Market Panic Rises, Focus Shifts to DeFi and AI Agents | Frontier Lab Crypto Market Weekly Report

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Market Overview

Market Trends

Market Overview

The current market is in a state of extreme panic, with the sentiment index falling from 53% to 7%, coupled with the hawkish statement of the Federal Reserve (the expectation of interest rate cuts has dropped from 4 times to 2 times), triggering a forced position squaring of about $ 1 0, indicating that the market is experiencing a significant deleveraging process.

Development of DeFi ecosystem

The DeFi sector has experienced negative growth in TVL for the first time in nearly two months (-2.21%), but the market value of stablecoins still maintains growth (USDT + 0.55%, USDC + 1.44%), indicating that despite the market correction, basic liquidity is still flowing in, and stable income projects such as machine gun pools are sought after.

AI Agent

The market size of the AI Agent track has reached $9.90 billion, and the investment focus has shifted from speculative AI Meme coins to infrastructure buildings. This shift shows that the market is gradually maturing, and the project direction is becoming more rational and practical.

Meme Coin Trend

The popularity of the Meme coin market has significantly cooled down, and funds have begun to withdraw on a large scale, indicating a decrease in market speculation. Investors are more inclined to look for projects with substantial application value, which may mark the end of the Meme coin boom.

Public chain performance analysis

In the face of significant market fluctuations, the public chain sector has shown strong resistance to falls, becoming the preferred safe haven for investors, reflecting the market’s confidence in infrastructure remains solid.

Future market outlook

As the Christmas holiday approaches, market liquidity is expected to decrease. It is recommended that investors adopt a defensive allocation strategy, mainly focusing on BTC and ETH. At the same time, they can pay attention to DeFi stable income and AI infrastructure projects, but they need to be vigilant about the risk of increased volatility during the holiday period.

Market Sentiment Index Analysis

The market sentiment index fell from 53% last week to 7%, in the extreme panic range .

Altcoin underperformed the benchmark index this week, showing a sharp decline. Affected by leveraged positions, the market saw a forced position squaring of about 1 0 USD positions, and the long positions were significantly deleveraged. Given the current market structure, it is expected that Altcoin will keep pace with the benchmark index in the short term, and the probability of independent market movement is low.

When Altcoin is in the extreme panic zone, it often flips upward.

Overview of Overall Market Trends

The cryptocurrency market is in a downward trend this week, and the sentiment index is in extreme panic.
Defi-related encryption projects have performed outstandingly, indicating that the market continues to focus on improving basic returns.
The AI Agent track project has high public opinion this week, indicating that investors are actively looking for the next market breakthrough point.
This week, the Meme track project generally fell, and funds began to withdraw from the Meme coin project, reflecting the gradual decline in market enthusiasm for the Meme coin.

Hot track

AI Agent

The stock market is in a downward trend this week, and all tracks are in a downward trend. Although most token prices in the AI Agent track are also in a downward trend this week, they are the most discussed in the market. Previously, the market focus of AI Agent was mostly on Meme token projects with AI Agent, but now it is slowly shifting towards AI Agent infrastructure building.

Due to the fact that traditional VC coin projects are not popular in the market during this cycle, and Meme coin projects cannot bring sustained growth to the market, the AI Agent track is currently very likely to lead the market development in the future. This is because the AI Agent track not only includes AI Meme, but also many other tracks such as AI DePIN, AI Platform, AI Rollup, AI infra, etc., which can be combined with AI Agent. Essentially, each project of blockchain is a manifestation of smart contracts, and the birth of AI Agent is to improve and enhance smart contracts. Therefore, AI Agent and Crypto are the best combination.

