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Aave (LEND) Is Up By Over 11,000 Percent This Year, DeFi Market Reaches $11 Billion in Total Value Locked

The continuous rise and the unending support for the decentralized finance (DeFi) industry has resulted in a total of $11 billion in total value locked, according to DeFi Pulse. The rise of DeFi has led to many protocols making waves, including Aave’s LEND token.

Aave is an open-source and non-custodial lending protocol, and its native token has currently $1.5 billion in total value locked. Aave ranks the third according to the amount of cryptocurrency locked in the DeFi sector, behind Maker and Uniswap.

Decentralized finance (DeFi) money market Aave allows its users to earn interest on crypto and borrow against it, when it introduced credit delegation in July 2020. Users could use their collateral deposited on Aave to delegate their credit line to a trusted third party of their choosing. The user gets a cut of the interest when co-signing a loan to the trusted third party.

The proposal presented by the Aave team for the protocol’s decentralized governance highlighted the need to improve the functionality of the protocol, by aligning the interests of the shareholders’ shared vision. Aave recently announced that its voting process has started on its mainnet, and the community will be able to decide its activation. Aave tweeted:

“Aave Governance is officially on mainnet, giving the decisional power to the community! Now it’s time to vote on the very first Aave Improvement Proposal (AIP) for the token migration from $LEND to $AAVE.”

According to the announcement, the community will get to decide on the deployment of the smart contract, turning the old Aave token (LEND) into the AAVE governance token. The total supply of LEND is estimated to be 1.3 billion, and it will be converted to 13 million AAVE governance tokens. LEND holders, the Aave community will be able to vote and decide on the pace of the migration.

Aave claims that the journey towards decentralization is Aave’s ethos, to empower the decentralized community to make decisions on Aave. Following last week’s crypto market crash, Aave has slightly recovered from last week’s low of $0.44 to $0.55, at press time. Despite last week’s crypto market plunge, the DeFi industry has also defied the odds and has witnessed an additional $1 billion in total value locked (TVL), hinting at more upside potential.

Coinbase Discontinues Plans to Launch Cryptocurrency Lending Product Following SEC’s Warning

Coinbase Global has cancelled its plan to launch its cryptocurrency lending product designed to allow customers to earn interest on certain digital tokens.

The crypto exchange announced the change of its plan by quietly updating a blog post from last June, stating that it would not launch the USDC APY program announced and also would be discontinuing the waitlist that it had created for the lending product.

Coinbase promised that the lending program would power crypto savings accounts that would earn customers a 4% annual percentage yield (APY). This return is multiples higher than most savings accounts to traditional banks.

Though the exchange planned the USDC stablecoin to power the lending product, its price has not been significantly affected by this incident as its value is pegged to the US dollar.

The webpage with information about the Lending product and a signup page for the waitlist now redirects to Coinbase’s homepage.

Coinbase talked about its cancellation update, stating that it is looking for regulatory clarity for the cryptocurrency industry.

Coinbase further revealed that the SEC asked for people’s names and contact information on the waitlist mentioned above as part of its investigation. However, the firm did not immediately respond to a request for comment about what will happen to the data of those who signed up to the waitlist now that it has been discontinued.

Lawsuit Threats

The move by Coinbase to cancel the plan to launch the lending program comes after the cryptocurrency exchange obtained a legal warning about the product from the US Securities and Exchange Commission (SEC).

On September 8, Coinbase announced that the SEC threatened the exchange with a lawsuit if it launches the Lending program – an interest-earning product – within the coming weeks.

Coinbase obtained a notice from the SEC during that time, stating that the regulator planned to sue the exchange over the product, called Coinbase Lend.

Coinbase CEO Brian Armstrong responded by stating that the firm was caught off guard by the threat considering its efforts to engage with the regulator for the last six months.

Armstrong said that the firm initially reached out to the regulatory agency for briefing ahead of the launch and the SEC responded by stating that the lend product is a security.

Coinbase’s CEO further revealed that the SEC had not been clear about why the lending feature would be considered a security, or what Coinbase could do to fix it.

