Sam Martin

Aave

Fed Speeds Tapering, Borrowing Activity on Aave, Compound, Maker, Anchor Slides: Markets Wrap

<div id="highlights-block_617725d07bf3f" class="highlights">
        <ul>
                <li>MKR price soars as Dai adoption picks up steam.</li>
                <li>LUNA nears an all-time high on a number of near- to medium-term catalysts.</li>
            </ul>
    
</div>



<p>There are three primary types of stablecoins; fiat-backed, overcollateralized and algorithmic.</p>



<p>The adoption of decentralized stablecoins, namely Dai and UST, has been increasing. </p>



<p>MakerDAO&#8217;s governance token, MKR, is on a tear as Dai adoption picks up. </p>



<p>LUNA is inching toward an all-time high on a number of near- to medium-term catalysts. </p>



<p>SHIB retraces on <a href="https://cms.blockworks.co/shiba-inu-owner-moves-2-76b-to-four-different-wallets/" target="_blank" rel="noreferrer noopener">news</a> that a wallet holding $5.7 billion of SHIB moved a large portion of the funds into four different wallets, likely to be sold.</p>



<p>NFTs tread water as the assets they are priced in continue to race higher. </p>



<h3 class="wp-block-heading"><strong>Latest in Macro:</strong></h3>



<ul class="wp-block-list"><li>S&amp;P 500: 4,660, +.65%</li><li>NASDAQ: 15,811, +1.04%</li><li>Gold: $1,770, -.42%</li><li>WTI Crude Oil: $80.11, -4.53%</li><li>10-Year Treasury: 1.603%, +.067%</li></ul>



<h3 class="wp-block-heading"><strong>Latest in Crypto:</strong></h3>



<ul class="wp-block-list"><li>BTC: $63,204, +.40%</li><li>ETH: $4,615, +2.12%</li><li>ETH/BTC: .0730, +.60%</li><li>BTC.D: 43.32%, -.88%</li></ul>



<h3 class="wp-block-heading">DAI and UST adoption continues</h3>



<p>Stablecoins are a form of digital asset that aim to peg their market value to an external reference such as the US dollar. Some of their main use cases include interacting with different applications in DeFi or for remittance payments. </p>



<p>The stablecoin market has grown to nearly $128 billion, representing an increase of roughly 500% over the last 12 months, according to a <a href="https://home.treasury.gov/system/files/136/StableCoinReport_Nov1_508.pdf" target="_blank" rel="noreferrer noopener">report</a> released by the US Treasury earlier this week. </p>



<p>There are three main categories of stablecoins:</p>



<ul class="wp-block-list"><li><strong>Fiat-backed</strong><ul><li>The two largest stablecoins, USDC and USDT, are fiat-backed stablecoins issued by the companies Circle and Tether respectively. Theoretically these companies hold $1 of reserves for every 1 USDC/USDT that is issued so that holders of the tokens have redemption rights.<ul><li>Some problems with fiat-backed stablecoins include: trusting that a centralized entity does in fact hold the reserves they claim and holders being subject to censorship by governments wherever they are domiciled. </li></ul></li></ul></li><li><strong>Overcollateralized</strong><ul><li>For every stablecoin that is minted into the market, there is overcollateralization of various crypto assets to back it. The peg is maintained through arbitraging opportunities. Borrowers who mint overcollateralized stablecoins must maintain a minimum amount of collateral in USD terms in order to avoid being liquidated. <ul><li>Some problems with these types of stablecoins include: they can only be minted if the market has an appetite to borrow against their assets, which may not be able to match the parabolic demand stablecoins have seen to date. Also, the stablecoin is only as good as the collateral that backs it. </li></ul></li></ul></li><li><strong>Algorithmic</strong><ul><li>With this type of stablecoin, on-chain incentives ensure the stablecoin maintains its price peg. There is no outside collateral backing these stablecoins and they are highly experimental. <ul><li>One of the main problems with algorithmic stablecoins is if the on-chain incentives fail, the stablecoin could be de-pegged and potentially go to zero.   </li></ul></li></ul></li></ul>



