After close to a month of consulting with industry experts and journalists within Cointelegraph and without, we’re proud to unveil a new segment for Finance Redefined, a.k.a. the premier DeFi industry newsletter: on-chain analysis. 

Reporters will often look to public records to bolster stories, and the blockchain is no different. Everything from analyzing the wallet of the fake Banksy NFT artist to following-up with exploiter wallets in the wake of hacks, the data is often used but arguably not to the extent that it could be.

For instance, there is a wallet widely-known to be that of Mark Cuban, serial entrepreneur and owner of the Dallas Mavericks. He’s doxxed himself indirectly and directly many times — the address is the owner of markcuban.eth, for christsakes. And yet, when he announces that he’s invested in Polygon (or an algo stable shitcoin, RIP Titan) it’s news, but when he makes the moves on the wallet in real time…. the crypto-news industry ignores it?

Reporting on wallet transactions is fraught with complications, however. As Sam Trabucco of Alameda Research told me in Miami, “doxxed” Alameda wallets know that they’re doxxed (“contaminated” is the term they use internally), and trying to interpret a buy from one ‘known’ wallet may only be glimpsing a small part of a much larger picture — Alameda may be hedging with another acct, and as such public buys/sells are ultimately not indications of a wider opinion on an asset.

Check out this thread on folks trying to uncover what Alameda is doing with CRV as an example — the tail-chasing and narrative flip-flopping is extreme:

Additionally, despite ample evidence, if Mark Cuban ever came out and said that a wallet is not his — doesn’t matter if he has the ENS, doesn’t matter if he’s even claimed it as his in the past — we, as an outlet, have no way to definitively prove to the contrary, and as such explicitly linking an individual or institution to a wallet is unacceptable regardless of any amount of circumstantial evidence. 

So, we’ve tiptoed and wondered and thought and thought about it some more. On-chain data is both public and wildly underused by news outlets, but it’s a new source type from a journalism perspective and really uncharted ethical ground.

Some of the language decisions we’ve made might seem a little obtuse, but they’re measured and we think appropriate. Let us know what you think.

We hope you like our first installment, courtesy of Bill Zerox aka @0xbilll:

Alchemix rugpull remuneration analysis 

After a rug pull, desperate community members typically beg developers to return the stolen funds and social media channels become chaotic — filled with stories of tragic loss and impoverished nurses. It only makes sense then that in the first "reverse rug" in DeFi history, it’s the developers begging the community to return the funds. The big difference is that instead of ignoring requests, as exploiters often do, the community has seemingly responded.

Last week, Alchemix suffered a bug that saw users walk away with 2262 ETH (almost $4.5 million USD, even with the recent price decline) in what is being called the first-ever “reverse rug”. Instead of using treasury funds or minting a new token, steps that other protocols have taken to recoup a loss after a bug or hack, the Alchemix team is asking users who benefited to return the ETH.

In exchange, Alchemix is promising users 1 ALCX per 1 ETH returned. If users who benefited from the bug return the full amount of ETH that they were able to withdraw, the team says the generous exploiters will also receive a “special” NFT that includes "yet-to-be-determined functionality in the Alchemix DAO.”

Although unconventional — as the best things in DeFi are — on the surface their ask to the community has been a success. Taking a look under the hood, however, reveals that the majority of funds were donated from one altruistic Alchemist developer while the accounts that walked away with the most ETH show no signs that they will return the funds.

On-chain data shows that the majority of ‘returned’ funds have come in the form of community members donating ETH, as opposed to users returning the ETH that the bug allowed them to claim.

1129.85 ETH has been returned as of this afternoon. Breaking it down, 358.21 ETH (~32%) is from users who benefited from the bug, while 771.64 ETH (~68%) has been donated by community members.

Data taken from Dune Dashboad thanks to 0xGranger at ~2:45 EST June 23rd; https://duneanalytics.com/queries/66340/132563

The largest donation so far is a staggering 730 ETH from an apparent Alchemist developer with the ENS handle n4n0.eth. They did not receive ETH from the exploit, so they are presumably reaching into their own pockets — a testament to their belief in Alchemix and their desire to make the protocol whole.

When called out in the Alchemix discord, n4n0 simply said, “I’m in it for the tech.”

Screenshot taken from official Alchemix Discord channel

A Twitter profile with the same name lists their role as “codemonkey @ https://alchemix.fi."

Outside of n4n0.eth’s 730 ETH donation, 196 other addresses have donated a total of 41.64 ETH. While some of the addresses may be speculating that those who donate will be eligible for future airdrops, the response also shows that the community wants Alchemix to succeed.

Looking at addresses who received excess ETH from the exploit, the top 20 addresses walked away with almost 1800 ETH, ranging from 25 to 500 ETH. Of those, so far only four addresses have returned the full amount they got off with for a total of 174 ETH.

