Coin Metrics adds several new features/upgrades to Network Data Visualization offering

Coin Metrics is pleased to announce several additions/upgrades to our Network Data Visualization offering that includes our Network Data Charting Tool, Formula Builder Charting Tool, and our Correlation Tool released in July.  These updates include: 

  • Save Charts/Formulas Locally: ability to save and load charts and formulas to/from your local device  
  • Additional Prices for Cryptoassets:  addition of a 4pm New York, 10:30am London, 11am London, 3:15 Chicago and a noon New York price for cryptoassets to enable better timing synchronization when creating formulas or correlating with traditional assets / indexes
  • More Correlation Options: option to “Linearly Interpolate” or “Exclude” data gaps in a time series plus the addition of a 30- and 60-day correlation   
  • More Formulas:  new Running Total formula for calculating cumulative totals, a new Draw Line function to customize the appearance of your data series, and a new  “interval” parameter for the Arithmetic Returns function

If you are interested in learning more about our new tools, please contact us at [email protected]!


ABOUT COIN METRICS

Coin Metrics is a leading provider of transparent and actionable cryptoasset market and network data. Coin Metrics delivers mature data across multiple formats to various industry stakeholders, including financial enterprises, funds, media and research outlets, and data/application providers. Coin Metrics’ data empowers its clients and the public to better understand, value, use, and ultimately steward public crypto networks. 

Bletchley Indexes Transition to CM Pricing

Bletchley Indexes Pricing Source Transition – August 26, 2020

Coin Metrics is excited to announce that from the 1st of September, the Bletchley Indexes pricing sources will be updated to the Coin Metrics Reference Rates. The update will incorporate three major changes:

  • The Bletchley Universe will be expanded to include coverage for many more assets
  • All forward pricing will utilize the CM Real-Time Reference Rates
  • Historical values will be recalculated to utilize CM Real-Time Reference Rates

With the recent CM Real-Time Reference Rates (v0.5) release, Coin Metrics has developed the capabilities to provide comprehensive coverage to the Bletchley Universe. The Bletchley Indexes are a community index that has always been focused on bringing transparent, independent and investable indexes to the market. With no asset management products licensed to utilize the Bletchley Indexes, the changes to the historical values should not impact anyone financially, but rather provide more transparent and accurate benchmarking data.

Expanding the Bletchley Universe

With the expansion of the CM Real-Time Reference Rate Coin Metrics is excited to expand the Bletchley Universe to include a whole host of new assets. This will result in a one time significant turnover in all indexes that will subsequently stabilize. Indicatively, if the rebalance were to occur at 4pm NY time yesterday (26-Aug-2020), the resulting changes to indexes would be as follows:


AdditionDeletion
Bletchley 10AlgorandCardano
Bletchley 20Aave, Cardano, FTX Token, Hedera Hashgraph, Synthetix0x, Basic Attention Token, Digibyte, Ravencoin, Zilliqa
Bletchley 400x, Aragon, Band Protocol, Basic Attention Token, Bittorrent, Digibyte, Nervos, Enjin Coin, Terra, Matic, Ravencoin, REN, ZilliqaAelf, Aeternity, Ardor, BitShares, DigixDAO, Gas, Golem, IOST, Nuls, PIVX, Steem, Verge, Wanchain

Forward pricing will utilize the CM Real-Time Reference Rates

The addition of Coin Metrics Real-Time Reference Rates serves two primary functions; to provide a more robust pricing methodology to the Bletchley Indexes and to provide more transparent pricing from Coin Metrics whitelisted markets. CM rates are designed to serve as a transparent and independent pricing source that promotes the functioning of efficient markets, reduces information asymmetries among market participants, facilitates trading in standardized contracts, and accelerates the adoption of cryptocurrencies as an asset class with the highest standards. 

Historical values will be recalculated to utilize CM Real-Time Reference Rates

Historical values within the Bletchley Indexes are determined with different pricing methodologies that Coin Metrics does not have transparency of and subsequently, Coin Metrics cannot provide transparency and complete precision into the historical values for Bletchley Indexes. No historical constituent data will be changed as part of this process. 

The resulting changes to B10 and B20 indexes are minor, with the newly calculated levels resulting in changes of <0.1% over the recalculation period. The primary differences were notices during periods of high volatility, where global crypto market exchange pricing diverged. In these instances, we believe that Coin Metrics selection of whitelisted markets, and application of an inverse price variance, volume weighted median price best handle these periods and provides the most accurate and representative index pricing.

The Bletchley 40 has some significant pricing changes that recently eventuated from a ticker collision between HOT/HOLO across the different data aggregators. Changing the pricing to Coin Metrics Reference Rates will also overcome this issue and future ticker collisions.

This transition is an exciting step for Coin Metrics as we continue to develop and build out our index business as it allows the company to wholly own, manage and have transparency into the current and historical pricing data for the Bletchley Indexes. Further, it helps increase the accuracy of the data and overcome historical anomalies that have previously come from pricing sources not administered and calculated by Coin Metrics. 

If you have any questions about CMBI, Bletchley Indexes or the transition please reach out to [email protected] 

About CMBI

Coin Metrics launched CMBI to bring independent and transparent index solutions to the cryptoasset investment community. In the nascent and often complex cryptoasset market, CMBI Indexes strive to be dynamic and adjust to the rapidly changing market conditions to design and maintain investable products. CMBI Indexes provide markets and customers with industry-leading solutions that aid in performance benchmarking and asset allocation.

The Business Trends of Crypto Exchanges

By Huyette Spring and the Coin Metrics Team

Key Takeaways

  • Crypto exchanges have gone from nothing to a relatively mature industry very quickly.
  • The maturation process of exchanges has made them the “apex predators” of the space, engaging in M&A and positioning themselves for entry into the public markets.
  • Recent trends include professionalizing through hiring and regulatory positioning, as well as optimizing their strategies by adding and removing product lines as appropriate.
  • However, there are significant outstanding questions about crypto exchange and there is no guarantee that the maturation will be sufficient to remain independent from traditional financial and technology companies.

Overview

State of the Network has predominantly focused on the network and market data happenings of the crypto industry. In this issue, we zoom out a bit to discuss the business trends and strategies of the exchanges building atop these decentralized protocols.

From a standing start in October 2008, the cryptocurrency exchange industry has matured at an astonishing pace. But there is no guarantee that this maturation is sufficient for cryptocurrency exchanges to remain independent indefinitely. 

Below, we explore the maturation of the crypto exchanges through the years.

Satoshi to ~2017

The first challenge for crypto exchanges was how to gain traction in a basically non-existent market. Simply put, could they build a product that early adopters would actually use?

In the early days of crypto centralized exchanges began to emerge, horrifying the hardcore decentralization-focused cypherpunks. Trust is a luxury of optionality and there was almost no competition for any given job-to-be-done. These conditions allowed MtGox to simultaneously have 70% of the Bitcoin market and absolutely no controls upon which users could place their trust. It’s no surprise, then, that the inevitable MtGox hack was a significant event in the history of crypto exchange development and threatened the future of the industry.

MtGox 7-day avg. trading volume before the exchange was abruptly taken offline on February 25th, 2014 

But the hot air gushing into the balloon during the 2017 price run-up brought with it more users, employees, business models, and competition. Users of these crypto exchanges had now been given the Promethean fire of business: choice, and with it, expectations. Those expectations meant that exchanges needed to do more than just build a product which early adopters would use. They also needed to make a product that people would trust. 

~2017 to 2020

Here’s the challenge with trust: it’s expensive and it mainly accrues to the brand, not the product. Thus, exchange’s point of focus shifted from the product to the company: Can you build a going concern; i.e. an actual run rate business?

There are two distinct but interconnected trends occurring today which demonstrate exchange’s strive to capture the hearts and minds (read, trust) of the ever fickle customer: Professionalization and Strategy Optimization. 

Professionalization

The first trend is to win the minds of customers through Professionalization. Regardless of the segment, customers now expect exchanges to act like they’ve been there before

The quickest way to do this is hiring. Visionaries started the crypto industry from whole cloth but the theme now seems to be “professional businesses require professional managers”. And while a first principles re-imagining of the social contract of money has always attracted top talent, now the talent is operating professionals coming in at the top of the org chart, with “traditional world” experience. To name just a few recent examples: Coinbase has hired executives from Barclays, Google, Lyft; BlockFi has hired executives from AmEx and Credit Suisse; Gemini hired a former Goldman Sachs executive to lead their Asia expansion. 

The second approach to Professionalization is acceptance of regulation. True, this was a hand forced by regulators, especially in the U.S., but much of the industry has, in one form or another, turned this into a trust-building competitive advantage. Regulation, and accompanying attestations like SOC audits, appears to have become a marketing positive rather than a negative. Despite it’s well documented flaws, the number of BitLicense approvals is accelerating. International companies such as Binance.US and FTX.US have cleared the regulatory hurdles necessary to enter the U.S. market, typically by registering as an MSB. Luxembourg-based Bitstamp went a step further and got a full BitLicense. BitMEX has announced a User Verticiation (read KYC) program. And unlike many crypto “exchanges” which aren’t, ErisX sought and received a DCO and DCM license from the CFTC, enabling it to fulfill its business model of targeting the institutional market. 

Another critical piece of regulatory acceptance for crypto exchanges is market surveillance to reduce manipulation. Coinbase, Gemini, Bitstamp, Bitfinex, etc all employ some form of market surveillance. However, market surveillance alone is insufficient- at least for the SEC which wants cross-exchange market surveillance sharing agreements before they will approve an ETF. Such sharing agreements are something to keep an eye on for future development.

Source: The Block – NYDFS is granting more BitLicenses than ever before, 8 already this year

Strategy Optimization

If professionalization wins the minds of customers, then strategy optimization is how to win their hearts. The hired guns brought in under the professionalization theme should be, and have been, focused on defining the most compelling value proposition at the most efficient cost; dedicating resources to the key revenue generating areas that make customers happy and reducing funding to those areas which do not. 

The drive for sharper, crisper value propositions has resulted in organizations expanding their product offerings to match customer and prospect needs while, if necessary, simultaneously deprecating unnecessary product lines. To the extent that experimentation remains active, the experiments are part of a strategic framework rather than random flailing. Coinbase shuttered their index/basket product offering shortly before buying Tagomi and Xapo Institutional to round out their institutional product offering. 

And rather than reinvent the wheel, the push for optimized strategies has prompted many firms to mirror the strategies of legacy Wall Street institutions. Numerous players have been scrambling to stand up a prime brokerage offering and, true to the business models of their traditional world counterparts, crypto custodians have been adding lending services

More importantly, these refined value propositions have created sub-segment specialists which have allowed exchanges to outsource necessary but non-differentiated components of their offerings to complementary organizations (sale-leaseback type transactions). The Block and Vision Hill have put together high-quality industry maps for these sub-segments, covering Miners, Exchanges, Wallets, Infrastructure, Data, Investors, etc. Previously, it was not possible for such sub-segments to exist

The quintessential example of this is third party custody (for example, Bitstamp outsourced custody to BitGo) but a more recent example is node infrastructure. Historically, a crypto company anywhere in the value stack needed to operate their own nodes. This is expensive and cumbersome and, above a certain point, undifferentiated. The growth in crypto node infrastructure specialists (HOVA and all) has allowed for this critical function to be outsourced. For example, Coinbase is outsourcing staking to Bison Trails.

