Gryphsis Cryptocurrency Weekly: Bitcoin Whirlwind Week of False ETF Approval and New Optimism

This week (2023.10.16 - 2023.10.22), the cryptocurrency space experienced a series of events, starting with a brief but sharp rise in Bitcoin prices due to erroneous reports about the SEC approving a spot Bitcoin ETF. The market's rapid response highlighted its volatility and the high risks associated with regulatory dynamics. Although the initial attention was based on incorrect information, it laid the groundwork for an increasingly deepening narrative in the financial sector:

Market and Industry Snapshot:

Layer 2 Overview:

The total value locked (TVL) space showed mixed results. While Arbitrum and Optimism exhibited positive trends, Base, zkSync, and especially Starknet faced declines. Protocols such as BoringDAO, Cian, Rehold, XY Finance, and Nostra demonstrated noteworthy percentage growth in TVL.

LSD Sector Overview:

The LSD sector remained stable. However, the ETH staking rate has noticeably slowed down recently. From a market perspective, Lido's share has remained stable, while frxETH and cbETH have seen slight increases in market share.

RWA Sector Overview:

Driven by broader market optimism, the real-world assets (RWA) sector observed increases in market capitalization and trading volume. Despite a surge in outstanding private credit value, tokenized U.S. Treasury bonds remained stable. Notable gains included $DEXTF, $POLYX, and $SMT, while $INX, $KLIMA, and $CFG suffered setbacks.

Main Topics

Macro Overview:

• US Stock V.S. Crypto

Major Events This Week:

• BTC ETF

Weekly Protocol Recommendation:

• Gravita Protocol

Gryphsis Research:

• Primer on Frax Finance

Weekly VC Investment Focus

• SynFutures ($22M)

• Forge ($11M)

Twitter Alpha:

• @0xFinish on LSD

• @stacy_muur 50 accounts to follow

• @Dynamo_Patrick Solana protocols

• @TheDefiDog on Airdrop

Macro Overview

Last week, especially Bitcoin, allowed the crypto market to outperform the stock market. The anticipation surrounding the potential approval of a Bitcoin ETF has fueled optimism, driving Bitcoin up by 10% and pushing its dominance to a new high of 52%. In the coming week, developments such as building permits, new home sales, GDP updates, and Powell's speech will be in focus.

Major Events This Week

Bitcoin Whirlwind Week: False ETF Approval and New Optimism

This week, the cryptocurrency space experienced a series of events, starting with a brief but sharp rise in Bitcoin prices due to erroneous reports about the SEC approving a spot Bitcoin ETF. The market's rapid response highlighted its volatility and the high risks associated with regulatory dynamics. Although the initial attention was based on incorrect information, it laid the groundwork for an increasingly deepening narrative in the financial sector: the growing anticipation for the SEC to approve a Bitcoin ETF.

Leading institutions, including JPMorgan and Coinbase, expressed strong optimism regarding the SEC's eventual nod. This confidence is based on recent judicial activities, such as the SEC's decision not to challenge the court ruling in the Grayscale case. The prevailing sentiment is that, despite the legal scrutiny and high-profile lawsuits, particularly for major players like Grayscale's parent company Digital Currency Group, these developments are favorable for future approvals.

But what does a potential green light for a Bitcoin ETF mean for the broader financial landscape? It represents a critical turning point - connecting the traditional financial world with the rapidly evolving cryptocurrency space. An approved Bitcoin ETF would simplify investment in Bitcoin, providing a more accessible avenue for mainstream and institutional investors, bypassing the inherent complexities and risks of direct cryptocurrency trading. This landmark moment could trigger a flood of institutional capital into the crypto space, potentially stabilizing the market and showcasing the industry's maturity.

As this week has shown, the development trajectory of the cryptocurrency industry is entirely unpredictable. The initial misleading surge in Bitcoin prices, followed by the genuine growth prospects highlighted by industry giants, underscores the dynamic nature of the field. Amid the fluctuating market sentiment, one consensus is clear: the approval of a spot Bitcoin ETF could mark the dawn of a new era. This is not just about growth within the crypto space, but about aligning this revolutionary asset class with the established financial system, potentially fostering mainstream adoption and reinforcing the industry's emerging dominance.

