Our Network: Issue #54

Coverage on SNX, ESD, BNT, and SUSHI.

ICYMI: Read Deep Dive #1 on the $1INCH token launch

This is issue #54 of the on-chain analytics newsletter that reaches nearly 7000 crypto investors every week 📈

✨ Together with our partners:
Image 2020-11-13 at 10.54.34 AM

1inch, whose v2 offers the best rates by discovering the most efficient swapping routes across all DEXes—swap on the customizable new UI. And also Aave, where you can experience DeFi: Deposit, Earn, & Borrow on Aave.

Algorithmic Stablecoins

I wanted to flag a notable development for our readers. As of this week, we’re now covering algorithmic stablecoins starting with Empty Set Dollar. This class of decentralized stablecoins isn’t technically new (you may remember projects like NuBits and Basis), but there has been renewed interest and exciting developments in this sector over the past few months. If you’re a data-driven analyst who is interested in covering a new algorithmic stablecoin for Our Network (Fei Protocol comes to mind as one I’d like to see covered when it launches) — please reach out!

This week our contributor analysts cover DeFi: Empty Set Dollar, SushiSwap, Bancor, and Synthetix.

① Empty Set Dollar

Contributor: Jon Itzler, Research at Dragonfly Capital

  • Since launching on Aug. 25, Empty Set Dollar has been nothing short of an on-chain spectacle. The experimental project uses a single-token seigniorage shares model, aiming to peg to $1 according to the ESD:USDC Uniswap pool’s 8-hour TWAP oracle. When TWAP is above $1, the protocol expands supply by issuing newly minted ESD to DAO bonders and LP’s in a 77.5:20 ratio, with the goal of incentivizing sales of circulating supply in order to return the price to the peg. Supply has reached ~508.5M since inception.

  • When TWAP is below $1, the protocol issues ‘coupons’ as incentive to temporarily remove supply from circulation by burning ESD. Coupons are effectively 30-day Out-of-the-Money options betting on future expansion, where premium is priced by a protocol parameter called ‘debt’ - a descending auction based on size and duration of TWAP price below the peg. The protocol is currently in contraction with ~9.3M coupons outstanding.

  • Outstanding coupons are redeemable on a first-come-first-serve basis during expansions. Critiques of the current coupon system include the mispricing of option premium, the advantage to bots due to FCFS redemption, and the ‘waiting game’ that ensues where participants are inclined to wait until expansion looks exceedingly likely. Up to 69 ETH has been paid as transaction fee by bots aiming to call advance() first during redemption. 3rd party primitives have also emerged, namely Coupon Clipper and CPOOL, where coupon owners can place bribe orders to bots on-chain for priority redemption, or pool their coupons into a liquid basket of distressed options. 

  • Recent progressions within the DAO include the introduction of a treasury that accrues 2.5% of supply expansion, which has grown to ~10.8M ESD to date, plans for a v2 which aims to transition the protocol to a fractional reserve model and switch coupons to a zero-coupon, “T-Bill”-esque bond structure, as well as EIP-16, a proposal recently committed by the DAO to separate coupon principle and premium.

② SushiSwap

Contributor: Lucas Outumuro, Senior Analyst at IntoTheBlock

  • SushiSwap has come a long way since the Chef Nomi incident, evolving into a fast-moving community-led DEX. Key protocol metrics have been growing steadily, with SushiSwap’s volume and liquidity reaching new highs in January. Over the last three months, SushiSwap’s liquidity and volume have grown by 480% and 1600%, respectively. 

  • SushiSwap incentivizes liquidity providers and token-holders by charging traders a 0.30% fee on each trade, of which 0.25% goes to LPs and 0.05% goes to those staking xSUSHI on their platform. These fees have also grown significantly, surpassing $2 million in total daily fees ($350k to stakers) for the first time on January 11.

  • Being the two largest AMMs, Uniswap and SushiSwap are often compared to one another. After forking Uniswap, SushiSwap launched on its first day with 40% of the volume share between the two top AMMs. This declined sharply, then recovered and has now managed to sustain above 25% in 2021 thus far. 

