Frontier Lab Crypto Market Weekly Report | W38

BTC and ETH Weekly Overview

Market Performance

This week, the cryptocurrency market experienced a rebound:

• Bitcoin: Bitcoin showed an overall upward trend this week. After the Federal Reserve announced a 50 basis point interest rate cut, the subsequent dot plot revealed that the median interest rate expectation for the end of 2024 is between 4.25% and 4.50%. This indicates that the next two rate meetings will likely result in a 50 basis point cut, which exceeded market expectations. During a speech following the announcement, Jerome Powell clarified that the rate cut was not due to an economic recession but because the U.S. economy remains strong. The market also chose to believe that the rate cut was preemptive and defensive, not recession-driven, which boosted optimism about future prospects. Investors who had previously been cautious entered the market, driving prices higher.
• Ethereum: Ethereum’s performance this week was weaker than Bitcoin, with its rebound lagging behind the broader market. This was primarily due to Vitalik’s speech at the Token2049 conference, where he did not provide any clear opinions on Ethereum’s future development roadmap or substantial construction plans. As a result, market pessimism about Ethereum persisted, leading to a continued decline in the ETH/BTC exchange rate. The market’s negative sentiment toward Ethereum has reached a peak recently, with funds flowing away from the Ethereum network to other blockchains, causing its price to remain sluggish.

Key Events

The Federal Reserve’s First 50 Basis Point Rate Cut:

• On September 19, the Federal Reserve announced a 50 basis point rate cut, marking the beginning of its rate-cutting process. The subsequent dot plot indicated that the Fed expects to reduce rates by a total of 100 basis points by the end of 2024, which implies a 25 basis point cut during both the November and December meetings. Additionally, the terminal rate is forecast to be lower than the expected 3.1% by 2026. Market concerns that the rate cut was in response to an economic recession have eased, and confidence in future market performance is gradually being restored.

Lack of Constructive Opinions from Ethereum at Token2049:

• At this week’s annual Token2049 conference, Vitalik represented Ethereum in a keynote speech. However, he did not address Ethereum’s future development roadmap or offer substantial insights on upcoming projects. This further fueled market pessimism about Ethereum’s outlook, causing the ETH/BTC exchange rate to continue its downward trajectory, reaching its lowest point since 2021.

Altcoin Market Overview

Overall Performance

This week, the market sentiment index rebounded sharply, rising to 87%, a significant increase from last week’s 65.5%. The Federal Reserve’s rate cut this week fueled market optimism, leading to a further rebound in token prices. As a result, market sentiment shifted from greed to extreme greed.

The Altcoin market followed the overall market trend with an even stronger rebound. This was largely due to predictions from Nick Timiraos, the Federal Reserve’s “mouthpiece,” who anticipated a 50 basis point rate cut on Thursday. As expected, the Federal Reserve cut rates by 50 basis points, and Powell’s subsequent speech, along with the dovish dot plot, bolstered market expectations for the future. Some investors gradually returned to the market, while Ethereum continued its weak performance, with capital flowing out and into other ecosystems.

However, investors should be cautious, as Altcoin sentiment has now reached extreme greed levels, indicating a high level of risk in the market.

Overview of Public Chain TVL Growth

The following are the top 5 public chains in terms of TVL (Total Value Locked) growth over the past week (excluding public chains with smaller TVL), with data sourced from Defilama.

Fantom: Fantom is an EVM-compatible blockchain known for its high performance, enhanced by innovations on the Opera mainnet. Recently, it was rebranded as Sonic and has been actively increasing user engagement through various on-chain activities. This week, Sonic launched Sonic Gateway, an official cross-chain bridge that eliminates third-party and centralized risks. Sonic guarantees the security of this bridge, enabling users to transfer assets between Sonic and Ethereum within an hour. Given Ethereum’s recent struggles, including ecosystem issues, some users have left Ethereum, and Sonic, being compatible with Ethereum, has attracted a portion of these funds. Sonic’s frequent user engagement activities have led to a significant increase in Fantom’s Total Value Locked (TVL) in recent weeks.

