ETH Funding Rate Reverts to Neutral After Successful Merge

SEP 20, 2022 • 4 Min Read

Yun Heng Lin Yun Heng Lin

🌅 Welcome!

Nasdaq is planning to enter crypto by offering BTC and ETH custody services for institutional investors. They join a number of institutions entering the crypto ecosystem during this downturn.

One of the largest crypto market makers was hacked for $160m, ETH funding rates revert to neutral, and our Research team dives into what went wrong with virtual land sales.

This is the Delphi Daily. Let’s dive in.

🚨 In Case You Missed It

  • Wintermute, one of the largest crypto market makers, loses $160m due to a hack. The CEO says the firm remains solvent.
  • Nasdaq announces plans to enter crypto by offering BTC and ETH custody services for institutional investors.
  • Grayscale Investment announces plans to sell ETH-PoW tokens received by its crypto funds. Cash proceeds will be distributed to shareholders.
  • MicroStrategy buys 301 BTC for $6 million. The firm now owns 130k BTC, bought at an average price of $30.6k per BTC.
  • Coin98 launches a fully-backed stablecoin, CUSD.

📊 ETH Funding Rate Reverts to Neutral After Successful Merge

  • On Sept 14 – one day before the Merge – ETH traders in perpetual futures markets, or perps, were paying a whopping -0.263% in funding rates to keep short positions open.
  • This represented a new all-time low for funding rates, breaking the previous low of -0.157% set during the Mar 2020 sell-off.
  • At the time, the crowded trade was to buy spot ETH and short ETH perps. Traders were buying spot ETH in order to receive the ETH-PoW airdrop.
  • Funding rates change based on the difference in prices between spot and perp markets. Since the ETH rally was largely driven by spot buying pressure, this difference in prices increased, and funding rates moved well into negative territory between August and September.
  • On Sept 15, once the Merge was completed, traders reversed their positions by selling spot ETH and unwinding short ETH perps.
  • Since traders essentially sold spot (negative pressure) and re-bought perps (positive pressure), the difference in prices came back to parity, causing funding rates to compress back to normal levels.
  • For more on post-Merge Ethereum, you can read our unlocked Delphi Pro report here.

The Tide Rolls Out for The Sandbox

  • Less than ten months ago, you’d find it hard not to come across an article foreshadowing a blockchain-powered digital future where we all live in virtual worlds with our virtual friends inside our virtual real estate.
  • In 2021, we saw how a series of bullish announcements sparked the interest of investors, and subsequently, the price for digital land quickly reached never-before-seen heights.
  • Unfortunately, those prices were fueled predominantly by speculation, and very little real value was produced. Presently, virtual land trading volume is down 98% and as much as 88% for the market caps of land assets.

  • Digital land, also known as virtual worlds, has been around for decades and has undergone several hype cycles. More recently, in late 2021, we saw interest build with firms like Citibank valuing virtual worlds at an $8 to $13 trillion market by 2030.
  • What started the hype cycle was when in October 2021, Facebook rebranded to Meta and announced that they were spending $10b on Metaverse development. Around this time, Epic raised $2b with Sony and Lego’s parent firm to build their own virtual worlds and experiences.
  • This collection of bullish announcements caused blockchain-based digital land projects like The Sandbox (TSB), Decentraland (DCL), and NFTWorlds (NFTW) to garner a lot of public and private attention.
  • There have been just over 100k total land sales as of Q2 2022, valued at almost $2b (TSB land sales represent ~17% of this).
  • However, many have likened this boom to the real-world housing bubble in the early 2000s, and maybe they are right. Prices are falling, digital land trading volume has dropped considerably in 2022, and investors are questioning if this was all just a big scam or if this is an opportune time for entry.
  • For more on virtual land, Delphi members can read our Delphi Pro report here.

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