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Alpha Report April Asset Analysis
April 18, 2024
March and April Portfolio Asset-level Analysis
**Analysis period: March 15th to April 16th
Bitcoin (BTC)
Bitcoin is the first distributed, consensus-based, censorship-resistant, permission-less, peer-to-peer payment settlement network with a provably scarce, programmable, native currency. The Bitcoin network is an emergent decentralized monetary institution that exists through the interplay of full nodes, miners, and developers.1
Hong Kong Boards the ETF Express
Hong Kong regulators approved spot Bitcoin and Ether exchange-traded funds (ETFs), signaling the institutionalization of crypto assets. ChinaAMC, Harvest Global, and Bosera International were granted licenses by Hong Kong’s Securities and Futures Commission (SFC). Hong Kong is positioning itself as one of the first regions to approve spot ether ETFs. The U.S. is dragging its feet on ether-based products despite approving spot bitcoin ETFs. Europe, Singapore, Australia, and Dubai have approved Bitcoin ETFs. The U.K. will allow crypto-traded notes on the London Stock Exchange from May, with Australia likely to follow in June. The news from Hong Kong is positive for the city's role as a financial hub, potentially influencing nearby neighbors like Japan and Singapore. Bitcoin ETFs in the U.S. have seen rapid growth, but the market size comparison between the U.S. and Hong Kong may impact capital influx.2
Bitcoin Meme Coin PUPS Fuelled by Hype Ahead of Runes Release
The buzz around the upcoming Runes protocol sparked a 50% surge in the Bitcoin meme coin PUPS on April 12th. Traders are eyeing Bitcoin-related tokens and networks in anticipation of the halving event. As the meme coin hit over $66 in Asian afternoon trading, boasting a $516 million market cap, it stands as the third-largest Bitcoin-based token after ORDI and SATS. PUPS has dominated global sales and volumes among all NFT collections, according to Cryptoslam data, with a whopping $11 million in volumes. Following closely are the Bitcoin Ordinals collections and NodeMonkes, with $7 million and $1 million in volumes, respectively, continuing the trend of interest in Bitcoin NFTs from the previous week. Data reveals that PUPS has surged over 1,000% in the past week, earning its reputation as the pioneering meme coin on Bitcoin, which fueled its virality and appeal. However, developers refuted this claim on Friday.
While PUPS is currently available as an Ordinals token, it aims to transition to the upcoming Runes protocol post the halving event. Traders on the X social media platform are hyping up Runes as the next big thing after a frenzy in the Solana and Base ecosystems. The forthcoming Runes protocol is set to launch post Bitcoin's halving and is projected to elevate the Ordinals protocol by enabling even cheaper and faster transactions. Traders are tipping this sector to watch out for in the upcoming weeks. Ordinals serve as a means to embed data into the Bitcoin blockchain by referencing digital art in small Bitcoin-based transactions. Runes takes this concept further by leveraging a UTXO (Unspent Transaction Output) protocol to facilitate transactions. This mechanism allows tokens to create, name, and transfer digital assets solely through the Bitcoin network. UTXO, a technical term denoting the remaining tokens after a cryptocurrency transaction, plays a pivotal role. Both Ordinals and Runes are brainchildren of veteran Bitcoin developer Casey Rodarmor, fostering trust and authenticity among users. Rodarmor, in an X post from April, highlighted that the protocol caters to "degen" and meme coin enthusiasts, stirring excitement within the meme coin trading community. He emphasized that while the Runes protocol was designed for such coins, it remains simple, efficient, and secure, positioning itself as a formidable competitor to Taproot Assets and RGB. Rodarmor underscored the versatility of the ordinals library, making the encoding and decoding of runestones seamless. He expressed skepticism towards "serious" tokens but praised Runes as a protocol that stands out in the realm of token offerings.3
Closing Thoughts
The success of US spot Bitcoin ETFs leads us to believe the Hong Kong spot Bitcoin and Ethereum ETFs should be highly anticipated and adopted throughout the Eastern hemisphere. The coinciding of these potential approvals with the Bitcoin halving, slated to occur on April 22nd, adds to our bullish sentiment for the next 6-12 months.
