Crypto Rewind: December's Biggest Moments

DeFi TVL Updates

Key DeFi Stats for December:

In December, the TVL increased moderately in dollar terms from around $47.87B to $53.25B for the whole DeFi market. DEX 30day volumes have gone up to $87.5 B in dollar terms after more than doubling from September at $35.2B. 

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Stablecoin market cap trailed up slightly from ~$128B to ~$130B ending on a positive note. The top two, USDT ($91.6B) and USDC ($23.9B) accounting for almost 90% 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 $21.1 billion, up another $2 billion from last month.
• AAVE maintained the second spot, with a TVL close to $6.4 billion.
• MakerDao stole third place from Arbitrum Bridge with a TVL of $5.6 billion.
• Arbitrum bridge slid to fourth place with a $6.3 billion TVL and
• Uniswap is in the fifth position with a TVL of around $3.9 billion.

Macro View

The State Of The US Economy

• Domestic Liquidity and Asset Prices:

The shift in the U.S. Treasury's strategy to issue more T-bills relative to T-bonds has indeed contributed to an increase in domestic liquidity. This action, intended to pull money from the reverse repo facility, aligns with broader trends where banks have been arbitraging the Fed through the Bank Term Funding Program. Banks leverage Treasuries and mortgage-backed securities at their face value for dollar loans and then redeposit these funds at the Fed to earn a spread, a strategy profitable due to the discrepancy between the facility's rate and the rate paid on reserves.

• Global Liquidity:

The dollar-denominated broad money supply of major currency blocs indicates a rise in global liquidity, though its year-over-year comparison encounters tough base effects from the previous year. This trend reflects a broader scenario of fluctuating global economic conditions.

• Federal Reserve's Stance:

The Federal Reserve has shown a dovish inclination, deviating from previous indications of not discussing rate cuts. Recent updates suggest a possibility of rate cuts in 2024, indicating a significant shift in the Fed's approach towards monetary policy.

• US Economic Outlook:

As of December 2023, the U.S. faces a 45% chance of entering a recession in the next 12 months. Key challenges include cost fatigue, high debt servicing costs due to elevated interest rates, and slowing job growth. However, potential tailwinds like easing inflation, moderate income growth, and anticipated interest rate cuts by the Fed could support economic activity. 

• Global Economic Trends:

Geopolitical instability is a significant concern, with 67% of global respondents in a McKinsey survey citing it as a top threat to economic growth. Inflation concerns, while still present, have somewhat receded. The global economic sentiment is divided, with equal proportions viewing conditions as better or worse than six months ago. There's cautious optimism globally, with 37% expecting improvement in the global economy in the upcoming months, especially in regions like Greater China. 

• Interest Rate Trends:

Concerns about high interest rates have diminished, with a declining number of respondents expecting rate hikes in the next six months. This trend reflects a changing interest rate environment, where previously high interest rates were a top risk​. 

• Inflation Risks:

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Inflation remains a top risk, especially in Europe, where it has surpassed geopolitical conflicts as the primary economic concern. The inflation in the US appears to have been under control with CPI hovering at 3.1%. 

Regulations Update

December 6th Congressional Hearing

The December 6th Congressional Hearing illuminated a complex narrative surrounding cryptocurrency, involving major figures like JPMorgan CEO Jamie Dimon and Senator Elizabeth Warren. Dimon, renowned for his leadership at one of the world's largest banks, has openly criticized cryptocurrencies, associating them with illicit activities. During the hearing, he bluntly suggested that if he were in charge of the government, he would shut down the crypto industry​​. This stance aligns him with Senator Warren, who has been an outspoken opponent of crypto, often linking it to terrorism and pushing for legislation to curtail its illicit use​​.

