Monthly Review
Sep 26, 2023

Monthly Review - December 2022

Monthly Review - December 2022

This Month in Crypto: Executive Summary

Markets continued to crumble over the past month on the back of the aftermath of the FTX and Alameda Research debacle, which included skepticism around Proof of Reserves presented by centralized entities like Binance. Crypto’s total market cap decreased by almost 7% over the past month, settling at slightly less than $800B. Over the past month, Bitcoin and Ethereum dropped by nearly 4% and 8%, respectively, outperforming the top 15 cryptoassets within the industry’s major sub sectors. As seen in the chart below, Solana was among the most affected by the second-order effects of the market turmoil, with a monthly performance of almost -30% in both price return and total value locked (TVL). Metis and Boba are the only cryptoassets within the range to have achieved positive growth in TVL, which can be attributed to Metis’ builder mining plan incentivizing decentralized apps to build on the Layer 2’s blockchain.

Figure 1: Price and TVL Development of Major Crypto Sectors

Source: 21Shares, Coingecko, DeFi Llama. Data as of December 31.

Key takeaways from this report:

  • Former CEO of collapsed FTX Sam Bankman-Fried released on bail, charged with eight counts of wire fraud and conspiracy.

  • Ethereum withdrawals targeted for March

  • Visa building an automated recurring payment system on Starknet, Polygon one step closer to unleashing its zkEVM

  • Bitcoins held in miners' balances have reached a 14-month low

  • Perpetual Protocol introduces revenue sharing, 1Inch protects users against MEV, and zkSync to welcome, the decentralized exchange,Curve Finance to its ecosystem

Spot and Derivatives

Figure 2: BTC Funding Rates


If we look at the derivatives market, BTC funding rates have been consistently positive since December 16, indicating that many investors are positioned to the upside after the market downturn caused by the FTX debacle in November (see Figure 2).

On-chain Indicators

Figure 3: Bitcoin’s Market Value to Realized Value Ratio (MVRV)

Source: Glassnode

Figure 3 above shows BTC's market value to realized value. "Market value" refers to market cap, while "realized value" refers to the cost basis of supply. Historically, high MRVR ratios have coincided with market tops, while values below one have preceded past cycles' bottoms. The MRVR ratio for the past month has been at levels not seen since March 2020 and February-March 2019, in the final stages of the past bear market.

Macro and Regulations

Macro: The Fed raised its key interest rate by 50 basis points, making the federal funds rate lie between 4.25% to 4.5%, its highest level in 15 years. The latest move, though lower than the previous 75 basis point hikes, will further increase the risk of a recession. On that note, the Fed thinks sharply higher rates are still needed to fully tame the 40-year-high inflation and get inflation down to the 2% mark.

FTX in Court: Former FTX CEO Sam Bankman-Fried (SBF) was arrested in The Bahamas over charges involving wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy, and money laundering. The arrest occurred right before the first Congress hearing investigating FTX, which confirmed many speculations, including that FTX was using customers' funds and that Alameda Research was dipping into FTX's pockets. SBF was extradited to the US to stand before the court for an arraignment and bail hearing. Charged with eight counts of wire fraud and conspiracy, SBF was released on a $250M bond collateralized with his parents' California house, which raised questions about the federal bail process. On December 18, Gary Wang (co-founder) and Caroline Ellison (CEO of Alameda) pleaded guilty to counts of fraud and conspiracy. The US Department of Justice is reportedly investigating FTX for siphoning funds out of the US. New York prosecutors also launched a market manipulation probe on SBF. According to a Wall Street Journal article, SBF is likely to plead not guilty to these charges at his arraignment on January 3.


  • Hong Kong: Ahead of listing its first crypto ETF, Hong Kong announced it would apply the same rules of traditional finance to crypto exchanges in its new amendment to the Anti-Money Laundry and Terrorist Financing bill, calling for a virtual asset service providers (VASPs) licensing regime. With the amendments coming to effect in June 2023, the bill could act as a stepping stone to a more comprehensive legislative proposal published in October, which is what many spectators have been anticipating. Titled ‘Policy Declaration on the Development of Virtual Assets,’ the proposal suggests several pilot projects to evaluate and, in turn, improve the underlying technology of these cryptoassets in question.

  • UK: Meanwhile, UK regulators are adding more restrictions to the anticipated Financial Services and Markets bill for crypto services from abroad. The Treasury is finalizing a package of guidelines that will give the Financial Conduct Authority (FCA) the power to monitor the operations and advertising of crypto companies in the country and will also dictate the criteria through which an off-shore crypto company can be admitted - if at all. On the brighter side, Miami-based crypto payments solution Moonpay got regulatory approval from the UK.

