In August, the TVL slightly dropped in dollar terms from around $40.5B to $37.7B for the whole DeFi market. DEX 30day volumes have significantly dropped in dollar terms from $73B in May to now $44.6B in August. Stablecoin market cap stayed flat at $126B with the top two USDT ($83B) and USDC ($25B) accounting for about 85% of the total market cap.
Lido Finance has continued to rule the #1 spot since January this year from the long-term king of TVL, MakerDAO. Its TVL stands at an impressive ~$14.5B. MakerDAO and AAVE kept fighting for #2 and #3 spot with close to $5B. Curve lost its spot to Arbitrum bridge with $4.3B TVL and Uniswap at #5 spot with around $3.2B.
The liquidity in the U.S. domestic market has been stagnant for over a year. The ongoing quantitative tightening (a policy of reducing the amount of money in the system) could potentially have a negative impact on liquidity, but this is being somewhat balanced by bank lending programs that reintroduce liquidity back into the financial system. We should also pay attention to the next CPI update on September 13th.
This section discusses the unfolding geopolitical shifts marked by the BRICS nations (Brazil, Russia, India, China, and South Africa) accelerating their efforts to reduce reliance on the U.S. dollar in global trade, in light of the changing global power dynamics and economic landscape. The BRICS summit hinted at this coalition's potential plans to gradually build a more balanced global payment system, with a particular focus on fostering the use of the Chinese yuan. However, creating a robust alternative to the current dollar-dominated system presents substantial challenges, including navigating geopolitical tensions and overcoming the existing financial network effects that favor the U.S. dollar. Moreover, the anticipated expansion of the BRICS alliance to include six new members by 2024, marks a significant shift in global alliances and indicates a burgeoning counterbalance to the established Western-led global financial and political order. The extension to include these nations signifies cooperation among nations with significant resources and strategic locations, potentially reshaping the world's geopolitical and financial landscape in the coming years, although the transition is expected to be gradual, given the complexities involved. This de-dollarization can be stopped if USD stablecoins are allowed to become a part of the global payment landscape, as it could allow for faster and more secure settlements using the blockchain. Coinchange research team is working on a Research Report on Stablecoins, co-authoring with Hedera, Glo-dollar, with inputs from the Circle team themselves. So keep an eye out for the report by the end of this month.
Recently the SEC has been on a losing streak in terms of court cases against crypto companies. We mentioned the XRP vs. SEC case in our last month’s report. In August, Grayscale (the company that runs the Grayscale Bitcoin Trust GBTC) won their lawsuit against the U.S. Securities and Exchange Commission, which had previously denied their request, along with others, to list a spot bitcoin ETF (Exchange-Traded Fund). The SEC's main reason for these denials was the concern about price manipulation in the spot bitcoin market. The court found the SEC's reasons to be inadequate and labeled them "arbitrary and capricious." This is primarily because of the extremely high correlation (99.9%) between the futures and spot markets, indicating the SEC didn’t present convincing evidence that the spot market is more manipulated than the futures market. Moreover, the SEC does allow futures bitcoin ETFs, including leveraged ones! Following the court's ruling, there was a short-lived surge in the bitcoin price, which quickly reverted. This is a win for the crypto industry and uncle Gary needs to take a seat as his actions lately seem immature in the eyes of the court.
Tornado Cash is a protocol on the Ethereum blockchain that allows users to send or mix their cryptocurrencies in a way that obfuscates the original source, enhancing privacy. It's utilized to maintain transaction privacy on the blockchain which otherwise is transparent and open to public viewing. The US Department of Justice (DOJ) indicted developers Roman Storm and Roman Semenov with conspiracy to commit money laundering, operate an unlicensed money-transmitting business, and violate the International Emergency Economic Powers Act (IEEPA). The indictment says that they developed, marketed, and operated the mixer, from which they made substantial profits. It also accuses them of knowing that their software was substantially used by criminals for the purposes of concealment of their identity. Especially since they knew that Tornado Cash received funds from a publicly flagged wallet associated with the Lazarus Group, which is the U.S.-sanctioned North Korean cybercrime organization. The DOJ claims that Storm and Semenov were not only hosting the primary website but also had partial ownership of TORN governance tokens and managed the underlying algorithm, thereby generating profits. This, according to the DOJ, indicates that they played a significant role in overseeing, controlling, and owning the Tornado Cash service, either partially or fully. The DOJ argues that given the money-transmitting nature of the business, it was mandatory for Tornado Cash to have established KYC/AML procedures, which they knowingly didn’t.
It is dissappoointing to see such an action being taken on developers that simply wrote a code to preserve transaction privacy. At this point, the developers can defend themselves in court and are entitled to a fair and impartial legal process.
The payments giant Paypal launched a U.S. dollar-backed stablecoin in August 2023, to help facilitate payments as its latest addition to its suite of crypto services. Although this stablecoin is not leading in terms of market cap, we decided to mention it because of its uniqueness. It’s the first such move from a major U.S. financial institution and is issued on Ethereum, a decentralized public ledger. It will be minted by Paxos and is regulated under New York’s strict framework.
Jamiel Sheikh in twitter listed several concerning features of this stablecoin:
The first couple of points on freezing accounts scare a lot of people. In the past governments have frozen bank accounts of protestors (most recently Candain Truckers).