A final example of strategy optimization: several large scale traditional fintechs have partnered with crypto exchanges to provide users with access to the crypto asset class, so called “Crypto-as-a-Service”. PayPal and Revolut did such deals with Paxos. At first blush, it’s easy to see why this new product offering and the associated deals make sense: PayPal and Revolut get efficient access to a new market for an existing, captive customer base, while Paxos gets access to the order flow. These deals are a case study in refined value proposition and complementary engagement, both inter- and intra-industry. More importantly, these deals significantly expand the crypto community introducing the concept to millions for the first time. We are almost certain to see more of them. But in the medium term, this type of partnership raises some key questions for the crypto businesses. For example, what is the benefit of Paxos versus, say, Citadel? Is Paxos the best solution for PayPal’s needs or the only solution available at the moment? What is the superior competitive advantage: being the best liquidity provider or having the most crypto knowledge? We explore these questions further in the Questions for the future section below. 

Survival of the Fittest

As you can imagine, this strategy optimization theme has, and will, lead to M&A. We are at the beginning of an M&A shake-out process which will ultimately culminate in two or three high quality survivors in each crypto sub-category.

The most capable exchanges have leveraged their economic dominance to round out their organizations into mature businesses. The strong cash flow gave exchanges the ability to (i) attract capable and expensive hires; (ii) comply with expensive regulations; (iii) expand into new markets; and, critically, (iv) become the primary strategic acquirer in the industry. 

Source: Mapping out M&A acquisitions within the digital asset industry

The M&A-driven shake out has only just begun. As the “apex predator”, much of the crypto industry will need to refine and harden their business models to symbiotically align with, or at least account for, the exchanges or risk obsolescence. 

Source: Coin Metrics Market Data Feed

Questions for the Future

As Yogi Berra said, it’s difficult to make predictions, especially about the future. The craziness of the crypto industry does not make things easier. But crypto exchanges have matured and evolved to the point that there are some known unknowns. 

For example: do retail crypto exchanges want to be brokerages or exchanges? Or maybe more like banks? Does, say, ErisX become the “Nasdaq of crypto” or does ErisX just become Nasdaq’s crypto arm? If retail customers want to buy Bitcoin and Tesla at the same time (they do), what is Gemini’s strategy to obtain the appropriate license? Similarly, if macro hedge funds want to trade Bitcoin along with other asset classes, does a crypto-only prime brokerage make sense? As demonstrated by the PayPal – Paxos deal noted above, are exchanges add-ons to the existing fintechs or do they have independent value propositions?

These questions highlight a textbook example of the Thucydides Trap and this is not the first time a rising business power has faced off against the incumbent. Just as crypto businesses have had to align around crypto exchanges, crypto exchanges themselves may need to make similar adjustments when money center banks and big tech companies fully enter the industry. How crypto exchanges navigate this almost inevitable Thucydides Trap will likely be the defining trend for the industry. 

Conclusion

Cryptocurrencies are a first principles re-imagining of the basic concept of “money”. They are decentralized, without any single point of control. Changes to the protocols are designed to be slow moving and incremental. 

And yet, despite all of that, in less than a decade the crypto industry, and exchanges specifically, has gone from questions of basic product viability to questions of industry-wide competitive advantages against the likes of Google, JP Morgan, and the Federal Reserve itself. 

There are material outstanding questions and significant challenges ahead but the evolution of the industry to date has been remarkable by any measure.

Coin Metrics’ State of the Network: Issue 64 – How YAM’s Collapse Drove Ethereum Fees to New Heights

Weekly Feature

The DeFi Fee Explosion: How YAM’s Collapse Drove Ethereum Fees to New Heights

By Nate Maddrey and the Coin Metrics Team

The following is an excerpt from the full piece, which has been truncated due to space limitations. Read the full report here.

On August 12th Ethereum’s total daily transactions fees topped $6.87M, shattering the previous all-time high of $4.55M set in January 2018. The following day, Ethereum had $8.61M worth of fees, once again breaking the daily record. 

Blockchain transaction fees are a double-edged sword. High fees means there’s high demand for usage, but can also cause network congestion and price out certain users. 

When Ethereum miners mine a block they need to select which transactions to include. Typically miners will sort by highest fee and add transactions until they run out of block space. This means that transactions with relatively low fees get deprioritized and included in later blocks once there’s space. 

Ethereum fees are measured in units of “gas.” Each transaction costs a certain amount of gas depending on the amount of computation required (more complex transactions require more gas). Transaction senders specify the gas price they want to pay when initiating a transaction. If a transaction sender increases the gas price that they’re willing to pay, there’s a higher likelihood that their transaction gets prioritized. 

Rising transaction fees therefore signals that there’s increasing demand for transactions to be quickly confirmed and included in blocks. High transaction fees also leads to higher revenue for miners, as miners receive the fees as part of their reward for securing the network. 

But high transaction fees come at a cost. As average fees increase, certain types of users and applications get priced out. Use cases like games and digital collectibles that depend on large amounts of microtransactions can become prohibitively expensive. And it becomes harder for average, retail users to compete with large, whale investors who can afford to pay high transaction fees. 

YAM Mania 

This recent surge in fees was driven by one of the craziest decentralized finance (DeFi) events to date: the launch of the YAM token. 

On August 11th at 17:00 UTC, the team behind DeFi project yam.finance announced that they would soon be launching the YAM token. Following the model used by DeFi token YFI, YAM was to be distributed through staking pools. 

During the ICO boom of 2017 newly created tokens were sold through token sales, often driving prices up to crazy levels. Furthermore, tokens were often held and distributed by the ICO’s founding team or foundation, allowing many project founders to quickly profit. DeFi projects have pioneered a new model of token distributions: instead of a token sale, they distribute tokens as rewards for staking pools. DeFi projects will specify a list of staking pools and liquidity pools that are eligible to earn the token. The new token is then distributed proportionally to the amount of tokens staked, with higher stakes earning more tokens. 

The yam.finance team outlined eight different staking pools, each with a different cryptoasset that could be staked (including WETH, COMP, MKR, YFI, and others) to earn YAM. Following in the footsteps of yearn.finance’s YFI token, the yam.finance team chose not to reserve any tokens for themselves, distributing them entirely to the community. 

Once YAM launched there was a rush to start staking funds in one of the eight pools and start earning YAM as a reward. YAM staking pool smart contracts generated over $15K worth of transaction fees within hours of launch.

Signs of Trouble

But soon after YAM started to take off it began to unravel. The YAM token was designed to be “supply elastic,” meaning the token supply would automatically contract or expand in an attempt to keep price relatively stable. YAM’s supply elastic model was based on another DeFi token, Ampleforth (AMPL). 

The supply adjustments were to occur as a nightly rebase using a complex mechanism that would adjust supply without diluting current holders. But despite the relatively complex architecture, the YAM team did not have their smart contracts audited, as they explicitly stated in their announcement post. 

At 18:00 UTC on August 12th the yam.finance team announced that they found a bug in the rebasing contract which threatened the future of the project. To fix the issue they needed at least 35K YAM tokens delegated to a governance smart contract so they could pass a vote to temporarily pause the rebasing mechanism.

The rush to move YAM as a response to the bug was the first event that caused fees to skyrocket. This fee spike was also seen on Uniswap, the decentralized exchange that has become the center of DeFi trading. Further complicating things, a lot of YAM had been staked in Uniswap liquidity pools, which needed to be quickly unstaked and moved. This caused Uniswap fees to surge and peak at 20:00 on August 12th. 

YAMpocalypse

But YAM’s problems did not stop there. At 07:27 UTC on August 13th the yam.finance team announce that they had submitted a governance proposal to fix the bug before the upcoming rebase at 08:00. Crucially, they strongly encouraged users to exit the Uniswap YAM/yCRV liquidity pool before the rebase. But soon after, with help from security experts, the team concluded that “the rebaser bug would interact with the governance module and prevent this proposal from succeeding.” The YAM protocol was effectively dead. Transaction fees peaked at 08:00 UTC, and then started to fall.

Continue reading “The DeFi Fee Explosion”…

Network Data Insights

Summary Metrics

Source: Coin Metrics Network Data Pro

Ethereum (ETH) remained hot this past week, with market capitalization growing by 5.9% week-over-week compared to a 1.5% growth for Bitcoin (BTC). ETH fees grew a shocking 174.3%, after already nearing all-time highs in previous weeks. On August 12th and 13th ETH fees shot to new all-time highs, as covered in this week’s Weekly Feature. 

Network Highlights

BTC hash rate is reaching new all-time highs as price is starting to climb. After a rocky start to 2020 that saw large drops in hash rate following the March 12th price crash and May 11th halving, BTC’s hash rate has fully recovered and eclipsed previous levels. This is a great sign for network security and signals that fundamentals are strong.  

Source: Coin Metrics Network Data Charts

Although ETH’s hash rate has not yet surpassed 2018 highs, it has been surging as of late as well. Spurred by the increase is miner revenue from rising transaction fees, ETH’s 7 day average hash rate reached 196.52 TH/s on August 16th, its highest level since November 2018. 

Source: Coin Metrics Network Data Charts

Market Data Insights

The market is looking frothy. 90.23% of the 248 assets that Coinmetrics provides reference rates on are up month over month with an average price increase of 53.71%. To highlight some of the exuberance we take a look at two assets in honor of the newest celebrity to embrace the cryptocurrency space, Dave “Davey Day Trader” Portnoy.

Orchid Protocol, OXT, made a 284% move over the weekend to a high of $1.00 from roughly $0.26 in less than 24 hours. It is not overtly clear what was the catalyst for this price movement with the most recent news from the project team being additional support for WireGuard on iOS, MacOS and Android, a VPN protocol supported by many major VPN providers. Many in the community remain skeptical about the move and the price has since come down to $0.57 as of the time this article was written.

Source: Coin Metrics Reference Rates

Chainlink (LINK) also continued to rage on, melting upward and reaching a price of over $20 on some exchanges. 

Source: Coin Metrics Reference Rates

Over the past thirty days LINK has risen nearly 140% and is now third behind only Bitcoin and ETH in terms of average 7 day volume.

Source: Coin Metrics Market Data Feed

CM Bletchley Indexes (CMBI) Insights

All CMBI and Bletchley Indexes finished this last week with positive returns, with the Bletchley 40 (small caps) again performing best whilst the CMBI Bitcoin Index fluctuated between 11,000 and 12,000. The CMBI Ethereum Index had another strong week, closing up 10.2% at 429.76. 

The Even Indexes also had a great week, all returning above 12%. The Even Indexes provide a different exposure to crypto markets, weighting each asset within an index evenly at the start of the month. During a week where Bitcoin underperformed the rest of the market, this is very visible in the returns of the B10 Even and the BTotal Even, which both significantly outperformed their market cap weighted counterpart.

Source: Coin Metrics CMBI

The CMBI Bitcoin Hash Rate Index reached new highs this last week, showing no signs of slowing down despite the advent of the halving back in May. As a result of the sustained high levels of hash rate, the CMBI Bitcoin Observed Work Index has also reached new all time highs, indicating that miners in aggregate have been conducting over 11,250 Zeta Hashes per day.

