ERC standards; DeFi liquidity provision costs; regulatory roundup
1. Standards: Generalized property testing for ERC4626 vaults 🔐
Tokenized vaults face a key composability issue: different implementation details can make integrating them a more complex (and error-prone) process for other apps and protocols (like yield aggregators). Earlier this year, ERC4626 was introduced to address this issue for Ethereum-based applications by defining a standardized set of tools and requirements that ensure composability across different vault implementations.
As existing vaults adapt to this standard, however, we're seeing a new category of errors crop up. Discrepancies in subtle, easy-to-miss details in the standard requirements can lead to bugs, user experience issues, and even security vulnerabilities. So to help vault builders follow the standard, a16z crypto senior blockchain security engineer Park released property-based tests that systematically check code for small discrepancies before they become bigger problems. He covers the benefits of ERCs; common implementation pitfalls; and the result of testing ~100 ERC4626 in the wild.
2. Metrics: DeFi liquidity provision costs 📐
Jason Milionis, Ciamac Moallemi, Tim Roughgarden, Anthony Lee Zhang
We previously shared in this newsletter a summary of a fall 2022 paper on LVR – a new running-cost metric called loss-versus-rebalancing (“lever”) – which isolates the adverse selection/ information costs of liquidity provision, and can inform liquidity provision decisions as well as the design of automated market maker (AMM) protocols.
So in this special package, we share several more resources all about LVR, from head of research Tim Roughgarden and co-authors – including two newly released videos from the a16z crypto research summer seminar series: on an overview of constant function market makers (CFMMs) by Ciamac Moallemi (Columbia University); and on defining the loss from AMM liquidity provision as arbitrage extractable value (AEV) by Anthony Lee Zhang (University of Chicago).
3. News & commentary: Crypto policy 🗞️
a16z crypto Regulatory Team
This is the first installment of a new series, the a16z crypto Global Regulatory Roundup, which highlights the latest regulatory and policy happenings relevant to builders in web3 and crypto – as tracked and curated by the a16z crypto regulatory team. The roundups are based on recent news, the latest updates, new guidance, ongoing legislation, and frameworks released by regulatory agencies/bodies, industry consortia and professional associations, banks, governments, and other entities as they impact the crypto industry (or applications) around the world.
The following is a small selection of items covering the period from September 27 through October 17; be sure to read the full recap for much more, including bonus section with policymakers’ remarks at DC Fintech Week.
💲U.S. Department of the Treasury
The Office of Foreign Assets Control and the Financial Crimes Enforcement Network announced settlements for over $24 million and $29 million, respectively, with Bittrex, Inc. This is OFAC’s largest digital currency enforcement action to date, and it represents the first parallel enforcement actions by FinCEN and OFAC in this space.
Nexo announced that it acquired an undisclosed stake in the parent firm of Summit National Bank, a federally-chartered U.S. bank. Nexo is now the third crypto firm to obtain a federal bank charter (after Anchorage Digital and Protego Trust Bank), but the first to do so through an acquisition rather than the application process. It is not clear how banking regulators will react to Nexo’s purchase.
Custodia Bank filed a petition in court, arguing that the Federal Reserve demonstrated a double standard by allowing BNY Mellon to engage in crypto custody but not granting Custodia approval for a Federal Reserve master account.
The Bank for International Settlements announced the successful completion of the first central bank digital currency (CBDC) pilot involving four jurisdictions, Hong Kong, Thailand, China, and the United Arab Emirates. The trial was conducted on the mBridge Ledger, a custom-developed DLT platform.
🇫🇷 France’s Autorité des Marchés Financiers approved the registration of Societe Generale’s crypto division, SG Forge, to offer buying, selling, trading, and custody of digital assets.
--Robert Hackett, Stephanie Zinn, Tim Sullivan, Sonal Chokshi, and the a16z crypto team
You’re receiving this newsletter since you signed up for it on our website(s) or elsewhere (you can opt out using the ‘unsubscribe’ link below). Please note that this newsletter is provided for informational purposes only, and should NOT be relied upon as legal, business, investment, or tax advice. Furthermore, the content is not directed at nor intended for use by any investors or prospective investors in any a16z funds. This newsletter may link to other websites or other information obtained from third-party sources, but a16z has not independently verified nor makes any representations about the current and enduring accuracy of such information. Please see a16z.com/disclosures for additional important details, including link to list of investments.