  • By using fees accrued from trading volume as revenues, we are able to apply traditional finance metrics to AMMs. The P/S ratio is particularly relevant as it puts into context a protocol’s valuation relative to the revenues it produces, in SushiSwap’s case provided to LPs and token holders. Despite SushiSwap's market cap growing over 600% in the last three months, its valuation relative to sales has actually decreased by 40% during the same time. 

  • Finally, on a more micro level, liquidity providers of SushiSwap’s top pool (WBTC-ETH) have managed to earn more by ‘LPing’ than if they had held each asset separately. This has yielded an impermanent gain of 0.7% in addition to the 27% in yield farming rewards. More metrics on SushiSwap can be found on IntoTheBlock and for information on the methodology used feel free to check out this spreadsheet.

③ Bancor

Contributor: Nate Hindman, Head of Growth at Bancor Protocol

  • Version 2.1 of the Bancor protocol, launched 3 months ago, offers single-sided exposure and impermanent loss protection to AMM liquidity providers. Active study in impermanent loss is ongoing. The chart below depicts liquidity provider returns in the YFI/ETH pool on Uniswap. After accounting for swap fees, a Uniswap LP would have suffered -40% loss vs. +30% gains without IL. Source: amm.vav.me

  • The protocol has seen an 1000%+ increase in liquidity since impermanent loss protection launched in October, driving over $4.5M in annualized swap fees. More than 5K users (including several token treasuries) are currently providing single-sided liquidity, collecting fees and BNT liquidity mining rewards, free from the threat of IL.

  • The total cost of impermanent loss compensation paid to LPs to date is 41K BNT or $64,000 USD, whereas swap fees earned by the protocol and BNT liquidity providers are 350K BNT, or $560,000 USD. Protocol revenue is dominating the costs of impermanent loss protection at present and is generating profits for the protocol and BNT holders.

Click here to keep reading.

Our Network: Issue #54 (Part 2)

Coverage on SNX, ESD, BNT, and SUSHI.

Continued from Part 1.

  • Revenue growth per pool coincided with increased co-investment limits. Co-investment limits are governed by the BancorDAO and determine the maximum number of BNT that can be emitted by the protocol to match single-sided non-BNT deposits. This BNT has no price impact on the external market; rather, it is emitted directly into the liquidity pools where it remains earning fees for the protocol until the BNT and its accrued fees are burned. This is akin to the protocol investing money on marketing to drive usage, then allowing the investment to pay itself off over time. Currently, 54.95% of total BNT supply is staked within the protocol.

  • The burning of protocol-invested BNT and its accrued fees occurs when a non-BNT liquidity provider withdraws their deposit, or when a BNT holder stakes their BNT in a pool. This creates deflationary pressure on BNT, with 47.2M BNT ($80.24M USD) burned since October 18. A perpetual burning mechanism, called the Bancor Vortex, has been proposed to burn fees from each swap instead of fee-burning only occurring with LP withdrawals/deposits. Source: Dune Analytics. A full report on Bancor v2.1 protocol health can be found here.

④ Synthetix

Contributor: Zach Chao, Independent Researcher

  • Synth exchange volume broke its all-time high (ATH) of ~$57M on December 26th reaching $64.9M, which was quickly surpassed on January 3rd with daily volume spiking to $186M. This spike in daily volume could be attributed to the price action of SNX, which broke its ATH of $8.77 that same day. The stickiness of volume is further supported by the Volume Program that kicked off this past September, which incentivizes native integration of the Synthetix protocol across DeFi platforms and protocols.

