Unleashing the Potential of All-in-one DEXs and Blockchain Networks

01.10.2023

Market Overview:

As we enter a new year, it is essential to assess the progress of the industry and identify new opportunities within the realm of DeFi. Based on our analysis, we have identified five segments that we believe possess significant potential and new narratives for the year 2023.

1. Ethereum Layer 2s: The popularity of Optimism and Arbitrum has been on the rise, and the launch of the first zkEVMs is imminent. While Polygon leads the way with its zkEVM testnet, we believe that Arbitrum will maintain its position as the strongest Layer 2 in 2023. The project has effectively united its community and attracted a substantial number of projects. Furthermore, we anticipate that innovation will continue to occur on the platform. Nevertheless, we are also excited to see the developments within other Layer 2s.
2. On-chain Options: Our analysis indicates that on-chain options are the next frontier in DeFi. Despite the popularity of options in traditional finance, on-chain options currently account for a daily volume of less than $10M, in contrast to the daily crypto options volume of nearly $1B on centralized exchanges. Furthermore, options protocols are working on exciting developments, such as the launch of @aevoxyz, an orderbook options DEX by Ribbon Finance set to launch in Q1-Q2, with over 100 instruments and deep liquidity through partnerships with top market makers. @dopex_io will also introduce Perps Protection to eliminate liquidation risk for leveraged trades, and @PremiaFinance designed to enable the creation of options pools without permission. These advancements are expected to attract more attention to these projects.
3. Composable protocols: Over 10 projects have joined the GMX ecosystem, and all of them have contributed to its success. Similarly, the growth of Curve was accelerated by projects built on top of it. Composability is a strength of DeFi, and we believe protocols should focus on enhancing it. We are bullish on teams that understand this concept.
4. All-in-one DEXs: Despite the recent collapse of FTX, the volume of centralized exchanges remains higher than that of decentralized exchanges. This disparity can be attributed to the absence of all-in-one DeFi apps. However, initiatives such as @vela_exchange, @spin_fi, and @vertex_protocol aim to bring a user experience similar to centralized exchanges on-chain, which we anticipate will drive more users towards DEXs.
5. Blockchain Networks: Most Layer 1s are unable to support dApps that require high transaction throughput and fees lower than $0.01. As a result, protocols such as @dYdX are migrating to Cosmos. Customizable blockchains are required for games and orderbook exchanges, and Avalanche subnets and Cosmos chains appear to be the optimal choice for these types of applications. Furthermore, Avalanche’s recent launch of Warp Messaging enables subnets to communicate with each other, enabling competition with Cosmos chains. Additionally, Cosmos’s Interchain Security, set to launch in Q1 2023, will enable smaller chains to enjoy the same level of security as the Cosmos Hub.

NFT Market News:

Art Blocks “Friendship Bracelets” Take the Top Spot in Trading Volume

A collection called Friendship Bracelets created by Art Blocks, has taken the top spot by volume amongst all NFT projects in the week following the conclusion of their mint. Art Blocks is an art collective that specializes in the minting of generative art NFTs, and is home to other popular collections such as Tyler Hobbs’ Fidenza and Matt Kane’s Gazers. The collection was conceptualized by Art Blocks founder Erick Calderon (Snowfro) and designed by artist and Japanese Generative Art Foundation Director Alexis André. The NFT’s were free to mint 2 per wallet for holders of existing Art Blocks NFTs up until the claim period ended on Tuesday 1/10. Following the end of the claim period, the collection quickly rose to the top of the leaderboard on popular exchanges such as OpenSea, Blur, and LooksRare. As of Tuesday January 10th, the collection had the highest 24-hour trading volume on Opsensea at 996 ETH (over $1.3 million) and amassed a total trading volume of 7,437 ETH (about $10 million). At the time of writing, the floor price is around 0.62 ETH, roughly $830. The Friendship Bracelet collection is also larger than most NFT projects with 38,414 pieces in total making the sustained volume all the more impressive.

According to Art Blocks, this mint is a way to give back to the community that has purchased artwork from the company’s roster of artists since its launch in 2020. “The project is a token of our appreciation to the creators, makers, builders, and collectors who have all contributed to making the Art Blocks community what it is today,” said the company on its collection page. “Participating in this project is a signal, both online and IRL (in real life), that you’re a participant in this evolution of art and community.” In addition to the digital bracelet, the token’s owners will receive instructions on how to replicate their bracelet in a physical form.

Latest News:

Hundreds of institutions and prominent individuals have invested directly in crypto, adopted the value thesis, or started building technology to support digital assets since Wave started tracking this metric in late 2020. Now the rise of the Metaverse, Decentralized Finance (DeFi), Non-Fungible Tokens (NFTs), and Decentralized Autonomous Organizations (DAOs) is driving mainstream adoption of blockchain technologies everywhere we look. We’re continuing to keep track of it every week here:

• Hong Kong authorities are looking for new designs for a central bank digital currency (CDBC), now proposing to issue a CBDC in the form of a stablecoin backed by the government. A member of their legislative council highlighted that developing e-HKD into a stablecoin would provide better integration between the CBDC and DeFi.
• The Bank of England has published answers to questions from applicants for their CBDC wallet project. The BoE includes details of the specifications and requirements for the proof of concept wallet.
• Shopify expanded its non-fungible token (NFT) integration allowing merchants to begin designing, minting and selling Avalanche NFTs. The e-commerce giant launched its first NFT integration in July 2021, allowing merchants to sell NFTs directly from their stores instead of through third-party marketplaces.
• LG Electronics has teamed up with cloud-based technology platform Oorbit and Pixelynx — a company building an integrated music, gaming and Web3 ecosystem — to bring interoperable metaverse platforms to TVs.
• Mastercard has announced a Web3 spotlight program to support the development & launch of emerging musical artists in the digital economy.

REGULATORY ROUNDUP

We’re living through the era of regulatory recognition of digital assets. The legislation, litigation, and regulation happening today will dictate the entire future of our industry, and we have a historic chance to shape those changes by staying informed and exerting political influence.

• The Bank of France’s governor, Francois Villeroy de Galhau, has called for more stringent licensing requirements for crypto companies in France, citing the current turmoil in the crypto markets. During a speech in Paris, he said France shouldn’t wait for upcoming EU crypto laws to enact obligatory licensing for local digital asset service providers (DASPs).
• The Central Bank of Nigeria (CBN) has published an 83-page report titled, “Nigeria Payments System Vision 2025”, as it considers the development of a regulatory framework for the potential implementation of a stablecoin. In addition to stablecoins the document pays attention to the regulation of initial coin offerings (ICOs) and highlights the current absence of regulation in the area.

Disclaimer: The views and opinions expressed herein are those of the author alone and do not represent Wave Digital Assets LLC or any of its affiliates (collectively, “Wave”). The author and/or Wave may hold investment positions in some of the assets discussed. Nothing in this material or linked information should be interpreted as an offer or recommendation to buy, sell or hold any security or other financial product. This material is not intended to provide accounting, legal or tax advice. Certain information contained herein has been obtained from third-party sources, has not been independently verified and should not be viewed as being endorsed by Wave. Such information is believed to be accurate as of the date of its publication. No representation or warranty is made, express or implied, with respect to the accuracy or completeness, and readers should not place undue reliance on the information contained or linked to herein. Certain statements in this material provide predictions and there is no guarantee that such predictions are currently accurate or will ultimately be realized. Past performance is not indicative of future results.

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