Weekly Crypto Digest: A Week of Setbacks: Multichain’s Security Breach and SEGA’s GameFi Reconsideration

2023.07.03–2023.07.09

Dear Reader,

Welcome to the June issue of Gryphsis Academy’s weekly Crypto Digest. We bring you pivotal market trends, insights into emerging protocols, and fresh industry updates, all designed to enhance your crypto and Web3 expertise.

Enjoy!

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Market and Sector Snapshot:

Layer 2 Overview:

In the Layer 2 sector, this week saw little fluctuation in TVL, with the notable exception of Starknet, which led the pack with a 7-day TVL growth of 10%. Specific protocols, including CrowdSwap, Bunni, zkSwap, and mySwap, outperformed others, recording the highest TVL growth in the past week. Additionally, zkSync appears to be gaining momentum, with chain activity beginning to surpass that of Arbitrum.

LSD Overview:

The LSD sector has continued to display consistent growth this week. Notably, deposit volumes have experienced a slight increase, adding to the overall expansion of the sector. The percentage of ETH staked has remained stable at 17%, identical to last week’s figure.

AI Sector Overview:

This week, the AI sector remained relatively steady, reflecting trends in the broader market. The sector’s market cap and dominance have seen little change, with a marginal 7-day market cap increase of 2.17%. Standout gainers in the sector include $VRX, IAG, and $LAI. Conversely, $AMC, $TURBO, and $OJA experienced the most significant losses.

Main Topics

Macro Overview:

Big Story:

Protocol Spotlight:

Gryphsis Research(Ordinals):

VC Funding Highlight:

Alpha Threads:

Macro Overview

This week saw a marginal dip in the SPX and NASDAQ, with both markets exhibiting low volatility. Looking ahead, key events to watch include the EIA Short-Term Energy Outlook, Core CPI, Crude Oil Inventories, Initial Jobless Claims, and the PPI.

In the crypto sphere, volatility was equally muted. $BTC and $ETH prices largely mirrored their opening prices for the week. Notably, BTC dominance rose slightly and is currently sitting at around 51.59%.

Story of the Week

Multi-Chain Meltdown: A Massive $130 Million Exploit

Multichain, a renowned multi-party computation (MPC) bridge network facilitating token movement across blockchains, has experienced a significant exploit. This event has led to an alarming outflow of over $130 million in crypto assets, triggering shockwaves across the crypto space. The abnormal activity primarily targeted Multichain’s Fantom bridge, stripping it of nearly all its holdings in wBTC, USDC, USDT, and various altcoins.

According to reports, about $102 million was siphoned off the Ethereum side of the Fantom bridge alone, supplemented by an additional $666,000 and $5 million taken from Dogechain and Moonriver bridges, respectively. These unauthorized withdrawals have substantially drained the Fantom bridge’s Ethereum smart contract, leaving it devoid of 7,214 Wrapped Ether (WETH) tokens, 1,024 Wrapped Bitcoin (WBTC), and $58 million in USD Coin (USDC). Alarmingly, over 86% of the total deposits from the Dogechain bridge’s Ethereum contract were withdrawn, leaving only about $100,000 worth of assets remaining.

Multichain (Previously Anyswap) on Twitter: "The Multichain service stopped currently, and all bridge transactions will be stuck on the source chains. There is no confirmed resume time.Please don't use the Multichain bridging service now. / Twitter"

The Multichain service stopped currently, and all bridge transactions will be stuck on the source chains. There is no confirmed resume time.Please don't use the Multichain bridging service now.

Reacting to this significant security breach, the Multichain team has advised all users to suspend the use of their services and revoke all contract approvals related to Multichain. Investigations are currently underway to unravel the intricacies of this exploit and identify potential mitigation strategies. However, this event has not only sparked concerns about the security of crypto bridges but has also negatively impacted Multichain’s native token, MULTI, which experienced a 17% slide to $2.59.

Our Take

The vulnerability of cross-chain bridges in DeFi isn’t a novel concern. High-profile exploits, such as those on the Ronin ($600M), Wormhole ($300M), and Nomad ($190M) bridges, have periodically reminded the crypto community of these risks. According to Chainalysis, approximately $2B was stolen across 13 separate cross-chain bridge hacks in 2022, accounting for a whopping 69% of total funds stolen that year. These statistics underscore the severity of the situation.

