GALA and LDO Pump Amid "Short-Squeeze Szn"

🌅 Welcome!

DCG is closing down its wealth management business that had $3.5B in AUM. The SEC is also probing transfers between DCG and its subsidiary, Genesis. Looks like it’s going to be a big year.

Today, we take a look at the recent price rallies for LDO and GALA while our Research team provides some insights into the future of ETH staking.

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

🚨 In Case You Missed It

• DCG closes its wealth management business called HQ. The entity had $3.5B in assets under management.
• The U.S. Department of Justice and the SEC are probing transfers between DCG and its subsidiary, Genesis.
• The U.S. Department of Justice seizes Robinhood (HOOD) shares worth $456M in the FTX case.
• The CFTC charges Avraham Eisenberg with market manipulation in connection with the Mango Markets exploit.

📊 GALA and LDO Pump Amid “Short-Squeeze Szn”

• Over the past seven days, the two best-performing assets have been GALA and LDO, which are up 169% and 77% respectively. Much of these returns are the result of a weekend pump where GALA and LDO rallied 77% and 67% respectively.
• The rally is likely the result of a short squeeze instead of an organic increase in demand. The funding rates for both tokens were negative with traders with short positions paying 0.65% for LDO and 0.85% for GALA every eight hours.
• Generally, such aggressive positioning is “hunted” – a practice where market participants attempt to push the price of an asset to levels where traders are liquidated and forced to close positions.
• The open interest (OI) for both tokens also dropped significantly with OI for LDO decreasing from a high of $100M to $60M and OI for GALA decreasing from a high of $176M to $133M.
• LDO has also benefitted from a narrative-backed trend in tokens associated with liquid staking derivatives. Over the past 7 days, Rocket Pool and Ankr have also outperformed with RPL and ANKR rallying 24% and 34% respectively.

⚡ The Future of ETH Liquid Staking

• Under proof-of-stake, users have to run validator nodes to stake tokens. Given the technicalities involved with this, only professionals typically run validator nodes.
• To increase accessibility and liquidity for all other users, liquid staking protocols like Lido and Rocket Pool were developed. These protocols allow users to stake their tokens with validators in exchange for a portion of the interest yield earned.
• Additionally, the staked tokens can be easily traded on decentralized exchanges, allowing users to convert them back to unstaked tokens (e.g., from stETH to ETH).

• The ETH liquid staking market has grown tremendously, now capturing approximately 40% of all ETH staked. Lido is the clear leader, holding about 30% of staked ETH.
• Since the Merge, staked ETH has increased along with yields. As yields have risen, so has the competition, as a significant portion of the market hasn’t been captured yet.

• While Lido remains the leader, its market share is slowly being eroded by competitors. Rocket Pool, StakeWise, and Frax are three protocols steadily gaining market share at Lido’s expense.
• Coinbase has also entered the competition, accounting for 16% of the market. As one of the leading centralized exchanges, Coinbase has a strong brand. The ability to onboard users to staked ETH puts them in a prime position to grow.

• Coinbase and Frax are strong players to look out for given their astounding growth rates. ETH staked as cbETH increased Coinbase’s staked ETH from ~600K in July to ~1M as of Dec. 16, 2022. Frax just launched their liquid staking product in October and has seen rapid growth to ~45K staked ETH as of Dec. 16, 2022.
• For more on liquid staking derivatives, Delphi members can read our Delphi Pro report here.

🐣 Notable Tweets

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