Gryphsis Cryptocurrency Weekly: SEC Delays Spot Ethereum ETF Application

Market and Industry Snapshot

Layer 2 Overview:

Last week, Layer 2 saw a growth of 3.78% for zkSync Era, while the rest showed a downward trend. Protocols like Promethium, Rigoblock, Messina Bridge, XY Finance, and StarkDefi demonstrated notable TVL growth percentages.

LSD Sector Overview:

In the LSD sector, Ethereum deposits and total withdrawals both saw a slight increase, but withdrawals were more pronounced. In terms of market share, all blue-chip LSDs experienced a significant decline, with sfrxETH showing the most notable drop of 23.31%.

RWA Sector Overview:

Last week, the market value of real-world assets remained relatively unchanged, but the 24-hour trading volume saw a significant increase of 18.02%. The tokenized treasury and tokenized U.S. Treasury bonds experienced slight declines in value. Notable growth tokens include $WECO, $MIMO, and $BRTR, while tokens like $FFM, $SMT, and $EPOCH faced substantial losses.

Main Topics

Macroeconomic Overview:

• US Stock V.S. Crypto

Major Events This Week:

• SEC Delayed Ethereum Spot ETF Application

Weekly Protocol Recommendation:

• Peapods

Weekly VC Investment Focus:

• Axiom($20M)
• Dopamine($4.5M)
• Synonym($1.5M)

Twitter Alpha:

• @poopmandefi on Celestia
• @MoonKing___ on Surfboard
• @stacy_muur on Flare Network
• @DeRonin_ on LBPs
• @KingWilliamDefi on DePIN

Macroeconomic Overview

This week, the stock market saw SPX and NASDAQ grow by 1.05% and 0.62% respectively. In the coming week, attention should be paid to major events such as JOLTs job openings, CB consumer confidence index, manufacturing PMI, FOMC statement, and Federal Reserve interest rate decisions.

Major Events This Week

SEC Delayed Ethereum Spot ETF Application

Grayscale and BlackRock are currently the companies attempting to launch a spot Ethereum ETF, but the U.S. Securities and Exchange Commission (SEC) has delayed Grayscale Investments' application to convert its Ethereum trust product (ETHE) into an exchange-traded fund (ETF); a day earlier, it also delayed BlackRock's application.

The SEC has traditionally opposed spot cryptocurrency ETF products, only allowing a series of spot Bitcoin ETF products to be listed in the U.S. for the first time in January. The delay in any decision regarding Grayscale's application on Thursday was not surprising, and BlackRock's application was similarly delayed.

Before the SEC approves spot Bitcoin ETF applications, issuers and exchanges need to start submitting updated documents to address various questions from regulators. This week's documents raised the question of whether a spot Ethereum ETF is similar to a spot Bitcoin ETF.

"Do commenters believe that the arguments supporting the listing of a Bitcoin ETP apply equally to Shares?" "Are there unique concerns regarding ETH's susceptibility to fraud and manipulation due to specific characteristics related to ETH and its ecosystem, including its proof-of-stake consensus mechanism and concentration controlled or influenced by a small number of individuals or entities?"

Other questions focus on market manipulation, whether the spot market and futures market are related, and whether the CME futures market has significant scale, among others, which are similar questions the SEC raised when reviewing Bitcoin applications.

https://www.coindesk.com/policy/2024/01/25/spot-ether-etf-applications-decisions-delayed-by-sec/

Weekly Protocol Recommendation

Welcome to our weekly protocol segment—here, we focus on protocols that are making waves in the crypto space. This week, we chose Peapods, an on-chain index fund product that helps users manage multi-chain crypto assets and achieve arbitrage.

Peapods is a decentralized, permissionless, trustless on-chain volatility mining protocol that does not rely on oracles or external price sources, allowing users to unlock yield opportunities for any liquid asset by leveraging the endless volatility of the crypto market. In simple terms, users earn liquidity mining incentives in $PEAS by creating/joining liquidity pools. When users deposit multiple assets, the platform wraps them into a single ERC-20 token, referred to as "pods" within the Peapods ecosystem.

$PEAS is the native token of the protocol, with a maximum supply of 10M, of which 88% is provided by users in Uniswap for $PEAS/$DAI liquidity, and the remaining 12% is allocated for team unlocks.

In traditional farming protocols, the yield from mining comes from minting new coins, and the income may be offset by the issuance volume. In Peapods, tokens do not have an inflation mechanism or can be minted; they are already minted at the time of contract deployment.

The main source of fees for the protocol comes from wrapped fees, which users pay when (un)wrapping, and this portion of protocol revenue will be used to purchase $PEAS in the market, while the remaining part will be burned, rewarded to LPs, or token holders, etc.

