CoinDesk Crypto

The stagnation in the crypto market has discouraged newbies, but seasoned traders remain unfazed, the CEO of the EXMO cryptocurrency exchange said.

EXMO, an exchange with about $40 million in daily trading volume according to CoinGecko, has been catering mostly to traders in Russia, Ukraine, Belarus and Kazakhstan, but has been actively expanding in the U.K recently, said CEO Sergey Zhdanov. 

In June, trading activity on both spot and derivative crypto markets contracted more than 40%, a report by CryptoCompare said. 

Related: Crypto Exchanges See Biggest Bitcoin Outflow in 7 Months. A Reason to Cheer?

“Retail traders who flocked into crypto in 2021 were set aback by the declining price,” Zhdanov said. “New people come with an assumption that [crypto] will be growing forever, but then it falls.”

The DOGE crowd

Many new traders were drawn by Tesla CEO Elon Musk’s Twitter rants about dogecoin, Zhdanov said. That was especially notable in the U.K., where EXMO has fewer users, and so knowing who the new traders were was more apparent. 

“In January and February, when Elon Musk was tweeting [about DOGE], the first surge of interest happened. [British news outlet] Metro.co.uk wrote about it and provided a link to us, and 10,000 of new British users came, all after dogecoin,” Zhdanov said.

For the vast majority of those newbies, the pattern was simple: They bought DOGE high, sold low after the price went down, and then withdrew money and left, Zhdanov said. They did not switch to older cryptocurrencies like bitcoin or ether and instead just capitulated, he said.

Related: EXMO Exchange Taps Ledger Vault to Help Secure User Assets After 2020 Hack

Read also: Dogecoin Falls as Musk Underwhelms and Reality Intrudes

Still, 10% of those new users have remained active traders and made up about $1 million of trading volume during the last six months, Zhdanov said. This doesn’t necessarily mean that those traders invested a lot of money in crypto but rather that they made a lot of trades. They might have been using the same deposit amount to buy coins, sell them and then buy again, and so on. 

In contrast to the fresh users, more experienced traders who began before this year and had seen previous ups and downs of the market kept trading even in the days of low volatility and depressed prices, Zhdanov said. 

“Experienced traders have a longer-term strategy – even when the market is quiet, they keep buying or selling,” he said.

In any case, the first half of 2021 was better for EXMO than all of last year, according to Zhdanov. The exchange now has 1.9 million registrations, and about 100,000 users have $5 or more in their accounts. Out of the 1.9 million, 200,000 users registered this year, and 35,000 of them have actually started to trade.

And the older crowd prefers the old coins: Up to 80% of trading on EXMO is in bitcoin and ether, Zhdanov said.

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Elon Musk’s love-hate affair with various cryptocurrency communities continues apace as he shared more details about his and his companies’ holdings at The B Word, a conference held Wednesday.

One of his privately held ventures, aerospace company SpaceX, holds BTC, Musk said. SpaceX’s bitcoin holdings had not been previously disclosed.

The entrepreneur and provocateur said he personally owns bitcoin, ether and, naturally, dogecoin.

Related: Coinbase Commerce Adds Support for Dogecoin Payments

Publicly traded automaker Tesla, whose BTC bags were revealed in February, still holds the asset in its treasury, the CEO said.

The bitcoin price jumped Wednesday by the most since mid-June. At one point, the largest cryptocurrency was changing hands around $32,800, up more than 10% over the past 24 hours, but later pared those gains to about 6%.

According to Quantum Economics founder Mati Greenspan, bitcoin’s price rise earlier on Wednesday was partly on anticipation of the event.

“As we await what promises to be the greatest-ever bitcoin livestream, it’s clear that the market is already very excited,” Greenspan wrote in his daily newsletter. At its peak, Dogecoin was up 19% on Wednesday to about 20 cents.

Related: Market Wrap: Bitcoin Climbs as Elon Musk Tames Shorts

On Tesla accepting bitcoin for car payments again, Musk said the network’s energy usage is improving and Tesla is doing some more due diligence on this, but that Tesla would “most likely” resume accepting BTC for payments. The price of bitcoin fell sharply after Musk first announced in May that Tesla would no longer accept bitcoin as payment for its products because of concerns over the amount of energy used to mine it. 

Musk also asked fellow conference participant Jack Dorsey, the CEO of Twitter and Square, whether he would consider accepting bitcoin as payment from Twitter’s advertisers as a way to support the cryptocurrency. 

Dorsey replied that he agreed with the concept but that he was more focused on creating “economic incentives in the network itself without having to rely on advertising.” 

When Musk pressed him for an answer of whether he would actually allow advertisers to pay with bitcoin; however, Dorsey laughed and stopped short of committing to do it right away.

And on the subject of his favorite crypto dogecoin, about which he often tweets, Musk said he likes that the DOGE community is very irreverent and “has great memes and loves dogs, and I love dogs and memes.” 

“The most ironic and entertaining outcome would be the the cryptocurrency that was started as a joke to make fun of cryptocurrencies ends up being the leading cryptocurrency,” Musk said, chuckling.

