August Token Unlocks

We’re more than midway through August and many of the following tokens have unlocked, and are also set to unlock:

Table 1: August Token Unlocks (Source: TokenUnlocks and WuBlockchain)

In previous Web3 Watch reports, we have noted that shorting token unlocks a handful of days before the unlock date, and closing the position on the unlock date itself had proven profitable – ranging from ~7% to 15-20%, where a higher supply being unlocked is typically positively correlated with higher returns. Let’s see how this has fared for the unlocked tokens in August thus far.

Approximately 4.54m $APT (Aptos) valued at ~ $31m was unlocked on 12 August. Traders who opened short positions on 9 August and closed the trade on the unlock date would have earned only ~4% in returns (Chart 1 below). These returns would also have been dampened by the funding rate as well (Chart 2 below).

Chart 1: APT / USDT

Chart 2: APT Funding Rate, 5 Aug to 14 Aug (Source: QCP Insights)

Just like $APT, $IMX (ImmutableX) had a similar % of token supply unlocking as Aptos (1.67% vs 2.07%), and also provided short sellers mediocre returns (~2.98%). However, $IMX had since trended lower even after the unlock date.

Given the lower returns (3-4%) that come with shorting tokens with a small % of supply unlocking, along with the risk of potential negative funding, traders who are more conservative may consider such a thesis and trade not worth the risk-reward, with similar returns to be expected in less risky assets such as treasuries. 

What about $SAND (Sandbox), which differs greatly from $APT and $IMX due to a much higher % of tokens unlocking? (16.16%) It appears that despite the high % of supply unlocking, short positioned traders would not have earned much (+1.88%) if they opened their positions a few days before the unlock date of 14 August (Chart 5 below).  

Chart 3: SAND / USD

Furthermore, traders who opened their shorts late would have been paying a lot in funding, especially if they opened their position less than 24 hours before the unlock date (Chart 6 below). 

Chart 4: SAND Funding Rate, 5 Aug to 14 Aug (Source: QCP Insights)

Instead, traders who sought to short $SAND would have earned a lot more, if they opened their position almost exactly a month leading up to the unlock date (Chart 5 below).

Let’s compare the performance of the short positions of $APT and $IMX mentioned earlier, to the relatively higher returns of shorting $OP and $SUI back in June, as highlighted previously:

Comparing a couple of token unlocks in June to some of the tokens that have unlocked in August, shows that the % of token supply unlocking does not contribute to how profitable a short position may be for  a 2 to 4 day short position.  

At the same time, perhaps a short position opened over a longer time period could be a better trade, as observed from a study by The Tie. The Tie recently conducted a study of over 350,000 unique unlock events of more than 100 tokens, examining white papers, blog posts, vesting contracts, public forums, and private communications with teams dating back to 2016. This study was sent out in an email newsletter on 20 July.

                                                 Chart 6: Change in Token Price (from t-0 to t+0), by Daily Volume (Source: The Tie)

According to research by the TIE, token prices do generally decline leading up to an unlock, and can begin falling up to 30 days prior to its unlock date. When unlocks represent more than 100% of the average daily volume, prices tend to rebound faster, albeit for a brief period. This could be  attributed perhaps to traders feeling relieved that the unlock did not flood the market immediately. Within two weeks, however, prices of tokens facing unlocks of >100% of its volume fell below their initial levels at the time of the unlock. This could suggest that holders preferred to wait a few days before selling into the market. Instead of % of tokens being unlocked, average daily volume (which can somewhat be related to the amount of tokens unlocking) is a metric to keep an eye on.

Funky Token Price Action 

In early August, the massive spike in the price of $YGG (Yield Guild Games) by ~300% to 400% in a span of 5 days (Chart below) gained much attention. This movement left the community a little dumbfounded, given that there was no major news or catalyst to justify the huge spike in price.

Chart 7: YGG / USDT

Twitter user @OnchainDataNerd pointed out that DWF Labs continuously received tokens from the $YGG Treasury, and deposited 25m of tokens to Binance from September 22’ to February 23’. The user attributed the $YGG surge of 237% to its ATH of $0.38 on 18 February, to these actions by DWF Labs. In early August, when a DWF-labeled address received $YGG and deposited it to Binance, the token topped at ~ $0.90. 

Twitter user @OnChainDataNerd also highlighted similar examples in $ID in March and April, and $DODO in August

Given the similar patterns in such occurrences, traders seeking to make a quick profit may have already begun tracking such DWF-labeled wallets to ride the wave of these potential 3-4 day run ups.

DeFi Regulation: Newly Proposed US Senate Bill

Through the Crypto-Asset National Security Enhancement Act of 2023, the proposed bill seeks to combat the evasion of money laundering and sanctions through the imposition of AML requirements on DeFi protocols. It also states that if nobody controls the DeFi protocol, anyone who invests more than $25m will be responsible for such AML requirements. 

The AML requirements comprise of not only the vetting and information collection of customers, but also the maintenance of anti money laundering programs, reporting of suspicious activity to the government, and blocking of sanctioned individuals.

Stablecoins Around The World

Tether Depeg

Since July, there has been a steady and large decline in USDT balances on Huobi. @adamcochrans.eth alleged solvency issues related to the exchange, and that Huobi and Tron personnel were questioned by the police. He then claimed to have attained the information from a “verified senior executive at Tron”. Cochran attributed the cause of the large sell-off of USDT by a wallet traced to a Binance-funded wallet on 4 August, to this aforementioned police questioning incident. 

