DeFi Research News - June 2023 | Coinchange Blog

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DeFi TVL Updates

Key DeFi Stats for June:

In June, the TVL stayed relatively stable in dollars terms around $45 Billion for the whole DeFi market. DEX 30day volumes have slightly dropped in dollars terms from $73B in May to $60B in June. Stablecoin market cap stayed flat at $128B with top two USDT ($83B) and USDC ($27B) accounting for about 85% of the total market cap.

Lido Finance is continuing to hold the top spot after snatching it in January from the long-term king of TVL, MakerDAO. Its TVL stands at an impressive ~$14.2B up $1.2B from May. MakerDAO holds the second place with a stable ~$6B TVL, followed by AAVE and Uniswap with ~$5.9B and ~$4B TVL for the 3rd and 4th place. Finally Convex Finance came in at #5 with ~$4B in TVL. Curve which was #4 in May is not even in top 10 this month.

Macro View

The State Of The US Economy

In a plot twist that even seasoned investors didn't see coming, the Treasury decided to shake things up in June by shortening the duration of Treasury security issuance. It's like they decided to go for the "short and sweet" approach, focusing on T-bills instead of long-duration Treasury bonds. Their goal? To woo money market funds and their cash-equivalent capital into buying government debt. It's as if they're saying, "Hey, money market funds, forget about those boring reverse repos and come join the T-bill party!" Meanwhile, fund managers are scratching their heads, contemplating if it's time to break up with mega-cap stocks that are stretching the limits of the universe with their sky-high valuations. As liquidity wavers in uncertainty, it wouldn't be surprising if these mega-caps take a little stumble and end up muttering, "Gravity, we meet again!"

Signs of an impending recession later this year are evident on multiple fronts. The yield curve remains alarmingly inverted, indicating potential economic downturn. The Atlanta Fed's GDP Now estimator predicts modest growth of 1.9% annualized for Q2, signaling a slowdown. The labor market, previously a stronghold, is showing signs of weakness. On a positive note, housing starts have increased, although tight demand for new homes is driven by higher mortgage rates and reluctance to part with favorable fixed-rate mortgages. Amidst this backdrop, recession-resistant sectors such as hospitals and restaurants continue to experience revenue growth. Overall, the looming recession appears to be a grindier and stagflationary type, presenting its own unique challenges.

Regulations Update

Coinbase and SEC Saga Update

The U.S. Securities and Exchange Commission (SEC), probably taking a leisurely scenic route around the bureaucratic block, finally responded to Coinbase's rulemaking petition—under the gentle nudge (read: firm push) of the U.S. Court of Appeals for the Third Circuit. However, they stuck up their regulatory nose at Coinbase's "mandamus petition,"—basically the legal equivalent of nagging a teenager to do their chores. The SEC hinted they might have a recommendation in around 120 days. Coinbase's Chief Legal Officer, Paul Grewal, was less than amused, calling out the SEC for their commitment-phobia and for having a fun-house mirror view of their own statements and actions. This push of potential clarity to a future date basically gives the SEC more time to juggle ambiguity in digital asset regulation, leaving Coinbase and other crypto-enthusiasts rolling their eyes harder. Amidst this slapstick, the uncertainly continues to create speed bumps on the cryptocurrency industry's highway.

UK's Ambitious Leap: Report Unveils Path to Cryptocurrency Hub and Digital Pound Innovation

The British Crypto and Digital Assets All Party Parliamentary Group (APPG) has released a report titled "Realizing Government’s Vision for the UK to Become a Global Hub for Cryptocurrency & Fintech Innovation," emphasizing the UK government's aspirations in the cryptocurrency and fintech sectors. The report recommends bespoke regulation to attract investment and capitalize on growth opportunities in the cryptocurrency space. It also acknowledges the potential benefits of a digital pound (CBDC) but urges the government to carefully consider and mitigate risks related to privacy, security, and innovation. The report highlights the government's proactive approach towards regulating the industry, emphasizing the need for a balanced approach to foster investor confidence. However, it suggests that decentralized solutions and protection of innovation may be more effective for human freedom and prosperity than a centralized digital currency.

