Rari’s Permissionless Lending Markets | BanklessDAO Weekly Rollup
Catch Up With What Happened This Week in BanklessDAO
Dear Bankless Nation 🏴,
It’s been a busy week for teams in the DAO, as many projects are either launching or getting a major upgrade. We’ve all been working hard to build and create offerings for the new decentralized web. Hats off to the teams! As you’re probably aware, it's a bear market. But to this community, it's just another cycle in the cryptoverse. Our unflinching desire to build means project assembly lines are still full.
The Global Tax Guide launched this week; this has been on the assembly line for six months! A collective effort from a team of tax experts and contributors, it covers nine of the largest crypto jurisdictions and runs to 111 pages. With this guide, you can safely buy your crypto Lambos without worrying about the IRS 🤣…#NFA #DYOR. Well done lion917, taxpanda, and the expansive list of core contributors!
The Newsletter Team also shipped the first edition of DeFi Download; this too has been in the works for some time! The first issue is on stablecoins, the foundational money lego. Whether you are looking to learn the basics or level up your DeFi game, this is for you. Congratulations Jake and Stake and DeFi Download team. Have a beer. 🍺 It’s on the house.
Bankless Publishing is growing strong with a shiny new website stacked with all the articles from the Editorial and Publishing Arm’s Medium publication — top-shelf educational Web3 content. Shout out to Frank America, hirokennelly.eth, Trewkat, and the crew!
Let's continue to stack the assembly line with more projects, projects that will survive a bear market because they are based on actual use cases. It's still possible to dream, create, build, and invest in our future. And speaking of investing, check out this week’s editorial on the Rari Fuse Pool by WinVerse!
Let’s also stay grateful for these opportunities and the people we are working with each day. Sign up for the DAO’s June Coordinape is now open; you have until 16:00 UTC on June 7 to opt in.
🙏 Sponsored by CitaDAO
🗓 Weekly Recap
Finally Launched! 🚀
One of the most significant undertakings ever in crypto taxation, this guide has been produced with the assistance of crypto tax experts worldwide. The work of over 20 BanklessDAO contributors, it took six months, covers nine jurisdictions, and includes 111 pages!
The birth of a new and dynamic industry requires a new approach to our understanding of tax, and this guide is here to answer that call. There has never been a better time to learn about cryptocurrency tax and compliance. With access to this comprehensive guide, you’ll get everything you need to know without breaking the bank (or your head).
The NFT is currently priced at 0.08 ETH. More details about the project are highlighted in this Twitter thread.
Mint your Global Tax Guide here!
We’re stoked to announce the Editorial and Publishing Arm's new home: BanklessPublishing.com! BP ships original, high-quality educational resources on Web3. Explore the site, tweet an article that interests you, consider submitting an article to get featured on our site, collab with excellent editors, and be personally promoted on Twitter to our 55K followers.
Sponsor slots are available, so get them while they're hot. If you know a Web3 brand that's aligned with BanklessDAO's mission, hit us up on Twitter or tag hirokennelly.eth on Discord. Thanks for all the support, bDAO family. Building stronger together, further, and faster. Let's fly!
The Newsletter Team is excited to announce the very first edition of the DeFi Download newsletter — a monthly publication that offers an overview of the most important developments in decentralized finance.
The newsletter will include links to articles, interesting news, and other resources to help get you up to speed on all things DeFi. This dense first edition features a deep dive into the abyss of stablecoins. It touches on stablecoin strategies, the history of stablecoins, and new DeFi project releases.
If you are interested in learning more about this exciting new asset class and its application to the decentralized ecosystem, then please subscribe now! Don’t forget to like and retweet the launch tweet.
Are you looking Newsie? Good Morning News is building a new kind of news organization — it’s decentralized and funded by one-time reader subscriptions, not advertisers or shareholders. To help keep the newsroom humming, the team has created the Newsie NFT series on the Ethereum blockchain, with 10% of the purchase price directed to the Writers Guild and 10% to the DAO Treasury. If you believe in their vision, mint your Newsie for only 0.06 ETH.