More performance information on the:

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • We’re excited to announce the new Coin Metrics mobile app. View real-time cryptoasset pricing and relevant on-chain data in a single app!  Download for free here: https://coinmetrics.io/mobile-app/

As always, if you have any feedback or requests, don’t hesitate to reach out at [email protected]

Subscribe and Past Issues

Coin Metrics’ State of the Network, is an unbiased, weekly view of the crypto market informed by our own network (on-chain) and market data.

If you’d like to get State of the Network in your inbox, please subscribe here. You can see previous issues of State of the Network here.

Check out the Coin Metrics Blog for more in depth research and analysis.

The DeFi Fee Explosion: How YAM’s Collapse Drove Ethereum Fees to New Heights

By Nate Maddrey and the Coin Metrics Team

On August 12th Ethereum’s total daily transactions fees topped $6.87M, shattering the previous all-time high of $4.55M set in January 2018. The following day, Ethereum had $8.61M worth of fees, once again breaking the daily record. 

Blockchain transaction fees are a double-edged sword. High fees means there’s high demand for usage, but can also cause network congestion and price out certain users. 

When Ethereum miners mine a block they need to select which transactions to include. Typically miners will sort by highest fee and add transactions until they run out of block space. This means that transactions with relatively low fees get deprioritized and included in later blocks once there’s space. 

Ethereum fees are measured in units of “gas.” Each transaction costs a certain amount of gas depending on the amount of computation required (more complex transactions require more gas). Transaction senders specify the gas price they want to pay when initiating a transaction. If a transaction sender increases the gas price that they’re willing to pay, there’s a higher likelihood that their transaction gets prioritized. 

Rising transaction fees therefore signals that there’s increasing demand for transactions to be quickly confirmed and included in blocks. High transaction fees also leads to higher revenue for miners, as miners receive the fees as part of their reward for securing the network. 

But high transaction fees come at a cost. As average fees increase, certain types of users and applications get priced out. Use cases like games and digital collectibles that depend on large amounts of microtransactions can become prohibitively expensive. And it becomes harder for average, retail users to compete with large, whale investors who can afford to pay high transaction fees. 

YAM Mania 

This recent surge in fees was driven by one of the craziest decentralized finance (DeFi) events to date: the launch of the YAM token. 

On August 11th at 17:00 UTC, the team behind DeFi project yam.finance announced that they would soon be launching the YAM token. Following the model used by DeFi token YFI, YAM was to be distributed through staking pools. 

During the ICO boom of 2017 newly created tokens were sold through token sales, often driving prices up to crazy levels. Furthermore, tokens were often held and distributed by the ICO’s founding team or foundation, allowing many project founders to quickly profit. DeFi projects have pioneered a new model of token distributions: instead of a token sale, they distribute tokens as rewards for staking pools. DeFi projects will specify a list of staking pools and liquidity pools that are eligible to earn the token. The new token is then distributed proportionally to the amount of tokens staked, with higher stakes earning more tokens. 

The yam.finance team outlined eight different staking pools, each with a different cryptoasset that could be staked (including WETH, COMP, MKR, YFI, and others) to earn YAM. Following in the footsteps of yearn.finance’s YFI token, the yam.finance team chose not to reserve any tokens for themselves, distributing them entirely to the community. 

Once YAM launched there was a rush to start staking funds in one of the eight pools and start earning YAM as a reward. YAM staking pool smart contracts generated over $15K worth of transaction fees within hours of launch.

Signs of Trouble

But soon after YAM started to take off it began to unravel. The YAM token was designed to be “supply elastic,” meaning the token supply would automatically contract or expand in an attempt to keep price relatively stable. YAM’s supply elastic model was based on another DeFi token, Ampleforth (AMPL). 

The supply adjustments were to occur as a nightly rebase using a complex mechanism that would adjust supply without diluting current holders. But despite the relatively complex architecture, the YAM team did not have their smart contracts audited, as they explicitly stated in their announcement post. 

At 18:00 UTC on August 12th the yam.finance team announced that they found a bug in the rebasing contract which threatened the future of the project. To fix the issue they needed at least 35K YAM tokens delegated to a governance smart contract so they could pass a vote to temporarily pause the rebasing mechanism.

The rush to move YAM as a response to the bug was the first event that caused fees to skyrocket. This fee spike was also seen on Uniswap, the decentralized exchange that has become the center of DeFi trading. Further complicating things, a lot of YAM had been staked in Uniswap liquidity pools, which needed to be quickly unstaked and moved. This caused Uniswap fees to surge and peak at 20:00 on August 12th. 

YAMpocalypse

But YAM’s problems did not stop there. At 07:27 UTC on August 13th the yam.finance team announce that they had submitted a governance proposal to fix the bug before the upcoming rebase at 08:00. Crucially, they strongly encouraged users to exit the Uniswap YAM/yCRV liquidity pool before the rebase. But soon after, with help from security experts, the team concluded that “the rebaser bug would interact with the governance module and prevent this proposal from succeeding.” The YAM protocol was effectively dead. Transaction fees peaked at 08:00 UTC, and then started to fall.

Zooming out, the following chart shows how dramatically Uniswap fees increased compared to normal. Total Uniswap fees reached almost $100K in a single hour. Comparatively, for most of July Uniswap hourly fees remained below $10K. 

At their peak, average Uniswap fees topped $16 per transaction. YAM staking pool fees were close behind, also briefly topping $16. As average fees for Uniswap and YAM rose, average fees rose across the Ethereum network as others were forced to pay higher gas prices to compete for block space. Average fees peaked at 08:00 on August 13th, as the YAM protocol went down. 

Note: The MYX Network token launch on August 13th had many transactions with extremely high gas prices which temporarily caused ETH fees to spike above $20. 

DeFi Madness

The speculation surrounding YAM draws natural comparisons to 2017’s ICO mania. But this is a more complex version, where speculators need to interact with an increasingly complicated system of DeFi smart contracts. This can lead to unexpected risk and sudden surges in fees, which can make it prohibitively expensive to get in and out of speculative positions quickly. Ultimately, escalating fees can cause mass congestion and lead to cascading effects throughout the network. 

High fees also make it harder for retail investors to participate in this new wave of DeFi tokens. If users are forced to pay high fees, it becomes less and less profitable to invest relatively small amounts into DeFi applications. DeFi is increasingly a game for whales, unless there are solutions to help drive fees down. 

Speculation often helps drive innovation. DeFi will push Ethereum towards scalability solutions, and developers will likely continue to push the boundaries of what’s possible in decentralized finance. But there will likely also be a lot of damage along the way, especially if DeFi applications continue to launch without proper auditing and precautions.

The madness continues, as CRV also had a chaotic launch shortly after the YAM collapse. And the yam.finance team has already raised money through a gitcoin grant to get their contracts audited in anticipation of launching v2 of the protocol. Only time will tell how the DeFi experiment plays out, and how the rest of the Ethereum network will be affected. 

Coin Metrics’ State of the Network: Issue 63 – Introducing the Coin Metrics Quarterly Supply Transparency Report

Weekly Feature

Introducing the Coin Metrics Quarterly Supply Transparency Report

by Ben Celermajer and the Coin Metrics Team

The following is an excerpt from a full announcement of our new Quarterly Supply Transparency Report (truncated due to space). You can read the full piece here.

Part of Coin Metrics’ mission is to provide the community with transparent cryptoasset market and network data that allows investors to make the most informed decisions. One of our most recent metrics, Free Float Supply, has provided Coin Metrics with the opportunity to gain visibility into the activities of strategic stakeholders in cryptoasset networks and report our findings to our community on a quarterly basis. We perceive this type of reporting to be akin to traditional equity markets which mandate that company insiders and other strategic stakeholders (e.g. those that own >5% of shares) report their holdings to governing bodies, which in turn are promptly made public.

Having only released the Free Float Metrics one month ago, our first report is being released slightly behind schedule. But moving forward the Quarterly Transparency Report will be released on a regular schedule, which we will be announcing soon.

Free Float Supply Inflation

At the highest level, analyzing and understanding the changes in Free Float Supply have allowed Coin Metrics to identify and better understand the inflation rate of cryptoassets. It is widely known that Proof of Work or Proof of Stake blockchains have a rate of inflation from the issuance of tokens to miners/stakers. But what is less understood is the inflation rate of cryptoassets like Stellar, Cardano, XRP, or Chainlink. Whilst these tokens all have fixed or deflationary total on-chain supplies, the transition of restricted assets (such as those held by stakeholders) into the supply available to the market can be perceived as inflation. 

Evidenced above, Free Float Inflation Rates across cryptoassets vary vastly. There are also several results that may seem non-intuitive at first glance, again highlighting the importance of understanding the full context of an asset before passing judgment. Some of the glaring oddities include:

  • Huobi Token’s high deflation – Whilst Huobi undergoes routine token burns, on March 1, 2020, Huobi burned 147.4m HT of a total 500m outstanding HT. This one-off burn followed a community vote to remove assets assigned to the Platform Operation and Investor Protection Fund.
  • In instances where a cryptoasset’s Free Float Supply is relatively small compared to its total On-Chain Supply, new issuances from foundation addresses can significantly impact inflation levels, as witnessed in the case of Crypto.com Coin (CRO).
  • Dogecoin deflation – In the case of blockchains that are older than 5 years, Coin Metrics Network Data tools identify addresses whose assets have not been sent in over 5 years. Assets in these addresses are classified as belonging to long term strategic holders of a network and thus considered restricted from liquid supply. In the case of DOGE over the last 12 months, assets that have fallen into this category have been larger than those issued by the mining issuance schedule, thus resulting in a net deflation of Free Float Supply.

In the early stages of crypto assets, the primary categories of stakeholders that restrict supply are foundations/companies and team members. Very few chains have aged more than 5 years, thus have no ‘provably’ long term strategic holders, and there has been little burning that has taken place other than from some revenue-generating businesses that operate tokens (e.g. exchanges like FTX or Huobi). To that extent, the majority of changes to supply disclosed in the Quarterly Supply Transparency Report are from the movement from Foundation/Company or Team owned addresses.

Foundation/Company Restricted Supply

The chart below displays the foundations/companies that have been most active over the last 12 months manage some of the largest market capitalization crypto assets, including XRP, Stellar, Crypto.com Coin and Huobi. 

Note 1: In March 2020, Huobi Foundation burned $422M worth of HT

Note 2: In November 2019, Stellar Foundation burned $4.14B worth of XLM

The net value of cryptoassets that moved outside of identified Foundation/Company controlled addresses in Q2 2020 was $743M, down from $891M during the previous quarter ($148M less). However, on closer observation, $422M of the assets moved outside of foundation addresses in Q1 2020 were from the Huobi burn of 147M HT. If we were to exclude this from Q1 values since it was a burn, distribution of assets from foundation address increased $274M or 58%.

Continue reading here

Network Data Insights

Summary Metrics

Source: Coin Metrics Network Data Pro

Ethereum’s (ETH) growth slowed this past week, at least temporarily. After surging last week due to the rapid rise of decentralized finance (DeFi), ETH active addresses were about even for the week. ETH transactions grew by just 0.9% week-over-week, while transfers declined by 1.4%. 

Bitcoin (BTC) usage was also fairly flat for the week, with active addresses growing slightly and transfers dropping by 2.0%. On a positive note, BTC estimated hash rate was up 3.0% week-over-week and continues to hover near all-time highs.

