Crypto Digest: All the Highlights of November in One Place

DeFi TVL Updates

Key DeFi Stats for November:

In November, the TVL increased moderately in dollar terms from around $42B to $46.6B for the whole DeFi market. DEX 30day volumes have stayed comparable to last month at $74B in dollar terms from $60B in October after the almost doubling from September at $35.2B. Stablecoin market cap stayed flat at ~$128B from ~$125B with the top two, USDT ($90B; +$5B) and USDC ($23B; +$0) accounting for about 88% (+3%) of the total market cap.

Here is the top 5 rankings of decentralized finance (DeFi) projects based on Total Value Locked (TVL):

• Lido Finance has held the number one spot in terms of TVL since January of this year, surpassing the previous leader, MakerDAO. Lido Finance's TVL is approximately $19.1 billion, up $2 billion from last month.
• AAVE took the second spot, with a TVL close to $5.6 billion.
• Arbitrum Bridge rose to third place with a TVL of $5.47 billion.
• MakerDao slid to fourth place with a $5.43 billion TVL and
• Uniswap is in the fifth position with a TVL of around $3.58 billion.

Macro View

The State Of The US Economy

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CPI numbers for October release mid November revealed a surprising decrease in inflation which exceeded economists expectations. This led to a surge in equity prices which was not seen in years, closing the month at 8.9%. This is amidst the current stressed market environment in the US and the world where people have less and less savings as inflation has eaten away their purchasing power. This lead to unemployment going down as people need to finds jobs, sometimes multiples, in order to sustain themselves. 

US market seem to now be pricing via the 3 month SOFR future a 70% chance of interest cut in for March 2024 meeting and further cuts during the year until next year. Some investors are pushing this thesis further as to say that deflation is coming as leading indicators like M2 supply growth being negative, PPI being negative at 0.4% which is essentially the natural tendency of the market cycle after periods of inflation that is now slowing down as people have now stopped spending due to inlfation. This is partly because PPI is a leading indicator compared to CPI, meaning if PPI stays negative for an extended period, we could see CPI becoming negative late next year. This deflation scenario would be invalidated if major stimulus enters the market like M2 supply growth and interest rate cut, like the market seems to be pricing for Q1 next year in the US.

In Europe inflation is still around 4% on a year over year basis while the ECB has put  on hold the interest rate hike. GDP number is in line with expectation at -0.1% in MoM. 

Regulations Update

CZ penalties judge to be ‘Absurd’ by Arthur Hayes, former CEO of BitMEX.

The former BitMEX CEO said the record-breaking penalties imposed on Binance represent an institutional bias against the transformative impact of cryptocurrency and blockchain technology. As it can represent a threat to current financial institutions, push back is to be expected but not to the extent of this situation. 

One of the example he take is Former Goldman Sachs CEO Lloyd Blankfein in the scandal of Former Malaysian Prime Minister Najib Razak and financier Jho Loh where they stole more than $10 billion; Lloyd Blankfein retired with all his stock options and GS was not deemed criminally responsible and had to pay a fine of $2.9B in 2020. This 29% of the amount stolen. 

In the case of CZ and Binance, paying $4.3B would represent 0.2% of the SEC reported $1.6 trillions volume that got traded without proper disclosure and compliance between 2017 and 2022 (applying 0.1% fee on trading volume from the $1.612 billion in profit reported by the SEC). Keeping in mind that $4.3billion is the total penalty which take into account a discount of 20% for Binance partial cooperation. 

Coinbase accuses SEC to ‘hedge and delay’ over its request for better crypto regulation

Paul Grewal, Chief legal officer at Coinbase posted an update to their petition for better rule making. His TLDR is “[SEC is] still dragging its feet, please give us yet more unlimited time to actually do something.” Coinbase lawyer Eugene Scalia said in a letter that the recent update to the court from the SEC provided "no additional information about its progress" other than the promise of a further status report by Dec. 15, 2023. According to Scalia, only a court order would compel the SEC to act and provide relevant answers. 

This situation exemplifies the SEC regulation by enforcement action which has been called out many times now. Even congressman Warren Davidson in June this year published the #SECStabilizationAct which put in question Gary Gensler legitimacy as well as the power given to the SEC over not only crypto market but capital markets in general. Source

Monetary Authority of Singapore announced its CBDC going live while partnering with major financial institutions for its Global Layer One project

 The Monetary Authority of Singapore (MAS) is on a tear this month with major announcements. It announced plans to issue a “live” CBDC. “Retail customers will be able to use these tokenized bank liabilities in transactions with merchants who can in turn credit these tokenized bank liabilities with their respective banks,” MAS managing director Ravi Menon said. 

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It also announced its collaboration with global policymakers and financial institutions BNY, DBS, JPM, and MUFG to create a global digital infrastructure for scaling tokenized markets. This project, dubbed "Global Layer One" (GL1), aims to foster interoperability between different blockchain networks. 

