dHedge blog

Farming, staking and liquidity mining. What is the difference?

2022-07-15T14:02:35.122Z

🌱 Farming is a practice in which investors place their crypto assets in a liquidity pool based on smart contracts, for example ETH/USDT. Then the blocked assets become available to other users of the same protocol. Users of this particular lending protocol can borrow these tokens for use in margin trading. In fact, it is a crypto analogue of a bank deposit.

🔐 Staking is the provision of its crypto assets as collateral for blockchain networks using the PoS (Proof of Stake) consensus algorithm. For this, PoS provides stakers with the opportunity to receive rewards.

⛏ Liquidity mining is the provision of one's crypto assets (trading pairs such as ETH/USDT) to the liquidity pool of the DeFi protocol for cryptocurrency trading (not for crypto lending and borrowing). In exchange for a trading pair, the liquidity mining protocol provides users with a liquidity provider token (LP), which is necessary for a final refund.

As long as the tokens provided by the user remain in the liquidity pool, the protocol rewards him with native tokens (or management tokens – GOV) “mined” on each block, in addition to the LP that the user received earlier. The amount of remuneration depends on their share in the total liquidity of the pool. These newly mined tokens give liquidity miners access to project management, and can also be exchanged for more profitable rewards or other cryptocurrencies.

Let's see opportunities on dHEDGE

On the dHEDGE platform, users are provided with several tools for passive profitability. They include:

DHT Staking
Performance mining
dUSD Farming

🔐 DHT Staking

In order to generate a steady demand for the token, dHEDGE offers users a staking program. Go to the page https://app.dhedge.org/dht/staking and connect a web wallet to start DHT staking.

Rewards increase linearly: the longer the DHT blocking period, the more bonus DHTs you will receive.

⛏Performance mining allows you to receive rewards for investing in the best pools of the platform. In addition to the profit for the performance of the pool, the platform will charge you bonus DHT.

Details:

Maximum reward distribution of 35k DHT per week divided among investors
Earn up to 100 DHT per month with no vDHT staking requirement
For rewards over 100 DHT per month, you need to have staked DHT according to this formula: Max monthly rewards = vDHT/12

🌱dUSD Farming — is the best way of risk-free income in cryptocurrency at the moment. As described above, USD farming is an analogue of a bank deposit, which allows you to safely store assets and receive a percentage of profitability for this. Let's see how dUSD farming looks on Toros (dHEDGE partner).

You can see the APY number in left-upper corner. This is the annual profit for dUSD farming. This number is calculated by extrapolation the last week's performance.

Conclusion:

Farming is the provision of its crypto assets, which will be used to issue a crypto loan.

Staking is the provision of one's crypto assets in order to maintain the blockchain network for a fee.

Liquidity mining is the provision of its crypto assets to the liquidity pool of the DeFi protocol for cryptocurrency trading for remuneration in the form of liquidity provider tokens and management tokens.

The Merge: what to expect from the largest Ethereum update

2022-07-15T13:58:55.832Z

A few months are left before the long-awaited update of The Merge, which will be an important milestone in the development of Ethereum. Not only will the consensus algorithm change — ether will become more environmentally friendly and deflationary, which can have a positive impact on its price in the medium and long term.

We figured out the features of the upcoming upgrade and its potential impact on the investment attractiveness of the second largest cryptocurrency by capitalization.

The last preparations remained for Ethereum's transition to the Proof-of-Stake consensus algorithm during the activation of The Merge update.
The upgrade will significantly affect the fundamental qualities of the cryptocurrency, making it deflationary and much more environmentally friendly.
The rate of ether emission affecting the price will depend on the number of validators and on-chain activity.

From inflation to deflation

Currently, most of the new Ethereum emission takes place in the traditional PoW-blockchain — execution level. Miners receive 2 ETH per block mined — a total of more than 12,000 ETH per day.

Source: IntoTheBlock.

A small part of ETH is issued on the Beacon Chain. This PoS-based network is called the consensus level.

The launch of the Beacon Chain (or the zero phase of the second version of Ethereum) took place on December 1, 2020.

The number of ETH issued at the consensus level varies depending on the number of validators and the volume of coins in the betting. Another factor affecting the issue is the burning of part of the transaction fees, depending on the network load. This mechanism (EIP-1559) was activated in Hartford London, since which more than 2.4 million ETH have been burned.

With the current 12.7 million ETH in staking (about 10% of the market supply of ether) and a daily burning rate of 7,900 ETH, inflation will be 2.1%. In other words, the annual volume of the new issue will be approximately 5.4 million ETH.

Source: CryptoQuant.

The following screenshot is a heat map. It shows how changes in the burning rates and volumes of stacked ETH at the consensus level affect the daily volume of Ethereum emissions.

Source: Galaxy Digital Research.

