Weekly Analyst Thoughts
This past weekend, Harvest Finance, a Defi yield farming protocol, was hacked using a Defi transaction mechanism called a flash loan. A flash loan is a specific type of transaction where the borrower must repay the loan in the same blockchain transaction. If the borrower does not repay the full loan (principal + interest), the transaction reverts, so as to seem like the flash loan never happened. Like Harvest, Aave also supports flash loan transactions and credits much of its meteoric 2020 price rise to this feature.
The Harvest Finance attack was executed through the Curve Finance Y pool with a flash loan. As seen below, Harvest’s near $3 billion in volume and over 170% APY raised concerns that there was irregular activity in the Curve Finance pool.
The takeaway from this clever arbitrage on Harvest Finance is that even if a yield farming protocol has multiple layers of audits (as Harvest did), it can still be vulnerable to attacks. So, don’t let the fact that a protocol is audited give a false sense of security when investing in Defi yield farming protocols. Instead, it is safer to diversify risk by investing with several reputable yield farming platforms (Ex: Uniswap, Balancer) to mitigate the risk of lost funds through sophisticated flash loan attacks.
By Jacob Stelter
A robust derivatives solution is an important step for the cryptocurrency market. One of the main problems with current crypto derivatives exchanges like Deribit is that they forbid U.S. investors from participating on their platform due to regulatory risk. This results in U.S. investors, primarily retail investors, being left with no chance to participate in the market. This problem is not central to just the United States, as just last week the Financial Conduct Authority of the UK banned the sale of crypto derivatives to retail customers.
Hegic Options brings regulatory risk solutions to any retail investor by creating a non-custodial, on-chain options protocol open to anyone with a Metamask wallet and some Ethereum tokens. Hegic Options is an automated market maker (AMM) that offers bidirectional liquidity (calls and puts) for its options protocol, offering both WBTC and ETH solutions to write and buy these personalized options. The neat thing about Hegic is that it solves the liquidity issues that plague AMM Dexes by mitigating risk for options writers and spreading this risk out in bidirectional liquidity pools. This approach to risk management brings convenience to options buyers as they can now craft the customized options that they want to purchase. In summary, Hegic Options is a great solution for retail investors previously barred from the crypto derivatives market looking to participate in a lucrative solution.
By Jacob Stelter