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Welcome back to 0xResearch. Here's what we’ve got for you today:
What caused the market crash?
DeFi holding up
Aave racks record high daily revenues
Crypto markets crash
BTC and ETH are down 22% and 28% in the past week, while the “TOTAL3” market cap — a proxy to track the altcoin market — has plummeted 19% to $507 billion.
About $1.22 billion in leveraged longs have been liquidated in the last 24 hours, with over $447 million and $381 million in BTC and ETH trades respectively, CoinGlass data shows.
This past weekend’s market crash was largely sparked by catalysts both within crypto and the broader macro environment.
First came the Bureau of Labor Statistics’ lower-than-expected nonfarm payrolls jobs data of 114,000 added jobs for July, short of economists’ estimation of 175,000. US bond yields dropped across the board, and the S&P 500 saw a 1.8% tumble on the day.
Next, the Bank of Japan’s 25 basis point interest rate hikes effectively destroyed the famous “carry trade” of past years. This strategy involved borrowing the yen at a 0% interest rate — made possible thanks to the BOJ’s zero-interest rate policy since the 2008 financial crisis — to invest in yield-bearing assets like US T-bills. The rate hike effectively removed the profitability of this trade, leading to a large market unwinding and sell-off in risk assets as investors rushed to repay yen loans and close leveraged positions.
Within crypto, Jump Trading has been busy unwinding a significant amount of ETH. Since the launch of ETH ETFs on July 23, wallets tagged by Arkham Intelligence as belonging to Jump have seen 120,000 ($315 million) wstETH being unstaked for ETH and moved to centralized exchanges Binance, OKX and ByBit (presumably for a sell-off). Jump’s wallet still holds about $110 million in liquid ETH derivatives such as wstETH and rETH.
DeFi holds up
The unique selling proposition for DeFi stems from the premise that manual human operations in traditional markets are subject to mistakes, bias and corruption — so a system of autonomous smart contracts will do a better job of replacing them.
Every market crash is a major stress test of that entire system, so let’s take stock on how well DeFi is performing. In the last 24 hours across Ethereum:
Aave v3 liquidated collateral totalling $233 million: wETH ($137 million), wstETH ($62 million), wBTC ($21 million) and LINK ($4 million).
Compound has liquidated $186 million of collateral, with $175 million of debt repaid. 63% of liquidated collateral was wBTC, with 27% in wETH.
Spark DAO racked up $44 million in collateral liquidations, with $41 million repaid so far.
Morpho liquidated at least $18.1 million in collateral, based on data from The Block.
Maker DAO has liquidated $10.1 million of ETH, wstETH and WBTC collateral, with $9 million in repaid debt.
Ethena’s USDe synthetic dollar retained its dollar peg. The protocol saw at least $50 million of record redemptions, and the asset is still fully collateralized, according to its founder.
Lido’s liquid staking token, stETH, saw its largest depeg to 0.983 ETH, and has since repegged at value with ETH.
The largest liquid restaking token EETH (Ether.fi) saw its biggest depeg to 0.933 ETH, and has since repegged. The protocol, however, is seeing a record high of $110 million eETH withdrawal requests from EigenLayer.
Blast’s USDB stablecoin saw the largest depegging to $0.88 on 9 pm ET Sunday, but has recovered its peg to $0.98 since.
Dare we say it: DeFi seems to be working just fine.
— Donovan Choy (X: @donovanchoy | Farcaster: @donovan)
All 1000X listeners know that when Jonah and Avi give guidance on the markets, it’s best to pay heed.
Catch them live and in person at Permissionless III in October as they answer the perennial question: “Where are we in the cycle?”
Aave DAO treasury revenue:
If there’s one winner in the past weekend’s bloodbath, it’s Aave.
DeFi’s largest lending protocol is generating $5 million in daily revenue thanks to liquidation fees. Today alone saw Aave v3 liquidate at least $233 million, with the large bulk of liquidated collateral being WETH ($137 million), wstETH ($62 million), WBTC ($21 million) and LINK ($4 million).
Coincidentally, the DAO on Saturday passed its first temperature check on a governance proposal to turn on the “fee switch.” The proposal plans to overhaul tokenomics by buying AAVE on the open market to be redistributed back to staked AAVE holders as yield.
Bad debt will also be isolated within lending pools with the new “Umbrella” safety module, shifting the burden of debt payment away from the DAO treasury and to AAVE token holders who choose to opt into each individual pool’s additional yield earnings and slashing risk.
— Donovan Choy
In July, markets rose as inflation showed signs of easing as the Federal Reserve hinted at potential rate cuts amid economic stabilization. The S&P 500, Nasdaq and gold hit all-time highs, while ETH's price declined despite the launch of a US spot ETH ETF. This is likely given significant outflows from Grayscale’s ETHE product strengthening its sell pressure. The choppy nature of ETH’s price also reflects mixed sentiments, especially as competition from Solana increases. However, longer-term ETF inflows can provide appreciative price action. Ethereum is preparing for its next major upgrade, Pectra, which aims to improve network flexibility and optimization.
In July, markets rose as inflation showed signs of easing, with the PCE Price Index indicating a significant decline and the Federal Reserve hinting at potential rate cuts amid economic stabilization. The S&P 500 and Nasdaq hit all-time highs, while BTC’s price remained flat due to significant outflows and market uncertainties. Despite these challenges, Bitcoin recorded its highest-ever monthly transaction count and is showing an increased sensitivity to macro factors.
Crypto stocks including bitcoin miners, Coinbase and MicroStrategy were all lower Monday morning.
Shifting attitudes in Washington could quicken the approval of solana ETFs, says 21Shares US business head Federico Brokate.
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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.
