The record was set

On March 11, 2021, a digital artwork named “Everydays – The First 5000 days” was sold for $69 million and made Beeple, the painting’s creator, own one of the top 3 most expensive auctioned artworks of any artist currently alive.

Within the past few months, the emerging world of NFTs has accelerated rapidly to reach new heights of success due to the increased uptake from the blockchain community, talented artists, celebrities, and athletes worldwide all hoping to make their mark on this digital frontier. Recently, the two most prominent crypto exchanges – Binance and FTX, have announced the launch of their NFT marketplaces. 

These findings show that NFTs are becoming widely acknowledged and are constantly growing. However, it must also be questioned whether NFTs are a  “here to stay” trend and will it become the breakthrough technology that brings crypto and blockchain to the masses? Let’s delve into the big picture of the current NFT ecosystem to get a better understanding as we enter a new era in NFT Blockchain Technology.

NFT market overview 

Figure 1: NFT Ecosystem

An NFT (Non-Fungible Token) is a unit of data held on certain blockchains like other tokens but is individually unique and not interchangeable. The original concept for NFTs dates back to 2015, but it wasn’t until 2017 when the first projects began to appear on the Ethereum blockchain under the ERC-721 standard. Over the next two years, more NFT standards were accepted and utilized. 

NFT can represent various physical assets such as photos, videos, audio, paintings, or any kind of digital data. Thus, NFTs help to transform data into verifiable assets that are easy to trade on the blockchain.

An NFT is dynamic as it is made up of various segments, as displayed in Figure 1.

• Infrastructure: blockchain protocols used to restore and transfer NFTs
• Gaming: Games using the NFT standard. These include role-playing strategy games, trading card games, or any fun-based gaming experience incorporating NFTs
• Metaverse: Parallel digital universes which offer a set of unique experiences to users
• Arts & music: Projects featuring famous artists or musicians to generate digital masterpieces
• Sports: This features personalities from the world of sport most often connected with real-world players and teams such as Formula 1 teams, football clubs, basketball teams, etc.
• Collectibles: Project whose primary function is to issue collectible items intended to be collected
• Marketplace: Platforms to buy, sell and auction NFT
• Domains: It consists of unique domain names created on the blockchain
• Others: NFT Wallet, NFT Defi, NFT-focused fund, and NFT News and Analytics.

Market capitalization

Market Capitalization represents the total value of assets present in a market. The NFT ecosystem has had an explosive development over the past year. The video below will show a visualization of this growth.

#NFT movements are constant & liberating, with a total MC of 17,472,632,131 as of June 4, 2021! 💪@Theta_Network is currently in the lead, but other gems like @enjin @Chiliz @decentraland @bakery_swap or @flow_blockchain are creeping in fast. pic.twitter.com/PWZzk7zCar

— Kyros Ventures (@KyrosVentures) June 10, 2021

NFT in details

Infrastructures and Game studios

Currently, Ethereum is still the leading blockchain protocol for NFTs as it hosts the highest number of projects, with over 50 currently running on top of it. WAX, a fork from the EOS blockchain, ranks second with more than 35 projects. New blockchains entering the space are BSC, Polygon, and Flow. It worths mentioning Chiliz, which is fully dedicated to the sports fan token segment.

Despite its dominance, Ethereum’s transaction fees remain a persistent problem as it tends to skyrocket far too regularly. Today, performing any transaction on the network can prove rather costly. Users will have to pay approximately $21 for each transaction which is much higher than other blockchains such as Binance which costs approximately $0.45, Flow $0.02, Polygon $0.0001, and WAX which has no gas fee.

Figure 3 also displays major NFT gaming studios and their products. They have more potential than other kinds of segments within the NFT ecosystem to engage with your everyday normal people. Thanks to the solid base of many blockchain protocols, game creators now have more opportunities to leverage their products through this technology. Recently there have been some big blockchain-focused game studios that have entered the current market including Dapper, Animoca Brands, LucidSight, and EverdreamSoft (Figure 2)

Figure 2: Top NFT Infrastructure and Game Studios

Games and Metaverses

From the gaming market’s standpoint, this market reflects a mature segment that is well developed yet still looks favorable with a high probability for significant growth in the coming years. In addition, this segment has rapidly driven the growth of the NFT ecosystem and now has very compelling liquidity of its assets. 

