 November 19, 2020  The top stories in bitcoin, crypto and more – all in one place, delivered daily Sponsored by:  By Daniel Kuhn If you were forwarded this newsletter and would like to receive it, sign up here.
Top shelf Deutsche Bank analysts said customers increasingly prefer bitcoin over gold as their hedge of choice. A markets surveillance tool could meet the SEC's standards to allow a bitcoin ETF. FATF thinks existing financial precautions may be unfit for the rising world of DeFi.
Bitcoin ETF Bitcoin > gold Cash adjacent FATF chance? Binance sues
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Quick bites
Market intel Rumor mill OKB, the in-house token for leading crypto derivatives exchange OKEx, rallied more than 13% Wednesday on rumors the firm’s founder, Mingxing “Star” Xu, had been released from police custody. The gains retrace part of the steep losses suffered after the token tumbled 30% following the mid-October suspension of withdrawals. After more than a month of zero completed withdrawals, Xu's rumored release could mean a return to normal for the exchange. The token has gained more than 17% this week.
 Webinar: How to Value Ethereum The penultimate episode of How to Value Ethereum explores the metric of gas costs. How is gas calculated? What is its unit of account? And why is it an important metric to valuing Ethereum?
Find out the answers to these questions by registering for How to Value Ethereum, episode 3, on Nov. 24. At stake DeFi or bust
Much of this capital flowed into a handful of premier smart contracts, MakerDAO, Compound and Uniswap among the top. But it also went into smaller programs, with smaller teams.
Earlier this month, blockchain analytics firm CipherTrace found that nearly $100 million worth of crypto has been looted from a range of DeFi apps. In fact, these thefts account for nearly 40% of all crypto attacks across the entire industry.
In November alone, malicious attackers drained $2 million from Akropolis, $3.3 million from Cheese Bank, $6 million from Value Finance and $7 million from Origin Protocol.
Many of these attacks utilized a new financial technique called a flash loan, which allows users to take out uncollateralized loans from a decentralized program to leverage trades on another platform.
The frequency of flash loans in DeFi exploits have led some to believe this poorly understood tool to be the root of the issue, but now, industry experts are saying they are hardly to blame, CoinDesk’s Will Foxley reports.
“While many are trying to frame this trend as the result of flash loans, most of these exploits could have been committed by any well-capitalized actor. All a flash loan does is temporarily make anyone a well-capitalized actor,” Chainlink co-founder Sergery Nazarov said.
The real issue lies with poorly constructed smart contracts. In particular, many smaller projects rely on “in-house pricing oracles” that can lead to a discrepancy between asset prices within a dapp and the greater market: opening the opportunity to arbitrage opportunities.
In the worst cases, attackers can engineer this arbitrage opportunity by using flash loans, but the issue still lies with how a program deals with real-world, time-sensitive information.
This is important, especially as U.S., European and international watch dogs begin to notice DeFi. Including the amount of attacks, fraud and manipulation.
“When you are running [Defi] things on code and you are putting it out in the wild you are missing a step and you may want to test the code, audit the code, you may want to have some peer review of the code; to send it out live right away without those protections is risky those, the SEC’s Crypto Czar Valerie Szczepanik said at the September 18 Parallel Summit. As several instances have shown, audits are not enough to prevent these attacks, Quantstamp CEO Richard Ma told Foxley. “Understanding the products and the business logic is much more time-consuming and important than a straight-up code review,” Ma said.
Insurance is one potential failsafe. But it will come down to teams building redundancies, checking and rechecking code, anticipating loopholes and securing their platforms.
Or else, as CipherTrace said in its report, “it is likely that DeFi will only continue to suffer from the consequences resulting from inadequate [anti money laundering protections] and security.”
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