Macauley Peterson


<p>The collapse of FTX has put crypto market participants on edge.&nbsp;</p>



<p>You see it in the embrace of unsubstantiated, doomsday Twitter chatter, <a href="https://blockworks.co/news/weth-fud-is-a-joke" target="_blank" rel="noreferrer noopener">no matter how fanciful</a>. And you see it in the <a href="https://blockworks.co/news/bitcoins-correlation-with-stocks-bonds-hits-3-month-low" target="_blank" rel="noreferrer noopener">decoupling of crypto markets</a> from tech equities.</p>



<p>The entire industry, essentially, has been called into question — from the prospect of Ethereum developers delaying withdrawals of staked ether to Coinbase’s safe storage of bitcoins <a href="https://blockworks.co/news/the-grayscale-dilemma-a-record-discount-and-a-golden-goose" target="_blank" rel="noreferrer noopener">backing Grayscale’s Bitcoin Trust</a> (GBTC).</p>



<p>In the tumultuous last few weeks, wrapped bitcoin on Ethereum (WBTC) fell uncomfortably below par, but finally returned to a healthy valuation on the spot market toward the end of the stock trading session in New York. The deviation started in earnest on Nov. 11 — <a href="https://blockworks.co/news/cryptos-erase-gains-ftx-token-slips-further-on-bankruptcy-news" target="_blank" rel="noreferrer noopener">the day FTX declared bankruptcy</a> — and reached a Nov. 25 nadir of around 0.985 BTC, on the Binance exchange, according to data from TradingView.</p>


<div class="wp-block-image">
<figure class="aligncenter"><img decoding="async" src="https://lh4.googleusercontent.com/Pd3KNivKba52YYMqNgqUFq6WX7fC2x6tegWOEKsPfWEAt_8g_b3cV46FwbaxDHBg23ihvE010JZBFzNDBgyLvqazUBw2NqhEpRQ9GpAOKN4W8t5RrYN5fnH1HzRJ4QdwsZUs5h3rOTN41aJ6QG5zeQ7RKbrJibk7-M7napbRbHfZ0SO_y9Ob_YtzfHqmdw" alt=""/><figcaption><em>WBTC:BTC pair on Binance, daily timeframe; Source: TradingVideo</em></figcaption></figure></div>


<p>Euler Finance’s CEO Michael Bentley told Blockworks the incident can be lumped in with general nervousness about lending and borrowing markets.</p>



<blockquote class="wp-block-quote"><p><strong>“There were some unfortunate circumstances, and frankly it made me a little nervous when I first started reading about some of the issues as well,” Bentley said.</strong></p></blockquote>



<p>He referenced the Thanksgiving holiday weekend, which may have slowed the pace of WBTC redemptions for underlying BTC, as partly to blame.</p>



<p>Market data provider Kaiko called the slide a “crisis of confidence.”</p>



<p>“Investors panicked after charts circulating on Twitter showed that Alameda Research is by far the top WBTC merchant by the number of tokens minted, having created more than 100,000 WBTC. This sparked fears that WBTC is not fully backed,” Kaiko <a href="https://marketing.kaiko.com/wrapped-assets-under-scrutiny" target="_blank" rel="noreferrer noopener">wrote</a> in its newsletter on Monday.</p>



<p>But such panic, like <a href="https://blockworks.co/news/weth-fud-is-a-joke" target="_blank" rel="noreferrer noopener">the misread of wrapped ether</a>, which Bentley said “spread like wildfire, despite being a joke,” betrays a basic misunderstanding of how WBTC works.</p>



<p>For WBTC to be minted on Ethereum, BitGo takes custody of an equivalent amount of BTC. So, Alameda’s insolvency has no relevance; any WBTC they hold either required them to send BTC to BitGo first, or was bought off the spot market. Either way, BitGo has the bitcoins and can redeem them for any circulating WBTC in the market when needed.<br><br>Chen Fang, BitGo’s chief operating officer, sought to allay investor fears via a tweet that did, indeed, mark the bottom of the crisis.</p>



