Delta-Neutral AXS Farming, LUNA Burns, Yield Generating NFTs

OCT 04, 2021 • 4 Min Read

Joo Kian + 1 other

Disclosure: Delphi Ventures has invested in ETH, LUNA, SOL, AVAX, DYDX, and AXS. Members of our team also own GalacticApes, CoolCats, CryptoPunks and BAYC NFTs. 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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Market Update

The broader crypto market is seeing a slight pullback after the weekend run-up, seemingly weighed down by traditional markets, with major equity indices down on the day. Nonetheless, AXS, LUNA, and DYDX were among today’s top gainers. AXS and LUNA hit fresh ATHs today following the implementation of AXS Staking and Terra’s Colombus-5 Upgrade last week.

AXS Arbitrage? AXS Ranges High on Negative Funding Rates
  • Axie has been the star performer in crypto over the weekend due to the release of AXS staking on Friday. AXS is up +117% over the past 7 days.
  • AXS staking opened up opportunities for yield arbitrage via perpetual futures. This can be done by simultaneously buying spot AXS to stake, while shorting the AXS-perpetual future. The trade is delta-neutral — meaning there’s no price risk —  and captures the difference.
  • However, the yield from this is somewhat muted relative to normal because funding rates for AXS perpetuals have been negative for 5 days now. The 8-hour funding rate is -0.1%,  equating to shorts paying longs ~110% APR to keep their position open. With AXS staking yields currently at ~189% APR, a net yield of ~79% APR (or 189% – 110%) is possible but is also subject to risks from AXS staking yields and/or perpetuals funding rates falling.
  • If many traders take the delta-neutral opportunity, it could cause funding rates to go further negative as shorts pile up. As funding rates decline, the profitability of the opportunity dampens as it becomes more expensive to keep a short position open.

Columbus-5, Burn Baby Burn
  • Terra’s highly anticipated Columbus-5 upgrade went through on Sept. 30. While there were no drastic price movements on the day, LUNA rallied considerably over the weekend, with price making new all-time highs for two consecutive days now.
  • The Columbus-5 upgrade was a major boost to the Terra network. The most significant change to the token economics was the decision to burn LUNA permanently instead of transferring it to the community pool. In addition, LUNA that had previously been sent to the community pool was burned to the tune of ~23.4m LUNA (worth over $1bn at current prices).
  • The supply burn places deflationary pressure on LUNA making it increasingly scarce, similar to EIP-1559 for Ethereum. This was a key driver for recent price action.
  • Another significant change worth mentioning is the adoption of Inter-Blockchain Communication (IBC) which will open Terra up to the Cosmos ecosystem. The implication of this is wider adoption of Terra’s UST stablecoin, which could become the stablecoin of choice for Cosmos app-chains.

Toads, Kongz, Cats and Creatures
  • Attention seems to be shifting from NFT blue chips like Punks and BAYC to longer tail NFTs like CrypToadz and Creature. NBA Hall-of-Famer Shaquille O’Neal triggered a floor price surge of Creature World NFTs after changing his Twitter profile picture to a Creature.
  • CyberKongz, CoolCats, and GalacticApes saw floor prices rise considerably. Each of the three have positioned themselves as yield-generative NFTs. For example, with CyberKongz, holding a Genesis CyberKongz yields holders 10 $BANANA per day, which is worth around $950 at the time of writing. That equates to an annualized income of $346k based on today’s price. CoolCats is attempting to recreate CyberKongz’s success with the upcoming release of their $MILK token.

Layer 1 Tokens Rally Above September Lows
  • L1 tokens had a strong start to October, as they inched back up from the mid-September dip.
  • EVM compatible chains such as AVAX and FTM continue their outperformance against the field. AVAX, in particular, is holding strong as the top monthly performer.

Notable Tweets

Terra Ecosystem Map

Ethereum Settled $6.2 Trillion in Transactions in the Last Twelve Months

A Thread on Ethereum Happenings Last Week

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Joo Kian + 1 other