Although Ordinals, Runes, and meme coins on Bitcoin may not lend to Satoshi’s original vision and are scoffed at by BTC maxis, in our team’s opinion, it is a net positive for the Bitcoin blockchain. The evolution of Bitcoin to include a DeFi component will only tighten its hold on the greater crypto space as the linchpin asset in the ecosystem.
Ethereum (ETH)
Ethereum is a distributed Layer-1 blockchain computing platform for smart contracts and decentralized applications. The network enables users to build extensively through the use of smart contracts and has since led to the creation of various new assets and industries, such as Decentralized Finance (DeFi), Non-Fungible Tokens (NFTs), Decentralized Autonomous Organizations (DAOs), Web3, and more.4
Ethereum Dencun upgrade lowers transaction fees for L2s
The Dencun Ethereum upgrade differs from priors by focusing on enhancing interactions with layer 2s like Arbitrum, Base, and Optimism to make them more cost-effective, encouraging users to shift traffic. Early feedback is positive, with fees on layer 2s dropping significantly. Dencun's success depends on attracting users from the Ethereum base layer, which has shown promising signs so far. Brian Gallagher, co-founder of Partisia blockchain, believes the focus of Ethereum will further shift to DeFi, aiming to increase speed and reduce costs. If costs aren't significantly lowered, other faster and cheaper chains may gain market share. While Dencun's success is yet to be fully tested, Ethereum's upgrade appears successful for now as layer 2 fees have dropped by a factor of 10, with Optimism and Arbitrum now with fees less than $0.01.5
BlackRock's BUIDL Ethereum Fund Draws $245 Million In a Week
Ondo Finance, a tokenized real-world asset platform, expressed enthusiasm for BlackRock's foray into securities tokenization with the launch of BUIDL. Their team highlighted the significance of BlackRock's collaboration with various ecosystem participants. This move not only validates Ondo Finance's concept of a tokenized US Treasury fund but also reinforces the belief that tokenizing traditional securities on public blockchains is a pivotal advancement in financial markets' evolution.
Although not classified as a stablecoin like USDT or USDC, BlackRock clarified that BUIDL aims to maintain a 1-to-1 value parity with the U.S. dollar, equating 1 BUIDL to $1. Stablecoins in the cryptocurrency realm strive to introduce stability amidst the market's volatility and offer a gateway to fiat or other tokens on exchanges. BlackRock specified that the fund exclusively invests its assets in cash, U.S. Treasury bills, and repurchase agreements.
BlackRock submitted documentation for the BlackRock USD Institutional Digital Liquidity Fund, based in the British Virgin Islands, to the U.S. Securities and Exchange Commission on March 14. This development raised expectations for a potential Ethereum ETF, despite the SEC's resistance towards BlackRock's iShares Ethereum Trust ETF. Additionally, the SEC postponed the decision on Grayscale's Ethereum ETF until late May.
According to Real-World Assets (RWA) platform data, BlackRock's BUIDL fund holds the second position, following Franklin Templeton's Franklin OnChain U.S. Government Money Fund, with a market capitalization of $360.2 million. The Ethereum-centered BlackRock BUIDL fund boasts a market capitalization of $106.5 million.
In a January interview with CNBC, BlackRock CEO Larry Fink advocated for crypto-based exchange-traded funds after the SEC greenlit the first Bitcoin ETFs. Fink expressed interest in an Ethereum ETF, considering it a stepping stone towards tokenization.
While an Ethereum spot ETF garners considerable attention, it is not anticipated to attract the same level of interest as Bitcoin ETFs, which amassed $4.5 billion on their debut.6
Ethereum Spot ETF Update
"Pins are dropping," Jan van Eck told CNBC that the lack of SEC comment on pending Ether ETFs isn't a good sign for May approval. VanEck's CEO says it's unlikely the SEC will approve spot Ether ETFs in May. Jan van Eck mentioned that VanEck and ARK Invest were the first to file for spot Ether ETFs, awaiting decisions on May 23 and May 24. CoinShares CEO Jean-Marie Mognetti was pessimistic, stating, "I don't see anything approved this year." Van Eck's comments follow prolonged SEC inaction on seven pending spot Ether ETF applications. Commentators, including Bloomberg's Eric Balchunas, point to the ongoing "radio silence" as a reason for unlikely May approval. Balchunas lowered odds for an Ether ETF approval from 70% to 35%. James Seyffart added that "zero comments/interactions is a bad sign."
