collection of separate ones interacting with each other. Without the new design, “I’m trading between different markets,” he says.



Trading between two tokens and ether (<a href="https://blockworks.co/price/eth">ETH</a>) would normally involve numerous steps, jumping from one pool to another to complete the trades, with gas fees incurred at each step. “That&#8217;s pretty heavyweight and unnecessary.”



“At the end of the day, ETH just winds up back at the market.”



“The tokens are all in a central location. The pools are separate, but they&#8217;re just lightweight data structures inside a larger contract.”



This design reduces restrictions between markets, making them more efficient, according to Colkitt. It also adds some interesting trading possibilities that were not possible under the previous multi-contract architecture.



“You can do interesting stuff with flash accounting,” he explains. “You can trade in one pool and you don&#8217;t actually need to fill in those tokens until the end of the trade.”&nbsp;



“So it also makes arbitrage a lot lower cost.”



<h2 class="wp-block-heading">Reducing toxic flow</h2>



Podcast host Dan Smith notes that transferring tokens incurs about half the gas cost of an ERC-20 trade on DEXs like Uniswap or <a href="https://blockworks.co/tag/curve">Curve</a>, reducing the capacity for arbitrage.



Colkitt says that the single contract design lowers the profitability threshold on arbitrages. Thus, prices will “stay in line” with markets more efficiently over time because arbitrages can be performed at “smaller discrepancies.”



Additionally, lowering the barriers to arbitrage could potentially reduce “<a href="https://twitter.com/blockworksres/status/1640744469220958208?s=20">toxic flow</a>,” a problem whereby predatory traders can cause market makers to provide liquidity at a loss.



“If you lower the barriers to arbitrage,” Colkitt says, “it actually decreases the total amount of toxic flow” on any particular trade. Increasing the number of trades at smaller increments is better for liquidity providers, he explains.



“Ultimately,” he says, “you get the same total toxic flow, but you get a lot more arbitrage trades.” Therefore, <a href="https://blockworks.co/tag/liquidity">liquidity</a> providers collect more fees over time, resulting in “a better deal.”



The fact that Uniswap is also planning, <a href="https://blockworks.co/news/uniswap-v4-dex-hooks">among its improvements</a>, to build a single contract is “good validation” for Ambient, he says.&nbsp;



Colkitt explains that when the team started working on the new design, people were skeptical, asking, “Is that a good idea? Should you put everything in one contract?”



“At least I never have to answer that question again.”



Subscribe to 0xResearch on <a href="https://open.spotify.com/show/0rGocvZ7oZR6vuy0UHKAON?si=522d824d27c74f03">Spotify</a> or <a href="https://podcasts.apple.com/us/podcast/0xresearch/id1651683074">Apple</a> so you don&#8217;t miss this episode!



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Ambient founder touts advantages of single-contract DEX architecture

A new class action lawsuit, helmed by Hoppin Grinsell, has been filed against BProtocol Foundation and Bancor DAO.



“The lawsuit alleges that Defendants violated federal securities laws and various state laws by offering and selling investment contracts to Bancor liquidity providers, without registering under applicable federal securities laws as an exchange or brokerdealer, and without a registration statement in effect for the securities it offered and sold,” a press release for the lawsuit said.



When Bancor, a DeFi liquidity protocol, rolled out the second version of the investment product, it introduced impermanent loss protection — insurance for losses caused by value differences between automated market makers and spot markets. 



The function attracted liquidity providers (LPs) to the protocol, which led to over $2.3 billion worth of crypto assets invested in it.



But &#8220;the quantity of the crypto assets held by Bancor was insufficient to meet its obligations to LPs. If a sufficiently large number of LPs withdrew their investments at the same time, the protocol would crumble, much like a run on the bank,&#8221; the lawsuit <a href="https://storage.courtlistener.com/recap/gov.uscourts.txwd.1218725/gov.uscourts.txwd.1218725.1.0.pdf" target="_blank" rel="noreferrer noopener">alleges</a>.



In 2022, after withdrawals triggered a payment obligation from the liquidity providers, Bancor suspended the impermanent loss protection, leaving the providers to incur &#8220;the very losses that Defendants had promised to ‘100% protect’ against.&#8221;



Blockworks at the time <a href="https://blockworks.co/news/bancor-halts-impermanent-loss-safeguard-to-fight-off-hostile-antagonist" target="_blank" rel="noreferrer noopener">reported that Bancor temporarily paused</a> its impermanent loss protection feature due to &#8220;<a href="https://blockworks.co/news/bancor-describes-hostile-antagonist-behind-impermanent-loss-defense" target="_blank" rel="noreferrer noopener">hostile market conditions</a>&#8221; and &#8220;manipulative behavior.&#8221; Mark Richardson, Bancor product architect said “it would be difficult to imagine the protocol withstanding such a large flight of liquidity all at once.”



Through conferences and interviews, Bancor and its representatives targeted US investors, the lawsuit alleges. Representatives for the protocol used condoms and t-shirts to advertise to potential investors.



In 2021, a New York City court <a href="https://www.scribd.com/document/495824058/Bancor-Dismissal?irclickid=TLy1zAzcqztNWrKzLcSXdTO3UkAXM1RsexpoXI0&amp;irpid=10078&amp;utm_source=impact&amp;utm_medium=cpc&amp;utm_campaign=affiliate_pdm_acquisition_Skimbit%20Ltd.&amp;sharedid=coindesk.com&amp;irgwc=1" target="_blank" rel="noreferrer noopener">dismissed</a> a class action suit against Bancor and BProtocol Foundation, which alleged that the protocol offered unregistered security offerings.



