DeFi – Strategic Yield Farming

 

DeFi, short for decentralized finance, is a term used to describe the ecosystem of financial applications built on blockchains. It is an overlapping network of dapps and smart contracts, usually built on Ethereum to capitalize on the modularity that ERC20 blockchain platforms offer. They are typically financial apps with a focus on borrowing, derivatives, exchanges, trading, etc.

The modularity and interoperability of blockchain has allowed for increasingly denser and complex financial application systems and strategic maneuvers such as yield farming. Conceptualized in the midst of Summer 2020, the strategy has been received with much enthusiasm as ICOs once did.

The method revolves around farmers who lock up their cryptocurrency holdings into DeFi liquidity pools, which could then be exchanged or lent out for interests. Similar to staking or loans, the process rewards farmers with either fixed or variable interests for their contribution of liquidity to the DeFi market. The difference is there is no compounding. Yield farming socializes or does not carry the transaction fees to claim rewards; allowing your earned interests to continuously compound without repeated manual interactions and transactions with the smart contracts. Other benefits and incentives include accumulating low-volume, or privately traded, tokens by becoming a liquidity provider for a pool that rewards them.

By utilizing the modularity of blockchain, farmers often will maximize their profits by shifting funds amongst a number of different DeFi platforms to take advantage of the best interest rates and returns. Reward tokens can be deposited back into liquidity pools as well, and complex chains of investments can be created by redirecting yields into other liquidity pools as well which can in turn reward different tokens.

Yield farmers could quickly accumulate tokens of new projects that they adopt, and earn rewards tokens that could rapidly rise in value. Compared to interests from a traditional institution like a bank, yield farming could offer far more lucrative interests, in a much riskier environment. In the rapidly developing cryptocurrency market, there is no guarantee which adopted projects may take off, and some will inevitably fall into obscurity.

Despite the benefits that yield farmers and their liquidity pools could provide to projects, there are speculations that consider the practice as a strain on Ethereum. As the ETH blockchain is already tackling scalability issues, the concern is that increased activity caused by yield farming could cause DeFi traffic to come to a disasterous stop.

Grayscale – An Institutional Approach to Cryptocurrency

Grayscale Investments is the world’s largest digital currency asset manager and a subsidiary of the venture capital company Digital Currency Group (DCG) who also owns the digital media company Coindesk. CoinDesk also hosts a conference on digital currencies and blockchain technologies titled Consensus.

As an asset manager, the company offers its services to investors looking to invest in Bitcoin as security, without making direct purchases or managing funds themselves. Grayscale was established in 2013 and incorporated into DCG when it was formed in 2015 by Barry Silbert.

Grayscale manages multiple investment funds, each for large amounts of various cryptocurrencies such as BTC, BCC, ETH, ETC, LTC, XRP, Zcash, Stellar, etc. The most notable of these being the Grayscale Bitcoin Investment Trust (GBTC), which was the first publicly quoted Bitcoin security when it launched in 2013. The Grayscale Digital Large Cap Fund (GDLC), launched in 2018, allows customers to invest in a group of prominent digital currencies. Grayscale funds were approved for public trading by the Financial Industry Regulatory Authority in 2019, and are accessible on the OTCQX and the Trust trades under their symbol tickers, GBTC and GDLC, respectively.

FIGURE 1: MULTI-ASSET CLASS PERFORMANCE – 4Q20

This heavily influenced the company’s recent explosive growth, with the company’s asset under management (AUM) nearly tripling from $926 million to $2.7 billion, coinciding with digital asset market resurgence during Q2 2019. That number has grown to more than $24.7B in AUM as of January 13, 2021.

FIGURE 2: GRAYSCALE AUM GROWTH

Coinbase Custody, as a NY-regulated trust company, serves as the custodian for the digital assets of Grayscale since July 29, 2019.

