Data & Insights Recap - June 12, 2023

Slipping Away

Source: Kaiko

• Binance.US was not unscathed this week, with the Binance lawsuit also targeting it, perhaps even more aggressively due to its strong U.S. consumer base.
  • The SEC also filed a motion to freeze the assets of Binance.US along with those of Binance and its CEO, Changpeng Zhao. 
  • The allegations against the Binance entities go deeper than those against Coinbase, which seems to just be a run-of-the-mill unregistered securities exchange case. The SEC has alleged that Binance engaged in an FTX-esque scheme where Binance and Binance.US redirected over $12 billion of customer funds, mostly to Merit Peak, Zhao’s proprietary trading firm. 
• Binance.US did, for a moment, succumb to some of the legal pressure put on it. The exchange announced it would be delisting around 100 pairs and halting its OTC Trading Portal in the wake of the lawsuit. 
  • After some community backlash, Binance.US decided not to remove any USDT advanced trading pairs, which was most of what was to be removed, dropping the number of pairs to be delisted to just 10. 
• Binance.US, since the lawsuit, has begun having its own share of troubles.
  • For one, a massive premium on bitcoin (and other assets) broke out on the exchange as liquidity dried up and traders fled the exchange. Many people tried to also withdraw through crypto as opposed to fiat to mitigate the use of a wire transfer and speed up the process in fear of what was to come. 
  • Another sign of the trying times for Binance.US traders was the large spread that emerged between bids and asks, reaching 20 times as large as its competitors, again indicating that funds were fleeing the exchange. 
  • And slippage, or the difference between the expected price of a trade and the price at which a trade executes, also soared this week, reaching 14.78 BPS on BTC/USD. This means that individual trades had a greater price impact, another signal of dripping liquidity. 
  • Nansen reports a net flow of $112 million from the exchange over the past 7 days, which is a lot less than the over $1.8 billion we saw depart from its parent exchange, although it is a much smaller exchange.
• It did not get much better for Binance’s U.S. subsidiary when late on Thursday, it announced it would be cutting off USD payment support after the lawsuit found the exchange struggling to find banking partners. 
  • Binance.US has already halted USD deposits and will stop processing withdrawals on Tuesday, June 13th. 

BUSteD

Source: The Block

• This past week was not Binance’s first foray into the United States regulatory stronghold.
  • At the end of March, not even three months ago, the CFTC sued Binance over offering their derivatives trading to U.S. traders. 
  • About a month before that, reports came out that the SEC was looking to sue Paxos for listing Binance USD, which it deemed an unregistered security (which is consistent with its recent case against Binance). Paxos was also the issuer of the fiat-backed stablecoin and stopped minting it at the end of February after being ordered to by the New York Department of Financial Services. 
• On February 13th, the news of BUSD’s strict supply decline was announced (but you could still mint it until February 21st). At the time, it was the third most dominant stablecoin by supply, behind USDT and USDC. 
  • Its supply was also 15.8 billion, over 10 billion more than the fourth most dominant stablecoin, DAI. 
  • The gap between the two was as large as 18 billion in November of last year.
  • However, the gap has now narrowed to just 240 million and DAI is primed to take over, given its supply can increase. (Although it is on a slow downward trend.)
  • It is impressive that despite essentially being shut down, BUSD has been able to maintain its dominance for so long.
• DAI entering the top 3 stablecoins would be a significant change in the stablecoin landscape, as we have not seen a decentralized stablecoin in a prominent position in a while, especially after UST sent shockwaves through the crypto-collateralized stablecoin space.
  • While DAI is primarily backed by other stablecoins and ETH and has a 170% collateralization ratio, DAI’s supply still fell from 8.15 billion on May 6th, 2022 to under 6 billion a week later amidst the Terra fallout and has not really recovered from that drop off with a supply of 4.54 billion as of now. 
  • However, fiat-backed stablecoins have proved to have a tumultuous 2023, with BUSD being hit with a “security” allegation twice and halting issuance and USDC depegging amid the banking crisis at SVB. 
  • MakerDAO, the decentralized platform behind the stablecoin, recently put forward a proposal to raise the Dai Savings Rate to 3.3%, which could increase demand for DAI as people move to lock up the stable in the DSR contract.

Reddit reach

Source: Subredditstats

• There were 461.6k new subscribers to r/ethereum this week and 364.3k new subscribers to r/Bitcon, bringing the total number of new subscribers to crypto subreddits, also including r/EthTrader and r/Cryptocurrency, to 845k, the highest since the week ever.
  • It marks a significant jump in subreddit subscribers, which altogether have not exceeded 100k since last November and haven’t exceeded 150k since October of 2021.
  • It also pushed the number of subscribers to r/Bitcoin to over 5 million and r/ethereum now bolsters 2 million subscribers, with both of them hitting the milestone last week. 
  • That being said, posts and comments on the subreddit did not seem to have the same renaissance as the number of subscribers, but both did rise compared to last week. 
• According to subbredditstats, the lawsuit against Coinbase seems to be the main contributor of growth, with r/Bitcoin rising from 4.99 million subscribers on June 6th to 5.1 million two days later. r/ethereum had similar growth, jumping from 1.785 million to 1.92 million over the same period and reaching 2 million June 10th. 
  • Binance’s lawsuit, which dropped on June 5th, did not seem to move the needle that much on subscribers, but the issuance of two lawsuits from the SEC could have motivated people to subscribe. 
  • r/ethereum is the second largest subbreddit in terms of weekly new subscribers at time of writing, behind only r/NFT. r/NFT and r/ethereum are also second and third, respectively, for most new subscribers this month, coming in ahead of r/ChatGPT. 
  • The explosive growth for both the Bitcoin and Ethereum subreddit communities (with the addition of r/NFT growing significantly over the same period) means that it's possible bots are playing a part in the recent surge, especially since the recent spike is so unusual compared to recent numbers.
  • But it's also possible that the crazy week in crypto had people wanting to go checkout subbreddits about the two largest crypto assets (which also weren’t deemed securities in either lawsuit). 
• Apollo, a beloved third-party Reddit client, also announced last week that it would be shutting down at the end of the month. 
  • There is no data for r/Bitcoin beyond June 9th, as the community went private to protest against Reddit killing off Apollo, with r/ethereum seeming to have recently followed suit.  
  • The new subscriber surge could have also been tied to users trying to get in before the communities went private, as there were some plans to go over the new API charges already being floated around social media.