Coinbase then decided to delay the launch of the lend program feature until at least October, but now announced a discontinuation of the plan.

Crypto Lender Celsius Raises $400M as Investors Shun Regulatory Crackdowns

Kentucky-based digital asset lending platform Celsius Network has announced its latest $400 million fundraisers as investors shun the firm’s uncertain regulatory cloud.

The Big Name Backing

According to the Celsius announcement, this funding round is led by WestCap, a growth equity firm, and Caisse de dépôt et placement du Québec (CDPQ), a global investment group. The valuation of Celsius is now placed at $3 billion following the funding round and effectively places it amongst the elite crypto unicorns.

“We are pleased by the response we received from many leading financial investors during this fundraise. The partnership with WestCap and CDPQ puts Celsius in a position to grow and further its mission to leverage blockchain technology to connect and decentralize the traditional finance,” said Alex Mashinsky, CEO of Celsius Network.

The big-name backing came despite the ongoing regulatory struggle the company is having in administering its products in key states in the United States, including Alabama, Texas, and New Jersey. According to the investors, these struggles are temporary, and Celsius’s business strategies will still foster growth even if regulators stop its flagship lending product.

“While the current regulatory attention is new, Alex Mashinsky and Celsius’ ethos has long echoed the sentiment regulators are trying to put forth in terms of consumer protections. Celsius is committed to working constructively with regulators to understand the dynamic crypto space better, protect retail customers from fraud and undue risk, and create general consumer knowledge to allow for thoughtful investment decisions,” said Laurence A. Tosi, Founder and Managing Partner at WestCap.

Since its inception back in 2017, Celsius has grown its business and has more than 1 million active customers using its platform, with a total of $25 billion in total assets transacted. The boost from investors is billed to aid the company’s diversification from its core lending products that offer 17% on deposits to its “discretionary trading” of cryptocurrencies, including “speculative trades” on price movements.

Regulators Says Lending is Security

Cutting across both federal and regional regulators and watchdogs in the U.S. are increasingly warning against crypto platforms whose offer lending products, which they suggest these products are closely related to security offerings. The SEC has stopped Coinbase from offering its proposed savings products back in September to wade off avoidable lawsuits.

With cryptocurrency outfits being squeezed in per the restrictions to the products they can offer, many may clamour for additional regulations to be defined in the coming days to avoid future conflicts of interest.

Crypto Controls Needed in Lending Sector to Stem Depression, Expert Says

For depression and crashes to be averted in the crypto market, regulation and capital controls are needed to govern fast-growing trading platforms, according to Rand Low, a quantitative risk modeller and senior fellow at the University of Queensland Business School.

Citing crypto lending platforms like Coinflex and Celsius and the collapse of Three Arrow Capital, Low noted that the uncertainty triggered was causing panic selling because investors were worried about their funds.

He pointed out:

“One reason why the contagion is so aggressive right now is that several protocols are funding and lending and borrowing from each other. It’s almost like you get HSBC, Citibank, Goldman Sachs and JP Morgan buying and selling each other’s products, so if one goes down that impacts everyone.”

Having an opaque backroom trading model, Low noted that Celsius was doomed for failure because it used excessive leverage in risky ways. He added:

“Crypto banks are the ones of most concern, mostly because they present themselves as the safer option for crypto investors but what they’re doing in the backend isn’t transparent.”

A recent Wall Street Journal (WSJ) report echoed similar sentiments by disclosing that Celsius had bitten off more than it could chew because its Asset-to-Equity ratio was more than double the average for all the North American banks in the S&P 1500 Composite index, which is close to 9:1.

Therefore, Low believes that more regulation is needed in the crypto lending sector to restore sanity because crashes will become inevitable. He noted:

“This will just keep happening over and over again. Until there are capital requirements, those running these businesses will be enticed to take on more and more leverage to generate more returns. When the market turns we’ll see them wiped out again.”

The uncertainty rocking various crypto lending and DeFi projects like BlockFi, Voyager, and CoinLoan has sparked fear and concern among enthusiasts. As a result, calls for users to take self-sovereignty seriously continue making airwaves.

