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Bank Run Speedruns

Weekly Recap: Depositors panic, Crypto pumps
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Mar 18, 2023 • 4 min read

Dear Bankless Nation,

This was a massive week for crypto and finance. TradFi is burning, but while crypto markets are surging there have still been some major scares along the way.

For our weekly recap, we dig into:

  1. Depositors Gotta Go Fast
  2. USDC de-peg/re-peg
  3. Arbitrum airdrop
  4. Euler Finance hack
  5. Major DeFi updates

- Bankless Team

📅 Weekly Recap

1. Depositors Gotta Go Fast

In the past couple of weeks, more and more depositors came to the conclusion that they shouldn't trust their bank.

Earlier this month, we lost Silvergate which announced voluntary liquidation. Silicon Valley Bank faced a bank run that ultimately led it into receivership with the FDIC.  The third bank to face closure was Signature bank.

The panic also seems to be rubbing off on already-troubled Swiss bank Credit Suisse, which has been facing a number of challenges this week as its stock craters. For a full rundown of the these events, see Bankless’s How a Few Banks Lost Everything All at Once.

The FDIC’s decision to close Signature this week was supposedly spurred by regulators' intentions to “protect depositors” and stop "systemic risk". But Signature’s closure is puzzling. Signature held 7% of total assets in long-dated securities, far lesser than Silvergate and SVB. Furthermore, its unrealized losses on these securities were not large, indicating that it may not have been near insolvency. Signature’s net book value was $7.2B even after accounting for its unrealized losses. There are a lot of unknowns.

But regulators have forced Signature onto the open market. Reuters reported that one regulatory condition for potential buyers was to divest all of its crypto businesses – a criterion that the FDIC has since denied. Republican House leader Tom Emmer is questioning the FDIC’s allegedly “anti-crypto” actions in a letter to the FDIC.

2. USDC de-peg and re-peg

Crypto was not fully insulated from the bank runs.

USDC issuer Circle had $3.3B of its $40B reserves stuck at SVB, leading to a significant depeg of its stablecoin to as low as $0.80. Circle CEO Jeremy Allaire announced that the $3.3B of deposits has since been secured and will be moved to BNY Mellon. USDC has since regained its peg.

The DAI stablecoin also saw a depeg to $0.89, largely due to fears stemming from DAI’s 52% collateralization of USDC. MakerDAO is now proposing new emergency measures that would allow it to bypass a 16-hour waiting period to pause its peg stability module (PSM), the mechanism that allows users to mint new DAI with USD-pegged stablecoins.

Ryan & David caught up with Circle CEO Jeremy Allaire this week, to discuss the USDC depeg drama.

3. Arbitrum airdrop

After months of anticipation, the Arbitrum token is finally here.

Arbitrum is the biggest Layer-2 Ethereum rollup chain with a total-value-locked of $1.68B. The team behind Arbitrum announced Thursday that 11.62% of its 10 billion token supply will be airdropped to users. That will be claimable in a week on March 24 and you can check your eligibility here.

ARB will be used to participate and govern the Arbitrum DAO. Governance on Arbitrum will be “self-executing”, taking place fully on-chain and not requiring manual proposals by the core team. Arbitrum also announced Arbitrum Orbit, a permissionless development toolkit for creating Layer-3 chains whose transactions settle to the main Layer-2 Arbitrum chain.

For all the details in this Arbitrum-packed week and an accompanying Arbitrum analysis, see Ben Giove’s full Bankless article. Also don’t miss our live show with Arbitrum founders Steven Goldfeder & Harry Kalodner.

4. Euler Finance hack

Amid TradFi blowing up, DeFi suffered its own stumble with the massive hack of Euler Finance, a lending protocol on Ethereum mainnet.

$197M of USDC, wBTC, stETH and DAI were stolen in a flash loan attack. Flash loans are a staple arbitrage tool of DeFi lending protocols that allow uncollaterized loans to be taken on the condition they be repaid fully within the same transaction.

In a post-mortem by Chainalysis:

“The hack was made possible by a liquidity issue in the DonateToReserve function of the eToken. This function was properly burning eTokens, but not dTokens, leading to an incorrect conversion of borrowed assets to collateralized assets. Euler’s hacker took advantage of these inconsistencies to create a false impression that the platform had a low amount of deposited eTokens and fake debt due to the fact that the dTokens were not burned.”

The vulnerability had existed for eight months before the exploit.

In an on-chain message to the hacker, Euler demanded 90% of the funds back within 24 hours, then issued a $1M bounty for the hacker’s identity and arrest. Within hours, the hacker moved 1000 ETH in ten different transactions to Tornado Cash. Apparently, the hacker has also returned 100 ETH to a victim that pleaded for his money back in an on-chain message.

5. Major DeFi updates

🎙️NEW WEEKLY ROLLUP

Other news:

Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.

Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here.

Published in Bankless

There’s a revolution in the world of money. Ethereum, Bitcoin, crypto, open finance, DeFi—a bankless revolution. And you want part of it.

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