LD Race Weekly Report [2023/06/19]

【Summary】

l Stablecoin: The overall market value of the stablecoin sector did not change significantly this week. However, Binance’s impact caused significant market shifts for BUSD and TUSD: BUSD experienced a weekly drop of 9.91%, while TUSD soared by 51.29%.

l LSD:?The pledge rate for ETH rose to 19.15% last week, marking a 0.09% week on week increase. Among leading LSD protocols, FXS outperformed with a robust weekly surge of 10.4%, primarily driven by advancements in FraxChain and FraxV2.

l Ethereum L2:?Layer2’s TVL registered a slight increase, amassing an extra $110 million over the week, culminating in a total lock-up amount of $8.44 billion. ZkSync led the pack with a robust weekly ascent of 14.48%. ZkSync’s continual growth over the past month has brought its TVL to one-third of Optimism’s.

l DEX: The combined TVL of DEXs hit $15.1 billion, marking a $450 million decrease from the previous week. DEXs witnessed a 24-hour trading volume of $1.53 billion and a 7-day trading volume of $17.25 billion, down $1.64 billion week-over-week. Anticipated launch of Frax Finance’s Ethereum Layer2 network, Fraxchain, contributed to a noticeable surge in TVL for Frax Swap across multiple chains, including Polygon, Arbitrum, and Avalanche.

l Derivatives DEX:?During the week of June 12 to 18, the overall trading volume of Derivatives DEXs ticked up from the preceding week. The six major derivatives DEX protocols saw a combined weekly trading volume of around $12 billion, up approximately 20% week-over-week. Mid-May through early June marked the quietest trading weeks of 2023, yet a significant resurgence became evident since mid-June.

【Stablecoins】

The stablecoin sector saw minimal overall market cap fluctuation this week, but Binance’s recent affairs caused significant swings in BUSD and TUSD market values.

As per defillama.com data, the current stablecoin sector’s total market value is approximately $128.3 billion, marking a mere 0.1% drop from last week. Among mainstream stablecoins, BUSD experienced significant decline, largely due to the SEC’s charges against Binance. Concurrently, Binance announced the successful contract replacement of TrueUSD (TUSD) on BNB Smart Chain (BEP20), leading to the minting of 1.07 billion TUSD on the Tron blockchain. At present,?TUSD’s market value stands at $3.009 billion, reflecting a 51.29% weekly increase.

Key Events：

1）A heated debate arose in the community after the Curve founder’s address deposited 38 million CRV into Aave to mitigate the liquidation risk associated with his borrowing position due to the fall in CRV price. The reason being that the Curve founder has so far deposited 290 million CRV (worth around $187 million) into the Aave lending platform, borrowing $71 million in stablecoins. Given the current circulating supply of CRV stands at 852 million, the Curve founder’s position in Aave accounts for 34% of CRV’s circulating supply. It seems conservative that Michael, the founder, didn’t choose to directly sell this enormous amount of CRV on the secondary market for profit, instead opting to pledge it in lending protocols to raise funds and avoid causing direct selling pressure on the market. However, from another perspective, if the market dips further and CRV price drops to the liquidation line, it could trigger a cascading liquidation. It’s even plausible that someone could exploit this with malicious precision shorting, posing significant risks to both Curve and Aave, two top-tier DeFi platforms.

However, after incurring roughly $1.6 million in bad debt due to the CRV shorting war in November last year, Aave has banned users from borrowing CRV, thereby reducing the risk of CRV being shorted to some extent. (For more information, see?the history of CRV shorting and current potential shorting costs.)

2）On June 15, USDT briefly broke its peg.?According to on-chain monitoring data from @look on chain, whale “0x3356” created a new address, depositing $52.5 million USDC into Aave and Compound and borrowing $40 million USDT. Afterward, they deposited the $40 million USDT into Coinbase and Kraken, leading to USDT breaking its peg. Four hours after depositing USDT into centralized exchanges, they withdrew $25 million USDC from Coinbase.

Four hours before USDT broke its peg, @CZSamSun shorted USDT on Aave V2. After @CZSamSun shorted USDT, whale “0xd275” began to borrow USDC from Aave and Compound and buy USDT for arbitrage, causing USDT to re-peg. （@lookonchain Twitter Thread）

3）Maker raised its DAI savings rate (DSR) from 1% to 3.49%, which took effect on June 19th.?This interest rate hike is a significant adjustment for Maker, not only in terms of the savings rate itself.

DAI currently only ranks behind USDT and USDC in terms of overall market value. As the leader in decentralized stablecoins, this interest rate hike can be seen as the crypto market constructing its own benchmark interest rate.

Since Maker’s official announcement, the total value locked (TVL) in DSR increased by around 1 million, with deposits reaching 5 million and withdrawals of 23,000 over the past week.

【LSD】

Last week, the ETH staking ratio rose to 19.15%, a week-on-week increase of 0.09%.?Last week, 23.02 million ETH were locked in the beacon chain, corresponding to a staking ratio of 19.15%, a week-on-week increase of 0.09%. Of this, 620,000 ETH participated in node staking, a week-on-week increase of 1.67%, and 91,400 entered the queue, a week-on-week decrease of 1.50%. Last week, the adverse effects of regulation on ETH staking continued to ferment, with Coinbase continuing to see large-scale unstaking, and the weekly ETH staking volume fell by 0.29%. Currently, the beacon chain exit queue has been cleared.

