Today’s edition wraps the third and final part of the multi-part series on how liquid funds are navigating 2025. Gaming, crypto x AI and DeFi sectors all have its gems, if you’re so inclined to believe.

— Donovan

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Fluid trade count slides amid ETH-USDC pool turmoil:

The number of weekly trades on Fluid has dropped significantly since peaking in February, according to data from Blockworks Research. Most trades are concentrated in the ETH-USD pair, which has come under scrutiny following sharp LP losses during recent ETH volatility. Fluid’s v1 rebalancing mechanism, triggered outside a ~10% range, incurred realized losses that outpaced fee income as ETH plummeted from $3,800 to $1,560.

Trade activity has fallen by more than 60% from the highs. Despite ETH’s partial recovery to ~$2,400, the damage was done — LPs suffered losses in the millions. However, estimating the extent is complicated since it varies from one LP to another, and we must take into account the volatility in ETH price.

A governance proposal outlines interim relief via FLUID token rewards and a longer-term fix in the form of DEX v2, slated for June/July. It features dynamic LP strategies and fees. Meanwhile, Fluid’s team suggests narrowing the rebalancing range to boost fees, despite higher LP risk.

For now, market confidence appears shaken. A rebound in trade count may hinge on v2’s rollout and clearer LP incentives.

— Macauley Peterson

0xResearch Arena: It's Going Down at Permissionless IV

We're bringing the signal to Brooklyn — with a side of chaos.

Hosted by the 0xResearch crew and Blockworks Research analysts, this space is where the smartest minds in crypto go head-to-head in live debates, blitz chess, pull-up challenges, and the occasional dunk tank.

High traffic. High energy. No takes left untested.

Think you’ve got alpha? Come prove it. 

📅 June 24–26 | Brooklyn, NY

What tokens are liquid funds looking at?

The following is the third and final part of a multi-part series on the state of crypto liquid markets, based on several conversations with liquid funds. You can find part one and two here.

Which crypto sectors are the most reviled by the average person in the industry?

Anecdotally, gaming and crypto x AI projects seem to make the easiest punching bags. If I had a dollar for every time I heard “crypto games aren’t fun…”

The liquid funds I spoke to, however, had much more lukewarm and varied feedback. Though some were uninterested in gaming, others expressed optimism.

“The Web3 gaming space is very challenged at the moment and is most overlooked or under-owned,” Spartan co-founder Kelvin Koh told me. 

“We need a big hit game for people to pay attention to Web3 gaming again. Off the Grid, Maplestory Universe and FIFA Rivals are three games we are watching closely.”

Off the Grid in particular has continued to average about 552k daily players after its big bang launch. Its active player base has cemented the GUNZ chain as a top 10 chain based on active addresses and transaction count, according to Delphi Ventures, an investor in the game.

1kx was another fund that expressed greater optimism for Web3 gaming.

Traditional free-to-play mobile games have an incredibly high entry barrier and require millions to breakeven. But a Web3 game that leverages the power of token incentives can greatly reduce that barrier of user acquisition, 1kx partner Peter Pan told me.

“A game like Pixels raised $4 million in their first year and was able to go to market within 18 months. They spent $70 million in token incentives on user acquisition and made about $25 million back — that’s roughly a 30% return on spend that would never be possible for a Web2 startup managing the same budget.”

Despite the early days of crypto X AI, a few funds also expressed hopefulness for the sector. At the very least, most acknowledged that in the long run, blockchain would enable AI in some specific use cases.

For instance, one crucial way that blockchain tech can support AI is in the area of “identity,” Pantera’s Cosmo Jiang said.

"Infinite agents and bots will exist thanks to AI. So there will always be a demand to know what is truly human. What better way to create a global, permissionless, censorship-resistant identity solution than using a blockchain? World [formerly known as Worldcoin] is doing something critical here.”

When it came to more mature token sectors within DeFi (DEX, lending liquid staking), there was general agreement among the funds I spoke to that these were markets with proven PMF and ways to perform valuations.

This however also crucially means that token valuations in DeFi were increasingly tethered to financial reality and less susceptible to speculative valuations than, say, memecoins, as one investor told me.

This is in stark contrast to L1/L2 tokens, which saw more disagreement on how they should be valued.

The valuations of most existing L1 tokens (on a P/E ratio basis) were far beyond what a fundamental analysis would explain, and poised for a harsh correction to the downside, one investor told me.

Another believed that L1 tokens were still erroneously being valued as a comps to bitcoin, which has become more of a store of value.

Here’s what Blockworks head of research Ryan Connor had to say on L1 valuations:

“The reason, all else equal, for the higher valuations for L1 and L1-like things is because they are platforms, and platforms can be money-making machines. So all else equal, theoretically, you're pricing in higher growth. Solana, for example, can 5x its revenue in the next 12 months to above 10b. That's incredible earning power. You can't say the same for AAVE.”

— Donovan Choy

Derive-Synthetix merger proposal

Derive DAO is currently discussing a proposal for Derive.xyz (formerly Lyra protocol) to be acquired by Synthetix in a token swap. If approved, it would see DRV holders exchange their tokens for SNX under a three-month lock and nine-month linear vesting schedule.

Structured at a 27 DRV to 1 SNX ratio, the deal values Derive at around $27 million, reflecting an 8% discount to the spot exchange rate at proposal time and compensating for DRV’s thin liquidity.

Both Derive and Synthetix governance are expected to approve the proposal, largely due to the strong endorsement from Synthetix founder Kain Warwick, who remains an influential figure in each.

Derive’s platform — its chain, protocol and exchange — would be rebranded and repurposed to launch Perps v4: a CLOB-style hybrid derivatives exchange on Ethereum mainnet with offchain matching and onchain settlement.

One point of controversy is that the deal would transfer Derive’s full treasury (~$5.3 million), product stack and operational infrastructure to Synthetix.
Synthetix is funding the acquisition by minting up to 29.3 million new SNX tokens, not with existing treasury assets. Critics argue this is essentially using inflationary currency to buy real, liquid assets (roughly $4m in stables/ETH + $1.3m in OP), which can be immediately redeployed or used for incentives, runway, etc.

“Synthetix isn’t even buying Derive with real money,” Fluid chief operating officer, known as DMH, put it bluntly. “They’re minting SNX out of thin air.”

Warwick touts the move as a merger of complementary strengths: Derive’s performant architecture and market maker network meets Synthetix’s governance, token liquidity and deep protocol experience.

Ultimately, this is a strategic reset for both teams. Derive’s product-led approach failed to gain traction for DRV, while Synthetix’s governance has lacked execution on product goals, Warwick said. Combined, they hope to reclaim relevance and market share.

The transaction, as outlined in Derive's governance forum, specifies that the acquisition will proceed only if it receives majority approval from Derive's stDRV holders through the Derive Improvement Proposal (DIP) process, and from Synthetix's Spartan Council via a corresponding Synthetix Improvement Proposal (SIP). 

Neither vote is yet live.

— Macauley Peterson