Parsec Weekly #24
Your weekly dose of DeFi and NFT's informed by Parsec
Bank Runs Everywhere
-Will Sheehan
In the span of 36 hours rumors of duration mismatch at SVB cascaded into a full on bank run, leading to a FDIC takeover. Beyond the obvious spillover to the thousands of tech companies banking with SVB, onchain actors quickly started signalling the primary risk to onchain markets, circle’s use of SVB as one of its cash reserves. 3pool started going on tilt as USDC → USDT became the most popular trade onchain. USDT was the hard money of choice, with some also choosing ETH. As of now USDC sits at 0.95
Due to USDTs relative safety, lending markets saw spikes in utilization across tether borrows, with aave and compound both hitting excess of 100% utilization. Traders speculating on a re-pegging of USDC started folding USDT borrows and levering up on USDC, perpetual markets saw similar leverage being added.
While the situation is far from ideal a few signs point to a 90c USDC being an overshot (NFA). First, USDP has 0 SVB or bank exposure, all assets held in short term treasuries. Currently trading at 0.95c on the dollar, a steep haircut for 0 publicly known issues with Paxos liquidity. The compounding factor is dollar connectivity getting turned off into the weekend due to SEN shutting down, arb loops are slow and hold extra risk as every single actor re-underwrites counterparties.
Ultimately this friday night run on USDC will force DeFi protocols and traders to re-underwrite their relationship and reliance on USDC, solvent or not I know I was not alone in thinking that blue coin was ironclad - a harsh wake up call
NFT Market Overview
-kezfourtwez
gm jpeg enjoyers,
The market as a whole has been having quite a time this week, we are reaching peak fear on all fronts. The fed is hinting at higher rate hikes, stonks are down, Silicon valley bank and Silvergate are experiencing bankruns, NYAG is accusing Ethereum of being an unregistered security, the US govt is moving around 1b worth of seized BTC, we have Shanghai and Mt Gox withdrawal fud, and finally, USDC lost its peg due to Circle having some of their cash reserves in SVB - not surprisingly, NFT’s aren’t doing so great. After already grinding down these past few weeks, the fud finally culminated in sharp sell offs for most projects, lots of red across the board.
We had a stellar couple of months in the crypto markets, a reset is a necessary part of it. NFT’s run in micro cycles based on attention and we are at the tail end. In general, healthy bluechip price action props up the market and signals that everything is ok, it instills confidence and allows profits to trickle down into lower tier projects and emerging narratives. It’s similar to the BTC/ETH > alts cycle. As we reach the end of the cycle, momentum is more easily stifled, prices don’t go as high and they are sold down quicker. This has been the case for quite some time, the easy mode dial has been getting notched down with each passing week, as a result traders move down the risk curve and you see massive pumps on random projects that are quickly sold back down, see Owls and Gitcoin.
Despite the massive amount of liquidity floating around the market due to the Blur incentives, volume, tx count, Yuga dominance and bluechip floors have mostly been trending down since the airdrop.
The NFT market experienced its biggest week of volume since the pico top of the Otherside euphoria back in May 2021, and yet the three longest standing and arguably most successful collections didn’t even flinch. I wrote a tweet with some thoughts on this and the NFT market becoming more liquid.
The once strong mid tier bluechips like Clones, Doodles and Moonbirds have been slowly losing their grasp on the market. The’ve continued to make lower highs and lower lows since May last year and they were hit the hardest in the jpeg sell offs - Over the last 48h, Moonbirds fell almost 40% to Ξ4, Doodles 19% to Ξ4.1, Clones 15% to Ξ3.8 - all have since rebounded a few % off the bottom, but it’s yet to be seen whether it will pan out as another lower high.
In times like these when we are lacking any genuine interest, NFT’s are highly correlated within themselves and to other markets - you can see the tick up on the bid offer ratio in the first image which tells us that people are once again buying, but it’s common to see traders buy that kind of panic. There are deals to be had right now across projects that showed strength in the last couple of months, but they all come with big if’s. If USDC repegs, if the banks get a bailout, if the fed slows rate hikes and markets turn risk on again.
Thanks for reading and bye for now, stay on top of the markets with Parsec and we’ll see you next week.
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