Cross-chain bridges are particularly susceptible to attacks because they often feature a centralized storage point for funds that back the bridged assets on the receiving blockchain. This structure turns them into enticing targets for attackers.

However, the recurrent vulnerabilities of cross-chain bridges could actually serve as a bullish point for LayerZero. LayerZero is a cross-chain communication protocol designed to facilitate communication between applications deployed on different chains. Unlike typical cross-chain bridges, LayerZero doesn’t rely on intermediary nodes. It enables applications to carry out seamless cross-chain communication. In the vision of an omnichain future for crypto, LayerZero might present a safer and more efficient path.

SEGA Calls it Quits: What’s Next for GameFi

On July 7, gaming giant Sega is reportedly backing away from its initial plans to venture into blockchain-based games and GameFi. The company’s co-Chief Operating Officer, Shuji Utsumi, raised doubts about the potential of this technology in the gaming industry, pointing to the lack of excitement in play-to-earn games as a key factor in this decision. Sega, which previously expressed intentions to develop its own blockchain games, is now likely to cancel these initiatives, albeit with an allowance for third-party developers to produce such games. Despite its reconsideration, Sega maintains an investment in the Asia-based crypto fund IVC, known for its active involvement in GameFi projects. This development reflects the company’s ongoing caution towards blockchain gaming, which it had previously said it would abandon if perceived as a simple money-making scheme. The impact of this move on the future of GameFi and its integration into the broader gaming landscape remains to be seen.

Our Take

Since the last bull run, the GameFi market has been trending downward, with the focus of the market shifting elsewhere. The central issue with GameFi is its heavy reliance on Ponzinomics. During a bull market, rising token prices and an influx of new users paint a picture of prosperity. However, in a bear market, declining token prices trigger a downward spiral that unsustainable Ponzinomics cannot sustain. A notable example is Axie Infinity, a GameFi project that once ruled the play-to-earn landscape.

SEGA’s recent announcement about withdrawing from the GameFi sector seems to cast a shadow over the future of this industry. However, a single company’s exit should not be interpreted as a death knell for the sector. Various factors can influence such a decision, and even major firms can misjudge trends. Amidst the GameFi landscape, one project, Ronin Network, has piqued our interest. Designed specifically for developers building GameFi, Ronin is an EVM-compatible chain. Last year, the network suffered a substantial $625M exploit, one of the largest in the industry, significantly affecting $RON. However, after fully compensating for the loss and increasing validator counts, Ronin has persisted in its development. It seems like $RON is gradually regaining its footing.

From the chart, it’s evident that $RON has outperformed major GameFi tokens such as $MANA and $GALA over the past few months. The network also boasts impressive statistics. For example, Ronin ranks second among blockchains by total NFT sales volume. Additionally, staked $RON represents nearly 40% of the circulating supply. This year, Ronin has forged significant partnerships with The Machines Arena, developed by SkyVu, Tribesters, developed by Tribes Studio, and Bowled.io. Despite the overall poor performance of the GameFi market, Ronin appears to be a project with potential, and we will keep a close eye on it. Nonetheless, investing in GameFi tokens can be risky as the entire sector hasn’t performed as well as other sectors, indicating that the market focus lies elsewhere. Therefore, investors should proceed with caution.

Source: CryptoSlam

Weekly Protocol Pick

Welcome to our “Weekly Protocol Pick” — where we spotlight a protocol that’s making waves in the crypto space. This week, we’ve picked Rodeo Finance, the first omni-chain isolated money market for exotic collaterals & LSDs.

Rodeo Finance is a community-driven decentralized finance protocol that allows users to earn yield on a variety of managed and passive investment strategies. The protocol is currently live on the Arbitrum mainnet with a TVL of $3.31M. Rodeo Finance’s vision is to provide consistent, stable APYs, or “real yield,” in a market where yield can be highly variable.The protocol was built with several key values: decentralization, real yield, risk mitigation, automation, and sustainability.

Rodeo consists of two main user types: lenders and farmers. Lenders deposit assets into a lending pool for utilization by borrowers, while farmers borrow funds to invest in Rodeo’s integrated strategies beyond what their own assets allow.

