In October, the TVL slightly increased in dollar terms from around $39B to $41B for the whole DeFi market. DEX 30day volumes have significantly risen in dollar terms from $35.2B in September to $60B in the past 30 days. Stablecoin market cap stayed flat at ~$125B with the top two USDT ($85B) and USDC ($23B) accounting for about 85% of the total market cap.
Here are the rankings of decentralized finance (DeFi) projects based on Total Value Locked (TVL). TVL is a measure of the total assets locked in a DeFi protocol:
We looked at various economic indicators and their potential implications for the U.S. stock market and broader economy. Here’s a breakdown of the main points:
The state of the macroeconomy seems mixed with both positive and negative indicators.
In summary, the macroeconomic environment has both encouraging signs, like high GDP growth, and cautionary ones, like the softness in leading business indicators and the dichotomy in sectoral performance. This suggests that the economy is in a delicate balance, with policies and external factors pulling in different directions.
On Oct 3rd, Judge Analisa Torres of the Southern District Court of New York upheld Ripple Labs' partial victory by denying the SEC's request for an interlocutory appeal. This refusal to allow an immediate appeal follows Judge Torres' nuanced application of the Howey test to Ripple's XRP token sales, differentiating between direct sales to institutional investors and broader market distributions. While the SEC argued for a misapplication of the test, Judge Torres confidently maintained that her findings were a "direct application of Howey to the unique facts and circumstances of this case." This ruling highlights the individualized nature of cryptocurrency legal challenges, reaffirming the court's previous differentiation from the SEC v. Terraform Labs case. The implication is clear: the SEC must wait until the district court case concludes to seek an appeal, a scenario that reinforces the court's stance on the distinct legal treatment of crypto assets.
The G20's embrace of the "G20 Roadmap on Crypto Assets," a framework crafted by the IMF and FSB, marks a significant step towards standardized global regulation of the crypto sphere. This framework outlines robust policy recommendations to mitigate financial instability and macroeconomic risks posed by cryptocurrencies and DeFi systems. Key suggestions include empowering regulatory authorities, instituting comprehensive governance by crypto entities, developing robust risk management practices, and ensuring transparent data reporting and user information. The framework also emphasizes adherence to the FATF Standards to combat money laundering and terrorism financing. While this move aligns G20 nations with global standards and addresses systemic risks, it has drawn criticism for potentially curbing the innovative momentum of DeFi by focusing heavily on the risks rather than the opportunities presented by this burgeoning sector.
Coinbase has filed a forceful reply brief in support of its motion for a judgment on the pleadings, a legal step aimed at dismissing the SEC's lawsuit against the cryptocurrency exchange. In this critical document, Coinbase reaffirms its stance that the SEC is overstepping its regulatory boundaries by broadly interpreting the term "investment contract" to include crypto asset transactions on its platform. Coinbase anchors its argument on established case law, which, they assert, clearly defines an investment contract as necessitating a post-sale contractual obligation tied to a financial interest in a business entity—something the SEC has not convincingly claimed in their suit. This move sets the stage for a consequential oral argument scheduled for January 2024 before Judge Katherine Polk Failla, who is no stranger to crypto-related legal disputes. As the crypto community watches closely, Coinbase's challenge to the SEC's approach could influence the regulatory landscape for digital assets significantly.
"I don't own any bitcoin to be frank but I should," billionaire investor Stan Druckenmiller.
Institutional interest in Bitcoin has maintained a robust momentum, as evidenced by the record-setting $15.4 billion in open interest for Bitcoin options on October 27th. This trend is further reinforced by the substantial growth at the Chicago Mercantile Exchange (CME), where total open interest soared to $3.58 billion by October 30th. Notably, the CME marked a significant achievement by surpassing 100,000 BTC in open interest for the first time, overtaking Bybit and OKX to become the second-largest exchange for standard Bitcoin futures and perpetual futures, with only Binance ahead.
MicroStrategy acquired an additional 155 BTC for $5.3 million and now holds 158,400 BTC with around $1B in unrealized gains.
HSBC, one of the world's largest banking and financial services institutions, is exploring the use of decentralized identity (DID) technology in partnership with Polygon ID. Here are the key points of their initiative:
Decentralized Identity (DID) Concept: DID offers a more secure and private way to manage online identities. It allows consumers to have a single, secure identity that they can use across various platforms, giving them control over what information they share and with whom.
Polygon ID: This is a set of DID tools that focuses on privacy, decentralization, and user data self-sovereignty. It uses cryptographic proofs (including zero-knowledge proofs) and blockchain technology to secure the exchange of verifiable credentials. Polygon ID supports the W3C open-source identity standard and can be integrated with both public and private ledgers. These features were key reasons why HSBC chose Polygon ID for their prototype.
HSBC's Use Case: HSBC Labs is developing a DID solution for internal account opening, powered by Polygon ID. When a customer opens an account with HSBC, the bank conducts Know Your Customer (KYC) checks and creates a verified credential. This credential can then be used for various transactions, such as logging into an HSBC account, making purchases, applying for loans, dealing with carbon credits, and more.
