The Hard Fork – Weekly Market Commentary

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This Week’s Topics:
1) Ethereum gas usage soars
2) Stablecoin deposits reach all time high
3) SushiSwap founder transfers keys to FTX CEO

 

Indices Round-up

 

TradeBlock Index Asset1 Price ($) 7d∆2
XBX Bitcoin 10082.50 -13.20%
EOSX EOS 2.79 -13.47%
XRX XRP 0.23 -16.10%
XMRX Monero 78.96 -16.28%
BCX Bitcoin Cash 223.08 -18.84%
ETX Ethereum 339.60 -20.45%
XLMX XRP 0.08 -20.99%
LTX Litecoin 46.91 -24.31%
ECX Ethereum Classic 5.06 -25.02%
ZCX Zcash 57.24 -27.64%
1. Underlying asset sorted in descending order by 7 day price movers.
2. 7 day price movers monitored from 08/31/2020 06:00 ET thru 09/01/2020 06:00 ET.

 

7 day price movers
Digital currencies broadly traded down this week in one of the largest crashes since May as global markets positioned risk-off. Among our indexed assets, traded down the most, declining 27.64%. Conversely, bitcoin traded down the least, losing 13% on the week. In traditional markets, risk-on assets declined broadly with the S&P 500 declining 2.5% and the Nasdaq declining 3.5%. The pullback comes after equity markets reached all-time highs and digital currency markets reached local highs.
 

Ethereum gas usage soars
This past week, the amount of ether used in transactional activity reached an all-time high as the demand for DeFi transactions soared. The primary driver of DeFi activity recently has been in yield farming. In these decentralized ecosystems, interacting with smart contracts to stake and unstake assets, through yield farming, in order to receive rewards are conducted over the Ethereum blockchain and as such require ETH for gas to confirm these transactions. In the figure below, we diagram ether used as gas for transactions over time.
 

Figure 1: Ether gas usage over time


 

Gas costs can vary depending on the complexity, and hence, number of processes undertaken in a certain smart contract(s). On some platforms, gas costs in order to yield farm can be as high as several thousand dollars. As the demand for ether in order to process transactions has risen, the transactional costs of using the Ethereum blockchain have risen. With the increase in costs for transactions, the added costs to transact across decentralized exchanges (DEXs) has risen, making DEXs a costly trading venue for small size trades. In the figure below, we compare a fee breakdown (including ether gas costs) between DEXs (Uniswap and Kyber Network) and centralized exchanges (Coinbase, Binance, and Kraken).
 

Figure 2: Fee breakdown between DEXs and CEXs


 

As demonstrated in the figure above, the costs associated with transacting in small notional volumes across DEXs are considerably higher than CEXs. However, for larger size trades, the costs become lower and inline with CEXs.
 

Stablecoin deposits reach all time high
The total market capitalization across the largest stablecoins reached an all-time high this past week. In order for a stablecoin to be issued, there needs to be an equal amount of capital deposited in stablecoin wallets–as one stablecoin is backed by a corresponding one US dollar. At time of writing, more than $14 billion in Tether is outstanding, along with more than $1.7 billion in USDC, and just over $430 million in DAI–a new all time high in stablecoin value outstanding.

Stablecoins are digital currencies that are designed to maintain a stable value relative to one or more assets. While stablecoins could be structured to maintain a peg ratio with numerous financial instruments – including commodities such as gold – current leading coins, by market capitalization, are designed to maintain a peg ratio of 1:1 with the US dollar.

The desire for a stable digital currency has had significant market interest for a considerable period of time, as digital currencies have historically traded with high levels of volatility. In recent months, stablecoins have seen a significant increase in interest as more and more venues accept and transact in stablecoins. Additionally, given their reduced volatility, stablecoins, along with ether, have become the defacto transactional currency across digital currency platforms.
 

SushiSwap founder transfers keys to FTX CEO
This past week, the anonymous founder behind the highly popular DeFi project SushiSwap, transferred project control admin keys over to FTX CEO, Sam Bankman-Fried. SushiSwap became the latest DeFI darling attracting millions of dollars in collateral in the matter of days. Market participants were providing collateral, which is to be converted into liquidity on the upstart decentralized exchange platform, and in return are receiving rewards through “yield farming.”

After launching just this past week, SushiSwap saw immense popularity as a rival platform to the highly successful decentralized exchange, Uniswap. In a controversial turn of events, the anonymous founder behind SushiSwap, sold his/her share (~$13 million valued in USD) of Sushi tokens designated for a long running development fund. After the controversial sale, the anonymous founder, after receiving feedback from the community, transferred admin control over the project to the FTX founder and early SUSHI yield farmer Sam Bankman-Fried.
 

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