Amidst the uncertainty surrounding a potential Ethereum ETF approval in the US, Hong Kong regulators have granted approval for an ETH ETF on Monday morning. This move is poised to spur competition among geopolitical jurisdictions, prompting more nations to contemplate approving Ethereum ETFs.7
Closing Thoughts
Ethereum maintains its position as the top smart contract platform for instiutions, especially after receiving Blackrock’s BUIDL endorsement. The launch of a spot ETF in Hong Kong is expected to prompt regulators in other countries to approve ETH ETFs. High fees on Ethereum's mainnet and Layer 2 solutions were concerning, but the Cancun-Deneb upgrade has significantly reduced these costs. Considering these developments, Path holds a positive outlook on Ethereum for the rest of 2024.
Solana (SOL)
Solana is a public base-layer-1 blockchain protocol that optimizes for scalability. Its goal is to provide a platform that enables developers to create decentralized applications (dApps) without needing to design around performance bottlenecks.8
Solana Update Brings First Fixes for Congestion Issues
To address the recent network issues, a new update has been introduced as an initial measure, with more enhancements to follow. Anza, a Solana focused dev shop, explained that this update aims to alleviate ongoing network congestion, paving the way for further improvements in v1.18.
The challenges faced by Solana's network, hindering transaction processes and basic functions, coincide with the increased trading activity of meme coins and tokens. Various factors contribute to these issues, including a Solana protocol similar to Bitcoin mining and allegations of infrastructure firms exploiting a bug for advantage.
The Solana Foundation attributed the network's problems to a bottleneck in the implementation of QUIC on the Agave validator client, as highlighted by Austin Federa, the organization's Head of Strategy. Although originally planned for future resolution, growing network demands accelerated the need for immediate action.
After recent testing by Anza, the update was deployed on the Solana testnet, urging validators to upgrade promptly. While no definitive timeline is in place for the v1.18 upgrade, developers caution that it won't serve as a one-size-fits-all solution.9
Solana welcomes Circle’s cross-chain transfer protocol
Circle, the issuer of the popular USDC stablecoin, partners with Solana to introduce its cross-chain transfer protocol (CCTP) to the blockchain ecosystem. CCTP facilitates secure USDC transfers between different blockchains using native mint and burn processes. Solana developers can now swap USDC tokens natively with Ethereum and other EVM-compatible ecosystems like Arbitrum, Avalanche, Base, Optimism, and Polygon, as well as non-EVM blockchains. CCTP initially integrated with a non-EVM chain in October last year by partnering with Noble, a Cosmos-based token protocol. Supported by various Solana ecosystem players, CCTP enhances on-chain communication by enabling the transfer of digital assets across ecosystems. With CCTP designed by Circle, users may prefer it over third-party bridges for stablecoin transfers across different ecosystems. Following CCTP's launch on Solana, SOL's price has shown stability at $190.4.
Following the implementation of CCTP, Solana’s stablecoin market has recovered to its pre-FTX collapse level, supply has passed $3bn with a 71% increase since beginning of the year, and Circle’s USDC has become the dominant stablecoin on Solana.10
Closing Thoughts
Solana is experiencing an unprecedented surge in transaction volumes compared to the other smart contract platforms. The resulting congestion rendered Solana nearly unusable for a week this month, but their development team is now actively addressing these issues and clearing the memepool.
If Solana can sustain its capture of retail market share through low fees, rapid transactions, and popular assets like memecoins and NFTs, its significance in the ecosystem will only grow. Path holds a bullish outlook on Solana for the rest of 2024, believing its growth potential surpasses that of Ethereum during the remaining period of this bullish crypto phase.
