🟣 We're So Dang Close

Well, yesterday was fun huh.

February 29, 2024

Well, yesterday was fun.

BTC reached a high of $64,000, making leverage traders comfortable with putting their foot on the gas. Immediately following the high, BTC fell over 8% in half an hour.

This violent move downward caused a liquidation cascade across many altcoins. For example, SNX fell 13% within that half hour, and some other alts fell even further.

This was the first major liquidation cascade I’ve seen in years, and was a sign that greed is back in this market. The more confident traders get, the more likely we are to see a deleveraging event; it’s a tale as old as time.

The confidence definitely came from momentum and the fact that a $64k BTC is only 7.5% from its all-time high. As we get closer, the more we’re starting to see signs of retail moving their way back into the market.

The first of these signs is personal; I’m not sure about you, but I’ve received more texts regarding crypto this week than since 2022.

The second sign is DOGE and SHIB's rise, which are up 50% this week. Retail sees prices rise again, and they go back to what they know best.

In other news, Blast is finally opening up its doors after a long wait later today at 21:00 UTC. If you’re feeling adventurous, you can currently bridge ETH to Blast directly through the contract using Banana Gun. But, just like the Base launch, be careful of rugs and scams as they will be plentiful in Blast’s early innings.

Maybe the next time you read this newsletter, BTC will be trading at brand-new prices. We shall see.

— Westie (X: @WestieCapital | Farcaster: @Westie)

Ethena’s USDe synthetic dollar has now reached a supply of over 540M, growing exponentially since the official launch and the introduction of Shards: their points program.

Although the team has publicly stated they have moved away from branding USDe as a stablecoin, if they retained this classification, it would put them as the eighth largest stablecoin, inching closer to Frax at 645M.

While the team and analysts, like our very own Matt Fiebach, have highlighted the fact that this is simply a large-scale delta-neutral yield vault with downside protection and does not have the reflexivity of other failed crypto-native stablecoins like LUNA, this does not mean that the protocol does not suffer from lower funding rates.

My worry is that the backtesting and the typical positive funding rate associated with ETH do not take into account the impact Ethena itself will have on rates and any other significant entity carrying out the delta-neutral trade.

Ethena is already 6.3% of all ETH Open Interest across the 7 centralized and 3 decentralized perps venues they currently use. This is a significant share at this point and probably has a material impact on rates. There’s easily a world in which Ethena becomes >33% of total Open Interest, being entirely short.

The good thing is that there is a countercyclical nature to the design. A drop in interest rates will cause users to leave the stablecoin and the supply to shrink, which will lead to closed short perps positions and, therefore, a positive increase in rates.

However, if looping strategies become the norm or there are fewer active participants ready and willing to reduce the USDe supply, a sustained period of negative rates would drain the insurance fund. From there, USDe holders would then take on the negative rates themselves, looking more like a yield vault than a synthetic dollar; the protocol would end up just fine. However, there will be turmoil in the meantime, and this removes the entire premise of a synthetic dollar in the first place.

I will continue to watch this experiment play out, and I’m interested to see how the system handles its first period of negative or low funding rates.

As the dominant player, Stride is well-positioned to continue its recent success on the back of an expanding Cosmos LST market, chiefly driven by new token launches and growth in liquid-staked tokens as a percentage of staked tokens.

The Uniswap Foundation has put the idea of a fee switch up in the governance forum, paving the way for an additional taker rate to be imminently turned on. This should result in further upside for UNI, especially on the back of Dencun and Uniswap v4’s launch in Q3 2024.

Ethereum users have boosted their collective stake in the blockchain over the past month, even as prices spike.

Gemini “failed to prevent harm suffered by Earn program customers,” according to a NYDFS statement

The insights, views and outlooks presented in the report are not to be taken as financial advice. Blockworks Research analysts are not registered broker/dealers or financial advisors. Blockworks Research analysts may hold assets mentioned in this report, further outlined in the Firm’s Financial Disclosures.