DeFi Market Overview
-Will Sheehan
Perp Wars
In a market where gas usage looks like this, we are in dire need for material narratives.
Onchain markets are incredibly wealth effect driven, and few participants are printing in these conditions. A rare exception has been perpetual protocols. The historical precedent here is notable. In 2019, 1) exchange tokens outperformed, notably BNB, and 2) market activity was heavily skewed towards derivs. Before the institutional BTC bid in late 2020, perp markets dominated price action, with vicious moves being driven by an excess of leverage without fundamental drivers. The conditions of late 2022 provide a similar setup, with the twist being the FTX collapse pointing users towards decentralized and auditable options. GMX and DYDX’s outperformance is the market tipping its hand towards a possible repeat.
The DEX perp wars have clear differentiation in approaches and success thus far. GMX & DYDX represent the two ends of the spectrum. GMX is pure oracle priced against an AMM, retail focused high leverage, with over >$100m in open interest. GMX has similar structural vulnerabilities as synthetix but to this point has done a better job and mitigated highly toxic flow. DYDX is playing the game of providing a toolset and exp exactly the same as binance/bybit, but with settlement guarantees and self-custody. dydx has crushed the competition in terms of open interest, generating over $500m in OI, no small feat in this market.
The issue with both exchanges has been long-tail liquidity. GMX can’t easily add new assets to GLP for two reasons. First - oracle attacks are easiest on low liquidity assets e.g. AVAX Attack. Second - GMX can really only add assets that are liquid *somewhere*, GMX structurally cannot lead liquidity. DYDX has a different set of obstacles - largely what will the market makers list and provide liquidity on? FTX was long heralded for fast listings, leading to much of their success - but in retrospect this was on the back of alameda accepting -EV return profiles. Reliance on designated market makers will not be the unlock to DEX perp liquidity, onchain markets require onchain native models.
The Middle Ground
Two protocols that have struck me as potentially promising middle grounds between pure order books & oracle priced AMMs are perp protocol and rage trade. Rage trade quickly filled up their new delta neutral vaults this week and perp has committed to adding long tail markets by incentivizing v3 style liquidity. Both have challenges - rage’s being the scalability of strategy worthy collateral. Perp on the other hand has a theoretically fully scalable model, but with the challenges that come with bootstrapping ranged liquidity on nascent assets (despite incentivization!).
NFT Market Overview
-kezfourtwez
NFT volumes are down on the week and with it, most floor prices. NFT’s really are a momentum game being such illiquid assets, floor price can move quickly in either direction due to fomo and little needed liquidity to move the floor price. If listings start to thin out and volume starts to come in, price can quickly move to the upside. But as soon as that volume dries up, prices tend to retrace. The correlation between volume and price movement is sometimes uncanny in the NFT market.
After last weeks flurry of action, the market is currently in cool off mode. The huge increase in volume last week took most floor prices up with it but most have since retraced. At first I thought that Blur was due some of the credit for the mini NFT run we just experienced, but upon closer inspection I’ve realised that really, it did have a material impact on floor prices but not in the way I initially thought. It turns out the tight spreads due to airdrop farming via bidding made it incredibly hard for price movement in either direction, and actually it pegged a lot of bluechips to their current price level, propped up by the initial flurry of volume, only to later fall down to a new peg once volume dried up.
Volume share is still largely dominated by Blur at this stage and likely will be until January when the final airdrop occurs. Volumes overall are dwindling but it remains to be seen whether this a healthy pullback before a final holiday push, or it’s *simply over* friends.
In terms of price performance, Valhalla is the clear winner here at almost a 2x on the week, more on that below. Everything else remains relatively flat on the week, except for Digi’s, Gobblers, Cockpunch and the Memes by 6529 which are all down 20-30%.
Valhalla
First, a bit of background information. Valhalla is an NFT project spearheaded, backed and released by parent company Stacked Studios and Alex Lin. Alex is a serial entrepreneur who traditionally operated in the web2 space. Stacked aims to be essentially a web3 version of Twitch, a decentralised streaming platform with the aim of empowering creators. One of their core principles is to always make sure that the platforms content creators own more of the platform than the traditional investors, they aim to achieve this through their governance token $STKD, which will be used to programatically reward creators for their content. Back in August, Stacked raised a $13m series A led by Pantera Capital.
Valhalla like many of the anime influenced pfp drops of late, used the exclusive application meta for whitelisting to drum up hype and curate their initial holder base. They ran this for months before minting on the 23rd November at Ξ0.5 and revealing two weeks later. Pre reveal, price action ranged between Ξ0.48 and Ξ0.8. Post reveal, a brief lull and consolidation below mint price before the rising tide of increasing market volume took it up to a high of Ξ1.5.
Valhalla has experienced some pretty insane volume and some extremely high grail sales. The timing in release and reveal was just amidst the perfect storm for a big NFT pump. Caused by already trending up volume, Blur bid side liquidity, sideways ETH and Christmas catalysts like the usual Santa rally and APE staking. There is also a lot of VC interest in Stacked and therefore Valhalla, and just like we saw with Moonbirds and Gobblers, I speculate that a lot of volume was brought in through the VC crowd.
Aside from their high production quality content, decentralised streaming service aspirations and clean thin-lined pfp’s, there is one other factor which I think has played its part in Valhalla’s recent price mooning - Trait re rolls. The team thought of a pretty ingenious mechanism giving holders the ability to gamble on giving their NFT’s better traits, at a cost. They released a second NFT - the ‘Armory token’, an ERC1155. With a total supply of 45k, they have so far airdropped 2 tokens per NFT, with 3/5’s left to go out. Re rolls can only happen during specific periods, the first being from 14/12 running until 28/12.
Re rolling is a two step process, burn to re roll > choose whether to apply the trait or not. At the time of writing, 6.4k tokens have been burnt to re roll and 2.8k new traits have been applied. Here’s a comprehensive thread from @0xCygaar on how the re rolling works on-chain.
Valhalla and Stacked are aiming for the stars by trying to take on the likes of Twitch, it will be no easy feat but as it stands they are currently well financed and have made a good mark on the NFT ecosystem, so off to a good start. I’m a big advocate for gaming as a true use case for NFT’s and web3, and am excited to follow along and see how far Valhalla can take it.
Thanks for reading and bye for now, stay on top of the markets with Parsec and we’ll see you next week.
Parsec Weekly December 16th
good work, thank you
good