<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"><p lang="en" dir="ltr">BitGo is just the custodian — all end user minting/burning must go through one of the merchants in the WBTC network or trade it at an exchange<br><br>If folks capitulates to fake news, the market makers win — every WBTC is 1:1 backed, verifiable on chain</p>&mdash; 🍟 Chen Fang (@chenbfang) <a href="https://twitter.com/chenbfang/status/1596225826995179520?ref_src=twsrc%5Etfw">November 25, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<p>There was another “unfortunate circumstance,” as Bentley put it.</p>



<p>“It seems also that they have this multisig that helps participate in the redemption process…it appears that a couple of people on this multisig either lost access or needed to have their access removed,” he said. “And they decided to make this change at a time when everyone was nervous.”</p>



<p>Victor Tran, CEO of Kyber Network and a member of the multi-signature custodial setup, <a href="https://twitter.com/vutran54/status/1596162341196136448" target="_blank" rel="noreferrer noopener">tweeted</a> he saw no evidence of delayed redemptions but was coordinating the <a href="https://github.com/WrappedBTC/DAO/pull/12">amendment to the multisig keys</a> with BitGo. The group was reduced from 18 to 13, with the number of signatories required to approve transactions dropping from 11 to 8. Notably, one of those removed was the key held by FTX-owned Blockfolio.</p>



<p>The confusion around what was happening led the normal arbitrage market behavior — which normally would restore the peg in such cases — to stall.</p>



<p>“The market’s very inefficient right now, everyone’s very, very nervous; liquidity’s thin in a lot of places,” Bentley said.</p>



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Unusual Wobble in Wrapped Bitcoin Showed Trader Fear

John Gilbert

<div id="highlights-block_62a7ad30cd549" class="highlights">
        <ul>
                <li>Wrapped crypto tokens are smart contracts representing locked collateral of the original asset on a separate blockchain</li>
                <li>They provide liquidity to a growing DeFi ecosystem</li>
            </ul>
    
</div>



<p>Wrapped crypto tokens such as wrapped bitcoin (wBTC) are smart contracts representing locked collateral of the original asset (i.e., BTC) on a separate blockchain. They are used to provide liquidity to a growing DeFi ecosystem.&nbsp;</p>



<p>Think of wrapped bitcoin like an IOU briefcase. But instead of paper representing a promise to pay your BTC back, inside is a live feed to a vault containing every bitcoin and outstanding wrapped bitcoin.&nbsp;</p>



<h4 class="wp-block-heading"><strong>Quick facts</strong></h4>



<ul><li>DeFi needs cross-chain liquidity for global adoption.</li><li>Wrapped tokens offer a solution.&nbsp;</li><li>The mechanism of wrapping a crypto token requires 3 parties: merchant, custodian and investor.</li><li>Wrapped tokens carry inherent liquidity- and market-contagion risks.&nbsp;</li><li>The value of wrapped tokens is not necessarily equal to that of their original counterparts.</li></ul>



<h3 class="wp-block-heading">Why wrapped tokens are important to DeFi</h3>



<p>Wrapped tokens offer a solution to a critical problem in DeFi: cross-chain liquidity. Think of each blockchain and its native token as a silo. Demand for that specific token is contingent on the applications built on that network.</p>



<p>DeFi (decentralized finance) and its complex credit and lending ecosystem needs immediate settlement technology that works across all blockchains. Without this technology, blockchains can&#8217;t benefit from the entire industry&#8217;s growth.&nbsp;</p>



<p>Wrapped tokens break down those silos by offering native tokens utility outside their blockchain. This innovation unlocks a flood of capital efficiency that enables diverse investment instruments across most chains. </p>