<h3 class="wp-block-heading">MKR and Dai</h3>



<p>Dai is an overcollateralized stablecoin native to MakerDAO (MKR). It is the largest decentralized stablecoin and can be minted on <a href="https://oasis.app" target="_blank" rel="noreferrer noopener">Oasis</a> by connecting a wallet and posting a digital asset as collateral.  </p>



<p>The total Dai supply sits at 8.13 billion, which marks an increase of 672% over the last 12 months. </p>



<p>Critics say that it is not sufficiently decentralized because a large portion of the collateral used to generate Dai is USDC, a fiat-backed stablecoin referenced earlier. However, USDC now only makes up 33.4% of Dai collateral, down from over 50% months earlier, <a href="https://decrypt.co/84958/ethereum-primary-collateral-decentralized-stablecoin-dai" target="_blank" rel="noreferrer noopener">according</a> to writer Emily Tonelli.  </p>



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="562" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-4.07.43-PM-1024x562.png" alt="" class="wp-image-10388" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-4.07.43-PM-1024x562.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-4.07.43-PM-1024x562.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-4.07.43-PM-1024x562.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-4.07.43-PM-1024x562.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-4.07.43-PM-1024x562.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-4.07.43-PM-1024x562.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-4.07.43-PM-1024x562.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-4.07.43-PM-1024x562.png?w=1032 1032w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Source: daistats.com</figcaption></figure>



<h4 class="wp-block-heading">MRK revenues</h4>



<p>MKR&#8217;s revenues are derived from three main sources, <a href="https://messari.io/article/makerdao-valuation" target="_blank" rel="noreferrer noopener">according</a> to a Messari report:</p>



<ol class="wp-block-list"><li>Interest revenues from overcollateralized loans</li><li>Liquidation revenues from fees charged on liquidated vaults</li><li>Stablecoin trading fees from the Price Stability Module (PSM)</li></ol>



<p>The report continues by explaining how the income generated by the Maker protocol indirectly accrues to token holders. Currently, cash flows are used for three main purposes being:</p>



<ol class="wp-block-list"><li>Covering the protocol’s development and operational costs</li><li>Building a safety buffer to cover potential liquidation losses (a.k.a. surplus buffer)</li><li>Buying and burning MKR tokens out of circulation</li></ol>



<p>The MKR token is therefore a beneficiary of further Dai adoption. As the Dai supply expands, the revenues generated should also increase barring any changes to the protocol:</p>



<div class="wp-block-image"><figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="802" height="611" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-4.26.37-PM.png" alt="" class="wp-image-10390" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-4.26.37-PM.png?w=802 802w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-4.26.37-PM.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-4.26.37-PM.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-4.26.37-PM.png?w=337 337w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-4.26.37-PM.png?w=343 343w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-4.26.37-PM.png?w=287 287w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-4.26.37-PM.png?w=80 80w" sizes="auto, (max-width: 802px) 100vw, 802px" /><figcaption>Source: Token Terminal</figcaption></figure></div>



<p>Sam MacPherson, a protocol engineer at MakerDAO, took to <a href="https://twitter.com/hexonaut/status/1455507332469821440?s=20" target="_blank" rel="noreferrer noopener">Twitter</a> to announce the D3M initiative which will give one of the largest borrowing and lending protocols on Ethereum, Aave, privileged access to mint Dai once the test debt ceiling is raised. This has MakerDAO enthusiasts excited about Dai expansion and further price appreciation of its governance token: MKR. </p>



<p>The MKR token was last trading at $3,190, up 32.66% over the last five days.</p>



<h3 class="wp-block-heading">LUNA and UST</h3>



<p>Terra&#8217;s largest stablecoin, UST, is algorithmic. There is no collateral backing UST other than its reserve token, LUNA, which has a fixed supply. Whenever one UST is minted, one dollar worth of LUNA must be burnt.</p>