Currently, the most played game on Ethereum, Axie Infinity, is continuously evolving by adding new features and game modes. Developed by Sky Mavis – a Vietnamese game studio, Axie has attracted thousands of newcomers to blockchain technology from developing countries with nearly 90,000 active wallets and about 22,000 daily users. However, it is God Unchained that currently holds the highest sale value of $22 million while the number of sales reached 569,561 in total (figure 3).

Besides the gaming industry, the more established Metaverses focuses on virtual world-buildings and in-game experiences. Decentraland is currently leading this segment as its sale values account for $62.2 million, making up 58% within its whole market. Despite its dominant position, Decentraland is confronted with challenges by other players like The Sandbox and CryptoVoxels. They offer a vast array of supporting assets to the market including names, wearables, and various objects in the form of ERC-1155 tokens.

Figure 3: Top NFT Projects in Games and Metaverses

As reported by Newzoo’s global games market research, by the end of 2021 there will be approximately 2.9 billion gamers worldwide. Blockchain technology, via NFT’s, gives property rights to gamers. For the first time, gamers can now take ownership of the digital assets they acquire in games. This is enormous as it represents the final stage in the evolution of free-to-play gaming. As gaming is the largest entertainment medium globally with a consumer audience almost as big as the global population, NFTs can leverage this fertile land to bring mass adoption into the blockchain space. A few names to watch: My Neighbo Alice, Derace, X World Games, My Defi Pet, and Ethermon.

Collectibles, Art, and Sports

NFTs peaked in sales on May 3 when $102 million worth was sold in a single day. And the crypto-collectibles market made up $100 million of those sales. Figure 4 illustrates this exciting upshoot in the NFT ecosystem and presents a compelling argument for a very fruitful future for NFT Arts, Collectibles, and Sports.

NFT collectibles like CryptoPunks, Meebits, and CryptoKitties have so far proven to be the most resilient assets and are still the largest of the seven markets ranked by NonFungible.com. Data collected in Figure 5 shows that CryptoPunks still reigns in sales with a value of nearly $400 million and $25,532 in average transaction volume which is far ahead of the other two competitors.

Figure 4: Top NFT Projects in Collectibles, Sports, and Arts

The Sports segment has all the hallmarks of a growing platform in its infancy whose development looks very promising over the next few years, with buyers showing increasing interest. The total sales value of assets traded is exploding having almost reached $600 million, which is surprisingly exceeding the Collectibles segment. The top three contenders of the Sports segment are NBA Top Shot, Sorare, and Topps MLB.

From the NFT Arts perspective, the market still remains very limited. At the moment a common pattern amongst buyers is to build a collection and they are here for the long run. The most prominent in this segment is Hashmasks with the highest sales value of $50.4 million, followed by Art Blocks and KnownOrigin with $20.5 million and $6.4 million respectively.

According to the annual Art Market Report from Art Basel and UBS, the traditional art market is worth about $50 billion in 2020 and has reached new heights in 2021. Although the NFT art market volume is still relatively small compared to this, it has a lot of room to grow in the future.

Marketplaces

The marketplace is the backbone of every ecosystem, and its development explicitly reflects the general landscape of NFT ecosystems and the particular segments in it.

Figure 5 points out that at this moment, Ethereum is still the top NFT blockchain. In particular, OpenSea outperforms the rest of the market, capturing $48.5 million in sales volume with more than 22,000 users in the last 30 days. However, Binance Smart Chain with its minimal transaction fees and speed of transactions has allowed BakerySwap, AirNFTs, and Treasureland to push the limits of the NFTs capabilities so much better. It is also an omission not to mention WAX which is labeled the “King of NFTs brand.” It is now working towards a fairer and more equitable NFT ecosystem that can allow the general public to collect affordable NFTs. The users of WAX are giant compared to any other blockchains in the marketplaces accounting for nearly 420,000.

Figure 5: Top NFT Marketplaces

Domains

This segment presents a great diversity of projects and uses cases; however, one should notice that the segment is mainly driven by the Ethereum Name Service, Unstoppable Domains, and Handshake. 

The context of these projects and their markets, with the sheer numbers and remarkable names, can explain their constant growth and expansion through all the NFT ecosystems. As demonstrated in Figure 6, millions of domain names are registered on these platforms with more than $10 million in sales value. ENS takes first place with $7.01 million calculated at the beginning of June 2021. Nonetheless, Handshake has acquired more names registered than the rest of the market, gaining around 53.7% overall. 

