2023.06.19–2023.06.25

Dear Reader,

Welcome to the June issue of Gryphsis Academy’s weekly Crypto Digest. We bring you pivotal market trends, insights into emerging protocols, and fresh industry updates, all designed to enhance your crypto and Web3 expertise.

Enjoy!

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Market and Sector Snapshot:

Layer 2 Overview:

In a week marked by an overall market rebound, all four Layer-2 solutions experienced growth in TVL. In terms of individual protocols, Cian, Flashstake, Kannagi, and SithSwap stood out, posting the highest TVL growth over the past week. Despite these positive signs, we observed a slight downturn in daily active addresses and transactions compared to last week, and Arbitrum and zkSync Era maintained their lead among the Layer-2 solutions

LSD Overview:

The LSD sector demonstrated steady growth. Deposit volumes have seen a slight uptick, and the percentage of Ethereum staked has also marginally increased, indicating a modest but consistent expansion in the sector. Particularly noteworthy is swETH, which has started to gain traction.

AI Sector Overview:

The AI sector witnessed a moderate rebound this week, in line with the overall market recovery. The sector’s market capitalization and trading volumes have seen a positive uptick. In a remarkable turnaround, $OPTI, which was among the biggest losers last week, emerged as one of the top winners this week with an approximately 50% gain in its price.

Main Topics

Macro Overview:

Big Story:

Protocol Spotlight:

Gryphsis Research(NFT Lending):

VC Funding Highlight:

Alpha Threads:

Macro Overview

This week marked a pause in the stock market’s upward momentum, with both the SPX and NQ recording a downtick. There were no major events or triggers that could have precipitated this dip in performance. Given the impressive uptrend that the stock market has been riding for several weeks, this slight pullback can likely be chalked up to a natural market correction, a common occurrence after sustained periods of upward movement.

While the traditional stock market navigates a correction period, the crypto market has seen a significant rally this week, with $BTC breaking through the $30,000 mark and $ETH breaching the $1,900 level. Notably, Bitcoin’s market dominance has continued to climb, currently sitting at around 51.65%. This resurgence in the crypto market’s performance is largely attributable to the recent spate of institutional news. These events have ushered in a shift in market sentiment, moving away from skepticism and towards a more optimistic outlook for the crypto market.

Story of the Week

Do the Crypto Floodgate Opens?: A Week of Significant Moves by Financial Giants

This week witnessed an unprecedented surge in the interest for crypto by some of the world’s most prominent traditional financial institutions. Fidelity Investments is rumored to make a substantial move in the sector, potentially launching a Bitcoin ETF.

The ripple effect of this rumor, plus the move made by Blackrock last week, seem to have awakened other giants of the industry. Deutsche Bank, one of the world’s most reputable financial service providers, has applied for a digital asset custody license, aiming to offer an all-inclusive custody platform for its institutional clients’ digital assets.

Adding fuel to the fire, EDX Markets, a nascent crypto exchange backed by financial powerhouses such as Citadel Securities, Fidelity Investments, and Charles Schwab, launched its operations. The firm hopes to bridge the gap between traditional finance and crypto, ensuring liquidity, competitive quotes, and a noncustodial model that seeks to mitigate conflicts of interest. With Bitcoin, Ether, Litecoin, and Bitcoin Cash currently on its trading roster and a state-of-the-art clearinghouse in the pipeline, EDX Markets is poised to make a notable impact on the crypto market.

The surge of interest in crypto from traditional financial institutions does not end there. This week also saw investment management titan Invesco reapplying for a spot Bitcoin ETF in partnership with Galaxy Digital. In line with the trend, WisdomTree, a leading ETF and ETP sponsor, lodged an application with the SEC for a spot Bitcoin ETF to be listed on the BZX Exchange. Similarly, Valkyrie, a well-known cryptocurrency fund manager, submitted an application for a Bitcoin spot ETF. With Valkyrie’s intent to list its fund on Nasdaq and other ETF offerings in its portfolio, it appears traditional finance’s integration with the crypto market is now more imminent than ever.