From this perspective, even as the crypto community navigates phases of uncertainty and scrutiny, the optimism radiated by key market participants indicates a steadfast confidence in the future - a future where the crypto industry is not merely thriving on the margins of the global financial stage but is taking center stage.

Weekly Protocol Recommendation

Gravita Protocol is a decentralized financial system that provides users with secure and efficient asset lending capabilities. At its core, Gravita employs a unique mechanism called "Vessels" to facilitate borrowing. Similar to Vaults or CDPs on other platforms, Vessels allow users to deposit collateral and then borrow GRAI, the native token of the protocol. Each Vessel is associated with an Ethereum address, with each address allowed only one Vessel per type of collateral. These Vessels maintain two balances: one for the collateral asset and another representing the debt in GRAI. As users adjust these balances by increasing collateral or repaying debt, the loan-to-value (LTV) ratio of the Vessel changes accordingly.

The protocol emphasizes the importance of maintaining a healthy LTV to avoid liquidation. Gravita implements a dual ratio system: collateral ratio (CR) and loan-to-value (LTV) ratio. CR represents the ratio of the total value of collateral to the amount borrowed, while the LTV ratio indicates the ratio of the amount borrowed to the total value of collateral. Gravita encourages users to maintain a low LTV to ensure a smooth borrowing experience and reduce liquidation risk.

System Dynamics and Stability

Gravita's stability pool plays a crucial role in maintaining the system's solvency. As a source of liquidity, the stability pool ensures that the total supply of GRAI remains backed by collateral. When a Vessel faces liquidation, the corresponding debt is offset by destroying an equivalent amount of GRAI from the stability pool, in return for which all collateral of the liquidated Vessel is transferred to the stability pool. This dynamic allows stability providers to profit from liquidations, as they can acquire collateral at a discount relative to the debt they offset.

To protect the integrity of the system, Gravita displays the system status based on the current system LTV. This status can shift from "Normal" to "Warning" and "Recovery Mode," depending on the health of the system LTV. Recovery Mode is particularly critical, as it activates when the total LTV of a specific type of collateral exceeds the maximum LTV. In this mode, certain transactions that may exacerbate the LTV are restricted, and Vessels exceeding the set threshold can be liquidated.

Fee Model and Price Dynamics

Gravita Protocol differs from many lending platforms by offering interest-free borrowing. Gravita does not charge a variable APR but instead imposes a one-time maximum fee of 0.5% for positions held for more than six months. Short-term borrowers benefit from a partial refund mechanism, where a proportionate part of the borrowing fee will be refunded if the debt is repaid before the six-month mark.

The price of GRAI, the native token of the protocol, is designed to fluctuate around its peg, with corresponding mechanisms ensuring its stability. Gravita employs a "hard peg mechanism," such as redeeming GRAI for collateral and minting GRAI at specific LTVs, as well as a "soft peg mechanism," which utilizes user behavior and protocol design to keep the value of GRAI close to $1.

Our Insight

In the surge of yield-generating asset applications, Gravita Protocol has quietly but steadily found its place. In recent months, CDP applications have been very popular, and Gravita's TVL and $GRAI minting metrics have seen significant increases. Two factors may be driving this upward trend: its user-friendly fee model and LTVs of up to 90%.

Unlike many platforms, Gravita offers interest-free borrowing. Users will be charged a one-time maximum fee of 0.5% if their positions are held for more than six months, making this fee model particularly advantageous for short-term borrowers. They can utilize the partial refund mechanism, ensuring that if they repay their debt before the six-month mark, the proportionate part of the borrowing fee will be refunded. This transparent and low-cost fee structure ensures that users can predict their costs, simplifying financial planning.

Additionally, Gravita's unique Vessel system allows users to efficiently leverage their assets. The protocol supports high LTVs, enabling users to borrow a significant portion of their collateral's value. This high LTV is particularly beneficial for users looking to maximize their capital efficiency, allowing them to unlock more liquidity than many other platforms permit.

