Ethereum has risen over 32% this week, from the week’s starting price of $ 213 (Feb 06) to trading at $ 282, at the time of this writing. This big rise can be attributed to various factors: ongoing progress towards Ethereum 2.0, Ethereum fast cementing its position as leader in Decentralized Finance (DeFi), plenty of Ethereum related conferences and other activities happening in the near future, the Non Fungible Token (NFT) angle and prominent interest from institutional groups. So, how likely is the Bitcoin Flippening? Let’s examine each of these causes for the recent rise and the potential game-changers in the future separately.
Ongoing Progress Towards Ethereum 2.0
Ethereum team published a major update on the progress towards Ethereum 2.0 and announced that they are closer to reaching the Phase 0 of the Ethereum 2.0 – which is expected to go fully functional around 2022. Some of the improvements announced were the completion of audit and formal verification of the Eth2 deposit contract (further review has been requested from the developers though), Beacon chain – the core component of Eth2, responsible for sharding is being optimized, Lighthouse testnet issues have been patched by Sigma Prime team, Prysmatic testnet passed 180k slots and has over 35k active validators, Alethio’s new Eth2 node monitor has been released helpful in combining statistics, Whiteblock released libp2p gossipsub testing results and release of OpenZeppelin Contracts v2.5. However, the update noted that the design for Ethereum 2.0 hasn’t been finalized yet and a more clear picture will emerge in the future, after the research and testing has been completed.
Ethereum – The Undisputed Leader Of Decentralized Finance (DeFi)
Ethereum is fast cementing its position as the undisputed leader of Decentralized Finance (DeFi). The next revolution in cryptocurrency arena, DeFi crossed $ 1.2B mark recently and is well on its way to setting new record highs. As per Defi Pulse, 3.1M ETH (3,100,000) are currently locked on the platform, reducing the supply and creating new demand/use case for Ethereum tokens. Considering Ethereum’s total supply until now is ~ 109.6 M and increasing, its certainly a thing to watch out for and take into consideration. With interest in DeFi rising and major developments in that field happening on the Ethereum blockchain, the price value of Ethereum tokens can go very high, when decentralized finance starts competing with current financial services.
Lots Of Activities In Ethereum Camp
Ethereum has a lot of activities planned in the near future, different conferences, hackathons, Eth2 bounties etc are coming. This is resulting in improved developer interest in the blockchain, paving the way for further improvements and optimizations. Some of the major events are mentioned below:
1. ETHDenver – Denver, USA, Feb 14 to Feb 16 (bounties coming for Eth2)
2. Stanford Blockchain Conference – Stanford, USA, Feb 19 to Feb 21
3. Eth222 – Stanford, USA – Feb 22
4. ETHLondonUK – London, UK – Feb 28 to Mar 1
5. Ethereal Summit – New York, USA – May 8 to May 9
The Non Fungible Tokens (NFTs) Angle For Ethereum
Non Fungible Tokens (NFTs) are also likely going to drive Ethereum prices in a major way, alongside DeFi. The leading NFTs developers are working on the Ethereum blockchain, aided by the specially defined separate standard for minting NFT tokens – ERC-1155. The standard allows for the creation of countless tokens, using a single smart contract. It also allows multiple tokens or digital assets, to be transacted, in a single transaction, saving fees and resources. NFTs can also be programmed to act in a certain manner, using ERC-1155.
Enjin Coin (ENJ) and Chiliz (CHZ) are the leading developers of Non Fungible Tokens (NFTs) on the Ethereum blockchain. A transfer of digital assets to the blockchain is desirable due to its inherent features of tampering resistance, ability for easy transfers (and transfer across multiple games), proper sole ownership and authentication, keeping secure records and provision of programming features to the assets. Considering massive consumer spending on digital game assets and the high likelihood that this market is going to transfer on the blockchain, we can imagine a future where Ethereum forms the main cornerstone of Non Fungible Tokens (NFTs). In such a scenario, the demand for Ethereum (ETH) would rise significantly, because the value of these assets, in a way, would be backed by Eth tokens.
Institutional Interest On The Rise
It is apparent from the news coming out that Ethereum is a major recipient of the institutional interest. Recently, JPMorgan signaled plans to merge its blockchain unit Quorum with Ethereum’s ConsenSys. It is expected to happen in six months. Also, the Commodity Futures Trading Commission (CFTC) chairman Heath Tarbert said that the commission is evaluating if Ethereum would still remain a commodity after the future upgrades. If its found to be such, in Mr Tarbert’s view, it could support a futures market. Sustained institutional interest and development in these directions, can send Ethereum prices flying, from the current value.
