Research Roundup Newsletter [August 2024]

We present to you our latest issue of Research Roundup, featuring our deep dives into asset allocation with crypto, decentralised perpetuals market and prediction market.

Welcome to the Crypto.com Monthly Research Roundup Newsletter!

1. Market Index

In August, the price index dropped by -14.46%, while the volume and volatility indices were positive at +9.11% and +38.89%, respectively.

2. Charts of the Month

Tokenised treasuries’ market capitalisation exceeded $2 billion to reach US$2.07 billion as of 30 August, according to RWA.xyz. The market hit the $1 billion milestone in March 2024. 

Tokenised treasuries are digital forms of US government bonds that can be traded as tokens on blockchains. Launched in March 2024, BlackRock’s USD Institutional Digital Liquidity Fund (BUIDL) was a big contributor to the rise in market capitalisation. BUIDL exceeded Franklin Templeton’s Franklin OnChain U.S. Government Money Fund (FOBXX) as the largest tokenised treasury fund in April 2024. BUIDL had a $503 million market capitalisation on 30 August, with FOBXX coming in second at $428 million.  

PayPal’s PYUSD stablecoin achieved a market capitalisation of US$1 billion, becoming one of the top five stablecoins in the market after its launch on the Solana network partnered with Crypto.com in May. This marked a significant milestone since its launch in August 2023 on the Ethereum network. The stablecoin, pegged to the US dollar, aims to facilitate seamless transactions and enhance the utility of digital currencies on various platforms. Its growth reflects increasing interest in stablecoins and digital payments. PYUSD can be used for various transactions, including cryptocurrency purchases and transfers, contributing to the expanding adoption of cryptocurrencies in everyday financial activities.

The NFT market witnessed its fifth consecutive month of declining sales volume. All top blockchains experienced a drop in the past month, except for Mythos and Blast, which increased by 16% and 52%, respectively. The trading activity of NFTs on these chains was mainly attributed to the gaming sector.

Mythos’s growth was largely driven by DMarket, an NFT marketplace specialising in in-game items and collectibles, while Blast’s was the recent resurgence of Fantasy.Top, a SocialFi trading card game. Fantasy.Top introduced Tactics V2 on 2 August, allowing users to buy tactics and compete with random hero lineups, enhancing participation and sustainability. Recent metrics show a significant increase in paid mints and player entries, indicating rising interest.

3. Monthly Feature Articles

Monthly Feature Report | Asset Allocation With Crypto

Bitcoin and Ethereum have outperformed other major assets in eight of the last ten years. With the launch of spot Bitcoin and Ethereum exchange-traded funds (ETFs), cryptocurrencies have become another avenue for institutions to diversify their investments and hedge risk. Similarly, more retail investors are allocating their wealth into cryptocurrency. 

This report integrates cryptocurrency and traditional finance (TradFi) vehicles to explore how asset allocation affects portfolio performance and risk. It concludes that adding BTC to investors’ portfolios could help increase yield by up to 2.0% annually without significant impact on volatility. We apply the Modern Portfolio Theory to build portfolios that maximise overall returns within an acceptable level of risk. Read Asset Allocation With Crypto now.

Key Takeaways:

• Looking at average returns over the past ten years, we can conclude that adding BTC to an investment portfolio consisting of the S&P 500, Core US Aggregate Bond, Gold, and Real Estate Investment Trust (REIT) helped increase yield by 0.4% to 2%.
• Adding BTC and ETH to such a portfolio shows the same trend as including only BTC, but average returns further increase by up to 2.5%. In negative scenarios, performance drops by 0.9% to 7.1%.
• Adding 1% to 5% of BTC and ETH to the portfolio above does not show a significant rise in overall risk:
  • With BTC accounting for 1% to 5% of the portfolio, the overall volatility reduces by around 1.23%.
  • With BTC and ETH accounting for 1% to 5% of the portfolio, the overall volatility increases by around 4.55%.
• The Modern Portfolio Theory (MPT) is adopted to compile portfolios by adding BTC, or BTC and ETH. We explore the efficient frontiers based on the selected assets to discover optimal portfolios:
  • Without adding crypto assets, a portfolio consisting of the S&P 500, Core US Aggregate Bond, Gold, and REIT can achieve a maximum Sharpe Ratio of 0.7050, with the return, risk (volatility), and risk-free interest at 9.61%, 0.1161, and 1.44%, respectively.
  • One optimal portfolio is found when adding BTC as the only crypto asset with limited weight (less than 5%). The corresponding return and risk are 10.67% and 0.1106, respectively, with a Sharpe Ratio of 0.8345.
  • One optimal portfolio is identified when adding both BTC and ETH with limited weights (less than 5%). The corresponding return and risk are 11.43% and 0.1047, respectively, with a Sharpe Ratio of 0.9539.