‘Multiple’ Crypto Lending Firms Are Under Investigation, Says California Regulator

California Department of Financial Protection and Innovation (DFPI) announced on Tuesday that it is investigating several firms nationwide that provide customers with interest-bearing crypto-asset accounts services (crypto-interest accounts).

The watchdog said that some of these firms are preventing customers from withdrawing and transferring funds between their accounts due to the difficult market conditions.

The regulator warns California consumers that many crypto-interest account providers may not have adequately disclosed risks facing customers who deposit their funds into such platforms. The department mentioned that the same rules do not govern crypto interest platforms as banks and credit unions, which require deposit insurance.

Based on the recent issues facing crypto lenders such as BlockFi and Voyager Digital, DFPI has identified some crypto-interest accounts that are unregistered securities. The regulator said that it is also investigating whether other crypto interest platforms are violating laws under the Department’s jurisdiction.

DFPI encourages consumers to diligently assess the appropriateness of an investment before responding to any solicitation offers. The watchdog has advised California customers of crypto interest platforms that have suspended withdrawals or transfers of crypto assets to contact the regulator for questions or inquiries and may file a formal complaint with the department.

Crypto Credit Crisis

The move by California’s DFPI follows recent action by state securities regulators in Alabama and Texas to have launched efforts designed to investigate crypto lending firms Celsius Network and Voyager Digital.

Last week, Joseph Rotunda, the enforcement director at the Texas State Securities Board, announced that the regulator started investigating whether these firms properly disclosed how they were handling clients’ funds and looking into potential cases of improper risk disclosure.

On June 12, Celsius Network abruptly suspended customer withdrawals after facing liquidity concerns. Last week, Voyager Digital was forced to file for bankruptcy after the collapsed hedge fund firm Three Arrows Capital failed to pay back its $650 million loans. Voyager became the second high-profile crypto firm to follow Three Arrows Capital in filing for bankruptcy in recent days.

Other crypto lenders that have recently faced solvency issues, including CoinFLEX, CoinLoan, and Babel Finance – all have halted customer withdrawals.

Chaos has continued to rise in the world of crypto lending, with BlockFi also witnessing a liquidity crisis. Crypto lending firms and hedge funds have fallen into trouble because of the current market turbulence, but mainly due to their poor management practices.

Crypto Broker Genesis Says Lending Business Declined in Q2

Genesis, a global institutional digital asset trading, lending, derivatives, custody and prime brokerage services company, on Wednesday, published its Q2 earning report with some interesting insight into crypto markets.

The report shows that crypto lending output at the company declined while OTC trading rocketed higher.

Genesis said it issued new loans worth $40 billion in the second quarter, a decrease of 9% from the first quarter, as cryptocurrency lending suffered a strong contraction in recent months. The firm stated that most of such loans occurred in April and May, as the entire crypto market capitalization shed more than 40%, from $2.2 trillion to less than $1.3 trillion.

Genesis further said the difficult crypto market conditions contributed to a 66% decline in active loans outstanding to $4.9 billion in the second quarter from $14.6 billion in the first quarter.

The company said its spot desk traded more than $17.2 billion OTC (over-the-counter trading) in the second quarter, an increase of over 51% quarter-over-quarter.

Genesis further mentioned that its derivatives desk traded $26.6 billion in notional value in the same period, a decrease of 4% from the first quarter.

The firm disclosed that Bitcoin contributed 56% of the traded volume, higher than the 48% witnessed in the first quarter. The firm said while its BTC loan weight increased from 28.7% to 30.4% quarter over quarter, its Ether’s weight declined from 16% in the first quarter to 11.4% at the end of June.

Lending Businesses Getting Squeezed

The recent volatility and extreme fall in valuations have tested crypto markets. Genesis had significant exposure to Three Arrows Capital (3AC), a crypto hedge fund firm, which became bankrupt because of excessive leverage. Genesis was fortunate as its parent company, Digital Currency Group, assumed the losses by migrating the assets over to their balance sheet, thus leaving Genesis free and clear of the disaster.