Our Take

In just one week, market sentiment has flipped dramatically. The pessimism spurred by SEC pressures has transformed into excitement over a surge in institutional involvement. The launch of EDX Markets, backed by top-tier financial institutions, stands out. It's timing, right after SEC lawsuits against Binance and Coinbase, could suggest these legal actions were a clearing operation ahead of EDX’s debut. Additionally, EDX’s non-custodial operation, which separates trading from asset custody, might hint at a future compliance direction for crypto exchanges, offering a glimpse into potential future crypto law frameworks.

While this week’s news has sparked a notable rally in the crypto market, leading many to anticipate a forthcoming bull market, it’s important to avoid succumbing to overly optimistic forecasts that may lead to irrational investing. Predicting the duration and stability of the current rally is near impossible. Instead, we should focus on the validation and unfolding of the institutional adoption narrative, a significant growth catalyst for the crypto market. The launch of EDX and multiple spot BTC ETF applications signal potent interest in crypto, indicating potential for substantial capital inflows in the future. Rather than succumbing to ‘FOMO’ and rushing into the market in hope of quick gains, prudent market research and conviction-led investing should guide our steps.

Weekly Protocol Pick

Welcome to our “Weekly Protocol Pick” — where we spotlight a protocol that’s making waves in the crypto space. This week, we’ve picked Dopex, the leading protocol in crypto options product.

Despite its wide acceptance in traditional finance, options trading in the crypto market is still finding its footing. Among 32 crypto sectors, options rank 23rd according to DeFiLlama, with a TVL of only $123M, underscoring the sector’s nascent stage.

However, several protocols are constantly building to provide users with a better options trading experience and a more well-rounded market. Dopex, a multi-chain options protocol, is one notable example.

Dopex shines in the DeFi space as a decentralized options exchange. With a focus on minimizing losses for writers and maximizing liquidity for buyers, it offers a plethora of options trading products. From basic vanilla options to complex option strategies, Dopex redefines DeFi options trading. Some key offerings include:

1. Shared Staking Options Vault (SSOV): Users stake DPX tokens and earn rewards from option premiums.

2. Atlantic Straddles: Offers the opportunity to write options on both market sides, ensuring capped losses and uncapped profits.

3. Atlantic Liquidation Protection: Acts as a safety net for leverage traders, preventing liquidation events.

4. Option Scalps: Users can open positions with specific parameters in isolated pairs.

5. Zero Day to Expiry Options (ZDTEs): Offers same-day expiring options with a unique pricing model.

6. Option Liquidity Pools (OLPs): Serves as secondary marketplaces that allow early position exits at an implied volatility (IV) discount.

This week, Dopex has rolled out the V2 update of their Options Scalp product. Known for enabling high-stakes, short-term leveraged trades powered by options, Option Scalps v2 carries the promise of transforming the landscape of short-term trading.

The launch of Option Scalps v2 brings with it several new features:

1. Wider options time frames: Traders now have an extensive selection of time frames, ranging from a swift 1 minute to an extensive 240 minutes.

2. Amplified leverage: With leverage now reaching a whopping 110x, traders have the opportunity to significantly boost potential returns.

3. Passive staking yield: A boon for Liquidity Providers (LPs), the update offers passive yields on single staking isolated pairs.

4. Advanced trading: Traders can execute both long and short positions at competitive rates.

The V2 product will be avaliable to ETH/USDC and ARB/USDC pairs initially, offering both traders seeking to leverage the tool’s capabilities or LPs looking to earn passive yields an improved, dynamic approach to short-term trading.

Our Insights

Currently, four major players dominate the crypto options landscape: Dopex, Lyra Finance, Hegic, and Ribbon Finance. Together, they represent over 73% of TVL of the whole sector. Of these, Dopex stands out, offering the most diversified and innovative product suite. Despite this, options haven’t quite become a dominant narrative in DeFi, likely due to challenges in achieving mass adoption. However, we remain optimistic for this sector. Protocols like Dopex and Ribbon continue to innovate, offering products that enhance the user experience in options trading. Dopex, with its range of options products, allows for the incorporation of diverse strategies. Meanwhile, Ribbon’s Aevo provides a robust platform for on-chain options trading.