Dogecoin pared its gains later in the day and was up approximately 10% to just under 19 cents over the last 24 hours.

UPDATE (July 21, 20:04 UTC): This story was updated to reflect additional comments from Twitter and Square CEO Jack Dorsey, as well as comments from Musk about dogecoin.

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Spanish officials have arrested a 22-year-old British man in connection with last July’s huge Twitter hack, in which at least 130 high-profile accounts, many belonging to celebrities, were taken over and used to promote a bitcoin scam that netted the hackers approximately $120,000. 

Joseph O’Conner, also known by his online handle PlugWalkJoe, was arrested Wednesday by the Spanish National Police in Estepona, Spain, at the request of the Federal Bureau of Investigation (FBI). He was charged with multiple counts of conspiracy and intentionally accessing a computer without authorization. 

The Twitter hack compromised the accounts of top cryptocurrency exchanges, and prominent crypto Twitter accounts (including CoinDesk), before moving on to mainstream accounts including those of Elon Musk, Warren Buffett, Kanye West, Joe Biden and former President Barack Obama. 

Related: Founders of South African Crypto Investment Firm – and $3.6B in Bitcoin – Are Missing

The accounts all tweeted a bitcoin scam, promising to double senders’ bitcoin if they sent them to a specific address. 

O’Conner is the fourth co-conspirator to be arrested in connection with the hack. 

In late July 2020, officials arrested three individuals – Nima Fazeli, Mason John Sheppard, and Graham Clark – and charged them with multiple felony counts of fraud.

Seventeen-year-old Graham Clark, considered by officials to be the ringleader of the hack, was charged with 30 felonies and was sentenced to three years in prison in March. 

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Bosa: “Quick question just to follow up on the audit. To go back a tiny little bit, I know that you said you would be thrilled to be the first crypto company and stablecoin to go through an audit. Do you have a date in mind?”

Hoegner: “We don’t at this time, no, but we are reaching back a couple of years for the financial audit and that is in process.”

Bosa: “Okay, do you think that’s years away?”

Related: Paxos Reveals Assets Backing Stablecoins PAX, BUSD

Hoegner: “Months, not years.”

Bosa: “Only months away?”

Hoegner: “Yep”

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The Argentinian province of Misiones will issue its own native stablecoin. 

According to an official statement published by Misiones’ secretary of finance on July 15, the province has enacted a law authorizing the stablecoin, which will allow it to create a new financing and transaction tool.

The project was approved by Misiones’ House of Representatives and is being studied by an interdisciplinary team that includes Adolfo Safrán, the province’s minister of finance. 

Related: Tether General Counsel Tells CNBC Audit Is ‘Months’ Away

“Misiones is the first province in the country to sanction a conceptual framework to develop these digital tools that are transforming finance and public and private management at a global level,” the statement said.

It is unclear whether Misiones will create its own blockchain or tap an existing network to support the stablecoin.

The law seeks to implement blockchain technology “with the aim of digitizing information in a reliable, transparent, secure, traceable and, moreover, environmentally friendly way,” the statement said. 

Blockchain technology will be used in a green bond that will keep track of the carbon footprint absorbed daily by Misiones’ forests.

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Blockstream, a prominent and influential Bitcoin technology startup, has introduced a service designed to make setting up a node on the cryptocurrency’s Lightning Network a snap. 

Known as Greenlight, the service allows users to maintain complete control over their funds while setting up a Lightning node using the company’s cloud infrastructure, Blockstream said. The private keys for both on-chain and off-chain transactions never leave the custody of the user; rather, users interact with their nodes via a simple user interface managed by Blockstream.

The Lightning Network has seen torrid growth over the past couple of months and has become easier to use as well with the introduction of apps like Jack Mallers’ Strike. Greenlight’s simple interface promises to attract more users.

Related: Las Vegas Strip Club Now Accepts Bitcoin Payments Over the Lightning Network

Referred to as a “second layer” system, Lightning is designed to enable microtransactions that may be too costly and slow to execute on the Bitcoin blockchain during periods of high network traffic. If widely adopted, it could make BTC more practical for everyday payments (think cups of coffee).

But the Lightning software can be bewildering for neophytes. Many non-technical enthusiasts often find themselves trusting a third-party service operator with their private keys in return for a simpler setup, undermining one of the chief selling points of Bitcoin: control over one’s money.

“Getting started with Lightning can be a challenge for some, especially the more technical aspects like operating channels or creating backups and watchtowers,” said Christian Decker, core tech engineer at Blockstream. With Greenlight, the company aims to give users the best of both worlds.

Greenlight is built on top of c-lightning, an implementation of the Lightning Network protocol optimized for performance and extendibility. Blockstream has been very public about its support for c-lightning in the past.

Related: Nodes on Bitcoin’s Lightning Network Double in 3 Months

The company said it believes c-lightning’s can keep transaction fees low; however, Greenlight also allows users to “share” a node, hence sharing fee costs.

Greenlight is intended to be user-friendly and educational for potential Lightning users or even just hobbyists. Some developers are hamstrung by the fact that they are unable to run their own nodes, Blockstream said. Greenlight is intended to break that barrier and allow for more development.