Top 5 AI Agent Projects by Market Value

DeFi Sector

TVL Growth Rankings

Top 5 market projects with TVL increase in the past week (excluding TVL smaller public projects, the standard is more than $30 million), data source: Defilama

VaultCraft (VCX): (Recommended Index: ⭐ ⭐)

Project Introduction: The VaultCraft encryption project is a public chain project based on Algorand, aimed at reducing the cost for participants in storing and launching the network. The design of VaultCraft utilizes Algorand’s Proof-of-Stake consensus protocol.
Latest development: This week, VaultCraft launched stETH 4X leveraged Looper based on Lido Finance, which supports multi-chain deployment of Base, Arbitrum, Optimism, and Ethereum. It realizes direct staking function from L2 to the mainnet through Chainlink CCIP, providing users with up to 7% + APY income. It has also established a partnership with Matrixport and obtained 1000 BTC custody business, which has rapidly increased its TVL. At the same time, it has reached strategic cooperation with Safe and CoWSwap.

Hyperliquid (HYPE): (Recommended Index: ⭐ ⭐ ⭐ ⭐ ⭐)

Project Introduction: Hyperliquid is a high-performance decentralized financial platform that focuses on providing perpetual contract trading and spot trading services. It is based on its own high-performance Layer 1 blockchain and adopts the HyperBFT consensus algorithm, which can process up to 200,000 orders per second.
Latest development: The overall market experienced violent fluctuations this week. Before Wednesday, the market continued to create new highs. After the end of the Federal Reserve meeting on Thursday, there was a significant decline. The violent fluctuations created a very good trading environment for users who wanted to participate in contract trading and obtain high returns. As a result, many on-chain users joined Hyperliquid to participate in trading, resulting in the number of Hyperliquid non-position squaring contracts exceeding $4.30 billion. This week, in response to market demand, Hyperliquid added leverage trading functions for multiple popular currency trading pairs such as VIRTUAL, USUAL, and PENGU, supporting up to 5x leverage, attracting many on-chain users to participate in trading.

Resolv (Recommended Index: ⭐⭐)

Project Overview: Resolv is a delta-neutral stablecoin project focusing on the tokenization of market-neutral investment portfolios. Its architecture is built on economically viable and fiat-independent revenue sources, enabling competitive returns to be distributed to the protocol’s liquidity providers.
Latest Developments: This week, Resolv completed its integration with Base, significantly reducing transaction costs and improving transaction speed. It introduced lending services for USR, USDC, and wstUSR through Euler Finance and launched the USR-USDC liquidity pool on Aerodrome. Additionally, Resolv adjusted Spectra YT reward points to 15 points per day to optimize its rewards mechanism. The project also initiated its Grants Program, selecting its first three recipients. Through deep collaborations with Base, Euler Finance, and Aerodrome, Resolv has further strengthened its competitiveness in the DeFi sector.

Babylon (Not Yet Issued) (Recommended Index: ⭐⭐⭐⭐⭐)

Project Overview: Babylon is a project designed to enhance the security of proof-of-stake blockchains using Bitcoin’s robust security. Its core concept involves activating idle Bitcoin assets through a trustless staking mechanism, addressing the conflict between Bitcoin holders’ desire for asset security and participation in high-yield projects.
Latest Developments: Despite significant market volatility this week, Bitcoin’s price remained resilient at high levels. As users remain optimistic about Bitcoin’s future growth, they are increasingly inclined to hold BTC while seeking ways to unlock its liquidity. Consequently, Bitcoin-based yield projects are gaining traction. This week, Babylon advanced its application of ZK scalability technology through a collaboration with Layeredge and formed a strategic partnership with Sui to promote the development of modular ecosystems.

Lista DAO (LISTA) (Recommended Index: ⭐⭐⭐)

Project Overview: Lista DAO is a liquidity staking and decentralized stablecoin project on the BSC chain, aiming to provide staking yields on crypto assets and decentralized stablecoin lending services with LISUSD.
Latest Developments: This week, Lista DAO launched Gauge Voting and Bribe Market features, allowing veLISTA holders to influence LISTA emissions in liquidity pools. The project announced strategic partnerships with 48Club_Official and defidotapp, focusing on exploring new opportunities within the BNBChain ecosystem. It also proposed the integration of PumpBTC as collateral in the innovation zone through the LIP #012 proposal. Additionally, Lista DAO incentivized users with veLISTA reward distributions amounting to approximately $230,000 per week, high-APR compounding incentives, and a competitive lending rate of 5.25%.
In collaboration with FDLabsHQ, Lista DAO launched a winter event featuring a total prize pool of 7,000 USDT and provided slisBNB and clisBNB airdrop opportunities for BNBChain holders.

