Dear Reader,

Welcome to Gryphsis Academy’s weekly Crypto Digest! We bring you pivotal market trends, insights into emerging protocols, and fresh industry updates, all designed to enhance your crypto and Web3 expertise.

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Market and Sector Snapshot:

Layer 2 Overview:

In this week’s Layer 2 sector news, the leading lending protocol on zkSync, Era Lend, suffered a significant attack, causing a ripple effect across the network. This incident significantly impacted the network’s operational metrics, leading to a marked uptick in activity on rival network Starknet.

Despite the sharp initial drop in metrics on zkSync, the network demonstrated resilience, bouncing back relatively quickly. Protocols that exhibited substantial growth this week in Total Value Locked (TVL) include Fluidity Money, zkBoB, zkBoost, and SithSwap.

LSD Sector Overview:

The Liquid Staking Derivatives (LSD) sector has witnessed consistent growth this week, with the total percentage of staked ETH remaining steady at 18%, and the volume of locked ETH rising to 25.1M.

In terms of market share, most LSD protocols have maintained their standings. Notably, Swell’s swETH continues to broaden its share, showcasing consistent growth this past few weeks.

AI Sector Overview:

The AI sector witnessed a continued decline this week, with the total market cap dropping by 3.92%. The 24-hour sector volume also saw significant contraction. Despite the downtrend, tokens such as $BBANK, $IDNA, and $TRV bucked the trend, delivering gains of 125%, 49%, and 39% respectively. Notably, $BBANK emerged as a top winner for two consecutive weeks. On the flip side, $CIX100, $JAR, and $OPTI experienced significant losses, marking a less favorable phase for these assets.

Main Topics

Macro Overview:

Big Story:

Protocol Spotlight:

Gryphsis Research — HVMTL Forge

VC Funding Highlight:

Alpha Threads:

Macro Overview

This week witnessed a positive trajectory in the stock market, with slight gains of 1–2% in the S&P and NASDAQ. Investors should keep an eye on key market events next week, including the release of the ISM Manufacturing PMI, Crude Oil Inventories, Nonfarm Payrolls, as well as the Unemployment Rate.

In contrast, the cryptocurrency market performed negatively over the past week. Both $BTC and $ETH saw declines, with $BTC falling more than $ETH. This is reflected in the decrease in BTC dominance, now standing at 49.6%.

Story of the Week

The Worldcoin Token Launch

The big story this week revolves around the recent launch of the Worldcoin (WLD) token. This project, co-founded by OpenAI’s Sam Altman, experienced a volatile debut, with the token initially surging to $3.58, dropping to $1.92, and then rebounding to $2.43, marking a 25% increase from its lowest value.

Worldcoin is pioneering a unique approach to digital identity verification, using a device known as the Orb to scan users’ irises. Despite its cutting-edge technology, the project has been mired in controversy, with critics raising concerns about potential breaches of privacy, centralization, and security.

The project has also drawn scrutiny for its aggressive marketing strategy in developing regions, raising issues of potential exploitation. In addition, Worldcoin’s high-profile backers, including Sam Bankman-Fried, founder and CEO of the now-bankrupt crypto exchange FTX, and Kyle Davies, co-founder of the insolvent Singapore hedge fund Three Arrows Capital, have further stoked the controversy.

Moreover, concerns persist about WLD’s price stability and long-term valuation due to the low circulating supply of tokens. Of the total supply, only 1% is currently in circulation, raising questions about the token’s sustainability. Regardless of these concerns, WLD has found its way onto several major exchanges, with 24-hour trading volumes exceeding $348 million. The token’s future trajectory and the project’s ability to address its critics’ concerns will be key developments to watch in the coming weeks.

Our Take

Worldcoin, an ambitious project aiming to create a universally owned identity and financial network, has faced its fair share of criticism. The brainchild of this revolutionary protocol seeks to enhance economic opportunities, distinguish humans from AI online with privacy, facilitate global democratic processes, and possibly lay the foundation for AI-funded Universal Basic Income (UBI). At the heart of Worldcoin are three primary components: World ID, World APP, and World Token ($WLD).

World ID, the project’s digital identity proof-of-personhood (PoP) credential, has been the target of privacy concerns. Despite the team’s assurances of privacy protection, skeptics still express concerns about the biometric verification system in the Orb.

Vitalik’s thoughts on biometric proof:

On the other hand, $WLD, Worldcoin’s native token, faces criticism for its tokenomics. With its circulating supply representing a mere 1% of its total 10 billion supply, its fully diluted value already reaches an eyebrow-raising $23.5 billion, raising questions about overvaluation when compared to other blue-chip tokens.

Furthermore, concerns have emerged about the potential exploitation of users in developing regions. While Worldcoin boasts of millions of users, reports of black market account trades imply that identity verification isn’t foolproof.

Worldcoin’s vision is undeniably grand and potentially game-changing for crypto adoption. However, its path to achieving this is steep and laden with challenges. As an investment, $WLD may currently be perceived as overvalued. But in a project that’s still in its nascent stages, it’s too soon to predict its success or failure. For now, Worldcoin remains a project to watch with keen interest.