In summary, Gravita Protocol may be the preferred choice for crypto users looking to maximize asset value. Moreover, with the recent launch of the "Gravita Ascend" rewards program, now is the perfect time for enthusiasts to delve into the protocol and earn some rewards in the process.

https://x.com/gravitaprotocol/status/1714005485475750024?s=20

Gryphsis Research Focus

Welcome to this week's Gryphsis Research spotlight, where we share the latest insights from our team. Our dedicated research team continuously explores cutting-edge trends, developments, and breakthroughs in the crypto space. This week, we are excited to share our research titled "A Primer on Frax Finance: Innovations, Products, and Future Developments," aimed at deepening your understanding of the evolving crypto world and sparking your curiosity.

Our report provides a comprehensive exploration of Frax Finance, detailing its developments, innovations, and future prospects in the DeFi space.

• Background and Introduction: The article traces the origins of Frax Finance, founded in May 2019, initially conceived as an algorithmic stablecoin protocol, which has since expanded its scope. The platform now encompasses a variety of DeFi services, from stablecoins and decentralized exchanges to more advanced services like liquid staking. The introduction emphasizes Frax's adaptability and its commitment to staying at the forefront of DeFi innovation.
• Performance Overview: This section delves into the financial performance of Frax Shares ($FXS). The article provides a chronological analysis, highlighting significant events such as the Binance listing, halving emissions, and airdrop announcements that have impacted its price trajectory. It also offers a comparative perspective, contrasting the performance of $FXS with market giants like Bitcoin and other liquid staking derivative tokens.

• Protocol Mechanisms and Products: Here, the article explains the multifaceted architecture of Frax Finance in detail. It categorizes and describes the various products of Frax. Flagship products, including Frax stablecoin ($FRAX), Frax Price Index (FPI), and Frax Ether (frxETH), are discussed in detail. The article also covers the core infrastructure supporting these products, such as Algorithmic Market Operations (AMOs), Fraxswap, Fraxlend, and Fraxferry. Each component's role and significance within the Frax ecosystem are thoroughly explained.

• Tokenomics: This section explores the complex world of $FXS tokenomics. The article discusses the multifunctionality of $FXS, emphasizing its role as a governance token. It also highlights the benefits and incentives of locking $FXS tokens, as well as the protocol's strategic approach to repurchasing $FXS under specific conditions.

• Growth Drivers and Future Innovations: The article identifies and describes key upcoming developments expected to shape the future of Frax Finance. These include the introduction of FRAX V3, aimed at enhancing the stablecoin mechanism, the launch of frxETH V2, focusing on decentralization and yield optimization, and the anticipated launch of FraxChain, a cutting-edge EVM-compatible Layer 2 solution.
• Growth Potential and Market Analysis: In this section, the article provides a detailed analysis of Frax's potential growth trajectory in the liquid staking derivatives (LSD) market. By comparing Frax's products with top LSD protocols, the article assesses the platform's potential and identifies areas for opportunity and improvement.

• Conclusion: The article summarizes the transformative journey of Frax Finance. From its inception as a simple stablecoin protocol to its current status as a multifaceted DeFi powerhouse, Frax's growth story is attributed to the relentless innovation and dedication of its team. The conclusion also emphasizes the importance of the platform's upcoming developments, highlighting their potential impact on its future trajectory.

This article provides readers with a comprehensive guide, offering a thorough understanding of Frax Finance, its achievements, challenges, and future vision in the dynamic world of DeFi.

This section provides a concise preview of our research on Frax Finance. We encourage readers to dive deeper into the full report to fully grasp and expert analysis of this captivating topic!

Weekly VC Investment Focus

Welcome to our weekly investment focus, where we unveil the most significant venture capital dynamics in the crypto space. Each week, we spotlight the protocols that have secured the most funding.

