Data & Insights Recap - November 6, 2023

Looking for stability

Source: The Block

• In a similar vein to what we discussed last week, stablecoin on-chain volumes on Ethereum came in at $390.67 billion, the highest since March. 
  • March marked a shift for stablecoins after USDC depegged. From February 2021 to March of this year, on-chain stablecoin volume always exceeded $400 billion a month, sometimes exceeding $900 billion. But since April, not a single month has crossed the $400 billion threshold. 
  • The depeg of USDC did cause some distrust to emerge in the stablecoin space. Stablecoins were already left in a fragile state after the collapse of UST in the spring of 2022, but for the most part, that put pressure on crypto-collateralized stablecoins, like DAI. But when Circle disclosed it had funds trapped in the failing Silicon Valley Bank, it also brought to attention that even fiat-backed stablecoins could run into issues. 
  • All money on SVB did end up being backstopped, and USDC regained its dollar parity, but its supply has been shrinking since the incident. On March 9th, there was just over 41 billion USDC; now there is only 22.5 billion. USDC does still remain the second-largest stablecoin by market capitalization. 
  • Circle also announced this week that they would no longer allow consumer accounts to mint the stablecoin, aligning more with Tether in terms of new issuance strategy (Tether still supports individual accounts but with a minimum limit of $100,000). Circle CEO Jeremy Allaire took to X to highlight that Circle has many retail partners, including Coinbase, so users looking to get their hands on the stable can still do so. 
• But even though USDC did see a small bump in on-chain volumes, growing from $129 billion in September to $158 billion in October, the main driver of the rise was DAI, which had its highest on-chain volume month since November 2022 at $112 billion. 
  • But as we discussed a few weeks ago, a lot of this growth is not organic and is primarily driven by a lot of DAI being transferred around in complex MEV bot transactions like this one. In that one transaction, there was $1.328 billion worth of DAI transfers. 
  • Other stablecoins have not been seeing this surge in volume due to usage in MEV transactions, but a lot of the transactions do consist of minting a lot of DAI, which is easier to do for DAI compared to other stables. 
  • While DAI’s growth in October was explosive, USDT also saw a bit more of a modest bump, indicating that even without the increased usage of DAI in these MEV bot transactions, we still would’ve seen an increase in stablecoin volumes last month. 

We can't all be winners

Source: CoinGecko

• A few weeks ago, we talked about bitcoin’s rising dominance that clocked in at 51.35% at the end of October, meaning that bitcoin’s market cap accounted for over half the total market cap of crypto tokens. 
  • The dominance has come down a bit now but still remains much higher than the 38% dominance that bitcoin had at the start of 2023. 
• In a sort of reverse trend to bitcoin’s growing grasp on the crypto market through the past year, driven in part by excitement surrounding a potential spot ETF, DeFi tokens have been taking a backseat in the recent rally. 
  • The market caps of DeFi tokens, including Lido’s stETH and LDO, Chainlink’s LINK, Uniswap’s UNI, and Aave’s AAVE, was only 3.77% of the total crypto market cap on November 2nd, the lowest its share has been since June 2022. 
  • The market cap of the DeFi tokens came in at just $51 billion compared to the $1.3 trillion market cap across all assets. 
  • The dominance recovered a bit the next day, but it is still reflective of a broader decline in DeFi’s share. DeFi’s dominance was 4.65% back in March and has largely been dropping since then. 
• Many large DeFi tokens are still up for the past week (UNI is up almost 20% and AAVE is up 16.3%), but many of the recent gains have been concentrated in the large market cap tokens. Bitcoin, in particular, has the ETF going for it. But broadly speaking, casual investors buy into more well-known tokens when news like bitcoin rising 30% in one month hits the more mainstream news cycle. 
  • You probably have friends who have bought bitcoin or ether but have never heard of Uniswap before.
  • The fact that DeFi dominance this year peaked in March when many large caps were being sold off due to concerns over USDC’s depeg and what it meant for the wider crypto ecosystem, is another indication that DeFi moves in a sort of opposition to large caps, with a more crypto-centric holder base. 
  • Solana also served as one of the main drivers of gains in non-DeFi tokens this past week, up over 23% for the week on Friday as its Solana Breakpoint conference was underway in Amsterdam. 
• DeFi dominance did bounce back a little over the weekend due to tokens like Osmosis’ OSMO and PancakeSwap’s CAKE having a strong performance.  