<h3 class="wp-block-heading">How wrapped bitcoin works</h3>



<p>All users access wBTC through third-party merchants such as <a href="https://aave.com/" target="_blank" rel="noreferrer noopener">AAVE</a> and <a href="https://makerdao.com/en/" target="_blank" rel="noreferrer noopener">Maker</a>. When a user requests wBTC in exchange, the merchant takes their BTC and sends it to BitGo, a custodian managed by the <a href="https://wbtc.network/" target="_blank" rel="noreferrer noopener">wBTC DAO</a> (a <a href="https://cms.blockworks.co/the-investors-guide-to-daos/" target="_blank" rel="noreferrer noopener">decentralized autonomous organization</a>). </p>



<p>In the previous analogy, the vault containing every bitcoin and wrapped bitcoin represents the custodian. Once BitGo receives the bitcoin from the merchant, it then mints the equivalent in wBTC — an ERC-20 token on the Ethereum blockchain. This token is a smart contract representation, or IOU briefcase, of the original bitcoin. </p>



<p>The custodian then sends the wBTC to the merchant, where the user finalizes the transaction. Typically, there aren&#8217;t any merchant fees in this transfer because they only charge fees for exchanging wBTC for BTC. The user will be responsible for any gas fees used in transferring wBTC on the Ethereum blockchain.&nbsp;</p>



<p>Because this exchange requires trust from multiple parties, BitGo partnered with Chainlink to provide an automated auditing system — similar to the direct live feed from the previous analogy. This auditing system is called <a href="https://www.bitgo.com/newsroom/press-releases/bitgo-adopts-chainlink-enable-on-chain-auditing-for-wbtc">proof of reserve</a>.</p>



<p>Other dApps (decentralized applications) in the Ethereum ecosystem use this protocol to monitor BitGo&#8217;s balance sheet when accepting wBTC as collateral or exchange equivalency. If BitGo were to mint more wBTC than the BTC it holds in reserve, every application using Chainlink&#8217;s protocol would stop receiving wBTC.</p>



<h3 class="wp-block-heading">What is the difference between a pegged and wrapped token?</h3>



<p>The value of a pegged token or currency can be linked to that of another asset — digital or physical — using a variety of approaches. Because custodians link wrapped tokens to the value of other crypto assets, they fall under the pegged currency classification.&nbsp;&nbsp;</p>



<p>But they do not classify stablecoins such as USDT as a wrapped token because it pegs its value to the US dollar in off-chain cash reserves. And unlike wrapped tokens, these reserves are not audited through an automated protocol.&nbsp;</p>



<h3 class="wp-block-heading">Is a wrapped token fundamentally the same as the original?</h3>



<p>No: wBTC should not be considered a fundamental equivalent to BTC. This common misconception is why many lose money in liquidation crisis events. In the analogy, the value of the briefcase IOU depends on three things: the quality of the livesteam and the integrity of the vault and the briefcase holding it together. </p>



<p>Wrapped tokens, in this way, require three layers of trust that the original token doesn&#8217;t need. So, it may seem that the two have the equivalent value for a time. But in bearish markets, the perceived value of the wrapped tokens can drop faster than that of the originals. This is how wrapped tokens can lose their peg even though their balance is still 1:1.</p>



<h3 class="wp-block-heading">The market-contagion risk of wrapped tokens&nbsp;</h3>



<p>A crypto market contagion is a financial crisis spreading from one protocol or crypto sector to another. Contagion is more likely when participants distribute credit risks across institutions and markets.&nbsp;</p>



<p>So with wrapped crypto, increased capital efficiency also comes with an increased risk of contagion. For example, if one protocol managing collateral vaults fails, every other application using their wrapped token or &#8216;IOU briefcase&#8217; is exposed to a potential liquidity crisis. This type of credit contagion has happened multiple times throughout the crypto cycles. They have been mainly associated with the collateral requirement failures of pegged stablecoins such as USDT and UST. Despite these previous episodes, we have yet to see a failure of a wrapped token vault audited by a proof-of-reserve protocol.</p>



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Wrapped Crypto Tokens and Why They’re Critical to Markets

Sam Martin

Ethereum and Bitcoin Price Action, Fundamentals Diverge: Markets Wrap

<div id="highlights-block_60c9fc7f1690b" class="highlights">
        <ul>
                <li>Valkyrie filed an 8-A with the SEC in a key step for a bitcoin futures ETF approval</li>
                <li>Total market capitalization of all digital assets reaches all-time high</li>
            </ul>
    