👕 UltraSound Merch: ETH Splash by Cy00t
Check this out: the future's bright, the future's Ethereum! Cy00t has reinvented the Ethereum logo to match the statement of optimism for a new digital currency and its decentralized future. Colourful, artistic, and creative are just a few words to describe this masterpiece.
Get your ETH Splash shirt here.
🎙 BanklessDAO Podcasts
Two this week! First up: our dear fren Jake and Stake.
We measured the community’s satisfaction with BanklessDAO and achieved a Community Net Promoter Score (cNPS) of 52, a 4-point increase from the April score and a 16-point drop from our all-time high of 68. While bDAO members continue to express frustration about BANK prices, and the wider crypto community is immersed in a bear market, the bDAO community is relentlessly bullish on its future. Previous survey results can be found in Notion.
🤑 Claim Rewards for Providing Liquidity on Balancer
🎙 DAOlationships AMA With Kresko Finance
This DAOlationships AMA Twitter Spaces with Kresko Finance founder, hinduhacker, will be about synthetic crypto-backed stocks. This allows you to buy stocks in countries you don't reside in, which means you can take advantage of the opportunities that exist in places like the United States, where many of the world’s leading stocks are listed. In this Twitter Spaces, you'll learn about how it works, how to set it up, and why it's such an exciting opportunity for investors.
DAOlationships’ aim through these AMAs is to help us understand revolutionary new protocols. The AMA is scheduled for Tuesday, June 7 at 15:00 UTC.
📊 Don’t Forget to Submit Your KPIs
The Grants Committee is implementing KPI based system this season and has released a form for project funding requests. Once the votes on the relevant Forum post have reached quorum, complete the form and make sure to provide information about:
Project leads — the person(s) responsible for carrying out the project and reporting back on progress.
Key Performance Indicators (KPIs) — the metrics you'll use to measure success.
🙏 Sponsor: CitaDAO - Marketplace for Tokenized Real Estate
Rari’s Permissionless Lending Markets
Since the introduction of decentralized finance, a number of projects offering ridiculously high interest or rate of return on deposits have emerged. Over time, we have seen several of these projects fail or experience losses related to the protocol risks incurred by the use of leverage.
As more fruitless and rug-pulled projects continued to occur, other more solid projects began to stand out. Yield aggregators such as Convex Finance, Yearn, and Rari Capital began offering incentives in the form of their governance tokens and lending aggregations — assets put into the pool are loaned out to borrowers to earn yield from interest paid on the loan.
However, Rari Capital has taken permissionless one step further with lending and borrowing in the form of its Fuse pools. This radical approach to decentralizing lending markets will likely spur innovation in the space, but there are other costs and externalities that will necessarily come along for the ride.
Rari started like every other yield aggregator — providing interest for users by searching for the highest yield from a number of DeFi protocols with a good enough track record.
Rari Earn offers three pools: the USDC, DAI, and the ETH vaults (ETH is no longer active). Each of these vaults yields compound interest in the form of variable APYs. These pools have automated strategies already in place to regularly review available options and deploy vault assets to where they can earn the best yield for depositors.
The three pools have a common strategy, which is to loan assets to DeFi protocols like Compound, Aave, dYdX, and to various Fuse Pools as well. They also provide liquidity to mStable, which then lends to Compound and Aave. These protocols generate yield for depositors by lending the deposited assets to borrowers who pay the interest. As long as borrowers are paying more interest than the depositors are receiving, the protocol earns returns on the ‘spread’ (borrower yields minus depositor rewards, less any fees and expenses).
Rari Capital describes itself as a “robo-advisor for maximizing yields”, and we can see that work to great effect as these strategies help depositors mitigate the gas fees needed to migrate assets. Users can withdraw at any time in any of their supported assets.
Unfortunately, users have to rely on governance decisions to add new assets or new parameters for lending and borrowing, much like the platforms Compound and Aave. One can’t simply create tokens, assign them a value, and borrow against them in a DeFi primitive protocol. There are good reasons for protocol control and due diligence, as we illustrate below.