The ecosystem of these domains is highly diverse, ranging from wallets and browsers to exchanges and other kinds of applications. However, ENS once again proves its dominance and popularity with 231 integrations, quadrupling Unstoppable and being nearly twelve times bigger than Handshake.

In line with ReportLinker, the global domain names market is forecasted to reach 512.3 million domain names registered by 2027. This number is tremendous and if NFT domain names can take only 5% to 10% of the market share, the whole NFT domains market will grow more than twenty times compared to today.

Figure 6: Top NFT Domains

Binance NFT

The NFT sector on Binance Smart Chain is still in its infancy with consistently increasing growth and adoption which is closely followed by global companies around the world. And recently, Binance, the world’s largest crypto exchange, has launched its own NFT marketplace on the 24th of June 2021. As stated, this marketplace “will bring together artists, creators and crypto enthusiasts from around the world,” and it will then “ become the premier destination for NFTs and digital collectibles across mediums, from visual arts and gaming to music and sports.” 

We had a sneak peek at the first iteration of the Binance NFT marketplace on launch day, displayed in Figure 7.

Figure 7: Lineups at Binance NFT Marketplace on launching day 

With the weight it possesses in the space, Binance is predicted to form a new trend in the market. And one day, when unique and irreplaceable assets are issued as NFTs on the blockchain and globally adopted, these names in Figure 8, with their partnerships and developments on BSC, could make several remarkable achievements.

We are all waiting to see the long-term evolution of this new ecosystem after this exciting start.

Figure 8: NFT Projects on top of Binance ecosystem

Where will it go and What awaits us?

The Non-Fungible Token industry is an extremely young sector rapidly expanding in trading volume, liquidity of assets, and the number of new users over time. Yet we are only at the very dawn of starting to explore how many industries can utilize NFTs. 

The massive acceleration during the second half of 2020 with the adoption of many mature use cases and structured projects indicates that its development is about to speed up dramatically. 2021 is poised to be an eventful year as several major realizations about the NFT ecosystem have enabled it to move on to the next level. 

NFTs have opened a new opportunity for the digital economy where virtual assets can be verified and traded in just one click. It is no longer just a speculative industry; it is now a value generation industry. When compared to the traditional market, NFTs market share is still negligible. Yet with the inevitability of the digital revolution, there is little doubt the world of NFTs may soon become mainstream and disruptive to both new and established industries. What remarkable milestones are awaiting the NFT ecosystem in the future? Only time can tell.

The Big Picture

• Bullish momentum continues to rule the market sentiment throughout the first quarter of 2021. The total market cap soars 144% from $787B to $1,919B in Q1, 2021, according to Coingecko.
• Institutional sector participation in the market marks all-time-high (ATH) with several public firms and investment funds that either announce Bitcoin investments or launch cryptocurrency products.

Institutional Investor

• Network effect has passed onto institutional investors on Bitcoin in 2021 with a large wave of adoption (Figure 1). Joining forces with Grayscale, Square and MicroStrategy, Tesla did not only add Bitcoin into its balance sheet but also allowed its users to purchase Tesla cars by Bitcoin. The institutional adoption continues to spread like wildfire, in the context of highly-concerned global economic status post-Covid-19.

Figure 1: Bitcoin Mass Adoption in QI/2021

• Grayscale, for the first time in the past 3 years, has added 5 new tokens into its investment product lines, providing indirect access to crypto for accredited US investors and institutions (Figure 2). The latest batch includes Basic Attention Token, Chainlink, Decentraland, Filecoin and Livepeer. In the meantime, the largest institutional Bitcoin-hodler also expands its current portfolio of existing crypto assets, accumulating a higher stake of those coins’ total supply.

Figure 2: Grayscale holding over coins’ supply

Bitcoin

Figure 3: Bitcoin Price Returns in Q1 & Q2

The Summer Time

• Figure 3 depicts that Quarter 1 2021 has seen the best return since 2017. The market size is double with bullish sentiment carried over from the second half of last year.
• Quarter 2 has been a pivotal period of the crypto cycle ever since 2017. Either carrying on the previous bullish momentum or cooling down the bear, crypto summer brings a fresh vibe for new trends. Q2 2017 was the start of the peak half a year later. Q2 2018 marked the market’s second rebound before the crypto winter. Q2 2019 was the best performed season for that year. Q2 2020 witnessed a great recovery from  Black Thursday. Forecasting Q2 2021 from a limited dataset would not be a piece of wise advice, yet a green quarter can be the modest expectation.