After The Merge is activated, the issue mechanism no longer assumes a fixed reward for miners per block. The amount of ETH in the form of a reward to validators will change dynamically, epoch epoch lasting 6.4 minutes.

Suppose 11 million ETH is involved at the consensus level. The heat map above shows that with this parameter, 1511 ETH will be issued per day.

If we take into account the burning of coins — for example, 4000 ETH per day — Ethereum will become deflationary. The volume of supply with such parameters will decrease by 2,489 ETH per day or by 0.77% per year.

The amount of ETH burned directly depends on on chain activity, which, after the completion of the hype around DeFi and TAI, goes into decline. The graph below shows that in relation to the peak levels of May 2021, the number of transactions in the Ethereum network has significantly decreased. The daily figure is below the 1 million mark, which corresponds to the values of the beginning of 2018.

Source: IntoTheBlock.

"If the adoption of Ethereum by users goes up in the coming months and years after the Merge upgrade, the ether supply will decrease even faster," — Galaxy Digital Research experts.

Then, according to them, the value proposition of the second largest cryptocurrency will increase, especially in the context of a means of preserving value.

As already mentioned, the security of the PoS network is provided not by energy-intensive miners, but by validators who block the provision in the form of ETH in the network. The more coins there are in the staking, the more difficult it is for a potential attacker to gain control of the system and change the transaction history.

The Ethereum consensus level is created in such a way that rewards to validators are automatically adjusted depending on the amount of ether involved.

The annual issue of ETH vs the annual return of the validator. Source: Galaxy Digital Research.

When the amount of ETH in the stake grows and a lot of validators are actively working on the network, the profitability of the latter decreases. In the opposite situation, when there are few validators and coins in staking, profitability increases to encourage their more active participation in the network.

As of 06/8/2022, there are 399,554 validators.

Source: Glassnode.

The algorithmically changing rate of emission ensures that, regardless of the amount of ETH in the stack, validators are always sufficiently motivated to work.

"However, such a dynamic approach is fraught with difficulties when it comes to forecasting Ethereum's monetary policy for the long term," — Galaxy Digital Research experts stressed.

In addition to the number of ETH in stacking and the number of coins burned, analysts should also take into account less significant indicators: online validators and slashed ones.

The graph above illustrates the projected decline in ETH supply after The Merge is activated. According to the Ultra Sound Money service, when burning 2.9 million ETH per year (or about 8000 ETH per day, which is the average since the activation of EIP-1559), the number of coins in circulation will decrease by 2% per year.

Other factors will also affect the income structure:

The priority fees that Ethereum miners currently receive will be paid to active validators after The Merge is activated. According to Coin Metrics, the total amount of such "tips" is just over 1000 ETH per day and about the same amount is the daily income of validators. Consequently, the income of the latter will double.
In addition to the "tip", validators will receive the Maximum Extractable Value (MEV). Flashboot researcher Alex Obadiah estimated that the proceeds from MEV can increase their income by 75%.

Liquid staking and centralization risks

An increasing share in the Beacon Chain is accounted for by platforms operating under the Staking-as-a-Service (SaaS) model. The undoubted leader in this segment is the liquid staking service Lido.

The diagram below shows that large exchanges also have significant weight: Kraken, Binance and Huobi.

Source: Etherscan.

The popularity of SaaS providers is largely due to the fact that such platforms greatly simplify and democratize staking thanks to the possibility of delegation. Users do not need to have 32 ETH — you can use small amounts. Deep technical knowledge is also not required.

In addition, many SaaS providers offer users the possibility of insuring losses from slashing. Liquid staking services also help to increase capital efficiency — for example, Lido issues derivative tokens representing funds blocked in a staking contract. Such coins can be used in DeFi protocols to generate additional income.

"Given the higher profitability of ETH derivatives over ETH itself, tokens like rETH and stETH may at some point become competitors and even surpass ether in the context of liquidity and adoption as the main currency for DeFi operations," Galaxy Digital Research representatives shared their thoughts.

The graph below shows that Lido is ahead of competitors in its segment by a large margin.

The dynamics of the amount of funds in popular tracking protocols. Data: Dune Analytics (@LidoAnalytical).

Bankless co-founder Ryan Sean Adams admitted that over time ETH will become something like perpetual Internet bonds, the holders of which will simultaneously be creditors and owners of the network. Thus, ether, as the underlying asset, will be less and less involved in dapps.

Given the wide range of interesting options from SaaS providers, we can expect further growth in their popularity and, consequently, the value of assets under management (TVL).

There is a trend towards decentralization in the segment. For example, Lido is implementing distributed validator technology. A newer service, Rocketpool, is gradually gaining momentum, positioning itself as a decentralized staking platform.

When The Merge will be activated?

Testing of The Merge is in full swing: on June 8, Ethereum developers transferred the Ropsten network to PoS. Within a few weeks, the transition of the Goerli and Sepoila testnet is expected.

