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Delphi Daily
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ETH Options Picking Up Again
  • ETH options open interest continues to trend upwards, breaking previous highs recorded in May. Option trading volume for ETH recovered well too as it crossed $1B in daily volume on Nov. 30. Though it’s still a way off from the volume high of $1.4B set in May, this is encouraging for the bulls.
  • Open interest hitting new highs as ETH prices trend upward is a sign of positive sentiment for the asset. While volume may not be back at it’s peak, the increase in trading activity since the early Q3 bottom is clear as day. Though with the macro picture looking slightly bleaker than last week, there’s reason to tread with caution.
  • ETH options open interest continues to trend upwards, breaking previous highs recorded in May. Option trading volume for ETH recovered well too as it crossed $1B in daily volume on Nov. 30. Though it’s still a way off from the volume high of $1.4B set in May, this is encouraging for the bulls.
  • Open interest hitting new highs as ETH prices trend upward is a sign of positive sentiment for the asset. While volume may not be back at it’s peak, the increase in trading activity since the early Q3 bottom is clear as day. Though with the macro picture looking slightly bleaker than last week, there’s reason to tread with caution.
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BTC and ETH Leaving Exchanges
  • Exchange balances of BTC and ETH have been on a consistent decline since Apr. 2021. BTC balance on exchanges is currently at a three-year low, and ETH balance on exchanges is at a two-year low. The rise of DeFi has allowed users to seek yields on their assets rather than keeping them dormant on an exchange.
  • Previously, exchange balance was a good indicator of cyclical tops and bottoms as all trading happened on centralized exchanges. With DEXes available across a variety of L1s now, the indicative power of this metric has declined. May’s cycle top gave us a glimpse, as ETH balances hardly increased despite rampant selling and negative price action. BTC, on the other hand, isn’t as liquid on DEXes (as WBTC), which is the primary explanation for why ETH is moving out of exchanges at a faster pace.
  • Exchange balances of BTC and ETH have been on a consistent decline since Apr. 2021. BTC balance on exchanges is currently at a three-year low, and ETH balance on exchanges is at a two-year low. The rise of DeFi has allowed users to seek yields on their assets rather than keeping them dormant on an exchange.
  • Previously, exchange balance was a good indicator of cyclical tops and bottoms as all trading happened on centralized exchanges. With DEXes available across a variety of L1s now, the indicative power of this metric has declined. May’s cycle top gave us a glimpse, as ETH balances hardly increased despite rampant selling and negative price action. BTC, on the other hand, isn’t as liquid on DEXes (as WBTC), which is the primary explanation for why ETH is moving out of exchanges at a faster pace.
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DeFi TVL Hits ATH, But Ethereum is Losing Market Share
  • DeFi’s total capital locked sits a new all-time high above $250B. However, as noted yesterday, Ethereum’s dominance over DeFi activity has taken a big hit in H2 2021.
  • As the multi-chain narrative plays out, capital has been moving to ecosystems outside of Ethereum. The main L1s that stand out are Solana, Terra, and Avalanche; each of them quickly grew to each hold 5% of global DeFi TVL.
  • High gas fees on Ethereum have been the main contributor to usage moving cross-chain. For comparison, a DEX swap costs ~$70 (~70 gwei gas price) on Ethereum while the same on Solana or Terra costs under $1. As smaller users got priced out of Ethereum, other chains have seized the opportunity.
  • You can visit this website to check how much you’ve spent on Ethereum fees. Though a word of warning — it’s not a pleasant sight.
  • DeFi’s total capital locked sits a new all-time high above $250B. However, as noted yesterday, Ethereum’s dominance over DeFi activity has taken a big hit in H2 2021.
  • As the multi-chain narrative plays out, capital has been moving to ecosystems outside of Ethereum. The main L1s that stand out are Solana, Terra, and Avalanche; each of them quickly grew to each hold 5% of global DeFi TVL.
  • High gas fees on Ethereum have been the main contributor to usage moving cross-chain. For comparison, a DEX swap costs ~$70 (~70 gwei gas price) on Ethereum while the same on Solana or Terra costs under $1. As smaller users got priced out of Ethereum, other chains have seized the opportunity.
  • You can visit this website to check how much you’ve spent on Ethereum fees. Though a word of warning — it’s not a pleasant sight.