Can Ethereum Overtake Bitcoin?
While certainly a daunting task, its not exactly possible to overrule it completely. Bitcoin’s current market capitalization is close to 187B, Ethereum on the other hand can manage only around 31B. However, its use cases and adoption potential are both growing, with Decentralized Finance (DeFi) and Non Fungible Tokens (NFTs) leading the pack. Ethereum transition to the next iteration of it – Eth2 will certainly ensure better security, processing times, less fees and more efficient resource usage. Bitcoin in contrast refuses to evolve, because of the difficulty in forming community consensus plus its focus on originality. Ethereum is fast improving its programming potential, moving towards a new major upgrade, cementing its position in both DeFi and NFTs and gathering institutional interest. Though, not happening anytime soon, its “very likely” in the far future to overtake Bitcoin in terms of market capitalization with its newfound utility, adoption and better technology.
DeFi Project bZx Exploited for Second Time in a Week, Loses $630K in Ether
Bad actors have made off with $630,000-worth of the ether (ETH) cryptocurrency after exploiting a price feed of the ethereum-based lending project bZx.
The attack – the second in less than a week – began at just after 03:00 UTC Tuesday, when attackers apparently took out a flash loan of 7,500 ETH (approximately US$1.98 million), using 3,518 ETH (~$939,300) to purchase synthetic USD stablecoin sUSD from the issuer, which they then posted as collateral for a bZx loan, according to an analyst on Twitter.
They then used 900 ETH (~$240,000) to bid up the value of sUSD through an integrated price feed from liquidity provider Kyber Network until the dollar stablecoin spiked at $2. Using this inflated collateral, they took out another loan of 6,796 ETH (roughly $1.8 million) that was used to pay back the original 7,500 ETH loan, pocketing the remaining 2,378 ETH.
The total amount stolen is worth approximately $633,000, according to CoinDesk’s Ether Price Index. In its entirety, the attack took just over a minute from beginning to end. The exploiters have left an open loan with half the required collateral now that sUSD has returned to its dollar pegging.
The total amount of ether locked in bZx lending contracts has nearly halved from 40,000 ETH (~$10.7 million) to 23,000 ETH (~$6.1 million) since the exploit took place, according to statistics site DeFi Pulse.
The official Twitter account for bZx confirmed at 04:38 UTC the project had suspended trading after it detected “suspicious transactions using flash loans and trading on Synthetix.” A bZx spokesperson confirmed on the group’s Telegram channel the company itself, rather than any of the platform’s users, would cover the shortfall.
The attack comes days after bZx fell victim to a similar flash loan-based attack where more than $350,000-worth of cryptocurrencies were extracted from the platform. It’s unclear whether the two attacks were carried out by the same person or group.
What are flash loans?
The vast majority of DeFi lending facilities rely on overcollateralized loans: Borrowers can usually only borrow around 75 percent of the value of their collateral. Although that incentivizes users to pay back loans, it also requires lenders to have very high liquidity – sometimes in a diverse range of assets – in order to quickly liquidate loans.
Flash loans are instruments that allow traders to liquidate the loans on the lender’s behalf. It works by having the trader take a loan out from the lender – this time not posting any collateral – then paying back the borrower’s debt and collecting the deposit. Using the deposit they can pay back the original loan and pocket the remaining funds.
Flash loans were already available on other DeFi projects such as the non-custodial lending platform Aave Protocol, which has offered them since the beginning of the year.
bZx only launched its own flash loan instruments on Monday. CEO Tom Bean defended the decision to introduce flash loans onto the platform. “By all accounts, the flash loan code on bZx was not what allowed this attack. It was just a tool used that functioned correctly and could have been swapped out for dydx and Aave flash loans,” he wrote on the company’s Telegram channel.
Kyle Kistner, bZx’s chief visionary officer and operations lead, confirmed, also on Telegram, the flash loan hack was “completely tractable.” He highlighted that bZx would accelerate plans to integrate Chainlink to diversify price feeds and prevent oracle manipulations from happening again.
A representative for bZx told CoinDesk the team was trying to resolve the exploit with its team of engineers. Bean and Kistner did not immediately return calls for comment.
Ethereum should consolidate position above $300 by mid-March
Over the past four days, Ethereum has recorded significant price volatility. After registering a significant dump of around 18 percent over 15-16 February, the market’s 2nd largest crypto-asset jumped right back above the $270 mark. Over the past 24 hours, Ethereum had recorded a positive turn around of 8.01 percent, with a market cap of over $30 billion.