In May 2022, one of the leading developers, Preston Van Loon, announced that Meinert's transition to PoS would take place in August. Vitalik Buterin also called the last month of summer the most likely date, but allowed the postponement of the event to September-October in case of "potential risks".

According to conservative scenarios from Massari, The Merge will be activated in November-December at all.

Analysts expressed confidence that after the upgrade, Ethereum will no longer be perceived as a "utopian experiment". On the contrary, cryptocurrency will attract long-term investors.

Messari assumed that the staking reward would be in the range of 7%-13%.

Future development

After the Merge activation, the Shanghai hard fork will be an important event. It caused an increase in the scalability of the network, to make available the withdrawal of stacked funds, to modernize the Ethereum virtual machine (EVM).

In March, Vitalik Buterin shared the idea of Proto-danksharding-a scenario of transaction-oriented data checks, rushing so-called blobs that cannot pop up on EVM.

Proto-danksharding is intended to replace danksharding, a deletion method in which only one proposal author selects all transactions and data that fall into a certain slot. This approach was introduced in February 2022 by Ethereum Foundation researcher Dankrad Fast.

The founder of Etherium proposed to automatically delete the data of a large binary object every Z0 days so that the network does not impose too high requirements for data storage and memory.

There is also an EIP-4488 aimed at the expanded use of Ethereum-based storage packages. Initially, this relatively simple solution was planned to be implemented before the Merge was activated. EIP-4488 reduces the cost of sending transaction packets from second-tier networks to the Ethereum blockchain by five times.

"Despite the fact that The Merge is the most difficult update in the history of Ethereum, this is not the last upgrade of the network," Galaxy Digital Research emphasized.

After that, the researchers are sure, the developers will focus on other pressing issues that have been developed for years, such as scalability and statelessness.

Galaxy Digital Research researchers have predicted other consequences of Ethereum's transition to PoS:

The popularity of mining cryptocurrencies on the GPU will decrease. Some miners will switch to alternative coins like Ethereum Classic or Ravencoin. Many will simply sell video cards, which will then get to gamers and designers. This will reduce the prices of devices on the market and affect the incomes of manufacturers.
Bitcoin, which remains the largest PoW cryptocurrency, will be even more criticized for the high energy intensity of the network.

Conclusions

According to optimistic forecasts, The Merge activation is expected in August. However, given the technical complexity of the merger process and the tendency of developers to postpone upgrades, this event may take place in the deep autumn.

One of the most significant consequences of switching to PoS will be the retirement of miners from the game. This can significantly affect market conditions in the short term. Most likely, the selling pressure will decrease, and the hashrates of altcoins like Ethereum Classic will grow.

In the medium and long term, Ethereum may become a more investment-attractive cryptocurrency. First, the project will prove its antifragility. Secondly, the asset will match the trend for environmental friendliness.

Finally, deflation will certainly do its job. However, its level will depend on the activity of users.

The Merge is far from the last important update of Ethereum. It will help to solve the scaling problem, where sharding and Rollups play a big role.

How DAOs Can Change Corporate Governance?

2022-07-15T13:58:41.374Z

As the blockchain develops, the range of attractive options for its application also expands. One of the concepts that has received support from the community in recent years is the DAO model.

In 2022, decentralized autonomous organizations became part of the agenda of the World Economic Forum in Davos. Brinley Lear, General Counsel of clubs (developing the Celo network), noted in a publication on the occasion of the meeting that these structures can change the corporate world for the better.

"Although DAO is not without problems, it has the potential to modernize the corporate governance style, which has not undergone significant changes for hundreds of years," he said.

I figured out the advantages and disadvantages of the distributed management model, and also found out whether DAO is an effective alternative to traditional companies.

The classical corporate governance structure is outdated and cannot provide the necessary level of business coordination.
Smart contracts allow you to automate routine processes, increasing their efficiency. DAOs can take advantage of apps and the modular structure of Web3.

The DAO approach to decision-making has a number of serious shortcomings that threaten their sustainability.
DAOs also face challenges at the levels of scaling, security, interaction with the outside world, and creating a "healthy" community.

Prerequisites for decentralization

People tend to create emergent structures that have properties not inherent in individual individuals. This process is part of evolution, and the tendency to scale these groups has only intensified with technological progress.

Such cooperation led, among other things, to the emergence of traditional corporations, the form of which has practically not changed since the beginning of the 17th century. They all also accept investor funds in exchange for commitments to maximize shareholder value.

There are two sides to this approach. On the one hand, business efficiency increases; on the other, companies are often willing to pay a high price for the sake of increasing profits, including causing damage to the environment and reducing the working conditions of employees.

Some participants in the traditional economy recognize the shortcomings of the capital-maximizing structure, as evidenced, for example, by the emergence of the B Corporations certificate system.

