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Research / farmers-and-chefs
FARMERS AND CHEFS ARE THE NEW MASTERS OF THE UNIVERSE…
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BEQUANT Crypto&Coffee

Many moons ago, financial engineering and human behaviour, namely greed, propelled investment bankers and financiers to a golden era, it was a period in which they were widely seen as ‘Masters of the Universe’. Once the financial crisis of 2008 gripped much of the world, the aforementioned dreams and hopes very quickly unravelled and a new regulatory regime quickly put a clampdown on financial innovation. Granted, the move towards stricter regulation and much more transparency on the use of structured products and how pools were sliced into tranches, was “good” for consumer protection, even if it caused credit conditions to tighten significantly.

Fast forward to 2020 and the world of cryptocurrencies and digital assets is undergoing its own evolution, or rather revolution if looked from the eyes of traditional financiers. First, the market was graced with yield farming, courtesy of Compound Finance and its native COMP token. The likes of Aave, a Finnish word which translates to “ghost” in English, came up with a notion of flash loans - the first uncollateralized loan option in DeFi. As per Aave, flash loans enable one to borrow instantly and easily, no collateral needed provided that the liquidity is returned to the pool within one transaction block. 

The growth of Defi offerings has been such that the total amount locked has gradually risen to over $9bln, hardly an insignificant amount. The largest four offerings each command in over $1bln locked capital. Another interesting fact is that decentralized ERC20 exchange Uniswap recently hit new highs—with a 24-hour trading volume of over $441mln, that’s nearly 20% higher than Coinbase Pro’s trading volume, which stood at over $373mln.

The competition across the DEX ecosystem is just as rife as it is across centralised exchanges (CEX) and as per Decrypt, a liquidity war is brewing between Uniswap and a fork of DeFi’s darling SushiSwap. Don’t let the flippant name and emoji throw you off: Sushi means business. In less than a week, SushiSwap has aggregated more than $800M worth of tokens, or about 80% of total Uniswap assets, according to Sushiboard, which tracks the project’s data. In the first phase of the project, traders stake tokens representing deposits in Uniswap’s liquidity pools (Uniswap’s LP tokens), in exchange for SUSHI tokens. 

In the second phase, traders are meant to migrate those Uniswap LP tokens for the underlying assets and take them to the SushiSwap DEX. Positioning themselves as “an evolution of Uniswap with SUSHI tokenomics” SushiSwap uses a Yam-inspired interface to present traders with a “menu” of Uniswap liquidity positions they can lock up in exchange for the SUSHI governance token.

The incentives that are offered across these platforms are such that even though the underlying Ethereum network remains clogged up and transaction costs/gas is sky high, the risk/reward continues to favour DeFi participants that are more than content with looking for alpha in DEX space rather than CEX venues. For the less adventurous or better put, more prudent, the trend is DEX trading will likely see DeFi related tokens gains further traction, especially DEX related offerings such as Kyber (KNC), 0x (ZRX) and also not to forget, the Project Serum (SRM), based on permission-less blockchain Solana.

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