<p>&#8220;LUNA helps to maintain UST’s peg to the dollar by an arbitrage mechanism. Whenever UST trades above the peg, users can send 1 dollar worth of LUNA to the system and receive 1 UST,&#8221; according to a Messari <a href="https://messari.io/article/terra-the-defi-giant-reaching-mainstream-adoption" target="_blank" rel="noreferrer noopener">report</a>. &#8220;Conversely, when UST trades below the peg, users can send 1 UST to the system to receive 1 dollar worth of LUNA. In both cases, users are incentivized to arbitrage and help maintain UST’s peg to the dollar.&#8221;</p>



<p>Due to the fact that LUNA is burned in order to mint UST, LUNA holders relentlessly push for further adoption of UST. </p>



<p>UST has experienced explosive growth, climbing to a circulating market cap of over $2.8 billion. But during spikes of volatility in crypto markets, the stablecoin has lost its peg as seen in the chart below:</p>



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="521" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/11/UST_Circulating-Marketcap_2021-11-03-1024x521.png" alt="" class="wp-image-10391" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/11/UST_Circulating-Marketcap_2021-11-03-1024x521.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/UST_Circulating-Marketcap_2021-11-03-1024x521.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/UST_Circulating-Marketcap_2021-11-03-1024x521.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/UST_Circulating-Marketcap_2021-11-03-1024x521.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/UST_Circulating-Marketcap_2021-11-03-1024x521.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/UST_Circulating-Marketcap_2021-11-03-1024x521.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/UST_Circulating-Marketcap_2021-11-03-1024x521.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/UST_Circulating-Marketcap_2021-11-03-1024x521.png?w=1215 1215w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Source: Messari</figcaption></figure>



<p>In May of 2021 when digital assets crashed, UST holders were spooked and there was a roughly 25% contraction in the circulating supply which led the price of UST to drop below its $1 peg. </p>



<p>This type of bank run on algorithmic stablecoins is often referred to as a &#8220;death spiral,&#8221; where the entire economy crashes to zero. This has happened to numerous algorithmic stablecoins in the past.</p>



<p>&#8220;The reason why Terra has been resilient during market contractions is because there is a vibrant economy that is being built on the Terra blockchain and I think that&#8217;s the best defense that algorithmic stablecoins can have against death spirals,&#8221; said Do Kwon, co-founder of Terra, in a <a href="https://members.delphidigital.io/reports/terra-autumn-series-ep-1-kickstarting-terra-autumn-with-do-kwon/" target="_blank" rel="noreferrer noopener">podcast</a>. </p>



<h3 class="wp-block-heading">LUNA nears ATH on bullish catalysts</h3>



<ul class="wp-block-list"><li>UST supply expansion which was previously discussed.</li><li>MIM&#8217;s UST Degenbox is set to roll out soon, according to a medium <a href="https://abracadabramoney.medium.com/our-ust-strategy-the-first-application-of-the-magic-potentialities-of-degenbox-ea35f13d6b5e" target="_blank" rel="noreferrer noopener">article</a> by Abracadabra.Money.</li><li><a href="https://anchorprotocol.com" target="_blank" rel="noreferrer noopener">Anchor protocol</a> offering a 19.5% fixed APY on UST deposits.</li><li><a href="https://terra.smartstake.io/history" target="_blank" rel="noreferrer noopener">283.05 million</a> LUNA are staked out of the 399.88 million circulating supply, making 70.7% of the circulating supply illiquid.</li><li>A pending <a href="https://agora.terra.money/t/communitypoolspendproposal-burn-pre-col5-community-pool/2429" target="_blank" rel="noreferrer noopener">proposal</a> to burn roughly 10% of the LUNA supply from the community pool to bootstrap UST liquidity for an insurance protocol called Ozone. This would mark one of the largest burns of a major protocol to date.</li><li>A recent <a href="https://twitter.com/chjango/status/1453860654893305861?s=20" target="_blank" rel="noreferrer noopener">interview</a> with Do Kwon where he states there are plans to create a stability augmentation platform with $1 billion worth of BTC to back LUNA with the most pristine collateral in the digital asset realm. </li></ul>



