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## Executive Summary Over 60 cryptocurrency wallets collectively lost more than $2.34 million during **Stable's** second phase pre-deposit activity due to users incorrectly entering the contract address as the receiving address, impacting user confidence in the platform. ## The Event in Detail During **Stable's** second phase pre-deposit campaign, a significant error led to over 60 user wallets misdirecting funds, resulting in a total loss exceeding $2.34 million. Users mistakenly input the contract address instead of the correct receiving address for their deposits. **Stable**, a Layer 1 blockchain focused on stablecoin transactions, recently initiated its second pre-deposit campaign. This initiative allows users to deposit stablecoins, primarily **USDT**, to earn future rewards linked to the network's upcoming native token and ecosystem incentives. The first phase of this campaign saw an $825 million deposit cap reached within approximately 22 minutes. The rapid filling of Phase 1 sparked controversy, with multiple **X** users alleging front-running and "insider" participation, citing on-chain data showing large wallet clusters depositing funds prior to the official announcement. This limited retail participation and led to negative community feedback. For Phase 2, **Stable** announced measures such as a per-wallet deposit limit and individual wallet requirements to prevent large deposits from single entities, although it did not directly address the Phase 1 controversy or explicitly guarantee simultaneous access for all participants. Despite these adjustments, the recent misdirection of funds underscores persistent challenges in user interaction and communication within complex decentralized finance (DeFi) protocols. ## Market Implications The $2.34 million loss directly impacts user confidence in the **Stable** platform and raises critical questions about user error prevention mechanisms within DeFi protocols. Such incidents contribute to negative market sentiment and can deter broader adoption of new DeFi initiatives. This event occurs within a year marked by substantial losses across the crypto sector. By mid-2025, cyberattacks and scams had already cost the industry over $3.1 billion. Notable incidents include the **Balancer** exploit in November 2025, which saw over $100 million in digital assets stolen from its **V2 Composable Stable Pools** due to a rounding-error vulnerability impacting tokens like **osETH**, **WETH**, and **wstETH** across **Ethereum**, **Polygon**, and **Base**. Other significant breaches include a $1.5 billion loss by **Bybit** in Q1 and a $223 million hit in the **Cetus** exploit. Access control failures accounted for approximately 59% of funds lost, totaling $1.83 billion, while smart contract vulnerabilities contributed an additional $263 million. These figures highlight the pervasive security challenges, ranging from sophisticated exploits to fundamental user mistakes. ## Broader Context and Security Measures The ongoing series of security incidents and user-related financial losses underscores the evolving landscape of digital asset security, emphasizing the need for both technological resilience and improved user education. Industry experts consistently advocate for enhanced security and compliance measures to mitigate such risks. Recommendations include robust smart contract security practices, comprehensive risk controls, and leveraging regulatory sandboxes. Beyond standard audits, practices like formal verification and continuous code reviews are crucial. Implementing internal governance protocols to monitor unusual on-chain activities and potential exploit patterns, along with employing tools like **OpenZeppelin's SafeMath** to prevent arithmetic vulnerabilities, are considered essential for securing DeFi ecosystems. The incident with **Stable** reinforces the necessity for clear user interfaces, unambiguous instructions, and potentially built-in safeguards to prevent common user errors, alongside the more complex technical security measures.
## Executive Summary The prevailing metric of **Total Value Locked (TVL)** in decentralized finance (DeFi) lending protocols is undergoing significant re-evaluation, with analysis suggesting its inadequacy as a reliable indicator of protocol health and actual value. Industry experts advocate for a shift towards more granular metrics such as **loan volume** and **basic asset supply** to better gauge economic activity and revenue generation. A primary concern arises from the widespread adoption of complex **yield looping strategies**, which, while designed to amplify returns, introduce unmeasurable systemic leverage across the ecosystem. This hidden interconnectedness creates a precarious environment, raising the specter of significant market dislocations during periods of stress, a sentiment reflected in current market uncertainty and expected high volatility. ## The Event in Detail **Total Value Locked (TVL)**, historically a cornerstone metric for assessing DeFi protocols, is increasingly considered a poor and often misleading indicator. Its primary flaw lies in its susceptibility to artificial inflation through recursive yield looping strategies and cross-chain double-counting, which do not reflect genuine capital inflow or utility. Instead, key indicators for evaluating