Rodeo Finance’s undercollateralized lending provides two distinct benefits compared with standard overcollateralized lending markets such as Compound or Aave:

1. Users can access a greater amount of capital, increasing their positions and potential to earn.

2. Protocols increase their Total Value Locked (TVL) through a greater availability of leveraged assets.

Source: Rodeo Finance

With the vision of becoming Arbitrum’s hub for maximizing yield, the protocol is working on two other products, Index vaults and Leveraged LSDs.

Index Vaults are a blend of various tokens, each signifying a unique yield strategy, ranging from regular and leveraged Rodeo farms to stable coins, interest-bearing assets, and automated vaults.

An example would be 3x Leveraged ETH Index, ideal for investors who has a bullish stance on ETH. Users can enter with USDC, while the leveraged strategy offers an exposure rate to ETH between 2.7 and 3.3 via diverse farms. Plus, it provides auto-rebalancing, streamlining the investment process.

Source: Rodeo Finance

Leveraged LSDs is a unique LSD leverage farm system that amplifies yield returns on LSD assets beyond the standard rates. It does so by leveraging a unique structure, yield sharing, auto-compounding, and heightened RDO rewards.

Source: Rodeo Finance

Our Insights

Within the realm of yield products, entities like leveraging farming and strategy vault have proven to be popular choices for users desiring to earn yields but lack the time or inclination to constantly monitor market charts. As evidenced by DeFiLlama’s sector ranking, the yield sector’s appeal is undeniable, housing over 400 protocols and placing 6th in the overall ranking.

We believe Rodeo Finance has displayed strong potential for success, owing to a potent combination of robust product offerings and intelligently designed tokenomics. The DeFi user base can be broadly categorized into two types: yield-hungry risk takers, who are always on the hunt for high leverage, and the more conservative users who prefer a stable, low-risk yield. Impressively, Rodeo’s product suite caters to both these demographics.

The much-anticipated Index Vault is a standout feature, given its potential to set Rodeo apart with the diverse range of strategy options it offers. Meanwhile, Leveraged LSDs align neatly with the popular LSD narrative.

Turning our attention to tokenomics, another critical aspect of a project’s success, Rodeo has executed admirably. The $RDO/$xRDO model draws inspiration from the proven success of Camelot’s $GRAIL/$xGRAIL setup. With $RDO acting as a liquid token and $xRDO serving as the utility token, Rodeo’s tokenomics facilitate the generation of additional layers of extra yield. Furthermore, holding $xRDO allows participants to partake in the protocol’s ecosystem and share in dividends, a feature that could scale as the product offerings expand and the user base continues to grow.

The $RDO token has showcased a commendable performance since its initial sale, reflecting the market’s confidence in Rodeo’s potential. We will persist in closely monitoring Rodeo’s ongoing developments and operational dynamics to identify opportunities within this exciting protocol and continue to keep you informed of its growth.

Source: DEXTools

Spotlight on Gryphsis Research — Ordinal

Welcome to this week’s ‘Spotlight on Gryphsis Research,’ where we share the latest insights from our team. Our dedicated research team constantly explores cutting-edge trends, developments, and breakthroughs across the crypto landscape. This week, we’re excited to share with you our research on Ordinals, designed to deepen your understanding and fuel your curiosity about the ever-evolving world of crypto.

Ordinal protocol has carved out a significant niche within the Bitcoin ecosystem with its primary applications, BTC NFT and BRC20. As the initial fervor around Ordinals simmers down, continual innovation fosters a vibrant ecosystem. Distinct from Ethereum, Bitcoin’s ecosystem underscores values such as on-chain transparency, decentralization, and fairness, reflecting an emerging unique culture. Despite the controversies, BTC NFT and BRC-20 have witnessed sustained growth, providing opportunities for community engagement and signaling persistent development within the Ordinals ecosystem.

At the heart of this landscape is $ORDI, the inaugural BRC-20 token, which carries a narrative comparable to that of punks. Its unique characteristics have drawn a sizeable investor and community base, contributing to its widespread visibility and outreach. With its strong cultural identity, active community, social distribution, and capital drive, $ORDI still exhibits substantial growth potential when compared to other MEME coins. This potential is amplified by the narrative around Bitcoin’s halving cycles and the ongoing evolution of the BRC20 and Ordinals ecosystem. The subsequent section spotlights Gryphsis’ research into these intricate dynamics.