Manta: Manta is a Layer 2 solution on Ethereum, utilizing Zero-Knowledge (ZK) technology with a primary focus on the GameFi sector. Recently, the chain has been incubating and attracting various GameFi projects, providing financial support to emerging GameFi ventures. However, there hasn’t been any other significant news for Manta beyond this.

Core: Core is an innovative blockchain compatible with EVM. Recently, it introduced LstBTC, an ERC-20 liquid staking token pegged 1:1 to Bitcoin. LstBTC ensures Bitcoin liquidity while allowing holders to earn daily rewards in CORE tokens. Additionally, due to the weakened Ethereum ecosystem, attention and capital have shifted to the BTCFi sector, particularly with the launch of the Babylon mainnet, which focuses on Bitcoin-based DeFi. The acceptance of LstBTC by projects like AVS further encourages users to stake their BTC in LSD projects to boost their yields, leading to a rapid increase in TVL across BTC-focused LSD platforms.

Base: Base is an Ethereum Layer 2 solution backed by Coinbase, built on OP Stack. Activity on Base has surged recently, with daily transaction volumes surpassing $4.5 million this week. Notably, USDC transactions on Base in September have already reached half of the USDT trading volume on Tron. This week, Solv Protocol successfully deployed on Base, allowing users to mint SolvBTC using Coinbase’s cbBTC for various Bitcoin staking activities. As a result, Base has also benefited from the BTCFi trend, with its TVL increasing rapidly.

Osmosis: Osmosis is a DEX (Decentralized Exchange) built on the Cosmos ecosystem, offering independent and interoperable Layer 1 capabilities. As the market continues to rise, more users are participating in DEX trading activities on Osmosis, which has led to higher liquidity provider rewards and increased participation in liquidity provision. Additionally, OmnityNetwork announced a partnership with Osmosis, bringing ckBTC to its trading pairs, facilitating secure cross-chain Bitcoin transfers and enhancing liquidity and interoperability across DeFi. The growing popularity of the BTCFi sector has also indirectly contributed to an increase in Osmosis’s TVL.

Overview of Project TVL Growth

Top 5 Projects with the Highest TVL Growth in the Past Week(Excluding projects with smaller TVL, the standard being over $30 million) Data Source: DefiLlama

Veno Finance (VNO):

• Overview: Veno Finance is a decentralized liquid staking protocol. Users can stake CRO, ATOM, ETH, and TIA, receiving interest-bearing LST tokens (LCRO, LATOM, LETH, LTIA) on each respective chain. These LST tokens compound automatically and are freely usable in the Cronos and zkSync Era DeFi ecosystems.
• Recent Developments: Veno Finance has been improving its products, recently offering liquid staking infrastructure services on Cronos zkEVM. Users are rewarded with zkCRO when using Veno Finance.
• Staking Rates: CRO: 7.4% ATOM: 16.63% ETH: 3.85% TIA: 9.97% These rates are higher than the native staking yields on CRO, ATOM, ETH, and TIA networks. However, only ATOM and ETH provide sufficient arbitrage opportunities due to rate differences between staking and borrowing.

Elixir (No Token Yet):

• Overview: Elixir provides liquidity directly to order books, bringing liquidity to long-tail crypto assets. Any exchange can draw liquidity from Elixir.
• Recent Developments: Elixir has partnered with Sei to launch fastUSD, a native yield-bearing stable asset. Users can swap deUSD for fastUSD and provide liquidity on Sei’s ecosystem. Additionally, users minting deUSD with USDC earn 1.7x points, while those using Morpho for borrowing can receive 5x points.

Rho Markets (No Token Yet):

• Overview: Rho Markets is a native lending protocol on the Scroll ecosystem, offering lending services for LRT assets, ETH, wBTC, and other mainstream assets.
• Recent Developments: Rho Markets has entered into multiple partnerships, allowing users to earn 5–10% bonus points on borrowing through partner projects. The platform supports a wide range of assets, including ETH, USDT, USDC, wstETH, wrsETH, weETH, uniETH, USDe, and SolvBTC.b, with competitive borrowing rates ranging from 2.02% to 5.68%, lower than most competitors.

