Uniswap Daily Active Addresses Rise Despite the Bear Market

🌅 Welcome!

Deribit becomes the latest crypto exchange to get hacked for $28M, prompting the exchange to temporarily halt withdrawals.

Today, we examine trading activity on Uniswap and our Research team dives into Vovo Finance, one of the protocols offering principal-protected yield in DeFi.

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

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🚨 In Case You Missed It

• Deribit halts withdrawals after hackers drain $28M from the exchange’s hot wallet.
• J.P. Morgan executes its first DeFi transaction under a pilot program by Singapore’s central bank.
• The U.S. Federal Reserve announces 75 bps rate hike during latest FOMC meeting.
• South African grocery chain, Pick n Pay, will allow customers to pay using Bitcoin.
• Singapore’s central bank approves the major payments institution license for Circle and the digital payment token license for Paxos.

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📊 Uniswap Daily Active Addresses Rise Despite the Bear Market

• In October, the average number of daily active addresses on Uniswap increased by 20% over the previous month to reach 41K. This comes despite the bear market with ETH trading 68% below its all-time high of $4.8K.
• Uniswap previously recorded similar levels of activity in November 2021 when average daily active addresses reached 47K. This was the same month when ETH traded at an all-time high.
• Despite the increase in user activity, UNI has underperformed with a 30-day return of 13% as compared to 20% for ETH. This difference in user activity and token performance highlights the importance of value accrual for token holders.
• In August 2022, a proposal outlining a pilot program to collect fees from three trading pairs was overwhelmingly passed by the Uniswap community. Such value accrual mechanisms can potentially tie user activity with token performance.
• Uniswap Labs, the corporate entity building the protocol, also announced a $165M Series B funding round on Oct. 13, 2022.

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⚡ The Emergence of Principal-Protected Yield in DeFi

Principal-protected vaults are an emerging niche of DeFi structured products that attempt to provide risk-averse investors with yield that compares to more aggressive strategies elsewhere.

These vaults attempt to guarantee the user’s initial deposit by concentrating risk into house money earned by the principal via safer yield avenues. Are principal-protected products a value add, or just another zero-sum gadget?

Principal-protected vaults offered by Vovo Finance deposit user funds into Curve Finance liquidity pools. Farming rewards are harvested weekly and converted to USDC.

The USDC is used to open 15x leveraged trades on GMX. At the end of each week, the trade is closed and any profits are added to the principal. Users are able to choose between four vaults: ETH Up, ETH Down, BTC Up, and BTC Down.

The four vault choices offer an interesting gamification aspect to the yield process, but are likely insufficient to maintain user interest in the long run.

A week or two of guessing right has little impact overall. The Vovo vaults are best suited for expressing short-medium term, low-conviction views on the market.

Base yield represents a hurdle rate that the vault must exceed in order to justify its existence. The principal-protected product that consistently provides material excess returns will likely emerge the winner.

Given Vovo’s vault structure and the PvP nature of trading, it’s reasonable to assume that excess return would trend to zero in the long run. How has this played out so far?

The broader crypto bear market appears to only manifest itself through the higher upside of the down vaults. Overall, the vaults seem to have performed similarly.

Since vault performance is mostly dependent on short term price action, it is important to avoid overanalyzing these results. But ideally, we would like to see the vaults come out on top of the Curve yield in aggregate.

For more on Vovo Finance, Delphi members can read our Delphi Pro report here.

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🐣 Notable Tweets

Deep Dive Into Art Gobbler’s marketing

The success of Art Gobblers didn’t happen by accident.

“Influencers happened.”

Let’s take a dive into the marketing and community creation that existed for months before the mint and rise to a 15 ETH floor in a day.

⤹ 🧵

– Minh (@MINHxDYNASTY)  Nov 1, 2022

Liquidity in the US economy

$100 billion of new liquidity was added to the US economy today

⬆️ $75bn from Reverse Repo
⬆️ $25bn from the Treasury

That’s an entire month of “QT” (Fed bal sheet reduction) canceled out in a single day

If you aren’t watching RRP & TGA, you’re missing the entire show

– Max Anderson (@maxjanderson) Nov 2, 2022