In June, Genesis said its balance sheet was strong. Its lending business continued to meet customer demands, a few days after rival lending firm Celsius Network suspended client withdrawals, citing difficult market conditions.

During that month, many other crypto lending firms such as Voyager Digital, Vauld, Hodlnaut, Zipmex, and Babel Finance froze withdrawals and transfers, citing “extreme” market conditions. Such tragic actions by these firms triggered the recent meltdown in markets and prompted warnings from U.S. regulators over crypto lending platforms.

NFT Lending Protocol Bend DAO Proposes New Measures against Bankruptcy Crisis

Subject to the bankruptcy crisis caused by depleted Ethereum reserves, NFT lending protocol Bend DAO has proposed new emergency measures pending a governance vote.

The NFT lending protocol provides asset collateral for NFT holders by using their NFT assets as collateral to borrow ETH. When someone deposits an NFT into BendDAO, they can borrow up to 40% of the collectable’s reserve price in ETH.

If the reserve price falls below a certain threshold, NFT depositors can liquidate their assets.

According to the Bend DAO development team:

“We are sorry that we underestimated how illiquid NFTs could be in a bear market when setting the initial parameters.”

At present, the platform has lent a total of 16,500 ETH, and the ETH loan utilization rate has soared from 57.6% to 86.8%.

NFT depositors are at risk of losing their NFTs if their collectable value plummets. Still, those who deposited ETH into the protocol will also suffer if the protocol cannot recover enough funds to pay them back.

To save the protocol from a credit crisis, the Bend Dao development team proposes to limit the liquidation threshold for collateral to 70% of the loan value, lower than 85%.

The company said it is also reducing the auction time for NFTs on its platform from 48 hours to four hours and removing the requirement that the minimum bid price for NFTs on Bend DAO is tied to 95% of the reserve price of popular digital collectables trading platform OpenSea.

BendDAO has liquidated 12 NFTs collateralized for ETH loans since August 14.

Maple Finance Loans $300m to help Struggling Bitcoin Miners

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Maple Finance, Australia-based Decentralized finance (DeFi) firm for institutions to borrow from Liquidity Pools funded by the DeFi ecosystem, announced on Tuesday that it has launched a $300 million fund for Bitcoin miners.

The lender established the move as the cryptocurrency mining industry struggles with access to capital markets. Raising capital has become difficult for crypto mining companies this year as Bitcoin price has drastically declined and energy prices have skyrocketed. Maple is looking to fill the gap.

In a statement, Sidney Powell, the CEO and co-founder of Maple, said: “Recent market headwinds have caused lenders to pull back, while traditional financing vehicles have been slower to engage this sector. Miners play an essential role in growing the crypto ecosystem and local economies, and we are proud to extend a new financing vehicle to direct capital where it is needed the most.”

Maple said that the $300 million lending pool will provide 12 to 18 months loans with interest rates ranging from 15% to 20% to blue-chip Bitcoin mining and digital asset infrastructure firms in North America, Canada, and Australia.

The $300 million lending pool is targeting to lend out funds to blue chip private and public firms with “effective treasury management and prudent power strategies,” Maple said. The pool will only offer fully collateralized loans, either by digital assets or real-world assets, including mining hardware, power transformers, and other physical assets.

Maple plans to open more lending pools for the growing mining sector and expects to expand its lending services to fintech firms.

When Will Miners Recover from Crash?

Many Bitcoin mining firms that expanded operations last year to capture more profits are now struggling as the crypto’s prices plunged.

The recent market crash has left miners going through a painful situation. Mining Bitcoin has become less profitable as the price of the cryptocurrency has nosedived, with popular machines like Bitmain’s Antminer S9 becoming money losers amid increased electricity costs.

Many miners have been cornered into powering off their operations or selling their holdings, while some are struggling to repay billions of loans that are backed by their equipment.

Struggling miners who preferred not to shut down their rigs were approved to raise capital in the debt or equity markets and/or sell off Bitcoin holdings.

In July, several miners, such as Argo Blockchain, Bitfarms, Core Scientific, and Riot Blockchain, among others, sold part of their Bitcoin holdings to secure funds designed to sustain their operations.

