What the hack?

Welcome back. In case you’re short on Halloween costume ideas, we’ve got you covered. The scariest get-ups this year? Gary Gensler, Jerome Powell, Peter Schiff…they’re all bound to leave fellow trick-or-treaters trembling (at least if they’re degens like us).

Today: An October for the books, ETH becomes deflationary, and NFT artists’ nightmare. Let’s dive in.

—Angelina

What the Hack Is Going On?

For us crypto folks, hacks have become an occurrence as normal as your grandparents asking if they should invest in “the Bitcoin” every time you call home. And like those constant calls for financial advice, it seems hacks aren’t going anywhere anytime soon.

October is officially the worst month ever for crypto hacking activity, according to Chainalysis. So far, $718 million has been stolen from DeFi protocols across 11 different exploits this month—and October still has almost two weeks to go.

This month’s biggest hacks:

• Binance’s BNB Chain fell victim to a cross-chain bridge attack earlier this month. Hackers got away with north of $100 million.

• Mango Markets, a popular Solana-based trading protocol, saw over $100 million in liquidity drained last Tuesday after a malicious trader took out massive loans from the Mango treasury.

• On the same day, Ethereum’s Temple DAO, Rabby Wallet, and layer 1 blockchain QANplatform all registered significant losses in a series of hacks.

And it’s not just October. If the trend continues, 2022 “will likely surpass 2021 as the biggest year for hacking on record,” according to Chainalysis. Last year, crypto weathered $3.2 billion in losses from 200+ hacks. This year, we’re already at 125 exploits that have grossed hackers more than $3 billion.

Zoom out: Just three years ago, centralized crypto exchanges accounted for the majority of hacks. But as exchanges tightened their security, hackers turned to DeFi. In 2022, 90% of all hacks have targeted such protocols. Cross-chain bridges appear to be particularly vulnerable:

The silver lining? These hacks could help weed out vulnerable DeFi protocols in an industry that expanded too rapidly over the last bull market, creating the false impression that most projects were a safe bet.

ETH’s Deflationary Run

With all this talk of inflation, how about a little deflation?

Last week, ETH reached a major post-Merge milestone: It became deflationary for the first time since its switch to proof-of-stake. The details →

• The ERC-20 token XEN debuted two weeks ago, causing a surge of network transactions and triggering Ethereum’s deflationary mechanism.

• More ETH was burned verifying transactions than was created in the same time period, resulting in a 0.13% reduction in supply in the last week. Poof—4,000 ETH gone like that.

• ETH’s yearly issuance rate also dropped by almost 90% in the weeks following the Merge (from 3.66% to just 0.07%).

Impact: Deflation ➡️ fewer coins in circulation ➡️ coin value increases. So why isn’t Ethereum’s price reflecting the good news?

1. Ethereum isn’t yet deflationary on a sustainable basis. With the hype around XEN dying down, network activity on Ethereum will fall again. As a result, less ETH will be burned.

2. External macroeconomic factors (*cough* the Fed *cough*) continue to govern crypto prices.

Big picture: As long as the global economy is headed toward a recession, it’s unlikely that any promising crypto narrative (not even ETH’s deflationary run) will be enough to catapult any one token on a sustainable upwards trajectory.

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NFTs Just Got Way Less Profitable

​​Magic Eden might have to change its name—the days of Solana’s leading NFT marketplace serving as a paradise for digital creators are over. Last week, Magic Eden announced that it will allow NFT buyers to decide whether they want to pay creator royalties or not.

FYI: Zero-royalty NFT marketplaces are gaining traction, challenging the industry standard that allows creators to profit from every NFT resale.

Our take: It’s unfair to artists, who create NFTs with the expectation of royalties, to be barred from claiming them. The million dollar question—will OpenSea follow suit in an effort to stay competitive?

In other news:

• Small update, big impact: MetaMask has added instant bank-to-crypto transfers.

• Despite the bear market, Ethereum developers are deploying more smart contracts than ever.

• Bitcoin failed to produce one block for over an hour.

• The infamous North Korean Lazarus Group found a new target: Japanese crypto firms.

• Mastercard is partnering with crypto platform Paxos to help TradFi banks offer crypto trading.

And that’s what you need on your radar today in crypto. Send us your crypto-pilled Halloween costume ideas (although we doubt it could get any scarier than good ol’ Gary G.). See you back here on Friday!