Encryption market outlook for September: Layer 2, ETF news, DeFi airdrop

Written by: THOR HARTVIGSEN Compiled by: Deep Tide TechFlow

Leaving aside the macro environment, what are the things to look forward to in the crypto market itself?

market Overview

DeFi liquidity is at its lowest level since February 2021. It’s no secret that the high interest rate environment makes chasing on-chain yield less attractive. This, combined with falling cryptocurrency prices, resulted in a new low for TVL.

what does that mean? This means it becomes more difficult to turn a profit in the short term. For a project to take off, liquidity needs to flow from other areas of DeFi. Unless you have a solid edge in the field, or spend 16+ hours a day staring at a screen, the best course of action is probably to develop a long-term investment strategy and stick to it. Don't be swayed by overtrading in this hostile environment.

Why did the price crash?

As can be seen in the chart below on Coinalyze, most of the futures open interest was liquidated on August 17, resulting in a massive liquidation of long positions. Cryptocurrency volatility has been very low over the past few weeks, and when that happens, futures traders add interest to open positions to bet on the direction of the market as volatility returns. When the price starts to fall, a large number of long positions are forced out, which leads to more liquidation, and so on. As such, it's difficult to attribute the recent price action to any particular piece of news. Additionally, there has been further heavy selling in the spot market, which could indicate that larger players are shedding positions.

LAST 14 DAY WINNERS

You won't notice price drops and market dullness just by crypto Twitter (Crypto X??). The new Rollup chain Base launched by Coinbase has recently attracted a lot of users and liquidity due to the Friend tech application.

Some statistics comparing Base/Arbitrum/Optimism:

14-day fee:

• $3.4 million - Base;
• $2.6 million - Arbitrum;
• $2.5 million - Optimism revenue.

14 Day Earnings:

• $2.3 million - Base;
• $900,000 - Arbitrum;
• $800,000 - Optimism.

Revenue is calculated based on the transaction fees paid by users on the Rollup chain minus the cost of publishing these transactions (call data) on Ethereum. As can be seen from the data, not only has Base recently generated more fees, but the margins are also significantly higher.

Friend tech

Friend tech is a new social app on Base where you can buy and sell shares of registered Twitter profiles. It has seen explosive growth in user adoption and has generated over $3 million in revenue in the last 7 days. All transactions need to pay a high handling fee of 10%, of which 5% belongs to the platform and 5% belongs to the shares owned by the users who are trading.

Friend tech is the main dapp attracting users to Base. Base will likely continue to grow in substance as more protocols launch (like Aave and Uniswap) and the ecosystem expands. The current 7-day annualized revenue is about $42 million, which is a significant component of Coinbase's annual revenue.

News and Catalysts

ETF Deadline and Grayscale

There is an ongoing lawsuit between Grayscale and the U.S. Securities and Exchange Commission (SEC) over the conversion of its existing GBTC trust into a spot bitcoin exchange-traded fund (ETF). While many have been expecting a decision this week, Grayscale could be asked to reapply, which could take up to 240 days, before a final decision is made. However, as you can see below, Grayscale is expanding their ETF team. What does this mean? It's likely they're trying to send a message that they're serious about switching to an ETF, not that they have some sort of inside knowledge about the outcome of the case.

According to ETF experts, delayed ETF adoption is the most likely to happen.

Coinbase acquires stake in Circle

Coinbase recently added another potential cash cow to their team by acquiring an equity stake in Circle. The terms of the acquisition are not yet known, but it has been revealed that the "Centre Consortium," which manages USDC, will be shut down. USDC will also launch on 6 other blockchains this year. Some of these are expected to include Polkadot, Near, Optimism, and Cosmos. In terms of revenue sharing, Coinbase and Circle will still share revenue based on the amount of USDC held on their respective platforms, while the interest income generated by the widespread use of USDC will be divided equally.

Frax extended to RWA

After de-pegging from USDC earlier this year ($FRAX has a strong collateral relationship with USDC), the vision of FraxV3 is already brewing. Founder Sam Kazemian calls FRAXV3 "the ultimate stablecoin." This involves partnering with Financial Reserves and Asset Exploration Inc Public Benefit Corporation (FinresPBC) to bring real-world assets on-chain as collateral for $FRAX. Profits from these operations will be passed on to token holders through so-called "Fraxbonds" (FXB). Fraxbonds allow people to buy future $FRAX at a discount (i.e. buy $FRAX at $0.9 per $FRAX after two years).

Thorchain Lending Launched

Thorchain just launched their lending product and users can currently lend multiple assets with BTC and ETH as collateral. The list of collateral will soon be expanded to include several new assets including BNB, BCH, LTC, ATOM, AVAX, and DOGE.

One of the core mechanisms of this lending design is to burn $RUNE when debt is issued (users borrow against collateral) and mint $RUNE when closing positions. This also enables liquidation-free loans even if the price of collateral such as ETH or BTC falls, because the collateral is stored behind the scenes in RUNE.

On-chain capital flow

Off-chain Labs appears to be repurchasing $ARB

1.72 million ARBs were purchased on Binance at $0.98 per token (for a total of $1.7 million) and sent to an address labeled Offchain labs (the company behind Arbitrum). That's close to the lowest trading price $ARB has seen since it went public earlier this year.

CMS Holdings accumulates $DYDX

CMS was an early investor in dYdX and has further traded the token over the past two years. They recently bought 519,000 $DYDX ($1M worth in total) on Binance at $1.94 per token. The average buy price (excluding private sales) for CEX transactions was $1.88 and the average sell price was $2.78. Currently, CMS holds 3.05 million $DYDX ($5.98 million value).

DeFi airdrop and strategy

Friend tech Airdrop

Friend tech will award 100 million points to platform users within the next 6 months. Below is a table estimating the price of each credit based on the issue valuation and the percentage of airdropped token supply.

It appears that points are awarded based on the volume of shares traded, but may also be related to referrals. Still, it appears that top users have amassed most of the distributed points so far.

Real World Assets (RWA) Mining

Maker's Spark protocol offers a 5% annualized rate of return on the Dai Savings Rate (DSR). This yield comes from the income generated by DAI used as collateral for RWA such as U.S. Treasury bonds. This might not sound exciting if you are a US citizen with direct access to US Treasuries, however a current proposal on Aave proposes adding a liquid token of the DAI savings rate (sDAI) as collateral in the lending market. As shown below, looping 8 times (deposit sDAI on Aave, lend the native $GHO stablecoin, convert it to sDAI and repeat) would result in an annualized rate of return of 11.29%!

This may go live in the next few weeks, and the annualized rate of return does not take into account gas fees. Still, investing in DAI alone, earning sustainable yields of 11% annualized from the US government is very exciting and could attract new and more sophisticated players into the space over a longer time frame.

Swell Airdrop

Swell is an Ethereum liquidity staking protocol that is running an airdrop campaign. Staking ETH into swETH earns “pearls” over time that will be converted into $SWELL tokens later this year. Deposit your swETH into protocols like Pendle or Maverick and get extra pearls. Recent calculations estimate that 1 pearl equals approximately $0.33.