Monthly Feature Report | Decentralised Perpetuals Market

A unique type of contract in the crypto space, perpetuals dominate the derivatives trading market for both centralised and decentralised exchanges. In particular, the decentralised perpetuals market accumulated a trading volume of US$1.4 trillion in the past year and $134 billion in the past month.

Decentralised perpetuals have seen a market share shift in the last year, where the top players by trading volume are now Hyperliquid and dYdX. Launched in late 2022, Hyperliquid saw a massive uptick in trading volume in 2024 with a total of $261 billion year-to-date and $34 billion in the past month.

This report looks into the decentralised perpetuals landscape with Hyperliquid as a case study. Read Decentralised Perpetuals Market Review now.

Key Takeaways:

• The perpetuals market dominates the overall derivatives trading in both centralised and decentralised exchanges. 
• Existing decentralised perpetual platforms differ by their operating models: order book, automated market maker (AMM), and oracle pricing model, and major players run an order book model. The protocols are also deployed on various blockchains. The top players — Hyperliquid and dYdX — developed their own blockchains.
• Launched in late 2022, Hyperliquid saw a massive uptick in trading volume with a total of $34 billion in the past month (compared to $2 billion in the same time in 2023). Its differentiation includes:
  • On-chain order book and matching, which enables transparency in transaction execution and redundancy in case of single-party failure.
  • Operates its own Layer-1 (L1) with a customised HyperBFT consensus mechanism. The blockchain will also support EVM, which would allow for interoperability between EVM chains and its L1.
  • Launch protocol and user vaults to provide yields for users (10-15% for Hyperliquidity Provider (HLP) vault in August) and, at the same time, aid in market making.
• Fulcrom Finance is a decentralised perpetual exchange launched on Cronos, zkSync Era and Cronos zkEVM. Fulcrom Finance’s trades are supported by a multi-asset liquidity pool, Fulcrom Liquidity Pool (FLP), which generates fees through AMM and leverage trading. Users can also participate in staking, earning real yield on their assets.
• We believe innovation and user experience remain as key factors in successful decentralised derivatives exchanges, which can bootstrap liquidity and, in turn, attract users. 

Monthly Feature Report | Prediction Market

Prediction markets allow users to speculate on event results ranging from elections to sports. It is not a new concept as there are Web2 prediction market sites that settle bets in fiat currency (e.g., PredictIt and Kalshi). 

The trend has gained attention in Web3, led by platforms like Polymarket, largely because of the US presidential election. While Polymarket has the largest trading volume, there are other players like Azuro, as well as new providers like Drift. 

This report covers existing and upcoming prediction market platforms and dives into the latest developments. Read Discussion on Prediction Market now.

Key Takeaways:

• Capitalising on the year of US elections, Polymarket has accumulated $473 million in total trading volume in August 2024. Its polls are increasingly cited by mainstream media to gain insights to outcomes across politics and business.
• Polymarket has stood out due to factors including its simplicity. It features mostly binary outcome markets, and users can bet with USDC. It also represents one of the earlier hybrid-decentralised, low-fee prediction market platforms. 
• Established in 2021, Azuro is an infrastructure and liquidity layer for hosting on-chain predictions, betting, and game applications. Azuro adopts the peer-to-pool mechanism, where users can contribute to a liquidity pool and in return earn APY. In addition, Azuro primarily focuses on sports betting, which is an ‘evergreen’ market given the regularity in occurrence of global sports events. 
• In August 2024, BET was launched as a natural extension of trading by Drift, a perpetual futures exchange on Solana. Capitalising on Drift and Solana’s native audience and total value locked (TVL), BET has access to liquidity, potential users, and capital since day one. In addition, it has more features than a pure-play prediction market platform due to Drift (for example, hedging and DeFi features). Moreover, BET supports more than 30 tokens to place bets.
• Given liquidity is one of the major issues for prediction market platforms, BET by Drift provides a new angle to competition in the predictions market. Competition does not only come from pure-play prediction market platforms, but also horizontal expansion from platforms with existing liquidity (e.g., DEXs). While Polymarket is likely to continue its dominance in the short term towards the US presidential elections, it has to figure out how to sustain volumes post elections.

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4. Alpha Navigator

This institutional-focused report dives into macro trends, market-neutral pairs, style-factor screens, and events. Read the full Alpha Navigator report here.

• Cryptocurrencies were down in August, Fixed Income and Equities were both up.
• BTC’s price performance showed weak correlations with Equities, and exhibited mostly negative correlations with Fixed Income.

5. Crypto Conference & Economic Calendar from Market Pulse

Crypto Conferences Calendar

Economic Calendar

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Research & Insights Team