DeFi Research News April 2024

Stablecoins Update

Tether Ventures Into Medical Field

USDT parent company Tether has a venture arm Tether Evo, which invested $200M in brain-computer interface company Blackrock Neurotech (not to be confused with the asset manager BlackRock). This company is a competitor to Elon Musk’s Neuralink which develops medical chips that are powered by brain signals. Worlds largest stablecoin issuer diversifying in the medical devices sector was not on my bingo card. 

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But they better diversify, because the Lummis-Gillibrand Payment Stablecoin Act doesn’t seem favorable for them, if passed. This Act may offer traditional banks, an edge over existing private stablecoin issuers as it limits non-banking license issuers to issue a maximum of $10B. But Tether is a non-US entity, so we need to see how that plays out.

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Meanwhile Tether is busy diversifying its mission more broadly into other categories. They revealed that the are focussing on four divisions: Data, Finance, Education and Power. In 2023, they invested in BTC mining, Payment Processor and an AI Data Cloud Provider. Paolo Ardoino, CEO of Tether, is always two steps ahead of the market it seems. 

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USDC’s Institutional Moves

USDC, the second largest stablecoin by market capitalization, made headlines in the institutional space, again. Remember BlackRock's BUIDL fund on Ethereum Blockchain? Well, ONDO finance along with BlackRock and Circle tested out instant and 24/7 conversion of BUIDL token to USDC. This means that the yield paid out by the tokenized fund in BUIDL tokens, doesn’t necessarily need to be exchanged for USD (fiat). It can be converted to USDC and be used for other on-chain applications. 

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Additionally, Stripe (the largest payment processor after PayPal) announced that it will introduce USDC payments on three public blockchains; Solana, Ethereum and Polygon. Stripe has a long history of experimenting with crypto. Six years ago, they wanted to introduce bitcoin, but later gave up the project as bitcoin was too volatile to be used as a payment. Later on they decided to become the co-founders of the Libra stablecoin project with Facebook, but the project never took off. Integrating with USDC makes perfect sense for them given the regulation-first approach that Circle takes. Stripe now has an entire suite of services for crypto related businesses. 

Market Cap

Stablecoin market cap continued to trail up slightly from ~$150B to ~$160B ending on a positive note. The top two, USDT ($110B) and USDC ($33B) accounting for over 90% of the total market cap. The dominance for Tether has dropped below 70% for the first time in many months, probably due to newer entrants in the space such as Ethena’s USDe. 

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Ethena USDe (USDe) The Newest Stablecoin on the Market

The fifth largest stablecoin by market capitalization currently ($2.3B) is the newest design on the market. The founders don’t call it stablecoin anymore (due to lashback from the community about the ‘stability’ of its design). Instead it is a tokenized cash and carry trade. A tokenized access to Delta Hedging of ETH and stETH. The backing for the stablecoin is this strategy and the holders earn high yield (an insane 45%+ APY, not a typo) from the funding rates of the hedging strategy. 

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Coinchange research team published a comprehensive 40+ pages research report on Stablecoins last year. Now we are publishing an updated version of the report with new co-authors. Some of the new things we talk about include: Euro Stablecoins, Stablecoins compliant with Shariah law and much more! If you want to receive a copy, sign up for an account today!

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Bitcoin Update

The Halving

Bitcoin halving took place on April 19th / 20th depending on where in the world you were. It was a historic event for the crypto community. Every 210,000 blocks, approximately 4 years, the number of new bitcoins issued per block gets cut in half. In other words, the number of new bitcoins generated per day will decrease from around 900 to about 450 or from 6.25 to 3.125 bitcoins per block. And a reduced number of new bitcoins means reduced mining rewards. This means that the weakest miners are likely to struggle and might turn off their machines, until the Bitcoin prices rise high enough for them to be profitable again. The miners with the highest utility costs, a lot of short term debt, are probably on this list. The research team at Coinchange wrote a 25 page report titled. “April 2024 Bitcoin Halving And It's Impact On Miners''. You can download the copy for free here.

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Price Update

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Bitcoin price fell down from $65k to $58k and guess what, the crowd is not happy. Especially the newcomers who thought they would get rich overnight. Bitcoin is a highly volatile asset and just as it shoots up in a heartbeat, it can shoot down as well. There are and will always be leveraged traders and mixing leveerage with a high volatility means there are short squeezes on the uptrend and liquidation cascades on the downtrend. 