Cochran then added that the USDT staked into Justin Sun’s launch of stUSDT (staked USD) beforehand, that offers stakers 4.29% yield from government bonds, instead gets swept into a Huobi deposit address, and is held by Sun, his own DeFi positions (ie. on JustLend), or Huobi directly, with no redemptions on the deposited USDT to buy bonds for yield. Peckshield then claimed that a wallet linked to Sun had injected $200m of Tether and $9m of ETH into Huobi, of which the $200m in Tether was withdrawn from a DeFi position on JustLend. In response, a spokesperson from Huobi has claimed that these large deposits are not from Sun. 

It has been ~10 days since all of this has unfolded. Tether climbed to regain its peg in a span of 3 days (7 to 10 Aug), but only for a brief moment. 

As of 16 August, Tether has yet to return to its peg. The charts below show how the Curve 3pool and net transfer volumes of Tether on CEXes changed, throughout swings of the Tether depeg and as events unfolded:

Chart 8: 3pool Stablecoin Balances vs USDT Price (Source: QCP Insights) 

Observing the 3pool TVL over the past 2 weeks, there is a clear negative correlation between the balances of Tether and USDC or DAI. This was also the largest imbalance in the pool this year, with Tether at 68%.It is evident from the huge increase in Tether balances in the 3pool over the past 2 weeks (90m to 130+m), that as this news  spread, many rushed to exchange their USDT for USDC or DAI. If Tether remains unable to regain its peg, we expect to see  Tether’s ratio to USDC or DAI to further increase in the 3pool.

Chart 9: USDT Net Transfer Volume from/to Exchanges vs USDT Price (Source: Glassnode)

For net transfer volumes from/to exchanges, as Tether strayed away from its peg to the downside, we can see the net transfer volumes from and to exchanges goes into the negative. 

This is the opposite of the 3pool, because for the 3pool, it is clear that the USDT that enters the pool is being exchanged for DAI or USDC that exits the pool. In the case of CEXes, it is unclear where the USDT that is being withdrawn is headed to or what it is being exchanged for. A potential explanation for this is that the CEXes may be attempting to derisk their holdings by exchange their Tether for other stablecoins or assets.

Circle launches Programmable Wallets

As Tether worries about their stablecoin, Circle aims to bridge Web2 users to Web3, so as to drive non-linear growth of Web3 services, through the launch of their Programmable Wallets. Through this, they seek to ultimately grow the number of wallets that hold stablecoins and NFTs. 

With this new solution, Web2 developers would be able to bring multichain Web3 wallet experiences into their apps quickly and easily. Support is available for iOS and Android, with Web SDK coming soon.

Paypal launches stablecoin – PYUSD

In an effort to prepare themselves for the world of the future, and not lose their throne as the largest online payment processor globally, Paypal has launched their very own stablecoin, $PYUSD – a positive sign for Web3 adoption. Here are some key highlights to note:

    • The stablecoin is backed by USD deposits, short-term U.S. Treasuries and similar cash equivalents.
    • $PYUSD was issued on Ethereum, and many are expecting the stablecoin to launch on other networks in the future. An analyst at Bloomberg Intelligence postulates that this may have a positive effect on both users/addresses for the network, and ETH itself.
  • The stablecoin has an ‘assetProtection’ measure that allows Paypal to wipe one’s balance. Many in the crypto community have expressed their contempt about this matter – however, it is important to note that USDC and USDT do have such measures as well, as required by AML regulations.
  • Paypal also launched their Cryptocurrencies Hub, allowing users to hold, buy, sell, receive and send various cryptocurrencies. They will also be able to utilize proceeds from token selling to make payments via Paypal. The custody, trading and transfer services are to be performed by Paxos thus far.
  • The payments firm has also launched a new fiat on-ramp for US users, in partnership with Ledger, allowing crypto purchases through Paypal to be automatically sent to users’ Ledger wallets.

A move like this by Paypal could potentially facilitate online retail users’ interest into crypto and blockchain, and perhaps usher in mainstream adoption of digital assets on traditional Web2 platforms and marketplaces.

Monetary Authority of Singapore (MAS) releases Stablecoin Regulatory Framework 

On 15 August, the MAS released its Stablecoin Regulatory Framework, citing key requirements for the eligibility for issuers to submit their application to potentially get their stablecoin recognized as an “MAS-regulated stablecoin”. The framework is expected to take effect in 1H 2024. Here is a summary of the requirements:

Stablecoin issuers who fail to meet these requirements will be subject to penalties and fines, although these penalties have not been finalized.

The purpose of applying in hopes of being recognized as a regulated stablecoin in the eyes of the MAS are primarily ‘to make early preparations for compliance’,  serve as a ‘credible digital medium of exchange’ and as a ‘bridge between the fiat and digital asset ecosystems’. 

Thus far, USD-denominated stablecoins dominate in terms of market cap and trading volume, mostly due to the fact that most trading firms and individuals are totally fine settling transactions in USD, be it in CeFi or in DeFi. 

Nevertheless, we believe that more moves like this by regulators, would increase market caps and trading volume of non-USD denominated stablecoins by institutions and perhaps individuals as well, if DeFi protocols become locally regulated.

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