What's Driving Token Prices? March 15, 2023

Join Katie Talati, Arca’s Head of Research, weekly on Wednesday at 4PM EST / 1PM PST as she shares notable token activity over the past week and her insights on what market events drove these token price movements.

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• EUL (-64%) - Defi project Euler Finance suffered an exploit early this week to the tune of $197m. The project which offers tranched pools for lending and borrowing digital assets, was attacked using a “flash-loan” attack which is when a user takes out a flash loan (this is a loan in DeFi that is borrowed and repaid in the same block and does not usually require collateral) and simultaneously manipulates markets in some way so they make money while their only spend is on the MEV/gas to put through the transaction. Euler’s security is being highly scrutinized at the moment as it was touted as a highly audited protocol with audits from Cetora, Halborn, Solidified, ZK Labs, Sherlock, Omniscia and Pen Test Partners. Early investigations believe that the attacker exploited code that was modified in a recent upgrade. Upon announcing the exploit, the EUL token knifed down over 60%.and TVL on Euler has fallen from about $260m to just over $11m.
  
  
• HBAR (+4.4%) - Hedera, an enterprise focused Layer-1 protocol, suffered an exploit last week to its smart contracts. Specifically, a user had figured out how to send assets from other users wallets to their own account by exploiting the Hedera Smart Contract Service. However, once the attacker tried to move these tokens to a bridge on Hedera (presumably to move them to another chain and sell them), the bridge operators recognized the attacker and froze funds. While the Hedera team investigated this issue, they chose to pause mainnet access for all users. A patch was made and the network was turned back on in about two days. It is worth noting that Hedera is run by a council of 21 nodes and has often been criticized for being too centralized; this mainnet pause is exactly an example of that however in this case it helped save funds. 
  
  
• RDNT  (+4.6%) - Radiant Capital, a money-market fund or lend/borrow protocol built on Layer-2 Arbitrum, is gearing up for the launch of its v2 this week. The Defi protocol which promises to pay out “real yields” in stablecoins and ETH, will soon upgrade its tokenomics so users have to hold the RDNT token in order to receive yields. The new version will also introduce new omnichain versions of Radiant on other chains and migrate Radiant’s protocol to the LayerZero Omnifungible Token Standard (OFT) basically making their protocol more composable across other chains. Radiant Capital’s TVL currently sits at $137m but could grow if their cross-chain expansion is successful. 
  
  
• USDC/SVB/SBNY/SI/BTC (+13%) - A rundown on the events of the last week and how they have impacted multiple stablecoins, banks and Bitcoin. Early last week, Silvergate Bank announced it would wind down operations and liquidate its bank. It had been rocked for many months following its banking relationship with FTX and Alameda and had seen massive withdrawals since November of last year. A day after this, Silicon Valley Bank (SVB), announced for completely different reasons, that it needed to raise cash via an equity offering to shore up deposits. SVB, which has a very concentrated customer base (SMBs, venture capital and FinTech firms), had managed to invest ~40% of its assets into longer dated treasuries. Following indications from the Fed indicated last week that an interest rate hike reversal was not in the cards any time soon, these longer dated bonds became worth even less.  The announcement of a fundraise spooked a handful of VC investors who instructed their portfolio companies to withdraw assets from SVB. What followed was an all out bank run on SVB as everyone attempted to withdraw assets at the same time. However, with most of their capital tied up in these long dated treasuries, sVB was unable to meet demand and the bank officially collapsed on Friday when the state of California and the FDIC took over its operations. Now the fun part: a number of crypto-related businesses had deposits with SVB (BlockFi, Coinbase,..) including Circle, the issuer of USDC. The Circle team released a vague statement that they had $3.3b stuck on SVB but did nothing to quell fears that USDC was 100% backed and redeemable. Finally, Coinbase announced it had shut off redemptions between USDC:USD which incited the panic which caused USDC to lose its peg and fall as low as $0.85 at one point early Saturday morning. After another update from Circle that it in fact had funds to cover 100% of redemptions, USDC eventually moved back up to the $1 peg. The final part of our story covers why BTC and the broader crypto market ripped starting Sunday: after the federal government and FDIC announced Sunday it would be bailing out SVB and making all depositors whole and closing Signature Bank (the only other major crypto bank), and users having been burned by the banks and stablecoin issuers in the last few hours, turned to Bitcoin. As a reminder for those that are new to the space, Bitcoin was born out of the last financial crisis, when banks were bailed out and money was printed out of thin air to compensate. It was designed as an alternative currency to the USD and was purposefully outside the banking system to avoid its influence. This week was finally Bitcoin’s time to shine.
  

DISCLAIMER: This commentary is not intended to be investment advice, investment research, or a recommendation. Please consult your investment professional for your own circumstances."