Rhinos and scrolls

Source: Starkware

• Rhino.fi, a project built on Starkware’s StarkEx Validium Layer 2 solution, saw its number of daily users reach 35,120 on November 4th, the highest it's ever been. Prior to October 26th, the number of users had peaked at 10,680.
  • As a reminder, a validium scaling solution on Ethereum is one that utilizes zk-proofs to publish on the mainnet and validate transactions but store transaction data off-chain.
  • Rhino.fi is best known for its cross-chain bridge capabilities, although it also offers a native exchange and an earn product. 
• The recent uptick in Rhino.fi users started in mid-October, with users climbing to 6,820 on October 18th, compared to just 782 users two days earlier. But the real surge started on October 28th, with every day since then marking a day with over 20,000 Rhino.fi users. 
  • Coincidentally, the day the pick-up first began was the day after Rhino.fi announced they would be enabling bridging to Scroll, the latest zkEVM scaling solution to go live. Scroll’s mainnet launch was confirmed on October 17th, after earlier on-chain signs it was online about a week earlier. A zkEVM is a zero-knowledge proof-based layer 2 that is also compatible with the Ethereum Virtual Machine, making it easier for existing Ethereum protocols to port over. They have been in all the rage in scaling this past year, helping break down a major barrier for ZK rollup adoption. 
  • But not only would Rhino.fi allow you to bridge to Scroll, you could do it for free until November 14th, making it more lucrative to bridge through the StarkEx-powered platform. 
  • And on top of that, a number of quests regarding bridging to Scroll through Rhino.fi are also going on, which allow people to earn rewards for engaging in certain activities. There are promotions with Gaxle, Layer3, and QuestN all promising NFTs or a chance to win some crypto assets. 
  • Of course, with every new platform that launches, there is also speculation that Scroll will do an airdrop, although if or when a token is coming is not confirmed. But tokens are popular amongst scaling platforms as a means to eventually decentralize control (in a piece on The Block from back in April, airdrop farmers already said they were targeting Scroll as a potential source of an airdrop). The possible airdrop could be adding to the amount of people trying to engage with Scroll right now, although that does not necessarily have to be done through Rhino.fi. Rhino.fi does have the benefit of free bridging right now, though.
• So, all in all, it's not shocking that we saw this new surge in users for Rhino.fi. In recent days, it's taken over both Sorare and ImmutableX as the most used StarkEx platform. 
  • Time will tell if the usage is sustained after bridging to Scroll takes on a fee and the promotional quests end. 

No new friends

Source: The Block, Dune Analytics

• Social Finance, dubbed SoFi, feels like it has been all the rage since the poster child platform friend.tech launched back in August on Coinbase’s new optimistic rollup solution, Base. 
  • Friend.tech’s new and novel means of buying peoples’ “keys” to allow users to message them attracted many people to the protocol. It also helped that it was built on the hottest new layer 2 of the summer and that many well-known Crypto Twitter personalities were using the SoFi platform. 
  • At its peak friend.tech was putting up over half a million transactions a day. The numbers of buyers and sellers of keys on the platforms peaked at different times, with over 12,000 users selling keys in mid-September and over 70,000 people buying them in mid-October. 
• But now, even as many crypto prices seem to be pushing to yearly heights, igniting a round of enthusiasm for the broader ecosystem, friend.tech metrics appear to be falling off. 
  • Only 347 users bought keys on November 5th, and the number of buyers hasn’t exceeded 1,000 since October 29th. Similarly, there were only 196 people who sold keys on November 1st and the number of sellers hasn’t reached 500 since October 25th. Both buyers and sellers have hit new lows recently.
  • Transactions tell a similar story, with only 15,580 transactions posted on friend.tech November 2nd, also a new low. 
  • To be fair, friend.tech did see a slowdown in metrics about two weeks after it launched, in early September, and then came bouncing back to reach new highs. However, when looking at transactions and also the number of daily key sellers, the more recent slowdown seems a bit more gradual, unlike the initial spike and quick fallout faced in friend.tech’s early days. The drop in buyers was a bit more abrupt due to the surge in late October.
  • Of course, people are still excited about a friend.tech airdrop. The protocol has been airdropping “points” that many think will eventually become a token. But with no actual news about a token yet and people having already farmed some points, it’s possible interest is drying up a little. 
• Base itself has also seen a general decline in interest. It was once the most dominant optimistic rollup in terms of daily transactions by a long shot, but now the 7-day moving average of transactions on Base has fallen below Arbitrum and is only slightly above Optimism.

Tepid futures

Source: The Block

• Unlike options, which are looking like they might climb up to a new all time high in open interest before the end of the year, rebounding quickly from the drop off in open interest at the end of October, futures open interest has remained tame.
  • In fact, the open interest of bitcoin futures across exchanges just recently recovered from a dip in August after the massive crypto asset selloff. 
  • Open interest fell from $12.97 billion on August 17th to just $10.45 billion the next day as the price of bitcoin tumbled from almost $30,000 to less than $26,000. 
  • But despite bitcoin’s price rising to the highest it's been since May of 2022, futures open interest reached $13.5 billion on November 2nd, only slightly eclipsing where it was before the August drop (it officially recovered on October 27th). 
  • To be fair, futures open interest has been showing a pretty stable upward trend since the August fall-off and is now the highest it has been since November 2022, indicating that we are finally reaching levels not seen since the negative sentiment left behind from FTX wracked the crypto markets. Volumes of bitcoin futures for October were also the highest they’ve been since June, which was a high-volume month for many bitcoin-related assets due to all of the spot bitcoin ETF applications that came in that month. 
  • But looking at bitcoin futures OI in terms of BTC, it is actually still lower than it was in August. OI was 435,000 BTC on August 17th but was only 375,340 BTC yesterday, so a lot of the recovery seems to be heavily influenced by the rise of bitcoin’s price. 
• Futures and options are different despite both being crypto derivatives. The main instruments used in the crypto futures market are perpetuals which, unlike options and most traditional futures contracts, have no expiration date. Unlike how options open interest will drop off after a lot of contracts expire, that never happens for futures since the vast majority of crypto futures are perpetual. 
  • Futures are more of a way to gain exposure to bitcoin without actually custodying the asset. While you also do not have to custody bitcoin to trade options, options give more exposure to volatility. When more volatility is expected, options tend to be more exciting. Implied volatility is the market’s expectation of volatility based on options prices. The at-the-money implied volatility for bitcoin options expiring in 90 days reached over 60% early in the month, the highest it's been since March, and it’s a similar trend for options with other expirations. The increase in implied volatility means the market expects that bitcoin’s price will move more in the coming period, which could make options look more attractive than futures right now, leading to the divergence in open interest performance. 
  • It also makes sense for markets to be thinking more volatility is coming, given a spot bitcoin ETF approval could pump bitcoin up, but a delay in a decision or an unexpected denial could push it down.