Yet, the scenario is not as straightforward as it seems. Despite his public denunciation of cryptocurrencies, Dimon's JPMorgan Chase is actively engaged in the crypto space. The banking giant announced plans to launch JPM Coin, a digital currency aimed at increasing settlement efficiency within its operations​​. Furthermore, JPMorgan's ONYX project, established in 2020, represents the first bank-led blockchain platform for exchanging value, information, and digital assets​​. ONYX includes components like Liink, an information exchange network; Coin Systems, offering next-generation payment rails; and Onyx Digital Assets, a blockchain network for various digital assets​

S&P Global Ratings Launches Stablecoin Stability Assessment

S&P Global Ratings, a prominent player in financial market analytics, has launched a stablecoin stability assessment program to gauge the stability of stablecoins relative to fiat currencies. The assessment framework evaluates stablecoins on a scale of 1 (very strong) to 5 (weak), considering factors like asset quality risks (including credit, market value, and custody risks), overcollateralization requirements, liquidation mechanisms, governance, legal and regulatory framework, redeemability and liquidity, technology, third-party dependencies, and track record. 

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The assessment includes eight leading stablecoins: DAI, FDUSD, FRAX, GUSD, USDP, USDT, TUSD, and USDC, with ratings ranging from 2 (strong) to 5 (weak). The largest stablecoin by market capitalization (USDT) is rated 4 (constrained)!

Institutional Update

Flipkart and Polygon Forge Path in E-commerce with Ethereum Layer 2 Network

Flipkart, a leader in Indian digital commerce, partners with Polygon to create an Ethereum-based zero-knowledge Layer 2 network. This move, announced at Polygon Connect India, positions Flipkart at the forefront of blockchain innovation in e-commerce. It's aimed at scaling their Web3 loyalty program, FireDrops, which has already garnered significant traction. This partnership marks a significant step in integrating blockchain technology into mainstream e-commerce, potentially transforming the industry and solidifying India's position as a key player in the Web3 ecosystem​

FASB Update for BTC Holdings

The Financial Accounting Standards Board (FASB) is close to releasing specific guidelines for how digital assets, such as bitcoin, should be accounted for. Traditionally, bitcoin and similar digital assets have been categorized as intangible assets. They are recorded at their purchase cost and are subject to impairment testing, without any upward revision in their value. This upcoming change is anticipated to be positively received by the industry and could lead to increased bitcoin ownership.

NYDIG Research published an entire report that details the current accounting regime for bitcoin and how that may change with fair value accounting. 

The tl;dr is that companies holding BTC can report the fair market value of their holdings as opposed to the previous rule of reporting the cost price or the impaired price whichever is lower. 

IBM Unveils Revolutionary Offline Crypto Storage Technology to Enhance Digital Asset Security

IBM has introduced a new cryptographic signing technology designed for handling digital assets in cold storage. This technology aims to mitigate the risks associated with manual processes while ensuring that assets are kept disconnected from the internet. Termed the IBM Hyper Protect Offline Signing Orchestrator (OSO), it provides enhanced security for high-value transactions through several layers, including disconnected network operations, time-based security, and electronic transaction approval by multiple stakeholders. IBM's initiative in applying its expertise in key management and confidential computing to the realm of digital assets and cryptocurrencies has been a recent focus. The OSO technology is currently being utilized by Metaco, a Ripple-owned custody firm. Metaco's CEO, Adrien Treccani, has expressed satisfaction with IBM's reliable partnership and the unique air-gapped cold storage capabilities offered by OSO, especially as regulatory requirements for cold storage are becoming more stringent in markets like Singapore, Hong Kong, and Japan. Link

