Euler v2 marks a significant milestone for the project, bringing major advancements to the DeFi space with a focus on modularity and security. The team invested heavily in security and transparency after overcoming the setbacks from last year's exploit. It aims to set new standards in onchain lending and borrowing.

EigenLayer, a security abstraction and application layer, offers Ethereum validators the ability to earn additional revenue by lending out staked capital for various uses. By utilizing staked capital that's already serving as security collateral, modules established on EigenLayer can leverage the existing Ethereum validator pool and introduce additional slashing conditions. This process, known as "restaking," has the potential to reduce the financial strain associated with security for users of decentralized applications, lowering the bar for innovation and reshaping the landscape of protocol financing.

EigenLayer introduces innovative blockchain solutions, including the EIGEN token, which tackles intersubjectively attributable faults, allowing for expanded security measures beyond traditional cryptographic proofs. By utilizing restaking mechanisms, EigenLayer enables staked ETH to support additional services while safeguarding network integrity with a unique token forking system, effectively separating staking and non-staking activities to mitigate risk and enhance application development.

This thread discusses the decline of on-chain DeFi, attributing it to security vulnerabilities and the rise of CeDeFi protocols. Key issues highlighted include the increased reliance on centralized off-chain infrastructure, the trend towards centralization and control by developers, and the dominance of powerful intermediaries or 'solvers,' which ultimately undermine the decentralized vision of DeFi by creating centralized storefronts that prioritize user experience and profitability over true decentralization.

Leveraging the introduction of Umbrella, Aave has proposed significant upgrades to enhance $AAVE's role in the ecosystem. Key updates include automating secondary liquidity management, transitioning the safety module to a slashing-free staking module, and introducing the "Anti-GHO" ERC20 token. These changes aim to increase efficiency, generate new revenue sources, and improve protocol coverage at controlled costs.

Optimism's introduction of fraud proofs means that bridged assets can be withdrawn without Optimism's approval and anyone can review and challenge OP Mainnet transactions. Previously, the Ethereum settlement layer had to trust Optimism's transaction history without proving it. Looking forward, other OP Stack chains like Base and Mantle should be able to implement fraud proofs and become Stage 1 L2s much quicker.

Aave has launched its V3 protocol, powered by ZKsync's zero-knowledge technology, on the Era Mainnet, enhancing transaction efficiency, security, and scalability within the DeFi space. This integration is expected to broaden Aave's user base, attract institutional investors, and support privacy-focused DeFi applications.

Though EigenLayer is the clear market leader in the restaking space, other ecosystems may introduce similar protocols that use SOL or TIA as collateral. As the first asset-agnostic platform, Karak may see a first-mover advantage, especially since it accepts stablecoins. At the same time, single-ecosystem protocols like Lido or Jito have historically performed better, and partnerships with liquid staking and DeFi protocols will prove critical in gaining adoption and integrations.

Technological and social developments are prereqs for advancements in DeFi, which mirror the gradual evolution of internet technologies from dial-up to high-speed broadband. The upcoming launch of Sonic aims to overcome several technological barriers in blockchain, such as latency and user onboarding, potentially enabling not only financial dapps, but also broader apps, similar to how credit scores revolutionized traditional finance.

Aave is the leading decentralized borrowing and lending protocol, with over $7.5 billion in active loans. Its fundamentals have surpassed previous bull market highs, but the token trades at historically low valuation multiples. With upcoming improvements like Aave v4, revamped tokenomics, and growth from greater crypto adoption, Aave is positioned for significant expansion.

Stablecoin issuers and lending protocols have a symbiotic relationship that has been increasingly closer aligned. Stablecoin issuers like MakerDAO are lending protocols through their collateralization, and lending protocols like Aave are arguably a specific type of stablecoin issuer. The specialization of lending protocols has changed the market structure, and stablecoin lenders will become the primary users of lending platforms.

Decentralized finance is a return to the core principles of finance, offering transparent and non-discriminatory access to financial services. It democratizes lending, trading, and other activities traditionally restricted to accredited investors. DeFi's core functions of lending and trading are foundational to economic growth and represent pure forms of income generation.

The EigenLayer team created a new model for analyzing the cryptoeconomic safety of PoS chains by comparing the cost of corrupting a blockchain with the profit that can be extracted from corrupting it. StakeSure is an on-chain insurance mechanism that guarantees no honest user can lose funds. Its many complex characteristics include provably safe bridging, automatically adjusting economic security, and a Karma system for loss compensation and hacker penalization.

Fluid's DEX introduces Smart Collateral, allowing users to borrow against collateral and deploy it as AMM liquidity to earn trading and lending fees. Its Smart Debt uses debt as trading liquidity, allowing fees to reduce the borrowing APR. Users can leverage their LP positions and earn up to 39x higher trading fees. It is scheduled to launch by the end of July.

