Data & Insights Recap - DAI's supply climbs, FTT volumes spike

DAI-ling back in

Source: The Block

• DAI’s supply has been growing at a rapid pace since the beginning of March. Its supply climbed from 4.42 billion on March 9th to 5.48 billion on May 12th, jumping 24% in just over two months. 
  • From October 2023 into March, DAI’s supply was actually on more of a downward trend, with two particularly large drops at the end of January and the start of March. 
  • At its core, there are really two components to DAI’s circulating supply. The actual outstanding supply is dictated by mints and burns on the network, and the supply deposited into the DSR, or the Dai Savings Rate. But currently, the way depositing into the DSR works is that DAI itself is actually burned in order to mint SavingsDAI, or sDAI, as you can see in this transaction. And then on the converse, when you withdraw from the DSR, DAI is minted, and you get back the amount of DAI you deposited plus the interest you accrued.  
  • So, when looking at the raw circulating supply of DAI, its supply has been on a downward trend for a while, primarily because people are burning DAI to deposit into the DSR, which nets a burn, but that DAI still exists in the form of sDAI. 
  • The DSR has been largely popular. MakerDAO raised the rate to 1% back at the start of 2023, and it resulted in over 35 million DAI being deposited within a month. The protocol later raised the savings rate to 3.3%, and later 8%, to remain competitive with the current interest rates. That 8% raise happened in August 2023 and corresponded with the surge then that took DAI’s supply from 4.44 billion to 5.47 billion in the late summer.
  • That jump caused by a DSR hike was really the first notable increase in DAI’s supply since March 2023, when DAI’s supply surged in the wake of the USDC depeg. Other than that, DAI has been struggling since the fallout of UST, which shed a negative light on crypto-backed stablecoins. 
  • But the 8% interest could not last forever, and within just two days over 20% of DAI was parked in the DSR, triggering an automatic drop to 5.8%, which was still sizable. Maker’s founder proposed dropping the rate down to 5% to allow for the DSR to be higher for longer, which went into effect.
• While the DSR at 5% is still pretty significant, pressure has been emerging in the form of other yield opportunities, like USDe, which has been steadily gaining market share in the stablecoin space, offering a 15.9% yield on its staked offering. 
  • It seems the sizable drop in March pushed MakerDAO into action, as the protocol made changes to its fee mechanism and also hiked the DSR to 15% to help alleviate sell pressure. 
  • It looks like this change, which went into effect on March 9th, is the cause of the recent run-up, as users rush to tap into that high yield. 

Not coming back

Source: The Block

• It was mentioned a few weeks ago that for the first time since March 2020, the 7-day moving average of active addresses on the Bitcoin network fell below 700,000 as fees surged after the halving due to excitement about Runes.
  • This was not so unexpected; high fees can price out users and prevent them from interacting with the blockchain.
  • What typically happens when fees become unsustainably high, like they did with Runes, is users who are unwilling to pay the fees sit back, and eventually, the hype dies down, and fees stabilize again, allowing the users to come back and transact at more leveled prices.
  • However, that does not seem to be the case more recently. While the 7-day moving average dropped to 689,810 on April 23rd, it rebounded slightly to 839,400 on April 30th as fees calmed down. The 7-day moving average of the average transaction fee on the network was $39.15 on April 23rd compared to $11.92 on April 30th. But now the moving average of active addresses has fallen to lower than before, at only 655,190 on May 12th, whereas the moving average of transaction fees has also declined further to $3.86, in line with where fees were pre-halving. 
  • A similar trend has emerged for new addresses on the network, which typically follow a similar pattern to active addresses given transactions generate change addresses, which send any remaining funds not sent in a transaction to a different address that is still controlled by the sender, sort of like getting change back when you pay in cash. The moving average of new addresses dipped to 290,000, which is the lowest it has gotten since July 2018. 
• Runes-related transactions are still making up a sizable portion of Bitcoin activity, typically accounting for more than half of daily transactions since they launched. But the frenetic energy and the need to be the first to get in have died out, allowing for fees to calm down since there’s less of a desire to pay a heavy premium to get a transaction prioritized. 
  • While the high fees might have initially caused the slowdown in bitcoin active addresses, it does not seem to be the main culprit anymore, although some people may be continuing to wait for further indications that the Runes excitement is truly over. 
  • The broader market slowdown could also be playing a role in the decline as well. 