Grayscale Investments has also begun the registration process for new trusts on additional cryptocurrencies and Defi-related assets such as DOT, AAVE, XMR, ADA, ATOM, and EOS between Dec 2020 and Jan 2021. However, the company’s Managing Director, Michael Sonnenshein, had clarified that these were “reservation filings” and does not necessarily reflect Grayscale product releases.

As fiat monetary inflation grows on a global scale, so does the demand for cryptocurrencies as more institutional investors look for alternatives. Increasing digital asset demands in conjunction with the most recent Bitcoin mining rate halving in May 2020 has left little circulating supply of BTC, and Grayscale has been a major contributor to this factor. The amount of BTC that entered the Grayscale Bitcoin Trust during 4Q20 was nearly double the amount of BTC mined over the same period of time.

 

 

FIGURE 3: GRAYSCALE BTC TRUST INFLOWS AS A PROPORTION OF MINED BTC

Grayscale’s 4Q20 Digital Asset Investment reported that their AUM held 3.31% of the circulating supply of Bitcoin at the time, with an additional $600 million purchase of 16,244 BTC in January 2021. The total estimation of BTC in Grayscale’s possession is currently 566,897 BTC at this time.

 

BitMEX Research FUD

BitMEX’s Research team recently discovered and brought to attention a double-spending attempt on the Bitcoin blockchain, and the result was widespread FUD across the cryptocurrency market.

[1/2] There was a stale Bitcoin block today, at height 666,833. SlushPool has beaten F2Pool in a race.

It appears as if a small double spend of around 0.00062063 BTC ($21) was detectedhttps://t.co/o8lz9xagYG pic.twitter.com/IEdPu8JEjt

— BitMEX Research (@BitMEXResearch) January 20, 2021

Whilst alarming indeed if it had succeeded, the blocks’ confirmation can be easily verified using the associated URL. It is quickly apparent that only one transaction request was confirmed.

This has been a thinly-veiled attempt at spreading Fear, Uncertainty, and Doubt amongst the particularly newly invested crypto participants.

Situations like this happen often as multiple stale, or orphaned blocks are abandoned when conflicting blocks are discovered. It is a fairly common occurrence.

User sent 1st transaction (T1), then sent new transaction (T2) that would replace T1.
2 blocks were found around the same time: B1 and B2. B1 included T1 and B2 included T2. In the end B1 ended up on the winning chain.
So is it really a double-spend? @BitMEXResearch

— hhuey (@hhuey8) January 20, 2021

It is not a double spend, that scenario when 2 blocks are accepted on chain at the same time happens some times, but the solution is when the blocks are getting confirmed several times, in the end the winning chain is accepted and the loosing is dropped

— Gigadig (@Gigadig1) January 21, 2021

 

Bitcoin utilizes multiple confirmations for each transaction to ensure that the block is properly verified across the vast majority of exchanges and wallets. BitMex uses a one-block confirmation method which assumes that transactions based on the first block confirmation are final, which is not entirely 100% accurate as blocks can be re-organized as further confirmations happen.

Using >=2 block confirmation to validate the transaction would save the recipient from this.

While this was likely a coincidence, this is sort of the reason why 6 block confirmations is commonly required before validating the transaction.

— Veeti Pitkoilija (@veetipitko@bitcoinhackers.org) (@VeetinP) January 20, 2021

 

This intentional misdirection is absolutely being used for nefarious means as it only takes minimal efforts to verify that the alleged double-spend did not happen, and was not confirmed within the block using https://mempool.space/.

It would be wise to take everything BitMEX Research presents with a healthy dose of salt, and cross-reference the evidence. BitMEX executives have been charged with operating in the United States illegally.

Cryptocurrency enthusiasts are 20 months beyond the greatest bull-run in crypto-history, with all time highs recorded and reported for nearly every single existing alt-coin and Bitcoin available at the time.

Fast forward to April, 2019; Brazil starts to buy Bitcoin en masse, on the heels of Venezuela opting for Litecoin just a few months earlier, as South American currencies experience waves of inflation on the global stage, driving no-coiners to the market at scale for a brief period of time. Cryptocurrency, seen as a safe haven against the politics of government-run fiat currency problems, is one of the best, if not the best, use cases for immutable digital-currency.