DeFi is being tested in legal battles. Avi Eisenberg leveraged Mango Markets' code to extract $110 million, arguing that because the code permitted it, he didn't commit a crime. At the same time, the SEC's case against Uniswap Labs could determine how decentralized DeFi can be and whether the vision of a fully autonomous, code-based financial system is realizable.

deUSD uses stETH and sDAI as collateral and earns yield by shorting perpetual derivatives, like Ethena's USDe. When funding is favorable, it hedges using longs and holds T-bills in negative funding environments. Permissionless mints and redemptions will go live in December, and deUSD will be the default collateral in the Elixir ecosystem.

A hacker reportedly drained $230K from the DeFi protocol Bankroll Network by exploiting a vulnerability, potentially using flash loans for initial deposits. This incident involved large transfers between contracts and accounts. Investigations are continuing.

Ethena Labs has introduced reward-bearing asset proposals, inviting issuers to pitch for an allocation from its $45 million Reserve Fund and $250 million in USDe's liquid cash backing. Early applicants include Securitize, distributors of BlackRock's BUIDL, and SteakhouseFi's USDC. Governance will be managed by a newly launched Risk Committee of industry professionals to oversee and approve these allocations.

Aave's high APY of over 17% for lending USDC is driven by strong demand to borrow USDC. Using Aave requires depositing collateral (like ETH), borrowing against it, and paying interest, which is distributed to lenders. Aave is managed by blockchain smart contracts for transparency and reduced risk.

This thread highlights some of the most innovative rollups with technological and cultural differentiations from Ethereum. It includes a chain for halal finance, one with an MEV-free crosschain DEX, and another with EVM and SVM apps running in parallel. There are also L2s requiring all users to KYC and designed for banks.

Cross-L2 interoperability problems require considerable effort, but we should quickly achieve a seamless UX across Ethereum-based rollups. Work is being done on chain-specific addresses, cross-L2 sends using liquidity providers, L2 light clients, and replayable account state updates. In Phase 2 of the roadmap, shared key management and proof aggregation will further improve the experience.

Concerns are growing about the risks associated with Kamino Finance's Multiply product, particularly after the launch of JupSOL and the promotion of its seemingly attractive 40% APY with no depeg risk. Despite the high user influx, the sustainability of these returns is questionable, as the effectiveness of Multiply depends on the borrowing interest rate for SOL being lower than the APY on the staked tokens, a balance threatened by increasing SOL pool utilization which could lead to negative APYs and potential liquidations for users.

Optimism rolled back its fraud proof system to a permissioned fallback mechanism after community-driven audits found multiple vulnerabilities. Two months ago, it reached Stage 1 rollup decentralization when anyone could contest L2 transactions on the mainnet. A proposed network upgrade, including a hard fork named "Granite," is set for September 10, aiming to enhance security without compromising user assets.

Limitless, a novel protocol, is aiming to replicate Uniswap's impact on DeFi in the area of leverage trading. Leveraging Uniswap's Automated Market Maker for asset pricing, Limitless eliminates reliance on oracles for price feeds and instead provides yield-earning opportunities for liquidity providers while cutting counterparty risk. This opens up the possibility of having permissionless, perpetual market launches for all new tokens, instead of having to wait for them to be listed on a CEX, and offers liquidation-free leverage trading, potentially revolutionizing the DeFi derivatives landscape.

AAVE is revamping its staking mechanism and safety module to increase the appeal and sustainability of the AAVE token. The team is considering eliminating slashing risks, using borrowing activity revenue for rewards, and shifting from using staked AAVE for bad debts to using aTokens for added yields. These changes, still in the temperature check phase, aim to enhance token stability and attractiveness, although details on revenue allocation for stakers and incentives for restakers are yet to be determined.

EigenLayer's Actively Validated Services will soon gain the ability to reward stakers and operators for securing their protocols. 4% of the EIGEN supply will go towards further rewarding stakers as a rewards boost. Details on EigenLayer's Season 2 stakedrop will be announced by the Eigen Foundation soon.

DAI-issuer MakerDAO is considering adding $600 million DAI into Ethena’s yield-bearing USDe and sUSDe stablecoins via the Morpho lending protocol. It added an initial $100 million on March 29th, enhancing DAI yields with USDe’s funding rate arbitrage strategy. Some DAO members are hesitant to ramp up Maker’s exposure to the relatively new protocol so quickly, though the proposers maintain that the risk parameters are acceptably low.

Symbiotic is a restaking protocol that competes with EigenLayer and Karak. It has launched its bootstrapping phase, onboarding ETH LSTs as collateral. Its modular design supports any combination of tokens as collateral, and immutable non-upgradable contracts remove governance risks. Its initial partners, which include Ethena, Hyperlane, and Lido, are building solutions alongside or on top of Symbiotic's infrastructure.

Offchain Labs, the company behind the Arbitrum L2, found two severe vulnerabilities in Optimism's fraud-proof system. The exploits, which have now been patched, allowed for fraudulent chain history to be accepted. Fortunately, the vulnerabilities were only on testnet and funds were never at risk.

Rocketpool, the second-biggest Ethereum liquid staking protocol, is reinventing its tokenomics for better value capture and Ethereum alignment. It has introduced technical improvements to increase security and capital efficiency and will distribute surplus fees from ETH staking to RPL holders. The upgrades are planned to occur around the Pectra hard fork, currently slated for late 2024 or early 2025.