Source 

Hong Kong securities regulator SFC reportedly considering retail to trade crypto ETF

Hong Kong’s securities regulator, the Securities and Futures Commission (SFC), is reportedly considering allowing retail investors to buy spot crypto Exchange Traded Funds (ETFs). It seems that the promise of the spot Bitcoin ETF approval in the US is reviving the race to get market participants an ability to invest in the asset class. One thing to note here is that HK already has ETFs offering managed by CSOP Asset Management Limited, but the underlying are BTC and ETH futures. Source

Philippines Bureau of the Treasury issue 10B pesos tokenized T bill

The Philippines Bureau of the Treasury revealed plans to raise 10B pesos ($180M) through the sale of tokenized treasury bonds mid November; This follow an offering from Hong Kong which issued 800 million Hong Kong dollars ($103 dollars) in February this year, claiming it would help increase bond market efficiency, liquidity and transparency. Source

Institutional Update

Grayscale, Blackrock and other meet with the SEC about Spot BTC fillings.

BlackRock and Grayscale have both met with the SEC to discuss details regarding their spot BTC ETF applications.

Grayscale met with the SEC on Monday to discuss listing matters regarding the share of its product. It revolved around “NYSE Arca, Inc.’s proposed rule change to list and trade shares of the Grayscale Bitcoin Trust (BTC) under NYSE Arca Rule 8.201-E”. Furthermore BNY Mellon and Grayscale agreed to have the former act as the transfer agent for the shares of the trust. 

BlackRock and NASDAQ employees' meeting concerned “The NASDAQ Stock Market LLC’s proposed rule change to list and trade shares of the iShares Bitcoin Trust under NASDAQ Rule 5711(d)”. A presentation attached to the SEC memo showed “in-kind” and “in-cash” redemption methods. It goes to say that “in-kind” method is simpler than “in-cash” which is not a deterrent to Grayscale and Franklin Templeton which update their fillings to also have an “in-cash” option. 

Source

Grayscale Bitcoin Trust if tuned into an ETF could see $2.7B outflows: Jp Morgan

JPMorgan said in a research report that a significant number of Grayscale Bitcoin Trust (GBTC) shares have been bought in the secondary market this year at a deep discount to net asset value (NAV) in anticipation the trust’s conversion to an ETF will be approved by the SEC in January. The discount to NAV has closed and is now at -10.51% closing from a low of -48.62% in December 2022.

JPM estimates a net $2.5 billion has flowed into GBTC since the start of the year, increasing to $2.7 billion if adding the covering of short interest. Assuming this purchasing behavior was mostly driven by speculation anticipating the conversion to an ETF, these market participants are likely to exit once converted. This amount would represent 168% the inflow we’ve seen since the start of the year in all Bitcoin funds. Source

Binance agrees to pay $4.3B to DOJ

Binance has agreed to pay $4.3 billion in total to end the DOJ’s investigation of alleged money laundering, sanctions violations and more. CZ, has stepped down from its CEO position and has now appointed Richard Teng then pleaded guilty to the charges. 

People have mixed feelings about its implication for the market, some say its good others are saying its bad for liquidity. 

CZ has appeared before court and might be facing criminal charges and is forced to stay in the US. Furthermore he stepped down of his chairman position at Binance US and transferred his voting share to a proxy arrangement. Although its unrelated to the DOJ settlement, it shows that CZ and Binance are ensuring that the transition is smooth and that such issues do not come back to Binance. 

If you prefer audio content, Coinchange had an amazing X space covering the subject with many high profile of the industry here

Inflows in crypto reach largest surge since 2021

While on a streak of 10 consecutive weeks of inflow, the third week of November saw the largest inflow since 2021 at US$346m. Digital asset inflows totalled $176 million in the last week of November, reaching a 10-week total of $1.76 billion. 

Bitcoin saw inflows totalling US$312m in the last week of November, bringing year-to-date inflows to just over US$1.6bn, while short-sellers continue to capitulate. Year to date inflows have been accruing 91% to Bitcoin reaching AUM of $33,1B while Solana being second beneficiary at 7% of Inflows but only reaching $455M of AUM while Ethereum inflows YTD represents 0.5% of total, it stayed at an impressive $8.87B  

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This shows continued anticipation of the Bitcoin Spot ETF in the US, Canada, Germany and Switzerland as they represent 100% of the inflow Year to date while other countries have seen continued outflows. Source

Capital Raises in October

Source: ICO Analytics

$560M was raised in October by the top 5, whereas October saw $129M, September was $154M raised as opposed to $465M in August and $214M in July. 

There are rumors from well connected people in the space that Wormhole raise was actually finalized in April 2022 and Jump was a part of the raise, which now they parted way. This might explain the delay in the announcement as no project would have wanted to be associated with FTX and related companies around October/November 2022. Delaying the raise announcement to the most opportune time is quite common in the crypto space, which sometimes skews the month over month data. 

Other Noteworthy News/Events in October

Aave companies rebrand as Avara

Aave companies rebranded as Avara which is inspired by the Finnish word meaning “extensive,” “open,” “spacious,” and “inclusive,” and colloquially stands for “seeing more than you see.” This doesn't mean that AAVE Labs (AAVE) disintegrates and is spinned up as a new company. The rebranding is basically that, rebranding, while Avara functions as the umbrella company that manages all sub companies that have been created over the years by Stani Kulechov and teams. Avara has the following sub companies under its umbrella: Aave Labs, Family, Lens, Sonar, GHO.  