From a utilitarian point of view, the classical model is also not ideal. In the information age, it can no longer provide the necessary level of business coordination - the consequence of this is the growth of the gig economy sector and the outsourcing services market.

The trend also manifests itself in the development of the "orbital" cooperation model, when the line between internal and external members of organizations is blurred. Andreessen Horowitz partner Chris Dixon noted that as centralized structures grow, it becomes more difficult to coordinate incentives between participants in such systems.

According to Dixon, at the start, any centralized platforms do everything possible to attract users and third-party participants like developers, business representatives and media. They need to increase the value of services because they are highly susceptible to the network effect.

"As platforms move along the S-shaped adoption curve, their power over users and third parties is steadily increasing. When they reach its peak, relationships with network members turn into a zero-sum game. The easiest way to continue growing is to extract value from user data and compete with contractors for audience and profit," Dixon wrote.

The stability of the classical management model, which was effective in the industrial era, has been shaken in the age of information technology development. Therefore, some community members believe that DAO can offer an alternative way of cooperation.

Advantages of automation

In 2014, Ethereum founder Vitalik Buterin identified the key attributes of the DAO that distinguish them from other coordinated systems:

"Automation is in the center, people are on the periphery. [...] Another important characteristic is internal capital."

Any DAO is based on smart contracts, which are responsible for structure management, financial management and organization of work flows.

Algorithms allow you to reduce operating costs by automating routine processes such as payroll and accounting. They also simplify the interaction of DAO with all interested participants, both external and internal.

As part of an extensive blockchain ecosystem, decentralized organizations have the opportunity to take advantage of the interoperability of dapps and the modular structure of Web3.

Dapps are able to effectively integrate with each other, and their software components (tokens, transmitted messages, and so on) they can interact with each other. This "Lego" allows you to combine applications into larger structures with enhanced functionality.

The modular structure of Web3 is characterized by the relative independence of its primitives. This increases the stability of systems and makes it possible to update individual components without interfering with the work of others.

DAO Anatomy

Contrary to popular opinion, not all participants of the DAO are equal, because they have different influence depending on economic, reputational or other factors. Conditionally , they can be divided into several groups:

The core of a decentralized organization is formed by the "main participants". These are people who make a key contribution to the development of the project — de facto full-time employees. The interests of this group are directly related to the success and sustainability of the DAO, so their activities differ little from the classical model.

"Contractors" perform clearly defined work for a specified price for a limited time. These people are often experts from the fields of finance, law, development and design, who provide services to several DAO at once.

Sometimes such participants act collectively, uniting in service DAO like Vector DUO or LexDAO.

Although "contractors" and service DAOs are similar to traditional outsourcing companies, their activities differ for several reasons:

since smart contracts automate most of the routine functions, the rest of the peripheral work is clearly defined and highly specialized;
DAO benefits from delegating some responsibilities — this allows you to maintain decentralization and eliminate a complex hierarchy;
DAO transparency reduces the cost of third-party coordination.

"Users" are the largest group of DAO members. Decentralized organizations reward individual contributions regardless of who they come from. This means that everyday actions that have value for the network turn into an opportunity to generate income.

The shell of the DAO is the "token holders". This group brings together participants from all of the above categories, as blockchain democratizes investment opportunities. Anyone with a cryptocurrency wallet and internet access can purchase or earn digital assets.

This architecture resembles the structure of classical corporations with an admixture of decentralization, but it is very conditional. Currently, there is a process of diversification of DAO and their structure may differ significantly from each other.

Meritocracy of ideas

Theoretically, DAO can become a tool through which coordinated groups will grow and develop, while remaining flexible enough to adapt to a changing environment.

However, the main advantage of this concept over classical hierarchies is the primacy of the meritocracy of ideas — a decision-making system in which the best proposals win.

https://www.ted.com/talks/ray_dalio_how_to_build_a_company_where_the_best_ideas_win

In most traditional companies, the proposals of ordinary employees do not reach top management due to the abundance of bureaucratic obstacles and a lot of middle managers. In view of this, top-down management prevails.

In DAO, the principle works, according to which decisions are made based on the opinion of the community. Proposals are processed inside concentric rings — from soft to hard consensus:

soft is a kind of preference signal that comes from the most lively communication channels like Discord;
hard — achieved by collectively approving a proposal through a voting mechanism (for example, the Snapshot platform).

DAO needs to maintain a balance between the two forms of consensus if they do not want to get bogged down in bureaucracy (only hard consensus) or turn any discussion into a messy discussion (only soft consensus).

For this system to function, organizations must implement appropriate management structures. A popular approach is the coin voting governance method, which allows any DAO participant to propose an idea and use their tokens to support it.

