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A crypto lending pioneer’s plan to take DeFi mainstream

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Wednesday: Aave’s big DeFi upgrade, Meta crypto alumni’s new project, and Sarah Bloom Raskin’s exit.

Off the chain

I’ve been thinking a lot about America’s regulatory fragmentation lately. President Biden’s executive order on crypto more or less accepted this reality, ordering a passel of Cabinet departments and other agencies to work together. But this whole-of-government effort really just exposes the holes in our government. Why can’t crypto regulation, for example, look at risks to the environment, financial stability and innovation together? The answer is our regulatory apparatus is designed around agencies with narrow and specific remits. Contrast that with the EU’s more holistic process, and it’s no surprise that we don’t regulate well.

— Owen Thomas (email | twitter)

The trillion-dollar upgrade

Can DeFi go mainstream? Aave, an early DeFi protocol popular for crypto lending, is retooling itself for a much larger market opportunity than its creators anticipated. That means expanding across a number of new blockchains and adding features to mitigate risks that have popped up over the years.

The challenge Aave faces is not uncommon in crypto today. It was built to handle millions of dollars in value, but it now has $18 billion in total value locked or deposited.

  • The new version of Aave’s liquidity protocol, V3, tries to address some of its shortcomings by lowering risk, improving scalability and making Aave a truly cross-chain protocol, Aave founder and CEO Stani Kulechov said.
  • “When we built the V2 protocol, we were thinking that maybe we'll have $200 million worth of value locked,” he said. The V3 protocol, he added, “could actually have hundreds of billions of value, or even a trillion.” That requires a different kind of scalability.

Aave has grown quickly, a result of its open system where anyone can contribute code. But that means that risk has also increased tremendously for these autonomous liquidity systems.

  • Risk mitigation features in the new version include supply caps, which limit how much of a certain asset can be supplied to Aave; borrowing caps, which limit how much of a certain asset can be borrowed out of Aave; and isolation of assets, which means you can only borrow the same asset as the one you supplied as collateral.
  • Aave has built “very successful” DeFi technology for Ethereum, Avalanche and Polygon, said Billy Dishman, investment analyst at CoinFund. “Aave remains one of the most trusted places for borrowing and lending capital throughout DeFi.”
  • With V3, Aave will be live on seven different blockchains, including Fantom, Arbitrum, Optimism and Harmony.
  • Aave recently launched Aave Arc, a service for large institutions to trade in DeFi only with specific approved parties, which could assuage concerns for large investors. The effort is still new but over $30 million has been put into the service, Kulechov said.

Aave, which has a decentralized governance system, collects about $50 million in revenue per year to its treasury through its various activities, which makes it self-sustainable, Kulechov said. He sees other growth areas for Aave, such as fixed-income products and collateralizing NFTs.

— Tomio Geron (email | twitter)

A version of this story first appeared on Protocol.com. Read it here.


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On the money

Crypto.com is starting a limited rollout to U.S. institutional investors. The Singapore-based crypto exchange is expanding its presence into the U.S. market, and expects to roll out to consumers — you know, the people who watch Super Bowl ads — soon.

ConsenSys is now valued at $7 billion after raising $450 million. The MetaMask maker’s series D round was led by ParaFi Capital, with participation from new and existing investors like Third Point, Temasek, SoftBank Vision Fund 2 and Microsoft.

Ex-Meta employees formed a blockchain startup and raised $200 million. The startup, Aptos, has already attracted funding from big crypto players in its latest fundraising round, led by a16z, with participation from Tiger Global, Coinbase Ventures and others. The team had been working on Meta’s ill-fated crypto payments project.

Kazakhstan forced another 106 crypto mines to close. Due to government pressure and state investigations, 55 crypto mines closed operations voluntarily, while another 51 were forced to shut down.

The former CEO of BitBay is reportedly missing. Sylwester Suszek, who founded the Polish crypto exchange, was last known to be heading to a business meeting in Poland.

Sarah Bloom Raskin has withdrawn as a candidate for the Federal Reserve Board. After numerous delays, a Senate Republican boycott of hearings over her nomination and, as a final blow, Sen. Joe Manchin’s signaling that he would not support her candidacy, Raskin withdrew her name in an attempt to let other nominations move forward.


It hasn’t been a good week for Twitter user @dino_dealer, who accidentally listed an EtherRock NFT for 444 wei instead of 444 ether, selling it for less than one cent. “In one click my entire net worth of ~$1 million dollars, gone. Is there any hope? Am I GMI? Can snipers show mercy?” the user tweeted.

U.S. Senate candidate Bryan Solstin wants to make bitcoin his primary legislative concern if elected. “I declare my candidacy for US Senate. Making #Bitcoin Legal Tender in the USA will be my primary objective on the Senate floor. #Bitcoin is the Great Reset,” the software developer tweeted.

Edward Snowden thinks that governments are right to see crypto as an evolving threat. “I think governments correctly perceive an evolving threat to traditional tools which they’ve grown accustomed to, in terms of an ability to impose regulation upon private lives, and more broadly, private trade,” he said in an interview at Camp Ethereal 2022.

Just one question with Kara Calvert, senior director of U.S. Policy at Coinbase

Calvert joined Coinbase late last year just as the crypto exchange beefed up its team in Washington.

How did the war in Ukraine change the debate over crypto regulations?

We are seeing more and more policymakers on both sides of the aisle pay attention to the technology, and in many cases, recognize its transformational potential. The humanitarian promise is clear — it provided a seamless, cross-border mechanism to fund folks on the ground in Ukraine. That’s powerful, and the world is watching.


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Thanks for reading — see you tomorrow!

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