In summary, we can see that the projects with the fastest growth in TVL this week are mainly concentrated in the stablecoin income sector (machine gun pool).

Overall Performance of the Sector

Stablecoin Market Cap Steadily Increasing: USDT grew from $145.1 billion last week to $145.9 billion, marking a growth of 0.55%. USDC increased from $41.5 billion last week to $42.1 billion, reflecting a growth of 1.44%. Despite the market downturn this week, both USDT, which is primarily used in non-U.S. markets, and USDC, which is more U.S.-focused, experienced growth. This indicates that the overall market continues to see sustained capital inflows.
Liquidity Gradually Increasing: The risk-free arbitrage rates in traditional markets have been continuously declining due to ongoing interest rate cuts. Meanwhile, on-chain DeFi projects have seen arbitrage rates rise, driven by the increasing value of cryptocurrency assets. This makes returning to DeFi an excellent choice for capturing higher yields.

The TVL across various DeFi sectors (Source: DefiLlama)

Funding Situation: The Total Value Locked (TVL) in DeFi projects decreased from $54.1 billion last week to $52.9 billion this week, marking a negative growth of 2.21%, the first decline in nearly two months. This was primarily caused by a significant market downturn, which led to forced liquidations of numerous contracts and loans, resulting in a drop in TVL within the DeFi sector. This decline breaks the consistent upward trend observed over the past two months. In the coming two weeks, it will be crucial to monitor overall TVL changes closely and assess whether the downward trend persists.

In-Depth Analysis

Driving Forces Behind Growth

The core drivers of the current rally can be summarized through the following transmission pathway: the market entering a bull cycle has spurred rising liquidity demand, which in turn has pushed up baseline borrowing rates, amplifying the profitability of arbitrage loop strategies in DeFi protocols. Specifically:

Market Environment: The bull cycle has increased overall liquidity demand.
Interest Rates: Baseline borrowing rates have risen, reflecting market expectations for capital pricing.
Yield Dynamics: Returns from arbitrage loop strategies have expanded, significantly enhancing endogenous yields within DeFi protocols.This transmission mechanism has strengthened the intrinsic value support of the DeFi sector, creating a virtuous cycle of growth momentum.

Potential Risks

As the market has been in an upward trend recently, investors have largely focused on returns and leveraged borrowing while overlooking downside risks. This week, following the Federal Reserve’s unexpected adjustment of its rate-cutting forecast from four to two cuts for next year, the market experienced a sharp downturn.

This led to the liquidation of over $1 billion in contracts and borrowed assets, resulting in losses for investors. Such liquidation risks may trigger a cascade of forced liquidations, further depressing prices and liquidating more assets, potentially exacerbating the downward spiral.

Other Sector Performance

Public Chains

Top 5 Public Chains by TVL Growth Over the Past Week (Data Source: DefiLlama)

Hyperliquid

This week saw significant market volatility. Before Wednesday, the market continued to hit new highs, but after the Federal Reserve meeting concluded on Thursday, there was a sharp decline. The dramatic fluctuations created an ideal environment for users seeking high returns from contract trading. As a result, many on-chain users turned to Hyperliquid, driving the platform’s open interest to exceed $4.3 billion.

To meet market demand, Hyperliquid introduced leveraged trading features for several trending tokens, including VIRTUAL, USUAL, and PENGU, supporting up to 5x leverage. This attracted a considerable number of on-chain users to participate in trading.

Bitcoin

The market hit new highs earlier this week but experienced a significant downturn after Thursday. While most assets suffered considerable price drops, BTC fared relatively better. Investors turned to Bitcoin as a safe-haven asset, leading to increased purchases.