Aside from relying on governance decisions, money markets operate by having all assets pooled together to form a single vault. However, they limit the assets that can be used as collateral, as pool depositors take on the risks of all collateralized assets. There are many ways one can structure a lending pool, and Rari Capital sought to facilitate a credibly neutral way to allow for creation of isolated interest rate markets. Keeping these markets separate limits the risk of the strategy employed to the affected pool, rather than exposing the entire protocol.
Rari Capital launched the Fuse protocol in March 2021. In an interview with The Defiant, Jack Lipstone, co-founder at Rari Capital, described the Fuse pools as part of the project’s aim to become the Uniswap of lending:
“Uniswap allows anyone to go trade whatever token is out there. Now Fuse allows you to deploy your own lending and borrowing market”.
Fuse, which has turned out to be Rari’s core product, is an open interest rate protocol that allows users to lend and borrow digital assets. It is an isolated interest rate market where users can immediately create and deploy their pools, thus the term, Fuse pools.
The term ‘isolated’ implies that users are only exposed to risks from the pools they have their assets tied to. Pool creators can set up their own lending and borrowing pools, instilling the rules of their choice to isolate risks. They can choose any parameter from oracles, collateral factors, interest rate curves, protocol fees, and can enter or exit the pool whenever they want.
On release, some pools were established by the Rari Capital DAO (now part of Tribe DAO) for users to explore, and since then, the Fuse pools have gained mass adoption.
Right now, there are over 50 verified pools on the protocol. The total value locked (TVL) sits at 755 million USD at the time of writing, despite having surpassed the 1 billion USD mark seven months after its inception. This pullback in TVL occurred due to a recent Fuse exploit which will be discussed later.
Users who create pools can decide to either make their pool private or public. Private means there are restrictions placed on who may add assets to the pool. Pools can also be made private if the creator decides to whitelist addresses using the whitelist functionality. Anyone can deposit and borrow against the assets in a public pool. Depositors earn interest by supplying assets to a pool, and then have the opportunity to borrow against the supplied collateral.
One thing worthy of mention is the automated risk score given to every pool created. It tells you how susceptible your pool is to risks so as to help you properly manage it. This is calculated using the Rari Safety Scores (RSS), and a specific Fuse framework for easy comparison of pool risk.
Here are some of the benefits of Fuse pools:
Debt financing for projects.
This point was addressed by Jack Lipstone, in his interview with The Defiant. He gave a case study in the form of a question, “What if a DAO wants to borrow against their treasury and pay their contributors?” As Compound and Aave do not accept collateral in the form of BANK, it’s possible for communities like BanklessDAO, for example, to deposit BANK tokens into their custom pool, The Bank Vault, and borrow against them to pay contributors, providing utility for the token in the process.
Borrow against social tokens instead of selling a piece of your soul.
These custom pools could also help you borrow against NFTs rather than selling the entire piece. We have also seen projects like NFTX, which create liquid markets for illiquid NFTs, take advantage of this functionality by accepting deposits of CryptoPunks, giving users the ability to borrow against one of the most valuable NFTs.
A full list of benefits is available in an article called Things Fuse Can Do, written by Rari CEO Jai Bhavnani.
The Fuse Exploit
“The implications of a product like this are massive and unexplored”, Jai Bhavnani said in his article announcing the introduction of Fuse by Rari Capital.
Although ‘implications’ here referred to positive things that the Fuse pools could solve, we can see with the recent Fuse exploit that this statement could go either way. New products solve existing problems but at the same time, they can bring about new vulnerabilities to be exploited by hackers.
Rari had multiple Fuse pools exploited in late April of 2022, and the attackers stole over 90 million USD. The major pools affected were those of Rari Capital itself and Fei Protocol; the two companies actually merged in late 2021 following overwhelmingly positive governance votes in both communities. The recent hack was thought to exploit a type of re-entrancy vulnerability, which is where withdrawals are submitted repeatedly in a looping algorithm while the protocol is busy approving the original transaction or returning funds. Fei has offered a bounty of 10 million USD to the attackers for safe return of the funds, with no questions asked.