MtGOX to start creditor repayment in 2024 with deadline in Oct 31st 2024. 

This news marks the 9th major news about MtGOX creditor repayment since the centralized exchange was hacked in 2014 for about 800,000 BTC. The first 5 years were mostly back and forth between courts, the trustee and the creditors around the right way to proceed with repayments. In 2020, New York based private equity company Fortress offered to buy out creditors' claims at $1293 per bitcoin they owned via MtGOX. This did not go through and further delays ensued to reach a new reimbursement plan. 2021 bull market with bitcoin reaching $61k made creditors believe that the sole liquidation of the 150,000 bitcoin still owned by the trustee on behalf of the creditor would suffice to repay the creditor but court did not provide updates. Inin 2022, creditors got January 2023 as their deadline to submit their plan for repayment, however the deadline was pushed 2 times during 2023, until next year in Oct 2024. Hopefully for MtGOX creditors the day will soon come for their reimbursement.   

Source

Paul McCaffery take on ETH spot ETF as “not excited”

Blackrock’s recent filing for a spot Ethereum ETF does not get me as excited personally.  Why?, because by design, a proof of stake token that can’t pass along the staked yield is a long term sub optimal product.  To be clear, a spot ETH ETF would certainly be a positive and provide a useful short term trading vehicle, but as we saw from the lackluster demand for launch of the various ETH futures ETF last month, I would expect a similar disappointing launch for spot ETH ETFs relative to a BTC ETF.  Ethereum staking yields sit at approx. ~4% so this would be akin to buying an index fund where you have to give up the underlying dividends from the equity constituents. 

Monetary Authority of Singapore publishes its Interlinking Network Model tech paper

Coinchange Director of research and Risk published a quick thread on the Monetary Authority of Singapore publishing its Interlinking Network Model tech paper. Overall a technical paper that highlights how MAS’ GL1 project will be enabled using this interlinking network model. It will be using existing bridging technology while also developing new ways for financial institutions to connect to blockchain networks both private and public. The model is chain agnostic in an attempt to cover broad use cases.

"Mysterious" address that got to 10k bitcoin in a week is just a CEX hot wallet

During November a mysterious address quickly accumulated 10,000+ bitcoin, propagating euphoria and excitement on X (formerly Twitter) as people believed it was the ETF fillers or another big institution starting to accumulate a large bitcoin position. 

However as per CryptoQuant research it appears that it is just BitMEX transferring its bitcoin to a new type of address. BitMEX uses “3xyz” format address which is the legacy type which does not support SegWit. The transfer has been made to a “bc1q” format which support SegWit and normal transfers which save on Tx fees. 

On-Chain Metrics & Data

Bitcoin Update

Bitcoin multiplier

This month we’ve seen lots of talks about Bitcoin price going exponentially higher due to the bitcoin multiplier and the potential inflow which the spot bitcoin ETF would create. 

There are some wild predictions with bitcoin reaching $1M in a couple of months with a multiplier effect above 100x. With this we need to demystify how the multiplier effect is calculated and how it affect the price and market cap of bitcoin. 

Its a simple formula fig below

M= total bitcoin supply

Z= number of bitcoin used as Store of Value (> 6 months). 

Applying M= 20M and Z= 80% of M = 16M ; multiplier equals 5x. 

It means that for every dollar inflow it gets multiplied by 5 into the marketcap.

Further attesting to this simple yet approximate formula is the chart produced by Willy Woo below. The average multiplier is 3.2x since 2019 while currently at 4.6x mainly due to the increase of Bitcoin held in cold storage.

‍See Coinchange Director of Research thread about the topic for more information.

Ethereum update

Lido release its DVT module to diversify its validator node set

It allow node to be operated akin to a multisig setup. “Rather than relying on a single node operator, DVT relies on multiple Node Operators, each managing distinct nodes that communicate and collectively reach consensus to fulfill validator responsibilities”  said the announcement tweet by Lido. It will leverage existing infrastructure like the Curated Operator Module while using technology developed by two leading providers (Obol Network and SSV Network). Diverse stakeholders, from solo stakers to professional Node operator’s are invited to participate in order to further foster a more decentralized Ethereum. 

This is in light of the recent backlash that Lido received from the Ethereum community in regards to the risk of centralization of the consensus as Lido is close to reaching ⅓ of the network stake at around 32.3%. This was evidenced when Arbitrum refused Lido application for its grant program, highlighting growing skepticism. If you want to learn more about the subject read our previous October news digest. 

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

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:

The top5 protocols by fee over 30 days has not move since October with Lido 1st, Uniswap 2nd, MakerDAO 3rd, Aave 4th and GMX 5th. GMX and Aave have switched places this month. One of the notable gains has been MakerDAO which jumped to $28M in 30d fees, double the fees of October. Lido and Uniswap both gained $10M in fees while keeping their earnings unchanged. For Lido its primarily because of its increase in expenses and token incentives. Uniswap is still the only protocol that pays 100% of the fees to its users.

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