</div>



<p>Valkyrie filed an 8-A with the US Securities and Exchange Commission in a key step for a bitcoin futures ETF approval. While an ETF is a net positive, a futures-backed ETF could invite Wall Street price manipulation games.</p>



<p>Bitcoin options volume spikes amidst bullish price action. </p>



<p>Very little of the BTC supply has traded hands above $60,000. </p>



<p>Perpetual funding rates are rising as traders enter long positions. </p>



<p>Approximately 1.5% of the circulating BTC supply is locked in Ethereum smart contracts. </p>



<p><strong>Latest in Macro:</strong></p>



<ul><li>S&amp;P 500: 4,471, +.75%</li><li>NASDAQ: 14,897, +.50%</li><li>Gold: $1,768, -1.56%</li><li>WTI Crude Oil: $82.24, +1.14%</li><li>10-Year Treasury: 1.572%, +.053%</li></ul>



<p><strong>Latest in Crypto:</strong></p>



<ul><li>BTC: $62,150, +7.88%</li><li>ETH: $3,856, +2.21%</li><li>ETH/BTC: .0626, -5.45%</li><li>BTC.D: 46.49%, +3.87%</li></ul>



<h3 class="wp-block-heading">Bitcoin ETF Update</h3>



<p>&#8220;The U.S.&#8217;s dollar dominance, jobs, votes, plenty of revenue (tax) and, most importantly — it counters China — are top reasons we expect Uncle Sam will embrace cryptocurrencies with proper regulation and ETFs. Imagine the potential for a new digital world order if the price of Bitcoin keeps rising, and 1.4 billion citizens are banned from it by their government,&#8221; <a href="https://twitter.com/mikemcglone11/status/1448979416172871692?s=21" target="_blank" rel="noreferrer noopener">wrote</a> Mike McGlone of Bloomberg Intelligence, in a report today.</p>



<p>His comments came moments before Valkyrie <a href="https://cms.blockworks.co/valkyrie-files-8-a-in-key-step-for-bitcoin-futures-etf-approval/" target="_blank" rel="noreferrer noopener">filed</a> an 8-A with the SEC in a key step for a bitcoin futures-backed ETF approval, indicating support of bitcoin from regulators. </p>



<p>In anticipation of approval, the basis on futures contracts is widening alongside rising open interest in BTC futures. This could open the door for institutions to put on a risk-free basis trade where they sell the futures contract and buy spot BTC in order to lock in a spread. </p>



<p>&#8220;While over a dozen organizations have applied to launch bitcoin ETFs, the diversity of the applicants attests to a climate of intensive interest in bitcoin among retail investors,&#8221; CTO and co-founder of Lolli, Matt Senter, wrote to Blockworks. &#8220;By offering clients indirect exposure to bitcoin, ETFs will be a powerful way to dissolve barriers to entry in bitcoin, building an onramp to adoption and greater knowledge about bitcoin as a new asset class.”</p>



<p>While providing more investors a new vehicle to gain exposure to BTC is a net positive, it is worth noting that a futures-backed ETF could lead the way to more price manipulation tactics from Wall Street firms.</p>



<div class="wp-block-image"><figure class="aligncenter size-full"><img decoding="async" loading="lazy" width="596" height="593" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-1.52.24-PM.png" alt="" class="wp-image-9457" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-1.52.24-PM.png?w=596 596w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-1.52.24-PM.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-1.52.24-PM.png?w=150 150w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-1.52.24-PM.png?w=258 258w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-1.52.24-PM.png?w=262 262w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-1.52.24-PM.png?w=220 220w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-1.52.24-PM.png?w=80 80w" sizes="(max-width: 596px) 100vw, 596px" /><figcaption>Source: @CaitlinLong_</figcaption></figure></div>



<h3 class="wp-block-heading">Bitcoin Fundamentals</h3>



<p>Despite increased options premiums, volume has spiked on the bullish BTC price action as traders prepare for price discovery:</p>



