DeFi Outlook Is 'Mixed' in Wake of Curve Finance Exploit: Arca Head of Research

Bitcoin is sitting around just under $30,000 as Jen says, nothing going on, it's as if it's asleep, will it wake up or is it as the Smiths say, a girlfriend in a coma? Joining us now to discuss the crypto markets is Arcas head of research, Katie Tila. Welcome Katie. Thanks for having me. Glad to have you on. So, uh you know, we're kind of getting this uh sense from some fed officials that in fact, this might be one and done uh that this last rate hike might be it for now. Uh of course, other others are kind of hinting otherwise, but it seems we're hearing more and more of this discussion that you know what, maybe rates aren't gonna go up any further. We have the CP I coming out this week at the end of this week. Uh Is that, and do you think that if the CP I number comes in higher than expected that some of those fed officials who are saying that maybe it's over will have to eat their words and potentially we could see problems for Bitcoin down the road. I think the problem right now is that the macro data has been very mixed. And so, you know, that's why the fed, you know, we're hearing that fed officials may, you know, reverse course and not add any more uh rate hikes for this year. Um However, again, the data has been mixed and so that's also made it harder for anybody to really predict, predict what's gonna happen. Um You know, the markets have really been acting like that, you know, we won't have any more rate hikes. Um You're seeing, you know, uh, uh, you know, in the bond market, um kind of like mixed views as well, which just shows that everyone's kind of split right now. Um Again, the macro data has been pretty unusual, you still have, you know, high inflation, um, but high unemploy like high employment and, uh, you know, rising wages and so it's, it's tough to say, you know, that the um measures of like rate hikes are working, but it's also difficult to ascribe that to, um, you know, oh, it's slowing the economy in any way just because we've had kind of what it would be like a mixed bag. Um Were you? Oh, sorry, go ahead. No, go ahead. I was just gonna ask you if you were surprised by the bar's lack of reaction to the paypal Stable Coin news which we were just talking about. Would you have expected to see more of a rally in response to that? I think so. I, it's, it's, it's again, very difficult because I think that, you know, we're kind of in like the worst part of the summer where everyone's on vacation. No one's really paying attention to the markets. Um, I do think though it, it, uh, it isn't immediately beneficial to anyone, you know, digital asset. It's not like it was, you know, hey, we're gonna use Bitcoin, uh, you know, that would make a lot more sense versus like, you know, hey, we have a stable coin. It is built on Ethereum. Um, but the only thing that it could potentially help with on Ethereum is gas fees. Um, so I, I do think that, you know, the market is really waiting for kind of more immediate news versus stuff that's gonna have an impact years down the road. Um, you know, if you look at what has kind of kind of pushed the market more recently, um, it's been the Bitcoin ETF news, which would have a more immediate impact on the market, right? Um If we end up having a Bitcoin ETF approved, you would see inflows into Bitcoin, you know, as soon as the product went live. Well, we almost had a Cola, I mean, like, let's face it, let's be honest, we almost had a collapse of D I uh, a few, a few days ago, uh, with the situation with curve, I, I mean, that kind of seems to have resolved itself but it, it opened the door, at least to this potential that maybe the, the D I uh the entire D I sector, if you will uh is built on faulty code or there, there are aspects of it that, that might end up uh causing serious damage to D I yet crypt. The Bitcoin didn't react. And of course, you could say, well, you know, it's not a, it's not a defy coin, but nonetheless, you know, a lot of trading is involved in this. And ultimately that kind of leverage helped push it up. But uh why didn't the market react to curve? What, why didn't it really do anything other than a few coins? Uh in D I. Um I mean, look, I would say the market did react it, at least in the sense of like you said, the tokens involved kind of in the curve, um you know, around the curve ecosystem definitely reacted to it. Um Ethereum and Bitcoin weren't necessarily impacted. Um The other thing too is like the exploit that happened, the re entrancing attack was um it was actually on uh something called fiber, which is a coding language used to compile smart contracts into the EDM and Viper was the one that had this exploit. Um It was actually around for a couple of years. It was in a couple of different versions of their code. Um You know, they've since done a full audit and have, you know, released like, hey, here is where the code is, here's who we think is vulnerable. Um But, you know, the nature of the exploit and the fact that this exploit, um you know, Factor had been around for a couple of years really points to the hacker potentially being really motivated to, you know, specifically go after um D I and specifically, they went after, you know, kind of one of the blue, the blue chip um projects in D I that, you know, hadn't suffered any exploits um at all. And so for them, you know, it was very clear there was a goal in mind to kind of bring down um one particular project and discredit them publicly. All right. And quickly before we go, given what's happened with curve, what's your outlook on the D I market moving forward? I mean, my outlook is pretty mixed. I think that, um you know, on one hand, we really saw the community in the curve exploit episode kind of rise up and try to help um stem kind of the bleeding. Um specifically the for those who aren't familiar with the curve exploit, um I wrote about it this week in our newsletter but the um uh the uh the the exploit caused a cascading liquidation and prices which basically endangered kind of um further loans that were curve based. Um since a lot of D I is built around curves avail availability to provide liquidity um for stable coins and in kind swaps um having the project kind of uh have less impact on their rewards would have been really impactful on the D I ecosystem. Um So the, uh you know, it really makes sense that um you know, the tokens around them traded down. Um But the, you know, the curve overall, I think has kind of shown that they, you know, are supported by the ecosystem. People stepped in to buy the tokens to, you know, put liquidity back on the exchange. So I think overall it just shows that, you know, D I is resilient. Um We do need to work on some, you know, things like risk management parameters um and maybe some governance processes, but those are all things that will hopefully be fixed with time. All right, Katie, thank you for that and thanks for joining the show this morning. It was nice seeing you again. Thanks for having me. That was Arcas head of research, Katie Titi.