Vitalik’s comment on Ordinals:

Vitalik Buterin says Ordinals have revived 'builder culture' on Bitcoin

The Ordinals Protocol, launched in December 2022, has made notable strides in the Bitcoin ecosystem. Casey Rodarmor’s introduction of this protocol facilitated NFT creation on the Bitcoin network, leading to the emergence of digital artifacts.

In February 2023, Bitcoin Punks, a distinct NFT project inspired by CryptoPunks, was minted and became tradable on platforms like Gamma. In the same month, Bitcoin’s largest block, nearly 4M BTC, was minted by the Bitcoin NFT project Taproot Wizard, stirring significant discussion.

Source: https://gamma.io/

By March 2023, the BRC-20 Protocol was established, introducing the “ordi” token, Bitcoin’s first token to utilize the protocol. This protocol was later enhanced by OrcDAO’s ORC-20, providing a robust standard for Ordinal Tokens.

Source: https://unisat.io/brc20/ordi

Finally, in a significant event, transaction fees in a single Bitcoin block surpassed block rewards for the first time since 2017, marking an important turning point for miners amidst Bitcoin’s surge in transaction fees.

While the value and sustainability of BTC NFTs and BRC20 are subjects of debate, it’s crucial to consider the cultural nuances that differentiate the Bitcoin and Ethereum ecosystems.

BTC NFTs are fully on-chain, distinguishing them from Ethereum’s NFTs which often rely on off-chain hosting. Despite the higher cost of creation, BTC NFTs have gained traction, fueled by the unique Bitcoin culture that insists on complete on-chain existence. This culture does not tolerate compromises, valuing integrity over cost savings.

Source: https://ethscriptions.com/

On the other hand, Ethereum’s culture has grown comfortable with off-chain storage solutions like Arweave or IPFS. Modifying images or occasional unavailability is tolerated as storing only a link is deemed sufficient.

Despite BRC20 and ERC20 sharing similar names, their underlying principles are fundamentally different. BRC20 tokens, once deployed, require minting, establishing an even playing field for all participants, a feature Ethereum lacks. These differences aren’t about right or wrong but rather recognition and respect of each platform’s distinct culture.

In the BTC NFT and BRC20 landscape, there are enthusiastic proponents (bulls), critical skeptics (bears), and watchful observers. Bulls, including exchanges, miners, and developers, see profitability and growth. Bears, including certain Bitcoin developers and investors, voice concerns about disruptions, short-lived trends, and liquidity issues. Observers note continuous growth amidst controversies, viewing disagreements as early consensus and bias as a participation opportunity. Each disruptive innovation steps off the conventional path, shaping its own unique trajectory.

As the first BRC20 token, $ORDI plays a pivotal role in the consensus and confidence surrounding Ordinals and BRC20. Despite having no utility, it’s seen as a meme token, echoing past meme coin successes like $SHIB, $PEOPLE, and $PEPE. It’s uniqueness lies in its cultural identity, strong community, high social dissemination, and capital drive. Centralized exchanges and investment institutions’ active participation have furthered $ORDI’s momentum. Already listed on exchanges such as OKX, it’s potential for future listing on Binance and further price increases are promising. Considering the narrative surrounding Bitcoin halving cycles and the long-term development of the BRC20 and Ordinals ecosystem, $ORDI’s future holds vast possibilities.

In conclusion, the innovative narratives of BRC20 and BTC NFT have stirred substantial attention, with $ORDI standing out as a key investment opportunity. Amidst a thriving ecosystem and the significant narrative of Bitcoin halving, Ordinals are poised to occupy a critical ecological position in crypto in the coming year.

This section offers a concise preview of our detailed research on Ordinals. We encourage readers to delve into the full report for a complete understanding and expert analysis!

VC Highlights: Top Funded Crypto Protocols This Week

Welcome to our weekly Investment Spotlight, where we shine a light on the most significant venture capital moves in the crypto space. Each week, we’ll focus on protocols that have attracted the most funding.

CryptoQuant

CryptoQuant, a prominent on-chain data provider, has secured $6.5 million in a Series A funding round led by Atinum Investment, raising the company’s total capital to $9 million. Used by leading financial outlets and serving over 200 institutional customers, the platform aims to redefine investment strategies in digital assets through data accuracy. The new funds will be allocated for business development, team expansion across multiple departments, and fostering the infrastructure necessary for traditional financial institutions to penetrate the digital asset market.