House Republicans Introduce Bill To Remove Sec Chair Gary Gensler, Restructure Agency

United States Rep. Warren Davidson has introduced the “SEC Stabilization Act” into the House of Representatives, announced on June 12. One of the bill’s main provisions is to fire Securities and Exchange Commission (SEC) Chair Gary Gensler. Let’s go!! According to Fox News, the bill would remove Gensler from office and redistribute power between the SEC chair and commissioners. It would also add a sixth commissioner to the agency, disallow any party from holding a majority on the commission and create an executive director position.

Institutional Update

Blackrock Files for Bitcoin ETF

The biggest news in crypto town is that Blacrock has filed for a Bitcoin ETF, WTF??? Blackrock has a near-perfect track record of getting ETF’s approved (255 out of 256). But don’t forget that the SEC has an even better track record for rejecting spot BTC ETFs (28 out of 28). So why are we getting excited over BlackRock? Blackrock is the world's largest asset manager. They have over $10 trillion in assets under management. Some of their clients include governments, central banks, pension funds, insurance companies, and major hedge funds. In short, they don’t play around when they file for something. They are serious! 

Following them, WisdomTree and Invesco also applied for ETFs. Rumors say that Fidelity is also preparing for its own ETF. Blackrock’s secret sauce in the spot BTC case, seems to be their market surveillance agreement with Nasdaq in the 19b-4 filing with the SEC. Ark Invest also modified their filing to match Blackrock’s filing in terms of having a Surveillance Sharing Agreement in place. Meaning transparency around the spot price data. Grayscale is currently suing the SEC to upgrade its trust into an ETF. Just a few days ago Blackrock CEO Larry Fink said Bitcoin Could ‘Revolutionize Finance’ in an interview with Fox Business. Bitcoin price rose to its highest in one year! 

EDX Exchange

This is another huge announcement. EDX Markets, a crypto exchange supported by major firms like Citadel Securities, Fidelity Digital Assets, and Charles Schwab Corp., has now commenced operations. Whaaaaaat???? 

This development could significantly transform the digital-asset sector, especially given the increasing regulatory scrutiny in the US. Launched in September 2022 as an institutional-only exchange, EDX Markets currently enables trading in four cryptocurrencies: Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. (looks like they know Chair Gensler very well).

Differentiating itself from existing platforms such as Coinbase Global Inc. and Binance Holdings Ltd., it operates on a "non-custodial" model, meaning it doesn't retain clients' digital assets during transactions. Instead, EDX collaborates with a third-party custodian, most probably Anchorage Digital. The twist is that it isn’t directly available for you and I to use. It is a platform for other service providers to use as a centralized order book. Almost like a Nasdaq for RobinHood users but for digital assets. 

Deutsche Bank filed for a Digital Asset License

Banking giant Deutsche Bank AG has applied for regulatory permission to operate as a crypto custodian in Germany. They would eventually allow users to buy and sell digital assets through prime brokers and even provide services such as taxation, valuation services and fund administration, lending, staking and voting etc. Good job European banks. There is a lot North American banks can learn from you. 

Capital Raises

U.S. adoption remains muted and shrinking according to the U.S. Federal reserve in their May 2023 Economic Well-Being of U.S. Household in 2022 report.   

Although the numbers from this FED report do not match the ones by Chainalysis, the trend matches. Chainalysis confirms that US ranking in global crypto has slid from #6 to #8. 

Nonetheless, according to ICO Analytics, June saw a whopping 62 deals. Some of the most noteworth are: 

1. Gensyn, an AI related Layer-1 Blockchain raised $43M in series A. The Gensyn network is the Machine Learning Compute Protocol that unites all of the world’s compute into a global supercluster. 
2. Mythical Games, a giant Web 3 video game studio raised $37M in series C. 
3. One Trading (previously Bitpanda Pro) has raised $32.62M in series A. They are a digital asset exchange with robust KYC/AML in place.
4. Meanwhile (that’s the name), a company offering Bitcoin denominated Life Insurance policy, raised $19M in Seed. 
5. Conflux, a layer 1 blockchain has raised $18M in their 3rd round after raising $35M in 2018 and $10M in Q1 2023. They are attempting to validate multiple blocks at the same time. 