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Spot ETF Update

Below is a table listing the ETF inflows and outflows for the past 15 days and you can see that as the price started to dip towards the end of the month, the inflows switched to outflows for the first time! Except GBTC has seen outflows for a very long time for entirely different reasons. 

Source: Farside Investors

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These numbers can be visualized in a chart as follows: 

Source: Farside Investors

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It is scary to see the chart turning downwards, but that is the nature of markets and this was bound to happen at some point. This is not the end of inflows by any means. In fact, Hong Kong just approved their Bitcoin and Ether spot ETFs and there are other countries lined up to do the same. 

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“We don’t expect the Bitcoin ETF slowdown to be a worrying trend, but believe it is a short-term pause before ETFs become more integrated with private bank platforms, wealth advisors and even more brokerage platforms.” - Bernstein 

Ethereum update

ETH ETF 

The latest developments concerning Ethereum spot ETF applications with the U.S. Securities and Exchange Commission (SEC) suggest that the SEC is expected to deny these applications. Industry sources and issuers of cryptocurrency-related funds, including Grayscale and VanEck, have expressed little confidence that the SEC will approve any ether ETFs. The SEC has also recently delayed decisions on specific ETF proposals, like the Invesco Galaxy spot Ether ETF, with a new decision date pushed to July 5, 2024. 

Consensys Sues SEC Over Ethereum Being Classified As A Security

Consensys is a global blockchain technology company established to develop and promote the Ethereum ecosystem. It focuses on building and scaling tools, as well as enterprise software products that are based on Ethereum, Metamask being one of them. Additionally, they actively engage in defending Ethereum’s interests against regulatory challenges, notably in disputes with entities like the SEC. ConsenSys founder Joseph Lubin is also a co-founder of Ethereum. Recently they initiated a lawsuit against the SEC centered around the classification of Ethereum as a security. Consensys argues that Ether should not be considered a security and asserts that the SEC has overstepped its regulatory boundaries. The company is seeking judicial clarity on this matter, challenging the SEC's approach and requesting the court to declare that Ether is not a security. 

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Interestingly, even if ETH is deemed a security, it wouldn’t affect the Spot ETFs in Hong Kong based on their regulations. However, in the US, it will create a lot of confusion as CFTC has already classified ETH as a commodity and are trading futures products on it. 

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DeFi Updates

Eigen Layer Airdrop Saga

Eigenlayer, an Ethereum restaking pioneer, is experiencing backlash due to the complexities of its white paper and perceived limited rewards. The company, recently boosted by a $100 million investment from Andreessen Horowitz, introduced a novel concept of restaking—allowing the capital staked on Ethereum to secure other blockchains. Despite this innovation, about 25,000 ether, valued at approximately $72.7 million, is being withdrawn by users.

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The Eigen Foundation announced that 15% of the initial 1.67 billion EIGEN tokens are reserved for the community, to be distributed over multiple seasons. Early users will receive the first 5% based on points they've accrued, but these tokens will initially be non-transferable, frustrating many. Furthermore, 55% of the tokens are allocated to the Eigenlayer team and investors, which has sparked additional controversy, especially since these tokens become transferable sooner.

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The distribution approach has drawn comparisons to Starknet’s controversial token airdrop. Restrictions also apply to users from certain countries, including the U.S., Canada, China, and Russia, who will not receive tokens, exacerbating the discontent. Eigenlayer justifies the non-transferability of the tokens as a step towards decentralization and regulatory compliance, acknowledging the U.S. SEC's unclear guidelines on airdrops. However, the policy has been criticized as excessively conservative, potentially punishing U.S. users who are already taking risks without the promise of rewards.

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Key DeFi Stats for April:

In April, the TVL decreased slightly in dollar terms from around $93.7B to $88B for the whole DeFi market. DEX 30day volumes have gone down to $132.1B from $191B last month but still around 4x from September 2023 at $35.2B. 

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Here are the top DeFi projects based on Total Value Locked (TVL):

Source: Token Terminal. TVL of top protocols as of May 4th 2024. 

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A look at the top DeFi protocols based on the fees generated

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. 

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Here are the top 5 protocols for the month of April in terms of Fees generated:

Image by Coinchange, data sourced from DeFillama 

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The top four from March and still the top 4 in April. However, Maker got replaced by newcomer Raydium. With all that new hype around memecoins on Solana, the dexes there are gaining significant traction.

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Macro View

In April 2024, several key macro events occurred that impacted the global economy and geopolitics.