The Trillion-Cap Assets Universe

• Bitcoin market capitalization has surpassed the 1 trillion USD mark for the first time ever in the last quarter. The next milestone for Bitcoin is Silver before achieving its ultimate goal, e-Gold (Figure 4). 
• Needless to say, Bitcoin was the best-performer among the trillion cap asset universe in the first quarter of 2021. The cryptocurrency skyrocketed 102%, with the market cap finishing the first bullish round at 1.1 trillion USD.

Figure 4: Bitcoin among other trillion cap assets

Ethereum Challengers

• The second-largest cryptocurrency, Ethereum is on the right track for its potent network upgrade, the eth2.0 staking event. At the end of Q1 2021, the total staked Ether reached 3,611,147 ETH, equivalent to $6.7B or 3.13% of the total circulating supply.  

Polkadot

• Polkadot has risen as one of the most competent Ethereum challengers. Figure 5 depicts how the ecosystem’s public awareness has grown. The Google search trend for “Polkadot” keyword peaked twice in the first three months of 2021. Correspondingly, DOT price reached ATH in late February.

Figure 5: Polkadot Price vs. Google Search

• The Polkadot ecosystem has expanded rapidly in many aspects. More and more wallets now support Polkadot with respect to the rising demand from the users, which also explains why the quantity of multi-chain wallets already outnumbered that of Polkadot-only wallets in the ecosystem (Figure 6). That is not to mention the fact that the project is still under development for its fully functional mainnet.

Figure 6: Polkadot-supported wallets 

Binance Smart Chain 

• The next candidate for an Ethereum-challenger title is Binance Smart Chain (BSC). Daily transactions of BSC have surpassed Ethereum for the first time in Quarter 1, 2021 (Figure 7). Since then, it continued to perform well and ended up almost 3x over Ethereum on the metric.

Figure 7: Daily transaction on Ethereum and Binance Smart Chain

• BSC’s flagship, PancakeSwap, also surpassed Uniswap, SushiSwap, and Curve to be ranked as the top 1 Decentralized Exchange (DEX) by 24h volume. All of these achievements have contributed largely to upward demand pressure on the price of BNB, the utility token of the BSC ecosystem. As the result, BNB marketcap has passed Tether and Cardano to be the top 3 biggest altcoins, following Bitcoin and Ethereum, for the first time since the inception.

DeFi

• Following the trend of 2020, DeFi is still on fire. The Total Value Locked (TVL) in DeFi platforms has almost tripled since the beginning of the year, reaching nearly 65 billion dollars in both Ethereum and BSC. The pie is still growing; no one seems to be eating each other’s piece, just yet.

Figure 8: TVL on Ethereum and Binance Smart Chain

• As Figure 8 demonstrates, Ethereum is still the dominant player when it captures $51.5 billion in total economic value, quadrupling that of BSC at the end of March. Meanwhile, BSC has risen as an ideal protocol for DeFi projects, proved by its escalating TVL from just a few million to now $13 billion, and that seems to be just a start.
• According to the leading explorer DappRadar, there are 4764 Dapps in the crypto space, 46,5% of which are running on top of Ethereum, while BSC is a home for 276 dApps or 5,8% of the pool. However, BSC looks more ‘DeFi-focused’. Out of 503 DeFi projects, 33,2% is based on Ethereum while 41,4% uses BSC. In summary, despite Ethereum’s adoption being more impressive, BSC is still a redoubtable challenger in the DeFi corner.

DEXs

• Without DEX, the DeFi greenfield would never have taken the spotlight for 2020. Thus, the year of 2021 is undoubtedly the right time for DEX to mature and possibly become mainstream. With optimized usability, deeper liquidity, and emerging composability, the DEX ecosystem is as strong as ever.

Figure 9: Monthly DEX volume (source: Dune Analytics)

• Figure 9 points out that DEXs have already processed more transaction value in Q1 2021 than all previous periods combined. Notably, the volume hit ATH of nearly $77B in February, carrying on the exponential growth momentum. In the Ethereum-powered DEX sector, Uniswap represents more than double Sushi’s volume, gaining around 50% of the market share (Figure 10).