Customer Identity Wallet: This wallet would allow users to provide their personal information (like name, date of birth, address, passport number, etc.) to establish trust, prove eligibility, or complete transactions. It can draw on identity issuers ranging from government agencies to credit bureaus and utilities.
Open Source and Interoperability: A key aspect of Polygon ID that appealed to HSBC is its open-source technology, adherence to open standards, and interoperability with Ethereum's private and public ledgers. This compatibility is essential for traditional finance and the emerging field of institutional decentralized finance.
Broader Implications: HSBC's adoption of DID solutions like Polygon ID reflects a larger trend in the financial industry towards decentralized, secure, and user-controlled identity management. This approach is expected to lead to a safer and more efficient customer experience, especially as more regulated financial institutions embrace these open standards.
This month the raises have been fairly distributed among different categories such as a cybersecurity space, restaurant industry, digital asset trading, and a gaming company. It seems like money is pouring into the entire Web 3 space. Lastly, $129M was raised in October by the top 5, whereas September saw $154M raised as opposed to $465M in August and $214M in July.
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Kasikornbank (KBank), one of Thailand's largest banks, took a significant step into the cryptocurrency industry by acquiring a majority stake in the local crypto exchange Satang. Here are the key details:
Acquisition Date and Stake: The acquisition was announced on October 30. KBank acquired 97% of the shares in the operator of Thailand's Satang crypto exchange.
Value of the Transaction: The acquisition was valued at 3.7 billion Thai baht, which is approximately $103 million.
Post-Acquisition Changes: Satang Corporation will be renamed Orbix Trade Company Limited. KBank's crypto business will be divided into three divisions: Orbix Custodian (a custody platform), Orbix Invest (a venture arm), and Orbix Technology (a blockchain technology developer).
Satang is a significant player in Thailand's cryptocurrency business, operating a crypto exchange and offering other digital asset services. Satang’s founder, Poramin Insom, is known for launching the privacy-focused cryptocurrency Firo (FIRO), formerly known as Zcoin.
This acquisition follows KBank's launch of a $100 million fund in September 2023, aimed at Web3, fintech, and artificial intelligence. KBank is reportedly Thailand’s second-largest lender by assets, following Bangkok Bank.
In October, Bitcoin (BTC) experienced a significant surge, marking its strongest monthly rally since January. This increase was driven by optimism surrounding the potential approval of Bitcoin ETFs in the U.S. Bitcoin's value rose by over 27%, reaching a 17-month high of $35,000, after previously stabilizing around $27,000 in early October. Matrixport, a crypto investment services firm, observed that the surge was partly due to traders 'panic buying' to avoid missing out on the rally. This was evidenced by elevated funding rates in the BTC derivatives market.
Additionally, several factors contributed to this price increase, including sector-specific momentum, short liquidations, and macroeconomic factors, as reported by CoinMetrics, a crypto analytics firm. Joel Kruger, a market strategist at LMAX Group, suggested that the October breakout to a new yearly high could lead to further significant gains, with a target of around $40,000 in the coming weeks.
In our previous month’s DeFi Research News, we mentioned this:
“Historically bitcoin's strongest performance occurs in Q4 of the year, returning an average of 35% over the past nine years, with October returning an average of 20% in the past seven out of nine years. So our next months update might be slightly more positive than this one.”
Well, it played out better than we expected.
The price of Ethereum went up from ~$1650 to $1800. Ether (ETH) has significantly lagged behind Bitcoin (BTC) in performance this year, and this pattern may persist.
This could be attributed to the fact that it is much clearer that BTC Spot ETFs are poised to get approved prior to any ETH Spot ETFs.
In 2023, Ethereum's staking landscape, particularly around Lido Finance, has shown signs of strain. While Lido initially rose to prominence for enabling investors to stake Ethereum (ETH) and receive a liquid proxy token (stETH) for trading, it is now grappling with challenges. Despite its success, Lido is nearing a critical threshold of 33% of total ETH staked, raising concerns about potential centralization and governance issues. The community's reaction was evident when the Arbitrum network denied Lido's application for an incentive program, signaling growing skepticism. Furthermore, Lido faced operational setbacks, including the slashing of 20 Ethereum validators due to procedural errors and the decision to discontinue its staking service on Solana due to financial unviability. These developments indicate emerging tensions within the Ethereum staking ecosystem and raise questions about the balance between innovation and centralization in decentralized finance (DeFi).
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 October in terms of Fees generated:
Lido continues to occupy the #1 spot. Friend.tech was at #2 last month has fallen beyond the top 5. Uniswap got pushed to #2 as a result and MakerDAO came in at #3 GMX, a decentralized perpetual exchange was #4 and lastly, AAVE stuck to its #5 spot for 3 months in a row!
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In the world of cryptocurrencies, stablecoins have emerged as a digital medium of exchange with the stability of traditional fiat currencies.
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