DeFi Research News May 2022

State of The Market Throughout May

DeFi TVL

$85 billion as of week 1 of June. The beginning of May had DeFi TVL at $149 billion

In the chart below we can see the growing TVL of Terra reaching a peak on May 6, 2022 at ~$20 billion; eating away TVL from Fantom blockchain for the most part together with Ethereum’s TVL. 

We can see that the top beneficiary of the Terra exodus are Ethereum with around 10% share increase (from 56% to 66%), Binance Smart Chain with a 2% share increase (from 7.3% to 9.3%) and Tron with 4.5% share increase (3.6% to 8.1%). Avalanche had a share decrease of ~1%, Solana remained steady at a share of ~3.6% together with Polygon at 3%, Arbitrum at 1.5% and Waves at 1.4%. 

Total crypto market cap

The total cryptocurrrency market cap was $1.2 trillion as of Week 1 of June 2022. The beginning of  May had a market cap of $1.7 trillion, experiencing a 41% drawdown in around a month.

Dominance of major assets & asset classes

  • Bitcoin marketcap: $562 billion => 44.3% dominance of total crypto mkt cap
  • Ethereum marketcap: $212 billion => 16.7% dominance 
  • Stablecoin marketcap: $160 billion => 13% dominance
  • NFT market cap: $18 billion => 1.5% dominance

The Macro outlook and relationship with crypto

Since the past couple of months and specifically at the end of April, we’ve seen crypto and the stock market move in tandem. As institutional money has entered the crypto space, sometime last year specifically in AAVE Arc , Maple Finance and Alkemi Network, we observed in the price action and flow of funds between assets, some behavioral patterns that are well documented in the stock market: rebalancing portfolios from risk-on to risk-off investments. 

The recent volatility and uncertainty within the market, especially related to the Ukrainian war, the FED interest rate hikes to tackle growing inflation, and reports of an impending recession has had institutional money switching to a risk off environment which most likely prompted retail investors to follow suit. Hence there has been a flight to safety across the board from the stock market back into cash and from volatile crypto back into USD-backed stablecoins. 

For those standing on the sidelines with stablecoins, it may be wise to continue earning revenue with them. If not, then those investors will be left holding USD or USD-backed stablecoin, which are non-productive assets in and of themselves. To do so, head over to Coinchange in order to earn up to 12% APY in your Earn Account. 

Major News/Event in May

UST re-launch and airdrop

After the Luna meltdown and exodus away from the network, the team in collaboration with the community has put together a revival plan. The old Luna has been renamed Luna Classic, while the new version would keep the name Luna. The network will essentially restart with an airdrop to previous holders and holders of Luna Classic during the meltdown; this would essentially restart as a clean slate: no market module, no algorithmic stablecoins, and only Luna is staying as the governance token. Check our blog post to learn more about what happened specifically during the meltdown.  

Bug disclosure costing millions in order to save billions

The beauty of open source is that you can easily make your protocol more secure by  incentivizing bug disclosures via bounties. This is what happened again with the Wormhole bridge, where whitehat hackers disclosed a bug back in February 24th (12 days after the bug bounty was created), which could have risked billions of dollars of Wormhole users. Wormhole bridge is a protocol for moving assets across ecosystems and accounts for a large portion of crypto going in or out of the Solana Network.

Crypto and the war in Ukraine -  Coinchange employees launch nft collection with proceeds going towards Ukraine Ministry of Digital Transformation. 

As most of your know the Russian invasion of Ukraine started Thursday, February 24th, and while the Russian government hasn’t been entirely successful in conquering Ukraine, thanks to the hard fought resistance, more help is still needed both on the ground to support the people, but also within the government to help them acquire even more aid from other countries around the world. 

Take a look at the NFT project, started by Coinchange’s own Rainer Stas called the Goodness.Army. You will not only be able to see all the NFTs minted, but purchase them as well. You can also rest assured that all money accrued from the purchase of these NFTs is going to help ukrainians directly with 90% of the proceeds going to the state wallet of Ukraine, and the final 10% going to the Devine Live lLC, a Goodness.Army backed Web3 media company which will use the funds to expand and continue helping the people of Ukraine. 

Be sure to check out the amazing artwork Rainer created and purchase your very own NFT today!

On-Chain Metrics & Data

MVRV - Z_score

Look Into Bitcoin website, defines the MVRV - Z_Score as a metric that “has historically been very effective in identifying periods where market value is moving unusually high above realized value. These periods are highlighted by the z-score (red line) entering the pink box and indicating the top of market cycles. It has been able to pick the market high of each cycle within two weeks.

It also shows when market value is far below realised value, highlighted by z-score entering the green box”,” which signals a buying opportunity. Although we are not exactly in the green zone for the z-score, it still remains close to a setup where buying bitcoin during such a period of time produced outsized returns.

Bitcoin investor tool: 2 year MA Multiplier

As per Look Into Bitcoin website, “the Bitcoin Investor Tool can be used to indicate whether the price of Bitcoin today is at levels that are historically low (in the green zone) or high (in the red zone) or neutral (between the green and red zones). So it is a useful tool for Bitcoin price prediction as investors can understand on a historically relative basis whether $BTC is currently over or undervalued.” Coupling this metric with the Z-Score above we have the confirmation that buying into bitcoin and indirectly into crypto, as crypto are highly correlated to Bitcoin, has produced great returns on investment in the past. 

The on-chain data for bitcoin is showing green flags, the position investors might take will depend on risk appetite as well as portfolio allocation. The risk averse investor might hold more stablecoin which can earn 12% APY on Coinchange while waiting for the best entry. The risk tolerant investor might decide to buy in now and earn 0.6% APY, benefiting from the potential price increase and the DeFi earnings from Coinchange Earn Accounts.

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