<p>There are also numerous protocols launching on Terra in the coming months which many expect will drive organic demand for UST, and thus lead to more LUNA being burned. There are too many projects to go into detail here, but the following Twitter thread provides a detailed overview:</p>



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true"><p lang="en" dir="ltr">Few realise it, but <a href="https://twitter.com/hashtag/TerraAutumn?src=hash&amp;ref_src=twsrc%5Etfw">#TerraAutumn</a> is coming 🌖🍂<br><br>The pieces will start falling into place once Columbus 5 goes live in late September<br><br>In this thread, I share my mental model for <a href="https://twitter.com/terra_money?ref_src=twsrc%5Etfw">@terra_money</a> and guide to the end of year setup as I see it 👇</p>&mdash; José Maria Macedo (@ZeMariaMacedo) <a href="https://twitter.com/ZeMariaMacedo/status/1435654966585200645?ref_src=twsrc%5Etfw">September 8, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<p>As a result, <a href="https://coinmarketcap.com/currencies/terra-luna/" target="_blank" rel="noreferrer noopener">LUNA</a> is nearing an all-time high, last trading at $48.27. It is up 18.41% over the last seven days.</p>



<h3 class="wp-block-heading">Shiba Inu retraces its steps</h3>



<p>SHIB was last trading down 15.45% on <a href="https://cms.blockworks.co/shiba-inu-owner-moves-2-76b-to-four-different-wallets/" target="_blank" rel="noreferrer noopener">news</a> that a wallet holding $5.7 billion of SHIB moved a large portion of the funds in four different wallets, likely to be sold.</p>



<p>DOGE has reclaimed its spot as the top dog in the world of crypto. SHIB is the eleventh largest cryptocurrency with a market cap of $33.71 billion. DOGE is the ninth largest cryptocurrency with a market cap of $35.53 billion.</p>



<h3 class="wp-block-heading">Non-Fungible Tokens (NFTs)</h3>



<p>Trading data from <a href="https://opensea.io/rankings" target="_blank" rel="noreferrer noopener">OpenSea</a> and <a href="https://solanalysis.com" target="_blank" rel="noreferrer noopener">Solanalysis</a> of some of the top Solana and Ethereum projects can be found in the photos below:</p>



<div class="wp-block-image"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="334" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-5.50.37-PM-1024x334.png" alt="" class="wp-image-10406" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-5.50.37-PM-1024x334.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-5.50.37-PM-1024x334.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-5.50.37-PM-1024x334.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-5.50.37-PM-1024x334.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-5.50.37-PM-1024x334.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-5.50.37-PM-1024x334.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-5.50.37-PM-1024x334.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-5.50.37-PM-1024x334.png?w=1240 1240w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Top Ethereum Projects</figcaption></figure></div>



<div class="wp-block-image"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="290" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-5.50.23-PM-1024x290.png" alt="" class="wp-image-10405" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-5.50.23-PM-1024x290.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-5.50.23-PM-1024x290.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-5.50.23-PM-1024x290.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-5.50.23-PM-1024x290.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-5.50.23-PM-1024x290.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-5.50.23-PM-1024x290.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-5.50.23-PM-1024x290.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-03-at-5.50.23-PM-1024x290.png?w=1221 1221w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Top Solana Projects </figcaption></figure></div>



<p>If you made it this far, thanks for reading! I am looking forward to catching up tomorrow.</p>



<hr class="wp-block-separator"/>



<p><strong>Are you a UK or EU reader that can&#8217;t get enough investor-focused content on digital assets? <a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Join us</a>&nbsp;in London on November 15th and 16th for the Digital Asset Summit (DAS) London. Use code ARTICLE for £75 off your ticket.&nbsp;<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Buy it now</a>.</strong></p>