the success and sustainability of lending protocols are their **actual loan volume** (borrowed amount) and the **supply of basic, useful assets** like stablecoins (**USDC**, **DAI**), **Bitcoin (BTC)**, and **Ethereum (ETH)**. These metrics directly correlate with protocol revenue and real economic activity. DeFi lending has undergone a notable shift, moving from primarily facilitating leverage trading to enabling sophisticated **yield looping strategies**. These strategies often involve depositing a yield-bearing asset, borrowing against it, and then reinvesting the borrowed amount into another yield-bearing asset, creating a multiplicative effect. For instance, **weETH** paired with **ETH** on lending platforms can generate a 0.5% spread per loop, compounding returns significantly with high loan-to-value ratios. Similarly, protocols like **Pendle Finance** have innovated by allowing users to tokenize future yields into **Principal Tokens (PT)** and **Yield Tokens (YT)**, enhancing liquidity and capital efficiency. **Pendle's** integration with **Ethena's USDe** is particularly prominent, with **USDe** accounting for 60% of Pendle's TVL. A common looping strategy involves depositing **PT** as collateral on **Aave**, borrowing **USDC**, and reinvesting it into **USDe** to capture an approximate 8.8% yield spread. **Ethena's USDe**, a yield-generating stablecoin, has effectively established itself as a "risk-free rate" for DeFi, heavily influencing the design and profitability of these new looping strategies. ## Market Implications The pervasive nature of yield looping has led to **unmeasurable systemic leverage** within the DeFi ecosystem. This intricate web of intertwined lending and chained transactions creates a **"liquidity mismatch"** and **"collateral illusion."** While lending protocols may appear to have substantial collateral locked, a significant portion of this collateral can be the result of recycled, leveraged capital rather than fresh, unencumbered funds. This structure poses a substantial, unquantified risk to market stability. Evidence of this fragility was starkly illustrated by the **October 2025 $19 billion liquidation event**, which exposed cascading risks triggered by highly leveraged positions. The **USDe** depegging, plummeting to as low as $0.62-$0.65 on exchanges, acted as a primary catalyst, initiating widespread collateral liquidations across on-chain DeFi protocols and centralized derivatives exchanges. This event highlighted the vulnerability of **USDe's** 6-8% yield, which relies heavily on **ETH** perpetual futures funding rates. While generally positive, sustained negative funding rates could necessitate yield cuts, leading to outflows. Furthermore, the concentrated exchange exposure of **USDe**, with over 28% of its supply on exchanges, while reducing redemption pressure on the protocol's hot wallet, simultaneously amplifies systemic risk. In contrast, protocols like **Maple Finance** ($3.2 billion assets under management) emphasize transparent risk management and on-chain visibility of loan terms and collateral. Such approaches are critical in mitigating the systemic risks introduced by opaque leverage structures. ## Expert Commentary Scott Lewis and other market commentators emphasize that **Total Value Locked** is an insufficient metric for evaluating lending protocols, often artificially inflated by complex yield looping strategies. They assert that the actual **loan volume** and the **supply of basic, useful assets** are superior indicators, directly driving protocol revenue. The shift in DeFi lending towards yield looping, particularly with yield-bearing assets and protocols like **Pendle**, is noted as a significant evolution. Contango estimates suggest that looping strategies now account for 20-30% of over $40 billion in money markets, representing $12-15 billion in open interest and potentially exceeding $100 billion in current transaction volumes. Experts warn that the overall systemic leverage, due to intertwined lending and chained transactions, remains extremely difficult to measure, posing a significant and unquantified risk to the ecosystem. ## Broader Context The challenges presented by misleading metrics and hidden leverage necessitate a broader re-evaluation of DeFi's risk frameworks. The path to resilience requires **dynamic risk management**, **regulatory clarity**, and robust **cross-chain solutions**. Beyond TVL, other crucial performance indicators for assessing DeFi protocols include **active users** (unique wallets interacting weekly), **transaction volumes** (e.g., **Uniswap** recorded $45 billion in monthly trade volume with a strong 8:1 ratio against its TVL), **protocol revenue** (Uniswap generated $30 million in swap fees in March 2025), and **developer activity**. The growth in developer commits across leading DeFi projects, such as the 12% year-over-year increase by Q1 2025, signifies a healthy ecosystem building essential features for long-term stability. As the DeFi sector matures, balancing rapid innovation with stringent risk governance will define its trajectory and capacity to withstand future market shocks. The October 2025 crash serves as a critical reminder that improved security alone is insufficient; operational and macroeconomic risks, particularly those stemming from unquantified leverage, must be proactively addressed.