The service is available on the Sphinx and Lastbit Lightning payment apps and will be released to the public over time. During this rollout period, Greenlight will be free to use.

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Paxos has released a breakdown of reserves of its stablecoins PAX and BUSD for the first time: Some 96% of the reserves were held in cash and cash equivalents, while 4% were invested in U.S. Treasury bills as of June 30.

The company’s disclosure came a day after Circle, issuer of the second largest stablecoin USDC, revealed its assets backing the token. Tether, issuer of the largest stablecoin USDT, disclosed a breakdown of the reserves in May. 

Investors have been demanding more transparency from stablecoin issuers, while regulators have warned that a loss of confidence in stablecoins could destabilize cryptocurrency markets and potentially even spread to Wall Street.

Related: Market Wrap: Bitcoin Climbs as Elon Musk Tames Shorts

BUSD is the third largest stablecoin by market cap, while PAX is the seventh largest, according to data from CoinGecko.

All of Paxos’s cash balances are held in U.S. insured depository institutions, while all its cash equivalents are held in “U.S. Treasury bills with maturities of 3 months or less, or overnight repurchase agreements, overcollateralized by U.S. Treasury instruments,” according to a blog post Wednesday written by Dan Burstein, general counsel and chief compliance officer of Paxos.  

The other 4% of reserves are in U.S. Treasury bills but were categorized seperately, since those Treasury bills are four months from maturity, all maturing in October 2021, according to Burstein’s post. 

“As the market becomes more and more mature, and more and more players come in, there can be multiple [stablecoin] products that serve different purposes,” Becky McClain, director of communications at Paxos, told CoinDesk. 

Related: Tether General Counsel Tells CNBC Audit Is ‘Months’ Away

“Paxos is building a product that is designed to serve an institutional audience that really demands trust and transparency and oversight and regulation,” McClain said.  

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Securities and Exchange Commission (SEC) Chair Gary Gensler said cryptocurrencies whose prices depend on more traditional securities might fall under securities laws.

Speaking to the American Bar Association on Tuesday, Gensler said some platforms are offering crypto tokens “that are priced off” securities and resemble derivatives products. In his view, any security-based products will have to comply with trade reporting rules and other laws, he said.

“Make no mistake: It doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities,” he said. “These platforms – whether in the decentralized or centralized finance space – are implicated by the securities laws and must work within our securities regime.”

Related: Market Wrap: Bitcoin Climbs as Elon Musk Tames Shorts

Gensler warned that his agency may bring future enforcement actions as well, noting that “we’ve brought some cases involving retail offering of securities-based swaps,” seemingly referring to a case the SEC brought against financial app Abra, which paid $300,000 in penalties on charges of selling security-based swaps to retail investors last year. 

Crypto exchange Binance also recently announced it was closing its stock token business, though technically U.S. customers should not have been able to access this service.

Gensler didn’t specify any tokens in his speech, but his remarks come amid increased regulatory scrutiny around digital assets, with stablecoins in particular popping up more and more in congressional hearings.

Yesterday, Circle, the issuer of USDC, published a breakdown of the assets backing the stablecoin. In addition to cash, the token is backed by money market funds, commercial paper, corporate and municipal bonds and certificates of deposits issued by foreign banks.

Related: NJ Regulators Give BlockFi 1 Week Before Blocking New Interest Accounts

Some of these reserves, including the money market funds, bonds and commercial paper, are currently treated as securities under U.S. law.

Tether, the issuer of the world’s largest stablecoin, USDT, has also said its reserves included investments in commercial paper and corporate bonds. 

Gensler isn’t alone in his view that stablecoins that are backed by securities should be treated as securities. U.S. Rep. Warren Davidson (R-Ohio) previously told CoinDesk that “it gets hard to say” that such a stablecoin isn’t itself a security. 

“I think you could easily craft a stablecoin that meets a test that says ‘no, this is not a security,’” the lawmaker said. 

Stablecoins that are backed by securities should be regulated by the SEC, he said.

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The number of open positions in bitcoin futures traded on major exchanges, including Binance and the Chicago Mercantile Exchange, continues to rise, and what appears to be a proliferation of short sellers indicates a dour market mood. That may bring volatility on the higher side. 

Open interest, or the number of futures contracts traded but not squared off with an offsetting position, rose to 397,873.36 BTC on Tuesday, reaching the highest tally since May 18, according to data from the blockchain analytics firm Glassnode. The dollar value of the number of contracts open remained flat at around $12 billion. 

When measured in kind, the metric has risen by more than 100,000 BTC since late May. According to experts, the uptick in open interest indicates traders have been opening short or sell positions amid flat-to-negative price action in the cryptocurrency. Bitcoin has mainly traded in the $30,000 to $40,000 range in the past two months, barring a couple of short-lived dips to $29,000.