The market’s confidence in Bitcoin’s future price growth has strengthened, encouraging users to hold BTC more resolutely. Many users opted to deposit their Bitcoin into BTCFi projects to earn additional yields. Consequently, Bitcoin’s TVL also saw a noticeable increase.

BSC (BNB Chain)

This week, BNB Chain made notable advancements by introducing new projects into its ecosystem, such as Seraph_global, SpaceIDProtocol, and cococoinbsc. It actively promoted the integration of AI and Web3 in the gaming sector and supported the growth of Meme projects. Key initiatives included:

Launching the Meme Heroes LP Program, providing $50,000 in liquidity support for the CHEEMS and $HMC projects.
Initiating daily Memecoin airdrops for projects like GOUT, MALOU, BUCK, and $WHALE Hosting a $200,000 Meme Innovation Contest to foster creative developments in the space.

AILayer

This week, AILayer focused on community engagement and ecosystem partnerships:

Collaborated with OrochiNetwork to conduct a giveaway event.
Launched a Mini App Leaderboard Campaign to boost user participation.
Organized interactive activities such as the “Would You Rather Challenge” and “Riddle of the Week” to sustain community engagement.
Held an EP31 AMA session titled “How AILayer is Revolutionizing Bitcoin with AI”, showcasing the project’s vision of combining AI and blockchain.

Mantle

Mantle achieved a significant milestone by integrating Compound III, introducing $USDe borrowing functionality with ETH and BTC as collateral options. Key initiatives included:

Expanding the Mantle Scouts Program to include 40 top industry scouts.
Launching the Mantle Meetup Program and the Moe’s Rager incentive campaign, offering a total of 1 million MNT as rewards.
Through its Yield Lab Program, Mantle successfully attracted over 110,000 users, generating a total of 2.5 million transactions, driving substantial on-chain activity for the network.

Top 5 Tokens by Growth in the Past Week

(Excluding tokens with low trading volume and meme coins. Data Source: CoinMarketCap)

This Week’s Gainers: Concentration in the Public Chain Sector

UXLINK

UXLINK secured a strategic partnership with DuckChain and investment support from UFLY_Labs this week to jointly develop the Social Growth Layer (SGL). The LINE platform surpassed 2 million users, and UXLINK achieved a historic high in trading pairs on Upbit.

Additionally, UXLINK launched a large-scale airdrop campaign worth $500,000, covering more than 20 Web3 projects. Collaborative initiatives with platforms like OKX continued to attract new users to the ecosystem.

USUAL

This week, Usual introduced the innovative USD0++ Holder Incentive Vault and a delta-neutral strategy, offering users an impressive APY of 76%-82%. Its pools on Curve, particularly USD0/USD0++ and USD0/USDC, maintained high and stable yields, averaging over 50%.

Usual’s TVL saw rapid growth, increasing from $750M to $800M. Following the conclusion of the third-week rewards program, TVL increased by 44%, while the minting rate decreased by 28%, introducing a deflationary effect on the USUAL token. The Usual team emphasized its commitment to transparency, allocating 90% of tokens to the community and ensuring 100% of DAO revenues remain with the community.

MOCA

Moca launched version 3.0 this week, introducing the concept of “Integrated Accounts” and unveiling the AIR Kit to address fragmented user identities on Web3. Moca also entered a significant partnership with SK Planet, integrating Moca into the OK Cashbag app, giving it access to 28 million users in South Korea.

Additionally, the MOCA token is set to list on major South Korean exchanges Upbit and Bithumb. By deepening its collaboration with Nifty Island and launching the Fixed Mode to optimize the MocaDrop mechanism, the project has significantly enhanced user experience and ecosystem engagement.

HYPE

Amid the week’s market volatility, the Federal Reserve’s Thursday announcement led to a sharp decline after a series of new highs earlier in the week. These fluctuations created an excellent environment for high-yield contract trading, prompting many on-chain users to join Hyperliquid. The platform’s open interest exceeded $4.3 billion.

