If you were forwarded this newsletter and would like to receive it, sign up here.
Gm Gino,
This week, we dive deep into the market crash dragging markets early into the week. We explore the macro conditions that led to it and the implications for crypto in this environment. Afterwards, we cover the remarkable resilience of DeFi protocols, which largely withstood the volatility without troubles.
Network Fees - Sum of total fees spent to use a particular blockchain. This tracks the willingness to spend and demand to use Bitcoin or Ether
Bitcoin fees reached a yearly low for the second consecutive week, as speculative activity on ordinals and runes evaporated following the market's recent volatility
Ethereum fees, on the other hand, climbed as a result of the volatility, with Uniswap volumes and Aave liquidations spiking
Exchanges Netflows - The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges
BTC recorded a whopping $1.7B net outflows from exchanges, the largest amount in over one year. This points to large whales accumulating through the recent downturn
ETH saw relatively modest net outflows of $120M, largely offset by institutions such as Jump and Paradigm depositing into CEXs this week
Macro Crash Drags Crypto Down
Crypto markets lost over $200B in value between Friday and Monday as global leverage unwound. Although crypto faced larger volatility than traditional markets, the underlying reasons for the crash lie upon the traditional finance system, where an epochal Yen carry trade was abruptly unraveled.
"Correlation of 1 Event" - Global assets moved down in tandem as Japanese Yen deleveraged
Since 2008, the cost of borrowing Japanese Yen was of 0.1% or lower, up until last week when interest rates were hiked by the BoJ to 0.25%
Throughout over a decade, trillions of cheap leverage were taken out against the Yen, swapping the Japanese currency for higher yielding bonds and equities
As the cost of borrowing increased, many rushed to repay these loans, causing the Yen to spike, and market participants to sell the second leg of their carry trade at almost any cost, causing global markets to crash altogether
The correlation between crypto and stocks hit their highest in 6 months as a result, where investors rushed to sell any asset to repay their Yen debt, causing further panic
Additionally, this seems to have unwound recently because of odds of a recession spiking. Many participants were short volatility as stocks headed to all-time highs, but with employment numbers being below expectations last month, worries about a recession have resurfaced, putting further pressure on markets.
Have You Tried AI Insights?
Our latest feature enables you to generate advanced on-chain research quickly. Simply navigate to one of our Perspectives dashboards and hit the AI Insights button.
Record Liquidations - Aave faced the largest liquidations ever this week
Nearly $300M was liquidated in Aave's main Ethereum instance this week
Most of it came from stablecoin loans against (wst)ETH collateral deposited into the market
Despite ETH crashing by as much as 25% within a week, liquidations were successfully executed, rebalancing the protocol and contributing $6M in profits to the Aave DAO
In a decentralized fashion, lending protocols where able to settle hundreds of millions in liquidations without relying on a centra point of failure. While Aave had seen similar stress tests previously, newer protocols still held up relatively well.
Minor Depegs - LRTs and yield-bearing stablecoins briefly deviated from their peg
Liquid restaking tokens such as EtherFi's eETH faced some volatility, though at a minor scale
eETH, being the largest LRT by market cap, depegged by as much as 2% during Monday's crash, but recovered within less than six hours
Other LRTs that are not redeemable faced steeper depegs, but also recovered most of their discounts despite not being arbitragable
On a similar position, Ethena's USDe, sustained its peg to the dollar
USDe's supply decreased by $100M as people redeemed, but the stablecoin did not depeg by more than 0.5% despite the wild market volatility
Overall, both new and "bluechip" protocols in DeFi weathered the macro storm successfully. Ultimately, this is a positive sign for the industry, being able to withstand harsh conditions without external interference as TradFi tends to do.
Last Chance: Learn About Institutional DeFi
While institutional capital has significantly fueled DeFi's growth this year, addressing key challenges is crucial to sustaining this momentum. What are the hurdles we need to overcome to ensure continued progress?
In our next webinar our CEO, Jesus Rodriguez, will address the challenges institutional DeFi is facing.
Unlock the Full Potential of DeFi with BeInCrypto’s Exclusive Insights
Subscribe to BeInCrypto's newsletter and receive daily deep dives into emerging trends, expert analysis, breaking crypto news, and the most impactful events in decentralized finance.
.png?upscale=true&height=50&upscale=true&name=pngwing.com%20(1).png){kind=small}