Network Highlights

On paper, total supply seems like one of the most straightforward cryptoasset metrics to calculate. But in practice calculating ETH’s total supply is tricky, as many found out over the weekend

One of the advantages of cryptoassets is that they are inherently auditable. Unlike traditional assets, anyone can audit the supply and full transaction history. The entire Bitcoin blockchain can be replayed by running a node and tracking the unspent transaction outputs (UTXOs) that are included in each block. After replaying the whole chain, the remaining unspent outputs make up the asset’s ledger. Summing up their value gives the asset’s supply.

But for other blockchains, auditing supply can be more complicated. Ethereum, for example, uses an account-based model which requires auditors to track credits and debits for each account on the chain. Further complicating things, Ethereum has made some implicit ledger edits, where the ledger was changed but the change was not included in a transaction or block. Implicit ledger edits are not unique to Ethereum – other account-based blockchains, like Tezos, have had similar issues.

In State of the Network Issue 30 we analyzed Ethereum’s previous internal ledger edits as part of a deep dive into the auditability of different cryptoassets:

For example, following the DAO attack, Ethereum experienced a hard fork to return funds withdrawn from the DAO to another address not controlled by the person behind the unexpected DAO withdrawals. Those changes to the ledger are implemented in the code run by the nodes, not in a transaction nor in a block. Unfortunately for auditors, neither the block raw data nor the tracing data indicate that those changes occurred. The only way to capture those credits and debits is to find the hardcoded list of affected addresses and emulate what edits the code ran over the ledger.

Taking this and other edge cases into account, we can calculate ETH’s total supply: 112.1146M as of August 9th.

Source: Coin Metrics Network Data Charts

But verifying on-chain supply is just the first step in understanding a cryptoasset’s true supply. Cryptoasset supply can be permanently lost or burned, which should be accounted for (we detailed some examples of this in State of the Network Issue 26 – How Many Bitcoins Are Permanently Lost?). Additionally, certain cryptoassets have supply that is staked or held by an official foundation, effectively removing it from liquid supply. 

To account for this, Coin Metrics developed “free float supply,” which was introduced in State of the Network Issue 57. Free float supply takes a methodical approach to identifying supply that is highly unlikely to be available to the market in the short to mid-term. ETH’s free float supply is 108.0168M as of August 9th.

Source: Coin Metrics Network Data Charts

Interestingly, ETH’s free float supply percentage (i.e. the percent of total supply that is liquid) is higher than Bitcoin (BTC), Ripple (XRP), Litecoin (LTC), Bitcoin Cash (BCH), Tezos (XTZ), and Cardano (ADA). About 96.35% of ETH supply is freely available to the market at time of writing. 

Source: Coin Metrics Formula Builder

Ultimately, it’s important that data providers operate their own nodes to get a full picture of what is truly happening on-chain. When it comes to important metrics like on-chain supply, the old adage always rings true: don’t trust, verify.

Market Data Insights

The markets cooled off this past week after last week’s ETH fueled surge. BTC and ETH are both up 5%, while Ripple (XRP) finished the week even. 

ChainLink (LINK) continued its run, up 67% on the week with price reaching new all-time highs. LINK’s trading volume even temporarily passed BTC’s trading volume on Coinbase. ChainLink is a decentralized oracle network that’s used in decentralized finance (DeFi) apps like Synthetix. Over the weekend, over $20M worth of LINK short positions were liquidated on Aave, a DeFi platform built on Ethereum. This led to questions whether the short positions were part of an elaborate marketing campaign designed to pump LINK’s price higher. 

Source: Coin Metrics Reference Rates

Ethereum Classic (ETC) was the only major cryptoasset down on the week, with a 4% loss. Over the past week ETC suffered multiple 51% attacks and a successful double spend of $5.6M, a massive security breach that poses an existential threat to the Ethereum Classic network.

Source: Coin Metrics Reference Rates

CM Bletchley Indexes (CMBI) Insights

As the CMBI Bitcoin Index and CMBI Ethereum Index took a breather from their last two weeks of strong returns, it was the alt-coins that saw the most action this past week. The Blethley 40 (small caps) experienced the greatest returns, growing 20.7% for the week. The Bletchley 20 (mid caps) and Bletchley 10 (large caps) also both outshone the single asset indexes, returning 9.0% and 7.4% respectively.

Interestingly, despite the Bletchley 10 and Bletchley Total growing the least of the market cap weighted indexes, their even counterparts both outperformed the Bletchley 20 Even fairly substantially. This is largely the result of Bitcon and Ethereum composing the majority of the market cap weighted Bletchley 10 (68% BTC, 13% ETH) and Bletchley Total (63% BTC, 12% ETH).

Update to the Bletchley Indexes: As of the 1st of September, Coin Metrics will take the next step to integrate the Bletchley Indexes into Coin Metrics, transitioning all infrastructure over to Coin Metrics owned systems and updating all pricing sources to Coin Metrics Reference Rates. As part of the transition, Coin Metrics will be updating the history of the Bletchley Indexes to reflect Coin Metrics historical reference rates. Further, going forward, we will also be expanding the universe of assets available for selection which will result in a significant turnover in the index during the September Rebalance.

This is an exciting step for Coin Metrics that allows the company to wholly own, manage and have transparency into the current and historical pricing data as well as overcoming anomalies that currently existed from methodologies that are not administered and calculated by Coin Metrics. 

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • We’re excited to announce the new Coin Metrics mobile app. View real-time cryptoasset pricing and relevant on-chain data in a single app!  Download for free here: https://coinmetrics.io/mobile-app/

As always, if you have any feedback or requests, don’t hesitate to reach out at [email protected]

Subscribe and Past Issues

Coin Metrics’ State of the Network, is an unbiased, weekly view of the crypto market informed by our own network (on-chain) and market data.

If you’d like to get State of the Network in your inbox, please subscribe here. You can see previous issues of State of the Network here.

Check out the Coin Metrics Blog for more in depth research and analysis.

Introducing the Coin Metrics Quarterly Supply Transparency Report

by Ben Celermajer and the Coin Metrics Team

Key Takeaways

  • Coin Metrics will release Quarterly Supply Transparency Reports, with today’s Q2 Supply Transparency Report being the first of its kind. This report hopes to bring insight into the supply dynamics of cryptoassets, specifically focusing on the activities of key categories of stakeholders.
  • Changes in free float over the last year can provide clarity into the implied level of inflation as a result of non-liquid assets entering the market. For example, Crypto.com has an implied inflation rate of 145%, XRP and 0x have implied inflation rates of 17%, and Stellar has an implied inflation rate of 13%.
  • The 0x foundation seems to have taken the opportunity to put their treasury to work through Q2, taking advantage of DeFi yields after the launch of Compound. 
  • Many PoW assets experienced inflation adjustments through the month, including BTC, BCH, BSV, and BTG which all experienced halvings in inflation rates. 
  • The amount of Bitcoin that moved into the strategic long term holder category had its largest quarterly increase since Q2 2019, removing another 103K BTC from Free Float Supply.

Intro

Part of Coin Metrics’ mission is to provide the community with transparent cryptoasset market and network data that allows investors to make the most informed decisions. One of our most recent metrics, Free Float Supply, has provided Coin Metrics with the opportunity to gain visibility into the activities of strategic stakeholders in cryptoasset networks and report our findings to our community on a quarterly basis. We perceive this type of reporting to be akin to traditional equity markets which mandate that company insiders and other strategic stakeholders (e.g. those that own >5% of shares) report their holdings to governing bodies, which in turn are promptly made public.

Having only released the Free Float Metrics one month ago, our first report is being released slightly behind schedule. But moving forward the Quarterly Transparency Report will be released on a regular schedule, which we will be announcing soon.

Free Float Refresher

Free Float Supply is a new metric that aims to better represent a cryptoasset’s liquid supply in the market. By restricting categories of network stakeholders that are not considered to provide immediate liquidity to markets, this metric provides investors with a different perspective on ‘available’ supply that can help to inform portfolio construction and design, improve valuation techniques, and provide insights into liquidity and inflation.

The key categories of stakeholders that are considered to restrict liquidity for markets in the calculation of Free Float are:

  • Foundations, companies and founding teams
  • Addresses that have been inactive for over 5 years (long term strategic/lost)
  • Addresses that stake in a smart contract to partake in governance and long-term strategic outcomes of a network without any direct monetary incentive to do so
  • Holders that are subject to on-chain vesting 
  • Addresses that are considered burned or provably lost

For more detailed definitions, calculation methodology and explainers of Free Float Supply you can reference our Medium Blog Methodology Announcement or our SOTN Issue 57 launch announcement.

Transparency Reporting

Before we dive into the results and some analysis of the Supply Transparency Report, there are a few important disclaimers we would like to make:

  1. In the current unregulated state of pseudonymous cryptoassets, supply tracking is an art, not a science. Whilst we hope to represent the most accurate state, we acknowledge that identifying everything to a 100% accuracy can be near impossible in certain cases. 
  2. Coin Metrics tracks the movement of tokens into and out of a tagged set of addresses, continually updating where appropriate. We do not make any conclusions as to why funds have moved and in no way insinuate that movement implies that assets are being sold.
  3. Whilst in cases we isolate the activity of a group of stakeholders, for full context, it is important to observe and understand the aggregate movement of restricted supply. There are cases where a foundation has moved a large percentage of assets, but sent them to burn addresses or other restricted addresses such as team members. These types of transactions do not increase an asset’s Free Float Supply.
  4. Coin Metrics’ asset coverage is currently limited to the following assets: ADA, BAT, BCH, BSV, BTC, BUSD, CRO, DASH, DGB, DOGE, ETC, ETH, FTT, HT, LINK, LTC, MKR, NEO, PAX, XLM, XMR, XRP, XTZ, USDC, USDT (on ETH, TRX and Omni), and ZRX.
  5. The value of address activity in this report is defined as the change in address balance multiplied by the Coin Metrics UTC Close Reference Rate for that day.

Free Float Supply Inflation

At the highest level, analyzing and understanding the changes in Free Float Supply have allowed Coin Metrics to identify and better understand the inflation rate of cryptoassets. It is widely known that Proof of Work or Proof of Stake blockchains have a rate of inflation from the issuance of tokens to miners/stakers. But what is less understood is the inflation rate of cryptoassets like Stellar, Cardano, XRP, or Chainlink. Whilst these tokens all have fixed or deflationary total on-chain supplies, the transition of restricted assets (such as those held by stakeholders) into the supply available to the market can be perceived as inflation. 

Evidenced above, Free Float Inflation Rates across cryptoassets vary vastly. There are also several results that may seem non-intuitive at first glance, again highlighting the importance of understanding the full context of an asset before passing judgment. Some of the glaring oddities include:

  • Huobi Token’s high deflation – Whilst Huobi undergoes routine token burns, on March 1, 2020, Huobi burned 147.4m HT of a total 500m outstanding HT. This one-off burn followed a community vote to remove assets assigned to the Platform Operation and Investor Protection Fund.
  • In instances where a cryptoasset’s Free Float Supply is relatively small compared to its total On-Chain Supply, new issuances from foundation addresses can significantly impact inflation levels, as witnessed in the case of Crypto.com Coin (CRO).
  • Dogecoin deflation – In the case of blockchains that are older than 5 years, Coin Metrics Network Data tools identify addresses whose assets have not been sent in over 5 years. Assets in these addresses are classified as belonging to long term strategic holders of a network and thus considered restricted from liquid supply. In the case of DOGE over the last 12 months, assets that have fallen into this category have been larger than those issued by the mining issuance schedule, thus resulting in a net deflation of Free Float Supply.