However, Paypal claims that there are several ways in which PYUSD differentiates itself from other popular stablecoins like USDT and USDC:
They not only expect to take some market share from other stablecoins but also expand the pie by introducing it to their existing users as a choice of payment. Some use cases for their stablecoin are sectors such as remittances, B2B payments, and in-game digital goods.
One of the biggest anticipated event of August was whether Cathie Woods’ Bitcoin ETF gets approval, especially after BlackRock filed for one. However our hopes were dampened as the decision to approve Ark’s ETF was postponed yet again. SEC has 240 days to make the final decision (Jan 2024), and at this point with several key players like BlackRock, Fidelity, Franklin-Templeton all applying for very similar BTC ETFs. Many market participants anticipate that the most likely path for SEC would be to approve them all at once and let the market decide how the pie gets divided.
Asset Manager Valkyrie has filed an application for an Exchange traded fund investing is ETH futures. BTC futures based ETFs have already been approved although none have been approved for a spot ETF. It remains to be seen whether a futures based ETH ETF gets approval before a spot BTC one or even a spot ETH ETF.
Source: ICO Analytics
This month the raises are so diverse that there is no particular trend or theme here. However a total of $465M has been raised in August by the top 5, compared to $214M raised by the top 5 deals in July.
Now bankrupt crypto exchange FTX could potentially get an approval from a US court to sell its assets in order to return the money from the proceeds to their customers. Many are speculating that this sale will cause a lot of price volatility in the assets like SOL, BTC, ETH etc. However we anticipate a few restrictions on the sale such as limiting the amount that can be sold per week, allowing OTC deals, and hedging strategies to minimize the impact. Besides, they could also sell the right to the assets to another party without actually selling the asset as some of the assets are locked in a vesting schedule for 4-5 years. We do not believe there is a reason to worry however Mr. Market could change its mood anytime based on the rumors.
Bitcoin peaked at a little over $31k in July. In the month of August, we had a quick jump up on the news of GBTC winning in the court against the SEC, however the gains were quickly given up including a sudden 10% downward move within 24hrs causing $1B+ worth of liquidations.
On a positive note the number of addresses holding BTC has been on the increase as shown in the image below:
There are 42M addresses that hold less than $1k, 6.8M addresses holding between $1k and $100k, and 323k+ addresses holding over $100k in BTC. At this point the market seems to be only waiting for the approval of a spot BTC ETF to start the next bull run.
As sidechain are gaining ground and adoption thanks to Optimistic tech stack and ZK technology, the concept has been revived recently in the Bitcoin community. On one side zk technology would be used to create layer 2 for Bitcoin without softfork, on the other a BIP set forth recently requires some changes to Bitcoin consensus.
This concept in Bitcoin is not new, it is detailed in its whitepaper as merge mining. In essence, merge mining allows any users to secure a new network by using the same hashrate and security of the Bitcoin network. Merge mined chains have been operating for quite some time now: Rootstock, Namecoin, Omni Layer and others but lack interoperability.
Recently BIP 0300 & 0301 and the concept of drivechain have made headlines again in the Bitcoin community as it introduces a softfork of Bitcoin to make sidechains (layer 2) connected to it, easier to deploy by modifying Bitcoin consensus. The goal would be to allow assets and data to move between the mainchain and sidechains, enhancing functionality and scalability.
In a recent update of their methodology for the Cambridge Bitcoin Electricity Consumption Index (CBECI), the Cambridge Centre for Alternative Finance (CCAF) admitted that previous numbers were overstated by 16.8% in 2021, and 10.2% in 2022. The reason comes from an over representation of unprofitable ASIC miner (high energy consumption) and under representation of profitable miner (low energy consumption) which did not reflect the reality in Bitcoin mining operations around the world. Daniel Batten noted that “while there is still much work to do on the emissions estimate side, CCAF should be praised for updating their model, which is now very much in line with what those with up-to-date industry data such as Luxor, Marathon, Blockware, Coinmetrics, the Bitcoin Mining council and I have been using for some time. They also deserve praise for their transparency about historical overestimations, and transparency about the factors not yet considered that could "reasonably be expected to lower our emission estimates” as per CCAF”.
ETH Still Deflationary
Ethereum continues to be deflationary at an increasing pace. At the current rate, 985K ETH is being burned annually (that’s in ETH terms, not dollars) which in dollar terms would mean $1.7B! Annual issuance on the other hand is 678K ETH (or $1.1B)
ETH Liquid Restaking protocol Eigen Layer saw a jaw dropping 200+% surge in TVL. They set a 100,000 ETH cap which was filled in matter of hours. This shows that DeFi users are hungry for more yield on their ETH and are willing to take on the additional risks of restaking. More ETH will be allowed to be restaked in the near future but it has to be approved by EigenLayer's multisignatory governance system.
And finally let’s look at the top 5 DeFi/NFT protocols/ecosystems with the most fees generated over 30 days, which generally translates to the most active protocols. In some cases, the protocols take a % of the fee as revenues (eg. Lido Finance) in other cases its distributed almost entirely to the Liquidity Providers Stakeholders (eg. Uniswap Liquidity Providers) hence their revenue varies based on such parameters.
Here are the top 5 protocols for the month of July in terms of Fees generated:
Lido and Uniswap continue to occupy #1 and #2 spots. Convex which was #3 in July is now displaced by MakerDAO. We have a new protocol enter the top charts this month since BASE chain went live. Friend.tech generated a whopping $11.2M in fees making it #4 on the list. And lastly AAVE slipped to #5.
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