Figure 10: Top DEX volume in Q1 2021 (source: Dune Analytics)

• February also marks the highest-ever level of monthly revenue for Ethereum miners, roughly half of which has come in the form of transaction fees. The revenue numbers reflect the price of ETH, which exceeded the $2000 mark briefly this month. Data collected in Figure 11 shows that, for the first time, Ethereum miners have brought in more than $1 billion in revenue for the month of February.

Figure 11: Ethereum miner revenue in Q1 2021

Scaling Solutions

• Despite its burgeon, the DeFi ecosystem is in somewhat of a bottleneck crisis, as more and more projects are developed and launched on the Ethereum network with growing transactions’ volume, causing gas fees to skyrocket. The good news is that a group of layer-two (L2) scaling solutions has already bloomed around Ethereum. They are offering variable avenues to scale Ethereum for the mass. A variety of L2 models is displayed in Figure 12.

Figure 12: Ethereum scaling solution model

• Layer-2 protocols are perhaps the greatest hope for Ethereum devotees at the moment. In short, layer-2 chains operate on top of the Ethereum mainchain but function in a much more efficient way with drastically reduced transaction fees and a few-second transaction speed. One such Layer 2 technology is rollups, which take much of the burden of computation and storage out of the blockchain, utilizing it just for its security sake.
• Figure 13 mapped out many projects inheriting L2 technology in which the cutting-edge ZK-Rollup technology is well-positioned to be a leader. Overall, as long as Ethereum block space is expensive, scaling solution demand is still high.

Figure 13: Ethereum scaling solution map

NFT 

• Well-known since 2017 with the CryptoKitties phenomenon, NFT segment silently exists alongside other crypto major trends for years. Covid19 seems to be a catalyst for NFT frenzy in Q1 2021. From art, trading cards to music and other collectibles, things are now on a digitizing trend when offline exhibitions, concerts or auctions have found it hard  to cope with social distancing situations. 

Figure 14: Crypto art market share in Q1 2021

• Figure 14 shows how well Nifty Gateway is dominating the marketplace for the crypto art segment. Following up are SuperRare and Foundation. 
• Meanwhile from the  NFT sales from projects’ point of view, we have the major names including NBA Top Shot by Dapper Labs, CryptoPunks, Hashmasks, etc. (figure 15) The all-time sales boom matched with their impressive market cap growth up to 1800% in Q1 2021. The rise of these projects aligns closely with how well the relevant traditional market is transforming into digital. NBA Top Shot is an example. Partnership with NBA and NBA Players’ Association was a crucial milestone in the sport NFT field and blockchain industry as a whole. One successful case will lure a gigantic wave of adoption because nothing can bring people together better than sport.

Figure 15: NFT collectibles market share in QI/2021 

We hope you enjoyed a little journey back to the first start of 2021. A road is still long and time is all we’ve got. In an unpredictable world like crypto, nothing is certain. Trade responsibly, and we look forward to another lookback in the next quarters!

Vietnam is one of the most dynamic cryptocurrency markets in the world. To get here today, we have overcome many difficulties together. For the first time in history, Kyros Ventures and Coin68 are proud to introduce to the crypto community, the “Vietnam Cryptocurrency Market 2020” report. This document includes collective market insights, Vietnamese investors’ perspectives on many issues that we gathered through a survey conducted at the end of 2020. Let’s take a look at the 6 main points of the report. 

Vietnam Crypto Market

It will not be strange if you will find that crypto advertising in Vietnam is the image of a successful businessman with a luxury car, a penthouse. Men under 35 years old are the biggest participants in the Vietnamese crypto market. Other features include:

• The two big cities, Ho Chi Minh City and Hanoi, have the highest concentration of interest for crypto, with 43% and 27% of the total number of respondents respectively.
• In addition, nearly a quarter of respondents were engaged in crypto part-time, along with their other major jobs.
• More than a quarter of respondents say they have a basic understanding of crypto but need guidance when exploring new products/trends.
• The most common channel to acquire knowledge voted by the community is the reputable cryptocurrency news portals like Coin68.com.

Trading Behavior

Coin68 observes that the longer a person participates in crypto, the more likely it is to trade the longer term and the more confident they are to use more products. This is in contrast to newbies. But whether you are new or experienced, one piece of advice you will often hear is:

“You don’t trade margin, you lose. You trade margin, you lose x2.”

Perhaps that is why the most popular crypto product is Spot trading.

