By Ria Bhutoria and Wilson Withiam
Know & go
- A closer look: We provide a closer look at InstaDApp’s recent roll out of its Maker to Compound bridge.
- Three things to know: (1) The SEC provides two Regulation A+ qualifications to Blockstack and Props (2) Anchorage raises a $40 million Series B round led by Blockchain Capital and Visa (3) Fortress is looking to purchase creditor claims on the missing bitcoin (~850k BTC) lost in the 2014 collapse of Mt Gox.
- Market snapshot: Total crypto market capitalization is around $299.4 billion at press time (down 1.3% w/w). BTC is trading at $11,580 (up 3.5% w/w), ETH is at $274 (down 5.5% w/w). BVOL (the rolling 30-day annualized Bitcoin volatility as calculated by BitMEX) is 104.3%, up from 91.6% last week. (7/12 12:15PM ET)
A closer look: Bridging DeFi
Navigating the decentralized finance (DeFi) ecosystem for the best rates and services grows increasingly fragmented and difficult, as more Ethereum-based crypto trading and lending applications launch and release updates. Borrowing rates are constantly in flux and vary (sometimes significantly) across platforms. Further, the process of transferring funds between different lending services to secure a more favorable borrowing or lending rate is a manual, complex and multi-step process. While a centralized, custodial application could help users circumvent these pain points, it would require participants to relinquish control of their assets, defeating the purpose of decentralized platforms.
InstaDApp, self-classified as a “bridge to decentralized finance,” launched in 2018 to make it easier for non-technical end users to create and manage CDPs on MakerDAO, and facilitate new and interesting CDP use cases. Since, the team has integrated Kyber Network, Compound, and Uniswap functionality onto its platform. More recently, the challenges outlined above led InstaDApp to create a more seamless way to move funds across different DeFi protocols, starting with Maker and Compound.
What is InstaDApp
InstaDApp is a user-focused platform that aggregates various Ethereum-based DeFi applications and services onto a single dashboard, providing a simple front-end management system. It aims to abstract away many of the technical complexities associated with Ethereum dapps and protocols to help encourage non-crypto natives to participate in decentralized financial services. The company’s long-term goal is to operate as a decentralized bank and offer a wide variety of financial services (i.e. lending, borrowing, transfers, trading, staking, etc.) in a non-custodial manner by leveraging and integrating underlying DeFi protocols.
The project itself was born out of the 2018 ETH India hackathon. InstaDApp’s co-founders, Sowmay Jain and Samyak Jain, and team believed the original user experience for MakerDAO — the borrowing platform that issues its own stablecoin, DAI — was insufficient. In response, the team created and submitted a resolver contract to assist in combining Maker transactions for a more seamless collateral debt position (CDP) deployment and management process. This hackathon proof-of-concept formed the basis for the first version of InstaDApp’s platform, which was launched in Dec 2018. v1 featured integrations with MakerDAO for CDP management and DAI borrowing as well as Kyber Network to provide asset liquidity for order matching and on chain swaps. A second version was released in April 2019 to incorporate lending and borrowing services via Compound and token swaps and interest generating liquidity pools through Uniswap. v2 also added support for leveraging active Maker CDPs.
InstaDApp is able to offer access these underlying protocols and services without having to touch user funds. Assets on InstaDApp are stored in contract wallets rather than standard addresses. Contract wallets are individually issued and maintained by the corresponding user and do not alter the transaction authorization process from a user’s perspective. But underneath the hood, this contract layer gives the InstaDApp platform the flexibility and functionality to provide specific services to customers beyond traditional crypto wallets, such as the ability to execute multiple transactions in a single call and to move assets between protocols. The InstaDApp platform then abstracts away the underlying contract and DeFi protocols, allowing users to access multiple DeFi applications that require varying degrees of technical or financial know-how via a dashboard with a consistent user experience.