Bitcoin and Litecoin saw monumental bounce backs from the market downturn of 2018. Bitcoin is up nearly 400% in 2019, Litecoin hitting triple digits for the first time in what seemed like forever, and people all around the crypto-sphere start chanting “altseason, altseason… bull market”, but where’s the new money? Where’s the consumer adoption?

Outside of the BRL and Venezuela in the first 2 quarters of 2019, fiat currency pairs for Bitcoin volume, day in and day out, have been strikingly Tether/Stable coin-centric. More than 50% of all transactions in crypto have been from another “crypto”. Looking at data aggregates, such as coinmarketcap.com, tells a pretty clear story – the top 10 trading pairs for Bitcoin? Tether ($USDT).

54% by our last measurement for the summer of 2019 thus far.

With alts consuming another 25-30% of the volume as they continue to bleed red more often than not as Bitcoin’s dominance stays above 65%, market-wide.

That leaves a meager, best case average, of just 21% for fiat currencies to consume the 24 hour volume in the cryptocurrency markets. During a market adoption cycle, Tether would be, easily 10 points lower, and fiat would account for well over a third of the influx of cryptocurrency consumption, but here we are.

Factoring in the breakdown of which fiats are responsible for what in their little slice of the cryptocurrency volume:

Of course, the US Dollar is reigning, hand over fist, above all others, with the South Korean Wan coming in second. It would be expected to see larger volumes of CNY and EU, AUD, and JPY in the mix, alas, these seem quieter than typically expected. It raises the question, where’s the adoption?

With Bitcoin being over $10,000 – without a higher stake of fiat injection, it begs a few questions, actually:

• Where’s the actual adoption?
• If new fiat isn’t coming in to consume Bitcoin, how is the price over $10,000?
• Why is Tether so heavily seen as the primary driver of Bitcoin volume?

Personally, I’m a fan of Occam’s Razor, and the simplest solution is typically a path walked by a greedy few. Bitcoin needed to be over $10,000 USD for free press to hopefully entice new adoption, new no-coiners, making the flip into Crypto, injecting fiat currency at scale, therefore… it is. Thankfully a number of individuals who are “chums” in the space, like the owners of Tether, the owner/operators of exchanges, and payment gateways have things like smartphones where collaboration can occur with relative ease to fabricate market conditions at little-to-no cost to the makers of the market at scale, if things are done correctly, and by the looks of it… they are.

As for someone who tends to wield a consumer-trend-analysis hammer all day, the consumer class currently propping up the price of Bitcoin to help re-establish it’s reputation and power in the financial sectors is typical big kid with a magnifying glass over an ant-hill rubbish.

Granted, I’m not calling for a bull or bear market, the algo/bots being run right now to prop the market up make it pretty easy to spot a trend and a movement long-term in the space. It’s why the SynQ I/O team was able to project May 2019 with 88% accuracy for 192 consecutive 4 hour bars, day over day… and we did it again in June. Here’s the projection we published August 5th, 2019 to our SynQ UP community:

https://www.tradingview.com/x/nfa3UO43/

 

 

 

There has been a considerable amount of chatter in the cryptosphere in regards to the return of “Alt Season”. Undeniably, there has been a noticeable increase of consumer interest and sentiment for cryptocurrencies. However, we are of the opinion that this Alt Season isn’t going to happen the way everyone thinks it is.

There are two main reasons for our negative outlook on Alt Season:

1. Technological Development and Adoption
2. Macro Economic Influences

In this report, we will explain what Alt Season is, why people think Alt Season happens, and why it likely will not happen the way people expect in 2019 and beyond.

What is Alt Season?

It is generally agreed upon that “Alt Season” is defined as the period in which the majority of alt coins rise in BTC and USD value quickly, and outperform BTC in terms of price action. We have seen this phenomenon many times throughout the history of cryptocurrency trading, but very few understand the driving force behind it.