Render (RNDR)
Render Network is a peer-to-peer GPU compute network connecting users needing GPU compute services (e.g., GPU rendering and machine learning inferences) to idle GPU owners willing to fulfill compute requests for profit. The network provides a distributed GPU compute marketplace where users can monetize idle GPU power while offering creators or compute clients more accessible computing services.13
Render saw an increase of 13.4% in token holders to 85.74k over the past 30 days, although its market cap lost -19% of its value over the same time frame.14
Fetch.ai (FET)
Fetch.ai is a technology company and platform designed for the AI economy. It offers tools to build, deploy, and monetize AI services. The platform enables the transformation of legacy systems for AI readiness without altering existing APIs and facilitates the discovery of services on an AI Agent network. Fetch.ai also connects multiple integrations to create new services and allows users to access these services through a single prompt.15
AI Super Merger
Fetch.ai, SingularityNET, and Ocean Protocol have united to merge their cryptocurrency tokens and form a decentralized AI alliance. This coalition aims to establish an AI community that offers a decentralized option to counter projects dominated by tech giants.
The native token of Fetch.ai, an AI-centric Web3 platform, will transform from FET to ASI, symbolizing "artificial superintelligence." ASI will have a total supply of approximately 2.63 billion tokens, with an initial value of $2.82. SingularityNET and Ocean Protocol's native tokens will combine into ASI as well.
The collaborative venture plans to construct a broad-scope open, decentralized AI infrastructure, contrasting with current systems that lack transparency. This move comes in response to growing concerns about tech titans like Microsoft, Alphabet, Amazon, Apple, and Meta potentially monopolizing the AI landscape.
The momentum surrounding AI has surged in 2023, notably with innovations like ChatGPT gaining widespread attention. However, the fear of a tech oligarchy has prompted blockchain and Web3 enterprises to offer an alternative that emphasizes data transparency and collective involvement.16
Maker (MKR)
Maker is a self-described “Multi-Collateral DAI (MCD)” lending DeFi protocol designed “to bring stability to the cryptocurrency economy.” To achieve this, Maker employs a two-token strategy - DAI and MKR. DAI is the protocol’s collateral-backed stablecoin soft-pegged to the US Dollar (USD), while MKR is the protocol’s governance token used to vote on various aspects of the protocol, such as technical upgrades, risk parameters, and collateral types.17
MakerDAO could back a billion Dai with Ethena’s ‘synthetic dollar’ USDe
A proposal earlier this month by MakerDAO to mint up to one billion Dai using Ethena's USDe and sUSDe collateral has sparked controversy. Just three days after a $100 million trial run were quickly taken up by users seeking to 'loop' leverage and amplify Ethena's already significant yields; concerns arose regarding the rapid exposure of Dai to a new asset.
Critics argue that this move could transfer the inherent risks of Ethena's new 'synthetic dollar' to Dai, a widely used currency in decentralized finance (DeFi), raising fears of a potential depeg that could introduce systemic risk across the sector.
Maker delegate and risk consultant monet-supply stated that the vault would initially have a cap of 600 million Dai, potentially adjustable to 1 billion based on demand and risk evaluations. Despite the gradual implementation, 600 million Dai is a substantial sum, especially considering that the total Dai minted from USDC currently stands at around 600 million, as per MakerBurn data. Some have labeled this move as "reckless," particularly given the novelty of Ethena's product.
Shortly after this, Aave governance delegate Marc Zeller proposed on Aave's forum, citing concerns about Dai's potential impact on Aave due to the unpredictability of MakerDAO's future governance decisions. Zeller suggested reducing Dai's loan-to-value (LTV) to zero, rendering it ineligible for borrowing on Aave, and excluding Dai from Aave's rewards program, Merit. This proposal may offer both conservative and aggressive options in the ensuing vote. Zeller's critique could be influenced by the method through which Dai is issued, particularly as it relates to Aave's competitor, Morpho. In the past, Zeller advocated for excluding certain Morpho users from Merit rewards. Subsequently, longstanding Aave risk advisors Gauntlet Network shifted to Morpho.