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DAI Redeems Itself
  • DAI and MakerDAO have gotten a lot of backlash in the past few months for having 60% of its collateral backed by USDC. As a decentralized stablecoin, it’s obviously not ideal for DAI to have a majority of its asset backing in a centralized asset. Having a large portion of the total collateral as USDC brings incremental risk to Maker. If regulators asked CENTRE — the consortium that runs USDC — to blacklist USDC in Maker, DAI would be in an extremely difficult position. However, things seem to be changing for the better.
  • Since October, ETH and WBTC have slowly re-gained collateral dominance on MakerDAO. ETH recently overtook USDC as the dominant collateral asset on the protocol, and stakeholders will be glad to see it.
  • DAI and MakerDAO have gotten a lot of backlash in the past few months for having 60% of its collateral backed by USDC. As a decentralized stablecoin, it’s obviously not ideal for DAI to have a majority of its asset backing in a centralized asset. Having a large portion of the total collateral as USDC brings incremental risk to Maker. If regulators asked CENTRE — the consortium that runs USDC — to blacklist USDC in Maker, DAI would be in an extremely difficult position. However, things seem to be changing for the better.
  • Since October, ETH and WBTC have slowly re-gained collateral dominance on MakerDAO. ETH recently overtook USDC as the dominant collateral asset on the protocol, and stakeholders will be glad to see it.
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DEX Volumes Back on Track, Inch Closer to ATH
  • As crypto markets bounced back from the correction earlier this year, trading volume on Ethereum DEXes have consistently increased, although they’re still below peak levels set in May. One key change in the on-chain landscape since then is the emergence of alternative L1s with liquid DeFi ecosystems. Ethereum’s DeFi TVL dominance over other chains has deteriorated meaningfully since May. The significant increase in trading activity moving to DEXes on these alternative networks is likely one of the main reasons Ethereum DEX growth has been slower.
  • Another interesting observation: Curve has the 2nd highest TVL amongst Ethereum DeFi protocols at ~$19.2B, yet it only did ~$4.3B of volume in November 2021. Compare that to Uniswap, which has ~$10.4B TVL, and facilitated ~$83.8B of volume over the same time period. Of course, a lot of this is explained by Curve’s focus on pegged assets while Uniswap lets you trade any Ethereum-based token. But a large amount of stablecoin volume has moved to Uniswap since it implemented lower fee tiers, seemingly causing Curve’s volume growth to slow down. Curve’s TVL is also inflated by CRV emissions to LPs, many of whom are just trying to farm more tokens.
  • As crypto markets bounced back from the correction earlier this year, trading volume on Ethereum DEXes have consistently increased, although they’re still below peak levels set in May. One key change in the on-chain landscape since then is the emergence of alternative L1s with liquid DeFi ecosystems. Ethereum’s DeFi TVL dominance over other chains has deteriorated meaningfully since May. The significant increase in trading activity moving to DEXes on these alternative networks is likely one of the main reasons Ethereum DEX growth has been slower.
  • Another interesting observation: Curve has the 2nd highest TVL amongst Ethereum DeFi protocols at ~$19.2B, yet it only did ~$4.3B of volume in November 2021. Compare that to Uniswap, which has ~$10.4B TVL, and facilitated ~$83.8B of volume over the same time period. Of course, a lot of this is explained by Curve’s focus on pegged assets while Uniswap lets you trade any Ethereum-based token. But a large amount of stablecoin volume has moved to Uniswap since it implemented lower fee tiers, seemingly causing Curve’s volume growth to slow down. Curve’s TVL is also inflated by CRV emissions to LPs, many of whom are just trying to farm more tokens.
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Net ETH Emissions Decline MoM
  • As mentioned in yesterday’s post, ETH/BTC broke through a key upper trend line yesterday, which typically leads to overwhelmingly bullish sentiment for ETH in the market.
  • Keeping that positive vibe alive, monthly ETH emissions have also started to decline. Net ETH emissions for Nov. 2021 were the lowest seen since EIP-1559 was implemented. Other than ETH transfers, Uniswap and OpenSea remain the top contributors toward the ETH burn. If you would like to dig deeper, you can find the burn leaderboard here.
  • Close to 1.1M ETH has been burned since EIP 1559 was implemented less than four months ago. In dollar terms, that translates to roughly $5B worth at current prices, or a little over $15B (2.7% of circulating supply) annualized.