Related: Market Wrap: Bitcoin Climbs as Elon Musk Tames Shorts

“In my opinion, it’s mostly short futures, given the persistent negative funding rates in perpetual markets over past few weeks as well as futures markets trading in backwardation,” Shiliang Tang, chief investment officer of LedgerPrime, a $130 million crypto hedge fund, told CoinDesk. 

The perpetual market has consistently seen negative rates since mid-May. 

Calculated every eight hours, the funding rate refers to the cost of holding long/short positions in the bitcoin perpetuals (futures with no expiry) market. The metric is used by exchanges offering perpetuals to balance the market and guide perpetual prices toward the spot price. 

A positive funding rate means longs are paying shorts to keep the position open, and the market is skewed bullish. Meanwhile, a negative funding rate implies a bearish market positioning. 

Related: Elon Musk Says SpaceX Holds Bitcoin at ‘B Word’ Conference

The three-month basis, or the difference between the price of the three-month futures and the spot price, recently turned negative, flipping into the so-called backwardation, a sign of bearish sentiment among futures traders. 

“Institutional investors seem very cautious at the moment and in general seem to be in the process of de-risking,” Arcane Research said in a weekly research note published Tuesday. “The futures premiums on the unregulated offshore derivatives market is also trending towards zero, with FTX still trading at a slight premium.”

One question is whether the uptick in open interest results from direction-agnostic arbitrage strategies, which involve buying bitcoin in the spot market against a sell position in the futures market. The strategy seeks to profit from the futures premium, which evaporates as expiry nears and converges with the spot price on the day of the settlement, making relatively low-risk returns for the carry trader. 

However, the regular cash-and-carry strategy has lost its shine with premiums in single-digits or negative (backwardation) compared with the record 40% basis in mid-April. 

Some traders anticipating a bullish revival and a rise in the futures premium may have employed a “reverse cash-and-carry” strategy by selling bitcoin in the spot market against a long futures position.

“Increased reverse cash-and-carry positions could have lifted open interest, but I doubt that it’s the primary driver,” Rahul Rai, managing partner at Gamma Point Capital, said. “So overall, it looks like there’s decent short interest at these levels.” Gamma Point Capital runs a market-neutral fund. 

LedgerPrime’s Tang said reverse cash-and-carry strategies appear quite unattractive with annualized premiums in single digits. Further, Tang pointed to low bitcoin borrowing rates offered by lending-borrowing protocols as evidence of weak demand to borrow bitcoin and short against a long position in the futures market. 

All things considered, the futures market is mainly biased bearish, which leaves the door open for sharp corrective rallies in bitcoin’s price. When leverage is skewed to the bearish side, a move higher often results in forced closure of short positions (exchanges square off shorts). That, in turn, puts upward pressure on the cryptocurrency’s price, leading to exaggerated price moves. “A rally up could cause them to get liquidated,” Rai said.

Bitcoin is currently trading at $31,400, representing a 5% gain on the day.

Also read: Bitcoin Retakes $31K as Traditional Markets See Risk Reset, BNY Mellon Makes Crypto Push 

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Think of it as the Carfax of bitcoin mining.

Announced Wednesday, Compass Mining and mining consultancy Navier are rolling out a new tool that lets buyers and sellers verify the advertised hashrate of their specialized bitcoin mining machines.

Like most third-party verifiers, the tool, HashTest, is working to answer a common question for buyers and sellers: How does something actually work versus how it’s advertised?

Related: Bitcoin Miner Iris Energy Aims to Raise $200M in Funding Before Nasdaq Listing: Report

In the bitcoin mining context, it’s important because there are few ways to verify how a machine is actually performing when plugged in and running at a mining site. That data is usually kept private by mining companies. 

“HashTest is a tool we have created for everyone to identify independent and unbiased information regarding an ASIC,” Compass Mining CTO Paul Gosker said in a statement, referring to the application-specific integrated circuit machines that power most bitcoin mining operations. “HashTest will allow sellers to demonstrate the performance of an ASIC to a buyer.” 

Data for retail ASICs is still fairly splintered in terms of transparency. For example, the Compass mining marketplace lets crypto miners big and small purchase and deploy their rigs. A tool like HashTest would allow buyers of mining equipment to get better efficiency data on the machines they’re purchasing. Hashrate is a measure of the computational power working to add new blocks to the Bitcoin blockchain.

“HashTest is the first globally available independent hashrate testing service,” Navier CEO Josh Metnick said in a statement. “We are not a manufacturer, we are not a mine, we are not a pool, and we do not make firmware. Our only goal is to provide the most accurate and unbiased hashrate measurement. We believe these datasets will empower both small and large miners to make more informed decisions.”

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Cryptocurrency exchange Bitstamp has hired Robert “Bobby” Zagotta to become its first U.S. chief executive officer, the company said Wednesday.

Zagotta, who was Kraken’s chief commercial officer for over three years, will oversee Luxembourg-based Bitstamp’s daily U.S. operations and help the company achieve the goal of growing its U.S. business.

Noting the U.S.’s “unique regulatory landscape and huge potential upside in the digital asset industry,” hiring a regional CEO demonstrates “the importance that the United States is playing for our global exchange,” global CEO Julian Sawyer said in a press release.

