Ethereum scaling protocols drive zero-knowledge proof use: Finance Redefined

Welcome to Finance Redefined, your weekly dose of essential decentralized finance (DeFi) insights — a newsletter crafted to bring you the most significant developments from the past week.

This week, Finance Redefined looks at the growing popularity of zero-knowledge proof-based scalable solutions. Zero-knowledge rollups (ZK-rollups) technology has gained a lot of traction over the past year thanks to its increased use in the Ethereum ecosystem.

Bug bounties are seen as a great reward system for white hat hackers to weed out bugs in the DeFi ecosystem, which often fall prey to exploits. However, recent analysis suggests these programs have mixed results.

After a series of exploits on the Multichain protocol over the past couple of weeks, the founder of Connext proposed a “Sovereign Bridged Token” standard to prevent future issues and exploits.

Algorand’s decentralized lending protocol is set to wind down by year-end as developers claimed building a borrowing and lending protocol is “no longer a viable path” for the protocol.

The top 100 DeFi tokens had another mixed week in terms of price action, followed by a late surge on July 13, aided by the partial verdict for Ripple in its fight against the United States Securities and Exchange Commission (SEC), leading to an 84% surge in the XRP (XRP) price.

Ethereum scaling protocols drive zero-knowledge proof use in 2023

Ethereum scaling protocols dominate the use of ZK-rollups, with major launches, new research and healthy competition among the key highlights in a sector report published by ZKValidator.

The node infrastructure operator’s “State of ZK Q2” report reflects on significant events across the ZK ecosystem, with notable launches of ZK-powered layer 2’s highlighting the use of the technology for scaling in comparison with other market segments.

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Algorand decentralized lending protocol Algofi to shut down by end of 2023

Algofi, the borrowing and lending protocol built on the decentralized finance blockchain Algorand, will soon shut down.

According to a July 11 announcement, developers’ “belief in the strength of Algorand’s technology and novel consensus algorithm has not wavered,” however, the Algofi platform will wind down soon.

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Bug bounties can help secure blockchain networks, but have mixed results

Bug bounties are programs organizations offer to incentivize security researchers or ethical or white hat hackers to find and report vulnerabilities in their software, websites or systems. Bug bounties aim to improve overall security by identifying and fixing potential weaknesses before malicious actors can exploit them.

Organizations that implement bug bounty programs typically establish guidelines and rules outlining the scope of the program, eligible targets and the types of vulnerabilities they are interested in. Depending on the severity and impact of the discovered vulnerability, they may also define the rewards offered for valid bug submissions, ranging from small amounts of money to significant cash prizes.

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Arbitrum-based Rodeo Finance exploited for the second time, $1.5 million stolen

Arbitrum-based decentralized finance (DeFi) protocol Rodeo Finance was exploited for $1.53 million on July 11. The DeFi protocol was exploited using a code vulnerability in its Oracle, leading to a loss of over 810 Ether (ETH). Rodeo Finance was earlier exploited on July 5 for around $89,000 due to a vulnerability in its mintProtocolReserves function.

According to data shared by blockchain analytic firm PeckShield, the exploiter later bridged the stolen funds from Arbitrum to Ethereum and swapped 285 ETH for unshETH. The exploiter then deposited the ETH on Eth2 staking. Finally, the exploiter routed the stolen ETH using the popular mixer service Tornado Cash, which exploiters often use as an exit route to obscure the transaction’s footprint.

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Connext founder proposes ‘Sovereign Bridged Token’ standard after Multichain incident

A July 7 Ethereum improvement proposal (EIP) seeks to standardize how tokens are bridged between networks. The “Sovereign Bridged Token” standard, or EIP-7281, allows token issuers to create canonical bridges across multiple networks.

The proposal was co-authored by Arjun Bhuptani, founder of the Connext bridging protocol. In a July 7 social media post, Bhuptani claimed the protocol would help prevent issues like the July 6 Multichain incident, which some experts have described as a hack.

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DeFi market overview

DeFi’s total market value saw a bullish surge after three bearish weeks. Data from Cointelegraph Markets Pro and TradingView shows that DeFi’s top 100 tokens by market capitalization had a bullish week, with most tokens trading in the green. The total value locked in DeFi protocols remained below $50 billion.

Thanks for reading our summary of this week’s most impactful DeFi developments. Join us next Friday for more stories, insights and education regarding this dynamically advancing space.

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