<div class="wp-block-image"><figure class="aligncenter size-large"><img decoding="async" loading="lazy" width="1024" height="572" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_options_volumes-1024x572.png" alt="" class="wp-image-9452" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_options_volumes-1024x572.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_options_volumes-1024x572.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_options_volumes-1024x572.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_options_volumes-1024x572.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_options_volumes-1024x572.png?w=467 467w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_options_volumes-1024x572.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_options_volumes-1024x572.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_options_volumes-1024x572.png?w=1200 1200w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Source: Skew</figcaption></figure></div>



<p>There isn&#8217;t much on-chain activity at these price levels, meaning that very little supply has changed hands above $60,000. That should come as no surprise considering the brief amount of time BTC maintained its price above $60K back in April. With little support or resistance in this trading range, expect higher volatility as BTC nears price discovery.  </p>



<div class="wp-block-image"><figure class="aligncenter size-large"><img decoding="async" loading="lazy" width="1024" height="576" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/UTXO-dist-1024x576.png" alt="" class="wp-image-9453" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/UTXO-dist-1024x576.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/UTXO-dist-1024x576.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/UTXO-dist-1024x576.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/UTXO-dist-1024x576.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/UTXO-dist-1024x576.png?w=464 464w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/UTXO-dist-1024x576.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/UTXO-dist-1024x576.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/UTXO-dist-1024x576.png?w=1456 1456w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Source: Glassnode</figcaption></figure></div>



<p>Perpetual funding rates are creeping higher, which means the longs are paying the shorts in order to hold their positions. Bulls are getting aggressive in a hurry. It will be something to keep an eye on to gauge the amount of greed in the market over the weekend. The chart below shows the APR longs are paying to keep positions open, sorted from the highest open interest to the lowest. </p>



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1024" height="571" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-4.48.59-PM-1024x571.png" alt="" class="wp-image-9482" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-4.48.59-PM-1024x571.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-4.48.59-PM-1024x571.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-4.48.59-PM-1024x571.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-4.48.59-PM-1024x571.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-4.48.59-PM-1024x571.png?w=468 468w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-4.48.59-PM-1024x571.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-4.48.59-PM-1024x571.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-4.48.59-PM-1024x571.png?w=1206 1206w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Source: https://app.laevitas.ch/dashboard/btc/derivs</figcaption></figure>



<p>Bitcoin is outpacing all altcoins and ether, as seen in the ETH/BTC chart below. Anyone who is positioned heavily in alts is having a rough time. </p>



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1024" height="563" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.10.20-PM-1024x563.png" alt="" class="wp-image-9459" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.10.20-PM-1024x563.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.10.20-PM-1024x563.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.10.20-PM-1024x563.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.10.20-PM-1024x563.png?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.10.20-PM-1024x563.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.10.20-PM-1024x563.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.10.20-PM-1024x563.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.10.20-PM-1024x563.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.10.20-PM-1024x563.png?w=1551 1551w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Source: Trading View</figcaption></figure>



<h3 class="wp-block-heading">Non-Fungible Tokens (NFTs)</h3>



<p>Axie Infinity co-founder, Jeff Zirlin, took to <a href="https://twitter.com/Jihoz_Axie/status/1448660069445300237?s=20" target="_blank" rel="noreferrer noopener">Twitter</a> to announce that the popular play-to-earn game has cracked the top 500 in global websites for engagement over the last 90 days.   </p>



<p>Laguna Games <a href="https://venturebeat.com/2021/10/15/laguna-games-raises-5m-to-launch-crypto-unicorns-with-egg-nfts/" target="_blank" rel="noreferrer noopener">raises</a> $5 million from BitKraft Ventures and Delphi Digital to launch its blockchain-based game, Crypto Unicorns, next month. </p>



<p>Trading data from <a href="https://opensea.io/rankings" target="_blank" rel="noreferrer noopener">OpenSea</a> and <a href="https://solanalysis.com" target="_blank" rel="noreferrer noopener">Solanalysis</a> of some of the top Solana and Ethereum projects can be found in the photos below:</p>