  • US: Senators Elizabeth Warren and Roger Marshall introduced a new bill proposal titled “Digital Asset Anti-Money Laundering Act” that would expand KYC to crypto users and target self-custody wallets, inaccurately referred to as unhosted wallets in the text. On another note, the Warren-Marshall bill has been criticized for its outdated authoritarian measures, which include that protocols buying, selling, and exchanging cryptoassets should be able to verify the identity of each customer by name, date of birth, physical address, and phone number of each counterparty to the transaction. These protocols – dubbed “Digital Asset Kiosks” in the Act – will also be asked to provide the FinCEN with their physical addresses quarterly. The proposed bill aims to classify the following as money service providers:

  • Custodial wallets
  • Self-custody wallet providers
  • Cryptocurrency miners
  • Validators
  • Other nodes who may act to validate or secure third-party transactions, independent network participants, including MEV searchers, and other validators with control over network protocols.

The Warren-Marshall bill represents a crackdown on individual freedom and raises serious privacy concerns. Also, if passed, the bill could drive crypto-related innovation away from the US. In contrast, Tom Emmer wants to restart lobbying for his bipartisan Blockchain Regulatory Certainty Act, which asserts that blockchain entities that never custody consumer funds are not money transmitters.

  • Brazil: On another note, Brazil former President Jair Bolsonaro approved a cryptoasset regulation bill on December 22 that will come into effect 180 days after the approval to allow crypto companies to adapt to the new guidelines. The new law establishes that wire fraud involving cryptoassets will have a penalty of four to six years in jail plus a fine. It also creates a "virtual service provider" license, which digital asset companies like exchanges must request. Furthermore, the Brazilian Securities and Exchange Commission (CVM) will now supervise cryptoassets deemed as securities. Those cryptoassets that do not fall into that category will be overseen by another yet-to-be-created body.

  • Bitcoin mining. Bitcoins held in miners' balances have reached a 14-month low, according to data gathered by Glassnode. These levels indicate that Bitcoin miners are increasingly selling their holdings to cover costs unless they have already filed for bankruptcy. The Bitcoin mining industry also received some good news on the back of the announcement made by Japan's largest power company, TEPCO, which is set to mine Bitcoin with excess energy. Kazakhstan issued a new law that mandates that miners can only purchase electricity from the power grid when there is a surplus and only from an auction. In addition, a ban on advertising crypto transactions will also be introduced along with special procedures for secured assets' regulation by analogy with securities. In the US, one of the largest publicly traded Bitcoin miners, Marathon Digital, is expecting to recover $22M out of the $50M it had deposited into bankrupt Compute North. On December 21, Bitcoin miner Core Scientific filed for Chapter 11 bankruptcy while Greenidge, another mining company, reached an agreement with its creditor, fintech firm NYDIG, to restructure approximately $74M worth of debt.

Figure 4: Bitcoin Miners’ Balance

Source: Glassnode

Crypto Infrastructure

Figure 4: Top Layer 1 Performance in Q4

Source: 21Shares

Layer 1s:

  • Ethereum: The Ethereum Foundation announced that the ETH Ropsten testnet would be fully shut down by the end of December as the network no longer replicates the production-ready environment of Ethereum. ETH Core developers have also set March 2023 as the target for the Shanghai upgrade, to which they will enable withdrawals. In addition, Ethereum is becoming resilient as it is experiencing a diversification of its client software alongside its MEV relayers. For example, the Nethermind client market share has jumped to 10.2%, reducing GETH's dominance from 80% to 75%. Meanwhile, UltraSoundMoney and GnosisDAO joined the MEV boost business as the newest relayers. Finally, Phantom, the Solana-focused wallet, revealed its plan to expand its non-custodial service to the Ethereum and Polygon ecosystems, a move that echoes and signifies the importance of EVM-based networks as we head into the multichain world.

December's Github activity has also confirmed that proto-danksharding will be the next major technical milestone to tackle following the withdrawal implementation. "Sharding" is a computer science concept that refers to splitting up the network into smaller portions to improve the efficiency of processing transactions. However, Danksharding improves on this layout by instead focusing on allocating space for 'blobs' of data rather than mere transactions, which is suitable for data-hungry rollups. Thus, the mechanism would introduce what is known as "data availability sampling" and should help push the network's decentralization forward, and is critical to fully realizing sharding later down the network's roadmap.

  • Algorand: The research center on Innovation and Finance at the University of Milan chose Algorand to build its new digital guarantees platform as part of the country's National Recovery Plan. Supported by the Bank of Italy and the insurance authority IVASS, the platform is expected to offer an improved infrastructure for banking and insurance guarantees. A mechanism that is seen as an alternative to providing collateral as banks or insurance companies promise to cover loans in case of a borrower's default. The L1 is now better equipped to host this innovative offering following the September upgrade, which increased its transactional throughput to 6,000 TPS and introduced state proofs - facilitating interoperability.