Change from preceding quarter12 month change
2019 Q32019 Q42020Q12020Q2
Dogecoin Free Float(2,428,805,927)83,690,261(702,309,000)1,033,610,088(2,013,814,578)
      Current Supply1,257,709,8521,269,780,0001,251,120,0001,250,530,0005,029,139,852
      Foundation
      Team
      Lost
      Governance
      Long term3,686,515,7791,186,089,7391,953,429,000216,919,9127,042,954,430

In the early stages of crypto assets, the primary categories of stakeholders that restrict supply are foundations/companies and team members. Very few chains have aged more than 5 years, thus have no ‘provably’ long term strategic holders, and there has been little burning that has taken place other than from some revenue-generating businesses that operate tokens (e.g. exchanges like FTX or Huobi). To that extent, the majority of changes to supply disclosed in the Quarterly Supply Transparency Report are from the movement from Foundation/Company or Team owned addresses.

Foundation/Company Restricted Supply

The chart below displays the foundations/companies that have been most active over the last 12 months manage some of the largest market capitalization crypto assets, including XRP, Stellar, Crypto.com Coin and Huobi. 

Note 1: In March 2020, Huobi Foundation burned $422M worth of HT

Note 2: In November 2019, Stellar Foundation burned $4.14B worth of XLM

The net value of cryptoassets that moved outside of identified Foundation/Company controlled addresses in Q2 2020 was $743M, down from $891M during the previous quarter ($148M less). However, on closer observation, $422M of the assets moved outside of foundation addresses in Q1 2020 were from the Huobi burn of 147M HT. If we were to exclude this from Q1 values since it was a burn, distribution of assets from foundation address increased $274M or 58%.

Team Restricted Supply

Of the team owned address activity, it was XRP, FTX, Crypto.com Coin, and Chainlink that were the most active in the Coin Metrics coverage universe. The activity from identified FTX and Crypto.com Team addresses led to net credits to those accounts, solely from foundation distributions. Where-as the identified Team address activity from XRP and Chainlink led to net debits (i.e. distributions from these accounts that increased Free Float Supply). 

The net value of cryptoassets that moved outside of identified Company Team addresses in Q2 2020 was $9.4M, down from $32.0M during the previous quarter ($23M less). It is worth noting though that the largest team address activity during Q2 was the credit of $67M CRO to Crypto.com Coin team addresses, without which the net value of cryptoassets that moved outside of Company Team controlled addresses would have been $76.5M. 

Some interesting observations

Through the process of identifying and analyzing tagged addresses and their activity there are some fun insights that can be generated. During Q2 2020 some of the fun insights observed by the Coin Metrics Team were:

  • Not ones to let their treasury assets remain dormant, the 0x Foundation capitalized on the opportunity to achieve some yield on their assets during Q2 following the launch of Compound’s yield farming that offered high APY returns as well as COMP distributions for early participants. During Q2, the Foundation sent ~50% of the 0x: Multisig funds to Compound in 4 10M ZRX transactions (1, 2, 3 and 4).
  • Another crypto savvy crowd this month was some of the BAT team members, some of whom also took the opportunity to chase high yield and send funds to Compound. Whilst other team members forwent the opportunity to farm, favoring the opportunity to send assets to exchanges whilst the price of BAT was relatively high.
  • The programmatic issuance rates of many Proof of Work assets reduced in Q2 2020, with assets such as Bitcoin, Bitcoin Cash, and Bitcoin SV all experiencing halvings, and assets such as DASH and ETC undergoing changes to their issuance rates as well.
  • The amount of Bitcoin that moved into the strategic long term holder category had its largest quarterly increase since Q2 2019, removing another 103K BTC from Free Float Supply.

Conclusion

In traditional capital markets, ‘insider’ trading is highly regulated, can only be done under certain conditions and must be reported to public markets in a timely manner. In crypto markets, this standard does not and may not ever exist. However, through increased transparency initiatives, the cryptoasset ecosystem could get close to generating a similar standard. However, in lieu of this existing, changes in identified key stakeholder categories can provide markets with some degree of transparency. 

This is the essence of what Coin Metrics strives to provide our community with the Quarterly Free Float Supply Transparency Report. We hope that this report can be another tool that provides more insight into market dynamics and help the community better evaluate the cryptoasset ecosystem and make more informed investment decisions. 

Q2 2020 Supply Transparency Report

The Coin Metrics Cryptoasset Supply Transparency Report brings visibility and insight into the actions of the key categories of a cryptoasset’s holders that are deemed to restrict supply from the market, as defined in the CMBI Float Adjustment Methodology.

The current universe of cryptoassets that are covered in this report is reflective of those that Coin Metrics administers Free Float Supply values for, which includes: 0x, Basic Attention Token, Bitcoin, Bitcoin Cash, Bitcoin Gold, Bitcoin SV, Cardano, Chainlink, Crypto.com Coin, DASH, Decred, Digibyte, Dogecoin, Ethereum, Ethereum Classic, FTX Token, Huobi Token, Litecoin, MakerDAO, NEO, Stellar, Tezos and XRP. Free Float Supply metrics are readily available through the Coin Metrics data visualization suite.

Note, for all of the monthly and quarterly U.S. Dollar values herein, an approximate aggregate quarterly value has been calculated by taking the net supply added or removed each day and multiplying it by that specific date’s Coin Metrics End of Day (00:00 UTC) Reference Rate.

The additional net value added to cryptoasset markets through Q2 2020 was $1.36B, most of which can be attributed to Crypto.com Coin ($392M), XRP ($268M), Ethereum ($256M) and Bitcoin ($245M). 

The cryptoassets with the highest free float annual inflation rate over the last year were Crypto.com Coin (145%), Bitcoin SV (26%) and Decred (19%). Over the same period, Huobi Token (-23%), Dogecoin (-1.9%), Cardano (1.6%) and Bitcoin (2.6%) had the lowest annual inflation rate. 

Note: In March 2020, Huobi conducted an irregular burn of 54.8M HT from the Investor Protection Fund

The net value of cryptoassets that moved outside of identified Foundation/Company controlled addresses was $743M during Q2 2020, down from $891M during the previous quarter ($148M less). However, it is worth highlighting that during Q1, $422M worth of Huobi Tokens were sent to a burn address by the Huobi Foundation. If lost/burned units were to be excluded from the calculation, the net value of cryptoassets that moved outside of identified Foundation/Company controlled addresses would have increased $274M between Q1 and Q2. 

Note: Company/Foundation asset sales can be conducted for many reasons, including but not limited to operating expenses, team member/advisor vesting, strategic long term partnership/BD, scheduled and unscheduled token burns, strategic investments and treasury management. Companies/Foundations may also behave differently, either choosing to issue large volumes infrequently or issue on an as needs basis. Further, movement of assets from Foundation/Company controlled addresses does not necessarily mean assets have been sold (e.g. distribution to team members, burns, strategic placements, community incentive programs, etc).

Note 1: In March 2020, Huobi Foundation burned $422M worth of HT
Note 2: In November 2019, Stellar Foundation burned $4.14B worth of XLM

The net value of cryptoassets that moved outside of identified Company Team addresses was $9.4M during Q2 2020, down from $32.0M during the previous quarter ($23M less). However, during the Q2 there were $67M CRO deposited into Crypto.com Coin team addresses, without which the net value of cryptoassets that moved outside of Company Team controlled addresses would have been $76.5M. 

Note: Movement out of Team controlled addresses does not necessarily mean assets have been sold, but rather can be an indication of activity (e.g. movement to passive yield generating tools such as Compound).

Quarterly Free Float Supply Summary

Cryptoasset specific supply commentary

0x (ZRX)

During the first half of 2020, Foundation and Team ZRX address transactions have been higher than historically observed values. During Q2 alone, Foundation addresses net supply decreased 39.8M ZRX and Team addresses net supply decreased 6.1M ZRX. The net impact of Foundation and Team ZRX transactions was an increase to the Free Float Supply of 45.9M ZRX, 35.8M more than was issued in the same quarter last year (Q2 2019).

Basic Attention Token (BAT)

Throughout Q2, the Basic Attention Token Free Float Supply increased 35.4M BAT, representing a third consecutive quarter of increased restricted supply net outflows. 

This quarter’s increase in free float can largely be attributed to a relatively significant amount of activity relating to addresses that are owned by BAT team members. The final BAT tokens within the ‘BAT: Team Lockup’ address also vested this quarter, but at the time of writing, had not been transacted since. A large portion of team BAT transactions were sent to exchanges with Kyber and Binance being the two primary receivers of funds.

Net outflows from the BAT foundation wallet ‘BAT: UPG Reserve’ were 28.3M for the quarter, largely in line with previous quarter, the majority of which were sent to exchanges.

Bitcoin (BTC)

Throughout Q2, the Bitcoin Free Float Supply increased 18K to 14.32M. This represents a relatively small increase in Free Float Supply relative to previous quarters, largely due to the reduced issuance schedule that resulted from the Bitcoin halving, and the significant increase in restricted BTC belonging to long term holders.

Bitcoin owned by long term holders (>5 years) increased significantly through the quarter, with almost 103K BTC being added, a 300% increase from the previous quarter.

Bitcoin Cash (BCH)

Bitcoin Cash experienced a halving early in the quarter, on April 8, which reduced the issuance rate of BCH by approximately 50% during Q2. There were 88K new BCH issued in Q2 from mining, which was relatively low compared with the previous three quarter average of 164K BCH. 

Further, only 38K BCH were activated for the first time ever since the Bitcoin/Bitcoin Cash fork in August 2017, down from an average of 145K per quarter over the previous three quarters. 

Bitcoin Gold (BTG)

Bitcoin Gold Free Float increased 129K BTG throughout the quarter, significantly less than the prior two quarters which each saw ~400K BTG enter the market. This can be explained by a reduction in the issuance rate of BTG and a lower amount of BTG post fork activation. Bitcoin Gold also experienced a halving during Q2, resulting in only 97K BTG being mined, less than the previous three quarter average of 163K. The amount of BTG activated during Q2 for the first time since its fork was only 32K new units, significantly less than the previous three quarter average of 180K BTG. 

Bitcoin SV (BSV)

Bitcoin SV experienced its halving shortly after Bitcoin Cash, and thus had a similar new issuance rate through the quarter, producing 89K new BSV from mining. However, similar to BCH and BTG, BSV experienced significantly less native units activated for the first time since the fork, with only 77K BSV newly activated and entering free float, down from 580K the previous quarter.

Cardano (ADA)

The Q2 2020 Cardano Free Float Supply increase of 61.1M ADA was the smallest quarterly increase since Q3 2018. The majority of the float increase can be attributed to net outflows of ADA from Foundation identified addresses, which totaled 62.2M ADA in Q2. Throughout the quarter, almost 100K ADA worth of transaction fees were burned, a significant increase from the prior three quarterly average of 39K ADA. 

