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Re7 Capital is a research-driven digital asset investment firm specialising in DeFi yield and liquid alpha strategies.
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Summary
In this edition, we cover:
Neutralisation in the market
Key market ratio breakouts and positive divergences
DEX volume dynamics
SocialFi growth
…and more.
Returning the Punch Bowl
Crypto markets have run through their typical playbook for this time of year - the summer lull.
Historically, BTC had the worst monthly performance in September at -4.8% on average.
This time around, BTC is currently trading -6.3% for the month with its wick low representing a -10.6% monthly drawdown.
In other words, already a higher-than-average correction in a less-performant month.
This comes as we head towards the most performant month, October, with an average return of 22.9%.
Shorts are increasingly being caught out, driving more liquidation volume in the past 24hrs by 2x ($100m). Funding rates have become completely neutralised, setting up for potential short squeezes.
Zooming out, the consolidation pattern since March appears to be heading towards longer-term support with last Friday’s wick down bouncing off this level.
Alts vs. their SOL ratio has equally bounced off a similar support line formed since October 2023.
With most assets now printing a 26/100 on the fear & greed index, the set-up for a regime change is potentially forming.
Alts vs. SOL (a strong relative performer YTD) is being pulled to its resistance area, eyeing a breakout to the upside.
This comes as 1) SOL dominance rolls over…
and 2) as global liquidity climbs to new highs since April 2022.
And on liquidity flows, stablecoin supplies continue to deviate positively from global market capitalization.
Stablecoin supplies are a good proxy for ecosystem growth, fuelled by risk premia in the broader markets.
When rates increased in March 2022, stablecoin supplies dwindled (1). Stablecoin supplies then increased when the market realised the peak of interest rates was in (2).
As we’ve highlighted before, demand for leverage and DeFi yield opportunities remain high. Total borrowing in DeFi has grown 70% in 12 months to $29B.
We can also see other positive divergences in other areas of the market. Total blockchain addresses have climbed to new all-time highs (16.5m).
Active addresses and global MCAP have been historically correlated with one another.
In other words, we have a fearful market during seasonality at a time when we’re seeing the fastest nominal growth in active addresses over 1 month.
Market Dynamics
Solana DEXs volumes have been compressing when markets have been consolidating. It’s relative strength may return if markets begin to return to a Q1 2024 dynamic.
The relative ‘winner’ in the meantime has been Base, with DEX volumes overtaking Solana for the first time since October 2023 (16%).
Meanwhile, SocialFi platforms are reaching new all-time highs in daily active users. Over 6m addresses are now active - representing a 21x YoY growth rate.
Active addresses have put in an impressive average of 36% 12M MoM growth rate, all for a sector that is flying under the radar.
Growth has also been spread more evenly across an increasing number of platforms (eg. OpenSocial).
This signals that the sector growth represents a broader, structural trend and not a single platform fad.
This echoes the research Re7 has done recently to highlight the decentralised social graphs and the mechanisms that will underpin their growth.
New Euler vaults allow for customized clusters, including Renzo’s LRT cluster curated by Re7 Labs
Euler v2 launched last week, bringing a new set of customized tools to modular lending
The new protocol allows the creation of lending vaults of any assets that can then be linked together as collateral to form custom clusters, similar to a mini version of Aave.
Re7 Labs has deployed several clusters of Euler v2 including a Renzo cluster that will be one of the first borrow and lending markets for pzETH. Deposits in these vaults will earn Renzo points and can be looped for leveraged yield.
Expect new clusters to go live over the next few weeks, with a wide variety of assets enabled by Euler’s flexible architecture.
ICYMI - Re7LRT now on Silo Ethereum
Disclaimers
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