  • Staking activity has also continued to grow steadily throughout the course of the year, with daily active stakers increasing ~187% over that same time period. Synthetix’s new and improved staking UI, which introduces a more seamless, lower friction staking experience, should foster continued growth in the staking activity going forward. (Source)

  • After decommissioning the Synthetix Foundation in late July and replacing them with three distinct DAOs -- protocolDAO (protocol upgrades), grantsDAO (funding public goods), and the synthetixDAO (funding contributors and other project needs) — the community approved SIP-93, a proposal to replace the synthetixDAO with a Spartan Council, a representative democracy governance structure. There are a total of 7 council seats, which underwent an election process that closed December 8th, but are subject to re-election every three months. Council members received a limited edition NFT by Sam Gilmore, and if not re-elected, will be revoked and rewarded to the new council member(s). 

  • Finally, most recently the protocol has been preparing for the migration to Optimistic Ethereum. While still subject to community approval, a four-phase transition plan has been defined. Some key points of the plan include (1) supporting exchanges on L1 AND L2, (2) moving minting to L2, and (3) fluid movement of synths between L1 and L2. Other alternatives include building an entire parallel version of the protocol on L2, however, this would impact the UX by fragmenting liquidity, siloed to their respective layers. For more in-depth details of the plan and its phases see here

About the editor: Spencer Noon is an investor at Variant.

Our Network: Deep Dive #1

1INCH Token Launch

Click here to join Our Network Alerts on Telegram.

Our Network is an on-chain analytics newsletter that reaches nearly 7000 crypto investors every week 📈

Introducing Deep Dive

Today I’m excited to introduce a new initiative for Our Network — the Deep Dive series. As you all know, our regular Friday newsletter aims for brevity with its network updates, but I’ve long wanted to give our data-driven contributors a platform to write more long-form pieces on network health and related topics they care about. So we created Deep Dive, and I’m excited to share the first installment today with you all.

Today’s Deep Dive examines the 1inch token launch and its effectiveness in catalyzing an early community. This is an area of focus for us at Variant since nailing mechanism design (which includes token distribution) is shaping up to be a critical component for project success in the ownership economy. The post also shares some helpful background on the 1inch protocol and token economics.

One more thing. If you’re a data-driven analyst, researcher, or project team, and you’d like to be featured on a future installment of Deep Dive, please reach out!

— Spencer 🕛

1INCH Token: Spiking the Christmas Punch

Contributor: Jessica Salomon, Strategy Consultant at 1INCH

Since the 1INCH token launch on Christmas Eve, which distributed 6% of the total supply of 1INCH tokens to users, the 1inch project has seen robust growth in users and volume. As of January 12th, 1inch liquidity pools hold over 473 million dollars, where LPs and farmers are earning high APYs. Current farmers are on track to receive additional compensation—1% of the total 1inch token supply. The DAO is also fully implemented, enabling token holders to make key decisions regarding revenue generation and allocation.

Protocol Overview

1inch is an ecosystem of protocols governed by the 1INCH token and its holders. The first product, the 1inch.exchange DEX Aggregator, launched in May 2019 as an ETH Global hack submission at ETHNewYork by Sergej Kunz and Anton Bukov. 

The name of the project, 1inch, is an homage to the late Bruce Lee. His 1inch punch technique demonstrates that a relatively small force, directed strategically to the exact, correct location, can have a devastating impact. Analogously, the 1inch DEX aggregator has surged into 3rd place (in trade volume and dollar amounts in LP’s) behind Uniswap and Sushiswap and projects to continue growing its market share. 

The DEX Aggregator connects to industry-leading decentralized exchanges and liquidity sources (41 sources in total). 1inch exchanges utilize an algorithm called Pathfinder to route a users’ trade between one or multiple venues to get traders the best price at the fastest response time. 

The 1inch Liquidity Protocol (frmly. Mooniswap), which launched in August 2020, is a decentralized exchange based on the automated market maker (AMM) model. It is unique in its design through its addition of a decay period and price impact fee. These features aim to increase profits for liquidity providers (LPs) and lower profits for arbitrageurs while maintaining the ease of use traders expect from an AMM. 