Aerodrome (AERO):

• Overview: Aerodrome is a DEX on the Base chain, utilizing an AMM model and Ve(3,3) mechanism.
• Recent Developments: The rising activity in the crypto market this week has driven up DEX trading volumes across chains, including Aerodrome. Aerodrome redistributes 100% of its revenue to veAERO holders, boosting their APY. The platform also offers substantial mining rewards, incentivizing liquidity mining and attracting more users.

Colend Protocol (No Token Yet):

• Overview: Colend is a lending protocol on the Core chain, focusing on liquid staking token (LST) assets related to Bitcoin to drive the Bitcoin-Fi sector.
• Recent Developments: Core recently introduced LstBTC, an ERC-20 token pegged 1:1 with Bitcoin. LstBTC holders maintain Bitcoin liquidity and earn CORE tokens daily, leading to a significant increase in Core’s TVL. To unlock LstBTC’s liquidity, users have turned to Colend Protocol, resulting in a rapid increase in Colend’s TVL this week.

Top Performers of the Week

Top 5 Gainers in the Market Over the Past Week (Excluding tokens with low trading volume and meme coins, data source: Coinmarketcap)

This week’s top-performing tokens did not exhibit a “sector concentration” pattern, as the leading gainers came from various sectors such as SocialFi, Yield Aggregation, BTC-L2, L1, and GameFi. Below is a summary of the standout tokens and their developments:

UXLINK:

• Overview: UXLINK is a Web3 social platform and infrastructure based on social relationships. It aims to create an integrated social ecosystem that includes a Web3 portal, a decentralized social exchange, and supporting infrastructure, with seamless integration into Telegram.
• Recent Developments: This week, UXLINK was listed on the Upbit exchange in South Korea, and it launched a 75x leverage futures contract on Binance. After being listed on Upbit, its trading volume surged, at one point becoming the most traded asset on Upbit.

REEF:

• Overview: REEF continues its development in the DeFi ecosystem but had no major positive news this week.
• Recent Developments: Notably, REEF experienced a negative fee rate on Binance futures contracts this week, reaching as low as -1%, which incentivized traders to take short positions and indirectly influenced its performance.

CKB (Nervos Network):

• Overview: Nervos Network is a BTC-L2 project that uses a UTXO model.
• Recent Developments: Last Friday, CKB was listed on Upbit, and its price surged by 360% at its peak on Upbit, creating significant price differences across exchanges. Binance even suspended withdrawals temporarily. CKB’s popularity peaked, and this week the momentum continued, fueled by a presentation at Token2049. Additionally, Nervos launched the test version of its Fiber Network protocol, a Lightning Network implementation, drawing attention and traffic to the project.

SAGA:

• Overview: Saga is a Cosmos-based L1 project that focuses on the gaming and entertainment sector, allowing developers to launch interoperable parallel chains.
• Recent Developments: This week, Saga announced plans for a new token economic model. Highlights include users not having to pay gas fees, all transaction fees being refunded to developers, and the ability for developers to build at zero cost. Although details have yet to be fully disclosed, this announcement generated interest and drove attention and funding toward the project.

BIGTIME:

• Overview: BigTime is a large multiplayer online role-playing game built on Ethereum.
• Recent Developments: After a prolonged period of inactivity, both Big Time and the GameFi sector had been largely overlooked by the market. However, after a price surge on Upbit last week, Big Time regained market attention. Given that its price had fallen significantly over the past year, many saw the current price as undervalued, leading to continued strong gains this week.

Overall, this week’s top gainers saw significantly larger increases compared to last week, demonstrating that after the Federal Reserve’s unexpected rate cut, the market shrugged off recession concerns and regained confidence in future price rises. This broad optimism contributed to the impressive performance of tokens from various sectors.

Meme Token Leaderboard

Data source: Coinmarketcap

This week, the broader market maintained an upward trajectory, with the Meme coin sector also following suit and entering a growth phase. After the Federal Reserve’s interest rate cut, optimism about the market’s future outlook grew, leading many previously cautious investors to re-enter the market.