SynFutures

SynFutures, a decentralized perpetual futures exchange, has raised $22 million in a Series B funding round led by Pantera Capital, with significant contributions from SIG DT Investments and HashKey Capital. This funding brings SynFutures' total capital to $38 million and coincides with the launch of its innovative V3 platform. The platform's standout feature, the Oyster Automated Market Maker (Oyster AMM), combines the advantages of order book and AMM models, providing permissionless listings for a wide array of trading pairs. Aiming to enhance trading efficiency and liquidity in the DeFi derivatives market, SynFutures' V3 is set to establish a new standard in the crypto finance space, especially as the sector is expected to see significant growth by 2024.

https://x.com/SynFuturesDefi/status/1715974515467903089?s=20

Forge

Forge, an innovative video game platform co-founded by gaming luminaries Dennis "Thresh" Fong, Kun Gao, and George Ng, has secured $11 million in seed funding from notable investors including Makers Fund, BITKRAFT Ventures, and Animoca Brands. To celebrate and reward players' achievements, Forge allows players to merge their gaming profiles from various platforms, embark on quests through seasonal Season Passes, and earn real rewards ranging from in-game content to exclusive prizes. With strategic partnerships with games like Genopets and The Sandbox, and a commitment to expanding its game roster, Forge is poised to revolutionize how players engage with and benefit from their gaming milestones.

https://x.com/Forge/status/1714700467807416679?s=20

Protocol Updates

Gnosis Chain's total value locked doubles to $150 million after MakerDAO's Spark Protocol expansion

Ripple celebrates dismissed charges, calling it a 'surrender by the SEC'

Base open-sources code to enhance transparency

Polygon proposes 13-member 'protocol council' to supervise smart contract upgrades

Aptos resolves network issues following five-hour outage

Sui trades near all-time low amid report of South Korean regulator probe

Helix unveils pre-launch futures for upcoming tokens, starting with Celestia

dYdX won't profit from v4 as it becomes public benefit corporation

Industry Events

Vitalik Buterin says he hasn't sold ether for personal gain since 2018

Bitfinex's Ardoino expects 'quantum leap' in Bitcoin scaling solution adoption

Joseph Lubin faces lawsuit over Consensys stock value

JPMorgan expects spot bitcoin ETF approvals to come 'within months'

Jameson Lopp calls for more Bitcoin experimentation and sidechains

Circle launches gas abstraction and smart contract beta tools amid push into web3 services

Ava Labs bets on India for Avalanche growth, with new hires from Polygon and OKX

Reddit plans to sunset its blockchain-based reward service Community Points

Twitter Alpha

The crypto Twitter is filled with a lot of Alpha, but navigating through thousands of Twitter threads can be challenging. Each week, we spend hours researching to curate insightful threads and bring you a weekly selection. Let's dive in!

https://x.com/0xFinish/status/1715817922231501025?s=20

https://x.com/TheDefiDog/status/1715827840288276525?s=20

https://x.com/stacy_muur/status/1695733728121848168?s=20

https://x.com/Dynamo_Patrick/status/1715721094177476816?s=20

Next Week's Events

News Sources/References:

https://www.coindesk.com/policy/2023/10/20/sec-likely-to-approve-spot-bitcoin-etf-in-next-few-months-jpmorgan/

https://www.cnbc.com/2023/10/20/coinbase-confident-a-us-bitcoin-etf-will-be-approved.html

https://www.coindesk.com/markets/2023/10/16/bitcoin-momentarily-hits-30k-on-false-spot-etf-approval-report-leads-to-100m-liquidations/

https://blockworks.co/news/btc-price-spot-bitcoin-etf

https://finance.yahoo.com/news/fake-blackrock-etf-news-prompts-080447862.html

https://www.coindesk.com/business/2023/10/19/pantera-susquehanna-and-hashkey-back-dex-synfutures-with-22m-funding/

https://blockworks.co/news/derivatives-trading-dex-funding

https://finance.yahoo.com/news/synfutures-announces-usd22m-series-b-130000098.html

https://finance.yahoo.com/news/forge-announces-11-million-seed-170500893.html

https://www.businesswire.com/news/home/20231017612476/en/Forge-Announces-11-Million-in-Seed-Funding-Led-By-Makers-Fund-BITKRAFT-Ventures-Animoca-Brands-to-Launch-the-First-Video-Game-Platform-that-Connects-and-Rewards-Gamers-for-their-Achievements

That concludes this week's report. Thank you for reading this week's newsletter. We hope you benefit from our insights and observations.

This newsletter is for informational purposes only. It should not be considered investment advice. You should conduct your own research and consult independent financial, tax, or legal advisors before making any investment decisions. Past performance of any asset is not indicative of future results.