From a TVL perspective, Ribbon and Lyra are leading the pack, with Dopex following closely. Ribbon’s TVL has seen a downward trend, likely due to its core offerings — covered call/put selling vaults — having limited profit potential for users. Conversely, Lyra’s TVL has been on the rise since its Newport Upgrade, solidifying its position as a leading protocol for trading options. That said, the introduction of Aevo might pose competition, considering Lyra only offers BTC/ETH contracts, whereas Aevo supports more altcoins. Meanwhile, Dopex’s TVL has maintained stability, showing a slight upward trend over time.

Over the recent period, $RBN has outperformed, seeing a +13% increase in the past 60 days. Meanwhile, the other three protocols have experienced a decline in the same period. This uptick in $RBN’s performance is likely tied to the May launch of Aevo, which has amplified the potential for Ribbon Finance’s future growth.

In terms of valuation multiples, no protocol stands out as significantly undervalued compared to its peers. In the crypto market, sectors lacking a major narrative often see performance strongly tied to market Beta, primarily driven by BTC and ETH. Therefore, opportunities tend to be event-driven, correlated to positive catalysts. Notably, $DPX, $LYRA, and $RBN have all demonstrated a positive price movement in response to significant updates. Thus, until the options sector gains more traction, most opportunities will likely be event-driven, emphasizing the importance of diligent monitoring.

Spotlight on Gryphsis Research — NFT Lending

Welcome to this week’s ‘Spotlight on Gryphsis Research,’ where we share the latest insights from our team. Our dedicated research team constantly explores cutting-edge trends, developments, and breakthroughs across the crypto landscape. This week, we’re excited to share with you our newly published report, designed to deepen your understanding and fuel your curiosity about the ever-evolving world of crypto. Let’s dive in!

As the NFT market has skyrocketed since early 2021, a critical challenge has been its illiquid nature. Despite the significant market value of NFTs, their illiquid characteristics can stifle potential growth. The solution? NFTFi — a blend of DeFi mechanisms designed to unlock the liquidity of NFTs and optimize capital efficiency.

Ethereum NFT Market Size and Trading Volume, Source: NFTGo.io (May 31, 2023)

NFTFi has three key aspects: 1. Direct Trading — facilitated by platforms like Opensea and Blur.

2. Indirect Trading — NFT collateralized lending and associated services provided by platforms like BendDAO and ParaSpace. 3. Financial Derivatives — high-risk, high-reward products such as options, futures, and indices offered by platforms like Openland.

While Direct Trading has reached a level of maturity, and Financial Derivatives are still in the budding phase, Indirect Trading brings together basic elements of a financial system, leading to a rapidly evolving landscape. As a result, NFT lending has become a critical area of focus in the NFTFi sector.

Currently, P2P and Peer-to-Pool models are dominant in the market. Blend, by Blur, quickly rose to the top in cumulative lending volume due to its position in the NFT trading market.NFT lending market is diversified with two main categories: collateralized and uncollateralized lending. Collateralized lending involves protocols like Peer-to-Peer (P2P, e.g., NFTfi, Arcade, Blur), Peer-to-Pool (e.g., BendDAO, DROPS), Hybrid (e.g., ParaSpace), and Collateralized Debt Position (CDP, e.g., JPEG’d). Uncollateralized lending includes Buy Now Pay Later (BNPL, e.g., CYAN, Paraspace) and flash loans (e.g., BendDAO).

Currently, P2P and Peer-to-Pool models are dominant in the market. Blend, by Blur, quickly rose to the top in cumulative lending volume due to its position in the NFT trading market.

Source: Dune Analytics (@goyem) as of June 12, 2023

We believe NFT lending, though still in its early stages, holds massive growth potential. Its evolution is largely dependent on the expected increase in the NFT market size and the overall advancement of the Web3 industry.

As with all things crypto, market cycles play a vital role. Although we are currently in a bear phase, we expect the penetration rate of NFT lending (Total Value Locked or TVL) to rise swiftly.

For our valuation model, we’ve assumed a steady growth of the overall NFT industry market cap for 2023/2024 (60% annual growth) and a sharp rise in 2025 due to a potential bull cycle (200% annual growth). Borrowing from trends in the overall DeFi market, we believe NFT lending could achieve a similar TVL penetration rate of 30% by 2025.