CryptoQuant.com on Twitter: "We're excited to announce that CryptoQuant has raised a $6.5M Series A round led by Atinum Investment🎉 We'll do our best to set the standard in the digital asset industry and lower the hurdles of data-driven investment decisions. Thank you for your support🙏 pic.twitter.com/woJ7oEFkV3 / Twitter"

We're excited to announce that CryptoQuant has raised a $6.5M Series A round led by Atinum Investment🎉 We'll do our best to set the standard in the digital asset industry and lower the hurdles of data-driven investment decisions. Thank you for your support🙏 pic.twitter.com/woJ7oEFkV3

Protocol News

LayerZero Github reveals $ZRO as gas fees.

Redactedcartel Hidden Hand V2 live.

Barn Bridge under SEC investigation.

Compund introduces Encumber.

Aave GHO parameter changed.

WooFi launched on Polygon zkEVM.

Aevo launched referral program.

Pendle expanding to BSC.

Industry Updates

Grayscale added $LDO to its DeFi fund.

Gemini files lawsuit against DCG.

Circle launches WaaS developer platform.

DBS starts e-CNY collection platform for China corporation.

Vietnam launches investigation into Pi.

Nasdaq refiles for Blackrock spot BTC ETF.

Bitget launches crypto loan product.

Slovakia lowered crypto taxes.

Alpha Threads

Alpha is abundant on Crypto Twitter, but navigating thousands of threads in Twitter can be hard. Each week, we spend serveral hours researching, handpick threads packed with insights, and curate a list of weekly selection for you. Let’s dive in!

DefiDog (🤍,🖤) on Twitter: "The highest quality Arbitrum Projects are within reach.If you're looking for all my overviews from my Arbitrum journey so far, you're in luck.Find your next x100 💎 here.⚠️ NFA ⚠️ pic.twitter.com/72ardOkyk0 / Twitter"

The highest quality Arbitrum Projects are within reach.If you're looking for all my overviews from my Arbitrum journey so far, you're in luck.Find your next x100 💎 here.⚠️ NFA ⚠️ pic.twitter.com/72ardOkyk0

Aylo on Twitter: "Pendle have gone from $8M to $127M TVL in the last 12 months.I managed to nail down co-founder @tn_pendle for a chat about how they did it.* Pendle's bear market ascent* How V2 got it right* Future growth strategyPendle alpha 👇 pic.twitter.com/WQdI3T8SE1 / Twitter"

Pendle have gone from $8M to $127M TVL in the last 12 months.I managed to nail down co-founder @tn_pendle for a chat about how they did it.* Pendle's bear market ascent* How V2 got it right* Future growth strategyPendle alpha 👇 pic.twitter.com/WQdI3T8SE1

The DeFi Investor 🔎 on Twitter: "The latest major developments in DeFi👇 pic.twitter.com/wAsnHeFtZO / Twitter"

The latest major developments in DeFi👇 pic.twitter.com/wAsnHeFtZO

Emperor Osmo🧪 on Twitter: "#Coinbase Ventures has continued to invest in gems throughout 2023.This $6 billion fund is known for being early.Here are their most exciting investments for 2023.🧵 pic.twitter.com/CiXG0iTKsv / Twitter"

Coinbase Ventures has continued to invest in gems throughout 2023.This $6 billion fund is known for being early.Here are their most exciting investments for 2023.🧵 pic.twitter.com/CiXG0iTKsv

Dami-Defi on Twitter: "This #crypto trader made more than $400,000 on #PEPE2 cos they were early.They just aped into 2 more tokens in the past 48 hours.Let's explore their wallet 🧵 (Plus I'll show you how I found them) pic.twitter.com/BJWOWeLDR2 / Twitter"

This #crypto trader made more than $400,000 on #PEPE2 cos they were early.They just aped into 2 more tokens in the past 48 hours.Let's explore their wallet 🧵 (Plus I'll show you how I found them) pic.twitter.com/BJWOWeLDR2

Upcoming Events

That’s it for this week. Thank you for reading this week’s edition of our Gryphsis Academy Newsletter. We hope you found our insights helpful and our updates informative.

To stay up-to-date with Gryphsis Academy, follow us on Twitter and Medium. See you in the next edition!

This newsletter is meant for informational purposes only. It is not meant to serve as investment advice. You should conduct your own research, and consult an independent financial, tax, or legal advisor before making any investment decisions. The past performance of any asset is not indicative of future results.