Chainlink (LINK)

Chainlink’s Free Float Supply increased 3.0M throughout the quarter, the total amount of which can be attributed to the movement of LINK in Foundation Team addresses. This amount of LINK represents an increase from the two prior quarters, where team members only moved 1.0M (Q1 2020) and 0.5M (Q4 2019). A large portion of the 3M assets that entered the Free Float Supply this quarter ended up in Binance addresses.

Crypto.com Coin (CRO)

During Q2 2020, the Free Float Supply of CRO increased 5.9B, a significant increase from the previous three quarters which in total saw Free Float increase only 2.4B. During the quarter, 1.2B CRO was sent from foundation controlled addresses to team controlled addresses (where it has not moved since), and another 5.9B CRO was sent from Foundation controlled addresses to Huobi, Bittrex and OKEx.

DASH (DASH)

DASH’s issuance rate adjusts every 210,240 blocks (~1 year), and did so during Q2, decreasing from ~6.6% to ~6.0% at the end of April. This led to the new supply from mining falling to 162K for the quarter, down 10K from the quarterly average over the last year. Restricted supply held by strategic long term holders of DASH increased another 20K in Q2, largely in line with previous quarter increases.

Decred (DCR)

Another 396K DCR was added to the Free Float Supply through Q2 2020, with 390K coming from newly mined DCR and the other 6K resulting from a net outflow of DCR from foundation wallets. Both of these values were largely in line with previous quarters.

Unlike the previous two quarters, identified Decred team member’s addresses did not have any deposit or withdrawals during the quarter.

Digibyte (DGB)

The Free Float Supply of Digibyte increased just under 155M DGB in Q2. Digibyte’s continuous deflation schedule continues to mean that fewer DGB are mined each quarter, with 312M mined in Q2, down from 358M in Q2 of 2019. However, DGB held in addresses that have been inactive for over 5 years increased this quarter, restricting Free Float Supply by 158M DGB.

Dogecoin (DOGE)

The Free Float Supply of Dogecoin increased just over 1.0B in Q2, largely resulting from the 1.25B DOGE that was mined during the quarter. DOGE in addresses that have remained inactive for over 5 years, and thus became restricted from the market and Free Float Supply,  increased a further 217m through the quarter.

Ethereum (ETH)

Ethereum Free Float Supply has consistently increased ~1.2M for each of the last 5 quarters (i.e. since the block subsidy adjustment from 3ETH to 2 ETH). This is almost solely attributable to the newly mined supply that is introduced every block, with 1.24M ETH mined during Q2. Further, the Ethereum Foundation issued 11K ETH through the quarter, resulting in a total increase to free float of 1.25M for Q2.

During Q3, Ethereum will turn 5 years old, which will for the first time result in the identification of any long term holders that have not transacted since the genesis block or shortly after, potentially impacting Ethereum’s Free Float Supply more than previously experienced.

Ethereum Classic (ETC)

Ethereum Classic underwent an upgrade which saw the block subsidy decrease 20% from 4 ETC to 3.2 ETC per block during March. For the first time, this new inflation schedule was evident through a whole quarter’s figures, resulting in the new supply from mining falling from a quarterly average of 2.3M to 1.9M. Further increasing the Free Float Supply, 61K ETC that had not moved since the Ethereum/Ethereum Classic fork became active during Q2.

FTX Token (FTT)

FTX continued to conduct weekly FTT off-chain burns, removing FTT tokens from the ledger. Throughout Q2, burns totaled just under 1.5M, bringing the total almost of burned FTT since Genesis to almost 5.0M. During Q2, FTX Company identified addresses sent 5.0M FTT to the FTX Exchange, a significant reduction from the previous 3 quarter average of ~20M.

Together, Company identified address activity (+5.0M) and burns (-1.5M) resulted in a net increase in free float of 3.5M for Q2 2020.

Huobi Token (HT)

Huobi Token’s Free Float Supply reduced by 8.7M during Q2 2020. Of this, Huobi Global sent 11.5M HT from exchange addresses to the 0x0000000000000000000000000000000000000000 burn address during Q2, rendering those tokens lost and unspendable. This rate of token on-chain burn is in line with previous quarters, excluding the one off Q1 2020 burn of 147M HT from the Platform Operations and the Investor Protection Fund. Huobi Global added 2.9M HT into Free Float Supply during Q2 through transacting funds out of Company identified addresses.

Litecoin (LTC)

Litecoin’s quarterly Free Float Supply increase was the lowest in the past year, rising only 400K LTC throughout Q2. Whilst the newly mined supply was in line with previous quarters (668k), there was a significant increase in the number of LTC that were held in wallets that aged 5 years without having demonstrated activity. The 268K LTC added to the long term holder category (i.e. restricted from Free Float Supply), was over twice as much as the previous three quarter average of 125K LTC.

MakerDAO (MKR)

The Free Float Supply of MKR fell by 22.6K through Q2 2020, in large due to the increased participation in the ‘Maker: Governance Contract’ which experienced a net increase of 36.6K MKR. Holders of MKR that participate in the network’s governance do so actively by staking native units in the contract without any direct financial incentive to do so, and are thus considered to restrict supply from markets. 

Transactions from MakerDAO Foundation controlled addresses resulted in a net outflow for the quarter of 14.4K MKR. 392 MKR was burned and removed from current supply during Q2, representing a significant change from the 6K that was minted during Q1 after the March flash crash resulted in mass liquidations.

NEO (NEO)

The NEO Free Float Supply increased 462K in Q2 2020 which can be solely attributed to the movement of NEO out of foundation owned addresses. This rate of Foundation wallet movement is in line with the previous three quarter average of 417K NEO.

Stellar Lumens (XLM)

Stellar Lumen Free Float Supply increased 195.5M XLM through Q2 2020, almost entirely the result of movement of XLM from foundation controlled addresses to more liquid addresses, including large amounts transferred to Coinbase and Kraken. 

Tezos (XTZ)

The Tezos Current Supply increased 15.1M through Q2 as a result of the Baking process. Of this, 3.8M was baked by Tezos Foundation addresses, resulting in an 11.4M increase to the Free Float Supply throughout the quarter.

XRP (XRP)

The XRP Free Float Supply increased 1.35B through Q2 2020, slightly more than the 1.12B that entered Free Float Supply in the previous quarter. The largest provider of extra liquidity to the market during the quarter was the Ripple Foundation, which issued 1.1B tokens from Foundation identified controlled addresses. There was also an increase this quarter in the amount of XRP that left addresses controlled by Founding Team members, up to 307M XRP from the prior three quarter average of 164M. There were also 51M XRP that were in addresses that became categorized as long term holders after having not displayed activity in over 5 years.

Detailed Free Float Supply Information

ABOUT COIN METRICS

Coin Metrics is a leading provider of transparent and actionable cryptoasset market and network data. Coin Metrics delivers mature data across multiple formats to various industry stakeholders, including financial enterprises, funds, media and research outlets, and data/application providers. Coin Metrics’ data empowers its clients and the public to better understand, value, use, and ultimately steward public crypto networks. Further Coin Metrics research can be found here.

ABOUT CMBI

Coin Metrics launched CMBI to bring independent and transparent index solutions to the cryptoasset investment community. In the nascent and often complex cryptoasset market, CMBI Indexes strive to be dynamic and adjust to the rapidly changing market conditions to design and maintain investable products. CMBI Indexes provide markets and customers with industry-leading solutions that aid in performance benchmarking and asset allocation.

CM Reference Rates Release Notes

Coin Metrics is pleased to announce the version 2.4 release of our Hourly Reference Rates and version 0.5 release of our Real-Time Reference Rates. Updated methodology documents for both products can be found here and here.

Coin Metrics produces the CM Hourly Reference Rates and Real-Time Reference Rates, a collection of prices rates quoted in U.S. dollars, published once per hour and once per second, for a set of cryptocurrencies. 

The release notes for this release include additions and terminations to our coverage universe, reconstitutions of our whitelisted markets, some recalculations of certain assets, and a change in the recalculation section of the methodology. 

Additions 

This release expands our coverage universe to include 28 additional assets and brings our total coverage universe to a total of 249 assets. The 28 additional assets are included below.

  • WazirX (wrx)
  • Band Protocol (band)
  • Kusama (ksm)
  • USDK (usdk)
  • Synthetix Network Token (snx)
  • Blockstack (stx)
  • Flexacoin (fxc)
  • KuCoin Shares (kcs)
  • Hive (hive)
  • Energi (nrg)
  • Celsius (cel)
  • Unibright (ubt)
  • SwissBorg (chsb)
  • Crypterium (crpt)
  • BHEX Token (bht)
  • CyberVein (cvt)
  • Streamr (data)
  • STASIS EURS (eurs)
  • Insolar (xns)
  • Gatechain Token (gt)
  • Digitex Futures (dgtx)
  • Kava (kava)
  • Thunder Token (tt)
  • Swipe (sxp)
  • MX Token (mx)
  • Ocean Protocol (ocean)
  • Elrond (erd)
  • Livepeer (lpt)

Terminations 

The following two assets are terminated from the coverage universe. 

  • Storm (storm) was terminated due to being delisted from major exchanges because of a token swap. 
  • Etherfuel (fuel) was terminated due to being delisted from all major exchanges. 
  • Gifto (gto) was removed due to persistent and large spreads between major markets leading to the inability to calculate a reliable reference rate. 

Reconstitution of Whitelisted Markets 

The whitelisted markets that serve as the input data source for the calculation of the reference rates for each asset was refreshed on 2020-07-01 as part of a regularly scheduled quarterly review. 

During each quarterly review, our Market Selection Framework is applied and the highest scoring markets are selected for each asset. Of note, the whitelisted markets for Bitcoin and Ethereum are changed. 

  • For Bitcoin, bitflyer-btc-usd-spot is replaced with binance.us-btc-usd-spot due to historically low volume in the bitflyer-btc-usd-spot market. 
  • For Ethereum, binance.us-eth-usd-spot was added. 

Recalculations Due to Extension of Backhistory 

Due to an expansion of our exchange coverage universe, the backhistory of certain assets have been extended and the historical whitelisted markets were improved to include additional markets. The following 11 assets received minor changes. 

  • Algorand (algo)
  • Beam (beam)
  • Chiliz (chz)
  • Nervos Network (ckb)
  • FTX Token (ftt)
  • Hedera Hashgraph (hbar)
  • HedgeTrade (hedg)
  • Molecular Future (mof)
  • Odyssey (ocn)
  • OKB (okb)
  • Tether Gold (xaut)

Recalculations Due to Routine Improvements in Historical Whitelisted Markets

Investigations of price anomalies resulted in minor modifications of historical whitelisted markets for a small number of assets. The following 8 assets received changes and historical values received minor changes. 

  • BnkToTheFuture (bft) from 2019-03-22 to 2020-07-01
  • Celer Network (celr) from 2019-03-26 to 2020-07-01
  • Mithril (mith) from 2020-01-23 to 2020-07-01
  • Ontology Gas (ong_ontologygas) from 2020-01-23 to 2020-07-01
  • Orbs (orbs) from 2019-05-09 to 2020-07-01
  • POA (poa) from 2019-02-02 to 2020-07-01
  • Theta Fuel (tfuel) from 2019-05-31 to 2020-07-01
  • V.systems (vsys) from 2019-01-19 to 2020-07-01

Recalculations due to Upbit Price Anomalies 

During the most recent quarterly review for the CM Reference Rates, an issue was discovered that affected the quality of our reference rates for a number of assets. On November 27, 2019, Upbit disclosed a hack in which 342,000 Ether was stolen. In response to this incident, Upbit shut down deposits and withdrawals for a period of approximately three months causing nearly all of their markets to trade with large spreads against other major markets. 