Related: Bitstamp Adds Support for Euro-Backed Tether Stablecoin Amid Increasing Demand

Zagotta’s arrival dovetails with Bitstamp’s efforts to bolster its workforce in the U.S., where over the first six months of 2021, the number of new customers soared by 570% and assets under management by 281%. In May, Bitstamp said it would triple its then 11-person U.S. team and increase customer support by 50% by the end of 2021.

Prior to his stint at Kraken, where his responsibilities included strategy and growth initiatives, Zagotta was a managing director at the financial exchange and markets operator CME Group. Earlier in his career, he served as a senior manager and principal consultant at PricewaterhouseCoopers.

“Bitstamp and the entire digital asset industry have an amazing opportunity and obligation to bridge the gaps between traditional finance and crypto in smart, innovative ways to get more people involved,” Zagotta said in a statement.

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Vincent, a search engine for alternative asset investing created by the founders of Indiegogo, has raised $6 million in a funding round led by Jason Calacanis’s LAUNCH. Investment firms 8VC and Digital Currency Group (the parent company of CoinDesk) also participated.

Vincent had previously raised a $2 million seed round back in December of last year when the platform emerged from test mode. 

Vincent tracked some $3.3 billion in investable opportunities last month and saw users deploy about $100 million in capital, the company said. 

Related: Robinhood IPO Filing Shows Dogecoin Trading Drove Big Gains

Crypto accounted for 12% of asset searches on Vincent in June of this year (the most popular was venture capital at 28%, followed by real estate at 26%). However, the trend was downward for crypto (-4%), which dropped out of the top five segments. 

“There has been a small downtick for crypto in June and I think that’s in parallel with interest rate concerns and inflation concerns, so you’ve seen a little bit of a shift to yield-oriented assets, like real estate and debt in the last two months,” Vincent founder Slava Rubin said in an interview. 

That said, the overall crypto growth trend is evidenced under the platform’s VC search umbrella, where startups focused on cryptocurrency and blockchain technology are leading, ahead of things like artificial intelligence and cannabis, Rubin added.

“When we launched in November, crypto wasn’t in the top five of sector searches in startups,” Rubin said. “But now it’s number one month after month.”

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Avalanche, a faster, cheaper alternative to Ethereum, has incorporated data feeds from Chainlink, the market-leading blockchain oracle.

Smart contracts with external data piped in, such as price feeds, are powering a growing decentralized finance (DeFi) economy of lending apps, decentralized exchanges and price-sensitive derivatives markets. 

These types of decentralized applications (dapps) are being built on the high-throughput Avalanche platform that went live in September 2020. Avalanche is similar in some ways to other base-layer blockchains like Solana and Binance Smart Chain, but with a novel consensus system and better compatibility with Ethereum-based smart contracts.  

Related: DeFi Isn’t Better Than TradFi if People Can’t Use It

Adding Chainlink data feeds to the mix will kickstart a DeFi ecosystem on Avalanche, said Ava Labs president John Wu. 

“There are over 225 projects building on the Avalanche ecosystem, many of them in integration mode, waiting for some functionality such as oracles from Chainlink,” Wu told CoinDesk in an interview. “Some large stablecoins are also shortly down the pike. So this is why we’re so excited.” 

Historically, DeFi and blockchain oracles emerged at about the same time, said Chainlink co-founder Sergey Nazarov. 

“That’s not a coincidence,” Nazarov told CoinDesk in an interview. “The dynamic around DeFi is that you really can’t build it without external data. DeFi is what we call ‘a hybrid smart contract,’ in the sense that it combines on-chain code and off-chain systems.”

Related: MakerDAO Moves to Full Decentralization; Maker Foundation to Close in ‘Months’

The Chainlink network is really a collection of many services that provide various specific data inputs, said Nazarov, where price data informs DeFi, random number generation enables gaming, weather data opens up other use cases and so on. 

“The industry was about this one smart contract for tokens. Then it moved to tokens plus voting, and then to tokens and voting using external data,” Nazarov said, adding: 

“So tokens are like the unencrypted email of our industry; they are the beginning. Now we are opening the entire universe of what you can build.”

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Virtually Human Studio (VHS) has raised $20 million in a Series A funding round led by TCG and with participation from Andreessen Horowitz and Red Beard Ventures.

• The Australian company, founded in 2018, has developed a blockchain-based, virtual horse-racing game, called Zed Run.
• It will use the funds to expand its project and engineering teams.
• Game participants can buy non-fungible tokens (NFTs) representing racehorses with differing racing and breeding characteristics.
• Since its launch in 2019, more than $30 million of racehorse NFTs have been sold.
• VHS plans to develop the game so that “players can work in professions such as stable owner, race track owner, breeder, accessory designer and more,” CEO Chris Laurent said.

UPDATE (JULY 21, 12:43 UTC) Adds game description, development plans.

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Bitcoin (BTC) returned above $30,000 support during Asia hours as buyers reacted to oversold conditions. The next level of resistance is seen around $32,000 and $34,000 given the intermediate-term downtrend.