  • As mentioned in yesterday’s post, ETH/BTC broke through a key upper trend line yesterday, which typically leads to overwhelmingly bullish sentiment for ETH in the market.
  • Keeping that positive vibe alive, monthly ETH emissions have also started to decline. Net ETH emissions for Nov. 2021 were the lowest seen since EIP-1559 was implemented. Other than ETH transfers, Uniswap and OpenSea remain the top contributors toward the ETH burn. If you would like to dig deeper, you can find the burn leaderboard here.
  • Close to 1.1M ETH has been burned since EIP 1559 was implemented less than four months ago. In dollar terms, that translates to roughly $5B worth at current prices, or a little over $15B (2.7% of circulating supply) annualized.
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LUNA New ATHs
  • LUNA hit a fresh all-time high yesterday, undeterred by Powell’s hawkish comments that sent the broader crypto market lower. Notably, ETH also shrugged off the downturn as it rallied past $4700 and inched closer to a new high.
  • LUNA’s circulating supply saw a sharp spike on Nov. 11,  caused by an increase in the amount of LUNA to be burned from the community pool over the next two weeks. Approximately 88.675M LUNA will be burned over this period. Circulating supply has since reverted to levels seen before the spike, with over 8.2M LUNA burned in the last 7 days.
  • Recent stablecoin regulation threats could act as a tailwind for UST growth, potentially attracting capital inflows from more centralized stablecoins whose operations have been called into question.
  • LUNA hit a fresh all-time high yesterday, undeterred by Powell’s hawkish comments that sent the broader crypto market lower. Notably, ETH also shrugged off the downturn as it rallied past $4700 and inched closer to a new high.
  • LUNA’s circulating supply saw a sharp spike on Nov. 11,  caused by an increase in the amount of LUNA to be burned from the community pool over the next two weeks. Approximately 88.675M LUNA will be burned over this period. Circulating supply has since reverted to levels seen before the spike, with over 8.2M LUNA burned in the last 7 days.
  • Recent stablecoin regulation threats could act as a tailwind for UST growth, potentially attracting capital inflows from more centralized stablecoins whose operations have been called into question.
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Powell’s Hawkish Comments Spark Volatilit
  • US equity markets opened higher today, recovering from yesterday’s dip incited by Fed Chairman Jerome Powell’s comments. At a Senate briefing, Powell said the risk of persistently higher inflation has increased and noted it may be appropriate to consider wrapping up their balance sheet taper plans sooner than initially planned.
  • This doesn’t mean the Fed will stop expanding its balance sheet, but rather it implies an acceleration of the rate at which they plan to decrease their monthly asset purchases. The Fed will reduce its asset purchases from $120B to $105B this month, and Powell’s recent comments suggest we could see that number fall a lot faster. This is likely to be a topic of Debate at the FOMC meeting in December, but the market has already started to price in expectations for tighter monetary policy as we head into 2022.
  • With bond purchases potentially ending quicker, the slowdown in global liquidity growth contributes to a somewhat negative outlook for both the equity and crypto markets alike in the near term. Adding to those fears is the sudden emergence of the Omicron variant of the coronavirus, which caused quite a bit of volatility across global markets this past week. Overall, there are reasons to exercise caution as an investor until we have more clarity.
  • US equity markets opened higher today, recovering from yesterday’s dip incited by Fed Chairman Jerome Powell’s comments. At a Senate briefing, Powell said the risk of persistently higher inflation has increased and noted it may be appropriate to consider wrapping up their balance sheet taper plans sooner than initially planned.
  • This doesn’t mean the Fed will stop expanding its balance sheet, but rather it implies an acceleration of the rate at which they plan to decrease their monthly asset purchases. The Fed will reduce its asset purchases from $120B to $105B this month, and Powell’s recent comments suggest we could see that number fall a lot faster. This is likely to be a topic of Debate at the FOMC meeting in December, but the market has already started to price in expectations for tighter monetary policy as we head into 2022.
  • With bond purchases potentially ending quicker, the slowdown in global liquidity growth contributes to a somewhat negative outlook for both the equity and crypto markets alike in the near term. Adding to those fears is the sudden emergence of the Omicron variant of the coronavirus, which caused quite a bit of volatility across global markets this past week. Overall, there are reasons to exercise caution as an investor until we have more clarity.
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