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Bitcoin

LUNA Closes in on ATH; MKR Trends Higher: Markets Wrap

<div id="highlights-block_617725d07bf3f" class="highlights">
        <ul>
                <li>Bitcoin experienced intense volatility that coincided with the closing of CME futures markets</li>
                <li>AAVE, MKR and COMP battle it out for DeFi marketshare</li>
            </ul>
    
</div>



<p>Bitcoin (BTC) experienced a mini flash crash around 2:15 PM ET today but quickly recovered.</p>



<p>Perpetual funding rates remain an important metric to keep an eye on. </p>



<p>Some industry experts believe that the volatility can be attributed to the recently approved BTC ETF.</p>



<p>The borrowing and lending space in DeFi may be large enough for AAVE, COMP and MKR to all thrive. </p>



<p>Despite recent turbulence in the NFT space, there remains a lot of catalysts for price appreciation. </p>



<h3 class="wp-block-heading"><strong>Latest in Macro:</strong></h3>



<ul class="wp-block-list"><li>S&amp;P 500: 4,596, +.98%</li><li>NASDAQ: 15,448, +1.39%</li><li>Gold: $1,799, +.03%</li><li>WTI Crude Oil: $83.06, +.48%</li><li>10-Year Treasury: 1.578%, +.049%</li></ul>



<h3 class="wp-block-heading"><strong>Latest in Crypto:</strong></h3>



<ul class="wp-block-list"><li>BTC: $60,972, +3.40%</li><li>ETH: $4,264, +6.38%</li><li>ETH/BTC: .0700, +4.31%</li><li>BTC.D: 44.65%, -.84%</li></ul>



<h3 class="wp-block-heading">BTC liquidation cascade</h3>



<p>Bitcoin experienced an intense period of volatility today around 2:15 PM ET, with the BTC price falling as low as $57,653 before quickly recovering. There was a strong rally in the middle of last night from $58,000 up to nearly $62,000 right before the sell-off.</p>



<p>It appears speculators got too excited too quickly, as perpetual funding rates were racing higher as the price action traded in a range right before the sell-off. </p>



<p>&#8220;The funding rate is derived from the difference between the market price of perpetuals and the spot index it’s anchored to. Excessive buying of perps increases the spread between perp price and the spot index, causing funding to go up. Conversely, negative funding is incited by an influx of perp shorting, forcing the contract’s price to fall lower than spot prices,&#8221; <a href="https://members.delphidigital.io/reports/leverage-wipes-out-but-is-the-worst-behind-us/" target="_blank" rel="noreferrer noopener">wrote</a> Ashwath Balakrishnan of Delphi Digital.</p>



<p>He continued, &#8220;For funding to fall lower, one of two things needs to happen: either existing longs get shaken out and are forced to cover, or there’s an increase in bearish sentiment prompting traders to go net short. Either way, it’s unclear whether we’ve found a local bottom yet.&#8221;</p>



<p>As seen in the following chart, open interest weighted funding rates raced higher prior to the dip in price. Unfortunately, traders began getting aggressive quickly after the correction which signals additional caution may be appropriate. </p>



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="683" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/oi-weighted-funding-rate-2-1024x683.jpeg" alt="" class="wp-image-10064" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/oi-weighted-funding-rate-2-1024x683.jpeg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/oi-weighted-funding-rate-2-1024x683.jpeg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/oi-weighted-funding-rate-2-1024x683.jpeg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/oi-weighted-funding-rate-2-1024x683.jpeg?w=386 386w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/oi-weighted-funding-rate-2-1024x683.jpeg?w=392 392w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/oi-weighted-funding-rate-2-1024x683.jpeg?w=329 329w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/oi-weighted-funding-rate-2-1024x683.jpeg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/oi-weighted-funding-rate-2-1024x683.jpeg?w=1200 1200w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Source: Laevitas.ch</figcaption></figure>



<p>According to Skew, roughly $32 million worth of futures positions were liquidated in just a 10-minute window. </p>



