WhiteboardCrypto Newsletter - Aug 5

Welcome back to this week's edition of our WhiteboardCrypto Newsletter!

Fun Fact: Base Mainnet is announced to launch for public use on August 9. It’s already been open for developers to build things. This week, there was already more activity on Base than on Arbitrum. This is in large part due to Base’s first memecoin. Wild.

Curve exploited

The coding language that Curve uses for some of its pools, called Vyper, had a vulnerability that allowed a well-known hack called “reentrancy attacks”. On Sunday, $60 million was drained from four of Curve’s pools. $20m of that has been recovered by white-hat hackers and MEV bots.

A major concern about this is that almost half of the CRV token, Curve’s native token, is used as collateral in lending and borrowing pools on other, non-Curve sites. This means that someone has staked CRV and borrowed another asset against it. In that kind of trade, the value of each asset is really important because there is some percentage that you are allowed to borrow against, and if the value of one asset goes down but the other does not, then that percentage is thrown off and the protocol will automatically sell off the difference, effectively liquidating the position. Bankless put out a really good video that explains this in the Curve case.

It should be noted, however, that the fear a lot of people had that this would crash defi has so far not come to fruition, at least not fully. The value of CRV has lowered but no major liquidations have come from this, and probably they won’t at this point. Rates for lending and borrowing have skyrocketed in an attempt to mitigate any potential crashes.

Staking rewards are taxable income in the US

According to the IRS, the moment a user gets control of their staking rewards, it’s officially taxable income. This is true for both DeFi and exchange staking-as-a-service (SaaS) programs. This comes when Coinbase, Binance.US, and Kraken are all facing charges for the SaaS programs for allegedly violating securities laws. So… they aren’t allowed to offer it as a service, but we still have to pay tax on it? Go figure.

Learn more here.

US SEC wants to charge Binance for fraud but…

Supposedly the SEC actually has people’s best interest in mind? They want to charge Binance US for securities violations and other fraud charges, but are claiming they won’t because they are worried it’ll cause a run on the exchange, meaning that people will suddenly pull all their funds from Binance. A run is a bad thing if Binance doesn’t have the funds to pay back the customers; we saw this situation with FTX in November. The question is, why is the SEC worried about that? Do they know something about Binance’s reserves that the rest of us don’t? Or are they just being overly cautious? Hard to say. Time will tell.

Learn more here.

None of that is slowing Binance down

Despite the issues in the US, Binance is still expanding. They are onboarding users in Japan after a two-year halt, claiming they now comply with Japanese regulations (they did not two years ago). And China is still their largest market, with about 20% of all activity on the exchange. Simply put, if they fail in the US, they will probably do just fine everywhere else. Probably.

Thanks for reading and I hope you learned something!

- Theodore