However, this tool has a number of serious drawbacks:

vulnerability to direct or veiled attacks (for example, manipulation of the management economy);
inequality of DAO members in the context of voting rights;
imaginary decentralization of power;
unfair distribution of incentives;
conflicts of interest.

Some of them can be leveled by the vote delegation system, but it does not eliminate problems like attacks on governance and inequality of community members.

According to Buterin, there are several solutions and all of them are related to the restriction or rejection of monetary voting. For example, reputation indicators recorded in the blockchain can be used instead of tokens.

Not a single management

Technically, it is quite simple to launch DAO. It is necessary to draw up a manifesto, create communication channels, invite to the community, issue a management token, and also connect voting tools and registration of participants' contributions.

It is much more difficult to scale an organization. The growth and prosperity of the DAO largely depend on community involvement, so it is extremely important to maintain a fair incentive system.

Teams should keep in mind the slow decision—making speed in the DAO problem, which becomes more and more relevant as the structure scales. Centralized companies are much more mobile in this regard.

DAO allows more users to participate in management, for which they have to pay a price. Due to lack of competence, unwillingness to delve into complex technical issues and other factors, the community may spend more time discussing a new logo, rather than solving really important issues.

Another key aspect is security. Given the cumbersome technology stack required for an organization to work effectively, providing protection can become burdensome and expensive.

Dmitry Budorin, the founder of Hacken, a company specializing in smart contract security, told that the cost of checking the project's code base grows exponentially with its size. According to him, the initial cost depends on the specific company. In Hacken, the minimum price is $7000.

Budorin explained that the audit allows not only to check the developers, but also to achieve certain marketing goals.

"For the community, the presence of an audit is mandatory. Investors, launch sites, centralized exchanges require [inspections] by auditors, often specific," he added.

DAO's legal problems stand apart. The rights of classical companies are legally enshrined, but decentralized organizations in the vast majority of regions are deprived of such a privilege.

A number of questions remain open to them: how to participate in commercial agreements, hire service providers, resolve disputes, use the courts to protect their rights, divide assets and distribute responsibility among members.

Without official recognition, the DAO has no legal form. The community can authorize a specific person to enter into agreements on behalf of the organization. However, in a number of jurisdictions, an organization can be classified as a general partnership. The latter implies the personal responsibility of the participants.

Therefore, some DAOs create classic corporate structures. But this approach is not very effective — almost all the advantages of decentralization are leveled.

When are DAOs effective?

In general, for the successful development of DAO, it is necessary to engage in the same activities as classical companies. They must competently manage their assets, assess risks, conclude profitable cooperation, and so on.

At a certain stage, each of the aspects will require its own management structure. This, in turn, threatens decentralization, returning the organization to the traditional model.

This thesis is confirmed by the initiatives of some large DAOs like the organization behind the Yearn Finance protocol. In 2021, a proposal was submitted for discussion by the community of the latter, which involves delegating certain powers to small teams.

Decentralization is not a panacea for the corporate world. DAO is effective when the costs associated with its scaling can be reduced faster than the natural increase in the costs of coordinating participants. Therefore, it is extremely important that project teams clearly represent their real goals.

Applying DAO to Hedge Fund Management: The dHEDGE Experience.

Traditional hedge funds structures

According to the US Internal Revenue Service, most hedge funds in the US use one of the following organizational structures:

single entity fund — consists of a management company and a fund. Investors invest their capital immediately in a single fund that invests these funds in assets;
master feeder fund — this structure is used by hedge funds to combine taxable and non-taxable capital. It consists of an internal feeder fund and an offshore fund in a tax-free jurisdiction, which merge into a single offshore master fund, where all trading activities take place;
parallel funds — the structure includes American and offshore funds that trade in parallel with each other. They have one investment manager, a single strategy, but maintain separate portfolios;
A fund of funds is a fund that invests in other funds.

Unlike traditional management structures, hedge is a fully decentralized platform that brings together the best traders and investors around the world.

Thus, investors are given a choice from hundreds of investment pools on the platform, with different strategies that they can evaluate and make their own decision.

Therefore, the movement of funds between traders and investors is carried out directly, without intermediaries.

dHEDGE Structure

Core team. Develops and implements new technologies within the platform. Full access to the technical side of the project.
Councils. Selected by the decision of the team and the community, the consuls carry out public administration and contribute to the adoption of major decisions on the development of the project community.
vDHT holders. Participants of the management voting platform. It is they who make decisions about the introduction of new technologies, the burning of toxins and the direction of development of the platform.
Managers. Independent participants of the platform who manage their own funds. Managers can be any users of the platform.
Investors. Independent users who invest in manager pools while maintaining full control over their funds.
Advisors & Contributors. Community members who help spread information about the project, create new content and contribute to the active development of the community.

How are decisions made in dHEDGE?

First, the team or councils put forward a proposal (on the forum, or in the official discord channel). After that, the proposal is put to the vote, in a special section.