## Executive Summary NEAR Protocol's intent-based system has seen a sharp increase in activity, nearly doubling transaction volumes and surpassing 120,000 users. Zcash's mobile wallet, Zashi, has integrated NEAR Intents for private cross-chain swaps and payments, coinciding with a 244% monthly price surge for Zcash (ZEC). ## The Event in Detail Activity on **NEAR Protocol's** intent-based system has experienced a significant increase, with transaction volumes nearly doubling month-on-month. The platform has surpassed 120,000 users, and approximately **$800 million** in swaps and payments flowed through **NEAR Intents** in the last 30 days, contributing to a cumulative total of approximately **$1.8 billion**. In September alone, **NEAR Intents** generated **$483 million** in trading volume. This surge in activity is partly driven by the integration of **Zcash's** mobile wallet, **Zashi**, with **NEAR Intents**. The integration enables "Zashi Swaps," allowing users to convert various assets such as **Bitcoin (BTC)**, **Solana (SOL)**, and **USDC** into **ZEC** for shielded transactions. Additionally, "CrossPay" functionality permits spending shielded **ZEC** with recipients receiving their preferred cryptocurrency on **NEAR**-supported chains. The **Zashi** wallet has recorded over **$9.5 million** in **ZEC** swaps and payments since late August, with an average daily throughput of 1,509 **ZEC** and nearly **$1 million** swapped into **ZEC** in the past week. This integration aims to provide a cleaner user experience for private **ZEC** transactions and establish a model for other privacy-focused wallets. Coinciding with these developments, **Zcash (ZEC)** has seen its price quadruple in the past month. **ZEC** is currently trading at **$171.84**, representing a 31% increase in 24 hours and a 40% gain over the week, pushing its market capitalization to **$2.8 billion**. Trading activity has also intensified, with daily volume climbing 22.4% to **$664.5 million** and derivatives volume increasing by 75.7% to **$1.18 billion**. Open interest in **Zcash** derivatives rose 54.4% to **$227.2 million**. ## Financial Mechanics and Protocol Integration **NEAR Intents** operates as a cross-chain transaction layer designed to enable **AI agents** to execute swaps and payments across multiple blockchains without relying on traditional bridges. This architecture abstracts away the technical complexities of multi-chain operations, allowing users to specify desired outcomes rather than intricate transaction paths. **NEAR Protocol** focuses on ecosystem scaling through **sharding technology** and its intents-based framework, supporting high transaction throughput and predictable low fees. **Zashi's** integration with **NEAR Intents** exemplifies the application of this technology for privacy-preserving transactions. Through "Zashi Swaps," assets from various chains are directed via **NEAR Intents** to be converted into shielded **ZEC**, leveraging **Zcash's zero-knowledge proof (zk-SNARK)** technology for confidentiality. "CrossPay" extends this functionality, allowing users to spend shielded **ZEC** while **NEAR Intents** handles the complex routing and conversion to the recipient's chosen cryptocurrency on a different chain. This streamlines the user experience by reducing friction in cross-chain and privacy-enhanced transactions. ## Market Implications and Strategic Positioning This integration establishes **NEAR Intents** as a critical infrastructure for seamless cross-chain operations, particularly in the context of **AI agent** development and chain abstraction. **NEAR Protocol's** strategic positioning emphasizes an **AI-first vision**, supporting user-owned intelligent agents and cross-chain capabilities. Partnerships with entities like **Aptos** and **Shelby**, and the launch of the **Shade Agent Sandbox**, further underscore **NEAR's** commitment to enhancing **AI-ready infrastructure**. For **Zcash**, the **Zashi** integration and subsequent price performance signal a potential re-evaluation of privacy-focused assets. The market's renewed interest in **ZEC** highlights growing demand for solutions that offer both privacy and compliance, as **Zcash's** optional privacy model allows users to choose between transparent and shielded transactions. This flexibility may contribute to its adoption in an evolving regulatory landscape. The launch of **Grayscale's Zcash Trust** has attracted approximately **$46 million** in assets under management, indicating increasing institutional confidence and providing regulated access to **ZEC** for accredited investors. ## Broader Context: Privacy and Interoperability The developments surrounding **NEAR Intents** and **Zcash** occur within a broader narrative of resurgent interest in privacy coins and advancements in blockchain interoperability. The concept of intent-based protocols is gaining traction across the cryptocurrency market, with the **Ethereum Foundation** launching the **Open Intents Framework (OIF)**. This framework, supported by major **Layer 2s** like **Arbitrum** and **Optimism**, aims to standardize and unify intent-based execution, making cross-chain transactions faster, cheaper, and more secure by abstracting away technical complexity from end-users. **Zcash's** performance and integration reflect a market sentiment increasingly attentive to solutions offering confidentiality in an era of growing digital surveillance. Unlike protocols that enforce privacy by default, **Zcash's** optional privacy model positions it to navigate compliance requirements while meeting user demand for financial discretion. This trend suggests a strategic shift towards privacy assets that can demonstrate both utility and regulatory adaptability. ## Expert Commentary **Electric Coin Company (ECC)** CEO **Josh Swihart** and **NEAR Protocol** co-founder **Illia Polosukhin** have emphasized the importance of user experience and genuine privacy in the evolution of digital assets. **Swihart** highlighted **Zashi's** role in simplifying **ZEC** transactions, particularly when paired with **NEAR Intents** for swapping and spending. **Polosukhin** underscored **NEAR Intents'** ability to abstract complexity, allowing users to focus on desired outcomes rather than the underlying blockchain steps. Their discussions reinforce the idea of "privacy at rest," where funds remain shielded, and the potential of **Trusted Execution Environments (TEEs)** and **AI** to enhance privacy in decentralized applications. This collaborative approach between **Zcash** and **NEAR** aims to expand user options for secure asset exchanges while prioritizing straightforward interfaces and data confidentiality.