There has been one main Alt Season before happening in 2017. To put it simply, BTC’s price was rising rather rapidly, but its market dominance began to falter in relation to other alts. Meaning, more volume was flowing into alt coins instead of Bitcoin. Bitcoin market dominance went from above 90% to around 30% in a matter of less than 12 months. This allowed alt coins to increase in BTC and USD value. This is not the main factor, but it was one of the largest contributing factors that most industry veterans look to, today. The picture below outlines the time period in which this happened.

It is important to note that during this time there was an increased interest in alt coins because of the 2017 ICO boom, as well as the fact that margin trading had not been released yet. The large amount of money flowing freely in the market to buy alt coins, coupled with the inability to bet on the future of Bitcoin contributed to a heightened interest in alt coins to increase gains outside of BTC.

Once futures trading was introduced, attention switched back to Bitcoin and has been growing steadily since then. 

The picture below outlines when the ICO Boom happened, as well as when Futures Trading began.

Why Do People Think Alt Season is going to happen

People generally think that Alt Season is imminent because of one main factor: shared bullish sentiment – it’s the general consensus that we are in a bull market. But does that mean because we’re in a bull market, everything should be going up, right? Not exactly.

Remember that Alt Season is when alt coins generally perform well in BTC value and USD value. Another reason people think Alt Season is coming is because a few top alts are actually performing well in terms of USD value. ETH, LTC, and BNB can be included in this list. But, one main point that is missing is the fact that alts are not gaining much in BTC value during this run up. Most alt coin traders tend to track their gains in BTC. So, the USD increases are not really in the same category here.

Most people expect Bitcoin dominance to cool off and gives alts room to “moon”, as the hip kids like to say. But, as we explain further, there are many reasons for Bitcoin dominance to stay at its current levels of 60%+ or go higher.

Why Alt Season Won’t Happen

As we explained above, there are two major reasons why we think Alt Season won’t happen:

1. Technological Development and Adoption
2. Macro Economic Influences

Technological Development and Adoption

All alt coins created pre-2018 and beyond are mostly all projects founded by teams with a vision to use blockchain technology and cryptocurrencies to solve needs and problems in the 21st century. But, the promise of delivery has not been reached by many of these projects and their teams.

Many coins have fallen short of their goals, burned funding too quickly, or witnessed the majority of their funds that they raised reduced to a fraction of the value of when it was raised due to the crypto collapse in early 2018. These issues have plagued most teams, many of which are run by unproven founders who held millions in their wallets waiting to be spent. The market was dominated by pure speculation when alts were booming, but now things are beginning to get a bit different.

The times are now changing, and people are focusing less on promise, and more on delivery. The coins that deliver will eventually see a rise in value, as those who invest will invest in the outcomes of the team’s achievements. Things like product delivery, partnerships, clients, and putting their finished products in the hands of those it was built to serve are now major factors. These factors are what investors will now look for.

What this does is put alt coins in buckets of “Haves” and “Have-Nots”. This theme is not new in the cryptosphere, but it is one that is becoming more important.

The Haves will be coins like the ones I described above. LTC, ETH, BNB, and EOS would be examples of Haves. These coins have seen product delivery, investment, adoption, and verified use cases.  The Have-Nots will be coins that have done the opposite. Alt coins like XLM, ETC, DGB, and BSV are examples of Have-Nots. These coins have not seen significant development, adoption, or wise spending of capital. Don’t even get us started on Craig Wright.

2019 and 2020 will be an interesting period of time for the theme of “technological development and adoption”. We will see the market begin to look beyond speculation and promise, and begin to look to actual delivery. Core themes include:

• Token valuation: Are the tokenomics clear? Does the network truly need the token? How does the token scale for mass adoption?
• Market Leaders: Does one or a few coins lead their market vertical?
• Product Delivery: Is the team delivering on their road map? Are customers or clients using their product?
• Community: Is the community active? Is it growing? Is it toxic or helpful?