  • Avalanche: In other news, Avalanche released the mobile version of its 'core' wallet. The non-custodial solution enables a one-stop shop to access DeFi and metaverse ecosystems across a plethora of blockchains, including EVM-compatible networks and bitcoin. The wallet also supports in-house swapping and bridging from external networks, combined with seamlessly creating subnets. With Core now existing as a mobile, web and chrome extension, Avalanche is taking important steps towards setting up an interconnected experience that should help drive the network's adoption forward as it abstracts the complexity of having to utilize a list of disjointed protocols to actualize some of the aforementioned on chain activities.

Figure 5: Top Layer 2 Performance in Q4

Source: 21Shares

Layer 2s:

  • BitDAO: BitDAO publicized a new ETH L2 chain called Mantle. The solution differs from typical monolithic networks in that it separates the execution layer from the data availability layer, along with transaction execution and settlement. The uncoupling allows networks to scale up with demand, all without sacrificing their security or decentralization. To that end, BitDAO is expected to leverage the EigenDA protocol for data availability, with 2023 as the soft target for its public testnet launch.

  • StarkNet: In similar news, StarkNet announced their mainnet alpha was upgraded to v0.10.2, combined with revealing what is known as the 'performance roadmap' that should shed light on the steps the L2 will implement to refine the network's execution. Regarding StarkNet, Visa submitted a new proposal to set up automatic recurring payments on top of the network. The proposed system would leverage a new feature known as "account abstraction," a core tenant of the Ethereum roadmap yet to be implemented on mainnet. The giant payment company chose Starknet as the network already has this feature.

  • Polygon: Looking beyond, Polygon continued to be the driving force behind the adoption of blockchain. Flipkart, the Walmart-majority-owned e-commerce website, entered a strategic partnership with the L2 to explore commerce use cases and accelerate technology's adoption. Part of the alliance will be setting up a Blockchain-eCommerce Centre of Excellence to scrutinize how Web3 can transform the commerce experiences for millions of users. Polygon also announced that it had begun a comprehensive audit of its zkEVM rollup which cleared the way to inaugurate the second testnet of the solution. The final version leverages repercussions, which will aid Ethereum in scaling up exponentially on the back of parallel execution.

  • ConsenSys: In that regard, ConsenSys added fuel to the heated-up zkEVM race as it joined the slew of protocols rallying to launch the first truly complementing scalability solution to Ethereum. Although the leading ETH infrastructure company revealed its private beta testnet on December 12, with more than 150K signing up to test the network's experimental playground, they will begin onboarding users in January instead. The time gap will prompt users to start interacting with the L2's ecosystem of dApps - soon to be announced.

Decentralized Finance

Figure 6: Performance of Top 10 DeFi Protocols in Q4

Source: 21Shares, DeFi Llama

Ethereum Ecosystem:

  • The MakerDAO community rejected a $500M proposal to invest in bonds with CoinShares. The decision was supposed to mirror the previously-accepted move taken by the blue-chip protocol to invest $1.2B of its treasury’s USDC into Coinbase prime and earn a 1.2% annual yield on its deposit. In addition, the community correspondingly hiked the annual savings yield for DAI to 1%, up from 0.01% after 72% agreed to the proposed changes. Further, Maker’s community approved a new proposal to deposit $5M DAI into Compound to increase generated revenue and forge stronger relations between the industry’s blue-chips to storm the current brutal market conditions.

  • Perpetual Protocol introduced USDC fee sharing. The governance vote, which passed on December 13, will now see the reallocation of 15% of trading fees toward vePERP holders. As a reminder, Vote Escrowed (VE) system is a model that fosters long-term alignment between projects governance and their voting, where users lock their tokens in exchange for a synthetic VE token. They can then be used to increase their governance power, and foster increased participation. The size and period of their lockups determine how much more governance power is accrued to the user. Looking at Perpetual Protocol, establishing fee sharing is a critical step towards realizing the notion of real yield within DeFi and a step away from the mercenary and unsustainable yield built around high token emissions.

  • Curve Finance chose zkSync as the first layer 2 to host its exchange service. Launching on mainnet next year, Curve will begin development during the fair onboarding alpha phase along with hundreds of other protocols. This is a key development as Curve has played an integral part in DeFi due to offering composability and stability over the more speculative aspects the sub-industry has been associated with. As such, expanding the protocol’s support towards the emerging L2 will help inject further capital and deepen liquidity across its ecosystem.