While the majority of the assets in our coverage universe that use Upbit’s markets as a constituent market were robust to this incident, a handful of assets were negatively affected by this incident. Due to the systemic nature of this problem and the number of price anomalies it has caused, Upbit’s markets were removed from our whitelist for 71 assets in our coverage universe after 2019-05-23. A recalculation of reference rates from 2019-05-23 to 2017-01-01 was conducted. 

Of the 71 affected assets, 24 received material changes, where a material change is defined as greater than 1 percent of observations receiving a change in excess of 1 percent. The most affected period is from November 2019 to March 2020. The remainder of the assets did not receive material changes. 

The following 71 assets received changes: 

  • Golem (gnt)
  • Status (snt)
  • Decentraland (mana)
  • iExec RLC (rlc)
  • aelf (elf)
  • IOST (iost)
  • Loopring (lrc)
  • WAX (waxp)
  • BnkToTheFuture (bft)
  • Aragon (ant)
  • Storj (storj)
  • Verge (xvg)
  • Maker (mkr)
  • Ripio Credit Network (rcn_ripiocreditnetwork)
  • Polymath (poly)
  • Nucleus Vision (ncash)
  • Cortex (ctxc)
  • DATA (dta)
  • MonaCoin (mona)
  • district0x (dnt)
  • MCO Token (mco)
  • Metal (mtl_metal)
  • Enigma (eng)
  • Power Ledger (powr)
  • Ark (ark)
  • Komodo (kmd)
  • BlockMason Credit Protocol (bcpt)
  • Aeron (arn)
  • Zcoin (xzc)
  • Lisk (lsk)
  • AdEx (adx)
  • Waves (waves)
  • OST (ost)
  • NavCoin (nav)
  • Civic (cvc)
  • Steem (steem)
  • Viacoin (via)
  • Syscoin (sys)
  • Ardor (ardr)
  • Groestlcoin (grs)
  • Loom Network (loom)
  • IoTeX (iotx)
  • Pundi X (npxs)
  • Mainframe (mft)
  • Dent (dent)
  • Gnosis (gno)
  • Bytom (btm)
  • Decred (dcr)
  • DigiByte (dgb)
  • Cred (lba)
  • TenX (pay)
  • Nxt (nxt)
  • SIRIN LABS Token (srn)
  • Ignis (ignis)
  • Crowd Machine (cmct)
  • PumaPay (pma)
  • IHT Real Estate Protocol (iht)
  • Factom (fct)
  • Vertcoin (vtc)
  • ReddCoin (rdd)
  • Numeraire (nmr)
  • Dragonchain (drgn)
  • GoChain (go)
  • Lambda (lamb)
  • Ankr (ankr)
  • Metadium (meta)
  • Quant (qnt)
  • SOLVE (solve)
  • Crypto.com Chain (cro)
  • Orbs (orbs)

Changes to the Methodology 

The recalculation section of the methodology was amended to specify several conditions under which a recalculation is policy and amends the recalculation window to include all historical values. 

About the CM Reference Rates 

The CM Reference Rates are designed to serve as a transparent and independent pricing source that promote the functioning of efficient markets, reduce information asymmetries among market participants, facilitate trading in standardized contracts, and accelerate the adoption of cryptocurrencies as an asset class with the highest standards. The reference rates are calculated using a robust and resilient methodology that is resistant to manipulation and adheres to international best practices for financial benchmarks, including the International Organization of Securities Commissions’ (IOSCO) Principles for Financial Benchmarks. The Coin Metrics Oversight Committee and an independent governance structure protect the integrity of the reference rates and ensure the reference rates serve as sources of transparent and independent pricing.

Please reach out to Coin Metrics at [email protected] for more information on the CM Reference Rates.

Coin Metrics’ State of the Network: Issue 62 – Surveying the Bitcoin Perpetual Swap Market

Weekly Feature

Derivatives’ Disparities: Surveying the Bitcoin Perpetual Swap Market

by Karim Helmy and the Coin Metrics Team

The following is an excerpt from our research on the crypto derivatives market (truncated due to space limitations). Read the full piece here

Dissecting Derivatives

The crypto market is still young and the contract structure of derivatives varies across exchanges. Derivatives lack a standard methodology by which to calculate indexes and funding payments, and documentation in this space is generally difficult to follow. While these figures are important for traders to understand, especially during periods of market volatility, there’s a severe shortage of information on the topic.

Derivatives are incredibly influential on the broader market due to their association with levered trading, and bitcoin’s recent price appreciation has led to a surge in perpetual swap volumes. As is the norm in crypto, liquidity in this market is highly fragmented—in the case of derivatives, differing contract terms and API structures make it particularly difficult to harmonize data collected from different exchanges. These differences obscure the amount of risk taken on by users, especially through index composition and funding calculation.

To help us build out our upcoming derivatives data product which will complement our existing market data feed, the Coin Metrics team aggregated information from major derivatives markets on their contract structures. In this issue, we’ll take a close look at the state of the bitcoin perpetuals market and the discrepancies between perpetual swap contracts.

Volatile Volumes

perpetual swap, also known as a perpetual, is a type of derivative that approximates the price of its underlying asset in close to real time. Perpetual swaps resemble fixed-maturity futures but don’t settle. Instead, these derivatives use a mechanism called funding to keep swap prices in line with those of the underlying asset.

Perpetuals were popularized in the crypto ecosystem by BitMEX, and are rare in traditional financial markets. Perpetual swaps account for a substantial portion of derivatives trading volume, dwarfing fixed-maturity futures volumes across the exchanges tracked by Coin Metrics. 

Although perpetuals continue to drive the markets, year-to-date, monthly volumes across the exchanges where Coin Metrics currently has access to historical data have declined significantly. Binance, in particular, has gained a significant amount of market share this year.

A look at daily volumes reveals that trading volumes across exchanges tend to move in tandem with one another. It also shows a resurgence in activity in late July, corresponding to the recent appreciation in Bitcoin’s price. This view also traces the change in market dynamics to the March 12 crash; the role of derivatives exchanges in this crash was the subject of SOTN Issue 43.

Perpetuals are highly influential on crypto markets. Trading volume in the bitcoin perpetuals markets tracked by Coin Metrics is significantly higher than in all crypto spot markets passing Coin Metrics’ Trusted Volume Framework.

Continue reading Derivatives’ Disparities: Surveying the Bitcoin Perpetual Swap Market

Network Data Insights

Summary Metrics

Source: Coin Metrics Network Data Pro

Bitcoin (BTC) and Ethereum (ETH) market caps both surged to new 2020 highs over the weekend breaking well past pre-March levels. Usage metrics also continue to grow, adding to evidence of a rising bull market.

BTC averaged over 1 million daily active addresses over the past week for the first time since January 2018. ETH had 626K active addresses on August 2nd and is closing in on the all-time high of 735K set on January 16th, 2018.

Transaction fees also continue to rise which signals increasing demand for block space. ETH averaged almost $2M worth of daily fees over the last week, and is still outpacing BTC. But BTC is catching up, as BTC daily transaction fees grew 67.4% week-over-week compared to a 28.7% growth for ETH.  

Network Highlights

Stablecoins are back on the rise, once again led by Tether. Since the beginning of August the total Tether supply has grown by over 400M to a total of over 11.5B. Much of the growth has come from the Tron version of Tether (USDT-TRX), which has increased by about 250M since July 31st. But the majority of Tether’s supply remains on Ethereum (USDT-ETH). USDT-ETH continues to add to the rise in overall Ethereum usage. For more on what’s driving the recent rise of stablecoins check out our Rise of Stablecoins report.

Source: Coin Metrics Network Data Charts

Tether has also risen back above its price peg to its highest levels since mid-May. Tether’s price has been significantly higher than the other major stablecoins (excluding DAI) so far throughout August. 

Source: Coin Metrics Network Data Charts

Stablecoin transfer value reached over $5B on July 27th, led by USDT-ETH, USDC, and DAI. DAI, USDC, and increasingly USDT-ETH are all used extensively in decentralized finance (DeFi) applications such as Compound, Aave, and Curve Finance, which contributed to the large increase in transfer value. The following chart shows adjusted transfer value smoothed using a 7 day rolling average. 

Source: Coin Metrics Network Data Charts

Market Data Insights

ETH and BTC Move Higher

Following July’s break in the low volatility regime, BTC and ETH continue to move higher this past weekend. On the morning of August 2, 2020, ETH broke $400, reaching a high of approximately $415, a level not seen in over a year. BTC also breached a key level of $12,000. However these price levels were not sustained for long, both selling off rapidly.

Above is a view of the BTC perpetual and dated futures during the selloff this weekend, highlighting the brief decoupling the quarterly contracts near the local bottom.

After the brief selloff this weekend, both BTC and ETH resumed climbing in price, with BTC trading in the $11 – 11.5k range and ETH looking to breach $400 again in the $380 – $400 range. 

CM Bletchley Indexes (CMBI) Insights

Another fantastic week for large cap crypto assets with the CMBI Ethereum Index leading the Coin Metrics suite of indexes, closing the week at $380.51, up 23.6%. The CMBI Bitcoin Index and Bletchley 10 performed outstandingly during the week as well, returning 13.3% and 14.0% respectively. After the large caps experiencing months of low volatility and <3% weekly returns, they have been playing some impressive catch-up these last two weeks.

The Bletchley 40 (small cap index) which had been enjoying all the returns during the low volatility period of large caps experienced another down week, falling 7.1% against the USD and a staggering 18.1% against Bitcoin. This type of market activity is not unfamiliar to crypto assets, with investors and speculators often cycling profits from large cap to small cap and vice versa as market conditions change.

Source: Coin Metrics CMBI

The CMBI Bitcoin Index closed the month of July at $11,309.56, marking its second highest monthly close after the 31-December 2017 month end $14,150 value print. For more performance information check out the July CMBI Single Asset Index Factsheet.

Source: Coin Metrics CMBI

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • We’re excited to announce the new Coin Metrics mobile app. View real-time cryptoasset pricing and relevant on-chain data in a single app!  Download for free here: https://coinmetrics.io/mobile-app/

As always, if you have any feedback or requests, don’t hesitate to reach out at [email protected]

Subscribe and Past Issues

Coin Metrics’ State of the Network, is an unbiased, weekly view of the crypto market informed by our own network (on-chain) and market data.

If you’d like to get State of the Network in your inbox, please subscribe here. You can see previous issues of State of the Network here.

Check out the Coin Metrics Blog for more in depth research and analysis.

Coin Metrics launches a mobile app

Coin Metrics now offers a convenient Mobile App!  This all-in-one cryptocurrency price and on-chain data app will allow you to quickly access our latest reference rates and explore our network data. 