We will wait for the data to come in, but you can already see who the Haves and Have-Nots are. Haves are already winning the battle in terms of fighting for the attention economy’s focus, with Bitcoin being the clear current winner.

Macro Economic Influences

There are many major macro economic influences at play right now that are contributing to the current Bitcoin run up and subsequent calls for a bull market. Other than the fact that Libra put cryptocurrency on national news headlines, we have been seeing a global push from a plethora of regions outside of the US and Asia clambering to buy Bitcoin at scales never seen before.

One does not have to look far to see that a global trade war, threat of economic collapse in South America, poverty and corruption in Africa, and a dollar/oil war with Iran and the Middle East is on the rise. These factors push people into commodities, which BTC happens to be classified as, under a recent CFTC ruling (https://www.cftc.gov/Bitcoin/index.htm). This global attention and demand has been contributing to Bitcoin’s increase in price, as more volume comes in from around the world.

As global distrust for fiat currency and for the dollar continues, Bitcoin and other cryptocurrencies have become viable options for the impoverished who are suffering from the poor decisions of the government who controls their country. Venezuela is the easiest example to call from, but Brazil is gaining a close second. Iran had a massive increase in Bitcoin interest, which their country quickly realized and tried to put a stop to, but you can’t put a stop to Bitcoin or the Internet, so there will always be another way. Also, we have seen a large amount of interest continuing to grow from Africa.  These factors are important as we look to global mass adoption.

As you can see below, LocalBitcoins has been growing in volume and interest from impoverished countries from around the globe. Their volume is now near $50 million per week, putting them in the ranks of exchanges like Bitfinex.

There are four major types of consumers we will define to summarize this point.

1. Crypto buyers/retail investors who have been here pre-2019
2. New crypto buyers/retail investors showing up during 2019
3. Institutional and Family Office buyers
4. Impoverished Nations and/or Nations suffering political/economic turmoil

For this point we assume that consumer group #1 will be alt coin buyers if Bitcoin market dominance begins to falter. This consumer group will likely take a gamble to throw more fiat and/or bitcoin at alt coins in hopes of gaining more BTC value.

Consumer group #2 will likely buy alt coins if the bitcoin dominance begins to falter, as well, though not with extreme hast. They are still nascent and uneducated, so they may take less risk as a full group.

Consumer group #3 will likely not buy alt coins for a few reasons. Institutional and family office buyers require a risk averse strategy that comes with market liquidity and custodianship services. This consumer group will likely focus solely on Bitcoiin with potential diversification into other Top 5 alt coins that come with custodianship services and lots of liquidity for entering and leaving the market. They are more bound by the traditional rules of investment and the laws that come with it, as well.

Consumer Group #4 will likely only focus on Bitcoin, and maybe Litecoin, as we have seen in countries like Venezuela. Nations under suffering are not in this for pure investment or trading strategy. They are buying crypto to stash money away, pay for goods and services, and survival. Their money’s no good, so they need a verified alternative. They require trust and use case. Something that only Bitcoin can offer them today.

So, if 2 out of 4 consumer groups will never turn to face alts, and a portion of the other 2 consumer groups are unlikely to just jump into alt coins in their full capacity due to the risks they pose, you are left with a small consumer base to actually invest in these alt coins. Sure the market caps are low, but you need investment at scale to repeat the Alt Season of 2017. That is unlikely to happen with the macro economic factors at play

Summary

To summarize the above, we believe Alt Season will not happen in the caliber that it has happened before due to two main reasons: Technological Development and Adoption, and Macro Economic Influences. These two reasons combined create a negative market sentiment and outlook in regards to alts.

The alt coins that will perform well will be the ones that see promise in terms of product delivery, market adoption, becoming a leader, proving token valuation, and growth in community. Without these factors, alt coins will surely suffer long term.

