Wednesday, 1 February 2023

Market Summary

Market Summary 1 February 2023

Bitcoin Price: US$ 23,125.13 (+1.31%)
Ethereum Price: US$ 1,585.02 (+1.22%) 


A Look Back at Aave’s 2022 Fundamentals

  • Aave is one of the core DeFi layers for the entire ecosystem. Their main product is a neobank, users deposit funds which others can borrow. However, Aave’s strategy targets a much larger goal — creating the Aave super-app. Aave has expanded to seven different chains, has released a market for AMM tokens, a social network, and has even built cross-chain signaling into their backend.
  • Like most crypto projects, token holders control Aave through governance. Token holders decide how Aave spends their revenue, onboards new teams, the parameters for their apps, and the vision for the entity. Revenue and spending are where this report starts.
  • Aave is an outlier in crypto because it provides decent financial documentation. For some DAOs, looking at their fundamentals would be highly challenging beyond cross-referencing the chain and governance.
  • As a neobank, Aave’s primary business model is relatively simple; they charge fees to use their platform. Users pay fees whenever they borrow, deposit, liquidate, or use a flash loan. The protocol splits fees between the Aave DAO and those who backstop the protocol’s risk in the Safety Module through staking AAVE tokens.
  • AAVE holders adjust fee parameters for each asset through governance. The specific fee level chosen for each asset is affected by an asset’s supply, market cap, market depth, and other market-specific parameters. This means each asset on Aave has a fee level associated with its perceived risk by the community.
  • Unfortunately for Aave, revenue declined throughout 2022 on account of interest rate compression, lack of borrowing demand, and more attractive yield opportunities in other venues. Revenue here is the amount of money Aave is making after it pays stakers in the Safety Module. These are the funds that AAVE holders control. Protocol revenue from January to November 2022 sits at about $21.75M. This puts Aave on track for estimated revenue of ~$23M per year. Given that Aave is a protocol with almost $6.4B in TVL and a market cap of $1.19B, $23M per year doesn’t seem exceptionally profitable. However, Aave attracts deposits through a low net-interest margin — meaning that Aave takes less money off the top for profits than traditional banks, so earnings may always be somewhat muted.
  • $23M revenue gives Aave an estimated revenue per token of $1.62 (using circulating supply), while the current token price is $83.21. This revenue per token gives Aave an eye-watering P/S ratio of 51.5 — meaning AAVE tokens trade at a 51.5x multiple. A P/S of 40 is typical of a growth stock, so 51.5 is probably reasonable for a DeFi protocol with growth potential like Aave. A 51.5x multiple could even be low for something like a DeFi token which commands speculative upside. 
  • Continue on Delphi Digital…


CME’s crypto derivatives reach new highs as traders seek safe port in storm

  • Derivatives trading giant CME Group has clocked a record high in volume and open interest for bitcoin options as traders flock to the venue in the wake of the FTX meltdown.
  • Bitcoin options volumes on CME hit $1.1 billion on Tuesday, and more than $736 million in open interest, according to data from The Block Research.
  • Caution among institutional trading firms in the wake of Sam Bankman-Fried’s FTX bankruptcy could be one force behind the surge in activity on CME, said Steven Zheng, research director at The Block Research.
  • CME Group, which launched bitcoin futures in May 2021, offers crypto trading in options and futures in bitcoin and ether.
  • Given the collapse of FTX, Zheng said, institutional crypto traders are a lot more cautious of trading on unregulated and semi-regulated platforms, adding that “CME appears to be the beneficiary of this cautiousness.”
  • That’s supported by other traders who spoke with The Block, including one options traders who requested anonymity and said: “Counterparty risk def a big fear for institutional traders — CME is obviously trusted.”
  • “Prediction long-term would be that some traditional exchange ends up getting majority of volume, but Deribit still [is] the monster in the space by a lot currently,” he added.
  • In general, crypto options are a more popular trading product for institutional investors than they are for retail investors, especially compared with crypto futures products. 


MicroStrategy expected to report profit despite down quarter for crypto: Preview

  • MicroStrategy reports fourth quarter results Thursday with the company expected to turn a profit after several down quarters even as revenue comes in slightly lower than a year earlier. 
  • The software firm, better known in recent years for its bet on bitcoin, is expected to report revenue of $131 million for the fourth quarter, according to the average estimate compiled by FactSet. The compares to $134.5 million a year earlier. 
  • Net income is estimated at $10.7 million, which would be the first time MicroStrategy has posted a profit since the fourth quarter of 2020. 
  • A revenue decline would halt a string of three quarters of growth, but would come amid a tough quarter for the crypto world that saw FTX collapse and bitcoin drop to around $17,000 compared to its November 2021 high of $69,000.
  • MicroStrategy, which ended the third quarter with 130,000 bitcoin, sold the cryptocurrency for the first time last month, liquidating 704 bitcoin worth $11.8 million at the time of sale. But it turned around and bought 810 BTC two days later, adding to the 2,395 BTC acquired between Nov. 1 and Dec. 24. 


