Market Sentiment and DeFi's Resilience

Today’s Digest

The Bitcoin derivatives market is coming back to life, and retail sentiment fell at record pace during this month’s drop. But besides token prices falling across the board, DeFi projects continue to march on to record usage levels.

Key Takeaways

• After a 12% rise, BTC is trying to hold on to yesterday’s gains. One positive sign for bulls is funding for BTC perpetuals reverting back to neutral rates (close to 0).
• The average funding rate across top derivatives exchanges, pictured below, didn’t fall as hard as March 2020 and recovered faster. This potentially indicates that sentiment in the perp market has already improved.

Key Takeaways

• Comparing Bitcoin’s historical drawdowns to all-time highs versus the Crypto Fear & Greed Index (o = extreme fear; 100 = extreme greed) is a rough proxy for gauging market sentiment.
• Given BTC’s current drawdown from its all-time highs and the sharp shift from greed to fear, investors seem to have overreacted to this month’s crash, as is usually the case when leverage and speculative sentiment reach similar extremes.

Key Takeaways

• Curve Finance’s tripool — its largest pool by volume and liquidity — has seen a sharp increase in USDC since April with DAI and USDT’s share shrinking.
• USDC’s sharp increase is explained by Curve’s new metapools. Metapools allow any stablecoin project to launch their own Curve pool with liquidity connected to the rest of Curve via the tripool.
• Curve has quickly become a vital piece of overall stablecoin liquidity infrastructure.

Key Takeaways

• DEX aggregators have had a great weak, with each of the 3 largest projects facilitating record daily volume.
• While 1inch is still the largest, Paraswap and Matcha have been eating into 1inch’s market share.

Notable Tweets

DeFi protocols passed their first major stress test with flying colors

Something to get your head around:

Head Line:

A major asset class crashed 42% in 14 days, wiping out $1.02trn in value in an orgy of liquidation of people up to 100 x levered, with very low regulation. Many tokens fell up to 70%, including unregulated lending and borrowing biz.

— Raoul Pal (@RaoulGMI) May 25, 2021

An expert’s take on the China’s mining ban

Here is its if you are just waking up in the States, four screenshots. A summary version of the memo on China FUD prepared for Sino by an extremely well-qualified outside expert. Can’t use their name or publish the full memo but I hope this helps. https://t.co/ymOslp4wB9

— Matthew Graham (@mattysino) May 25, 2021

Terra explains what happened during last week’s flash crash

1/ Extreme volatility produced a series of collateral effects across the Terra ecosystem, primarily derived from the short-term peg deviation of $UST and its impact on the volatility of $LUNA and levers of the Terra protocol. There’s a lot to unpack, so let’s dive in ?

— Terra ? powered by Luna ? (@terra_money) May 24, 2021