Bears are not hibernating

Hey all, happy Friday. It was another rough week for crypto markets, with nearly every sector registering negative returns and a handful of long-tail “stablecoins” losing their peg. We’ve provided some weekend reading to zoom out and reflect on risk management, liquidity and other developments towards crypto’s progress. Enjoy!

Weakness prevails across the board, with all of our tracked indices posting negative returns over the past week, except for DePIN. This weakness comes as the majors BTC, ETH and SOL have established a daily and weekly downtrend, while equity indices have reversed ~3%-5% off their highs, adding risk back to the market. The selloff in equities has elevated the VIX to a level of 20.

Within crypto, DePIN was the one sector of strength, up 2% on the week, while the Launchpad and Solana Ecosystem sectors were the hardest hit, down 15% and 27.6%, respectively.

Looking at the top winners within DePIN, AR and FIL account for a majority of the sector’s strength, trading up 60% and 31%, respectively. 

The Solana Ecosystem names are among the hardest hit, with MPLX (-24%), RAY (-21%), and JTO (-19%) making the largest downside moves. JTO’s underperformance comes amid a recent $6 million Paradigm-led seed round for Harmonic, a team building a new block-building engine on Solana which may seek to compete with Jito’s established integrations. Interestingly, KMNO is the one name in the sector to hold positive, albeit slightly, at only +0.24% on the week. 

In a bearish trend, it will be increasingly important to focus on the sectors of relative strength, or hold patient for oversold and discounted levels on fundamentally strong names with a clear growth path.

— Luke

Takeaways from Monday’s 0xResearch livestream:

• Market sentiment and positioning: We examined recent market volatility, with bitcoin holding steady for some participants while others faced losses. Reflexive price action reminiscent of 2021 was highlighted, with sharp recoveries followed by drawdowns. We discussed positioning strategies, including taking profits on reflexive bounces and managing exposure during high-volatility windows.
  

• ETFs and bitcoin flows: We analyzed the narrative that current ETF flows represent a pseudo-IPO for bitcoin, where long-term holders offload while institutions accumulate. There was skepticism around the idea of new net inflows, as many buyers are simply rotating into ETFs from existing offchain positions for tax efficiency. IBIT was mentioned as a preferred exposure vehicle by several participants.
  

• Tokenized funds: We explored the operational inefficiencies in traditional fund subscription processes and noted that tokenizing fund ownership can streamline investor experience, enhance transparency and enable use cases such as onchain borrowing against fund tokens. KYC and regulatory hurdles remain challenges for permissionless access.
  

• Canton Network and institutional adoption: We briefly discussed the Canton Network’s infrastructure for syndicated bank loans and credit instruments, suggesting that it could see real adoption due to its backend operational improvements, although the connection between the token and product remains unclear.
  

• Valuation of Tether vs. OpenAI and SpaceX: We debated the investability of Tether compared to OpenAI and SpaceX at a $500 billion valuation. While Tether has clearer monetization, long-term risk from declining yields and stablecoin competition was noted. OpenAI and SpaceX were viewed as speculative but offering uncapped growth potential.
  

• DeFi security and exploits: We reviewed the Balancer v2 exploit and its impact on Berachain. The incident raised concerns about trust in legacy DeFi protocols, highlighting the challenge of maintaining security in old contracts. Institutional hesitation due to protocol-level risk was considered plausible.
  

• Cash management and portfolio strategy: We discussed maintaining cash reserves for tactical deployment into high-opportunity situations, such as MEV auctions or pre-deposit sales. The benefits of reducing portfolio complexity and decision fatigue were emphasized.
  

• Yield farming dynamics: We assessed the challenge of earning sustainable returns from DeFi yield farms, noting that many market participants accept underpriced risk. Opportunities remain for active capital rotation, but long-term passive yield strategies remain vulnerable to exploits and market shifts.

Look for the full podcast on YouTube, Spotify, Apple Podcasts and X.

This summary was generated with assistance from AI tooling.

1. HTTP 402’s Modern Makeover

Pantera Research Lab published a research article titled “HTTP 402’s Modern Makeover.” The piece explores how the reserved HTTP status code 402 (“Payment Required”) — a placeholder for protocol‑native web payments that never materialized in the 1990s — may finally be revived in the Web3 / crypto era. The authors argue that stablecoins, cheap blockchain rails and AI‑driven agentic payments are enabling per‑request, seamless transactions akin to what the original HTTP spec envisioned. They describe emerging standards (e.g., x402, h402) and outline the required components for wide adoption: client integration, vendor uptake, payment facilitators and stablecoin rails. Read more

2. Liquidity, the lifeblood of crypto

Wintermute published a blog post titled “Liquidity, the lifeblood of crypto.” The article argues that liquidity — the ability to easily buy or sell assets without large price impact — is the central driver of crypto‑market health. Wintermute explains how its role as a liquidity provider spans both centralized and decentralized venues, enabling smoother trading and reducing slippage even during volatile periods. It highlights that in times of market stress, deep, reliable liquidity firms become critical to ecosystem resilience. The piece concludes that as the industry matures, liquidity infrastructure will increasingly separate robust projects from weak ones. Read more

3. House of Cards

Rekt News published a blog post titled “House Of Cards.” The piece exposes how Stream Finance’s xUSD and Elixir Network’s deUSD leveraged masked recursive mint‑loops and cross‑protocol leverage. A small base of real collateral morphed into vastly greater token supply, while back‑stops like proof‑of‑reserves were perpetually “coming soon.” When institutional players quietly exited, the cracks appeared: The article argues DeFi’s “stable” illusions are built more on performance than substance, and when the loop breaks, the consequences ripple broadly. Read more

4. If you are still here, read this

@Artem_Oak published a blog post reflecting on a chaotic week in crypto markets. The post details a cascade of failures in the DeFi ecosystem: multiple stablecoins like xUSD and deUSD collapsed, Balancer was hacked for $100 million, borrowing rates spiked above 1500%, and panic withdrawals surged. The author highlights broader market turmoil, mistrust in CEXs and sentiment collapse. Despite the carnage, they argue DeFi will survive long term and call for focus on resilient teams. The piece closes with a gritty message of endurance, urging readers to embrace crypto’s volatility and commit for the long haul. Read more