Graph: The yield of ETH staking continues to fall.

Looking at the price performance among mainstream LSD protocols, FXS had the highest weekly increase of 10.4%. LDO fell by 5% in a week, and RPL fell by 6.7%.

FXS’s increase was mainly driven by FraxChain and FraxV2. Last Wednesday, Frax’s founder, Sam, mentioned in an interview that Frax plans to launch a Layer2 network based on zk and op mixed proofs by the end of the year. The highlight of this Layer2 network is the use of FrxETH as network gas and a decentralized sequencer. Over the weekend, there was a lot of media coverage. Currently, FXS has a market cap of $388 million, which has significant room for growth compared to mainstream Layer2s like Arb (1.276 billion) and OP (712 million). From a TVL perspective, last week, Rocket Pool’s ETH staking volume increased by 1.89% week-on-week, higher than Frax (1.18%) and Lido (1.09%). Under regulatory pressure, Rocket Pool, the LSD protocol with the highest degree of decentralization, captured a significant amount of staking volume.

Worth noting,?Swell increased its TVL by 19.64% in a week through anticipated community marketing via airdrops,?with its current ETH staking volume at 26,000. Ether.fi issued NFTs as collateral certificates, releasing liquidity through NFT collateralized lending and introduced a loyalty scheme (the longer the staking period, the higher the APR), with the volume of ETH staking increasing by 11.32% in a week.

Most new potential projects in the LSDFi space, such as Prisma, Raft, Gravita, etc., are still in development or have not yet issued tokens.?ZeroLiquid released a public testnet last week, which is the last phase before the mainnet launch. LBR experienced a brief sharp rebound due to the influence of Binance’s research report. EigenLayer launched its mainnet last week, but Operators and AVS have not yet been activated. The CDP project IonProtocol, which is built on EigenLayer, has accelerated its launch schedule.

【Ethereum L2】

1、TVL

The total value locked (TVL) in Layer2 has seen a slight uptick, with an overall increase of $110 million from last week, bringing the total to $8.44 billion.

TVLs of Arbitrum, Optimism, Zksync era, and Starknet have all rebounded from last week,?with Zksync era showing the strongest growth at 14.48%. The TVL of Zksync era has been on a rising streak for over a month now, reaching one third of the TVL of Optimism.

2、Cross-Chain Fund Status

Arbitrum’s cross-chain funding volume has significantly increased, exceeding twice the TVB volume of last week.

3、On-Chain Activity

Recently, overall on-chain activity has declined, with?the ranking remaining the same: Arbitrum > Zksync era > Optimism > Starknet.

【DEX】

The combined TVL of DEXs has reached $15.1 billion, a decrease of $450 million from last week. The 24-hour trading volume of DEXs is $1.53 billion, and the 7-day trading volume is $17.25 billion, a decrease of $1.64 billion from last week. Due to Frax Finance’s plans to launch the Ethereum Layer2 network Fraxchain, the TVL of Frax Swap has significantly increased on several chains including Polygon, Arbitrum, and Avalanche.

Ethereum

ETH L2/sidechain

BTC L2/sidechain

Alt L1

【Derivative DEX】

Over the past week (June 12–18), the overall trading volume of derivative DEX has increased from the previous week.?The weekly trading volume of 6 major derivative DEX protocols is approximately $12 billion, an increase of about 20%.?Looking at the weekly trading volume trend, the two weeks from mid-May to early June were the quietest trading weeks of 2023.

Graph: Change in DYDX Weekly Trading Volume

TVL has slightly rebounded this week.?After a temporary halt to the SEC regulatory event, the funds that had previously exited from DeFi protocols have re-entered. The protocols with significant changes are MUX Protocol and Level Finance. MUX’s TVL increased by 21.77% this week, while Level dropped by 33.23%. Yield could be one of the influencing factors. The MUXLP APR is about 28%; the low-risk pool yield of Level is about 14%; and the GLP (Arbitrum)’s yield is 10%.

From the perspective of holdings, GMX’s holdings are on a downward trend.?The peak occurred from mid-March to mid-April 2023, with the peak exceeding $250 million. Since late April, it has been on a downward trend, with a holding amount of about $110 million in the past week, which is roughly equivalent to the level in mid-November 2022.

Graph: Change in GMX Holdings on Arbitrum and Avalanche

LD Capital is a leading crypto fund who is active in primary and secondary markets, whose sub-funds include dedicated eco fund, FoF, hedge fund and Meta Fund.

LD Capital has a professional global team with deep industrial resources, and focus on develivering superior post-investment services to enhance project value growth, and specializes in long-term value and ecosystem investment.

LD Capital has successively discovered and invested more than 300 companies in Infra/Protocol/Dapp/Privacy/Metaverse/Layer2/DeFi/DAO/GameFi fields since 2016.

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