Token Economics

The 1INCH token’s primary purpose is as a governance token. Similar to other Defi protocols, users can influence the development of the protocol by voting on governance proposals and the distribution of rewards. The more tokens you own, the greater the weight of your vote.

1INCH governance is unique. In addition to voting on general governance proposals, 1INCH holders can exercise Instant Governance by voting directly and continuously on key protocol parameters. For example, 1INCH holders can vote on the distribution of Spread Surplus (i.e. positive slippage) collected by the 1inch Aggregator and Liquidity Protocol. The voting periods are permanently open, meaning a user can stake their token and vote on a parameter to x value one day, and change their vote to y value if their changes based on new information.

At first, expert users and community members have helped guide and set these parameters, but it is expected that voting participation will expand as the broader community begins discussions around some of the more technical parameters. Through democratic governance, user and token holder feedback will help guide future protocol development.

Token Launch

Because the 1inch ecosystem relies on token holders to govern the protocol and set key protocol parameters, a large and diverse community was an explicit design goal and paramount to its ongoing success. A retroactive airdrop of tokens to users was used to achieve widespread distribution of tokens to early 1inch users and community members. At 12am UTC Christmas Day, the 1INCH token was released:

  • Traders who placed a trade through the 1inch Aggregator with a base rate of 670 1INCH/account

  • Liquidity providers who deposited assets into the 1inch Liquidity Protocol. LPs earned tokens based on the $ value of liquidity provided and the duration of their deposits

  • 90,000,000 tokens were distributed to traders and LPs (6% of total token supply)

  • 58,000 unique wallets received tokens, with a median of 627 tokens being distributed per wallet

Post-Launch Growth

Since the Christmas Eve token launch, the 1inch DEX Aggregator protocol has surpassed 10 billion dollars in total volume. The increase in volume was rapid as on December 3rd the total transaction volume of the DEX aggregator product was around 7 billion. The average volume per day since the token launch is $133,612,709, which represents a 22.28% increase in transaction volume since the inception of the 1inch DEX aggregator product. 

Between September 1st and December 24th, the average number of daily users swapping on 1inch was 953. On December 23rd (day prior to token launch), the total number of unique 1inch.exchange users all-time was ~57,000. But in just 2.5 weeks since the token launch, the protocol has seen an additional ~30,000 new users, an increase of nearly 30%. 

The increase in users and volume post token launch may result from:

  1. Increased publicity and exposure from the launch attracted new users 

  2. Launch increased loyalty among existing users 

  3. High APY for Liquidity Pools and Staking encourages users to hold and use 1INCH token in protocol. 

  4. DAO governance of Slippage Surplus distribution and other parameters encourages overall protocol use.

Liquidity Pools and Farming

1inch liquidity pools and staking are widely used thus far. 35M 1INCH tokens are currently locked in the 1inch Protocol. High APY incentivizes the community to provide liquidity and stake their 1INCH tokens. 

The APY on pools is currently quite high relative to other opportunities in Defi. For example, on Jan 11th the APY on ETH-DAI pair is 33.33%, 1INCH-USDC is 37.76%, 1INCH-DAI is 39.8%. 

The current APY on farming is high. For example, farming 1NCH-ETH pool tokens delivers  108% APY; ETH-USDT pool token farming delivers 62 % APY.


The 1inch DAO determines rewards for active network participants. There are two types of rewards:

  • Referral Rewards— a total of ~67k 1INCH tokens rewarded Referrers (e.g. dapps and wallets that source users/trading volume) in the form of Referral Rewards. The referral reward derives from a dedicated portion on swap fees and price impact fees (on swaps that originate from referrers). 

  • Governance Rewards— a total of ~ 830k 1INCH tokens have been awarded to “governors” of the system in form of Governance Reward. The governance reward compensates stakers for governing the 1inch Liquidity Protocol parameters. The governance reward is also sourced from swap fees and price impact fees. 

Moving Forward

Overall, the 1inch Token launch has catalyzed an early community. The DEX aggregator and upgraded liquidity protocol have grown significantly in volume and users post-launch. The DAO is also live but low voting participation is an issue. To account for this, more information and education around voting and its implications are on the way. 

