The Monthly Airdrop: June 2023
Quick Note: M31 Capital has been meeting with investors over the last few weeks, visiting Europe, the Middle East, & South America in May and we’ll be visiting Europe and the Caribbean in June. If we are visiting your area, we'd love to meet in-person! Otherwise, fill out this form to schedule a call with us.
May Performance
In This Issue:
Market: ETH stable amid banking turmoil & Web3 teams make technical progress
Narrative: Too little, too late for America? Top U.S. firms are finding new homes
Highlight: Frax Finance (FXS), a top performing LSD protocol for ETH
Market Action
The Fed hiked rates another 25bps despite continued banking troubles in the U.S. Two more banks, PacWest Bancorp and Western Alliance Bancorp, teeter on the brink of collapse while the probability of another rate hike looms large ahead of the next Fed meeting
The overall market declined (-5.1%) in May, though ETH remained relatively stable between despite another interest rate hike and more global banking troubles.
Amid the ongoing uncertainty around crypto regulation in the U.S., exchange giants Coinbase and Gemini have both found new homes offshore. Coinbase launched an offshore derivatives exchange in Bermuda and Gemini landed in Singapore. Trading behemoths Jane Street and Jump Crypto also wound down their market making operations in the U.S., to open up shop internationally.
Acting as though he wants to lose the innovation race, President Biden unveiled a ludicrous proposal to tax U.S. Bitcoin mining at 30% amid the tech exodus.
Meanwhile, other geographies are welcoming America’s top entrepreneurs. Hong Kong has reopened crypto activity and even China seems to be reversing their anti-crypto stance with their recently released Web3 whitepaper.
Web3
Render (RNDR) (+11.3%) was a notable outperformer this month, driven by Apple’s upcoming WWDC, where many are expecting increased applications of Render Network for Apple’s AR/VR mixed reality headsets. With +2m frames rendered, +2.1% q/q, the network has made significant improvements to key features for scaling, including native Cinema4D and multi-render support, more robust ORBX exporting tools, and development on a new AI-assisted rendering suite.
Pocket Network (POKT) activity is soaring. While hitting new daily active relay highs of ~2.1bn, weekly relays hit 11.3bn, +29.1% w/w. The inaugural POKT burn was completed, with 606.8k POKT ($23.6k) burned, marking the beginning of a long-term deflationary process for the POKT token.
Helium (HNT) IOT coverage expanded to 27 new cities worldwide with a total number of hotspots reaching 991.2k after the migration to Solana. The number of Helium mobile radios has grown +10% q/q to over 7,400. Helium also announced the launch of their mobile beta; a brand new mobile carrier that leverages the power of the Helium Network
Audius (AUDIO) solidifies its position as a prominent Web3 music platform, maintaining a consistent count of approximately 4m monthly users for the 4th consecutive month. In addition, the platform has recorded an impressive 285.5m API calls this month, highlighting its robust usage and engagement.
DeFi
Arbitrum (ARB) fundamentals continue to ring strong, with the L2 earning a record $9.9m in fees in May. TVL on the L2 increased
Uniswap (UNI) fee switch discussion reemerged as trade volume significantly increased, driven by memecoin interest. Transactions on the platform reached an ATH of 393.9k per day with ~$12.74m spent in gas per day, which is even more activity than the peak of the last bull run, in November ‘21.
Synthetix (SNX) TVL +18.3% w/w to $422.7m and daily trade volume reached $157.4m, +34.2% m/m after a proposal to add PEPE, SUI, and BLUR perps. Synthetix ($866m) flipped GMX ($322m) in trade volume while crossing the $10bn mark for all time trade volume. As a result, GLP yields have hit an all time low of 1.56%.
TL;DR
March Highlights
PayPal extends crypto transfers to more than 60 million Venmo customers
Hong Kong’s SFC will open crypto trading for retail on June 1
Robert DeSantis advocates for Bitcoin during his presidential campaign
China releases a whitepaper promoting Web3
Partner Highlights
Protocol Highlight
Frax Finance (FXS)
Frax is a comprehensive DeFi protocol that offers various products, istablecoin, infrastructure solutions (FraxSwap, FraxLend, Fraxferry), and an LSD service for ETH staking called sfrxETH.
Since the launch of frxETH, FRAX has rapidly emerged as a leading LSD provider, with frxETH experiencing remarkable YTD growth of 572.0% to reach 231.0k ETH staked, while its current market share only being 0.9% of total ETH staked.
What makes it different:
Substantial voting power on Convex: As the largest holder of CVX with a 21.1% market share and 26.3% Tokemak voting power, Frax has effectively boosted the yield for frxETH pools (current yield reaches 6.28%)
Yield diversity: While frxETH, a stablecoin pegged to ETH, does not accrue staking yield, it can provide liquidity across DeFi protocols and earn incentives. On the other hand, sfrxETH, staked frxETH, generates substantial staking yield by earning from the 100% ETH staked to Frax's validators. This makes the yield on sfrxETH the highest in the market(currently 140k sfrxETH earning yield from 233.4k ETH staked to Frax)
Robust validator set: FRAX's validators boast an impressive proposer effectiveness rate of nearly 100%, ensuring that blocks are successfully proposed and rewards are earned in 99.89% of cases. The validators have a 0% slashing rate and a 100% Network Participation Rate, making them reliable and secure
The combination of the factors mentioned above have resulted in frxETH supply growing rapidly, and becoming the main revenue source of the protocol.
Progress Update
The upcoming launch of frxETH v2 introduces validator borrowing, allowing users to deposit a minimal amount of ETH (with the potential for other assets to be added as collateral by governance) and borrow a validator. This upgrade enhances capital efficiency for running a validator while maintaining attractive revenue levels (Revenue = Validator revenue - borrowing fees)
Frax is currently undergoing a transition to increase the collateral ratio of the FRAX stablecoin to 100% (currently at 94.5%) by utilizing protocol revenue. Once this goal is achieved, the revenue will be directed towards veFXS holders, thereby enhancing demand for veFXS tokens
Takeaway
Frax has positioned itself as a prominent LSD provider through its robust validators, substantial voting power, and ability to offer high yield for ETH staking. This has led to significant growth in the supply of frxETH and puts the protocol in a favorable position to capture a significant market share
Upcoming Events
The M31 Capital team will be speaking at and attending a number of upcoming conferences and events. Please reach out if you are interested in connecting, or better yet - meet us there:
Lisbon: Non-Fungible Conference (NFC) (6/7 - 6/8)
Hamburg: Blockchance (6/27-6/30)
Lisbon: Block 3000 (7/6-7/7)
Valencia: NFT Show Europe (7/14-7/15)
Paris: EthCC (7/17 - 7/20)
Paris: Modular Summit 2023 (7/21-7/22)
Goa: Web3Conf India 2023 (8/11-8/14)
Toronto: ETH Toronto (8/13-8/16)
Austin: Bit Block Boom (8/24-8/27)
Bali: Coinfest Asia (8/24-8/25)
Copenhagen: Nordic Blockchain Conference (9/7-9/8)
Austin: Permissionless (9/11 - 9/13)
Singapore: Token 2049 (9/13 - 9/14)
Cologne: W3.vision (9/20-9/21)
Barcelona: European Blockchain Convention (10/24-10/26)
Dubai: AIM Summit (10/30 - 10/31)
Athens: Decentralized (11/1-11/3)
Miami: Quantum Miami (1/24-1/26)
About M31 Capital
M31 Capital is a global investment firm dedicated to crypto assets and blockchain technologies supporting individual sovereignty.
Website: https://www.m31.capital/
Twitter: https://twitter.com/M31Capital