Hoppin Grinsell and Bancor did not immediately respond to requests for comment.&nbsp;



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Bancor Perks for Liquidity Providers Broke Securities Laws: Lawsuit

Drew Mailen

To break down the mechanics of a crypto-liquidity crunch, we sat down with an institutional market expert, Chuck Lugay, head of execution services at sFOX. <a href="https://bit.ly/3AT2TMm" target="_blank" rel="noreferrer noopener">sFOX</a> is known by institutional investors for its deep order books — sourced from more than 30 top exchanges, OTCs and over 80 markets. Lugay brings more than 20 years of institutional experience and has lived through the significant market swings in the last two decades.&nbsp;



<h3 class="wp-block-heading">What is a crypto liquidity crunch, and how does it start?&nbsp;</h3>



The definition is simple. A crypto liquidity crunch is when platforms lack the liquid supply of cash reserves and 1:1 convertible stablecoins needed to meet demand all without collapsing market prices.



It&#8217;s a bank run.



And in the world of digitized assets, human behavior isn&#8217;t different. Like the 2007-08 real estate market crash, both follow a period of hyper-competitive yield chasing with little interest in risk-averse asset management. Those like Chuck Lugay have witnessed the same behavior across multiple industries.&nbsp;&nbsp;



&#8220;I lived through the market corrections in 2001. I lived through the real estate disaster in 2008. I think that if you haven&#8217;t had experiences like that within your professional career, you may leave yourself open to big issues like this,&#8221; Lugay said.&nbsp;



&#8220;There are no specific guaranteed red flags that give an indication of a liquidity crunch, but you need to prepare for the worst. It might come at the sacrifice of immediate returns of what you&#8217;re doing now. But I&#8217;d almost rather lose a small amount of money on a trade today, than lose half of my equity in the entire portfolio because I didn&#8217;t practice good hedging strategies. Multiple players in the space right now will not make it because they did not hedge themselves correctly,&#8221; Lugay said.&nbsp;



<h3 class="wp-block-heading">How the liquidity mechanics differ&nbsp;</h3>



While human behavior remains consistent across industries, the mechanics of a crypto liquidity crunch function differently. In crypto, very few on-ramps allow institutions to transfer large amounts of capital in and out of the market. Think of it as a new city with many highrises but not enough highways in and out. Crypto platforms developed solutions akin to an above-ground rail to alleviate congestion within the market. They either tokenized assets by holding a 1:1 equivalent value in cash or used algorithmically governed monetary policy to maintain a 1:1 peg. Like above-ground rails, these solutions help transfer liquidity within the system but do not offer an easy way out. They still need exchanges or stablecoin bank redemptions to exit completely.&nbsp;&nbsp;&nbsp;



Terra/Luna&#8217;s UST was an example of a 1:1 algorithmic stablecoin that crumbled from poor architecture. Before its collapse, funds and exchanges used it as a critical source of liquidity. But when it started to depeg, some of the biggest market makers could not move fast enough to meet liquidity demands. And in a world of automated and decentralized smart contracts, prices collapsed to zero in hours. Funds with UST on their balance sheet suffered the consequences. And now, multiple crypto lending platforms are facing bankruptcy and liquidation.&nbsp;



To say this is a big deal may be an understatement. In a recent <a href="https://cms.blockworks.co/webinars/crypto-state-of-the-union-trading-risk-management/" target="_blank" rel="noreferrer noopener">webinar on crypto&#8217;s state of the union</a>, Chuck had this to say about today&#8217;s market compared to previous bitcoin cycles:



&#8220;I think the biggest difference in this cycle is the credit fall out. We had a liquidity situation in 2017, but I don&#8217;t think you had the systemic problem that you are seeing today. We are in uncharted territory.&#8221;&nbsp;



Sourcing the proper liquidity from on-ramps and exchanges is key to navigating and preparing for a market-wide crunch. Chuck explains that institutions choose sFOX over individual exchanges because it does not limit order book access to one or two specific liquidity providers. Instead, sFOX has bundled and aggregated over 30 liquidity providers on one platform.&nbsp;



<h3 class="wp-block-heading">How aggregated liquidity providers can help during a liquidity crunch&nbsp;</h3>



Say one exchange in <a href="https://bit.ly/3chzn8F" target="_blank" rel="noreferrer noopener">sFOX&#8217;s aggregated liquidity</a> is over-exposed to a collapsed stablecoin. Chuck points out that institutional-level investors can maintain a degree of protection through the more than 30 additional liquidity providers. sFOX makes access easy because all the activity is taken care of in-house. This includes treasury management and establishing relationships — saving investors time and resources.&nbsp;



He even argues that when an institution wants to exit during a liquidity crunch, institutions can avoid some of the typical price slippage that occurs on exchanges. They achieve this efficiency through smart order routers and specific algorithmic order types.&nbsp;



<h3 class="wp-block-heading">In conclusion&nbsp;</h3>



There is no way to see a massive downturn in any specific token, so institutional investors must ensure they are thoroughly hedged. First and foremost, liquidity crunches often start with large downside market movements. In addition to environmental factors, market downturns can happen when portfolio managers, hedge funds, and institutional investors are not practicing good risk management.&nbsp;



Aggregated liquidity providers like sFOX can offer deeper pools of liquidity by drawing on more than 30 top exchange sources, including the industry&#8217;s OTC trading desks, as well as over 80 markets. 



This content is sponsored by <a href="https://www.sfox.com/" target="_blank" rel="noreferrer noopener">sFOX</a>.



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