The Wonderland Debacle
Plus: The current state of crypto
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This week we cover the scandal related to the crypto protocol Wonderland, associated with the mysterious disappearance of a crypto exchange’s funds, and ripple effects it’s had across the market.
Moreover, we take a step back to briefly assess the current situation in crypto as long-term investors accumulate and demand for NFTs continues to grow.
Weekly Fees — Sum of total fees spent to use a particular blockchain in a week. This tracks the willingness to spend and demand to use Bitcoin or Ether.
- Bitcoin fees grew week over week to $2.8M, while Ether fees dropped from $328M to $269M
Exchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges over the past seven days. Crypto going into exchanges may signal selling pressure, while withdrawals potentially point to accumulation.
- Both Bitcoin and Ether saw net inflows into exchanges, though in the case of BTC these decreased week over week, while ETH inflows increased significantly
The Wonderland Debacle
The crypto space was hit with some drama late in the week as a known scammer resurfaced. Here is a quick break-down:
- In 2018, one of the co-founders of Canadian exchange Quadriga was allegedly found dead and was the only person with access to clients’ funds worth $169 million
- The other co-founder, Omar Dhanani was previously convicted for several crimes before changing his name to Michael Patryn
- Renown DeFi builder Daniele Sestagalli launched the protocol Wonderland (TIME) along with anonymous co-founder 0xsifu as CFO. The protocol is an OlympusDAO fork investing user funds in yield generating strategies as well as venture-type investments and reached a valuation as high as $2B
- A twitter thread from Zachxbt revealed that Michael Patryn was behind the sifu pseudonym
- Daniele Sestagalli confirmed he knew of his co-founder’s identity and past for at least one month
- TIME’s price crashed as much as 50%, while other tokens led by Sestagalli went through major turbulence
Ripple effects — Protocols such as Abracadabra saw large headwinds as panic spread beyond Wonderland
- Abracadabra is a lending protocol where users can borrow the MIM stablecoin and is governed by the SPELL token
- SPELL’s price collapsed over 30% within hours of the news, recording a loss of over $2 billion (84%) in market cap since November
- MIM had become one of the most liquid tokens for yield farming in DeFi
Things quickly changed for Abracadabra following the reveal of 0xsifu.
LPs panic — liquidity providers rushed to withdraw funds from the MIM Curve pool as fear regarding the stablecoin took over
- Over $2 billion in total left the pool, with $520 million being withdrawn in a single transaction from an address believed to be linked with Alameda Research
- The pool recorded $900 million in 24 hour volume, supremely high for a stablecoin, mostly from users selling MIM
- The same whale removing liquidity was seen then buying $35 million worth of MIM at a discount, likely as a not-so risk-free arbitrage
End result — As liquidity providers exited through the other stablecoins in the pool, the percentage of liquidity made by MIM increased to 95%. This has led to higher slippage for the stablecoin and uncertainty regarding its future persist following the Wonderland debacle.
The Current State of Crypto
2022 has been a rough year for crypto so far, with major price drops and now scandals taking place. Zooming out, however, we can get a better sense for the current moment in crypto markets and more clarity on its near-future.
Here, ownership patterns for Bitcoin can be very helpful.
Hodlers accumulating — Throughout previous bull and bear markets we see Hodlers (those holding for over 1 year) repeat a similar pattern:
- As prices reach new highs, Hodlers tend to decrease their balance, typically coinciding with spikes in Traders
- Then, as prices drop 50% or more, the total balance in Hodlers’ addresses continues climbing.
- Here we see Hodlers’ balance peak in late 2020 as Bitcoin surpassed $20k and had been on a down-trend until a few weeks ago, confirming that Hodlers are back into accumulation mode as short-term interest fades away
Although Hodlers’ volume has been growing, it remains unclear if Bitcoin and crypto broadly has bottomed. However, having increasing buying activity from long-term investors can go along way.
In other news, NFTs continue to rise.
Driving new interest — retail interest tends to drop following large crashes, but NFTs seem to continue on an uptrend regardless
- Google search trends for “NFTs” surpassed “Crypto” for the first time a few weeks ago, highlighting their vast popularity
- Volume in OpenSea has continued to grow, netting over $200 million per day
- For many of these users, this is their first interaction with crypto
Overall, as NFTs bring new people in, the broader crypto space benefits as more learn the basics of using a wallet and experiment with other use-cases. As mentioned in the bull case for 2022, NFTs — both for visual art and gaming — are likely to be a driving force for adoption in crypto as user demand and builders’ creativity continues.
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