The interoperability challenge
This week, InstaDApp formally launched its Maker-Compound bridge, which it announced back in June. Prior to the bridge, the process of moving funds between protocols was complex and inefficient. The motivation to do so was driven by the frustrating process of transferring a Maker loan to Compound (which offered more favorable rates) when the Maker stability fee increased. Supposing the user was holding enough DAI, she would have to pay down DAI debt on Maker to be refunded the ETH held as collateral, then deposit the collateral on Compound (or another lending application) to take out a DAI loan at a lower interest rate. Samyak Jain, one of the co-founders, was not holding DAI needed to pay back the debt on Maker when the stability fee went up and thus had to undergo an even more tedious process.
The founders believe the lack of interoperability not only yields a poor user experience, but is also a key factor that contributes to the disparate lending and borrowing rates across different lending platforms. To give you a sense of the degree to which they differ – at the time of writing (7/12 at 9:30am ET), DAI borrowing rates are 18.5% on Maker, 13.9% on Compound, 22% on dYdX, and 10% on Dharma.
InstaDApp cuts the steps required to refinance decentralized loans down to a single click using its bridge contract. Under the hood, in going from Maker to Compound, ownership of the user’s CDP is transferred to the bridge contract, which pays down the debt using its pool of DAI (which the team says will always hold ~100K DAI to cover this debt). The bridge contract then withdraws the ETH used as collateral from Maker and moves it to Compound. The DAI loan received as a result is sent to the bridge contract as compensation for paying down the user’s CDP debt.
Another dashboard providing interoperability between Compound and Maker for a slightly different purpose is DeFi Saver. DeFi Saver offers “Supply to CDP”, which allows users to borrow DAI from Compound and pay down a portion of debt with one click, and “Supply from CDP”, which allows users to deposit DAI generated through a CDP into Compound and earn interest.
Implications for DeFi
As a result of DAI stability fee hikes, user interest started to shift from Maker to alternate decentralized lending platforms, as active lenders and borrowers sought more favorable rates. Since April, Maker dominance (the share of total ETH staked in DeFi applications, as measured by Defi Pulse) has dropped from 96% to 71% at the time of writing. The release of protocol bridge contracts that make the process of refinancing decentralized loans almost instantaneous should allow users to take better advantage of arbitrage opportunities and reduce the dominance of a single lending protocol. As a result, the amount of ETH locked in Maker CDPs may continue to decline as it becomes easier for users to transfer funds to platforms offering more competitive rates and more effectively execute on arbitrage opportunities. This could lead to more efficient decentralized lending markets with narrower spreads.
Risks and challenges
Manual rate discovery process
Despite integrating multiple lending market protocols, the InstaDApp platform does not automatically direct users towards the best available lending or borrowing rate. The decision to avoid automating the rate discovery process was intentional, as the team determined creating a service like this in a decentralized and non-custodial fashion would be progressively difficult. In an episode of Into the Ether, Sonway Jain explained if the platform’s rate discovery process was automated, any changes to the underlying protocols would require InstaDApp to update its own contract logic — a complicated and non-trivial undertaking. However, this decision may invite competition from more centralized competitors that can offer automated services beyond InstaDApp’s current capabilities. As Rocco from Alpine Intel highlights, people tend to trade their sovereignty for convenience.
By building on top of and integrating multiple DeFi applications, platforms like InstaDApp assume the risks associated with each platform. Further, these protocols are relatively young and frequently roll out new versions with more features (i.e. Compound v2, Maker SCD to MCD, etc.), which increases the complexity of maintaining a dashboard that integrates and aggregates multiple applications.
Since InstaDApp is not currently charging users and providing a free software service in addition to not custodying user funds, it is not subject to any legal implications. But this may become problematic as it looks to monetize and add additional financial services to its platform. Further, Sowmay Jain said the company plans to incorporate in the U.S. soon, a region that tends to have more stringent regulations surrounding banking practices. To avoid short term legal complications, InstaDApp intends to apply for some basic borrowing and lending licenses (though we do not know which specific licenses Sowmay Jain was referring to).