In Vietnam, there is an exchange that is leading in all 3 categories: Favorite Spot Trading Product, Favorite Derivative Product, and Favorite P2P/OTC Trading Product.

Portfolio Preference

More than 90% of respondents said they want to remain or increase the proportion of crypto in their portfolios for 2021 compared to the previous year. This is especially true for groups with a low crypto allocation of 50% or less.

The report also specifies the most common annual earnings of crypto-participants, along with their expectations for crypto return 10%, 30%, or x2 account this year.

Community View on Bitcoin

When the survey took place from mid to late December 2020, Bitcoin’s price fluctuated between $19k1 – $26k5. Our market report states that the community has little expectation of Bitcoin’s price reaching $ 40k in less than a month from the survey. In fact, most expect BTC to be between $16k – $20k in Q1/2021.

• No one is expecting BTC to reach $50k, whether in the next 3 or 12 months.
• The majority believes that Bitcoin will replace gold.
• This confidence increases over a longer timespan, as the market grows stronger.
• The paper reports the top 3 candidates voted by the community to threaten Bitcoin’s current leading position.

Perspectives on Altcoin

DeFi marks a brilliant 2020 year, occupying the top trends thanks to DeFi yield farming and liquidity swaps. However, the most expected trend in 2021 is Games on Blockchain and Non-fungible tokens (NFTs). The prominent views on Altcoin are summarized as follows:

• More than 70% expect Altcoin 2021 season to take place.
• Large-cap altcoins are expected to moon the most next year (but there are some surprises).
• Uniswap dominates the Vietnam DeFi market, while other DeFi tokens still have windows of opportunity to challenge the lead.

Projects from Vietnam

The Vietnamese crypto community has voted according to 3 categories: Top 5 most popular projects, Top 5 projects with the best awareness, and Top 5 most used products.

As a result, only 6 names to be announced. Wonder what are the best Vietnam projects? Download your copy of the official report file.

On behalf of the research team of Kyros Ventures and Coin68, we’d like to thank all of you who have been supporting us from the very beginning. Sincerely send you and the crypto community the Vietnam crypto market 2020 report, as a tribute to all. We shall see you in the next report.

Overview of the Cryptocurrency Market

The cryptocurrency market has experienced growth during the third fiscal quarter of 2020 (Q3 2020). In particular, this growth can be characterized by two similar metrics, Quarter on Quarter (QoQ) and Year on Year (YoY), whereby QoQ is a measure of change between the fiscal quarter in question and the previous fiscal quarter, while YoY compares the fiscal quarter of one fiscal year with the same fiscal quarter of the previous fiscal year.

With Q3 2020 in mind, the total cryptocurrency market cap has grown 31.8% QoQ and 57.8% YoY, demonstrating a bullish trend over the last 12 months (Figure 1). The trend has primarily been due to the emerging “hot” trends in the crypto space, namely the decentralized finance (DeFi) yield farming and the decentralized exchange (DEX) protocols such as Uniswap. Following the Black Thursday crash in Q1 2020, the market has recovered on the third Bitcoin halving’s wings and the boom of the DeFi yield farming and DEXs.

On the other hand, there is no clear trend identified in the total trading volume over the last 12 months. Nonetheless, there have been some spikes and dips around critical events, as depicted in Figure 1.

In order to delve deeper into the dynamics of the cryptocurrency space, the market share associated with Bitcoin and Ethereum may be analyzed over the last 12 months, as presented in Figure 2.

In this period, BTC dominance has been reducing with the rise of DeFi, mostly associated with the ETH network. Evidently, in Q3 2020, the ETH market cap eclipsed 10% of the total cryptocurrency market cap, reaching the 2020 high of 13.2% in September with the corresponding growth of 23.2% QoQ and 40% YoY. Meanwhile, BTC has been losing its dominance, down from over 67% in Q3 2019 to below 59% in Q3 2020.

Cryptocurrency versus Stocks and Gold

Taking into consideration that Bitcoin has long been considered a store of value and “digital gold,” it is natural to compare the digital asset class with physical gold. For completion, the S&P 500 stock index is also included in Figure 3, whereby YoY returns for the three types of assets are presented for the last four fiscal quarters.

Notably, cryptocurrency has outperformed gold and S&P 500, with a return of nearly 2x that of gold and 6x that of the S&P 500 index. Despite its high volatility, cryptocurrency is still the asset class with the best returns within the relevant timeframe.