1. World Economic Outlook: The IMF released its April 2024 World Economic Outlook, which highlighted steady but slow global growth. The forecast for global growth remained at 3.2% for 2024 and 2025, with advanced economies seeing slight growth increases while emerging markets faced modest slowdowns. Inflation was expected to decrease but remain above targets in many countries​​.
2. Federal Reserve and Interest Rates: The Federal Reserve held its policy meeting, keeping interest rates unchanged. The focus was on managing inflation while supporting economic growth. US core PCE inflation showed signs of moderating, aligning with the expected 0.3% monthly increase​​.
3. Global Conflicts: The ongoing Russian invasion of Ukraine saw significant escalations, with multiple drone strikes on Kharkiv and shelling in Donetsk. These events continued to strain global energy markets and geopolitical stability​​.
4. Commodity Markets: Gold experienced a decline, while copper prices surged due to supply concerns from South America. Oil prices remained volatile, influenced by OPEC+ production cuts and geopolitical tensions, particularly in the Middle East.

Geopolitical Risks (aka War Risks)

On April 13th, Iran launched a “tit-for-tat” large drone and missile strike at Israel. It was in response to Israel’s strike on their consulate in Syria. So far Iran said, that will be it and wouldn’t attack anymore unless Israel decides to attack back. Israel’s prime minister reportedly is declining to retaliate after talking with the U.S. president.

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Regulations Update

Uniswap Receives Wells Notice From the SEC

Uniswap Labs, the organization behind the largest decentralized cryptocurrency exchange, has received a Wells Notice from the U.S. Securities and Exchange Commission (SEC). This notice serves as a preliminary warning, informing Uniswap that the SEC is considering bringing enforcement actions against them. The SEC's notice targets Uniswap for operating as an unregistered securities broker and exchange. Despite this legal pressure, Uniswap has continued to operate robustly, with trading volumes approaching $3 billion. 

One Podcast Episode Summarizing Regulatory Updates

This month Unchained hosted Jake Chervinsky, chief legal officer of Variant to discuss the current state of crypto regulations. They talked about Uniswap’s Wells notice, the Coinbase case, the Tornado Cash case, the Ethereum Foundation investigation as well as the recent IRS draft form that lists unhosted wallets as a type of broker. However he remained optimistic about the future of DeFi in the US. Interestingly, believes the SEC will deny Ether ETFs and he disagrees with the latest stablecoin regulation bill by Lummis and Gillibrand. Must listen!

Institutional Update

Centrifuge to Launch Institutional RWA Lending on Coinbase's Base Network, Secures $15M in Funding

In April 2024, Centrifuge, a decentralized finance (DeFi) platform, announced its plan to establish an institutional real-world asset (RWA) lending protocol on Base, an Ethereum layer-2 network developed by Coinbase. This protocol will allow verified institutions to onboard RWAs and borrow against these assets. This initiative aims to enhance efficiency, settlement speed, and transparency in financial operations by leveraging blockchain technology. 

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Centrifuge also secured $15 million in venture capital funding in an oversubscribed round led by ParaFi Capital and Greenfield, with participation from firms like Arrington Capital, Circle Ventures, Gnosis, The Spartan Group, and Wintermute Ventures. Following this announcement, Centrifuge's native token, CFG, saw a significant price increase

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Do watch out for our next month’s Institutional Update as there will be several companies and wealth managers that will be filing their SEC docs revealing how much crypto they hold. You don’t want to miss it!

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Capital Raises in April 2024

Source: ICO Analytics

The image above displays a list of web 3 projects along with details about their investment rounds, funding, valuation, and other attributes as of April 2024. The top five projects being: Monad, Optimism, Auradine, IoTeX, and Movement Labs. Monad raised $225 million, valuing it at $3 billion, and is part of the Ethereum ecosystem focusing on Layer-1 infrastructure. Optimism raised $90 million, has a valuation of $11 billion, and is also linked to Ethereum’s infrastructure, specifically Layer 2 solutions. Auradine, in its Series B round, raised $80 million, is related to AI and decentralized applications, focusing on zero-knowledge infrastructure. IoTeX, associated with Internet of Things (IoT) and real-world assets, raised $50 million. Lastly, Movement Labs, at Series A, raised $38 million, focusing on Layer 1 infrastructure using the Move programming language. These are part of a larger dataset listing 133 projects raising money in April 2024.

These five companies (of which 3 are Layer-1s) have raised a total of $483 million as compared to $346 million in March 2024.

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