Last month, Bitcoin mining hosting firm Applied Blockchain secured a $15 million loan to pay off its existing debt and fund the construction of its data centres.

The crypto market recently went through an extreme crash in May and still has not come out of it. Major cryptocurrencies went through price drops, with Bitcoin plunging its price by more than half.

Justin Sun Withdraws Millions of Dollars’ Worth of USDT from Aave's Lending Pools

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According to data released by blockchain security and data analytics company PeckShieldAlert on Monday, the address labelled as Justin Sun has withdrawn more than $100 million worth of USDT stablecoins from Aave Protocol V2 in several transactions.

The Tron founder withdrew $100 million worth of USDT tokens from the Aave Protocol V2 in 2 batches of $50 million each to an address funded by the Poloniex crypto exchange platform.

As a result, the USDT in the Aave Protocol V2 pool TVL (Total value locked) dropped from $300 million from $200 million after Sun’s withdrawal.

Source: DefiLlama

The reason behind making such a huge amount of withdrawals is likely connected to the recent ban imposed by Aave on Tron founder’s address after Tornado Cash ETH payment. In August, Aave banned Justin Sun’s address after he received 0.1 ETH randomly from blacklisted cryptocurrency mixer Tornado Cash. After calling for assistance from Stani Kulechov, founder and CEO of Aave, Justin Sun’s Aave account was reinstated.

In August, several decentralized applications on the Ethereum network implemented code changes to revoke access from “sanctioned” addresses. Following the US Treasury Department’s Office of Foreign Assets Control (OFAC) move to sanction all addresses related to Tornado Cash during that month, users who had interacted with Tornado Cash were labelled as “sanctioned” and therefore banned from DeFi protocols such as Aave, Uniswap, Ren, Oasis, balancer, TRM Labs, as well as other crypto platforms.

The sanctions were not just placed on addresses associated with Russia but also on any users, including US citizens, who have ever obtained funds from a Tornado Cash address.

This is not the first time the Tron founder made such massive withdrawals from a crypto platform. Last year in October, Sun withdrew billions of dollars worth of cryptocurrency from DeFi lending platform Aave’s lending pools. As a result, the withdrawals removed massive liquidity from the platform, prompting much higher interest rates.

The withdrawal was considered related to concerns among DeFi community members over suspicion that Aave was vulnerable to the same ‘exploit’ as the one that impacted DeFi protocol Cream Finance earlier during that month, which resulted in the theft of $130 million worth of cryptocurrencies.

Nexo Capital to Pay $45 Million in Penalties

Due to Nexo Capital’s failure to register the offer and sale of its Earn Interest Product, the United States Securities and Exchange Commission (SEC) and the North American Securities Administrators Association (NASAA) have agreed to levy penalties against the cryptocurrency lender in the amount of $45 million (EIP).

On January 19, the SEC and the NASAA each released their own statement announcing the news to the public.

According to the statement released by the SEC, Nexo has come to an agreement with the agency to make a penalty payment of $22.5 million and to discontinue its unregistered offer and sale of the EIP to investors in the United States.

According to the article, the extra fine amount of $22.5 million will be paid to address comparable allegations brought forth by state regulatory agencies.

According to a statement released by NASAA, the settlement in principle was reached following investigations into Nexo’s allegedly fraudulent offer and sale of securities that took place over the course of the previous year. During the course of the inquiry, it was found out that EIP investors had the potential to receive interest on digital assets that they had lent to Nexo in order to generate passive income. “Nexo exercised complete autonomy in determining which operations would generate money and be used to generate returns for investors.

Through its website and other social media platforms, the firm sold and advertised the EIP as well as other goods to potential investors in the United States. The company suggested, in certain circumstances, that potential investors might get returns of up to 36% “that was said.

The Securities and Exchange Commission (SEC) noted that throughout the negotiating process for the settlement, the commission took into account Nexo’s degree of cooperation as well as the corrective actions that were swiftly implemented by Nexo in order to remedy their deficiencies.