Source: ETH/USD on TradingView
On observing Ethereum’s 1-day chart, it can be identified that the surge on 30 January was a bullish breakout that surfaced due to the formation of a long-term cup and handle pattern. The pattern started developing towards the end of November 2019 and took shape over the last 3 months.
After the spike on 30 January, Ethereum inevitability breached past its key resistance at $229 (i.e acting support, at present) and the token has since, managed to consolidate over the $250 mark. The aforementioned correction on 15 February did bring it below $250 for 24 hours, but the price bounced right back.
At press time, the bullish momentum was picking up pace again. Hence, there is a possibility that ETH may cross $300 over the next few days. However, it would be short-lived.
A minor correction down to $251 would allow the token to successfully head towards the $303 resistance by mid-March and consolidate above the range for a longer period of time.
However, according to the VPVR indicator, trading volume at $229 has been strong over the past six months and repeated corrections from 15 February may allow retracement down till the $229 support.
Ethereum/Bitcoin 1-hour chart
Source: ETH/BTC on TradingView
However, on observing the ETH/BTC 1-hour chart, a re-test down to $229 seems less likely for Ethereum. According to the chart, an inverted head and shoulder pattern had been breached at press time, which suggested that the 2nd largest asset is primed for another bullish surge. A breakout after a head and shoulder is heavily bullish, something that improves the probability of Ethereum crossing $300 in the short-term. Concerns about another bearish pullback will remain after the bullish momentum faces timely exhaustion over the next few weeks.
It is possible Ethereum may breach the $300 mark resistance over the next few days, but a quick retracement will follow that. After a pullback, the token should consolidate between $251-$279, before eventually marching past $303 by mid-march.
Almost $1 Million Of ETH Compromised Following Two Attacks On DeFi Protocol bZx
The space of Decentralized Finance (DeFi) took a serious hit in the past week as decentralized lending protocol went through two subsequent attacks. The compromised funds amount to a little less than $1 million.
The First Attack On bZx – February 14th
The first attack happened on block 9484588, timestamped February 15th, according to the official report from bZx. Per the document, the attack was launched on Valentine’s day on February 14th during ETHDenver. At that time, bZx’s team has been out attending the event.
The attacker took advantage of a few DeFi protocols to lend and swap a substantial amount of ETH and wrapped Bitcoin (wBTC). The latter represents a token launched on Ethereum’s network, tracking the price of Bitcoin. This allowed the perpetrator to manipulate the prices and to profit off of decentralized leveraged trade.
First, the attacker borrowed 10,000 ETH from dYdX – a decentralized lending protocol. He then used 5,500 ETH to collateralize a loan for 112 wBTC on Compound – another lending protocol. After that, he spent 1,300 ETH to open a 5x leveraged ETH/BTC short position on the Fulcrum trading platform of bZx, while also borrowing 5,637 ETH through Kyber’s. This amount he swapped for 51 wBTC, causing a serious slippage.
This allowed the perpetrator to profit from swapping the 112 wBTC from Compound to 6,671 ETH and generate an income of 1,193 ETH. That’s roughly around $318,000. At the end of it all, the attacker paid back the 10,00 ETH loan on the dYdX protocol that he had taken before.You Might Also Like:
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The Second Attack – February 18th, Details Pending
The bZx team has also officially confirmed the second attack.
Per the official disclosure, the attacker managed to extract a net profit from the system of around $600,000, bringing the losses up to more than $900,000 worth of ETH. However, the mechanism of the second attack was completely different than the first one.
The issue at hand had a lot to do with oracle manipulation. Oracles typically represent centralized components that provide external information to on-chain apps.
In light of the above, the bZx team has also stated that they are working closely with Chainlink, as well as with other oracle providers to “create a more robust oracle and reduce the surface area of attacks against our protocol.”
Purportedly, the team managed to delay the realization of the profits from the second attack and stated that they “believe the system can recover from this.”
More Security Audits And Research Is Vital, Says The CEO of Aave
CryptoPotato managed to get the opinion of Stani Kulechov, CEO at Aave – an open-source DeFi Protocol.
Explaining the attack in simpler words, he said that a “flash loan was used to get capital without owning it. The attack was possible without a flash loan as well if the person would have such a big amount of cryptocurrency in possession. Flash Loans are testing the waters of DeFi. Every DeFi protocol needs to mitigate the risks that flash loans can create. They are not bad as they can be used to create innovative products such as collateral swaps that we’re building on top of Aave Flash Loans.”
He also outlined that every line of code presents a risk that needs to be mitigated.
More security audits and research is vital. Risk should be properly assessed before deploying new protocols.