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Relief for DAI, Multi-Chain Competition, and Exchange Balances

Dec 2, 2021 · 4 min read

By Joo Kian

DAI Redeems Itself

  • DAI and MakerDAO have gotten a lot of backlash in the past few months for having 60% of its collateral backed by USDC. As a decentralized stablecoin, it’s obviously not ideal for DAI to have a majority of its asset backing in a centralized asset. Having a large portion of the total collateral as USDC brings incremental risk to Maker. If regulators asked CENTRE — the consortium that runs USDC — to blacklist USDC in Maker, DAI would be in an extremely difficult position. However, things seem to be changing for the better.
  • Since October, ETH and WBTC have slowly re-gained collateral dominance on MakerDAO. ETH recently overtook USDC as the dominant collateral asset on the protocol, and stakeholders will be glad to see it.
DeFi TVL Hits ATH, But Ethereum is Losing Market Share

  • DeFi’s total capital locked sits a new all-time high above $250B. However, as noted yesterday, Ethereum’s dominance over DeFi activity has taken a big hit in H2 2021.
  • As the multi-chain narrative plays out, capital has been moving to ecosystems outside of Ethereum. The main L1s that stand out are Solana, Terra, and Avalanche; each of them quickly grew to each hold 5% of global DeFi TVL.
  • High gas fees on Ethereum have been the main contributor to usage moving cross-chain. For comparison, a DEX swap costs ~$70 (~70 gwei gas price) on Ethereum while the same on Solana or Terra costs under $1. As smaller users got priced out of Ethereum, other chains have seized the opportunity.
  • You can visit this website to check how much you’ve spent on Ethereum fees. Though a word of warning — it’s not a pleasant sight.
BTC and ETH Leaving Exchanges

  • Exchange balances of BTC and ETH have been on a consistent decline since Apr. 2021. BTC balance on exchanges is currently at a three-year low, and ETH balance on exchanges is at a two-year low. The rise of DeFi has allowed users to seek yields on their assets rather than keeping them dormant on an exchange.
  • Previously, exchange balance was a good indicator of cyclical tops and bottoms as all trading happened on centralized exchanges. With DEXes available across a variety of L1s now, the indicative power of this metric has declined. May’s cycle top gave us a glimpse, as ETH balances hardly increased despite rampant selling and negative price action. BTC, on the other hand, isn’t as liquid on DEXes (as WBTC), which is the primary explanation for why ETH is moving out of exchanges at a faster pace.
ETH Options Picking Up Again

  • ETH options open interest continues to trend upwards, breaking previous highs recorded in May. Option trading volume for ETH recovered well too as it crossed $1B in daily volume on Nov. 30. Though it’s still a way off from the volume high of $1.4B set in May, this is encouraging for the bulls.
  • Open interest hitting new highs as ETH prices trend upward is a sign of positive sentiment for the asset. While volume may not be back at it’s peak, the increase in trading activity since the early Q3 bottom is clear as day. Though with the macro picture looking slightly bleaker than last week, there’s reason to tread with caution.
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