Rari also had their ETH pool exploited in May of 2021 with over 60% of all users’ funds stolen. In that case, the exploit was a pretty sophisticated price manipulation scheme. This particular exploit seems to be difficult to patch, and as a result, the ETH pool is not active at present.
This goes to show that although major steps to advancement have been taken by yield aggregators and especially by Rari Capital, the world of DeFi and decentralization still have some questions to answer and business to take care of if we are to make this fully functional.
🎣 Phishing School
Authors: d0wnlore and the InfoSec Team
See Something, Say Something
This week’s Phishing School will be a quick highlight of how far we’ve come as a DAO in terms of keeping it, and our frens within it, safe. This is a call to continue the great work, because the efforts made by everyone, not just the InfoSec Team, are worth reflecting on and celebrating.
As I talk to those outside bDAO about the trust, safety, and security work we collectively perform at bDAO, the more I realize how far we’ve come. Not many DAOs have a dedicated InfoSec Team that does more than Discord moderation, let alone that helps secure the DAO's Web2 infrastructure and educates its members so that they can take their Web3 and financial security into their own hands. The eagerness of projects like Bankless Consulting and Bankless Academy wanting to incorporate security services and educational content reflects the maturity on this topic that we possess within bDAO, which is also an urgent need for the wider ecosystem.
Our security posture wasn’t made robust by the InfoSec Team alone, but through the proactive approach of all our members wanting to keep bDAO a safe and inviting space. Not only do we apply DYOR on security scares, but we also amplify the security tips shared on crypto Twitter and the Phishing School so that everyone has more tools to protect themselves. In particular I’ve noticed the following amongst our frens in bDAO:
Identifying fake websites and popup windows masquerading as wallets and token validators.
Alerting others of vulnerabilities affecting non-crypto but popular apps, such as Chrome and Microsoft Word.
Cleaning up our Discord messages and asking clarifying questions in the effort to protect members, especially those that are new.
But if you want to take away some actionable advice from this week, it’s this: See something? Say something!
BanklessDAO will remain strong because each of us watch out for both our own safety and the safety of others in bDAO, whether they've been in bDAO since genesis or since last week.
If you see something occurring in our Discord or Telegram that could have implications for the safety and trust of bDAO, let the InfoSec Team or an Admin know and alert your frens about the concern if the need arises. Let’s keep the proactive security momentum going so the bDAO train can chug along uninterrupted.
Proposals in Discussion
This proposal is to gain approval for a partnership with Taptive. Taptive helps communities grow by running cohort-based writing programs for their members. The goal of the partnership is to have Taptive run a cohort-based writing program for BanklessDAO that will help BanklessDAO members gain the confidence to publish their writing and create member-generated content that BanklessDAO can use to elevate its own online presence and brand.
BanklessDAO would like to create a partnership with Prime DAO because we share the mission of DAO-to-DAO coordination and collaboration. PrimeDAO provides crucial infrastructure and accessibility tools within the DAO ecosystem. This proposal is to swap 25,000 USD worth of BANK for 25,000 USD of D2D tokens, with both tokens vested for one year with a three month cliff. The voting on this proposal has been paused for now but comments are still very welcome.
This proposal seeks BanklessDAO sponsorship for DAOPlanet.NYC 2022, a two-day ‘deep dive’ DAO conference (June 24 & 25, right after NFT.NYC). This will be produced by the creators of DAODenver, the two-day DAO conference that was held during ETHDenver’s Build Week, of which BanklessDAO was a sponsor.
✅ Action Items
🎙 Action: Join the BanklessDAO Telegram.
💰 Action: Go mint your Newsies.
📖 Read: ‘Download’ the DeFi Download Newsletter.
💖 Sign up for the DAO’s June Coordinape by 16:00 UTC on June 7.
🙏 Thanks to Our Sponsor
CitaDAO is a decentralized finance (DeFi) platform, allowing real estate to be tokenized on chain. The ERC-20 tokens will be composable with other DeFi applications and primitives that operate within the Ethereum protocol, creating an ecosystem for real estate in the DeFi ecosystem.
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