Although Meme tokens did rise along with the broader market, their growth rate was noticeably lower compared to other Altcoins. This suggests that after the earlier Meme coin frenzy, the market has begun to approach Meme projects more rationally. The hype and speculative fervor that once surrounded Meme coins seem to have cooled, with fewer investors joining the speculative wave. This shift indicates a more cautious and measured approach to Meme projects compared to previous cycles of rapid hype-driven price increases.

Social Media Hotspots

The theme that appeared the most frequently was Layer 1 (L1s). The tokens that made the list are as follows (excluding tokens with low trading volume and meme coins):

Data Sources: LunarCrush and Scopechat

According to data analysis, the Layer 1 blockchain projects that garnered the most attention on social media this week generally followed the market’s upward trend, and their performance this week was notably stronger than the broader market.

This is primarily because, during the first half of this year, many Altcoin tokens experienced significant declines, with most dropping by over 50%. Following the Federal Reserve’s interest rate cut this week, investors have become more optimistic about the market’s future outlook and have re-entered the market, looking to invest in undervalued tokens that have experienced steep declines.

Additionally, after internal disagreements within the Ethereum community regarding its future development path, market participants have gradually shifted their focus to various public blockchain projects. As a result, market capital has started flowing into these public blockchains, causing most of them to show strong performance this week.

Topic Tracking

Data Source: SoSo Value

According to weekly return rates, the GameFi sector performed the best, while the RWA sector had the worst performance.

• GameFi Sector: Within the GameFi sector, the IMX project holds the largest market share at 31.76%, followed by BEAM at 11.15%. This week, the price of IMX increased by 16.92%, while BEAM rose by 9.08%, contributing to the overall growth of the GameFi sector. Additionally, since GameFi projects did not perform well earlier this year and saw significant declines, the rebound following recent gains has been quite strong.
• RWA Sector: Influenced by the Federal Reserve’s interest rate cut, both the dollar index and bond market yields fell this week, resulting in a decline in the yields of the RWA sector, which primarily focuses on real asset returns. Consequently, many investors moved away from RWA projects and sought higher-yielding investments, leading to a relatively poor performance for the RWA sector this week.

This Week’s Market Discussion Trends

Future Development of BTCFi

• Recently, due to internal disagreements within the Ethereum ecosystem regarding its development direction and the core team’s lack of imagination and innovation for future growth, market sentiment towards Ethereum has become increasingly pessimistic. This skepticism about Ethereum’s future has prompted more users and projects to leave the Ethereum ecosystem, with a noticeable shift of capital and attention toward the BTC ecosystem. Currently, the BTCFi sector largely mirrors the development path previously taken by the Ethereum ecosystem, primarily focusing on BTC’s Restaking.
• The market discussion centers on three main points: Continued DeFi Development: Will the BTC ecosystem follow in the footsteps of Ethereum’s ecosystem and continue down the DeFi path, potentially taking over the DeFi leadership in the crypto market? Focus on Babylon: Currently, the BTC ecosystem is largely centered around Babylon. Similar to the significance of Eigenlayer for Restaking, is it reasonable to place the future development of a multi-trillion-dollar ecosystem on a single project? Can BTCFi’s AVS genuinely contribute to the security of market projects? VC Attention and Strategy Shift: With venture capitalists continuously monitoring the BTCFi sector’s development, should BTCFi learn from the lessons of the Ethereum ecosystem’s transition to infrastructure building, which has resulted in subpar ecosystem growth? Should the focus shift from infrastructure development to the actual application projects within the BTC ecosystem?

Topic Tracking

BTCFi

Reasons for Optimism:

• This week, liquidity aggregation platforms within the BTCFi sector, including Solv Protocol, BedRock, Lorenzo, and PumpBTC, have shown significant momentum. The TVL increases for Solv Protocol, BedRock, Lorenzo, and PumpBTC this week are 8.2%, 20.1%, 10.82%, and 36.67% respectively, indicating rapid growth in BTCFi project TVL.
• Recently, the centralized exchange Coinbase launched a BTC-based wrapped asset, cbBTC, and has been actively promoting it on the Base chain. After ten days of promotion, cbBTC has become the second-largest trading token among BTC-based LSTs, showcasing the substantial impact of Coinbase’s strong entry into the BTCFi sector.
• Within the BTCFi space, other BTC-L2 projects like Nervos Network have also launched a complete test version of the Fiber Network underlying protocol, indicating that various segments within the BTC ecosystem are thriving.
• BTCFi is not limited to BTC-L2 projects; initiatives from the Ethereum ecosystem, such as Solv Protocol and Pendle, as well as Colend Protocol on the Core chain, are also entering the BTCFi sector.