Taking what's mine

Source: The Block

• It was a good week for FTX creditors…words not many thought would be written at the end of 2022 after the crypto exchange filed for bankruptcy. 
  • But the tides really have turned for the defunct entity. For one, crypto asset prices were essentially at their lowest when FTX went under, and their crypto holdings are worth a lot more now than they were before. The bankruptcy estate has managed to sell off shares in GBTC, its stake in the AI startup Anthropic, and its locked Solana tokens, all of which helped them rake in funds to pay back creditors. 
  • Those overseeing the bankruptcy have not always made perfect decisions; for instance, Mysten Labs bought back FTX’s stake and token warrants for $96 million back in April 2023, right before Sui’s token launch. Had the estate opted to hold onto that for longer, it would have been worth a lot more. 
  • But even with the slip-ups along the way, the FTX released a compensation plan this week that 98% of creditors (those with claims below $50,000) would be receiving 118% of their allowed claims. Other creditors are also set to receive full payment and billions more for the time value of their money lost. FTX estimates that the cash they have available for distribution is somewhere between $14.5 billion and $16.3 billion. 
  • This naturally sent FTX creditor claims above 100 cents on the dollar. Creditors can sell their claims to their payout, allowing them to get some funds back quicker, typically at a discount to what they would be expected to get if they had waited. In November 2023, it was news that claims were selling as high as 65 cents on the dollar, indicating a pretty sizable recovery was expected, as earlier in the year, people were expecting creditors to get much less in the end. But now that everyone is expected to get paid back in full and then some, these creditor claims are also more expensive, trading at 109% as of writing. 
• Not everyone is happy, though. Sunil Kavuri, a representative of the largest FTX creditor group, has been advocating that creditors vote against the most recent compensation plan. 
  • The primary grievance is that the plan does not involve paying creditors back in cryptocurrency but rather the dollar value of their positions when the exchange filed for bankruptcy. Kavuri claims that FTX has “destroyed an estimated over $10 billion” for creditors, given that asset values have appreciated significantly since the implosion. 
  • Thomas Braziel, a partner at 117 Partners and 507 Capital and an investor in distressed assets, is not worried about pushback on the plan, though, since a lot of claims are now owned by distressed asset investors and since a lot of the claims are stablecoin-based. 
• And, of course, good news for FTX means good news for FTT. While dreams of the exchange being rebooted have been dashed, essentially voiding any potential future use of the token, there was $139 million of spot volume in FTT pairs on May 8th, the day the plan was announced. It was the highest day of volume for the token since the end of December.  

Defying dominance

Source: CoinGecko

• It has now been over a month since it was revealed that Uniswap Labs had received a Wells Notice, indicating that the Securities and Exchange Commission intends to bring charges against the developers of the largest decentralized exchange. 
  • Many people considered this the true start to the “war on DeFi” since it is the first case being brought against a major DeFi platform. While it is no secret that the SEC has an unfavorable view of crypto, their previous big-name targets typically have been centralized entities. 
  • The SEC has not slowed their crypto rampage since, most recently, sending Wells Notices to Consensys and Robinhood’s crypto arm. Shortly after the Wells Notice news broke for Robinhood, the firm reported Q1 earnings, where crypto trading volume increased 224% compared to the year prior. 
• The impacts of the notice still seem to be weighing heavily on DeFi, as questions about the future and what this means for the industry loom. That being said, nothing too severe is likely to happen in the short term. Coinbase received their Wells Notice back in March 2023 and wasn’t actually sued until June 2023, and that legal battle is still ongoing almost a year later. Coinbase has still continued to operate normally in the meantime. 
  • But naturally, the price of UNI, Uniswap’s governance token, tumbled after the news. UNI was trading around $11.60 ahead of the Wells Notice and dropped as low as $6.43 in the immediate aftermath. While it has found its footing at just over $7, it has not shown much of a rebound. The same can be said for many of the other DeFi assets that felt the heat. 
  • DeFi dominance, or the share of DeFi tokens’ market cap relative to the total market cap of cryptocurrencies, dropped to 3.63% on April 14th, just days after Uniswap’s Wells Notice announcement. It’s the lowest the share has been since June 2022, when the fallout from Terra/Luna caused a selloff in many crypto assets. 
  • DeFi dominance has bounced back a little and seems to have found a new equilibrium, hovering just below 3.75%. This is historically very low, though, especially for the dominance to stay at this level for so many days. Even back in 2022, DeFi’s dominance was back above 4% by July. DeFi dominance actually stayed above 3.75% from June 2022 to April 2024. 
  • It’s not surprising that the impact of the Wells Notice would be material to the DeFi space, but it's unclear now what can help give the subsector a boost unless positive news comes out from the lawsuit. 

More borrows, less sorrows

Source: The Block

• It seems like, at least gradually, things are heating up in the lending market again. While activity still pales in comparison to the heat of DeFi summer, there does seem to be a bit of an uptick in both borrowings and repays on major lending platforms on Ethereum.
  • On May 7th, net borrows on Aave came out to $158.65 million. Net borrows refers to the amount of loans being taken out minus the amount of loans repaid. So when a platform has a daily net borrow that is negative, that just means more loans were paid back than originated that day. 
  • For Aave, this is the largest day of net borrows in over a year. For most of the past 12 months, net borrows have been pretty mild, with occasional spikes. In the summer of 2023 it was more common to see a spike in repayments as opposed to a spike in borrows, indicating that not many people were coming to the platform to take out loans. 
  • But since the end of February, there has been a bit of a change of pace. Over the past three months, we have seen 36 days where net borrows exceed $20 million, something that was much more uncommon earlier in the year. We also saw many days of net repayments in the latter half of April, again with a more steady larger sum compared to earlier in the year. 
  • Aave definitely seems to be leading the pack in terms of the lending resurgence, as Compound has not seen much net activity in either direction. However, Aave has become a much more dominant force in Ethereum lending, especially after the launch of its v3 at the start of last year. 
• Unique borrowers on Ethereum lending protocols have also picked up over the past 12 months but seems to have hit its peak in February. But still the over 200 addresses borrowing from Aave per day this May is much higher than the often fewer than 100 addresses borrowing from Aave back in May 2023. 
• And to be fair, while DEX volumes on Ethereum have increased in recent months, they are still lower compared to their peaks back in late 2021, as well, indicating a similar trend to lending.
  
  • And part of what has been weighing on the Ethereum DEX space is the fact that DEXs on other networks like Solana and Base have been attracting a lot of attention. 
  • Lending on other chains is popular, too, which could explain why Ethereum lending is still so low compared to a few years ago despite the crypto turnaround. JustLend on Tron actually exceeds Compound in total value locked, for instance. And both Aave and Compound have expanded their offerings to other networks.