Capital Raises in December

1. Swan Bitcoin, a prominent Bitcoin financial services firm, was co-founded in 2019 by CEO Cory Klippsten, alongside CTO Yan Pritzker. Cory Klippsten not only leads Swan Bitcoin as its CEO but also plays a significant role in the broader cryptocurrency and tech startup landscape. He is a partner in Bitcoiner Ventures, El Zonte Capital, and The Bitcoin Opportunity Fund. They raised $165M in December from unknown investors. They offer Bitcoin purchasing, Custody, Retirement Accounts and now even Asset Management Service (not sure how they define Asset Management when the only asset they will ‘manage’ is BTC). 
2. LINE NEXT Corp is a South Korean enterprise engaged in the development of Web3 business strategies and oversees a subsidiary that manages a worldwide NFT platform business. The company is preparing to unveil DOSI, an international NFT platform that will be in synergy with LINE's NFT marketplace in Japan. This initiative is designed to make NFTs more accessible to the masses by providing an intuitive interface. Furthermore, LINE NEXT is dedicated to assisting brands in claiming digital product ownership and launching Web3-based games. They raised $140M in December from Crescendo. 
3. Arkon Energy is dedicated to constructing solar-powered renewable microgrids tailored for remote regions and commercial entities. Their objective is to ensure a dependable and eco-friendly power supply, contributing to both the economic development of local communities and the preservation of the environment. They raised $110M from Bluesky Capital and others. Previously they raised $30M in early 2023 and late 2022.  
4. MapleStory Universe stands out as a groundbreaking MMORPG (Massively Multiplayer Online Role-Playing Game), weaving in NFT ownership to grant players tangible stakes in in-game assets. This platform takes the classic MapleStory realm and transforms it into an expansive, decentralized metaverse. Here, players can steer content creation, blending the charm of bygone gaming days with a contemporary digital experience. They raised $100M from Nexon. 
5. Andalusia Labs, formerly known as Risk Harbor, operates internationally, providing infrastructure for risk management in the realm of digital assets. They deliver cutting-edge solutions such as the Karak layer-2 blockchain, the Subsea cryptocurrency risk management marketplace, and the Watchtower platform, which prioritizes security for institutions. Their goal is to set benchmarks for security, foster trust, and promote the incorporation of blockchain and Web3 technologies into worldwide financial services. They raised $48M from over 10 investors including LightSpeed Ventures and Pantera Capital. 

A total of $563M was raised by the top 5 raises in December 2023, compared to $560M in November, $129M in October, and $154M in September. Also the sectors are very diversified from Bitcoin specialized companies, to a risk management infrastructure, to Metaverse/NFT, to even Renewable Energy companies. Money has started flowing into deals from all types of VCs. Are they preparing for a bull market?

Other Noteworthy News/Events in October

Solana’s Saga Phone went BONKers - The BONK Token Airdrop Phenomenon

The Solana Saga smartphone has experienced a significant surge in sales, driven by the rising hype surrounding BONK, a Solana-based memecoin. This surge can be primarily attributed to a unique arbitrage opportunity presented by the airdrop of 30 million BONK tokens to each Saga phone owner. As of December 5th, 2023, sales were underwhelming, with only about 2,500 units sold, far below the 25,000 to 50,000 units required to attract substantial developer interest. Solana founder Anatoly Yakovenko, in an interview with Laura Shin on her Unchained Podcast, had suggested that the phone's future was under internal discussion, hinting at a potential shutdown. Then comes the savior: The BONK Airdrop Effect! 

Fast forward to a week later, the narrative for the Saga phone changed drastically. A spike in sales was observed as arbitrage traders pursued the 30 million BONK token airdrop offered to phone owners. This airdrop, estimated to be worth nearly $700 at current prices, significantly exceeded the Saga phone’s retail cost of $599, creating a compelling reason for consumers to purchase the phone. Saga sales had multiplied by over ten times and were on track to sell out before the new year. This surge in demand was further evidenced by sales on platforms like eBay, where the phones were being sold for as high as $5,000, far exceeding their initial retail price. Link

Nubank partners with Talos and Circle to reduce the cost of crypto trading in Brazil (Spoiler: Buffet is one of their biggest shareholders)

Nubank, a prominent Brazilian digital bank, has partnered with Talos, a leading institutional trading technology provider, to lower the costs associated with crypto trading. This collaboration is expected to benefit customers trading crypto assets in Brazilian reais through the Nu app. By leveraging Talos's Smart Order Routing engine and its extensive network for optimized trade execution across multiple liquidity providers, the partnership aims to make crypto trading more cost-effective. Nubank, which serves 90 million customers across Brazil, Mexico, and Colombia, launched its crypto trading feature in May 2022 through Nubank Cripto, offering a selection of 15 cryptocurrencies. The platform, Nubank Cripto, is designed to be both simple and robust, catering to cryptocurrency enthusiasts. With this new partnership, Nubank Cripto aims to offer even more competitive pricing and reliable trading experiences for its users. Nubank also announced an integration with Circle in order to allow U.S. dollar exposure on-chain to Brazilian customers. 