The quick rebound above $30,000 is similar to the June 22 shakeout which preceded a brief price rally. Bitcoin was trading around $31,400 at press time and is up about 6% over the past 24-hours.

• The relative strength index (RSI) on the four-hour chart registered an oversold signal on Monday as bitcoin dipped below $30,000. The RSI is not yet overbought, which could keep buyers active towards $34,000 resistance.
• The 100-period moving average on the four-hour chart is sloping downwards as buyers have been quick to take profits on rallies.
• Short-term momentum is improving as bitcoin returns to a month-long range. The rebound above $30,000 suggests selling pressure from June is starting to slow.

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Today, we’re diving into the valuation models and revenue analysis of decentralized finance (DeFi) protocols on Ethereum. 

For this week’s New Frontiers section, CoinDesk Research’s Teddy Oosterbaan presents his findings on the most profitable types of DeFi applications in terms of return for liquidity providers, token holders and protocol treasuries. 

This article originally appeared in Valid Points, CoinDesk’s weekly newsletter breaking down Ethereum 2.0 and its sweeping impact on crypto markets. Subscribe to Valid Points here.

Pulse check

Related: Ethereum Developer Virgil Griffith Back in Jail in the US

We’re excited to introduce new and improved graphics for our weekly pulse check on the Ethereum 2.0 Beacon Chain and CoinDesk’s Eth 2.0 validator. Moving forward, two graphics will replace our usual stream-of-consciousness writing in this section and give you a quick overview of activity on Eth 2.0 over the past week.  

The first graphic above illustrates the overall health of the Eth 2.0 blockchain through four metrics, including network participation rate, number of validators, total ETH deposited and share of total ETH supply deposited. Generally, the higher these numbers are, the greater the overall security and value of the Eth 2.0 Beacon Chain. 

The second graphic above illustrates the overall health of the CoinDesk Eth 2.0 validator dubbed “Zelda.” 

Zelda has been an active participant of the network since Feb. 17. She has submitted 34,525 attestations, which are votes confirming the validity of data on the blockchain, and proposed four blocks. Rewards from attestations make up the bulk of Zelda’s daily income as a validator. However, during the rare days when Zelda is tasked with the responsibility of a block proposal, daily income can increase by up to 67% from the norm. 

Related: Ether Falls Toward $1.7K as Bitcoin’s Price Drop Weighs on Broader Market

In the weeks to come, the daily income chart featured in our second graphic will illustrate fluctuations in Zelda’s earnings as a result of her on-chain activity. 

Disclaimer: All profits made from CoinDesk’s Eth 2.0 staking venture will be donated to a charity of the company’s choosing once transfers are enabled on the network.

New frontiers: Profitability of DEXs and DeFi applications

Among DeFi applications, decentralized exchanges (DEXs) are the most profitable in terms of return for liquidity providers, token holders and protocol treasuries. 

The DeFi landscape can be broken down into three broad categories – lending, trading and asset management. These finance-focused applications generate revenue in a similar way to their traditional counterparts, like commercial banks, exchanges and hedge funds. However, by automating financial services with smart contracts and removing the large amount of human capital traditional firms require, DeFi applications can return a greater portion of their revenue to their users. 

As of July 18, the market capitalization of DeFi tokens was about $60 billion. Some of the top DeFi protocols by market capitalization, such as Compound, Uniswap and Aave, have generated a combined annual core business revenue of over $1.3 billion in the last year. According to DeFi Llama, these three projects are responsible for around 20% of “Total Value Locked” (TVL) in DeFi. TVL is a metric that captures the idle capital locked in a DeFi protocol, which can be used to borrow or to trade against, or to do both.

Using blockchain data for DeFi revenue analysis

The transparency of blockchains allows for the auditing of every on-chain transaction. Token Terminal uses blockchain data to better understand exactly what each DeFi protocol is doing with the assets they manage and how profitable their strategies are. 

Revenue data from Token Terminal is limited to the core business revenue stream of each DeFi protocol and doesn’t capture revenue from other business streams. Marc Zeller, the integrations lead at Aave, told CoinDesk in an interview that beyond revenue generated from Aave’s core business of crypto lending, the protocol has generated roughly roughly $105,000 in fees from flash loans, $234,000 from liquidations and $5.2 million in Aave and Matic liquidity mining incentives since Tuesday, July 13.

For the purposes of revenue analysis in this article, we’ll also limit data to the core business stream of each DeFi protocol. By comparing the core business revenue of DeFi protocols, we can compare the performance of DeFi categories as a whole and see how these decentralized applications match up to their competitors. This type of comparable analysis can also help investors decide which DeFi assets are overvalued and which are undervalued, relative to the market. 

Here is a list of definitions and assumptions we used in our revenue analysis:

• Revenue is the total monetary value returned to token holders, liquidity providers and the protocol treasury from *only* the core business revenue (i.e. trading fees for decentralized exchanges, borrow interest for decentralized lending protocols).
• Earnings is strictly the share of revenue that goes to token holders and the protocol treasury.
• Total Value Locked (TVL) is the difference between the total amount deposited and the total amount borrowed from the protocol.
• Adjusted Total Value Locked (aTVL) is the total amount deposited into a protocol. 