The announcement includes the time of the vote and, as a rule, a link to the topic where the proposal is described in detail.

After the announcement of the start of voting, vDHT holders can vote for one of the options for the development of the event (accept, reject). The strength of each participant's voice depends on the value of his vDHT.

Conclusions

DAO organizations are indeed a promising structure for many modern industries. Of course, there are areas where the TAO cannot be effectively applied (mainly state structures). However, many commercial and non-commercial projects should take into account the fact that today a DAO organization can work much more efficiently than a centralized version of its management.

Using the example of the decentralized asset management platform dHEDGE, we have seen that DAOs can function today. By the way, dHEDGE does not have offices over the world, all management and organization is carried out using Internet technologies.

The Worst Quarter of the Crypto Market: June 2022 in numbers

2022-07-15T13:56:26.225Z

Hello, dHEDGE community! This is a monthly article of the latest events analytics. This quarter was one of the worst in the history of the crypto market. Bitcoin has dropped to below $20,000. I hope you have survived these worst times. Let's analyze some figures to better understand what has been happening to the market over the past month.

Summary

Leading cryptocurrencies closed the worst quarter since 2011. Bitcoin has failed the $20,000 level.
The volume of trading on centralized exchanges decreased to the values of December 2020.
Some on-chain indicators give signals to buy bitcoin.
The incomes of Bitcoin and Ethereum miners decreased by 26% and 52%, respectively.
Issuers of stablecoins have reduced the issue. The exception was the USDC from Circle.
The NFT segment shows signs of a burst bubble.
The "fear and greed index" dropped to the levels of August 2019.
The total value of assets in the DeFi segment fell by 36%.
The Avalanche ecosystem came in third place on TVL.

BTC & ETH Dynamics

BTC/USDT

ETH/USDT

June 2022 and the second quarter as a whole were remembered for the most extensive correction since 2011. Starting the month near $32,000, the bitcoin exchange rate has updated the minimum since the end of 2020 at $17,622 (June 18 on the Binance exchange) and closed the month below $20,000.
Traditionally, the flagship pulled down the entire crypto market — at the moment the total capitalization fell below $ 800 billion.
Ethereum has failed the key psychological support level of $1000. On June 18, the rate reached $881.

The worst quarters in the history of bitcoin. Data: Coinglass.

The dynamics of bitcoin by month. Data: Coinglass.

At the end of the month, bitcoin sank by 37.3%. According to the results of the quarter (April-June) — by 56%.
The cost of Ethereum in June fell by 44.8%, and by the end of the quarter — by 67.3%.

TOP Gainers of the month

Top Losers of the month

The negative dynamics caused by the collapse of Terra and UST were exacerbated by the problems of large companies — Celsius, BlockFi and Three Arrows Capital (3AC). As the bitcoin exchange rate fell, these players faced a liquidity crisis and found themselves on the verge of bankruptcy. Citing "extreme market conditions", Celsius stopped the withdrawal of funds by users. The stumbling block was the large loans of structures in DeFi-instruments and the inability to repay credit obligations.

Among the assets with moderate capitalization, Tara Classic (LINK) and TerraClassicUSD (USTC), Stratis (STRAT), Chia (XCH), Trust Wallet Token (TWT) and Unus Sed Leo (LEO) from Bitfinex showed positive dynamics.
The worst results were recorded by Voyager (GS), which provided the 3AC fund with $655 million in bitcoin and USDC stablecoin, and attacked by hackers Harmony (ONE) and Convex Finance (CVX). The negative dynamics was also shown by the token of the Lido protocol (LDO) — the issuer of the synthetic asset stETH that has lost its binding to ETH.

Cryptocurrency-related companies stocks price

Dynamics of securities of mining companies

JPMorgan believes that mining companies in need of liquidity in the third quarter are able to continue to exert downward pressure on the bitcoin exchange rate if the profitability of mining does not increase. Public miners account for about 20% of the hashrate today.

Bloomberg reported that some mining companies have encountered problems in servicing loans secured by bitcoin mining equipment. The situation arose both due to the deterioration of market conditions and due to the negative revaluation of ASIC devices. Miner loans worth $4 billion are at risk of default.

Macroeconomic background

The probability of a "soft" and "hard landing" of the US economy, according to the model of the Federal Reserve Bank of New York. Data: Federal Reserve Bank of New York, Bloomberg.

Following the meeting in June, the Fed raised the key rate by 75 bps at once — to 1.5%-1.75%. The head of the Central Bank Jerome Powell warned that in July the step could be 0.5%-0.75%. Futures estimate the probability in the first case at 16.8%, in the second — at 83.2%.
The Central Bank is ready to fight high inflation through a sharp slowdown in the economy. Macro statistics in June contained alarming signals, but did not unambiguously indicate the beginning of a recession. This "guarantees" a tightening of the Fed's policy in July and leaves it possible to raise the rate by 50 bps in September.
The scenario of transition to negative GDP dynamics is becoming more and more relevant. The model of the Federal Reserve Bank of New York began to estimate the probability of a "hard landing" at 80%. In Europe, economists expect a recession by the end of the year.