A lot at stake

Source: The Block

• Coinbase was the second major crypto exchange to be hit with the hefty hammer of the SEC last week, with allegations of it being an unregistered securities exchange.
  • The suit names a few assets as securities that are allowed for trading on Coinbase, many of which are the network tokens for proof-of-stake networks. 
  • And perhaps unsurprisingly, given the previous settlement with Kraken, Coinbase’s staking program was also a target of scrutiny. 
  • The staking-as-a-service took an even bigger hit, with the Alabama Securities Commission, in conjunction with nine other states, issuing a show-cause order that "gives Coinbase 28 days to show cause why they should not be directed to cease and desist from selling unregistered securities in Alabama," with the unregistered security in question being Coinbase’s staking rewards program.
• You can stake many proof-of-stake assets on Coinbase, but one of its main staking endeavors is its ETH staking program.
  • In August of last year, just ahead of The Merge, Coinbase launched cbETH, its own liquid staking derivative, allowing users to lock up their ETH and earn rewards on Coinbase but then also have liquidity via the token. 
  • It was wildly successful and emerged as the second most dominant liquid staking provider by TVL, coming in only behind the staking powerhouse Lido despite launching much later than most of its competitors.
• You could not withdraw from the Ethereum staking contract until the Shapella upgrade, which went live in April, and in turn, you could not “unwrap” your cbETH on Coinbase to unstake your ETH.
  • So every day prior to April 12th, the supply of cbETH was growing as people staked ETH on Coinbase. 
  • Initially, after Shapella went live, there was a large day of unwraps. A net of 35.6k cbETH exited the ecosystem, with 37.5k cbETH burned compared to only 1.9k minted.
  • June 6th, the day Coinbase’s lawsuit was announced, was the second largest net negative day of cbETH change, with 2.7k minted and 27.3k burned, leaving a net reduction of 24.6k cbETH. And every day since, burns have continued to outpace mints.
  • This is likely because people are now worried about the future of the program. When Kraken was charged over their staking program, they settled and wound down staking in the U.S. Coinbase, on the other hand, is so far committed to keeping staking up and running, but the additional pressure on the offering at the state level could make people more fearful.
• Coinbase, as a whole, faced $1 billion in net outflows from their exchange and $779 in net outflows from Coinbase Custody, according to Nansen.  

Wash out

Source: The Block

• NFT wash trading on Ethereum reached 66% last Wednesday, a new high since February 2022, around the time LooksRare first launched. 
  • Wash trading really took off when LooksRare entered the scene, with traders being able to earn LOOKS tokens by trading on the NFT marketplace, encouraging users to farm the token by making more trades. 
• As a whole, the NFT ecosystem has been in a bit of a slowdown lately after getting briefly recharged by a new NFT marketplace, Blur, which also launched its own token. 
  • Blur launched its token in February after the exchange itself launched back in October 2022. The token was expected, leading Blur to have initial success as people farmed the anticipated airdrop. But February marked a peak in Blur’s volume, at almost $1.1 billion (filtered for wash trading), which has now been declining the past 3 months. 
  • Overall NFT marketplace volumes on Ethereum have followed the same trend as the market is in a bit of a slowdown, with floor prices on blue chip NFTs trending downward and the number of NFT traders dropping to the lowest they’ve been since July 2021 last month. 
• The surge in NFT wash trading last week was primarily on Blur, as traders bid on NFTs locked up as collateral on Blur’s new lending protocol, Blend. 
  • A plethora of Bored Apes (1032, 2578, and 9889 are just examples) were getting passed around by the same handful of addresses, specifically by placing a bid on the NFT after it was put up as collateral for a loan on Blend. If the bid is accepted, the payment for the NFT will be used to pay off the loan, with the remaining funds going to the borrower; the bidder then gets the NFT.
  • There were 28 addresses that bought 56 different Bored Apes 202 times where the Blend contract was the “seller” in the trade, all on June 7th, indicating these were all trades where the purchases were done via bidding on an NFT used as Blend collateral. With each purchase coming in between $83,000 and $89,000, the volumes across these trades were pretty substantial (about $17.5 million). 
  • Especially with non-wash trading volume on the decline, a move like this has the power to drastically increase the share of wash tracking on the network, which has already been trending upward since May.
  • Blur is doing another airdrop with an emphasis on loyalty as a means to earn tokens. Ironically, on June 7th, Blur tweeted out that they were updating their Bidding Points system and said that wash trading wouldn’t work for gaming the airdrop. However, trying new features (like bidding on NFTs being used in Blend, the less than two-month-old protocol) can sometimes be helpful regardless.