Data for these metrics were aggregated from Token Terminal, DeFi Llama, DeFi Pulse and various other DeFi protocol dashboards such as Compound and Aave. 

DEXs versus decentralized lending platforms

The most direct multiples for measuring asset efficiency are Revenue / Adjusted Total Value Locked and Earnings / Adjusted Total Value Locked. The first metric measures the return on assets for all parties, including liquidity providers, token holders and the protocol treasury. The second metric shows cash flow to the protocol alone, which is dependent on the DeFi protocol’s fee structure.

Using Revenue / aTVL to measure return on assets (ROA), Uniswap and SushiSwap, both popular DEXs on Ethereum, are sitting at 29% and 20%, respectively. Aave and Compound fall below, coming in at 2% and 2.7% at the time of writing. 

Similar to traditional finance, ROA differs significantly between industries and does not fully encompass a protocol’s success. Furthermore, because the ROA calculated in our model uses revenue only from the core business of each protocol, the resulting figure could vary if other revenue streams were added. 

Even so, ROA metrics within DeFi help visualize the return all stakeholders in the platform have historically received. Using data from the past 180 days annualized, we can see that DEXs are generally the most productive with the assets they have under management and that lending platforms require more capital to generate the same amount of revenue.

Speaking to these results, Henri Hyvärinen, CEO of Token Terminal, noted that dividend distribution models for DEXs and other DeFi protocols are still in their early stages of development. 

“The dividend distributions in the [DeFi] crypto market are a bit premature. Most of the protocols are still akin to early stage startups, where the focus should be on reinvesting the money into growth,” Hyvärinen said in an email to CoinDesk. 

Validated takes

• Anthony Di Iorio, one of the eight co-founders of Ethereum, plans to sell his blockchain software company Decentral Inc. and focus on other business ventures not related to cryptocurrencies.  BACKGROUND: Di Iorio is looking to leave the crypto industry over concerns for his personal safety. He also mentioned that he wanted to focus on “larger problems,” stating that cryptocurrencies and blockchain technology are only “a small percentage of what the world needs.” (Article, Bloomberg)
• After months of parabolic growth, the supply of dollar-backed stablecoin tether (USDT) has suddenly stopped climbing. BACKGROUND: Since the end of May, the market capitalization of USDT has stayed constant at just over $63 billion, while tether’s largest competitor, USDC, has shown modest supply growth from $22 billion to $26 billion over the same time period. One possible reason for the lack of supply growth in USDT is mounting user mistrust over the token’s reserve composition. (Article, CoinDesk)
• Long-standing cryptocurrency management platform Shapeshift is executing a radical plan to fully decentralize its operations. BACKGROUND: In efforts to convert the company into a decentralized autonomous organization (DAO) run by token holders, Shapeshift is airdropping 340 million FOX governance tokens to past ShapeShift users and several well-known decentralized finance protocols, including Uniswap and Yearn. (Article, CoinDesk)
• The Maker Foundation responsible for guiding the development of the original Ethereum DeFi application. MakerDAO has announced it too will soon shut down in efforts to fully decentralize its operations. BACKGROUND: Rune Christensen, the founder of MakerDAO, said in a blog post that the foundation will dissolve “within the next few months” as part of a plan to put more power back in the hands of MakerDAO token holders. (Article, CoinDesk)
• Ethereum is gearing up for a backward-incompatible upgrade, also called a hard fork, in early August. BACKGROUND: Recently published community resources to help prepare users and dapps for the hard fork, dubbed London, include a countdown clock and an informative data visualization. (Blog post, Ethereum Foundation)
• Ethereum Classic, a version of Ethereum created in 2016, is preparing for a hard fork this Friday. BACKGROUND: The hard fork, code named Magneto, is aimed at enabling greater compatibility with the Ethereum network by mimicking some of the code changes rolled out on Ethereum back in April. (Blog post, Etherplan) 

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BNY Mellon has backed new crypto trading platform Pure Digital, following in the footsteps of fellow U.S. banking giant State Street, the Financial Times (FT) reported Wednesday.

• The New York-headquartered lender is to join a group backing the new bank-grade trading platform that’s set to go live in the coming days.
• State Street said in April it was providing the infrastructure for Pure Digital.
• Both the banks have voiced their intention to eventually start using the platform for trading itself, the FT said.
• The U.S’s oldest and second-oldest banks respectively, BNY Mellon and State Street join four other unidentified firms in backing the new platform, trading on which will commence with a bitcoin trade “within a week,” according to Pure Digital co-founder Campbell Adams, the FT’s report said.
• BNY Mellon and State Street have both announced the formation of crypto custody divisions this year, the former in February and the latter in June.

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Bitcoin has climbed above $31,000 alongside gains in global equity markets and fresh evidence of growing demand for cryptocurrency from traditional market participants. However, it may be too early to call a trend reversal higher.

