Convex Amassing Frax, Macro Trend Reversals, & On-Chain Derivatives

FEB 28, 2022 • 6 Min Read

Joo Kian + 3 others

DISCLOSURE: DELPHI VENTURES HOLDS A POSITION IN BTC AND HAS INVESTED IN VEGA, DYDX, AND UNI. DELPHI HAS DONE CONSULTING WORK FOR AAVE IN THE PAST. MEMBERS OF OUR TEAM HOLD AAVE, CVX, AND FXS. THESE STATEMENTS ARE INTENDED TO DISCLOSE ANY CONFLICT OF INTEREST AND SHOULD NOT BE MISCONSTRUED AS A RECOMMENDATION TO PURCHASE ANY TOKEN. THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND YOU SHOULD NOT MAKE DECISIONS BASED SOLELY ON IT. THIS IS NOT INVESTMENT ADVICE.

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Chart of The Day: Convex Now Owns 10% of Circulating Frax

  • Frax is the first fractional algorithmic stablecoin protocol that uses USDC, FXS, and Algorithmic Market Operations (AMOs) to mint a USD pegged stablecoin.
  • Similar to Curve, Frax has adopted a similar “ve-token” model that allows users to lock Frax Share (FXS) for fee sharing, governance rights, and gauge votes on Frax’s platform.
  • Convex has been the key leader in acquiring veCRV voting power to boost its users’ Curve yield without the user having to lock up CRV for veCRV. Since Frax has a similar approach to their voting and yield boosts, it’s only natural for Convex to start accumulating FXS.
  • Convex implemented cvxFXS in December 2021 and has accumulated around 10% of FXS’s circulating market cap in just 3 months. This is mainly investors locking FXS for cvxFXS to gain entry to the FPI airdrop, which had its snapshot done on February 20th, 2021.
  • The yield farming pool of FXS/crvFXS has also opened up for yield farming and is currently netting an APR of 137% and a projected APR of 212%. You can check it out on the Frax Convex page!
  • For more, Delphi members can read our recent deep-dive on the Convex flywheel.
Markets React to Ukrainian Tragedy

[Excerpt from our Feb. 25 Market Insights]

A Humanitarian Crisis

  • Before diving into this week’s Market Insights, we want to take a moment and recognize that what’s unfolding in Ukraine is nothing short of appalling. The tragedy that’s unfolded over the last 48 hours is front and center, and isn’t a situation any of us take lightly. Real people are experiencing serious hardship and bloodshed, which transcends anything we could possibly publish during times like this. After some debate, we decided to go ahead and stick to our weekly publishing schedule for those who are interested in sifting through some of our thoughts on the state of the market.

  • For those looking to contribute to the ongoing efforts to help those in need in Ukraine, see the official Ukraine Twitter page here. Some additional charities include Save The Children, which has been operating in Ukraine since 2014 (found here), or the International Medical Corps as they prepare to provide essential emergency and primary health services in Ukraine (found here). A more exhaustive list of charities can be found in this thread published by The Giving Block.

Guppy, the GOAT

  • For the entirety of this cycle (and last cycle for those interested in back-testing), the Guppy’s—Guppy Multiple Moving Averages, or GMMA—have been invaluable at keeping traders and investors away from false macro bottoms. As we noted, those who employ a similar analysis and framework to the Guppy’s have been able to sidestep much of the drawdown in BTC and other crypto assets. (For those unfamiliar or needing a refresher of the Guppy Multiple Moving Average, please refer to this note.)

  • A few weeks ago, we highlighted that, for the first time since July 2021, we saw the short-term grouping expanding and penetrating into the long term grouping in a potentially bullish fashion; it told us trend reversal could be in play, but we needed to see sustained strength to make it official. Shortly after, we saw momentum quickly wane as price failed to hold any reclaimed support areas, before reverting back towards the lower end of the above range.

  • In our GMMA study below, we clearly see that the short-term grouping failed to break through the long-term grouping after a valiant effort. Price was rejected by the long-term grouping, and down we went, exacerbated further by this week’s geopolitical risks.

  • In the wake of recent events that have unfolded, being cautious over the last two weeks has indeed proved to be the correct course of action. The following are key levels that are worth highlighting as price has continued to pullback:
  • Support at $34K: During January when the major concerns for markets was a hawkish Fed, markets nuked into $34K support before staging an impressive rally. Since then, price has failed to sustain momentum and returned to this $34K region as Russia announced its invasion of Ukraine. Price has since bounced to $38K at the time of writing, but a revisit of the $34K support level is certainly not out of the question just yet.
  • Support at $28.5-$30.5K: If the $34K level fails to hold, the next level of market structure is the weekly levels that we’ve been harping on around $28.5K-$30.5K.
  • For more, Delphi members can see the weekly Market Insights report here.
Vega Protocol Update: Evaluating Value Accrual

[Excerpt from our Delphi Pro report]

  • Let’s compare a range of decentralized trading venues to Vega. First off, it’s obvious that traction is the most important thing in the eyes of the market. Uniswap and dYdX both have governance tokens with lackluster value accrual mechanics, but their tokens are still highly valued by the market.
  • Uniswap is the leading on-chain spot market, with an average daily turnover of well over $1B over the last year. As the trading hub for the most liquid blockchain ecosystem – Ethereum – Uniswap commands a fairly steep valuation on a fully diluted basis (FDV).
  • Osmosis is a Cosmos Zone, meaning it’s an independent chain seeking to become the de facto liquidity and trading layer for the Cosmos ecosystem. Despite having far less traction than Uniswap, it commands a similar FDV because it’s a standalone L1 blockchain rather than a decentralized application (dApp).
  • dYdX is the leading on-chain derivatives market with a focus on perpetuals. No other on-chain exchange comes close to dYdX in terms of notional volume. Product traction is phenomenal, which creates a semblance of value and seemingly justifies the FDV of $7.4B. However, the DYDX token currently lacks strong value accrual mechanics, though this is being rectified with dYdX v4. dYdX is currently building a new iteration of the product – one that will be fully community-controlled. Currently, any revenue is earned by dYdX Trading, an incorporated entity. With v4, fees are expected to flow back to the community and token holders.
  • For more on the decentralized trading landscape, Delphi Pro members can see the full Vega report.
Notable Tweets

Evmos Delays Launch till March 2nd, Wednesday

Prism Farm Event To Lookout This Week

stETH Live on Aave

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Joo Kian + 3 others