<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="869" height="333" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-4.00.35-PM.png" alt="" class="wp-image-10060" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-4.00.35-PM.png?w=869 869w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-4.00.35-PM.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-4.00.35-PM.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-4.00.35-PM.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-4.00.35-PM.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-4.00.35-PM.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-4.00.35-PM.png?w=80 80w" sizes="auto, (max-width: 869px) 100vw, 869px" /><figcaption>Source: Skew.com</figcaption></figure>



<h3 class="wp-block-heading">Are BTC ETFs to blame?</h3>



<p>Some industry experts believe that the volatility can be attributed to the recently <a href="https://cms.blockworks.co/first-bitcoin-futures-etf-nears-1b-on-first-day-of-trading/" target="_blank" rel="noreferrer noopener">approved</a> BTC ETF, which is backed by leveraged positions in the form of cash-settled futures contracts. </p>



<p>Caitlin Long, 22-year Wall Street Veteran and founder of Avanti, took to Twitter to share her thoughts:</p>



<figure class="wp-block-embed aligncenter is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true"><p lang="en" dir="ltr">ANOTHER LEVERAGED SLAMDOWN in <a href="https://twitter.com/hashtag/bitcoin?src=hash&amp;ref_src=twsrc%5Etfw">#bitcoin</a> trading mkts today. Again, this is the type of foreseeable event that happens with the bad kind of financialization (the leveraged kind). It increases the cost of capital for the whole sector. smh <a href="https://t.co/hC1sbEtiXx">https://t.co/hC1sbEtiXx</a></p>&mdash; Caitlin Long 🔑⚡️🟠 (@CaitlinLong_) <a href="https://twitter.com/CaitlinLong_/status/1453807532443455488?ref_src=twsrc%5Etfw">October 28, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<p>It is unclear if the added leverage via ETF approvals to the BTC ecosystem is to blame for the volatility in price.</p>



<p>It is worth noting, however, that the CME only accounts for roughly 20% of aggregated futures open interest albeit a growing portion. This is significant to add because the CME is where all of the futures are being traded that back the aforementioned ETFs. </p>



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="572" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_futures__aggregated_open_interest-1024x572.png" alt="" class="wp-image-10067" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_futures__aggregated_open_interest-1024x572.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_futures__aggregated_open_interest-1024x572.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_futures__aggregated_open_interest-1024x572.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_futures__aggregated_open_interest-1024x572.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_futures__aggregated_open_interest-1024x572.png?w=467 467w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_futures__aggregated_open_interest-1024x572.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_futures__aggregated_open_interest-1024x572.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/skew_btc_futures__aggregated_open_interest-1024x572.png?w=1200 1200w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Source: Skew.com</figcaption></figure>



<h3 class="wp-block-heading">Aave, Compound and MakerDAO battle it out for marketshare</h3>



<p>Aave (AAVE) and Compound (COMP) facilitate peer-to-peer borrowing and lending. Liquidity providers (LPs/lenders) earn interest for their services, while borrowers pay interest on top of their loans to pay the LPs. </p>



<p>MakerDAO (MKR) allows users to take out loans by locking up digital assets as collateral in return for a decentralized stablecoin, DAI. However, borrowers need to be attentive to their loan-to-collateral ratio as asset prices fluctuate in order to avoid having their collateral liquidated. </p>



<p>AAVE, COMP and MKR all compete for users&#8217; appetites to take on leverage via borrowing. However, when it comes to lending it is really just AAVE and COMP battling for market share because they have peer-to-peer ecosystems versus MKR&#8217;s collateralized debt position (CDP) model. </p>



<p>AAVE currently leads based on total valued locked (TVL) in its platform, followed by MKR at third and COMP at seventh: </p>



<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="1001" height="379" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.14.40-PM.png" alt="" class="wp-image-10074" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.14.40-PM.png?w=1001 1001w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.14.40-PM.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.14.40-PM.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.14.40-PM.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.14.40-PM.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.14.40-PM.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.14.40-PM.png?w=80 80w" sizes="auto, (max-width: 1001px) 100vw, 1001px" /><figcaption>Source: DefiLlama</figcaption></figure>



