DeFi Insurance, Genesis bankruptcy and FTX creditors, Ethereum Update

1. How DeFi Insurance might help mitigate risks

The Facts:

• Events such as the LUNA crash last year saw $40 billion wiped out, with no insurances in place, as even to date, less than 1% of the $47 billion DeFi sector is being covered by policies.
• The distinct types of DeFi insurances, whether for hacks, stablecoin depegs, faulty smart contracts of locked platform funds are gathered under the umbrella term “DeFi cover” to differentiate from the traditional, and highly regulated, insurance industry.

Our Take:

• Even though the DeFi industry is still relatively young and small, despite tremendous growth and traction throughout DeFi Summer, DeFi cover is still an overlooked feature that should be adapted from TradFi.
• To date, DeFi cover providers such as Nexus Mutual or InsurAce provide just $284 million of total value locked (TVL), and OpenCover, which aggregates DeFi coverage across all chains, such as Ethereum, Polygon, Arbitrum, Optimism or BSC counted just more than 17’000 covers being sold.
• The point of insurance for DeFi activities is not only necessary for individuals being active in DeFi, but also large protocols could seek out future coverage for hacks occurring on their protocol, ensuring that their own users remain safe and get compensated in case of extraordinary events unfolding.
• Especially hacks or smart contract bugs, causing oftentimes millions of user and protocol funds being lost or stolen, can be detrimental to the future success and adoption of protocols, attesting to the appeal of safeguarding one's operations from such events.
• Nevertheless, regarding insurances, especially within DeFi, attention needs to be paid to the risk of the insurer itself, with events such as the LUNA crash being out of scope for any current insurer to sufficiently cover such sizable events.

2.After weeks of resistance, it is Genesis´ turn for bankruptcy

The Facts:

• After Genesis filing for bankruptcy last week, its bankruptcy filings revealed that its top 50 creditors are owed a total of $3.5 billion, with the biggest creditor being Gemini Earn users with $765.9 million.
• Further creditors include crypto fund Mirana, Moonalpha Financial Services, and a VanEck Income Fund.
• Continuing with the convolution of countless creditors amongst bankrupt CeFi (Centralized Finance) companies, FTX’s top creditor list revealed numerous well-known corporations from both crypto and equities.
• Along the extensive list of creditors are Apple, Netflix, Amazon, Meta, Google, LinkedIn, Microsoft, and Twitter, with crypto firms Coinbase, Galaxy Digital, Yuga Labs, Circle, Bittrex, ChainAnalysis, Messari alongside multiple of Binance’s entities.
• Furthermore, media outlets Coindesk (currently owned by DCG (Digital Currency Group) and The Wall Street Journal and The New York Times are on the list.

Our Take:

• Genesis’ bankruptcy was long anticipated, in a bad way, due to its liquidity shortage and previous considerations for bankruptcy, which we covered in the Weekly Wrap.
• With Genesis going bankrupt the pressure on its parent company DCG and Gemini is amplified, with Gemini being especially affected with close to $1 billion of its clients' funds being inaccessibly locked in bankrupt Genesis.
• Though DCG’s CEO Barry Silbert was quick to “clarify” that Genesis and DCG are distinct entities, DCG still owes Genesis $526 million alongside a $1.1 billion promissory note.
• Nevertheless, Genesis creditors felt the need to sue DCG and Barry Silbert for alleged violations of federal securities laws, with DCG planning to sell news outlet CoinDesk for $200 million to raise funds in the meantime.
• In the same manner, Genesis itself has also been charged with a securities fraud class action lawsuit, alleging that its earn product has been an unregistered security.
• Despite being in a late stage of both bear market and the necessary flushing out of dishonest or unstable actors, there might be more bad lemons to be exposed as the struggles continue, so beware.
• As if the FTX debacle surrounding the ties to politicians and affiliated organizations did no shed enough bad light on the industries, the current list of creditors reveals that the ties went much further, with FTX affecting even the largest tech companies and leading crypto companies.
• Despite the affected creditors’ exposure being limited, it reveals once more how deeply rooted FTX’s connections and influence has been, in almost the entire crypto sector as well as traditional stock companies’ activities.
• It also raises questions regarding how the fraudulent practices of FTX could have been spotted and avoided through regulations, if even top players from equity markets and the crypto sector were apparently unable to perform proper due diligence and not get involved in the first place, let us see how the story continues.

3.Ethereum Shadow fork live and Vitalik proposes transaction obfuscation

The Facts:

• In preparation for the much-anticipated Shanghai upgrade of the Ethereum mainnet, enabling unstaking of staked ETH, a crucial shadow fork went live this week, which allows for testing whether the unstaking mechanism functions as intended.
• $26.5 billion in ETH have been staked that will be enabled for un-staking with the Shanghai fork going live.
• Ethereum founder Vitalik Buterin proposed “stealth addresses” which will enable obfuscation of transaction data to enhance existing transactional privacy.
• Vitalik stated that stealth addresses are one of the “largest remaining challenges” that the Ethereum ecosystem has yet to overcome.

Our Take:

• In March, when the actual Shanghai upgrade is going live, there is a lot “at stake” (no pun intended), despite Ethereum having one of the lowest staking ratios as of now.
• Ensuring a smooth fork, based on the model of The Merge, the transition to enabled unstaking will add tremendous value and potential for the future of Ethereum, even with liquid staking being on the rise.
• Because of ensuring a functioning mainnet upgrade, further upgrades that were supposed to be implemented with Shanghai, such as an EVM (Ethereum Virtual Machine) upgrade via EOF (EVM Object Format), or proto-danksharding which enables cheaper and faster Layer 2 transactions, were postponed until later this year.
• A successful transition will put Ethereum in a much more competitive position compared to other Layer 1 smart contract platforms, attracting large counts of new stakers, that will be attracted by the added liquidity feature and enhanced staking experience.
• The Ethereum censorship controversy, covered in The Weekly Wrap, received tailwind support with Vitalik’s proposal and could be a literal game-changer in the attempt of fighting censorship and enhancing privacy features of Ethereum transactions.
• The obfuscated and new public addresses being created for each transaction are not only crucial for counteracting the sanctioning of entities such as Tornado Cash but enables the usage of ETH in payment transactions.
• Currently a big problem with payment transactions is the revealing of one's holdings and balance, and there are currently only semi-manual workarounds for this issue of pseudoanonymous transactions, whereas general transactional privacy could see the next wave of adoption in this area taking place on Ethereum.

In other news

• Binance accidentally comingled customer funds and collateral (via Bloomberg)
• Arizona bill proposes Bitcoin as legal tender (via Arizona Government)
• Bankrupt Core Scientific raises $500 million from BlackRock and others (via Cryptoslate)
• Nuclear powered Bitcoin mining to launch in the US this year (via CNET)
• Blockstream raises $125 million for Bitcoin mining (via Coindesk)
• Cardano founder Charles Hoskinson contemplates buying Coindesk for $200 million (via Cryptoslate)
• ChatGPT and Microsoft extend partnership in multibillion deal (via Watcher.Guru)
• BlockFi´s leaked financials reveal $1.2 billion tie to FTX and Alameda (via CNBC)
• Tesla keeps Hodling its Bitcoin stack (via Coindesk)
• Cardano withstands 50% node outage bug (via Cointelegraph)

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