Correlation of bitcoin with traditional assets.

Historically, bearish equity markets in the United States have been observed during all periods of economic downturn. The Fed's transition to a policy easing cycle may push for a reversal. However, futures allow such a scenario no earlier than July 2023.
The positive correlation of bitcoin with the Nasdaq-100 and the negative correlation with the dollar has moved away from the extremes, but still indicate a close price relationship of assets. According to the results of the second quarter, the technology index lost more than 20%, which leaves chances for a technical rebound. It may coincide with the start of a new quarterly reporting season.

Market sentiment, correlations and volatility

90-day asset correlation indicators. Data: BlockchainCenter

In June, bitcoin's correlation with the US stock market strengthened. The smoothed 90-day moving average was 0.6 for the S&P 500 index and 0.54 for the Dow Jones.
The statistical relationship of the first cryptocurrency with gold changed its sign to positive, but remained rather weak (0.06).
By the end of the month, the correlation of the two largest digital assets has significantly strengthened. This indicates the presence of a strong trend in the market.

ETH Fee Dynamics

Dynamics of the average commission for a BTC and ETH transaction. Data: Glassnode.

Средняя комиссия за Ethereum-транзакцию снизилась за месяц на 53,7% — до отметки $4,27, сопоставимой со значениями июля 2021 года.
Во второй половине июня средняя комиссия за биткоин-транзакцию не поднималась выше отметки $2.
Основная причина столь низких значений — охлаждение ончейн-активности на фоне медвежьих настроений.

Trading volume

Trading volume on the leading cellular exchanges, billion $. Data: The Block.

In June, the volume of trading on cryptocurrency exchanges updated the minimum since December 2020 at around $672 billion.

In terms of platforms, Binance remains the unchanged leader ($398 billion). FTX again outpaced Coinbase and OKX — $72 billion against $59 billion and $41 billion, respectively.

DeFi

Dynamics of the value of funds locked in the DeFi sector. Data: DeFi Llama.

In June, the volume of blocked funds (TVL) in smart contracts of decentralized applications decreased by 36%, to $74.72 billion. The reason is the crisis in the cryptocurrency market caused by macroeconomic factors, the problems of major industry players and the situation around stETH.
The TVL of the permanent leader — Ethereum — fell to $42.83 billion ($71.98 billion in May). The indicator expressed in ETH, on the contrary, increased by 11% — 40.27 million ETH against 37.74 million ETH at the end of May.
The Avalanche ecosystem came in third place in the volume of blocked funds. During the month, the inflow of liquidity into applications based on this network amounted to 111.32 million AVAX (+53% by May). This is partly due to the launch of a cross-chain bridge with bitcoin.

In June, the dominance of the segment of decentralized exchanges in the total TVL of the DeFi sector increased. More than $24 billion is blocked in smart contracts of these applications (31% vs. 28% in May).
Landing services with an indicator of $15.41 billion are in second place, and cross—chain bridges ($10.42 billion) are in third place.
By the end of May, the total capitalization of "bitcoins on the air" fell to $5.89 — a reduction of almost half compared to the May figure ($ 10.15 billion).
The WBTC dominance index is steadily holding above 85%. By the end of June, the capitalization of the asset amounted to $5.01 billion.

Динамика дневного числа транзакций в экосистемах Polygon, Ethereum, Balance Smart Chain и Лавина. Данные: Полигоны can, Etherscan, BscScan, Snow Trace.

In June, the average daily number of transactions in all the networks under consideration decreased compared to May. In Ethereum, the indicator fell by 8%, BNB Chain — by 18%, Polygon — by 4.5%, Avalanche (excluding traffic in subnets) — 53%.

Activity of major players

The largest public companies holding bitcoin in reserves. Data: Bitcoin Treasuries.

MicroStrategy acquired an additional 480 BTC at an average price of about $20,817.
As of 1.07.2022, the analytical software provider holds 129,698 BTC ($2.5 billion at the exchange rate at the time of writing) on its balance sheet. At the same time, the base cost of MicroStrategy investments is $3.97 billion. Thus, the "paper" loss of the company is almost $ 1.5 billion.
Amid the drawdown, the government of El Salvador acquired an additional 80 BTC for a total of $1.52 million.

Statistics of the largest private pools on dHEDGE

Managed pool stats by last month. Data: dHEDGE.org

The crisis also affected the pools on dHEDGE. All pools that used non-stablecoin strategies lost more than 20% this month.

Is OTC Market more profitable?

2022-07-15T13:56:14.829Z

What is Crypto OTC?