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1024" height="351" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.21.33-PM-1024x351.png" alt="" class="wp-image-9463" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.21.33-PM-1024x351.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.21.33-PM-1024x351.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.21.33-PM-1024x351.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.21.33-PM-1024x351.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.21.33-PM-1024x351.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.21.33-PM-1024x351.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.21.33-PM-1024x351.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.21.33-PM-1024x351.png?w=1252 1252w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Top Ethereum Projects</figcaption></figure>



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1024" height="291" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.21.47-PM-1024x291.png" alt="" class="wp-image-9464" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.21.47-PM-1024x291.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.21.47-PM-1024x291.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.21.47-PM-1024x291.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.21.47-PM-1024x291.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.21.47-PM-1024x291.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.21.47-PM-1024x291.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.21.47-PM-1024x291.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-2.21.47-PM-1024x291.png?w=1231 1231w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Top Solana Projects </figcaption></figure>



<h3 class="wp-block-heading">BTC on Ethereum</h3>



<ul><li>There is now over 280,000 BTC locked in ethereum smart contracts. That equates to roughly 1.5% of the circulating BTC supply. </li><li>The most popular form of BTC on Ethereum is wBTC, which holds a 76% marketshare.  </li></ul>



<div class="wp-block-image"><figure class="aligncenter size-full"><img decoding="async" loading="lazy" width="622" height="376" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-3.51.02-PM.png" alt="" class="wp-image-9470" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-3.51.02-PM.png?w=622 622w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-3.51.02-PM.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-3.51.02-PM.png?w=425 425w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-3.51.02-PM.png?w=432 432w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-3.51.02-PM.png?w=362 362w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-15-at-3.51.02-PM.png?w=80 80w" sizes="(max-width: 622px) 100vw, 622px" /><figcaption>Source: Dune Analytics</figcaption></figure></div>



<h3 class="wp-block-heading">Other Notable News</h3>



<ul><li>Tether settled with the CFTC for $42 million over false claims of being fully backed by dollars, Blockworks <a href="https://cms.blockworks.co/tether-settles-with-cftc-for-42-5m/" target="_blank" rel="noreferrer noopener">reported</a> earlier.</li><li>Nine out of 10 lightning nodes that were launched in the last year run on Umbrel, <a href="https://twitter.com/mayankdotch/status/1448999505211187205?s=20" target="_blank" rel="noreferrer noopener">according</a> to the company&#8217;s co-founder. </li><li>The total crypto market capitalization has crossed <a href="https://www.tradingview.com/symbols/CRYPTOCAP-TOTAL/" target="_blank" rel="noreferrer noopener">$2.5 trillion</a> for the first time today. </li><li>US treasury five-year breakeven inflation rate hit 2.753% today for the first time since <a href="https://twitter.com/Fxhedgers/status/1449030958372442126?s=20" target="_blank" rel="noreferrer noopener">April 2005</a>.</li></ul>



<p>That is all for this week, folks. Looking forward to catching up on Monday! </p>



<hr class="wp-block-separator"/>



<p><strong>Are you a UK or EU reader that can&#8217;t get enough investor-focused content on digital assets? <a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Join us</a>&nbsp;in London on November 15th and 16th for the Digital Asset Summit (DAS) London. Use code ARTICLE for £75 off your ticket.&nbsp;<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Buy it now</a>.</strong></p>



<hr class="wp-block-separator"/>


Bitcoin Soars Past $62,000; Price Discovery Nears: Markets Wrap

<div id="highlights-block_61647bab3b1f6" class="highlights">
        <ul>
                <li>Over $51 million of the erroneously distributed COMP has been returned to the Compound treasury</li>
                <li>The mishap points to decentralized governance as a double-edged sword</li>
            </ul>
    
</div>



<p>It started as a technocratic tweak to a long-running DeFi blue chip. “Proposal 62” voted on by holders of the Compound protocol’s governance token, COMP, was meant to give governance wider latitude in distributing incentives to lenders and borrowers.</p>



