In this 3-2-1 QnA Session 12, we will discuss Coinchange Yield Index report, Asset allocation report and our most recent content that you should be aware of. Then we will discuss two twitter threads, first one is about the SEC coming after Kraken and the other one discusses web3 security and ways to prevent losses. Finally we’ll analyze the CoW Swap exploit. Here is what you will be learning about:
Question 1. How did Coinchange Yield perform in relation to other crypto and non-crypto yields?
Question 2. How did Coinchange allocate the assets it received in January 2023?
Question 3. What has happened/what content has been put together for this end of the year that our users need to be aware of?
Twitter Thread #1: SEC cracks down on Kraken
Twitter Thread #2: Crypto Scams/hacks and prevention
DeFi Exploit Analyzed: CoW Swap Exploit
Question 1 How did Coinchange Yield perform in relation to other crypto and non-crypto yields?
Well, we collect this data holistically and produce our ‘Yield Indexes and Benchmark’ report, which a snapshot of the rate across indexes and standalone rate for the month of January can be seen below. For the description of the component within each index please refer to the report on the blog under Coinchange updates.
For the month of January, Coinchange has a higher average rate than all the indexes except for the CeFi Yield Index. Coinchange rate remains multiple times higher than the CeDeFi index while not having any lockups, minimum investments requirements and being fully liquid.
Withdrawals are processed during the same day of the request and all funds are deployed in DeFi without CeFi counterparties and are fully on-chain.
Below is the historical performance of the DeFi Lending Rate compared with Coinchange Yield.
As you can see our low risk strategies have consistently outperformed the DeFi lending rate.
And lastly, the chart below represents the comparison of historical rates across indexes since January 2022 and aims to provide some perspective on performance over time.
As you can see for the past two months, we have outperformed 5 out of 6 Indexes and we are only 0.07% away from the CeFi Lending Index. That’s a huge achievement for Coinchange!
Question 2. How did Coinchange allocate the assets it received in January 2023?
Every month we publish an Asset Allocation Report where we provide information on how Coinchange deploys client's assets and diversifies the investments while minimizing risks.
For the month of January, the list of protocols used in Coinchange strategies has remained the same as the month of December:
- AAVE v2-3
- Uniswap v3
Below is the distribution of client stablecoin assets managed on the Coinchange platform as of January 31st. Coinchange accepts USDC, USDT and DAI on the Ethereum network. The distribution clearly shows a high preference towards usage of the USDC asset.
Now, if we look at the distribution of assets among the DeFi protocol types, It can be seen that 30.8% of stablecoin deployments are in MMP protocols. As a side note, MMP protocols provide a relatively stable and constant - although increasing - yield given current market environments with slowly increasing borrowing demand. And the remaining 69.2% of stablecoin deployment is allocated to the DEX protocols. The reason for such a large allocation being that our DEX strategy which has been resumed since December has been benefiting from increased DEX volume.
It is important to note that 0% of stablecoin deployment was allocated to staking protocols.
Speaking of blockchains, Coinchange deployed assets on two blockchains for the month of January: Avalanche and Binance Smart Chain. The allocation between the two follows the allocation of assets of the protocol type since all DEXs and MMPs are running on Binance Smart Chain and Avalanche respectively.
Finally, the chart below shows the asset mix of Bitcoin and Ethereum managed on Coinchange platform as of January 31st. Ethereum yields have historically been much stronger than Bitcon yields, which may explain a clear preference to invest in Ethereum.
Currently, allocation for both currencies (ETH and BTC) is 100% in MMP (Money Market Protocols) and are running on the Avalanche blockchain.
For full disclosure of client assets allocation, please refer to our latest Coinchange Asset Allocation Report January 2023
Question 3 . What has happened/what content has been put together for this end of the year that our users need to be aware of?
Coinchange hosted the first ever Awards and Prediction show. We had a star studded panel including our CEO, CTO, Head of DeFi, Hear of Research and Head of Partnerships. We discussed various categories such as 1.Most successful blockchain company or a crypto entity, then 2. The biggest collapse of 2022, 3. An underdog company in 2022, 4. Our favorite crypto source for news and 5. One big prediction for 2023. We had a lot of fun and insightful discussions on these topics. Go check out the video on our YouTube channel to get some Alpha for 2023 from the Coinchange leadership team.
Two Twitter Threads You Need To Be Aware Of
Twitter Thread #1 Pratik intro + text, Jerome take
Brian Armstrong the CEO of Coinbase, tweeted on Feb 8th,
Well, guess what, it wasn’t a rumor for too long. The next day after this tweet, the SEC posted this:
TLDR: The SEC shut down Kraken’s staking program and counted it as a win for investors. Kraken is enjoined from ever offering a staking service in the United States, registered or not.