Despite these challenges, InstaDApp’s dashboard providers users with a superior and seamless experience. This shows in the numbers — in a single day, about $1.2 million in ETH and $500K in DAI was transferred from Maker to Compound via InstaDApp.
Looking forward, platforms like InstaDApp could become the default UI for interacting with multiple DeFi applications in a single location as the underlying protocols focus on making their specific offering more robust rather than on making it easy for users to interoperate with competing protocols.
Robert Leshner, the founder of Compound, said himself on a recent Epicenter podcast episode that Compound will become a base layer for other applications to build upon. We agree — fewer users will be interacting directly with Compound and other base layer applications. Rather they will touch these building blocks via new and unique applications and interfaces (like InstaDApp, or PoolTogether, which we recently wrote about) that reside one layer above and focus their attention on improving the user experience.
Weekly market snapshot
In other news
- Huobi and ErisX have joined Gemini as the crypto exchanges that offer colocation services — placing a client’s server in the same location or cloud as the exchange’s to enable high-frequency trading (HFT). HFT services allow investors to execute trades up to 100 times faster and are commonplace in traditional financial markets. The moves made by these exchanges may suggest the market is preparing for growing interest among institutional investors. Source.
- NY-based private equity firm Fortress is looking to purchase creditor claims on the missing bitcoin (~850k BTC) lost in the 2014 collapse of Mt Gox to fund a Bitcoin investment vehicle operated by the firm. Fortress is offering $900 per bitcoin claim, “or roughly 200% of the bankruptcy value (which was $451 per BTC).” The offer is still a fraction of bitcoin’s current price, which is $11,189 at the time of writing. Creditors were hopeful they would receive their more valuable missing bitcoin instead, as Mt Gox’s status switched from bankruptcy to civil rehabilitation last year. Source.
- The Winklevoss twins, founders of crypto exchange Gemini, said they are exploring the opportunity to join the Libra Association. The move would be somewhat surprising considering the Winklevoss’ historic legal battle with Mark Zuckerberg over control of Facebook. But the twins see Libra as a chance to help promote mainstream crypto adoption and perhaps generate more interest in their own exchange. Source.
- Veil, the prediction market that leveraged some Augur smart contracts, is shutting down after just 6 months. In a blog post, the team cited a poor onboarding experience, too broad of a scope and not being decentralized or regulated as reasons for why Veil did not work. A limited user base could have also attributed to this decision. The Veil team will continue to host its Augur explorer, Predictions.Global. Source.
- IDEO CoLab Ventures, the venture arm of design firm IDEO, launched an accelerator focused on blockchain and cryptocurrency startups in partnership with Fidelity, Deloitte, Amazon and Messari, among others. These companies will provide support in the form of one-day workshops to help blockchain startups with product design, user testing, law, finance and engineering. Source.
- Nebulous, the company behind the Sia network for decentralized data storage, raised $3.5 million in a pre-Series A round led by Bain Capital Ventures with participation from Bessemer Venture Partners and Dragonfly Capital Partners. The round will help the startup expand its team and fund development on new services related to media streaming and storage. Source.
- Anchorage raised a $40 million Series B led by Blockchain Capital and Visa. The startup offers cold storage custody, secured by biometric-based software in addition to analog reviews, for cryptocurrency holders and currently supports Bitcoin, Ethereum, and 50 other digital assets. Anchorage has now raised a total of $57 million to date. Source.
- 3box recently closed a $2.5 million seed round led by Placeholder and including CoinFund, Venrock, Northzone, and ConsenSys. 3box aims to provide decentralized technology for storing and securing private user data across internet applications, among other solutions. Source. Read the CoinFund and Placeholder investment theses.