Era Lend Exploit: A Ripple Effect on zkSync’s Reputation?

EraLend, a zkSync Era lending protocol, has fallen victim to a read-only reentrancy attack, resulting in a $3.4 million loss. This exploit allows an attacker to manipulate asset prices by flooding a smart contract with repeated calls, consequently stealing assets. Post-attack, EraLend’s total locked capital dipped from $18.5 million to $8.79 million as of writing. Borrowing operations were suspended and users were advised against depositing USDC as the team works to resolve the issue.

It’s worth noting that this incident echoes a similar exploit that hit DeFi protocol Conic Finance just last week, leading to a $3.6 million loss. The latest attack also impacted the stablecoin USDC+, issued by Overnight Finance protocol, with a potential loss of over $261,000. As the industry faces these security concerns, EraLend assures users of rigorous steps taken to prevent future incidents.

Our Take

The frequency of exploits and attacks within the crypto market can sometimes lead to a fleeting attention span among participants. However, the attack on Era Lend is likely to leave a lasting impression on the market.

Era Lend, prior to the attack, was the foremost lending protocol on zkSync Era, a ZK Layer 2 blockchain that has recently been gaining significant traction. The fallout from the attack saw Era Lend’s TVL plummet to around $8 million, just a third of its value pre-exploit. Moreover, as Era Lend was one of zkSync’s leading protocols, the repercussions rippled across the blockchain, causing a sharp downturn in zkSync’s operational metrics.

zkSync Era has long been favored by airdrop farmers due to its position as a leading ZK Layer 2 chain. However, the Era Lend incident, coupled with previous rugpull events such as Corehunter, Syncdex, and more, might significantly erode user confidence and sentiment, potentially causing an exodus of activity to rival networks like Starknet and Linea. If even leading protocols fail to ensure a secure user experience, how can users trust that their capital will be safe when interacting with the chain? Now, the pressing task for the zkSync team is to turn the tide on the prevailing negative sentiment and regain users’ trust.

Weekly Protocol Pick

Welcome to our “Weekly Protocol Pick” — where we spotlight a protocol that’s making waves in the crypto space. This week, we’ve picked Logarithm Finance, a decentralized liquidity management and market-making protocol.

Logarithm Finance is a decentralized liquidity management and market-making protocol designed to addresses the limitations of Uniswap V3 LP farming, which requires constant rebalancing of the LP position to avoid impermanent loss. It does this by routing liquidity through various Liquidity Providing Derivatives (LPDs) protocols and hedging exposure to volatile assets. The has developed its hedging model to avoid volatile assets’ price exposure by shorting them with on-chain perps, automatically selecting the most efficient rebalancing frequency depending on the market volume and volatility.

Logarithm Finance has two main features: Nautilus Vaults and Liquidity Shell. Nautilus Vaults is the first product of Logarithm Finance. It is a strategy where everyone can deposit USDC to receive a high APR in stablecoins. When USDC is deposited, the protocol opens an active highest volume LP position on Uniswap V3 with a narrow range and simultaneously hedges the volatile asset using decentralized derivative exchanges. The user can optionally select auto-compound APR for an even more significant yield. All payments will be made in USDC. In the future, Logarithm Finance plans to build other products based on Nautilus Vaults.

The Liquidity Shell is a yield aggregation platform or a liquidity router. It aims to deliver the highest yield possible to Logarithm users by deploying the assets deposited into a variety of strategies across LPD protocols. It serves as a bootstrapping mechanism, bringing liquidity to LPD protocols like Panoptic and Smilee, which in turn boosts liquidity on DEXs such as UniV3. As Liquidity Shell grows, it plans on enabling cross-chain activity to take advantage of more yield opportunities and bring liquidity to LPDfi protocols outside of Ethereum and its L2 network.

In short, the protocol offers a solution to the problem of impermanent loss and aims to be a one-stop liquidity management layer on top of LP-centric protocols, aiming to maximize capital efficiency and yield for LPs using various strategies and hedging mechanisms.

Our Insights

The solution proposed by Logarithm Finance, and the potential LPDFi narrative it may inspire, make this protocol one to watch. The primary challenge for Concentrated Liquidity Market Makers (CLMMs) is the need for LPs to constantly monitor and manage their positions, which requires a degree of expertise. This complexity has led to suboptimal profitability for many Uniswap V3 LPs. Consequently, we’re seeing the emergence of LPDFi protocols such as Panoptic, Limitless Finance, Smilee Finance, and InfinityPools, which aim to optimize Uniswap V3 LP management. Acting as the liquidity layer for these LPDFi protocols, Logarithm Finance can potentially accelerate adoption and attract more LPs to these applications.

Another key aspect of Logarithm Finance is its attempt to create a new LPDFi narrative in DeFi. Market sentiment is heavily influenced by narrative, and after the success of the LSDFi narrative this year, DeFi degens are on the lookout for the next big trend. LPDFi, similar in name to LSDFi, could fill this gap and draw attention from those who missed the LSDFi wave.

