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Relative DEX Valuations
  • Accusations broke out against the Sushi team this week, as investors and the community stepped in to mediate and propose restructuring solutions.
  • Amidst the drama and infighting among past and present members of the Sushi team, we took a look at how the token trades relative to its peers (i.e. the relative valuation of DEXs across multiple networks).
  • The Price-to-Sales ratio is used here instead of a Price-to-Earnings ratio as it is more universal (though some protocols like Uniswap have no “earnings” or protocol revenue because all fees go to liquidity providers).
  • Interestingly, SUSHI always seems to trade at a cheaper valuation compared to its Ethereum peers. There’s many potential reasons for its persistent discount, including its slightly more controversial beginnings and its more volatile management structure, though it’s important to reiterate there are also nuances behind the economics of each DEX token.
  • Having said that, SUSHI typically trades more in line with its cross-chain peers such as Trader Joe, Pancakeswap, and Quickswap. This also implies that DEXs on alternative Layer 1s are generally priced at a discount to those on Ethereum (at least on a P/S basis).
  • Accusations broke out against the Sushi team this week, as investors and the community stepped in to mediate and propose restructuring solutions.
  • Amidst the drama and infighting among past and present members of the Sushi team, we took a look at how the token trades relative to its peers (i.e. the relative valuation of DEXs across multiple networks).
  • The Price-to-Sales ratio is used here instead of a Price-to-Earnings ratio as it is more universal (though some protocols like Uniswap have no “earnings” or protocol revenue because all fees go to liquidity providers).
  • Interestingly, SUSHI always seems to trade at a cheaper valuation compared to its Ethereum peers. There’s many potential reasons for its persistent discount, including its slightly more controversial beginnings and its more volatile management structure, though it’s important to reiterate there are also nuances behind the economics of each DEX token.
  • Having said that, SUSHI typically trades more in line with its cross-chain peers such as Trader Joe, Pancakeswap, and Quickswap. This also implies that DEXs on alternative Layer 1s are generally priced at a discount to those on Ethereum (at least on a P/S basis).
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Lido TVL Grows as LUNA Price Appreciates
  • Another beneficiary of a higher LUNA price is liquid staking protocol Lido, whose bLUNA derivative tokens are used as collateral assets on Anchor.
  • TVL on the Terra network has increased meaningfully since the 27th of November, around the same time the LUNA price took off. Over the same period, the number of bLUNA Lido had decreased slightly by ~0.3% while TVL was up 24%. Lido currently has ~67.9m of LUNA staked as liquid staking derivatives which represents ~17.6% of all circulating LUNA supply.
  • Separately, Lido has also recently integrated with MakerDAO, allowing Lido’s wstETH token to be used as collateral to mint DAI on Maker Protocol.
  • Another beneficiary of a higher LUNA price is liquid staking protocol Lido, whose bLUNA derivative tokens are used as collateral assets on Anchor.
  • TVL on the Terra network has increased meaningfully since the 27th of November, around the same time the LUNA price took off. Over the same period, the number of bLUNA Lido had decreased slightly by ~0.3% while TVL was up 24%. Lido currently has ~67.9m of LUNA staked as liquid staking derivatives which represents ~17.6% of all circulating LUNA supply.
  • Separately, Lido has also recently integrated with MakerDAO, allowing Lido’s wstETH token to be used as collateral to mint DAI on Maker Protocol.
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UST Supply Trends Upward After Community Fund Burn
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Terra’s TVL Overtakes Solana and Avalanche
  • Total Value Locked on Terra Network overtook Avalanche and Solana, now making it the 3rd largest blockchain by TVL after Ethereum and Binance Smart Chain. #LUNAtics rejoice!
  • It’s important to note that TVL numbers are highly reflexive alongside native token prices as they are very commonly used as collateral in DeFi and as base pairs for native DEXes. In Terra’s case, DEX base pairs usually utilize UST instead of LUNA, therefore this growth in TVL is primarily contributed by value growth in Lido bLUNA (more on that below).
  • Total Value Locked on Terra Network overtook Avalanche and Solana, now making it the 3rd largest blockchain by TVL after Ethereum and Binance Smart Chain. #LUNAtics rejoice!
  • It’s important to note that TVL numbers are highly reflexive alongside native token prices as they are very commonly used as collateral in DeFi and as base pairs for native DEXes. In Terra’s case, DEX base pairs usually utilize UST instead of LUNA, therefore this growth in TVL is primarily contributed by value growth in Lido bLUNA (more on that below).
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A Lunar Eclipse
  • LUNA looks to be a moon mission as the only top 10 coin in the green over the last two weeks — granted it just broke into the top 10. It’s tough to say what’s causing this increased appetite for LUNA, but our best guess is it’s a reaction to the proposal to burn 90M LUNA and mint 3-4B UST.
  • Despite erratic performance across the market, ETH and BNB are holding much better than other large caps (barring LUNA) — something we noticed earlier last week. Whether it’s heavy bidding or just an unwillingness from holders to sell, both of these coins have held up extremely well.
  • Note that the chart above catches the top of AVAX but not the other coins as it’s indexed to Nov. 22. AVAX was closing in on new highs around then while the rest had already put in a local top. However, it’s evident that ETH and BNB have held through this entire dip with more resilience than most large coins. If things do turn around from here, both of them should outperform their peers.