Current Sector Situation:

• BedRock supports the liquidity staking of uniBTC while allowing users to stake wBTC for base yields, with the option to use uniBTC to participate in other DeFi projects.
• Solv Protocol has launched solvBTC.BBN based on Babylon, enabling users to stake BTC for dual rewards from both Babylon and Solv Protocol. It has also expanded into other DeFi areas, supporting lending, trading, NFTs, and Restaking applications.
• Lorenzo Protocol, building in Babylon, has introduced a principal and interest separation service for BTC, similar to Pendle. Users can stake BTC for base returns while also using stBTC and YAT for liquidity provision or staking, or as collateral for lending.
• PumpBTC allows users to mint pumpBTC using other LSTs. Participants can earn multiple rewards, including Babulon points, PumpBTC points, FBTC points, and Staking APR. It has integrated with Zircuit and Fuel, enabling users to deposit PumpBTC for extra points. Users can also provide liquidity on DEXs such as PancakeSwap, Curve, and DODO.
• Kinza Finance enables users to deposit BTC to mint kBTC, earning Kinza points and Babylon rewards, while also allowing lending in the Kinza money market.
• Nervos Network’s CKB lightning network Fiber Network has launched a complete test version of its underlying protocol.

Next Week’s Crypto Events

• Tuesday, September 24: Super Return Asia 2024
• Friday, September 27: U.S. Core PCE Price Index YoY for August; Final Consumer Sentiment Index from the University of Michigan for September
• Sunday, September 29: Zhao Changpeng’s release from prison

Outlook for Next Week

• Bitcoin: Following the Federal Reserve’s announcement of a 50 basis point rate cut this week, the subsequent dot plot indicated that the median expected rate for the end of 2024 will be between 4.25% and 4.50%. This implies that the next two meetings will likely see a 50 basis point reduction, exceeding market expectations. In Powell’s subsequent remarks, he clarified that this rate cut is not due to an economic recession, as the U.S. economy remains strong. The market has chosen to believe that this cut is proactive rather than a reaction to a recession, leading to optimism about future prospects. Investors who had been on the sidelines have begun to enter the market, driving prices up. BTC has also benefited from the positive sentiment surrounding the Fed’s actions this week. As the market enters a rate cut cycle, asset prices are expected to rise with increased liquidity, although it will take time to release sufficient liquidity into the market. Therefore, BTC is expected to experience a brief correction after this week’s rise, followed by a period of consolidation.
• Ethereum: Ethereum’s performance was weaker this week, with the ETH/BTC exchange rate dropping to a low of 0.038, the lowest in nearly three years. This is partly due to Vitalik’s speech at the Token2049 conference, where he did not address Ethereum’s future development roadmap or substantive construction plans, leading to continued pessimism regarding Ethereum’s prospects. This pessimistic sentiment has peaked, with funds moving away from the Ethereum chain to other public chains, posing significant challenges to Ethereum’s ecosystem development. It is anticipated that ETH will perform worse than BTC in the near future, with the ETH/BTC rate likely to continue declining.
• Altcoin: Although Altcoins rose in tandem with the broader market and outperformed it, there was no unified market hotspot among them. Emerging sectors are still in their early stages and not fully developed, leading to a dispersed flow of funds that fails to create a strong focus on any particular sector or project. The market remains relatively loose, viewed as a strong rebound from prior significant declines. A positive sign is that, following the Fed’s rate cut, market investors have shifted their expectations for the future and are gradually increasing their confidence. Moving forward, we need to monitor whether a market engine similar to the DeFi summer can emerge to drive Altcoins upward. It is expected that next week, Altcoins will continue to follow BTC’s lead, amplifying its price movements.