The biggest cryptocurrency by market value was changing hands near $31,300 at press time, a 5% gain on the day, according to CoinDesk 20 data. The bounce comes a day after the cryptocurrency printed its first UTC close below $30,000 since New Year’s day and may have caught out some traders.

There was concern in the market that put-option sellers might take short positions in the spot/futures market on a break below $30,000, amplifying the price drop. Further, fund holdings dropped in the lead up to bitcoin‘s break below $30,000, signaling the absence of dip demand from large investors and higher odds of a continued sell-off.

Related: Bitcoin Rebounds Above $30K; Resistance Seen at $34K

Still, the dip below $30,000 was shallow and short-lived, possibly due to the risk reset in traditional markets. The U.S. equity market jumped over 1% on Tuesday as the focus shifted from concern about the delta coronavirus variant to growth, lifting banks and industrial stocks, according to the Financial Times. Futures tied to the S&P 500 are pointing to a positive open on Wednesday, with a 0.65% gain, according to Investing.com.

Bitcoin crossed above $30,000 early today. Buying pressure strengthened, pushing the cryptocurrency above $31,000, after Financial Times reported that Bank of New York Mellon had joined State Street and four other banks in backing the planned cryptocurrency trading platform Pure Digital.

Earlier this month, BNY Mellon, the largest custodian bank, entered into an agreement with Grayscale Investments to handle accounting and administration services for the digital asset manager.  Grayscale is a unit of Digital Currency Group, which also owns CoinDesk. Many investment banks have announced plans to launch crypto services this year, citing a surge in interest from its clients.

Crypto market sentiment may have also received a boost from the crypto derivatives exchange FTX’s record $900 million fundraise at an $18 billion valuation. The big number highlights long-term conviction in the crypto industry despite bitcoin, the industry leader, losing more than half of its value since mid-April.

Related: Market Wrap: What’s Next for Bitcoin After Break Below $30K

Some in the crypto community are associating the price recovery with the impending bitcoin-centered conference “The ₿ Word” scheduled for Wednesday. According to reports, Tesla’s CEO Elon Musk, one of the most famous crypto proponents, will participate in a live discussion with Square’s CEO Jack Dorsey and ARK Investment Founder Cathie Wood.

“Bitcoin bottoming just below Elon Musk’s entry price the day before he hosts a big conference to talk about Bitcoin sounds like something that would feel very obvious in retrospect,” one popular trader tweeted.

Nevertheless, some analysts remain cautious. “Bitcoin is still just chopping around,” Joel Kruger, a currency strategist at LMAX Digital, said. “I still think there is a risk for one more decent decline, but we’d need to see a break below the June low of $28,800 to trigger such a move.”

Bitcoin still remains well below the crucial 50-day moving average (MA) resistance. “Bitcoin has been grinding lower below its down trending 50-day MA, which can be considered initial resistance near $35,000, a breakout above which would target the 200-day MA near $44,000,” Katie Stockton, founder, and managing partner of Fairlead Strategies said in the weekly research note published Monday.

On the downside, the June low of $28,800 is a key support. “Everyone is talking about $30,000 like it’s a big deal, but in reality, it’s the June low at $28,800 which is the key level to watch,” Kruger said.

A breakdown may bring a quick sell-off to the former hurdle-turned-support at $20,000. “The area between $20,000 and $30,000 is lightly traded, there is fresh air between these levels,” ByteTree Asset Management’s CIO Charlie Morris noted in a blog post published Tuesday. “Price is supposed to move slowly through the heavy areas, and quickly through the light ones.”

Also read: Institutional Demand for Bitcoin Remains Weak: Glassnode

UPDATE (JULY 21 10:53 UTC): Updates bitcoin price, adds BNY Mellon report.

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Cryptocurrency exchange Bitstamp is looking to cash in on growing stablecoin demand by adding support for tether tokens denominated in euros (EURT).

• According to a press release on Wednesday, the exchange’s European users will be able to trade, deposit and transfer without needing to access other stablecoins first.
• Bitstamp Chief Product Officer Miha Vidmar said access to EURT will save its users time and money without reducing their overall purchasing power.
• The move comes as euro-backed stablecoin demand has been increasing, with Tether rivals such as Stasis’ EURS token siphoning some of Tether’s dominant market share.
• Overall demand for USDT and EURT has somewhat lessened in recent weeks on the back of regulatory pressures in China and a rise in stablecoin competition.
• Still, Tether CTO Paolo Ardoino said he “anticipate(s) a ready uptake of EURT on Bitstamp.”
• Bitstamp, domiciled in the U.K., is the world’s fifth-largest exchange in bitcoin trading volume, according to data by Bitwise.

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Argo Blockchain, a U.K.-listed bitcoin mining firm, said it expects to sell shares in the U.S. in the third quarter subject to regulatory approval.

• The London-based company said Wednesday it submitted a draft registration statement to the Securities and Exchange Commission (SEC) for the sale of American Depositary Shares.
• The sale is subject to SEC approval as well as the state of the market and other conditions.
• The number of shares and price range have not yet been set.
• Argo announced earlier this month intentions for a secondary listing on Nasdaq, without revealing any further details.

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