The Sandbox, Decentraland token prices double during mysterious January bull run

  • Explanations for why The Sandbox and Decentraland’s native tokens more than doubled during the beginning of this year may be elusive, but the rebound is certainly welcome news to anyone who bought in at the bottom of the market.
  • Out of the two metaverse platforms where people can buy and develop virtual land, Decentraland’s MANA token performed the best, leaping to a shade under $0.80 from a Jan. 1 price of about $0.30, according to CoinGecko. That’s still way off MANA’s all-time high of $5.12, which it achieved during the particularly frothy bull run that capped off 2021.
  • For its part, The Sandbox token SAND hit a January high of $0.84, climbing from $0.38 at the start of the year, according to CoinGecko. SAND also peaked in late 2021, eclipsing $7.00.
  • The price gains give no clear indication whether the crypto winter is even close to over, or another bull run is lurking around the corner. But like the price gains witnessed by bitcoin and ethereum — both of which are up more than 30% this month — a spot of positivity is definitely welcome news for a digital-assets industry that has been pummeled by months of scandal and value deterioration.
  • “The market has been very optimistic recently with the lead of large caps like bitcoin and ethereum,” said analyst Steven Zheng of The Block Research. “Typically when large caps lead for a prolonged period of time, traders start to look for newer narratives to trade around.”
  • Trading volume for metaverse tokens also jumped considerably according to CoinGecko data. Daily trading for MANA hovered at around $50 million for about the first week of January, soaring as high as a $1.1 billion mid-month. SAND volumes exceeded $795 million after beginning January at about $95 million.


dYdX users traded $466 billion in crypto derivatives during 2022

  • dYdX, the largest crypto derivatives trading exchange, recorded $466.3 billion in cumulative transaction volume and generated $137.8 million in fee revenue in 2022, according to a dYdX Foundation report.
  • The platform’s cumulative volume rose 140% year-over-year (YoY) compared to $322 billion in 2021, per official data.
  • Trading volumes on dYdX trended upward even though the total value of tokens locked on the platform fell in 2022 — dropping to about $400 million after peaking at 1.1 billion in October 2021. This suggests that dYdX’s users remained active and continued to use the platform.
  • Despite strong fundamentals, the inflation of dYdX native tokens had emerged as a source of concern among speculators. This stemmed from the team’s plan to release 150 million tokens, valued at more than $280 million, to investors and employees in February 2023.
  • This would have doubled the current supply, with more tokens to be unlocked in the following months. Last week, the dYdX team decided to delay its token unlocks until December. The token price recently rose to $2.70 in January from $1.10 at the start of the month.
  • dYdX currently exists on Ethereum Layer 2 network StarkEx, but soon plans to transition to its own blockchain within the Cosmos ecosystem.


Celsius failed to report $800 million in losses as CFO flagged ‘possibly illegal’ behavior

  • Crypto lender Celsius operated a riskier business than advertised and failed to report hundreds of millions in losses, all while CEO Alex Mashinsky cashed out more than $68 million, according to a court-ordered report into its bankruptcy.
  • “Behind the scenes, Celsius conducted its business in a starkly different manner than how it marketed itself to its customers in every key respect,” Shoba Pillay, who was appointed as the independent examiner, said in her nearly 700-page report released today. “Celsius abandoned its promise of transparency from its start.” 
  • The report also detailed staff fears about whether they were complying with the law, including comments from Harumi Urata-Thompson, who served as chief financial officer from February 2020 to November 2021, that “we are doing something possibly illegal.”
  • Celsius’s marketing told customers that it made low-risk and fully collateralized investments to secure the yields it offered, according to Pillay. Yet when the lender filed for Chapter 11 bankruptcy protection last July, it reported a $1.2 billion hole in its balance sheet.
  • And while the 2022 crypto bear market piled pressure on Celsius’s finances, the trouble had begun as early as 2020.
  • By June of 2021, at the height of the bull market, a third of Celsius’s institutional loan portfolio was wholly unsecured and more than half was under-collateralized, the bankruptcy examiner said. The firm also recognized $800 million in losses in 2021 from investments with Grayscale, KeyFi, Stakehound and Equities First Holdings. It did not report these losses to its customers when they were incurred, the report said.


Cardano’s decentralized stablecoin Djed goes live on mainnet

  • Djed, a decentralized stablecoin designed to track the U.S. dollar, launched on the Cardano blockchain after being in development for over a year. Djed was developed by blockchain firm Coti in collaboration with Cardano’s core developer Input Output.
  • Djed aims to be used on DeFi protocols in the Cardano ecosystem as a stable alternative to volatile cryptocurrencies.
  • Each stablecoin will be over-collateralized by 400-800% with Cardano’s native asset ADA — while using SHEN as a reserve coin. This over-collateralization makes it similar to the dai stablecoin in the Ethereum ecosystem, but it has a minting and burning mechanism like other algorithmic stablecoins.
  • Djed is expected to be integrated into 40 apps within the Cardano ecosystem. It already received support from decentralized exchanges MinSwap, Wingriders and MuesliSwap. In November, the Coti team told The Block it had plans to launch DjedPay, a service that will let merchants and other crypto players accept payments in the stablecoin.


Glassnode: in Youtube

  • Our latest Week On-chain Video report is live.
  • In this report, we analyze the #Bitcoin rally above $23k from the perspective of:
    • Three Waves of Short Squeezes
    • Leverage in futures markets
    • Spot Exchange $BTC flows
    • Average acquisition prices

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