DeFi Update

7 January 2022

1: Market flushout. Sentiment as bearish as it can be across CryptoTwitter. (Dominating narrative: crypto = liquidity asset & hawkish FOMC minutes).

2: BTC broke down from its recent tight range, 9% drawdown resulted in $638M of long liquidation. Alts underperform.

3: DeFi side, TVL is surprisingly flat (Chart 2). Biggest TVL losers: SOL, ALGO. Biggest gainers: FTM, ONE

4: Project updates — AAVE, YFI

5: Protocol updates — FTM, BOBA, ATOM

Summary

• Another deluge of market flushout + sentiment is as bearish as it can be (see you next cycle) across CryptoTwitter. The dominating narrative in the market is crypto = “liquidity” asset, and hawkish FOMC minutes dragged the market down (remember the NQ/BTC correlation?)
• More on FOMC minutes: the minutes showed some participants leaning towards reduction of balance sheet soon after raising rates (which could be as soon as March), especially to avoid flattening the yield curve (expected given debt refinancing requirements)
• Bitcoin broke down from its $45.5–48k range to $42.5k; the 9% drawdown resulted in ~$638mio of long liquidation, a number in line with previous ~10% liquidations (12/3, 11/26, 11/6, 11/10, etc.)
• Alts underperformed in this bout of market correction, as ETH closed below 200dma of $3,410. Biggest underperformers are previous metas (i.e. not current meta of FOAN; F=FTM, O=ONE, A=ATOM, N=NEAR). Worth noting DPI/WETH, which is surprisingly holding up well in this sell-off (Chart 1).
• On the DeFi side, TVL is surprisingly flat despite broader sell-off (Chart 2)
• Biggest TVL losers: SOL (-5%), ALGO (-31%)
• Biggest TVL gainers: FTM (+27%), ONE (+45%)
• FTM: we’ve previously noted grossly undervalued MC/TVL for $FTM (<1) — great value play, although pretty surprised to see the driver being Tomb Finance (FTM algostable; newest play is Scarab, Tomb fork)
• ONE: we found DeFi Kingdom in mid-October while looking for alphas on chains that’s not been over-run, and saw it as a decent play on GameFi (other that we looked at include Crabada on Avalanche and DeFiLand on Solana) + cross-chain (announced cross-chain ambitions last month). $JEWEL has been single-handedly boosting ONE TVL ($830mio out of $1.17bn TVL)
• It’s COVID time, and HK is once again on a lockdown (ugh), but Avalanche announced Avalanche Summit in Barcelona from 3/22–27; will we see similar price action leading to Solana Breakpoint conference (pico-top) and Algorand Conference?

Chart 1: DPI/WETH Chart (Daily)

Chart 2: TVL of Various Smart Contract Platforms

1. Project Updates (AAVE, YFI)

• Aave Arc (Aave’s whitelisted platform for institutions) officially launches on 1/5/2021, with 30 institutions whitelisted
• More on the whitelisting: Arc’s whitelisting process is managed by qualified 3rd party entities through community governance voting. Whitelisters (currently only Fireblocks) are tasked with onboarding institutional users to the platform, in addition to monitoring KYC and AML compliance
• Who’s in the 30: well, don’t expect TradFi names in the list — it’s still mostly crypto firms, including Celsius, Wintermute, Coinshares, Anubi Digital, etc.
• Why it matters: It’s probably drinking kool-aid to think that corporations/TradFi institutions will suddenly start deploying capital to DeFi; DeFi is still in its infancy, and it’s important (in our opinion) to warm non-crypto-native firms to the concept of DeFi via a modus operandi that’s more familiar to them, whether it be facing a regulated entity, or creating a whitelisted pool for entities that have gone through AML screening (~Aave Arc). Aave has been the most savvy lending protocol when it comes to multi-chain expansion, as well as exploring non-crypto-native businesses (Aave Arc, integrating real-world assets, etc.), and they’re also building a mobile wallet — probably not a bad project to load up during bear market.
• Yearn passes new tokenomics
• What’s the deal: We won’t elaborate more on the new tokenomics given we’ve covered it previously, but locking governance tokens is the new trend, following the Curve model. Projects, such as Frax and Yearn Finance, have already having adopted the locked model, whilst others, such as Ribbon Finance, are considering the model
• [NEW PROJECT] “Sunflower Farmers” launches SFF token
• What’s the game: P2E farming game built on Polygon (literally farming sunflowers and other plants to sell them for SFF, game’s native token); according to dAppRadar, Sunflower Farmers had 342k users in the last 24h, #2 right behind PancakeSwap
• What’s the problem: Polygon gas prices spiked to 700 gwei, and is spending over half the gas on Polygon in the last 24h

2. Protocol Updates (FTM, BOBA, ATOM)

• Boba launches WAGMI incentive programme in collaboration with UMA protocol
• What is it: WAGMI options are KPI options on metrics, such as MAU and TVL. The initial v0 options are based on the TVL of Boba Netowrk, and new cohorts comprising of new projects and KPI will be announced each month
• Fantom surpasses Avalanche in daily transactions
• New Projects: Hundred Finance, upcoming Daniele Sesta & Andre Cronje collab project
• VeChain hints on stablecoin (veUSD)