RESEARCH
BEQUANT Crypto&Coffee
The market traded mixed for much of the first half of the session on Monday, with Bitcoin and the majority of the large cap assets seemingly unable to benefit from the ongoing interest and capital flow into various DeFi offerings. The sentiment recovered somewhat in the closing hours, with Bitcoin managing to edge back into the mid-$9,200 zone, while Ethereum rallied into the $230 area. The reports that the Balancer automated market maker protocol has been hacked for over $500,000 in a single Ether (ETH) transaction, facilitated by a dYdX flash loan, failed to dent the hype that the DeFi ecosystem has been enjoying. As analyzed by the 1inch.exchange team a few hours after the incident, a carefully crafted transaction taking more than 8 million gas, or about two thirds of an Ethereum block, stole over $500,000 in Ether, Wrapped Bitcoin (WBTC), Chainlink (LINK) and Synthetix (SNX) tokens. On a more positive note, on-chain liquidity protocol Kyber outperformed its peers, rallying over 5%, after the company announced that a major upgrade of Katalyst protocol will go live on July 7, 2020. The upgrade includes changes to the Kyber Network Crystal (KNC) token model to attract more participants to the development of the protocol. According to the announcement, Katalyst aims to reduce friction in liquidity contributions, introduce rebates for high-performing reserves, and allow decentralized apps to integrate with the Kyber network by adding a custom spread.
Assuming the “hype” is real and that this is another, much more extended growth cycle that the DeFi is about to undergo, the big question is where will the new capital come from. Aside from collateralized loans and securitized Bitcoin which, as alluded to earlier, is already in progress, another prime suspect for capital rotation are centralized exchange tokens. To wit, DEXes tokens such as Bacor are up 73% month-to-date (MTD) and 350% year-to-date (YTD), Kyber Network is up 60% MTD and 524% YTD. At the same time, CEX tokens such as BNB is down 14% MTD but up 11% YTD, OKB is down 6% MTD but also up 91% YTD and finally Huobi up 1% MTD, up 49% YTD.
In terms of market capitalization, Bancor is valued at $75mln, while Kyber at $214mln. At the same time, BNB is the largest CEX based token with a market capitalization of $2.4bln, with Huobi at $930mln and OKB at $300mln. Said otherwise that’s over $3bln in CEX tokens vs $300mln in DEXes, and while it is not impossible to hypothesize that at least 10% of capital can reallocate out of CEX to DEXes, one of the hurdles in achieving this is the fact that large holders of CEX tokens also benefit from lower trading fees. Still, with the IEO market in hiatus and spot market activity somewhat suppressed especially given the seasonal effects in play at the moment, may lead to aforementioned capital rotation.
Another asset to keep an eye on is Litecoin, which is little changed YTD and given the growing interest in staking and yield hunting, may find itself susceptible to selling pressure. Aside from somewhat mixed network fundamentals, it is worth highlighting reports that suggested the coin has no real purpose and that it lacks development. However, having said that Litecoin has recently released Litecoin Core 0.18.1 and the creator of Litecoin, Charlie Lee, also noted that work has already begun on the next release, Litecoin Core 0.20, which will bring Litecoin in line with the latest Bitcoin Core. Finally, while Tron may be another potential target for capital outflow, it is worth pointing out that Tron’s inflation rate is lower than that of EOS, Stellar and XRP, while yield is higher.