- Smart contract platform NEAR Protocol raised $12.1 million led by Metastable Capital and Accomplice, with additional participation from Pantera Capital, Electric Capital and Amplify Partners. NEAR is developing a shared, proof-of-stake blockchain that also runs parallel computations on sharded sections in order to boost overall transaction throughput. The team intends to use the funds to recruit more developers and finish building the platform, which is currently only operating in beta. Source.
- Ramp raised a €1 million (~$1.12 million) seed round from MarkerDAO, Seedcamp, Fabric Ventures and Firstminute to build a decentralized fiat-to-crypto exchange. The new exchange offers a peer-to-peer trading structure via a series of smart contracts that does not use centralized custodial wallets. Ramp is also looking to partner with existing dapps and wallet providers so users of those services can purchase crypto with their bank account. Source.
- Multicoin Capital led a $2 million seed round for Torus, a key management solution for Web 3.0 applications. Other participants include Binance Labs, Coinbase Ventures, Accomplice, Sixth Horizon and Terminal. Source.
Global regulatory roundup
- Blockstack announced its $28 million Stacks (STX) token offering was approved by the SEC under Regulation A+. This move marked the first time a token offering of its kind was authorized by the SEC. The ruling enables any (accredited or non-accredited) company or individual to participate in the token sale. Blockstack previously raised $47 million in a token sale under Reg D that was only open to accredited investors. Source.
- SEC also approved the token for Props, a loyalty rewards network operated by live-streaming app YouNow, under Reg A+. Props is not looking to raise money via a token sale at the moment — it already $21 million by pre-selling tokens to Union Square Ventures, Comcast, Venrock and other individual investors. But the approval allows Props to be earned and used by users in compliance with U.S. regulations. Source.
- The SEC is looking to source more information on public blockchains from data providers that host their own nodes. In the request, the SEC requires the data set includes the Bitcoin and Ethereum blockchains, “while Bitcoin Cash, Stellar, Zcash, NEO and XRP data are all specified as preferred.” Source.
What we’re reading
- On the Social Contract of Tezos by Rocco (Alpine Intel)
- Pathways for DeFi on Bitcoin by Mohamed Fouda (Token DAIly)
- Price Implications of Bitcoin UTXO Age Changes by Luka Jankovic (Galaxy Digital Global Research)
- The differences between Bitcoin and Libra should matter to policymakers by Peter Van Valkenburgh (Coin Center)
- Safety Without Silos: Why Businesses Will Learn to Love Public Ethereum by John Wolpert
- Commentary: Bitcoin energy use — mined the gap by George Kamiya
- FOIA documents reveal cryptocurrency guidance has not been a priority for the IRS by James Foust (Coin Center)
- An Overview of Relevant Metrics in Web 3.0 by Max Mersch (Fabric Ventures)
- The Explosion of Crypt Derivatives by Jeff Dorman (Arca)
- Blockchain Moats by Michael Karnjanaprakorn
- Monetary premiums, can altcoins compete with Bitcoin? by Checkmate
- Risk Management in MakerDAO by Alex Evans (Placeholder)
What we’re listening to
- What Bitcoin Did: Tadge Dryja on Scaling Bitcoin With Utreexo
- What Grinds My Gears: Price Predictions
- Epicenter: Compound – An Automated Money Market for Ethereum Tokens
- Into the Ether: InstaDApp: A Bridge to Decentralized Finance
- Unchained: How the Caribbean Got on the Road to Central Bank Digital Currencies
- Chain Reaction: Harmony’s Nick White: Mainnet Launch Is The First Step Towards Full Proof-of-Stake and Sharding
- Base Layer: Brooke Pollack (Hutt Capital)
- Blockchain Insider: Banks, Tezos & Tokens
Circle in the news
- Poloniex customers can now fuel their crypto trading by depositing and withdrawing funds using cards and bank accounts.
Where we’ll be in July
- 2019 Mid-Atlantic Anti-Money Laundering Conference, 7/23-7/25, Arlington, VA