  • LUNA looks to be a moon mission as the only top 10 coin in the green over the last two weeks — granted it just broke into the top 10. It’s tough to say what’s causing this increased appetite for LUNA, but our best guess is it’s a reaction to the proposal to burn 90M LUNA and mint 3-4B UST.
  • Despite erratic performance across the market, ETH and BNB are holding much better than other large caps (barring LUNA) — something we noticed earlier last week. Whether it’s heavy bidding or just an unwillingness from holders to sell, both of these coins have held up extremely well.
  • Note that the chart above catches the top of AVAX but not the other coins as it’s indexed to Nov. 22. AVAX was closing in on new highs around then while the rest had already put in a local top. However, it’s evident that ETH and BNB have held through this entire dip with more resilience than most large coins. If things do turn around from here, both of them should outperform their peers.
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 Funding Rates Crash From Q4 High
  • Most market participants in crypto don’t care if it was liquidity concerns or bad news from China that caused the crash. Funding rates turned negative as levered longs were wiped out, and sentiment has been understandably poor since. The crypto market (and all markets, really) are sensitive to behavioral factors, so a mid-term collapse in sentiment would not be surprising if things don’t pick up soon.
  • On the bright side, funding rates going negative is also indicative of flushing out froth. BTC funding cratered to levels last seen in Aug. 2021 — just before it rallied from the $40Ks into a new all-time high.
  • Most market participants in crypto don’t care if it was liquidity concerns or bad news from China that caused the crash. Funding rates turned negative as levered longs were wiped out, and sentiment has been understandably poor since. The crypto market (and all markets, really) are sensitive to behavioral factors, so a mid-term collapse in sentiment would not be surprising if things don’t pick up soon.
  • On the bright side, funding rates going negative is also indicative of flushing out froth. BTC funding cratered to levels last seen in Aug. 2021 — just before it rallied from the $40Ks into a new all-time high.
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A Short-Lived Liquidity Crisis Emerges
  • Well, what really caused prices to fall so quickly? The answer to that is an utter collapse in market microstructure, as well as news surrounding Evergrande’s imminent default and Chinese policymakers reaction to growing economic risks.
  • The bid-ask spread for a $5M order in perp markets ranges from 0.1% to 0.5% (on bad days). On this occasion, spreads for a $5M order momentarily rose as high as 2% on Binance, 4.2% on FTX, 4% on BitMEX, and 11% on Deribit.
  • For once, this calamity was catalyzed on spot markets, where a few entities market sold a large amount of BTC over a very short time period. In essence, these large sell orders ate through buy walls. And with price cascading, market makers were probably unwilling to provide liquidity until they could figure out what was happening. A few moments later, with BTC bouncing off $42K, normality resumed. Alas, this was a short-lived liquidity crisis that escalated bearish overtones.
  • Well, what really caused prices to fall so quickly? The answer to that is an utter collapse in market microstructure, as well as news surrounding Evergrande’s imminent default and Chinese policymakers reaction to growing economic risks.
  • The bid-ask spread for a $5M order in perp markets ranges from 0.1% to 0.5% (on bad days). On this occasion, spreads for a $5M order momentarily rose as high as 2% on Binance, 4.2% on FTX, 4% on BitMEX, and 11% on Deribit.
  • For once, this calamity was catalyzed on spot markets, where a few entities market sold a large amount of BTC over a very short time period. In essence, these large sell orders ate through buy walls. And with price cascading, market makers were probably unwilling to provide liquidity until they could figure out what was happening. A few moments later, with BTC bouncing off $42K, normality resumed. Alas, this was a short-lived liquidity crisis that escalated bearish overtones.
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The Great Deleveraging
  • From the November peak to today, BTC open interest is down a whopping 50% — and this is over the span of just a few weeks. There’s logic behind why open interest and its composition matter. Too many leveraged longs and a lack of spot buying is a sign that a market is peaking. When there’s nobody left to buy/long, price momentum to the upside is severely limited (the same applies to heavy shorting preceding bottoms). Wiping out some of this open interest gives the market a reset.
  • 50% is not a small number, despite the fact that all market data in crypto looks whimsical to a portfolio manager at Goldman. While this doesn’t mean we’ve found a bottom with certainty, the probabilities over the mid-term are currently in favor of patient bulls. However, the most likely outcome is a sideways market for the next month or so, at least until the market finds its footing again.
  • From the November peak to today, BTC open interest is down a whopping 50% — and this is over the span of just a few weeks. There’s logic behind why open interest and its composition matter. Too many leveraged longs and a lack of spot buying is a sign that a market is peaking. When there’s nobody left to buy/long, price momentum to the upside is severely limited (the same applies to heavy shorting preceding bottoms). Wiping out some of this open interest gives the market a reset.
  • 50% is not a small number, despite the fact that all market data in crypto looks whimsical to a portfolio manager at Goldman. While this doesn’t mean we’ve found a bottom with certainty, the probabilities over the mid-term are currently in favor of patient bulls. However, the most likely outcome is a sideways market for the next month or so, at least until the market finds its footing again.
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