Interestingly, crypto is increasingly correlated to gold and S&P 500, as shown in Figure 4. This trend started in Q1 2020 when the COVID-19 breakout led to another world economic crisis. Gradually, this trend has become more evident through Q2 and Q3, with the Pearson correlation coefficient approaching 0.9 towards the end of Q3. The high level of correlation between crypto, gold, and S&P 500 is expected to continue while the world searches for a viable COVID-19 vaccine for mass adoption, which is expected to arise during 2021, causing the economy to rebound.

Overall DeFi Market

The advent of DeFi has resulted in skyrocketing of the Total Value Locked (TVL), representing the amount of currently staked assets within the sector (Figure 5).

Figure 5 highlights the total TVL taken on the first day of each month of 2020 to date, demonstrating exponential growth. It is important to note that the TVL value is by no means meant to represent the number of outstanding loans, but rather the total amount of underlying supply being secured by DeFi as a whole.

The main components of DeFi include smart contracts, lending protocols, decentralized applications (dApps), digital currencies, decentralized exchanges, and more. Among these, the DEX sector has been a late bloomer, with its TVL rapidly increasing only since August. With that said, DEX has caught up with the lending trend to form the two main foundations of DeFi.

DeFi Yield Farming

DEXs, based on the Automated Market Maker (AMM) model, has proven to be one of the most impactful DeFi innovations. Among these, the most popular platform today is Uniswap.

In early September, Sushiswap protocol was introduced, realigning incentives for network participants by utilizing revenue sharing and community-driven network effects on the popular AMM model. Thereby, fueled by the favorable SUSHI tokenomics with existing AMM advantages, Sushiswap successfully took $800M in liquidity from Uniswap during its migration.

However, Uniswap responded soon after by rolling out the UNI token in order to beat the competition, while Sushiswap lost early momentum due to the drama associated with its founder, “Chef Nomi.” The order is now set again with Uniswap, Curve Finance, Balancer, and Sushiswap, leading the DEX sector in terms of the TVL (Figure 6).

Decentralized Exchanges (DEXs)

The DEX sector has experienced rapid growth with trading volume more than doubling every month since June 2020 (Figure 7). In particular, in June, aggregate monthly DEX volume was $1.6B, skyrocketing to $4.3B in July, $11.6B in August, and $23.6B in September.

Such parabolic growth may lead to a trillion-dollar market projection in just a few years; however, there are no certainties. Several factors have to be monitored and evaluated continuously in order to achieve sustainable growth in the DEX sector, namely the smart contract audit quality, sustainable tokenomics, level of decentralization, etc.

In terms of the Uniswap protocol’s dominance, several observations can be made:

• Uniswap dominance increased from 58% to 65% in August – September
• Uniswap – Sushiswap battle only increased the prominence of Uniswap
• Curve captured 22.2% of the market, rising from 16.1% in August
• The AMM model with token incentivization continues to dominate

Future DEX trends will include new participants and novel infrastructures:

• The DEX market has a relatively low barrier of entry (compared to CEX) and fosters a healthier ecosystem which welcomes innovative projects such as Serum
• Built on a high-performance blockchain, Serum has already reported $50M in a volume less than two weeks after launch
• A DEX “war” on different blockchains can be anticipated, opening up more facilities for end-users

Critical Events

• Yield farming rollercoaster – Sushiswap incident triggered by “Chef Nomi” cashing out his entire SUSHI holding to ETH, only a few weeks after the DEX historically took $800M of liquidity from its precedent (Uniswap)
• Kucoin, a well-known centralized exchange, has been hacked. $150M worth of funds has been compromised by a hacker who, as reported by Coindesk, “obtained the private keys to the exchange’s hot wallets.” The exchange is still investigating the incident at the time of writing while announcing that all the stolen customers’ funds will be fully covered
• CFTC charges BitMEX for illegal activities and anti-money laundering violations. The announcement was made on October 1st.

Expert Commentary (1): When do you envisage the mass adoption of DeFi will happen?

Dr. Long Vuong, Founder & CEO of TomoChain:

“As with any new industry, proof of convenience & time are two crucial factors in deciding its faith. DeFi mass adoption is surely not an exception. DeFi blew up in the last year and a half and has been accepted by more and more banking systems & integrated into different businesses worldwide. The goal is for users to use DeFi products without knowing there is (the) blockchain technology behind it, and eventually turn these financial primitives into a new common financial method. Though I don’t have a specific time, I believe the future does look bright for DeFi mass adoption, especially with the continuous effort for better solutions from many projects.”