Zeller faced accusations of hypocrisy, especially as Aave governance deliberates over including sUSDe collateral. The differentiating factors, according to Aave founder Stani Kulechov and Zeller, are elements of risk management and the caps' sizes rather than the use of Ethena's collateral itself.
Several prominent figures have weighed in on the matter, with Alchemix's @scupytrooples highlighting the potential repercussions of a USDe depeg on all DeFi products reliant on Dai. Inverse Finance founder Nour Haridy pointed out that Maker might be increasing Dai's risk profile. Despite criticism, Maker's founder, Rune Christensen, backed the notion of using Ethena assets as collateral. Christensen appears willing to overlook the risk of centralized exchanges (CEX) collapsing, such as FTX, and instead rely on custodians.
Ethena currently allocates 49% of its collateral for trading on Binance, likely under Binance-affiliated Ceffu custody.18
Filecoin (FIL)
Filecoin is a decentralized storage network for securely monetizing, storing, retrieving, and computing data. It is built as an incentive layer for the InterPlanetary File System (IPFS), a peer-to-peer protocol leveraging a content address system for sharing, routing, and storing data.
Designed to facilitate a data storage marketplace, Filecoin enables any user with excess data storage to trade available space to users needing storage space for a fee. Subsequently, Filecoin ensures that users needing data storage services are guaranteed quality and secure storage space.19
Filecoin staking platform busted
Funds have gone missing from the Filecoin liquid staking protocol STFIL following an investigation by Chinese authorities. The STFIL core technical team is reportedly under scrutiny by local police, with legal support sought to navigate the situation. During this period, users' staked Filecoin on STFIL was transferred to an unknown address, coinciding with unexpected protocol upgrades. Blockchain data reveals a transfer of over 4.3 million FIL tokens, valued at approximately $40 million at the time of the incident.
Concurrently, DeFi Llama data illustrates a significant decline in the protocol's total value locked, dropping from $95 million to $55 million in the last month. Chinese law enforcement often targets crypto projects suspected of involvement in illicit activities related to tainted funds.
Before its downfall, STFIL enticed users with up to a 9% annual yield through staking Filecoin, allowing them to receive investment returns from their collateral. At the time of the incident, the STFIL pool ranked as the second largest Filecoin staking protocol with about 2,500 users.
This incident isn't the first time Chinese authorities have intervened in a Filecoin project. In a separate case in November 2021, a $55 million Filecoin mining operation faced raids over allegations of running a multi-level marketing scheme and engaging in money laundering.
Over the past year, Chinese regulators have intensified scrutiny of crypto projects within their jurisdiction, leading to repercussions for foreign users of such platforms. The closure of the cross-chain bridge Multichain last year, following the detention of its CEO under unclear circumstances, resulted in investors facing losses exceeding $1.5 billion.20
Injective (INJ)
Injective Protocol is a decentralized finance (DeFi) platform that offers a DEX for derivatives and futures trading. It allows for permissionless trading with zero gas fees and operates on a layer-2 blockchain, ensuring high speed and scalability. The platform supports various financial markets, including cryptocurrency, synthetics, and NFTs.21
Injective experienced no significant fundamental changes or noteworthy news during this 30-day cycle. However, there was a notable uptick in code commits by 29.5%, totaling 307 within the same period. This increase occurred even as its token price declined by -41% to $24.37.22
Chainlink (LINK)
Chainlink is an Oracle network that services various blockchains, protocols, and projects within Web3 and the broader cryptocurrency industry. Oracles provide a way for blockchain-based systems and protocols to access data that exists outside the blockchain.11
Chainlink Transporter to Bridge Assets Across Ethereum, Optimism, Base and More
Chainlink has introduced Transporter, an application facilitating cross-chain cryptocurrency transfers. This innovative app enables seamless token transfers across various networks such as Arbitrum, Avalanche, Base, BNB Chain, Ethereum, Optimism, Polygon, and WEMIX. With an emphasis on security and reliability, Chainlink asserts that Transporter mitigates the risks inherent in bridging cryptocurrencies across different chains. Users benefit from real-time monitoring of cross-chain transactions, ensuring full asset visibility throughout the process. Transporter's goal is to elevate the bridging experience by providing a user-friendly interface and transparent status updates on transfers.12
Uniswap (UNI)
Uniswap is a decentralized exchange (DEX, DeFi protocol) built on Ethereum that utilizes an automated market-making system rather than a traditional order-book. Instead of matching individual buy and sell orders, users can pool together two assets that are then traded against, with the price determined based on the ratio between the two.23
DeFi Exchange Uniswap Receives Enforcement Notice From the SEC
Uniswap's CEO, Hayden Adams, responded on Wednesday, the 10th of April, to news of a potential enforcement action by the U.S. Securities and Exchange Commission (SEC), affirming the exchange's readiness to confront the challenge. The notice, known as a Wells notice, raised concerns about Uniswap's compliance with securities regulations, particularly regarding the status of its native token, UNI. Despite the 9.5% drop in UNI's value following the disclosure, Adams expressed confidence in the legality of Uniswap's offerings and the company's commitment to innovation in the face of regulatory scrutiny.