Best Ad of the year: Coinbase Ad 

Coinbase published one of the most impactful ads of the year. That’s it. Watch it here.

On-Chain Metrics & Data

Bitcoin Update

Bitcoin ETFs: Regulatory Hurdles VS Market Expectations

The Securities and Exchange Commission (SEC) is poised to make a pivotal decision on the approval of a spot Bitcoin (BTC) Exchange-Traded Fund (ETF). This decision is highly anticipated, given that it marks a significant moment in the integration of cryptocurrency into mainstream financial markets. The approval of a spot BTC ETF would enable investors to trade shares in a fund that holds Bitcoin directly, allowing for easier and potentially safer access to the world's leading crypto. As the decision from the SEC looms, the price of Bitcoin and existing bitcoin ETFs have shown considerable volatility. 

In late December 2023, SEC officials met with representatives from at least seven companies seeking to launch Bitcoin ETFs. The SEC directed these companies to make final changes to their proposals by year-end. There is a high probability that a spot Bitcoin ETF in the U.S. gets approved by January 10, 2024. Nevertheless, the price shot up from $38k to $42k in its anticipation. 

Bitcoin's Mempool Reaches New Highs: 

The global inventory of Bitcoin transactions awaiting confirmation, known as the mempool, reached 372 MvB (mega virtual bytes), surpassing previous peaks in 2017 and 2021. This indicates a transaction queue across 372 blocks, roughly equating to a 2.6-day delay​. 

Increased Transaction Fees and Miner Revenue

Due to the backlog, users are opting for higher transaction fees to prioritize their transactions. This surge in fees has significantly improved miner profitability, shifting their revenue dependency from block rewards to transaction fees. This is positive especially since the halving event in 2024 will reduce the miner rewards by 50%. 

Ethereum update

Price Update

On one hand Jamie Dimon says, “I’d shut down crypto if I were the government”. But on the other hand his firm J.P. Morgan publishes a report predicting Ethereum outperformance. 

In a Dec. 13 report, JPMorgan analysts wrote, "We believe that next year Ethereum will reassert itself and recapture market share within the crypto ecosystem." JPMorgan is not saying that the price of Ethereum will appreciate. The analysts are "cautious" about crypto markets in 2024. They see Ethereum as one of the stronger tokens for 2024. While it may not go up in price, they still believe that it will perform better than other tokens, specifically Bitcoin. Despite recent hype around spot Bitcoin ETF approvals and the upcoming Bitcoin halving, JPMorgan is still more bullish on ETH. The analysts believe that the spot Bitcoin ETFs are already priced in. They also think that the upcoming Bitcoin halving is already priced in. Since when did J.P.M become crypto experts?

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ETH started December at $2085 and ended the month with $2282. 

Meanwhile ETH supply continues to be deflationary with currently 120M ETH in circulation. 

ETH has been in the back burner for the month of December as the limelight has been stolen by the Layer-2s and Solana blockchain. Solana (SOL) previously generated tremendous hype in 2021 touting its ability to solve the Ethereum (ETH) blockchain's core problem of expensive gas fees and slower transactions. Then SBF happened and his poster child SOL got crushed 90%+ to below $10. Then, all of a sudden, SOL was the hot topic in town, Saga phones along with the BONK airdrop brought Solana back into the limelight. SOL is above $100 now for the first time since early 2022 and, at $47 billion, it's the fifth-biggest crypto. Not just that, its market cap is higher than Ford, Kraft Heinz and Hilton Worldwide all three of which have much more real world utility. 

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 December in terms of Fees generated:

The top5 protocols by fee for the month of December are Lido 1st, Uniswap 2nd, Aave 3rd, MakerDAO 4th and Venus 5th. Venus took over GMX 5th place this month. One of the notable gains has been Uniswap which jumped to $70M in 30d fees, up $12M from November. Lido gained a mere $6M in fees while still maintaining the throne. Uniswap is still the only protocol that pays 100% of the fees to its users.

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