The 1inch token distribution spiked many Christmas punch bowls this season. The Christmas distribution is the first of many ways 1inch expects the community to use the token to build an engaged and aligned community. Stay tuned for more education and resources around the opportunities that exist today and to come in the future. 

About the editor: Spencer Noon is an investor at Variant.

Our Network: Issue #53

Coverage on Capital Flows.

Click here to join Our Network Alerts on Telegram.

This is issue #53 of the on-chain analytics newsletter that reaches nearly 7000 crypto investors every week 📈

✨ Together with our partners:
Image 2020-11-13 at 10.54.34 AM

1inch, whose v2 offers the best rates by discovering the most efficient swapping routes across all DEXes—swap on the customizable new UI. And also Aave, where you can experience DeFi: Deposit, Earn, & Borrow on Aave.

This week our contributor analysts cover Capital Flows: Exchange Flows and Institutional Buying + OTC Activity.

① Exchange Flows

Contributor: Alex Svanevik, CEO at Nansen

  • Traditionally, the focus of exchange flows has been around centralized exchanges. But 2020 was the year when DEXs started dominating on-chain flows - in particular Uniswap. Naturally, you'd expect DEXs to have relatively more on-chain volume as every trade involves an on-chain transaction. On a centralized exchange, in/outflows take place when users deposit/withdraw. Still, looking at on-chain ETH flows, it's striking just how present DEXs have become (Source).

  • Now, what about the recent price action - is that reflected in exchange flows? Let’s look at stablecoins in particular. Since the start of 2021, there's been a net inflow of stablecoins to exchanges every single day (except for 1 day: Jan 2nd). The chart below shows the last 6 months of net exchange flow of ERC-20 stablecoins. (Source).

  • Which exchanges hold the most stablecoins? By far the largest exchange in stablecoin holdings is Binance, which holds >$1B in BUSD, >$500M in USDT, >$500M in USDC, plus other stablecoins. (Source).

② Institutional Buying + OTC Activity

Contributor: Ki Young Ju, CEO at CryptoQuant

  • If you break down massive Coinbase BTC outflows, it usually goes to cold wallets that only have in-going transactions. Since Coinbase Custody is directly integrated with Coinbase's OTC desk, some of these massive outflows would indicate OTC deals.

  • Coinbase outflows on Jan 2 were an all-time high. It seems institutions have bought BTC below 32k. If you look at the block time frame, there have been significant outflows since this past July. (Source).

  • Fund Flow Ratio for all exchanges is the ratio of network transaction volume of exchanges among the entire tokens transferred on the network. If this value goes up, it implies most of the network TXs are exchange deposits/withdrawals. Otherwise, TX volumes are coming from non-exchange wallets. Since the price is eventually determined on exchanges, massive non-exchange transaction volume is considered as a bullish signal. These transactions include OTC deals. For now, only 5% of the network transactions are used for exchange deposits/withdrawals. This happened in Feb 2019 as well when major exchanges launched OTC desks. (Source)

  • Tokens Transferred is the number of Bitcoins transferred on the network. If this value goes up and the fund flow ratio for all exchanges goes down, it implies that huge OTC deals are on-going. 2.75M of BTC moved yesterday including change transactions. (Source)

About the editor: Spencer Noon is an investor at Variant.

Our Network: Issue #52

Coverage on DEX.

Happy New Year! This is issue #52 of the on-chain analytics newsletter that reaches nearly 6500 crypto investors every week 📈

✨ Together with our partners:
Image 2020-11-13 at 10.54.34 AM

1inch, whose v2 offers the best rates by discovering the most efficient swapping routes across all DEXes—swap on the customizable new UI. And also Aave, where you can experience DeFi: Deposit, Earn, & Borrow on Aave.

This week our contributor analysts cover DEX: Curve, 0x, and Perpetual Protocol.