During a press briefing, Uniswap's COO, Mary-Catherine Lader, and Chief Legal Officer, Marvin Ammori, elaborated on the Wells notice, emphasizing Uniswap's belief that it does not align with the SEC's definition of an exchange. Citing precedent from the SEC's case against Coinbase, where a judge ruled in favor of Coinbase, Ammori hinted at a potential defense strategy for Uniswap.
Adams voiced frustration with the SEC's approach, criticizing the agency for targeting reputable entities like Uniswap and Coinbase while neglecting other questionable actors in the crypto space. He underscored the significance of the impending legal battle, portraying it as a pivotal moment for the future of decentralized finance (DeFi) and financial technology.
While the SEC declined to comment on the situation, Uniswap released a statement denouncing the allegations and questioning the SEC's classification of tokens as securities. The blog post highlighted the diverse nature of tokens and their utility beyond securities, challenging the SEC's jurisdiction over most tokens in the market.
Overall, Uniswap remains resolute in its stance, prepared to defend its operations and principles amidst regulatory uncertainties, setting the stage for a protracted legal dispute that could shape the trajectory of the crypto industry.24
The Graph (GRT)
The Graph is a protocol for indexing and querying data from blockchains, removing the need for developer teams to run nodes that store historical blockchain data. The protocol allows users to read and retrieve complex blockchain data via a standard JSON file called a Subgraph Manifest. Developers can then utilize an open API (called a “subgraph”) that maps smart contract event data to provide standard definitions and descriptions of the required data. Subsequently, developers can retrieve indexed data by querying the subgraphs built for specific applications using the GraphQL language.25
The Graph Expands Subgraph to More Than 40 Blockchains Including Arbitrum, Base
The Graph has expanded its data access to more than 40 blockchains, including Arbitrum, Avalanche, Base, and Celo. This expansion enables developers on these chains to utilize Graph's network for reduced costs and improved syncing times. Tegan Kline, CEO of Edge & Node, expressed excitement about The Graph Network's multichain development, highlighting the increased accessibility to blockchain data for users. The Graph aggregates and processes data from various blockchains, operating under the governance of core developer teams like Edge & Node.26
Livepeer (LPT)
Livepeer is a decentralized network for video infrastructure, catering to both live and on-demand streaming. It provides a distributed marketplace where users can access video streaming services like transcoding or video streaming integrations for applications. Similarly, infrastructure providers can supply compute computing resources to the network and fulfill video streaming requests of from individual users or developers for a fee. Livepeer initially launched on Ethereum but has since been redeployed to Arbitrum.27
No significant updates were released for Livepeer during this 30-day cycle.
Alethea AI
Alethea AI specializes in developing Generative AI and Blockchain technology. They offer CharacterGPT, a system for generating interactive AI characters that can be customized and tokenized on the blockchain. Additionally, they support the AI Protocol, providing decentralized smart contracts for AI character and asset ownership and governance.28No significant updates were released for Alethea AI during this 30-day cycle.
References