## Executive Summary Fully Homomorphic Encryption (FHE) is positioned to revolutionize the Decentralized Finance (DeFi) sector by addressing a fundamental barrier to institutional adoption: confidentiality. The technology allows for data processing without decryption, enabling private transactions and credit assessments on public blockchains. This development could unlock trillions of dollars from traditional finance, facilitating uncollateralized lending and transforming DeFi into a more robust and integrated financial system. ## The Event in Detail DeFi, despite its recent resurgence and a peak Total Value Locked (TVL) of $260 billion, has struggled to attract the vast capital within traditional finance, which sees trillions traded daily in markets like foreign exchange and bonds. The primary impediment has been a lack of confidentiality; public blockchains expose every transaction, deposit, and withdrawal, a transparency level unacceptable to most institutions and high-net-worth individuals. FHE emerges as a privacy-preserving technology that allows computations on encrypted data without ever decrypting it. This means sensitive information, such as credit scores or Know Your Customer (KYC) data, can be processed while remaining encrypted. For instance, a smart contract can verify if a user's encrypted credit score meets a threshold (e.g., above 700) without revealing the actual score. This capability is crucial for enabling uncollateralized lending in DeFi, a cornerstone of traditional finance where risk is managed without requiring excessive collateral. Companies like **Zama**, an open-source cryptography firm, are at the forefront of FHE development. Zama's goal is to enable developers to build "confidential smart contracts" on existing blockchains such like Ethereum and Solana, ensuring end-to-end encryption. Zama Protocol combines FHE with multi-party computation (MPC) and ZK technologies. Zama recently achieved a significant performance breakthrough, reducing the runtime of FHE's core operation, "programmable bootstrapping," from 53 milliseconds to microseconds using GPU acceleration, significantly advancing the practical application of FHE. The public testnet for Zama went live on July 1st, with the Ethereum mainnet expected in Q4 2025 and Solana support planned for 2026. Zama has secured over $150 million in funding. ## Market Implications The integration of FHE into DeFi protocols holds profound market implications. By addressing the confidentiality gap, FHE could facilitate a significant influx of institutional capital into the DeFi ecosystem. This would enable new lending models that mirror traditional finance, such as uncollateralized loans based on encrypted credit assessments, rather than relying solely on overcollateralization. This advancement would make DeFi more flexible, inclusive, and aligned with conventional financial practices. Furthermore, FHE could lead to the rebuilding of DeFi lending foundations with confidential ERC-20s, encrypted credit scores, hidden loan amounts, and Maximal Extractable Value (MEV) protection. This would allow for private collateral pools where institutional positions remain confidential, and retail users could access loans without collateral, shielded from front-running and MEV bots. Public blockchains, traditionally known for openness, could match the confidentiality levels of private chains without sacrificing their core strengths, fostering trustlessness and scalability to trillions. ## Expert Commentary Industry experts view FHE as a critical enabler for DeFi's next growth phase. Jason Delabays is a proponent of FHE's ability to unlock trillions for DeFi markets by enabling confidential transactions, private credit scores, and uncollateralized lending. The consensus suggests that FHE is not merely a feature upgrade but a new primitive for lending, essential for achieving DeFi efficiency, Swiss-bank level confidentiality, and integrating real-world credit on-chain. ## Broader Context While the potential of FHE is significant, several challenges remain. The implementation of FHE-enabled DeFi requires addressing complex design issues, including liquidations, where encrypted values complicate trigger mechanisms. Notifying liquidators discreetly may necessitate encrypted events or off-chain relays. Credit systems also present complexities, requiring legal and technical alignment to structure encrypted KYC and default enforcement while balancing confidentiality. Moreover, the nature of DeFi, with its disintermediated structure and smart contract-driven transactions, poses challenges for Anti-Money Laundering (AML) and Know Your Customer (KYC) compliance. DeFi protocols allow users to interact without identity validation, and the composability of applications can facilitate complex layering of transactions, akin to traditional money laundering. The prevalence of Decentralized Autonomous Organizations (DAOs), privacy-preserving tools, and cross-border fluidity further complicates regulatory oversight. While FHE enhances privacy for legitimate institutional use, regulators face an urgent imperative to adapt traditional AML frameworks to the decentralized and confidential logic of DeFi, navigating legal ambiguities and technological complexity to prevent illicit exploitation.