Source: Website

For example, in the pPEAS pod, users must first hold $PEAS, which the platform will wrap into $pPEAS before depositing. During this process, the platform charges a 1.5% wrap fee; of course, users can also directly purchase $pPEAS from other DEXs, but they will still need to pay a 0.5% purchase fee. In this pool, for instance, 50% of the burn fee is used to purchase $PEAS, creating buying demand that allows $PEAS holders to enjoy token appreciation, while users holding $pPEAS directly may not benefit as much, indirectly encouraging users to purchase $PEAS.

The fee mechanism of Peapods not only brings appreciation benefits to holders but is also crucial as a key trigger for arbitrage mechanisms throughout the entire system.

Source: Official Doc

The user's original asset is TKN, and the asset after wrapping by the platform is pTKN. However, due to the fees charged during (un)wrapping, the actual amount of pTKN received will decrease, but since the total value of the held pTKN must equal the value of the original asset, the differing quantities will inevitably lead to price discrepancies between pTKN and TKN, creating arbitrage opportunities.

Our Insights

Peapods belongs to the Yield track, currently ranking in the top 5 for daily growth rate and around the top 10 for TVL, achieving a fivefold increase in TVL around January 26. The product has generated $2.5M in fees, totaling $2.2M in revenue.

Source: Defilama

The most important aspect of Peapods is the price divergence between TKN and pTKN caused by the wrap mechanism, leading to arbitrage opportunities. This arbitrage trading volume drives an increase in protocol revenue through (un)wrap fees, allowing all participants to profit in the process.

• Arbitrageurs gain the spread
• The $pPEAS charged due to wrapping or unwrapping is burned, increasing the value of $pPEAS, benefiting holders;
• The remaining fees are used to purchase $PEAS tokens in the market, benefiting all $PEAS holders;
• 10% of the market-purchased $PEAS is burned, helping to reduce the total supply;
• 90% of the market-purchased $PEAS is distributed as rewards to users providing liquidity;

As the market prices of all assets are in constant flux, users and MEV bots continuously seek arbitrage opportunities. The Peapods protocol leverages this by creating arbitrage opportunities to increase liquidity. With the existence of Pods, arbitrageurs now have the necessary secondary market, allowing price discrepancies to occur between the same assets, thus providing them with arbitrage opportunities.

Weekly VC Investment Focus

Welcome to our weekly investment focus, where we reveal the most significant venture capital dynamics in the crypto space. Each week, we will highlight the protocols that have received the most funding.

Axiom

Axiom is a ZK co-processor that allows smart contracts to access and process all on-chain data in a trustless manner. It is a protocol that processes data off-chain and then transmits this data to the Ethereum mainnet, using ZK proofs for verification.

https://x.com/axiom_xyz/status/1750534080842928284?s=20

Dopamine

Dopamine is a crypto investment application favored by both beginners and experts, providing users with access to all the information they need (browsing all tokens, reading whitepapers, learning about teams, progress, events, etc.), interacting with peers, trading on DeFi protocols, and accessing their favorite crypto tools and projects.

https://x.com/CoinDesk/status/1750504320880062583?s=20

Synonym

Synonym is a universal cross-chain credit layer for DeFi professionals, built on Wormhole, Arbitrum, and Circle. Synonym allows users to lend and earn yields on any chain through a seamless interface.

https://x.com/synonymfinance/status/1750171980803051637?s=20

Protocol Events

Aleo mainnet set to come within weeks with lofty goal of bringing privacy to crypto

Worldcoin 'seyeball scanning Orbis getting an Apple-style makeover

Synthetix deploys firstperpetuals protocol on Base blockchain

Polygon aims to launch'AggLayer' focused on blockchain interoperability in February

Solana Labs releasestoken extensions for SPL token standard on Solana network

Industry Updates

US files intent todispose $117 million in bitcoin seized from Silk Road drug dealer

SEC delays decision timeline for BlackRock's proposed spot Ethereum ETF to March

BIS confirmstokenization project as part of six projects for 2024

Coinbase urges US Treasury toreconsider bulk data reporting in proposed crypto mixing rules

OSL executive says Hong Kong coulddebut spot crypto ETF by mid-year

Twitter Alpha

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

https://x.com/poopmandefi/status/1725094175979548991?s=20

https://x.com/MoonKing___/status/1750161835116970374?s=20

https://x.com/stacy_muur/status/1750420288771371489?s=20

https://x.com/DeRonin_/status/1750583770481090836?s=20

https://x.com/KingWilliamDefi/status/1750578494604538283?s=20

Upcoming Events

News Sources

++https://www.theblock.co/post/274350/synthetix-deploys-first-perpetuals-protocol-on-base-blockchain++

++https://www.theblock.co/post/274296/polygon-agglayer-blockchain++

++https://www.theblock.co/post/274574/us-files-intent-to-dispose-117-million-in-bitcoin-seized-from-silk-road-drug-dealer++

++https://www.theblock.co/post/274163/solana-labs-releases-token-extensions-for-spl-token-standard-on-solana-network++

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

You can follow us on Twitter and Medium for instant updates. See you next time!

This weekly report 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 does not guarantee future results.