This week I researched Ethereum competitors and tried to understand, how they compare to each other, when looking at a metric called “Total Value Locked”:
The “Total Value Locked” of a protocol is simply taken as the sum dollar valuation of all collateral deposited in that specific application, regardless of its functionality. As such, TVL enables money markets like Aave to be compared with Decentralized Exchanges like Uniswap. TVL has become the de-facto way to measure DeFi adoption.
The first thing that I noted – Ethereum dominated a year ago with 94% market share when looking at TVL metric, but situation has changed a lot since then. Ethereum is still the leader with $113B in TVL, but that translates to only 60% from total market:
So which are the top Ethereum competitors when it comes to DeFi?
- Ethereum: 59.83%
- Terra: 6.8%
- BSC: 6.27%
- Fantom: 4.86%
- Avalanche: 4.53%
- Solana: 4.28%
- Polygon: 2.47%
- Tron: 2.05%
- Cronos: 1.04%
Polkadot has seen the biggest growth in last month when it comes to TVL, but at the same time it is also the most “expensive“ – if you look at Mcap/TVL ratio, for Polkadot it is 6.25x higher than in case of Ethereum. It is also easy to grow fast when numbers are smaller and Polkadot has not reached even 1% of market share yet.
At the same time Fantom has seen 100% growth in TVL in last month while other chains with market share above 2% have seen on average -25% declines in TVL. What is even more interesting – at the same time it is the “cheapest“ if you look at Mcap/TVL ratio: it is only 0.55 while others are closer to 2.5:
What about performance in last 30 days? Just like the rest of market, Fantom has lost value, but a bit less than others:
Maybe there is a simple explanation why some chains have significantly lower or higher Mcap/TVL ratio when compared to Ethereum and I am not aware of it yet, but the 3 factors taken together: TVL growth, almost 5% market share and lowest Mcap/TVL ratio seem good enough for me to bet $500 on Fantom this week.
My first week’s pick $KP3R is not doing very well. It is down -12% while BTC and ETH positions are up. Hard to beat BTC with this kind of performance, but let’s see – maybe situation will improve as time goes on.
So this week I am adding Fantom to my portfolio, and filled these orders:
- Bought $350 worth of Bitcoin
- Bought $150 worth of Ethereum
- Bought $500 worth of Fantom
What would Hayes do?
Arthur Hayes, co-founder of BitMEX, is a bit skeptical about altcoin performance in next 3-6 months and has 2 good blog posts where he describes his views:
I don’t have hard data on this, but my hunch is that there are billions of dollars worth of Bitcoin and Ether currently pledged as collateral. Holders deposited Bitcoin / Ether and received dollars in return. These dollars were used to buy assets such as cars or houses, as well as punt altcoins. If you believe we are in a bull market and you already own the benchmark, as a trader, it makes sense to lever up and purchase an altcoin that could easily pump 10x if Bitcoin rises another 10%.
Regardless of whether you purchased a sick pad or more SHIB, if Bitcoin or Ether falls 20% to 30%, you will be forced to sell assets and raise Bitcoin or Ether in order to avoid forced liquidation. The contraction of the fiat price of the benchmark assets will cause some traders on the margin to indiscriminately dump their altcoin positions, regardless of whether they are in the money or not. This is the power of the last price influenced by marginal weak hand sellers.
It doesn’t take much marginal selling pressure to prick the hopium bubble. Fuck all those high farming APYs – as soon as the underlying shitcoin starts pooping, everyone will head to exit to monetise their unrealised gains. Even if only a small slice of traders acquired their altcoin positions in a leveraged fashion, on the way down it will be hard to find bids in size due to the illiquidity of these coins. Remember, big door in, small door out.
At the same time, he expects that Fed will resume an easy money policy soon enough:
I believe that, politically, 7% unemployment is worse than 7% inflation. The Fed and their political handlers may soon be forced to choose between more goods and wage inflation or job losses if this sector of the credit markets blows up. My bet is on a resumption of easy monetary policies, which as we know is positive for the crypto markets. Market conditions change very quickly, and should the market believe the Fed does not have their back in the corporate bond sector, spreads will widen rapidly.
Worst case, the party gets going again after November. Neither US political party actually wants to halt the rise in asset prices. Both parties prove their value by shouting to the world: “I was in power, and the S&P 500 rose!” It makes everyone rich, and keeps your wealthy donors happy. After the plebes go through the theatrics of voting and expressing their displeasure at the skyrocketing cost of living, they can be forgotten about until the next election. The government will then get back to the business of pumping financial asset prices with printed money. It’s the business model of America, and one that must be maintained due to the structure of the global economy.
Stocks & Bitcoin moving together?
If anyone thinks that it might be a good idea to buy crypto to diversify your stock portfolio – you should note that since 2020 there is an increased correlation between both, so if stock market crashes, same might happen with crypto assets.
Before the pandemic, crypto assets such as Bitcoin and Ether showed little correlation with major stock indices. They were thought to help diversify risk and act as a hedge against swings in other asset classes. But this changed after the extraordinary central bank crisis responses of early 2020. Crypto prices and US stocks both surged amid easy global financial conditions and greater investor risk appetite.
For instance, returns on Bitcoin did not move in a particular direction with the S&P 500, the benchmark stock index for the United States, in 2017–19. The correlation coefficient of their daily moves was just 0.01, but that measure jumped to 0.36 for 2020–21 as the assets moved more in lockstep, rising together or falling together.
- Total Value Locked in Fantom is growing fast even in a bear market and Fantom has comparatively low valuation, when looking at Mcap/TVL ratio
- Arthur Hayes is holding mainly BTC, ETH and waiting for the market to bottom, is skeptic about altcoin performance in next 3-6 months.
- Stocks and crypto as risk-on assets might move together, so you can expect that Fed monetary policy will have big impact on both.
Author: Kristaps Mors, kristapsmors.com