Hyperliquid responded to market demand by adding leveraged trading pairs for popular tokens like VIRTUAL, USUAL, and PENGU, supporting up to 5x leverage, which attracted a large influx of users.

VELO

Velodrome partnered with Sony Block Solutions Labs to integrate with the Soneium platform, a next-generation Layer 2 solution built on the Optimism Superchain. Significant progress was made in liquidity provisioning, with inkonchain locking 2.5M veVELO and offering $1.4M in incentives.

Furthermore, Velodrome provided liquidity support for Mode Network’s proxy tokens, further solidifying its position in the ecosystem.

Meme Token Gains Ranking

This week, the Meme project was greatly affected by the market downturn. In the first half of the week, it did not follow the market’s rise. After the decline on Wednesday, it followed the market’s sharp decline, resulting in few Meme coins showing an upward trend this week. It is obvious that the current market attention and funds are not in the Meme coin track.

Social media hotspots

According to the data of the top 5 daily growth in LunarCrush and the top 5 AI scores in Scopechat, this week (12.14–12) Statistical Data:

The most frequent theme is L1s, and the token situation on the list is as follows (excluding tokens and meme coins with small trading volume) :

According to Data Analysis, the L1s project received the most attention on social media this week. After the Federal Reserve lowered its expectation of next year’s interest rate cut from four times to two times on Thursday, there was a significant decline, and the entire market followed the trend of decline. Among them, the decline of each public chain was smaller than that of other tracks. When the entire market experiences a general decline, the performance of each public chain is often better than that of other tracks. In addition to buying BTC and ETH for hedging, most market investors still invest in various public chains. When the decline ends and there is a rise, each public chain generally rises before other projects.

Overall overview of market themes

According to the weekly return rate statistics, the Cefi track performed the best, while the Gamefi track performed the worst.

Cefi track: In the Cefi track, BNB and BGB account for a large proportion, accounting for 86.07% and 5.45% respectively, totaling 91.52%. This week, Binance has been continuously listing new coins, maintaining a more influential token in the market every day, which has introduced a lot of traffic to Binance. At the same time, BNB has performed better than the market, falling by 2.58%, stronger than BTC and ETH. At the same time, Bitgit has recently performed well, continuously listing hot tokens. Its token BGB has risen against the trend by 37.93% this week, which has driven the performance of the entire Cefi sector.
Gamefi Track: During this year’s cycle, the Gamefi track has not received much attention from the market, resulting in little capital and traffic entering, resulting in the lack of wealth creation effect in the Gamefi track, which has led to its decreasing attention. The overall proportion of IMX, BEAM, GALA, SAND, and AXS in the track is as high as 82.14%. The performance of these coins was weaker than the market this week, resulting in the worst performance of the Gamefi track.

Next Week’s Crypto Events

Thursday (December 26) US jobless claims at the beginning of the week.

Outlook for next week

Macro factor analysis Next week, entering the US Christmas holiday, there are few macro data releases. In previous years, when entering the Christmas and New Year holidays, the market dominated by the US would experience a decrease in purchasing power and an increase in market volatility.
Sector rotation trend DeFi track: Although the current market environment is poor, investors generally expect a general rise in the market in the first quarter of next year, so most investors are still unwilling to sell their tokens. At the same time, in order to increase their holding income, they have participated in machine gun pool projects to increase their income. AI section: The AI Agent track continues to attract market attention, and the market size has reached $9.90 billionThe integration of Web2 and Web3 ecosystems is accelerating, and the integration process of data networks and functional AI agents with existing encryption products is accelerating.
Investment strategy advice: Maintain defensive allocation, increase allocation of top assets BTC and ETH, and enhance the safe-haven attributes of assetsWhile hedging risks, you can participate in some high-yield machine gun pool Defi projectsIt is recommended that investors remain cautious, strictly control positioning, and do a good job in risk management.