  • View Cryptoasset Prices:  View our institutional quality cryptoasset prices.  Coin Metrics’ Reference Rates represent whole-market fixed pricings of one unit of an asset quoted in USD.  Our rates are constructed using a robust methodology that adheres to  IOSCO Principles for Financial Benchmarks. Coin Metrics whitelists exchanges using a rigorous market selection framework that evaluates inclusion of each exchange and relevant trading pair. Our price is robust to outliers, market manipulation and artifacts in the market microstructure. 
  • Explore On-Chain Cryptoasset Data: Our on-chain metrics are sourced from Coin Metrics’ best-in-class network data and include Realized Market Cap, MVRV (market cap/realized cap), CM’s Free Float Supply, Active Address Count, 1 Year Active Supply, Transaction Count, Total Fees, and many more.

Available on the App Store and Google Play.  

Learn more at https://coinmetrics.io/mobile-app/.


ABOUT COIN METRICS

Coin Metrics is a leading provider of transparent and actionable cryptoasset market and network data. Coin Metrics delivers mature data across multiple formats to various industry stakeholders, including financial enterprises, funds, media and research outlets, and data/application providers. Coin Metrics’ data empowers its clients and the public to better understand, value, use, and ultimately steward public crypto networks. 

Derivatives’ Disparities: Surveying the Bitcoin Perpetual Swap Market

by Karim Helmy and the Coin Metrics Team

Key Takeaways

  • The derivatives market is fragmented and contract terms differ dramatically across exchanges. The quality of documentation in the space varies.
  • We analyzed how each exchange structures their perpetual swaps, which are a type of derivative that approximates the price of its underlying asset in close to real time. Perpetual swaps are shifting away from bitcoin-margined inverse contracts, which have traditionally been dominant, and toward USDT-margined linear contracts. Exchanges also vary in how they calculate indexes and funding payments.
  • Perpetual swap volumes have decreased since the start of the year, but have recently surged in line with bitcoin’s price activity.
  • The lack of standardization in the derivatives market makes it difficult for traders to assess the degree of risk taken on indirectly via a position’s index. Poorly constructed indexes can negatively impact users, especially during market dislocations and periods of volatility.

Dissecting Derivatives

The crypto market is still young and the contract structure of derivatives varies across exchanges. Derivatives lack a standard methodology by which to calculate indexes and funding payments, and documentation in this space is generally difficult to follow. While these figures are important for traders to understand, especially during periods of market volatility, there’s a severe shortage of information on the topic.

Derivatives are incredibly influential on the broader market due to their association with levered trading, and bitcoin’s recent price appreciation has led to a surge in perpetual swap volumes. As is the norm in crypto, liquidity in this market is highly fragmented—in the case of derivatives, differing contract terms and API structures make it particularly difficult to harmonize data collected from different exchanges. These differences obscure the amount of risk taken on by users, especially through index composition and funding calculation.

To help us build out our upcoming derivatives data product which will complement our existing market data feed, the Coin Metrics team aggregated information from major derivatives markets on their contract structures. In this issue, we’ll take a close look at the state of the bitcoin perpetuals market and the discrepancies between perpetual swap contracts.

Volatile Volumes

A perpetual swap, also known as a perpetual, is a type of derivative that approximates the price of its underlying asset in close to real time. Perpetual swaps resemble fixed-maturity futures but don’t settle. Instead, these derivatives use a mechanism called funding to keep swap prices in line with those of the underlying asset.

Perpetuals were popularized in the crypto ecosystem by BitMEX, and are rare in traditional financial markets. Perpetual swaps account for a substantial portion of derivatives trading volume, dwarfing fixed-maturity futures volumes across the exchanges tracked by Coin Metrics. 

Although perpetuals continue to drive the markets, year-to-date, monthly volumes across the exchanges where Coin Metrics currently has access to historical data have declined significantly. Binance, in particular, has gained a significant amount of market share this year.

A look at daily volumes reveals that trading volumes across exchanges tend to move in tandem with one another. It also shows a resurgence in activity in late July, corresponding to the recent appreciation in Bitcoin’s price. This view also traces the change in market dynamics to the March 12 crash; the role of derivatives exchanges in this crash was the subject of SOTN Issue 43.

Perpetuals are highly influential on crypto markets. Trading volume in the bitcoin perpetuals markets tracked by Coin Metrics is significantly higher than in all crypto spot markets passing Coin Metrics’ Trusted Volume Framework.

Proper Pricing

Due to market inefficiencies and fragmented liquidity, prices on cryptocurrency exchanges frequently diverge. This can lead to issues for derivatives exchanges, which require a cardinal index price for funding and settlement. What’s more, the leveraged products provided by derivatives exchanges create a large monetary incentive for malicious actors to tamper with their index prices by manipulating the underlying spot market. The indexes used by these exchanges must therefore continually be maintained in order to remain market relevant and functional in the presence of both incidental and intentional anomalies in their constituent markets.

State of the Network Issue 58 discussed market inefficiencies and dislocations, highlighting the need for robust cardinal pricing in the cryptocurrency space. Although index behavior can significantly affect traders in downside situations, there’s been little coverage of the topic. Documentation by exchanges on how they calculate their index prices varies in quality.

In order to effectively serve traders, index prices must be responsive, tracking the underlying market conditions with relatively low latency. This inevitably makes them somewhat volatile and reflective of temporary swings in the underlying markets. For pricing contracts and liquidating users, where this variance is undesirable, derivatives exchanges use mark prices, which trade off a reduction in responsiveness for a decrease in volatility.

Depending on the type of collateral used, perpetuals are classified as one of three types of contract: either an inverse contract collateralized in the underlying asset; a linear contract collateralized in the quote currency, typically USDT or USD; or a quanto contract collateralized in a third currency, generally bitcoin.

In markets with bitcoin as the base currency, inverse contracts are more common than linear ones, and quanto contracts are rare. As USDT supplants BTC as the ecosystem’s reserve currency, however, linear contracts are becoming more common. The beginnings of this trend are visible in the OKEx fixed-maturity futures market, where USDT-margined contracts recently passed BTC-margined contracts in open interest for the first time. While open interest for inverse perpetuals is still greater than for linear contracts on this exchange, the gap is closing. You can read more about the changing role of USDT in the crypto ecosystem at large in our report, The Rise of Stablecoins.

The index and mark price calculations used by the major derivatives exchanges for their bitcoin perpetual swap products are shown below, separated by contract type. Poloniex and Bitfinex have been excluded, the former due to the novelty of its markets and the latter due to lack of documentation. Two exchanges, OKEx and Bybit, support both types of contracts.

The majority of these indexes are composed by taking the simple or volume-weighted average of the price of the last executed trade from each constituent market, in the process discarding or bounding constituent prices that deviate by a certain amount from the median price. The constituent markets, frequency of weight adjustment, and bounds around the median vary by exchange, as do the criteria for excluding inactive exchanges. Two exchanges, Bybit and Kraken, have more elaborate index composition frameworks for their inverse perpetual products.

The most fundamental component of an index price calculation is its set of constituent spot markets. Derivatives exchange operators must trust the operators of their constituent exchanges not to tamper with the price of an asset by inaccurately reporting trades; if the index volume-weights its constituent components, the index operator must also trust its constituents to faithfully report volumes.

Determining which markets to trust is a nontrivial task discussed in depth in SOTN Issue 61. Inverse perpetuals’ indexes typically depend on BTC/USD markets, while linear contracts’ indexes tend to be based on BTC/USDT markets. The exception to this trend is FTX, whose linear contract is margined with a synthetic USD balance and whose index does not factor in any USDT-quoted markets.

Among the exchanges surveyed, constituent exchanges for inverse contracts are typically based in the United States, while Asian exchanges feature more prominently in linear perpetuals’ indexes.

Funding Fundamentals

In addition to discrepancies in index composition, derivatives exchanges differ in how they calculate funding.

Unlike fixed-maturity futures, perpetual swaps don’t settle. Instead, to maintain a peg to their underlying asset, they rely on a mechanism known as funding. In this construction, when a perpetual’s price exceeds that of the underlying, longs pay shorts, and when the perpetual’s price is lower than that of the underlying, shorts pay longs. These funding payments incentivize market participants to keep the price of the perpetual close to that of the underlying index.

The size of a funding payment is determined by the funding rate, which is typically fixed for the duration of the funding period and is a function of the difference between the perpetual and underlying prices in the previous period. In theory, the funding rate also depends on interest rates for the base and quote currencies, but in practice these values are fixed on all major derivatives markets. The methods used by the major derivatives exchanges to calculate funding for their bitcoin perpetuals are shown below, separated by contract type.

Exchanges differ substantially in how they calculate funding rates and payments. While most only require users to pay or receive funding payments if they hold a position at the end of a funding period, the length of which also depends on the exchange, some charge funding continuously.

Some exchanges also factor slippage into their funding rate calculations by using impact pricing, with the degree of slippage varying by marketplace. Most significantly, some exchanges place caps on the funding rate’s absolute or rate of change, likely to prevent the size or volatility of funding payments from making their products less usable and to avoid a liquidity crunch at the end of each funding period.

Levels and Levers

Finally, perpetuals contracts differ in the amount of leverage provided and the terms under which this leverage is offered. Exchanges tend to offer several degrees of leverage, typically expressed as a multiple of the initial margin posted. 

Half of the major exchanges offer a maximum of 100x leverage. Two exchanges, Binance and Huobi, offer up to 125x leverage. 

The amount of margin that users must maintain in order to avoid liquidation differs by exchange, but is usually equal to half the initial margin. Some exchanges also charge traders additional fees for the use of high-leverage products.

Conclusion

As perpetuals continue to drive the bitcoin market, understanding their mechanisms is critical. Perpetual swap volumes have soared with bitcoin’s recent price rally, and the perpetuals market continues to evolve. As the industry matures and adopts USDT as its common quote currency, we expect to see increased adoption of stablecoin-margined contracts. 

As the market develops, we hope to see greater contract standardization. Currently, derivatives’ contract structures differ in ways that can tangibly impact traders, especially by introducing unforeseen risks through their index price compositions. By surveying the derivatives market, we hope to bring transparency to this opaque ecosystem, with the ultimate goal of providing a unified interface to derivatives market data. 

Coming Soon: New Futures Data Concepts

Expanded futures data will be added to Coin Metrics’ offering as we extend our derivatives data beyond futures trades and candles.

Coin Metrics has been offering crypto market data to institutional customers since early  2019 through our Market Data Feed (MDF).   Given perpetuals’ influence on the broader market, we are working to supplement our trades data with more futures data concepts.  Liquidity in the crypto derivatives space is highly fragmented, and differing contract terms and API structures make it challenging to harmonize  data from different exchanges.    We will address this for our users in our upcoming release. 


COMING SOON:

As a complement to our existing market data, we will be adding the following futures data types for seven (Binance, Bitfinex, FTX, Huobi, OKEx, BitMEX, and Deribit)  futures exchanges: 

  • Open Interest
  • Harmonized Contract Specifications
  • Liquidation Orders
  • Funding Rates

This will supplement the futures trades and candles data already available via our Market Data Feed.If you are interested in learning more about our upcoming derivatives releases, please contact us at [email protected]!


ABOUT COIN METRICS

Coin Metrics is a leading provider of transparent and actionable cryptoasset market and network data. Coin Metrics delivers mature data across multiple formats to various industry stakeholders, including financial enterprises, funds, media and research outlets, and data/application providers. Coin Metrics’ data empowers its clients and the public to better understand, value, use, and ultimately steward public crypto networks.