With these parameters, we expect the NFT industry’s market cap to reach $60 billion in three years. This puts the TVL of NFT lending at about $18 billion, which could cater to loan demands of around $9 billion (assuming a Loan-to-Value ratio of 50%). Consequently, the revenue of the overall NFT lending sector could hit $1.3 billion or nearly 10 billion Chinese Yuan (assuming an average annualized interest rate of 15%).

To conclude, at the heart of NFTFi lies NFT lending, a segment showcasing the efficiency advantages of Peer-to-Pool models over traditional Peer-to-Peer models, thanks to advancements in oracles and liquidation mechanisms. The ongoing product updates and iterations are sculpting the maturity of the market landscape. However, challenges remain. Developing mechanisms to independently rate and accurately price different NFTs, along with establishing liquidity, are integral steps towards enhancing user experience.

This section offers a concise preview of our detailed research on NFT lending. We encourage readers to delve into the full report for a complete understanding and expert analysis of this dynamic market sector!

VC Highlights: Top Funded Crypto Protocols This Week

Welcome to our weekly Investment Spotlight, where we shine a light on the most significant venture capital moves in the crypto space. Each week, we’ll focus on protocols that have attracted the most funding.

dtcpay

dtcpay, founded in 2019 by Alice Liu and her classmate from the National University of Singapore, offers a seamless conversion of fiat and digital currencies on a single platform, enabling merchant businesses to grow their customer base by accepting more payment types with a quick and easy settlement process. This week, the company has successfully raised $16.5 million in a pre-Series A funding round. The round was led by Kwee Liong Tek, Chairman of Pontiac Land Group, a luxury real estate developer with assets exceeding SGD10 billion. The funds raised will be used for product development, building more robust operations, infrastructure capabilities, and expanding dtcpay’s global presence.

Maverick Protocol

Maverick Protocol is a novel DeFi infrastructure aiming to cultivate highly liquid markets for a variety of users. Powered by an innovative Automated Market Maker (AMM) that concentrates liquidity as per price fluctuations, Maverick optimizes capital efficiency and mitigates high gas fees typically incurred by LPs when adjusting positions. The protocol further distinguishes itself by allowing LPs to make directional bets on a token’s price trajectory and being the first to introduce a Dynamic Distribution AMM that automates previously labor-intensive liquidity strategies. On June 21, the protocol raised 9M, and lead investors include Pantera Capital, Binance Lab, and Coinbase Ventures.

Protocol News

Aura Finance coming to Arbitrum soon.

Curve Finance’s proposal for supporting non-staked ETH collateral for crvUSD.

L2BEAT’s new features to track maturities of L2s.

Arablocks exploited for 131k.

Etherscan integrating OpenAI.

DeFiLlama launched calendar to track important news.

GND protocol announced gETH.

Y2K Finance introduced new product WILDFIRE.

Aave adds LUSD as a borrowable asset on Arbitrum.

Camelot’s V3 AMM is live.

BNB chain releases opBNB testnet.

Industry Updates

Silkroad wallets moving funds.

Flashbot’s co-founder leaves the company.

IMF initiates the development of a global digital currency platform.

Binance deregisters in UK.

Circle restarts US Treasury purchases.

Ripple gains in-priciple payments license in Singapore.

Gemini launches ETH staking in UK.

Bitgo terminating acquisition in Prime Trust.

CACEIS to offer crypto custody sevices.

Alpha Threads

Alpha is abundant on Crypto Twitter, but navigating thousands of threads in Twitter can be hard. Each week, we spend serveral hours researching, handpick threads packed with insights, and curate a list of weekly selection for you. Let’s dive in!

NFT God on Twitter

blocmates. on Twitter

𝕋𝕖𝕞𝕞𝕪🦇🔊 on Twitter

Viktor DeFi 🛡🦇🔊 on Twitter

Shiro on Twitter

Upcoming Events

News Sources:

That’s it for this week. Thank you for reading this week’s edition of our Gryphsis Academy Newsletter. We hope you found our insights helpful and our updates informative.

To stay up-to-date with Gryphsis Academy, follow us on Twitter and Medium. See you in the next edition!

This newsletter is meant for informational purposes only. It is not meant to serve as investment advice. You should conduct your own research, and consult an independent financial, tax, or legal advisor before making any investment decisions. The past performance of any asset is not indicative of future results.