April 28, 2021: Uranium Proves Radioactive ☢️🤯
BSC suffers hacks and scaling issues, and Ellipsis Finance shows its half life
Are you old enough to remember when Ethereum was clogged and BSC was efficient? Nowadays it’s smooth sailing for ETH, while BSC is facing growing pains.
To be sure, trolling any chain that’s having scaling issues as a result of monster growth is a bit like complaining about facing turbulence as your rocket blasts into the stratosphere. It’s a nocoiner mindset.
The activity at BSC is eye-popping, but with this growth they’re running into issues of architecture, scale, and hacks.
“Nobody goes there anymore, it’s too crowded!” Count us as impressed, even if you discount these numbers for potential shenanigans.
Architecture
Just as Ethereum had to make accommodations when it hit high volumes, we’re seeing BSC suffering some growing pains with its architecture. Lately the chain has been suffering occasional downtime due to congestion.
This is really the first stress testing of BSC’s more centralized architecture. While Ethereum has hundreds of thousands of validator nodes that will surely be useful as L2 chains roll out, BSC has just 21. Some of these have been knocked offline due to the congestion issues, which amounts to a pretty big chunk of the network.
Whichever new chain you’re looking at, beware if it claims that their competitive advantage is cheap and fast transactions. An empty nightclub can only compete on breathing room until it gets popular. If it fills up, does it have any further advantage over the original?
Scale
Upstart projects with low volume have an easy playbook to get attention. Start with a penny, put in ten dollars, and boast about 1000% returns. You can get pretty far with this strategy if you have deep pocketed investors who can subsidize growth to a given size.
It’s like the old VC game that somehow keeps finding marks:
Subsidize $100MM for a startup to give away free dog food
Wow, check out these insane growth rates!
Sell the bag to the greater fool.
The issue with this strategy is that your investors can only write checks up to the size of your investor’s pocketbook. Once you hit this ceiling your growth tapers off unless you’ve actually got a fit.
Binance has billions of dollars in its war chest it could theoretically use to backstop the launch of any new service to a great valuation. Watch what happens when any protocol gets in the neighborhood of this valuation though. Where does the next 10x, 100x, or 1000x come from? In most cases, growth stagnates at this range.
Ellipsis is a great case study for this. The initial token airdrop had clearly inflated numbers that got the attention it craved. At launch, the EPS token was trading at $20 and offered a 2000% APY. If that had kept up, a 1,000 token airdrop would be worth over $1.5 trillion in four years, even with the penalty! Everybody knew it had to taper off, but it was unclear at what rate. We tracked some numbers on this APY over the first week:
The decay rate for our helpful calculator ended up about 1.5% per day, with occasional pumps for unclear reasons. In that time the token plummeted to a price of about $2. At this rate your $1000 airdrop would be worth a few thousands within a few years, not bad, but not the trillions you’d hoped for. They did a good job taking a finite airdrop and gamifying it for max attention.
Whatever restaking strategy you tried, in hindsight the dominant strategy would have been to claim and sell immediately for cash. Based on the numbers on their site, it seems as though most people staked, hoping the ephemeral APYs might hold. Why not play the carnival game when they’re handing out free tickets?
Fortunately, whatever your strategy, everybody at least came out ahead. Plus, Ellipsis got a successful launch, which it can leverage to keep bringing Curve’s innovativeness and new pools to the ecosystem. Over the long haul we expect it will accrue value within the BSC ecosystem.
Hacks
With great liquidity come great hacks. Uranium, a popular BSC DeFi app, proved radioactive to the tune of over $50MM.
This hack is one of the largest in the short history in DeFi
Even if you’re not technical, you can probably still spot the missing digit:
With this exploit we’ll get to see just how centralized the chain actually is.
The largest part of the plunder were BUSD and wrapped BNB, which are centralized enough that it may end up being worthless for the hackers.
At BSC’s level of growth, the hackers still had enough off-ramps to make it worthwhile. Per Rekt:
The BSC system is not as closed as it once was. There are multiple bridges out of BSC now, and they’re not all controlled by Binance, meaning CZ can’t blacklist all the addresses and keep the stolen funds on BSC.
The suspicious nature around the code commits are leading speculation that this may have actually been a rugpull.
We have absolutely no knowledge about the hack, so we’ll just irresponsibly speculate that this is merely a clever CZ growth hack. After all, DeFi is nothing without epic rugpulls. The best way to announce you’ve made it is to publicize an extraordinary amount of money getting hijacked. “Come to BSC… we’ve got the best rugpulls!”
For more info, check our live market data at https://curvemarketcap.com/ or our subscribe to our daily newsletter at https://curve.substack.com/. Nothing in our newsletter can be construed as financial advice. Author is a $CRV maximalist, including the $EPS carnival game.