The Ledger Wallet Disaster
It's a sideways, choppy market. And everyone's angry. However, I didn't expect this week's main character to be Ledger, the hardware wallet company.
Here’s what we got today:
- Don't update your Ledger yet. They're pushing out a new recovery system that CT hates.
- Lido V2 is live. A look at stETH withdrawal metrics. Lido is still going strong.
- Arkham Intelligence. A new onchain analysis tool is here.
- Around the Web. Ethereum Finality issues, and more.
Today’s email is brought to you by zkLend. Participate in their Launch Lotto.
Here’s your Edge 🗡️!
"The most contrarian thing of all is not to oppose the crowd but to think for yourself” - Peter Theil
🔒 Ledger New Recover Feature
Ledger's pushing out a new update to help potentially recover their seed phrases. Everyone hates it.
What is Ledger? It’s a hardware-wallet provider. A hardware wallet is a physical device that stores your private keys. Since your keys aren't exposed to the internet, they are considered more secure.
Why the outrage? In their latest update, they introduced a new optional service: Ledger recover, a key-recovery service. The seed phrase would be encrypted and broken into three pieces. These pieces would then be stored on different centralized-servers. If any user wanted to recover their seed phrase, they'd get it from these servers. They just have to verify their identity.
Coming from a company with a history of losing personal data, this update sounded scary.
Even though it isn't enabled for everyone, this option was included in the latest Ledger firmware update. Thus, Ledger enabled access to the seed phrase via their firmware update. Previously, they stated that it was impossible.
Nobody caught this before because of one reason: the code is a closed source. Meaning the user can't verify that their seed phrase is safe. Ledger's saying...“Trust me, bro.”
Why did they do this? I'm entering the land of speculation. They have raised over $575M from investors. There might be pressure to increase revenue. If this is successful, it'll be another revenue stream for them. It’ll be a revenue stream that’s recurring and consistent, rather than the one time hardware sale model. Ledger's CEO said that future customers will want this kind of service.
Edgy’s Take: I think the social recovery will help with mass adoption. However, it would’ve been better to introduce this as a feature on a new device and leave the existing ones alone.
If you’re using a Ledger now, then hold off on upgrading the firmware. I’ll personally be moving my funds over to some new Trezor Model T wallets.
Yesterday I freaked out about the revelation that @Ledger could spit out your private key with a firmware update. Yet I noticed the smartest people were not freaking out. Was I missing something? I spent the evening educating myself, and now I'm in the "nvm it's fine" camp.
May 17th 2023
zkLend's LP Launch Lotto
We've been talking about zkLend for several newsletters now. zkLend is Starknet's native money market with over $300k+ in TVL.
This edition has a special announcement - zkLend's LP Launch Lotto has been extended, and the prize pool has been doubled!
Before that, let's recap zkLend:
- zkLend is built on StarkNet and supported by institutions like Delphi Digital and StarkWare
- They offer a retail permissionless product (Artemis) as well as a permissioned product for institutions (Apollo)
- Starknet is a Layer-2 on Ethereum offering zk-rollup scalability, faster transactions, lower costs, and Ethereum's security.
By popular demand, zkLend has extended its LP LAUNCH LOTTO with a 5,000 USDC prize pool (previously 2,500 USDC).
Alongside being early on Starknet and earning real APY from zkLend, you get a chance to win big in the LP LAUNCH LOTTO.
Participate in the LP Launch Lotto by:
- Opening and funding a Starknet-compatible wallet
- Depositing any asset
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Deposit, lend & borrow on zkLend today!
💧 After the $stETH Withdrawals
On May 15th, Lido V2 went live on the Ethereum mainnet.
We've already talked about LSDs and Lido a million times. Here's a quick recap. Lido will take your $ETH and give $stETH in return. Your $ETH will be staked, and rewards will be given directly to you as new $stETH.
Until now, you had to depend on a liquidity pool to convert $ETH to $stETH. The V2 upgrade enabled users to directly withdraw $ETH for $stETH from the Lido Protocol.
Enabling withdrawals on the largest LST on Ethereum is a big deal. Let's look at what happened.
Withdrawal is Not Huge
- 448,805 $stETH was withdrawn.
- The withdrawn $stETH is only 7.1% of the total $stETH.
- Of that, 428.1 k stETH withdrawals were made by one Entity, Celsius.
So, more than 95% of stETH withdrawal is made by a single company caught up in bankruptcy. The rest of the withdrawals constitute less than half of the percentage of the total $stETH. Very few withdrawals are happening.
Even though 448,805 stETH was exchanged for $ETH, Lido didn't unstake a single validator. How did they do that?
Lido Withdrawal Buffer
When a user asks for $ETH in exchange for $stETH, Lido doesn't immediately unstake validators. They pay out from the Withdrawal Buffer. It includes Ether from:
- Execution Layer Rewards such as Maximum Extractible Value.