Due to increased tensions globally, economic collapse in certain regions, and a decrease in risk appetite, we expect high cap coins, with Bitcoin being the leader, to beat most other coins in the market. There is no interest in low cap alt coins that have no adoption or cannot be used by the consumers who desperately need an economic alternative to their fiat currency, or by the wealthy investors now diversifying their portfolios with cryptocurrencies.

Disclaimer: This is the result of research done from the outside only. We have not interviewed anyone internally, nor do we have any solid proof from individual portfolio accounts. We are merely raising the question from a compelling stack of evidence as a result of mounds of comparative analysis for activity in the market for the last 24 hours.

Edits have been made of our own volition to help improve the accuracy of the conjecture surrounding our findings. The data and conclusions still stand that these market movement anomalies originated from Bittrex.com in some fashion. Whether it was an “inside job” or someone executed a manipulation from the outside is not going to be determined by SynQ I/O. We leave that to the journalists.

---

It has been one very convoluted morning. A large number of alts found themselves in the gutter within the last 24 hours, and very little of the volume was seen moving to BTC as we all expected. The usual pattern during the last BTC hard fork found traders pulling out of alt coins and parking their monetary values into BTC, yet today has been an exception. There hasn’t been a solid reason that gives a clear explanation, but the team at SynQ I/O has a lead. Basically, every single cryptocurrency (alts) listed on Bittrex has fallen in a very similar pattern in relation to one another. Not every coin, but coins that are listed on Bittrex. Between the hours of 1200 and 0900 at UTC-4 on October 8, 2017, a large number of alts experienced a mass dump executed within minutes of each other. Coincidence? We’ll let the charts speak for us.

Figure 1: Comparative Analysis

Our speculation is that an entity at [leveraging] Bittrex made a monumental mistake. Comparative analysis, completed by Syndicate.Enrique, Syndicate.Duy and Syndicate.Evan, shows that only an entity/group with a massive (nearly complete) diversification of alt-coins would have been able to create a uniform sell-off, within the exchange, in the same time frame, for the same percentages.

Bittrex: Whenever fees are assessed from Bittrex, they aren’t transferred away from Bittrex, and are more than likely not swapped to different coins (BTC or other) unilaterally when the fees are acquired. At some point, Bittrex needs to convert these fees into BTC – should they be motivated to stack their BTC bags. Considering this, it’s probable – though still speculative – that this crash was an attempt to automate offsetting their load. The result: [Someone leveraging] Bittrex dumped their bags too quickly, all at the same time. Typically, shielding this kind of activity would be the aim, using a much longer time frame to avoid creating market panic, with the side goal of also keeping prying eyes like ours from being able to dissect the market manipulation performed against investors.

We would like to give Bittrex the Bittrex System [or team / or users within in it] the benefit of the doubt, but this is way too much of a coincidence. No other exchange has experienced these patterns in their assets. Cryptocurrencies that were NOT listed on Bittrex were not affected in the same way. Every other exchange we looked at, Binance, Kraken, Bitstamp, Coinbase, GDAX, Coss, Cryptopia, Yobit – all experienced patterns that were indicative of market reaction stemming from a single source of flash sell-down: Bittrex.

Who else has a portfolio of alt-currencies so diversified that they could sell off volume in uniform succession in a limited time frame?

Argument: People are moving alts to BTC

This is mainly false. Though it is true, it didn’t happen at the scale that matches with the volumes moved from alts to BTC across any other exchange. This wasn’t a market-wide movement like we saw with BIP91 activity between June and July.

Argument: It’s just whales

If it was just whales, you wouldn’t have seen this level of diversification and havoc in every page of Bittrex. This pattern is everywhere, from page 1 through page 7. This pattern doesn’t show up on any other exchange in this fashion. Whales don’t buy LGD, come on…

Again – we are not journalists, we are analysts. We are open to discussion or other raised insights in any of our Social platforms (Facebook, Twitter or Slack).

As of 6/17/2019, the original post is lost to time. An alternative archive can be reached here for cross-reference. ( https://web.archive.org/web/20190528051115/https://thecryptosyndicate.com/opinion-bittrex-anomaly/ )