  • Uniswap is about to enable voting on the ‘fee switch’ debate after starting the conversation in July. The proposal seeks to examine the community’s reaction to redirecting a portion (10%) of the liquidity providers' earnings towards UNI token holders; however, only across the three biggest DEX pools (ETH-USDT 5bp, DAI-ETH 30bp, & USDC-ETH 100bp). Although the proposal overwhelmingly received positive support, some are concerned that it might affect liquidity on the exchange as LP’s revenue could be affected, swaying them to take their capital elsewhere. However this view doesn’t consider that a portion of LPs are also token holders. Uniswap is also considering modifying its governance mechanism process to reduce the friction that brings about important topics forward to a vote. Moreover, Uniswap collaborated with Moonpay to offer purchasing crypto (USDC, USDT, WBTC, WETH, and DAI) directly with credit cards in addition to the already existing providers like Transak or Wyre.

  • 1inch, the infamous DEX aggregator, released a tool to protect users against front-running attacks. Known as RabbitHole, the tool will embody a custom RPC endpoint enabling users to send their trades directly to validators, rather than have it queue on the Ethereum blockchain’s set of unconfirmed transactions called the mempool. Typically, validators could reorder and re-prioritize certain transactions over others, ranked by transaction cost to increase revenue.

  • TraderJoe, the leading DEX on the Avalanche network, will expand into Arbitrum. The move again echoes the conviction that Ethereum and its complementing ecosystem will have the most substantial network effects across the entire crypto verse. The protocol is expected to launch on mainnet in early 2023

  • Jewel bank, the first digital-asset bank in Bermuda, will be releasing a fully-collateralized stablecoin pegged to the US dollar on top of Polygon. The bank is to publish monthly and quarterly audits of its reserves and will be looking to leverage the network for stablecoin-based commercial payment solutions.

Figure 7: Performance of Major Stablecoins in Q4

Source: 21Shares, DeFi Llama

The Solana Ecosystem: The Solana ecosystem attempted to shrug off the turmoil catalyzed by its dependency and heavy reliance on the FTX and its associated entities. For example:

  • Maple Finance, Solana’s biggest uncollateralized lending platform, cut ties with Orthogonal Trading after concluding they misrepresented their positions and were effectively insolvent without external funding.

  • On the bright side, Orca, Solana’s largest DEX, inked a partnership with the global payment solution Stripe to enable an onramp for fiat-to-crypto conversion.

  • That said, the network still has a long way to go before recuperating from the damage done, most recently evidenced by the Raydium exploit. The second largest DEX lost a total of $4.4M after a hacker gained access to a private key and authorized the collection of withdrawal fees from pool swaps.

Alternative Layer1s:

  • Cardano to greet the first decentralized exchange to its ecosystem as Adaswap deployed on the network’s mainnet. This is critical for the ETH competitor as DEXs are the access points enabling users to participate in their embryonic DeFi and metaverse universes.
  • Binance Smart Chain: New proposal was published seeking to deploy Uniswap V3 on the Binance Smart Chain. The move is advantageous to the second-largest chain by TVL as it introduces the benefits of concentrated liquidity to the ecosystem and helps traders and liquidity providers capture the most value for their capital. A feature that BNB’s biggest DEX PancakeSwap doesn’t offer. That said, the proposal is expected to last for another week before it enters the temperature check stage and proceeds toward the actual vote.

Metaverse and NFTs

Figure 9: Performance of Major NFTs Marketplaces in Q4

Source: 21Shares, Dune Analytics

Polygon: Polygon was on a roll this month with partnerships, like the one with Flipkart and Jewel Bank; another was the network’s partnership with Warner Music Group, which is launching music NFTs through the upcoming LGND platform Polygon. LGND Music is an innovative music and collectibles platform that will support digital collectibles from any blockchain in a proprietary player, allowing consumers to play their digital collectibles, or “Virtual Vinyls,” on the go. Odyssey, the Starbucks Web3 rewards program, also launched on Polygon to complement the brand’s existing loyalty program. Accrued points will transform into Polygon-based NFTs or’ journey stamps’. Solana’s biggest NFT marketplace MagicEden has been pushing towards a multichain future with its support for Polygon-based NFTs minting. This effort has been brewing since November 22, when MagicEden first announced adding support for NFT trading on Polygon. In quite a timely manner, also announced its DeFi wallet allows users to store Polygon-based NFTs.

Figure 10:

Source: Nansen

Data from blockchain analytics platform Nansen indicated that first-time and returning buyers per day in Polygon’s NFT market reached new all-time highs in December. That contrasts with the status quo in marketplaces based on Ethereum and Solana, whose users have been dropping by hundreds of thousands over the past few months. In addition, two of the most popular NFT projects on Solana, DeGods and Y00ts, announced that they would be enabling the migration of their collection from Solana to Ethereum and Polygon. DeGods will be moving to Ethereum and Y00ts to Polygon. Interestingly, Y00ts’ volume would make up 41.4% of Polygon’s NFT Volume. We believe we could see a continuation of this trend and more projects moving to Ethereum and its Layer 2s as the success of the merge dismisses the competitive advantage of competing blockchains.

Next Month’s Calendar

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