① Curve Finance

Contributor: Michael Egorov, CEO of Curve Finance

  • It was assumed that when “DeFi summer” is over, trading volume and total value locked for earning yields will die off. Graphs for trading volume and TVL show that DeFi activity is back on-chain. (Source)

  • Curve Finance started taking part of fees to distribute to the protocol participants who lock tokens for voting in a decentralized / non-custodial manner. It is still early to say if there are any trends in it, yet there were few weekly admin fee distribution events already. (Source)

  • Owners of CRV lock tokens in order to receive voting power and the mentioned above fee distribution. Voting power of locked tokens is called veCRV and is proportional to both locktime and locked tokens. Since launch of the DAO, the total veCRV is growing steadily.  (Source)

② 0x

Contributor: Danning Sui, Data Scientist at 0x

  • Shortly after Matcha reached 1 billion cumulative trading volume, on Nov 18th, the team launched the“Power-Up” upgrade to open up token listing from ~60 tokens to an arbitrary amount of tokens, which doubled the daily active users instantly. It largely increased the diversity of traded tokens and pairs. Before the launch there were ~30 different tokens and ~60 different pairs actively being traded, while after, that number went up to ~100 tokens and ~120 pairs, respectively. DeFi yield farming tokens (SFI, FARM, ROOK, etc.) are the newest tokens to gain popularity.

  • The crazier user boost happened around Christmas when 1inch airdropped their governance token. There were ~13.7k new Matcha users in December altogether. Most of them flooded into the protocol in the last few days, bumping DAU to 3.7k at peak. This also shows that the DeFi community as an ecosystem has synergetic impact.

  • In the past 3 months, there have been a number of DEX aggregators and DeFi asset management Dapps integrating 0x API for trading needs on their platforms. In October after Metamask’s integration, DexKit joined the 0x API network. In November, Zapper adopted 0x API and so far has already accumulated over 82.5 million of trading volume in less than 2 months. Maskbook and DODO also became 0x API affiliates since December. As other aggregators joined the network, Matcha’s share dropped from over 95% of volume before November, to ~70% of total volume now, while still leading the board. The overall trading volume across 0x API has picked up to almost 2 times in the recent DEX aggregator governance token frenzy.

  • Participants in the 0x ecosystem have been leveraging 0x staking mechanisms to earn a profitable amount of rewards. As an example, in 2020, Volleyfire (a 0x Market Maker) served 41k trades, which collectively paid 284ETH in protocol fees. Meanwhile, Volleyfire’s staking pool got rewarded for 576ETH, roughly 2X-ing the fee they initially generated. 33% (189 ETH) was shared with ZRX token holders participating in their pool. This doubling is due to the system also redistributing protocol fees paid on trades originated by users not registered as a staking pool, which consequently generates a net 2X subsidy to all Market Makers serving Open Orderbook liquidity in 0x. (read more from Theo’s thread) The team is aimed to continuously streamline this market model in 2021 to reach better network economics.

③ Perpetual Protocol

Contributor: Weiting Chen, Growth Manager at Perpetual Protocol

  • Perpetual Protocol is a decentralized perpetual contract trading platform. The protocol has been running on Ethereum mainnet and the xDai Chain since December 14th. Here are some key stats (12/14 -12/31):

  • Daily trading volume on Perpetual Protocol has gradually increased since its launch, peaking at $9M USDC, which places Perpetual Protocol in the top 15 DEXs on Ethereum. 

  • On average, the protocol generates $4,080 USDC in transaction fees each day (the protocol charges a 0.1% fee per transaction). Currently, 100% of the transaction fee goes to the Insurance Fund. In the future, 50% of the transaction fees will be distributed to stakers on the protocol. 

  • Since the launch of the protocol, keepers have liquidated 18 under-collateralized positions on the BTC perpetual market. Only one was not liquidated in time, resulting in a bankrupt position which was covered by the Insurance Fund.

About the editor: Spencer Noon is an investor at Variant.

Loading more posts…