One of these addresses, themockingjay.eth, returned the 40 ETH that they were able to withdraw because of the bug. Their address shows that they are active DeFi users and early Alchemist supporters, as demonstrated by them apeing into pool 2 a couple days after the protocol launched.

Zerion currently shows themockingjay.eth’s net worth at over $2 million, demonstrating that they are characteristic of DeFi users who are in a position to support a protocol, as opposed to carry off with the funds.

With the promise of an NFT and the chance to live in Alchemix/DeFi/Crypto history forever, perhaps the response here should not come as a surprise.

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Aave 2.5, and airdrops to come

Like many DeFi protocols, Aave isn’t having ‘growing pains’ so much as the project is sprouting wings. 

A former perennial top-10 on rankings websites, they’re now the definitive #1 in DeFi with nearly $17 billion in TVL on the back of a highly successful liquidity mining program. However, in an interview with Cointelegraph Aave co-founder Stani Kulechov weighed in on the same problem dozens of protocols now face: how to continue the explosive growth in an increasingly complicated system?

“Now the question is, how do we keep growing at the same pace, and also expand the growth as new projects are coming in, as new ideas and innovation comes into the whole ecosystem?” He asked.

The first step for Aave is applying what works to new environments. The team is working on a governance bridge that can let users vote on layer-1 for decisions that will apply to the various layer-2 implementations of the market, allowing for “cross-chain decentralized decision making,” says Kulechov. This new feature will be available in a matter of weeks.

However, larger changes are coming as well:

“We believe the future is multi-asset and multi-governance. [...] This means we’ll have more inclusive decision making in the community.”

Multi-asset governance —- say, AAVE and BAL holders voting on a AAVE-specific proposal — will of course be an entirely new experiment, and comes with specific considerations for the community. 

In Stani’s view, which assets other than AAVE should determine Aave’s fate largely depend on the synergy. Ultimately it will be up to AAVE holders to vote on who gets in, but Stani pointed towards protocols like Balancer — who have a forthcoming deep integration with Aave to deposit unused AMM liquidity into lending pools — as a prime option in a multi-asset governance framework. Likewise, MakerDAO is building a system where the protocol deposits DAI into Aave, and then uses aDAI as collateral in special vaults to assist with liquidity crunches — another deep integration that would possibly warrant inclusion for MKR in multi-asset governance.

This is part of a broader framework for the Aave core team stepping away from the project after the eventual Aave v3 launch. At that point, major users of the Aave protocol (including other protocols that may be using Aave), should be the ones to decide its parameters.

As a result, the day may come when the most significant votes on Aave governance come from addresses controlled by other governance communities.

But what will the core development team do after the launch of Aave v3? Social media protocols? High fashion on the blockchain? And will it involve potentially lucrative airdrops to current AAVE holders? Kulechov was scant with details (despite his odd Tweets on the topic here and there), but did wax philosophical when it comes to possible airdrops:

“The two key principles are distribution — how do you empower the Aave community when you distribute new assets — and secondly how you can use tokeneconomics to empower your product and your community.”

As an example of empowering a community, Stani pointed to staked Aave, stAAVE, which is used to backstop the protocol as an insurance fund in the case of a shortfall event. Depositing into this fund rewards users with more AAVE and therefore more governance power — ultimately using the token to reward deeper engagement. 

The development of the backstop model — also known as Aavenomics, a whitepaper that laid out how the protocol would attract liquidity, and the security to back that liquidity — took six months. Stani said the team settled on a model where “the AAVE token becomes a way to transfer risk to community members, as they’re the ones making risk-based decisions.” This forces the community to be more involved, as they bear risk, but proportionally rewards them.

Kulechov expressed skepticism that new tokens would be needed for new projects from the core team because “you can build value with new protocols directly in the ecosystem you have, and reinforce the current value there.” He also noted that the Synthetix model, which will lead to four new tokens in the coming months, may have downsides: “The risk is that if you come to market with five new tokens, you kind of might dilute the main asset and the community there, and split your community.”

Potential fat airdrops aside, for now the focus is on the forthcoming “Aave v. 2.5,” the penultimate upgrade before v3.

Aave 2.5 comes with a focus on risk mitigation. The update will include supply and borrow caps on certain assets, and improved liquidation mechanisms — what Stani calls “the final version before the ultimate protocol we wanted to build (v3),” and afterwards the community will take over the protocol and its development entirely. The team at Parafi Capital, who co-authored a liquidity mining proposal for Aave, are some of the chief architects of the overhaul. 

Ultimately, while the Aave team continues to iterate and learn from fellow protocols, Stani says the kind of bold experimentation Aave has made (and continues to make) is the best path forward for the space:

“The best way to do things is being experimental. You actually need to fail with tokeneconomics before you can find something that actually works.”