<p>According to the following Dune Analytics dashboard, the percentage of market participants interacting with COMP has remained consistent since mid-2020, whereas AAVE has stolen a lot of marketshare away from MKR. </p>



<p>COMP and MKR each hold a 25% market share of active addresses versus AAVE with 50%. </p>



<div class="wp-block-image"><figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="625" height="281" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.21.24-PM.png" alt="" class="wp-image-10076" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.21.24-PM.png?w=625 625w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.21.24-PM.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.21.24-PM.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.21.24-PM.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.21.24-PM.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.21.24-PM.png?w=80 80w" sizes="auto, (max-width: 625px) 100vw, 625px" /></figure></div>



<p>However, the picture looks a lot different when looking at the market share of loans outstanding per project. AAVE leads with a 35.7% market share, with MKR in 2nd with 34.5%, and COMP in last with 29.9%. </p>



<p>This implies that while there are fewer active addresses on MKR taking out loans, they are players with very big pockets and trust the stablecoin, Dai, is a pristine asset.</p>



<div class="wp-block-image"><figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="410" height="318" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.27.46-PM.png" alt="" class="wp-image-10077" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.27.46-PM.png?w=410 410w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.27.46-PM.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.27.46-PM.png?w=331 331w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.27.46-PM.png?w=337 337w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.27.46-PM.png?w=282 282w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.27.46-PM.png?w=80 80w" sizes="auto, (max-width: 410px) 100vw, 410px" /></figure></div>



<p>With roughly $80 billion of loans outstanding between the three protocols and only 3.5 million DeFi users, the total addressable market and growth run way is extremely large. Only time will tell if all three protocols can thrive side by side.</p>



<h3 class="wp-block-heading">Non-Fungible Tokens (NFTs)</h3>



<figure class="wp-block-embed aligncenter is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true"><p lang="en" dir="ltr">&#8211; Twitter is implementing NFTs<br>&#8211; Coinbase is building an NFT marketplace<br>&#8211; Facebook is all in on Metaverse<br>&#8211; GameStop is building an NFT marketplace<br>&#8211; Nike working on NFT verification of shoes<br>&#8211; Warner Bros looking to release music NFTs<br><br>Heck yeah I&#39;m bullish</p>&mdash; Cobble ᵍᵐ (@cobble) <a href="https://twitter.com/cobble/status/1453692007046647810?ref_src=twsrc%5Etfw">October 28, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<p>Trading data from <a href="https://opensea.io/rankings" target="_blank" rel="noreferrer noopener">OpenSea</a> and <a href="https://solanalysis.com" target="_blank" rel="noreferrer noopener">Solanalysis</a> of some of the top Solana and Ethereum projects can be found in the photos below:</p>



<div class="wp-block-image"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="331" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.44.13-PM-1024x331.png" alt="" class="wp-image-10078" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.44.13-PM-1024x331.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.44.13-PM-1024x331.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.44.13-PM-1024x331.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.44.13-PM-1024x331.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.44.13-PM-1024x331.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.44.13-PM-1024x331.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.44.13-PM-1024x331.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.44.13-PM-1024x331.png?w=1234 1234w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Top Ethereum Projects</figcaption></figure></div>



<div class="wp-block-image"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="282" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.43.56-PM-1024x282.png" alt="" class="wp-image-10079" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.43.56-PM-1024x282.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.43.56-PM-1024x282.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.43.56-PM-1024x282.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.43.56-PM-1024x282.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.43.56-PM-1024x282.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.43.56-PM-1024x282.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.43.56-PM-1024x282.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-28-at-5.43.56-PM-1024x282.png?w=1208 1208w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Top Solana Projects </figcaption></figure></div>



<p>If you made it this far, thanks for reading! Looking forward to catching up tomorrow.</p>



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