A weekly recap of the most insightful news, analysis, and capital flows in the wild west we call crypto.

Hello and welcome back to the Web3 Rewind! Per usual in this industry, lots has happened this past week. Here's what we have in store for you:

• friend.tech

• Coinbase <> Circle

• Binance troubles

• Liquidations galore

• Writing perfect code

The Latest

Social network dept.

friend.tech

If you haven’t been living under a rock, you must have seen friend.tech by now. It’s a viral social platform that has been taking crypto users by storm and flooding the front page of crypto Twitter. Before we get too ahead ourselves and call it the second coming of Christ and crypto’s first app that would result in mass adoption, what can people do on friend.tech?

There’s only one thing you can do at this point, and that is buy and sell shares (now called keys) of twitter accounts. In return, you get access to a key-holder-only chatroom where you can chat with the account owner. For now, we’re calling this a progressive web app. An app that has the capabilities of native mobile apps but has the reach of a normal web app.

In less than two weeks, it has onboarded close to 100,000 accounts. We can attribute that to a few factors. First, there’s the standard FOMO factor that any “hip” social network has. You see all your friends on the platform and want to be there too. Next, there’s the airdrop factor. The protocol has teased an airdrop based on points. 100M points will be airdropped over a six-month beta period and eventually should convert into tokens once the token generation event occurs. Tangentially, there’s also what people are coining as the Paradigm factor. The rationale here is that if Paradigm, one of crypto’s largest VCs, invested in this thing, it has to be good, and the token will probably have a crazy valuation upon launching. Lastly, what every crypto app is ultimately useful for, the speculation factor. The price of one’s keys goes up when more are bought. The more outstanding keys there are, the higher the price of the key. Importantly, the pricing function is exponential, which means that the price goes up quickly as net new buyers come in, making for eye-watering returns.

So far, the protocol has processed a total of $67M in volume, $66M in inflows, $3.3M in protocol fees, and 1.8M cumulative transactions. Not too shabby for a protocol that launched a mere two weeks ago. The individual with the largest market cap is Racer, the founder, with a market cap of 341 ETH and an individual share price of 2.55 ETH. The highest earner on the protocol, Cobie, has made $154K in trading fees alone.

The Block got a lot of heat for releasing an article that said “Scraped data of 101,000 friend.tech users links their wallet addresses”. It appears that editors there have not quite figured out that a blockchain is a public ledger. And if you conduct actions and execute transactions on an open ledger, they will evidently be public information. If you make a transaction from an account that is linked to a wallet address and your Twitter account, well, someone will put two and two together.

Is this a new social paradigm? I think it’s far too early to say. I am of the opinion that the main use case here is still for speculation. Trading fees do not represent a sustainable source of income for creators, versus traditional models such as subscriptions or Patreon. However, I can definitely see it as a fun gimmick that even normal users will flock to for a while, considering that friend.tech has done a relatively decent job of abstracting away the fact that it ultimately is a crypto protocol. — Joseph Cooper, Decential Media

Quick Bits

Coinbase acquires a minority stake in Circle

• Coinbase has acquired a minority stake in Circle. What was a partnership in the form of the Centre Consortium is no more. There have been some unverified rumors of friction between the two in recent months in terms of revenue sharing agreements, and this should be the culmination of talks.

• As a result of this new partnership, native USDC will be brought into six new blockchains, one of which should be Base, Coinbase’s L2, and one other being Noble, a general asset issuance chain in Cosmos.

Binance troubles

• Can a CEX be bought down by a loan on-chain? I guess we’ll find out. This time it’s Binance and BNB. The infamous hacker who exploited Binance Bridge in October of last year had borrowed $150M worth of stablecoins against the hacked BNB.

• He was recently liquidated for $30M BNB, but it looks like it’s not over yet. Binance could be protecting the price of BNB, in hopes that the exploiter does not get liquidated further and cause BNB price to crash.

Liquidations Galore

• Volatility has been compressing slowly but steadily for the past half a year. It roared back to life last week as crypto traders got liquidated for over a billion dollars.

• There are a few speculative theories as to why the move to the downside occurred, including Evergrande filing for bankruptcy and SpaceX selling all of its $373M in Bitcoin (unverified). However, what happened was a liquidity provider on Deribit got completely obliterated, and that triggered a cascade across crypto.

And last but not least

Writing perfect code

On August 9, Fireblocks, one of the largest MPC wallet providers, announced that they had discovered a vulnerability in some of the most-widely adopted MPC protocols that would allow an attacker to retrieve a private key from a single device. For those like me who aren’t the most technical, MPC stands for multi-party computation, which means you should theoretically require multiple devices in order to generate a private key to sign a transaction. This exploit would basically be the same as if we found out that the US nuclear system which normally requires multiple parties to verify codes with each other, suddenly allowed one man to single-handedly launch a nuclear warhead. Not great. A similar vulnerability was disclosed for most TSS libraries in production by Thorchain. These vulnerabilities affected leading MPC wallet providers, including Coinbase, Binance, and ZenGo. Assuming this vulnerability wasn’t discovered and patched in time, a savvy hacker probably would’ve figured it out sooner or later and potentially exploited billions of dollars of assets held in MPC wallets just by accessing one device. This makes one wonder, how many other industry-ending vulnerabilities like this exist out there today?

One of the promises of crypto is that code is law. Immutable smart contracts will ensure that we can always withdraw our funds when we want to and that funds held in those smart contracts are safe. But of course, that depends on the fact that the code is good code and absolutely flawless because even one small misstep could lead to significant losses. This became all too apparent during the recent Curve hack which resulted in $69M lost. Since the start of the year, Apple has patched 11 zero-day exploits. The definition of a zero-day is a vulnerability previously unknown to those who should be interested in its mitigation, meaning Apple wasn’t even aware that these attack vectors existed. If Apple, one of the best software engineering companies, has had to patch 11 zero-day exploits, imagine what that number looks like for a nascent tech ecosystem, with new programming languages, new compilers, and new cryptography primitives. In a world where no one can write perfect code, how much trust should we have smart contracts? The simple answer for me is that it is still a strictly better system, because even if such an industry ending vulnerability ever got exploited, validators would choose to hard fork the blockchain and undo the damage. And at least we have that choice. — JC

Have you read the definitive history of Ethereum? No? Well then get your copy of Out of the Ether while you can.