Coral Weekly Market Recap
As?Coral?continues to grow its investment platform, we believe it is important to keep you updated on what's going on in the crypto markets. In the midst of ongoing market development, here are some market updates from the last week:
?1) Lodestar Finance will unlock liquidity for GMX/GLP holders
?2) Will the Hermes wars attract capital to the Metis ecosystem?
Lodestar Finance will unlock liquidity for GMX/GLP holders
In previous issues, we have covered the Arbitrum DeFi ecosystem with a specific focus on GMX, a decentralized derivatives protocol that facilitates leveraged trading for speculators while allowing anyone to provide liquidity through the GLP token. GMX holds 40% of TVL on Arbitrum, yet there is no place for GMX and GLP holders to unlock liquidity on their underlying positions. Soon, Lodestar Finance will offer such a platform. Supported collateral assets include MAGIC, DPX, plsDPX, plvGLP, drMAGIC, GMX, and GLP.
GLP holders can deposit GLP into?Plutus Vaults?in order to automatically rebase ETH rewards into more GLP. This plvGLP position can then be used as collateral on Lodestar to leverage the position further (borrow USDC against plvGLP and purchase more plvGLP), hedge against ETH rewards, or unlock liquidity for another purpose. As we have highlighted before, the components of GLP are already roughly 50% stablecoins. The primary risks to liquidation of GLP collateral is a large drop-off in the volatile half of the pool and traders generating profitable trades.
We anticipate that GMX and GLP holders, while either directly or through a vault strategy (Plutus Vaults and Rage Trade Vaults), will want to unlock stablecoin liquidity on the underlying token position. This high demand for stablecoin borrowing should incentivize lenders with high supply rates, which will include subsidized yields from Lodestar. Keep an eye out for protocol launch.
Will the Hermes wars attract capital to the Metis ecosystem?
?The answer to the above question is that Hermes and other Metis projects are already attracting capital.
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?Since its July low, Metis Total Value Locked (TVL) has doubled to nearly $60M. This may seem like a small amount compared to other Layer 1 or Layer 2s with hundreds of millions to billions in TVL, but Metis is still establishing a foundation of users and protocols. Hermes Protocol is a decentralized exchange that facilitates swaps between both correlated and uncorrelated assets with low fees and low slippage. The stablecoin pool on Hermes between m.USDC and m.USDT holds $9M in TVL and offers 19% APR in the HERMES token. This could be a decent opportunity if the liquidity provider believes HERMES will appreciate in value, which given its upcoming roadmap and incentives, may just be the case.
?The HERMES token has three use cases: voting, staking and boosting, all of which require the token holder to lock his HERMES for veHERMES (vote-escrowed). By locking HERMES, the veHERMES holder ensures that he is not diluted by new emissions, an important incentive to hold and lock the HERMES token. Similar to Curve Finance, the longer the underlying token holder locks, the more veHERMES token he will acquire.
?In July,?Hermes announced its plans for V2?- A Yield and Concentrated Unified Liquidity Omnichain Marketplace. Rather than having individual liquidity pools on multiple chains, Hermes offers a solution for one unified liquidity pool that users on any chain can tap into. This reduced liquidity fragmentation permits users to seamlessly swap with larger size. Hermes will also leverage the capital efficiency inherent in the Uniswap V3 design and offer concentrated liquidity management on the LP positions.
In V2, Hermes will introduce burning that replaces the lock function. Burning HERMES to acquire bHERMES assumes that the user would have locked his HERMES for 4 years. The thinking from the team is that by burning the underlying, it removes the function of a Convex like protocol to manage the positions and take a fee from the user.
Hermes and the Metis team are working out the details of the?Metis Marathon, a program that directs METIS rewards to various protocols within the ecosystem. It seems that the last step before proceeding is for the Hermes Protocol team to dox themselves. Part of the Metis Marathon program will incentivize new HERMES lockers with 2K METIS per week until V2 begins. At that point, the program will continue to incentivize burning of HERMES with 2K METIS per week until the Marathon program concludes. To put this into perspective, holders locked 523K HERMES last week, worth about $62,760. At a current price of $25.44, 2K METIS is worth $50,880 meaning that lockers would have earned 81% of their purchase in one week.
The program also incentivizes 6 liquidity pools with METIS rewards if they can achieve given TVL milestones. The V1 selected pairs include:
Once the protocol migrates to V2, the new selected pairs include:
If the mentioned pools achieve more than $10M in TVL, they can earn as much as 1.5K METIS per week on top of HERMES rewards from the protocol which are determined from lockers' (burners) votes. Ultimately, HERMES holders who lock or burn (after V2) will be the most incentivized through METIS rewards. This can have massive deflationary pressure on the tokenomics, though it should be mentioned that the protocol is emitting 850K HERMES per week right now. Still, we expect to see lots of HERMES holders lock/burn their tokens once the Marathon program begins in order to capitalize on those METIS rewards. The biggest winners of the program will not only be HERMES lockers/burners, but also those that vote for their own liquidity pool to increase their HERMES emissions.