- Staking Rewards: Staking rewards (aka partial withdrawals) aren't restaked.
- New ETH deposits: Ether cannot be immediately staked. There is a deposit queue.
As of writing, 49,729 Ether remains in the Lido Withdrawal Buffer.
What does all of this mean?
For starters, it shows the resiliency of Lido. It handled >7% of withdrawals without a glitch.
One speculation was that stakers would rotate out of Lido to other LSDs such as frxETH and rETH. The numbers indicate otherwise.
But I do think that Lido's dominance will go down. frxETH and rETH are growing at a much faster rate than stETH.
If you want to monitor the developments, here are some resources
- Dune dashboard tracking stETH metrics
- Parsec dashboard tracking stETH metrics
- Shapella Upgrade Dashboard from Nansen
📊 Arkham Intelligence: a New On-chain Intelligence Tool
One tool that has made a huge splash recently is Arkham Intelligence. It has become one of my go-to tools in the past few months.
Despite all blockchain transactions being part of public records, few people can effectively track whales. The existing tools are not easy for average users to use. This is where Arkham Intelligence comes in.
Arkham Intelligence enables users to track whales beyond their surface-level activities. It provides several tools to comprehensively track the activities of whales and give access to both on-chain and off-chain data.
Don't just assume someone is a good trader cuz their wallet has a lot of money. Actually, check if they're profitable using Arkham.
Here's a list of features that make Arkham Special.
- Entity page: You will get a comprehensive understanding of the activities of any entity or address.
- Visualizer: The cryptic transaction details are converted to easily understandable network maps.
- Dashboards: You can create and share personalized dashboards that capture dynamics important to you.
- Filtering: Focus only on information that matters to you by efficiently filtering and sorting transactions throughout the platform.
- Alerts: Custom alerts can be created for both on-chain and off-chain activities. It will allow you to proactively monitor situations.
- Explorer: You can effortlessly delve into specific transaction details. This will make exploration and analysis efficient.
The true power of Arkham can only be understood once you actually use it. It's in closed beta now, and it's free.
There's a waitlist, but signing up with this link will "skip the line."
This post is not sponsored.
🚀 DeFi Catalysts
Spark Protocol, Maker's money market, is voting on onboarding $GNO (Gnosis) into the protocol. It looks like the vote will pass successfully.
CamelotDEX will be integrated into DeFiEdge. It is an asset-management protocol with cutting-edge features. (No, we don't have anything to do with them.)
Ribbon Finance's decentralized exchange, Aevo, launched a new product, Aevo OTC. It allows users to trade altcoin options on-chain.
GND Protocol's half vested xGND had a sizable unlock yesterday and today. 332 and 290 xGND were unlocked yesterday and tomorrow.
Manifold Finance and C.R.E.A.M. Finance collaborated to launch $MEV. mevETH will be the only Validator service with its own Relay, Block Building, and Node Operations service vertically integrated with restaking capabilities.
Apple may launch a VR headset in June, according to rumors. This can act as a catalyst for Metaverse and VR tokens.
Dopex launched $ARB 0dte (Zero Day to Expiry) Options. Options that expire on the day of purchase allow for short time-frame volatility trading.
MakerDAO founder Rune Christenson proposes a new roadmap for Maker. It involves a new stablecoin, a new governance token, and including AI in the governance process.
Curve Finance's crvUSD redeployment is completed. The redeployment had to be done because of the issues with earlier deployments.
OP Mainnet will undergo the Bedrock upgrade on June 6th. It will require 2-4 hours of downtime.
🌎 What's Happening?
📰 Industry News
Ethereum suffered finality issues twice this week. Developers have released updates for Prysm and Teku clients in response.
Tether, the company behind the largest stablecoin $USDT, published its attestation report. It had a net profit of $1.5 billion.
PulseChain, an ETH-fork from Richard Heart, is live. The project was criticized heavily by Eric Wall.
Binance announced that they're withdrawing from the Canadian market. They cited regulatory roadblocks as the cause.
The US IRS filed claims worth $43.8 billion in FTX's ongoing bankruptcy. Their claims can take precedence over average citizens who lost their money.
Worldcoin announces that they're going to build an OP chain. This can make them part of a superchain and bring World ID to OP mainnet.
ERC-6551, a new NFT standard, is on the scene. It enables NFT to act as a wallet with its own address.
AladdinDAO published the whitepaper for the f(x) Protocol. It is a vision for a decentralized "floating stablecoin" not pegged to $USD.
Circle, the company behind the second largest stablecoin, $USDC, is rebalancing its reserves in preparation for the risk of a U.S government debt default.
European Union Finance ministers accepted the MiCA bill. It is legislation that sets clear regulatory guidelines and requirements for crypto.
Sandeep Nailwal, Polygon co-founder and Symbolic Capital, launched the Nailwal Fellowship. It'll provide financial support to early stage founders.
🧠 Twitter Alpha
Ledger's future updates be like...