Welcome to the Crypto.comMonthly Research Roundup Newsletter!
1. Market Index
For May, the monthly price index was positive at +14.84%, while the volume and volatility indices were negative at -8.20% and -7.02%, respectively.
2. Charts of the Month
Open interest for Ether futures on centralised exchanges reached a new record high of $14.9 billion on 22 May ahead of the U.S. Securities and Exchange Commission (SEC)’s approval of ETH Exchange-traded funds (ETFs), indicating increased trading activities. Open interest (OI) is used to measure the total value of all outstanding futures contracts across exchanges and indicate market activity and trader sentiment around one asset. The U.S. SEC approved eight U.S. Spot Ether ETFs on 23 May, driving a significant ETH price increase of +26.6% over the week.
Ethereum Layer-2s (L2s) surged to new all-time highs, as more activity and an increasing number of transactions are being settled on L2s. L2 transactions represent about 87% of total transactions on the Ethereum network, compared to 77% before the Dencun upgrade. The number of distinct addresses interacting with L2s has also reached 5.5 million – more than double the number on the Ethereum mainnet.
The ongoing heightened activity on L2s could be attributed to the completion of the Dencun upgrade, which significantly reduced the fees for L2s and, in turn, attracted more users to L2 rollups and sidechains. Meanwhile, the lowered transactions drove the drop in transaction fees on Ethereum, as the average transaction fee hit a record low of US$1.712 as of 12 May.
The Bitcoin Runes protocol, launched in conjunction with Bitcoin’s fourth halving, has experienced a dramatic 99% drop in daily etching in less than a month. This decreased from 23,061 etchings on halving day to just 242 etchings as of 16 May. Despite the downturn, Rodarmor, the inventor of the Runes protocol, mentioned at a recent Ordinals event that new developments are underway to invigorate the protocol.
3. Monthly Feature Articles
Monthly Feature Article | Points Farming
Points farming has become ubiquitous in the cryptocurrency industry recently. It is perceived as an overall positive development for Web3 as it encourages innovation and experimentation. One of the pioneers of points farming is Blur, a NFT marketplace launched in October 2022. Subsequently in 2023, protocols Friend.tech and Jito also announced Points programmes. It gave rise to the gradual proliferation of points farming across various Web3 sectors.
To users, points farming enables them to earn potentially lucrative rewards through token airdrops. However, there’s an information asymmetry as users have no control on the eventual airdrop. To the protocol, points farming is an effective method for platform growth and user acquisition. Yet, it also casts doubt on the protocol’s sustainability after the points programme, and may lead to community backlash if the airdrop is not up to the market’s expectations.
Our latest report looks into points farming, including its development and two recent examples: Friend.tech and EigenLayer. We also delve deeper into its significance and controversies. Read more about it in our latest report: Points Farming – Development, Significance and Controversies.
Key takeaways:
Recently, points farming has become ubiquitous in the crypto industry, with more than 115 billion points distributed till Feb 2024. It refers to users completing certain tasks on protocols to accumulate points or rewards.
It is a hybrid model of the ‘bait and hook’ approach. Points farming ‘baits’ users to the protocol with the hope of a future airdrop. It also provides a ‘hook’ for users to engage with the dapps, similar to yield farming.
One of the pioneers of points farming is Blur, a NFT marketplace launched in October 2022. Subsequently in 2023, protocols including Tensor, MarginFi, Friend.tech, and Jito also announced Points Programs. This gave rise to the gradual proliferation of points farming across various Web3 sectors.
Friend.tech and EigenLayer are examples of how points programs can enable platform growth. Yet, both airdrops faced community criticism, including around token transferability and distribution strategy. They serve as reflections on the significance and controversies around points farming.
Point farming brings pros and cons to both users and protocols:
To the users, points farming enables earning of potentially lucrative rewards through token airdrops. However, they face considerable information asymmetry as users have no control over the eventual airdrop. Profits may be low as retail participants may be farming with a high anticipated fully diluted valuation (FDV) that offers limited upside potential.
To the protocol, points farming is an effective way of user acquisition and marketing. It aids platform growth while allowing the protocol to retain control over the usage of points and timing of the airdrop. Yet, it also casts doubt on protocol sustainability after the points program, and may lead to community backlash if the airdrop is not up to the community’s expectations.
Points farming is an overall positive for Web3 and could help protocol development, while it is not a precondition to a protocol’s sustainability. It is important to consistently create value to provide ‘hooks’ that retain users.
A point program can only be truly effective if there is a high level of trust between users and project founders and if the protocol (and its token) can bring true value to the community and space. While it offers advantages in user engagement and fundraising, misuse of trust could undermine effectiveness in the long run.
Social Finance (SocialFi) in Web3 reshapes user interactions and transactions, providing direct and immediate compensation for content creators without intermediaries. It leverages blockchain technology to enable users to monetise and control their social interactions, content, and influence. At its core, SocialFi empowers users with data control and new monetisation avenues. As the SocialFi space continues to evolve, it promises to foster a new era of internet utilisation, where users are not just consumers but also active participants who have a stake in the ecosystems they contribute to.
This report aims to provide an exploration of the SocialFi landscape, examining the latest trends, business models, and recent developments driving this innovative sector. These include Friend.tech, Farcaster, and Fantasy.top. Read more about it in our latest report: SocialFi: An Exploration of SocialFi Top Apps.
Key takeaways:
Compared to the Web2 social media platform that primarily revolves around advertising and user data monetisation, SocialFi in Web3 empowers users with data control and new monetisation avenues. Generally, the business models in SocialFi include creator tokenisation, token-gated content and experiences, royalties, decentralised subscriptions, competitive minting and reveals and gamification.
Creator tokenisation has generated more enthusiastic uptake due to it aligning closely with social trends and novel monetisation design.
Friend.tech aims to incentivise content creators to produce exclusive content by enabling their audience to hold exclusive access keys tied to a particular creator. The recently launched V2 introduced the FRIEND token and clubs feature, aiming to enhance monetisation and engagement over V1.
Fantasy.top has introduced a SocialFi Trading Card Game (TCG) model where players can collect trading cards representing crypto influencers on X (formerly Twitter). These cards can be used to compete in online games, allowing influencers to monetise their social capital and expertise.
Content tokenisation may have limited utility because it often represents ownership of content. However, it remains a significant revenue strategy for creators in the long term.
Farcaster is a decentralised social media protocol built on Ethereum Layer-2 (L2) Optimism. It aims to provide a platform where users have full control over their data and developers can build applications without needing permission from the network. Its innovative features, such as Frames and Actions, have significantly contributed to the platform’s growth.
Although socialFi has created new opportunities for the creator economy, there are also some challenges:
Users face financial risks from the dynamic value of tokens and keys.
Protocols may face competition with incumbent Web2 platforms with huge networking effects and user bases. At the same time, protocol sustainability and long-term user engagement remain uncertain.
As the SocialFi space continues to evolve, it promises to foster a new era of internet use where users are not just consumers but also active participants who have a stake in the ecosystems in which they contribute.
This institutional-focused report dives into macro trends, market-neutral pairs, style-factor screens, and events. Read the full Alpha Navigator report here.
Asset classes were all up in May. Cryptocurrencies led the increase, which coincided with US SEC’s approval of Spot Ether ETFs.
BTC correlations with other assets were all positive.
5. Crypto Conference & Economic Calendar from Market Pulse
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