Market Watch #4
STIP Results: Grants Impact and $ARB Season
The Arbitrum Short Term Incentives Program has concluded its voting, with 50M $ARB to be distributed across 30 protocols. Perpetuals and DEX sectors — led by GMX, Camelot and MUX Protocol — take the spotlight, accounting for nearly 60% of all grants and highlighting an inclination towards trading incentives.
Although all 96 projects achieved the vote quorum, high-profile protocols like Lido Finance, which secured a notable 87m votes in its support, fell short due to not meeting the basic eligibility criterion of >50% "for" votes. Moreover, other 34 projects, despite meeting STIP conditions — with Gains Network being a prime example — were deemed ineligible as they did not meet the 147m “for” votes cutoff, underscoring the competitive nature of the process.
To gauge the direct impact of incentives on ecosystem projects, we can analyze the grant size relative to a protocol's market cap. Simply put, a larger grant-to-market cap ratio represents a higher impact of the incentives on a project's market cap, thereby making them more attractive from both capital allocation and project usage perspectives in the short term. In this context, protocols such as Lode, Jones and Grail lead the way, with ratios of 38.18%, 23.15% and 22.09% respectively.
Following the STIP, an influx of capital and users toward Arbitrum ecosystem projects is expected, as traders and yield farmers position themselves to capture the effects of the newly incentivized yields. Furthermore, positive catalysts such as the upcoming EIP 4844 upgrade could potentially be another significant factor for these projects in the near term. However, it is important to keep in mind that the much-anticipated “ARB Season” should heavily rely on prevailing market conditions.
The Thunder of ThorChain
ThorChain has seen a 540% increase in monthly swap volume through their platform in September. In contrast, notable illicit activities make up an average of 4.6% of the total trading volume on the network. This surge in activity has prompted $RUNE supporters to mark this as a resurgence for the network.
The most recent hacker to utilize the network was the FTX exploiter, having deposited and swapped 87.8k $ETH for $BTC since September 30th. By analyzing the ETH/BTC ratio, we can observe this selloff has negatively impacted $ETH prices. With approximately $150M of $ETH remaining, short-term crypto price volatility is to be expected.
The main concern revolves around the ease of conducting illicit swaps rather than their occurrence. Similar to the sanctions imposed on Tornado Cash, there's a worry that ThorChain could face similar actions, resulting in ThorSwap, ThorChain’s leading DEX, to start screening user addresses.
Due to the permissionless nature of decentralized blockchains, it would be impossible to entirely prevent money laundering activity without resorting to censorship. Embracing decentralization means acknowledging the inevitability of regulatory oversight. It will be interesting to observe how global regulatory bodies respond to continued ThorChain network use for money laundering.
$USDR Depeg: A Lesson in Stablecoin Collateral Liquidity
Real estate tokenization has long been a topic of discussion within the crypto community, even before the term “RWA” was coined. In this period of building during the bear, Tangible DAO picked up the task in the most challenging way, creating a stablecoin named $USDR, majorly backed by a portfolio of real estates in the UK.
A day before its depegging, the protocol’s only reliable liquid collateral, $DAI, was backing $USDR by 17% at $11.9M in value. Its remaining collateral proved to be unreliable as they were mostly illiquid or overly volatile.
On 11th October, 11:50AM, $USDR began its depeg falling as low as $0.51. Observing redemption data, aggressive redemption of $DAI had begun six hours prior to the decline. As expected, $USDR’s selloff occurred the moment $DAI liquidity ran dry on the protocol.
Of the 10M $DAI redeemed from the protocol within the six hour period, 71% was withdrawn by 10 wallets. Our investigation into this set of wallets did not reveal any apparent associations between them, suggesting that each of these entities are independent of one another.
The Tangible team have since laid out plans to aid users in gradually unwinding their $USDR positions. Among them is the coming launch of Basket Tokens, allowing users to redeem fractionalized real estate assets with $USDR.
This depeg underscores the importance crypto participants attribute to collateral liquidity. In a fast-paced market such as crypto, the opportunity cost of capital tied up in illiquid assets is extremely undesirable, presenting a tall challenge for protocols seeking to incorporate them as collateral.