Experts weigh in on the Ethereum vulnerabilities after Merge: Finance Redefined

Welcome to Finance Redefined, your weekly dose of essential decentralized finance (DeFi) insights — a newsletter crafted to bring you significant developments over the last week.

The past week in the DeFi ecosystem saw major developments centered around the Ethereum Merge.

Aave (AAVE) community proposed temporarily suspending Ether (ETH) lending before the Merge, citing the potential issue of high ETH utilization that may result in liquidations being hard or impossible and annual percentage yields (APYs) reaching negative figures. An industry expert shared his opinion on possible censorship vulnerabilities that the Ethereum network could eventually face in the wake of its transition to a proof-of-stake (PoS) blockchain.

Moving ahead of the Ethereum Merge developments, some other major events that made headlines include Babylon Finance’s eventual shutdown after months of trying to recover from the negative momentum caused by the Rari Fuse exploit. The United States Federal Bureau of Investigation (FBI) has issued a fresh warning for investors in DeFi platforms, which have been targeted with $1.6 billion in exploits in 2022.

The top 100 DeFi tokens recorded a bearish price action over the past week, with the majority trading in the red, barring a few tokens that have shown even double-digit growth.

Will Ethereum 2.0 be vulnerable to censorship? Industry professional explains

The Ethereum network will be able to withstand censorship risks both in the short and long term, according to Ethereum community member and investor Ryan Berckmans.

The ban of Ethereum-based privacy tool Tornado Cash by United States authorities earlier this month left many wondering whether Ethereum transactions could also be at risk of censorship, especially after Ethereum’s imminent transition to a proof-of-stake system.

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Aave community proposes to suspend ETH lending before the Merge temporarily

With the Ethereum Merge on the way, the risk research and analysis team Block Analytica proposed a temporary pause in ETH borrowing to mitigate the risks that may lead to a DeFi implosion in the Aave lending protocol during the Merge.

The team pointed out the potential issue of high ETH utilization, which may result in liquidations being hard or impossible and the APY’s reaching negative figures. Furthermore, the uncertainties surrounding the Merge and a potential Ethereum proof-of-work (PoW) fork may cause liquidity providers to start a bank run, pushing utilization to even higher levels.

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DeFi protocol shuts down months after the Rari Fuse hack

Babylon Finance has finally announced that it will shut down after months of trying to recover from the negative momentum caused by the Rari Fuse exploit.

In a statement, founder Ramon Recuero explained that the platform experienced an insurmountable negative streak despite their team’s efforts to endure the domino effect caused by the hack. According to Recuero, the protocol lost $3.4 million. Following this, the total value locked within the platform went from $30 million to $4 million. To make matters worse, the Fuse pool was abandoned, taking out a lending market worth $10 million, Recuero noted.

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FBI issues alert over cybercriminal exploits targeting DeFi

The US FBI issued a fresh warning for investors on DeFi platforms, which have been targeted with $1.6 billion in exploits in 2022.

In a public service announcement on Tuesday, the FBI’s Internet Crime Complaint Center said the exploits have caused investors to lose money — advising investors to conduct diligent research about DeFi platforms before using them while also urging platforms to improve monitoring and conduct rigorous code testing.

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DeFi market overview

Analytical data reveals that DeFi’s total value locked registered a minor change from the past week. The TVL value was about $61.97 billion at the time of writing. Data from Cointelegraph Markets Pro and TradingView shows that DeFi’s top 100 tokens by market capitalization had a mixed week. Even though the majority of the tokens are trading in red on the weekly charts, the price change has been minimal compared to the last week.

Lido DAO (LDO) was the biggest gainer among the top 100 tokens, registering a weekly gain of 5.31%, followed by PancakeSwap (CAKE), with a rise of 1%. The rest of the other top100 tokens registered a single-digit decline over the past week.

Thanks for reading our summary of this week’s most impactful DeFi developments. Join us next Friday for more stories, insights and education in this dynamically advancing space.