Thanh Le, Founder of Coin98:

“I think we might see the DeFi tipping point somewhere in the next 24 months (minimum). 

DeFi can’t go to mass adoption with a very low speed and high gas fees blockchain platform. To get there, the relevant blockchain platforms need to solve the scalability problem first. There are many teams who are working on these solutions currently, e.g., Solana, Polkadot, Ethereum L2…If these solutions become viable over the next 12 months, this will provide a broad foundation for any DeFi applications to be built on top of it, bringing the same user experience as other centralized FinTech applications.

The use case of current DeFi applications is still very limited when compared to traditional banking services. There are a lot of teams who are working on building more innovative protocols for DeFi, e.g., interest rate swap, credits, on-chain futures trading and other derivative protocols.

The benefits that DeFi brings to the end-users are still very limited when compared to traditional services. As long as DeFi protocols can solve the same problem as other centralized finance apps, but in a better and simpler way, users will start to use DeFi more because it will bring more benefit to them.”

Ryan Tian, Co-founder of FinNexus:

“I believe decentralized finance is by far the greatest application of the blockchain technology, and it will come to mass adoption, and accomplish even more than what (the) internet did to transform and upgrade traditional finance. But, there are some problems that need to be solved before that, like gas fees, efficiency, cross-chain applications, protocol securities, enrichment of the ecosystem. I am expecting the mass adoption will be achieved in 3 years.”

Rachid Ajaja, Founder & CEO of AllianceBlock:

“Mass adoption of DeFi will happen once institutional enter to it, and to do so, compliance and regulation need to be taken into account. Being able to do so will bridge the two worlds and will bring mass adoption. User experience is also very important, i.e., the simpler the way we deal with the application, the better are the chances to increase adoption. People do not need to know what a public key or a private key is – they connect with an identifier, and that is it; this is also an important point.”

Expert Commentary (2): How will the yield farming trend evolve in 2020/2021?

Dr. Long Vuong, Founder & CEO of TomoChain:

“The idea of yield farming is to attract liquidity. By locking users’ liquidity into the farming pools, we allow new financial instruments to be built on top of them. People are attracted to yield farming because of the high ROI rate it generates, multiplied even by hundreds, and will continue to follow this type of investment in the long run. As more and more projects come up with their own yield farming protocols, including TomoChain with LuaSwap, users are going to be exposed to a variety of services with different rates and features. Thus, choices are plenty for yield farming to evolve even more in the coming year.”

Thanh Le, Founder of Coin98:

“There will be more sources of yield, mainly coming from derivative protocols, e.g., options trading, futures trading, synthetic assets, lending, borrowing, etc.

Ethereum is the mainland of DeFi in 2018-2020, but starting from Q4, 2020, we might see other blockchain platforms building more yield farming products on their chains, resulting in multichain yield farming.

Farming is unlimited, but user capital is limited. It’s hard to manage the funds efficiently by doing it manually. Users will need a machine to help them manage their funds. Yield farming aggregator is that machine, and we can expect to see the rise of different versions of yield farming aggregators. yEarn is one of the very well-known names in this space.

Finally, more capital will enter into DeFi. More innovation protocols -> More yield farming options -> More yield -> More funding.”

Ryan Tian, Co-founder of FinNexus:

“Yield farming is one of the most interesting creations of DeFi, and I believe it will continue to be an important mechanism to reward the early participants and make token distributions. Yield farming will continue to evolve. It will be more connected to the DeFi business model. Projects purely for farming will be gone. Also, the balance between high APY and the market dumping pressure will be considered. Super crazy APY will disappear from the market. Yield farming is going to be more like the seasoning, not the main course, in most DeFi projects. It can spice up the excitement, but will be less likely to play the main role. Plus, the farming mechanisms and gains will be more flexible, and some may even call it Game-fi.”

Rachid Ajaja, Founder & CEO of AllianceBlock:

“In my opinion, we will see the creation of derivative products on the yield farming since they can bring more investors, but also products that will, for example, hedge against the gas increase, which will have an impact on the amount of users. Multichain farming is the next step also.

This is still a new field and very interesting; we need to keep a close look as something new can happen every day. Now we have a CORE that includes several different approaches, and we see a very high interest in this model. Exciting time :)”