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Other Noteworthy News/Events in April

“Crypto appears to have staying power as an asset class" and “we see stablecoins as a form of money”. - Jerome Powell

SEC Approves Volatility Shares 2x Bitcoin Strategy ETF (BITX)

Are you serious? How the heck can Gensler approve a levered future ETF before approving a spot one? This will be the first leveraged Bitcoin futures ETF approved by the SEC.

Bank Of China’s Investment Arm issued first tokenized notes on Ethereum

BOCI collaborated with UBS to launch digital structured notes worth CNY200M ($28M) that were tokenized on the Ethereum blockchain in Hong Kong. This action signifies the inaugural issuance of a tokenized security by a Chinese financial institution. The dollar amount is small, but a significant step regardless.  

And while we are talking about Hong Kong, they are taking another run at becoming a global crypto hub by inviting Coinabse to operate there. Additionally, regulators in Hong Kong are organizing a second meeting in less than two months to encourage banks to provide services to virtual-asset companies. Go Hong Kong!

CZ Binance, Are We Still Supposed to Say “4”?

• Binance is set to exit the Netherlands
• Binance also de-registered its U.K. division
• Binance is under investigation in France for 'aggravated' money laundering
• Belgian financial regulator orders Binance to cease all virtual currency services
• Binance applies to deregister its local entity in Cyprus
• Binance.US cuts 50 staffs, among whom are legal and compliance staffs, after SEC charges
• Binance is struggling to find on/off ramp banking solutions in Australia

Are we still supposed to “4” these updates? CZ, you there?

On-Chain Metrics & Data

Bitcoin Update

Price update

With Blackrock, Wisdom Tree and potentially Fidelity announcing their BTC ETF filings, and Bitcoin surging 15% in a week and breaking above $31K briefly, my not-so-crypto-savvy friends have started asking me about buying Bitcoin again, after having sold below $20K. 

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Lightning Network hits all-time high in bitcoin and US Dollar capacity

This month a new record was set with a capacity of 5,630 BTC, surpassing the previous peak of 5,620 on April 18, as per The Block's data dashboard. The capacity of the network in terms of U.S. Dollars also achieved an all-time high, crossing the $172 million mark. Over the past year, as adoption continues to expand, the Lightning Network's capacity has increased by 42% in bitcoin terms and 105% in U.S. Dollar terms.

Ethereum update

ETH continues to be Deflationary

It has been almost 300 days since the Merge and ETH continues to be deflationary (more ETH is destroyed via fee burn than ETH is created via issuance) according to https://ultrasound.money/ . Current supply of ETH is 120,232,874 and over the last 30 days, 8,609.06ETH has been burned. 

Ethereum Achieves New Milestone: Over 23.5 Million ETH Deposited for Staking

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According to Blockworks, Ethereum has reached another milestone, with over 23.5 million ETH deposited for staking. In November 2021, there were only 8.2M ETH staked. There has been a net inflow of 3.6 million staked ETH ($6.9 billion) following the Shanghai upgrade which debunks the myth that enabling withdrawals would cause a cascade of retiring validators. 

ETH Staking continues to be dominated by Lido with an insane 75% of the market share with the next highest being Coinbase at only 11% of the pie. With all the institutional players partnering with Coinbase, they might end up eating a bigger slice of the pie in future. But at the moment, with a 25% performance fee, users prefer the cheaper alternative Lido which only takes a 10% cut. 

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 June in terms of Fees generated:

Lido and Uniswap continue to occupy #1 and #2 spots. GMX regained its #3 spot in June pushing Convex Finance at #4 and AAVE at #5. Lido has been the most profitable protocol with a net earnings of $4.8M.

If you enjoyed this research report, please hit the smiling face, and if you want to earn passive income on your crypto, sign up for an Earn Account today!

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