🟣 Recovery underway

Monday’s sharp drop looks to be an overreaction

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Macauley Peterson & Donovan Choy
August 07, 2024

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Welcome back to 0xResearch. Here's what we’ve got for you today:

  • ETH ETF inflows

  • Japan, macro

  • Ronin chain hack

  • Aerodrome volumes

Net inflows to spot ether ETFs were well positive for the second straight day on Tuesday at $98.4 million. The sum is roughly double that of Monday’s inflows, which came in at $48.8 million, data shows.

That’s the largest inflow number since the first day of trading on July 23.

Monday’s figure, coming in on a day when investors were generally in panic mode, prompted “Crypto is Macro Now” newsletter author Noelle Acheson to call it “one of the most bullish signals I’ve seen in a while.”

“On a day when outflows could/should have been strong, they were mild-to-nonexistent,” Acheson wrote.

Did the BOJ “cave”?

Given the yen carry trade unwinding as one of the leading causes of crypto markets’ weekend meltdown, it’s notable that the general market bounce is also linked to the narrative that the Bank of Japan has “caved” to the pressure of the Nikkei plunge.

But has it?

The idea stems from comments in a speech by BOJ Deputy Governor Shinichi Uchida, which was spun as signaling that the Japanese central bank is done hiking rates after one 25 basis point move.

But if the decision to raise rates was thought through over time and driven by rising inflation, it does seem premature to think that a few days of market volatility will be enough to radically change the game plan.

— Macauley Peterson (X: @yeluacaM | Farcaster: @Macauley)

Ronin bridge hack

This past Monday saw Ronin suffer yet another hack on its bridge contracts. The hackers reportedly withdrew the maximum limit in one transaction — 4000 ETH and two million USDC — before Ronin quickly paused the bridge. Thankfully, the actors turned out to be white hat hackers who have since returned all the funds to Ronin and walked away with a nice payday bounty of $500k.

This isn’t the first time Ronin bridge took a hit. The bridge saw one of DeFi’s greatest hacks in March 2022 when $624 million in ETH and USDC was drained from its contracts.

Interestingly, Ronin gamers remained relatively unbothered by the hack. Ronin chain’s daily active users (not to be confused with the paused bridge) saw a slight decline from 1.9 million to 1.8 million users. The RON token, however, took a dip from $1.59 to $1.24 before recovering $1.4 at the time of writing.

— 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?”

Aerodrome volumes and fee revenue rise:

With every market crash comes new metric highs for DeFi’s most used protocols as traders rush to dump their tokens and reposition their portfolios. Base’s top DEX, Aerodrome, saw an all-time high record of $639 million in daily volumes on Monday, just for its Slipstream product alone.

That netted Aerodrome $401k in fees. Slipstream is Aerodrome’s version of Uniswap v3’s unified liquidity, which works best on trading pairs that have self-sustaining and organic liquidity. The highest volume pair on the day was WETH/USDC, at $408 million.

— Donovan Choy

Applications with nearly fully diluted supply, relevance and PMF are set to replace memecoins as the counterbalance to low-float, high FDV infrastructure tokens. MakerDAO is a notable example, with imminent catalysts including the rebranding of both DAI and MKR tokens and the continuation of its "EndGame" strategy. MakerDAO maintains a proven relevance through its large and established user base demonstrating clear product-market fit and high utilization rates, while consistently generating revenue and employing a token buyback mechanism that provides a solid foundation for long-term value creation.

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.

Plus, Anthony Pompliano’s take on the intersection of crypto and politics.

The liquid staking giant wants to onboard the next wave of institutional players into Ethereum.

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.