Crypto OTC is a tool that came from the traditional securities market. OTC stands literally for Over-the-Counter, i.e. "market at the counter". The term appeared at the end of the 19th century in connection with the practice of buying shares at bank counters or, in general, on the street near the stock exchange.

This type of transactions is not reflected in the market, as it is made directly between the seller and the buyer, bypassing the exchanges. Thus, any large transaction conducted using such a method as crypto OTC does not affect the price of the assets involved in the transaction in any way.

Why is it profitable to engage in crypto trading on the OTC market instead of CEX?

The main problem with almost any cryptocurrency asset is that it has insufficient liquidity. Almost any major transaction can greatly affect the exchange rate. Consider the example of CEX, i.e. a centralized crypto exchange.

The fact is that during trading on the stock exchange, in order to conduct a large transaction, you usually need to make a lot of small transactions, or use pending (limit orders). Moreover, the rate may vary at any moment, and the limit order simply will not be executed at the time required by the offer maker.

Liquidity and volatility at the time of the transaction determine the number of transfers required and the spread of rates. Thus, the sale of a large volume of a cryptocurrency asset on the exchange will begin to put pressure on the price of this asset, actually devaluing it. This hits both the seller and the buyers and the asset. Starting the sale of a large volume of an asset at a high price, the seller finishes the sale of a large lot already at a price much lower than the one with which he started the sale of the lot, and the asset price falls as the lot closes.

This is called the slippage effect.

What is more profitable by crypto trading on the OTC market instead of DEX?

The situation on DEX, i.e. decentralized exchanges, differs little from the previous one. To sell the entire volume, you need to use several DEX exchanges or aggregators.

At the same time, there is even less liquidity here, since DeFi projects are younger than such oldies as bitcoin or ether. The sale of a large volume of low-liquid DeFi tokens often leads to large losses due to the impact on the price, or the so-called price impact.

Why do Market Participants Choose crypto OTC trading?

And how to avoid the effect of slippage and price impact? There is an excellent OTC crypto trading tool for selling a large volume of cryptocurrency assets. OTC transactions are conducted outside the main market (CEX and DEX) and do not affect the asset price in any way.

Thus, the seller can sell the entire volume of his asset at a favorable price for himself and for one transaction. Transactions through crypto OTC desks have a number of advantages, including price stability, execution speed, as well as security and confidentiality.

There is another option. Often, even before the launch of some promising and large-scale project, some investors find out about it and want to buy as many assets as possible at the lowest price. There is often no free trade at this stage yet, that is, trading is open only to very large investors.

Why is there a demand for the crypto OTC market?

In the world of cryptocurrencies, the crypto OTC market has long remained the domain of major players and "whales", however, a number of factors have influenced the recent growth of interest and wider acceptance of OTC in the crypto industry. Large transactions on exchanges can only be made with full KYC, which is an obstacle for many users. Therefore, even if they wish, large transactions on CEX are not available for them. They can only go to services for OTC trading, which actively occupy a niche market with orders of about $ 50-100 thousand and above.

Disadvantages of OTC trading

Over-the-counter trading makes it possible to maintain quasi-anonymity, since:

Firstly, when making a transfer from a card, you do not write your full name anywhere (although it is easy to track it according to bank data);
secondly, most often when transferring funds in the purpose of payment, you specify "repayment of debt" or something like that, without informing that this is a transfer for the purchase of crypts. And you still need to try to link the transfer of money with the receipt of the crypt to your address.

We say "quasi-anonymity", not "complete anonymity", for the reason that the competent authorities can easily find out to whom, when and how much money you transferred from your card. However, it will be difficult to establish the relationship of money transfer with the transfer of crypts to your crypto wallet. Yes, if you get in touch with the seller of the crypt, he will inform you about the transfer of the crypt to the wallet, but proving that the crypto address belongs to you is a very difficult task that can be established only thanks to the technology of analyzing the digital footprint or your habits on the Internet.

However, there are also disadvantages of over–the-counter exchange, and first these are high commissions. So, in the same @btc_change_bot, as of August 11, 2021, bitcoin was sold for 3800,000 rubles per coin, and the exchange price was 3300,000 rubles. That is, to buy a crypt, you need to overpay as much as 15%. Do not forget about the risk of getting caught by scammers.

Advantages of OTС

But for those long–term investors who do not want to get involved with KYC, over-the-counter trading is quite an option. You buy a crypt for a long time, and at a distance of 10%-15% commissions will not be important to you. And no documents.

Conclusion

OTC trading has its advantages and disadvantages. Of course, there are many people who will say: "Why do we need these over-the-counter transactions, we will normally buy crypto on exchanges." However, others will obviously prefer OTC to conventional exchanges, because they can buy crypto "almost" anonymously, and in accordance with the DCA strategy, you can ignore high commissions.