SEC Commissioner, Hester Peirce (SEC Commissioner) in her article on thoughts on Kraken settlement said the more fundamental question is whether SEC registration would have been possible in the first place. An offering like the staking service at issue here raises a host of complicated questions, including whether the staking program as a whole would be registered or whether each token’s staking program would be separately registered, what the important disclosures would be, and what the accounting implications would be for Kraken. Using enforcement actions to tell people what the law is in an emerging industry is not an efficient or fair way of regulating.
Coinchange Take: Our take is very similar to Brian Armstrong and Hester Peirce’s take. We need to make sure that new technologies are encouraged to grow in the US, and not stifled by lack of clear rules. Another example of lack of clarity is the video from the SEC where Gary Gensler hints that any intermediaries involved in similar activities than staking need to have proper disclosure. When it comes to financial services and web3, it's a matter of national security that these capabilities be built out in the U.S.
Regulation by enforcement doesn’t work. It encourages companies to operate offshore, which is what happened with FTX. Hopefully we can work together to publish clear rules for the industry, and come up with sensible solutions.
Twitter Thread #2. Jerome text, Pratik take
The next tweet is from XREX security team on list of hacks/scams and how to prevent them.
Here’s a quick overview of what hackers want in the first place:
The article linked in the tweet lists Nine Common Web3 Hacks and Scams, but we will discuss the three main ones here:
1. Credential Phishing
Users unknowingly enter real account information and passwords into fake websites such as phony exchange logins or airdrop unlock pages, resulting in stolen credentials.
Prevention: Use different passwords for different accounts to minimize exposure
2. Fake customer service
Hackers pretend to be official employees of #DeFi projects and trick users into filling out forms or transferring crypto to the hacker’s wallet.
Prevention: Don’t trust unsolicited private messages. Official projects never DM for account information.
3. Rug pulls
Rug pulls are crypto scams where a team pumps the value of its token before disappearing with investors’ funds.
Prevention: Research a project team's background, observe transaction volume of tokens, avoid projects using hype social bots on social media
Coinchange Take: At coinchange we have a very strict due diligence process to avoid such scams and hacks. Most of these scams are avoided by one simple rule that we follow, we do not interact with any UI of a protocol. We integrate our strategies directly with the protocol smart contract. Secondly for the scams such a rug pull, we conduct a strong research on who the team is, what are their credentials, and what % of tokens do they own. This helps us filter the well decentralized protocols from the centralized ones. A few weeks ago we published an article titled ‘Securing Your Crypto: Exploring 9 DeFi Incidents’ where we discussed the various ways Coinchange has gone the extra mile to protect its users from the dangers of DeFi hacks. Check that out under our blog on our website.
CoW Swap Hack
(Pratik for intro+text, jerome for the take)
On February 7th 2023, CoW Swap’s settlement contract suffered an exploit wherein a hacker was able to drain ~$166K from the contract. Even though it was an exploit, it is important to note that the users’ funds were never at risk and were not compromised. Here is the link to the full post-mortem.
What is CoW Swap?
CoW Swap is a Meta DEX aggregator that allows you to buy and sell tokens using gasless orders that are settled peer-to-peer among its users, or into any on-chain liquidity source while providing MEV protection. Trades can be settled via underlying on-chain AMMs directly or via DEX Aggregators, depending on which pool/path offers the best price. It is thus essentially acting as a DexAggregator of the DexAggregators. CoW Swap is a non-custodial platform meaning they do not hold user funds. Thus in order to steal the user funds, the hacker would need access to the private key of the user.
CoW Swap engages in a so-called “solver competition”, where external parties develop an algorithm to compete against other solvers to find the best execution route for CoW Swap users.
On January 27th, 2023 a new solver entered the competition: the Barter solver. The process to become a solver is to get ‘allowlisted’ (aka whitelisted) after some time in staging and the deposit of the bond in the pool, which can get slashed. Once the Barter Solver was allowlisted as per usual rules, they set an approval to a contract they developed, called SwapGuard. Long story short, a hacker exploited Barter solver and used it to drain the settlement contract, which held 7 days worth of protocol fees. According to CoW Swap, the exploited settlement contract only has access to the fees that the protocol collected in a week. Although CowSwap generates a lot of fees, fortunately only a week’s worth of fees were at stake, which have now been recovered.
Coinchange take: It is unfortunate that this happened, however this isn’t really a hack. It is equivalent to saying that Ethereum was hacked just because one of the validators misbehaved and got their stake/bond slashed. In CoW Swaps case, as of 8th Feb, the lost funds have already been fully covered by the bond of the responsible solver. On the brighter side of news, despite the exploit, ENS DAO (@ensdomains) sold 10K worth of ETH from their treasury through CoW Swap. This shows that larger protocol treasuries still have faith in crypto protocols and use the ones that have all safety measures and best practices in place. Also, the crypto space learns and gets more secure and resilient with every new exploit.
This concludes our 3-2-1 Q&A Blog. We’ll see you in the next one, two weeks from now. Meanwhile, kick back and earn passive income using Coinchange. Sign up today!