<p>Compound kicked off the 2020 “DeFi summer” with its then-novel use of liquidity mining following the debut of its COMP governance token in June of last year. With it, anyone providing or using liquidity in the money market protocol would earn COMP — lenders and borrows benefitted equally — rewards were split 50/50.</p>



<p>After a year of real-world testing, it became clear there were some unintended and deleterious side effects, particularly in non-stablecoin markets: WBTC (wrapped bitcoin), for example, could be borrowed at effectively a negative interest rate.</p>



<p>To address this problem, <a href="https://compound.finance/governance/proposals/62">Proposal 62</a>, enabled COMP rewards to be set heterogeneously across markets. It passed unanimously and went into effect on September 29.</p>



<p>Then, trouble:</p>



<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"><p lang="en" dir="ltr">🚨 Unusual activity has been reported regarding the distribution of COMP following the execution of Proposal 062.<br><br>No supplied/borrowed funds are at risk &#8212; Compound Labs and members of the community are investigating discrepancies in the COMP distribution.</p>&mdash; Compound Labs (@compoundfinance) <a href="https://twitter.com/compoundfinance/status/1443359184897069060?ref_src=twsrc%5Etfw">September 29, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<p>The protocol was paying out too much in COMP rewards to a subset of its users. It needed an immediate patch, first to pause all COMP distribution and then to repair the design flaw in Prop 62.</p>



<p>Compound Labs Inc., a Delaware corporation headquartered in San Francisco, originally developed the protocol, but in a move to decentralize control over its future evolution, they implemented a governance process of reviews, voting, and finally what’s known as a “timelock” on all changes approved by COMP token holders. The mechanism was aimed to prevent malicious code from being quickly rammed through and to move the company out of a primary decision-making role, but in this case, it also meant that any attempt to fix the bug would take at least seven days.</p>



<p>So, is decentralization partly to blame? The founder of Compound, Robert Leshner, doesn’t think so:</p>



<p>“This is not an event that calls into question whether <a href="https://cms.blockworks.co/what-are-corporations-going-to-do-with-all-that-extra-cash-put-it-in-defi/" target="_blank" rel="noreferrer noopener">DeFi</a> can be operated safely. It’s a wake-up call for decentralized, community-run protocols to improve the processes by which changes are introduced,” Leshner <a href="https://www.bloomberg.com/news/articles/2021-10-01/defi-platform-mistakenly-sends-89-million-ceo-begs-its-return">told Bloomberg</a>.</p>



<p>Leshner was quick to downplay the consequences of the bug on Twitter:</p>



<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"><p lang="en" dir="ltr">All supplied assets, borrowed assets, and positions are completely unaffected. Users don&#39;t have to worry about their funds; the only risk is that you (or another user) receives an unfairly large quantity of COMP.</p>&mdash; Robert Leshner (@rleshner) <a href="https://twitter.com/rleshner/status/1443380521019584514?ref_src=twsrc%5Etfw">September 30, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<p>A fix was <a href="https://twitter.com/compoundfinance/status/1446105336704864256">passed</a> through governance on October 7, and was executed on Saturday, stopping the COMP bleed.</p>



<p>In a typically DeFi twist, Leshner <a href="https://twitter.com/rleshner/status/1446865360448278534">announced</a> that 163,000 COMP tokens that were incorrectly claimed had been returned to the Compound community. That’s about $50 million worth of windfall tokens not taken. A further 130,000 — or roughly $40 million — that could have been expropriated, were left untouched. It’s as though the code to your front door security system was sent to everyone in your address book, along with a picture of the suitcase full of cash just inside, but no one wanted to turn the handle.</p>



<p>For now, there remain 200,000 COMP tokens that were in fact claimed and which have not been returned. That has the effect of diluting all holders of COMP.</p>



<p>Despite the slip-up, the COMP price has remained around $300 per token, without seeing a marked adverse reaction to its price.</p>