Given these factors, Logarithm Finance is certainly a protocol to watch closely. With its Beta release on the horizon, we’ll continue to track its progress and developments.

Spotlight on Gryphsis Research — HVMTL Forge

Welcome to this week’s ‘Spotlight on Gryphsis Research,’ where we share the latest insights from our team. Our dedicated research team constantly explores cutting-edge trends, developments, and breakthroughs across the crypto landscape. This week, we’re excited to share with you a our research on HV-MTL Forge, designed to deepen your understanding and fuel your curiosity about the ever-evolving world of crypto.

Yuga Labs extends its reach into the NFT gaming market with the introduction of HV-MTL Forge, an inventive game merging pet breeding with casual world-building. HV-MTL NFT holders can construct and decorate a forge to keep their in-game pet, the HV, happy and efficient. Success is measured by community votes, with the best-managed forges and happiest HVs earning significant rewards. Spanning six seasons, each three weeks long, HV-MTL Forge offers extensive future development prospects despite its currently simple content.

In our analysis of the first season of Yuga Labs’ HV-MTL Forge, we tracked key metrics such as NFT minting, holdings, trading, and in-game APE recharges. As of now, 28,056 of the total 30,000 HV-MTL NFTs, which serve as the game’s entry passes, have been minted.

The total number of NFT holding addresses stands at 9,752, with a moderate concentration of 33.28% of the total NFTs held by the top 100 addresses. Interestingly, only 12 of these top holders have conducted recharges.

Trading volumes see spikes around major announcements and the game’s launch but otherwise exhibit lackluster performance, mirroring a decline in the floor price. Similarly, the number of daily recharges peaked around the game’s launch and has been steadily decreasing, suggesting the current game mechanics may need improvements to sustain player enthusiasm.

By the close of the first season, players had spent a total of 241,765 APE (approx. $520,000 USD). The game’s capacity for revenue generation is underscored by the considerable spending power of the top players, with the highest spender contributing about 8,893 APE, roughly equivalent to $20,000 USD.

Season 2 of HV-MTL Forge introduces three main updates. Firstly, the theme, “Wet Hot Forge Summer,” brings new floor tiles and decorations for players to turn their forges into summer beaches. Secondly, adjustments have been made to the AMP levels based on player rankings. While the ‘Legendary’ level remains at 133, other levels have been modified, making the gameplay more appealing to later joiners. Lastly, holders of BAYC, MAYC, and BAKC now have the added privilege of claiming corresponding decorations as the season progresses. These changes aim to keep the game fresh and engaging for its player community.

From an investment perspective, APE tokens face significant inflation, with staking rewards currently being the largest inflation source. While there haven’t been any outgoing transactions from the APE receiving wallet for the HV-MTL game yet, it’s likely the recharged APE will eventually be sold on the secondary market.

Season 2 updates do not appear to incentivize significant APE recharging. Assuming each season has similar recharge numbers to Season 1, around 240,000 APE per season, the total recharged APE across the six seasons will be roughly 1,440,000 APE. Given the timeline, this will represent a meager 0.27% of the total circulating APE supply by early November 2023, and may be sold.

APE’s price has steadily declined since the Otherside land sale, despite Yuga’s gaming layout’s potential to absorb staking-induced selling pressure. Although HV-MTL is a quality game, its impact on APE demand has been minimal and it hasn’t reduced selling pressure as expected by the market. Therefore, it seems APE isn’t currently a favorable investment, requiring further empowerment from Yuga.

HV-MTL’s Season One results were underwhelming, affected by external market dynamics and the current NFT landscape. The game’s limited in-game utility of $APE token may also have contributed to its struggle to attract and retain players. The incentives provided to early participants weren’t substantial enough to spur adoption, as evidenced by the floor price and transaction data. Enhancing in-game uses of $APE could boost its value, visibility, and excitement around the game. Despite challenges, Yuga Labs’ high-quality standards shine through in the game.

Looking forward, we anticipate Yuga Labs will expand in-game utility of $APE and refine game mechanics to attract users. Given Yuga’s operational excellence and potential for game enhancements, HV-MTL remains promising. We’ll keep monitoring this engaging game’s progress.

This section offers a concise preview of our detailed research on the game. We encourage readers to delve into the full report for a complete understanding and expert analysis!

VC Highlights: Top Funded Crypto Protocols This Week

Welcome to our weekly Investment Spotlight, where we shine a light on the most significant venture capital moves in the crypto space. Each week, we’ll focus on protocols that have attracted the most funding.

Flashbots

Flashbots, an Ethereum-focused research and development startup has raised $60 million in a Series B funding round led by Paradigm this week. The new capital will be directed towards the continued development of Flashbots’ maximum extractable value (MEV) network, SUAVE.

SUAVE, an independent network, acts as a transaction waiting room and decentralized block builder. It’s designed to mitigate the negative impacts of MEV, which refers to the potential profits that network operators can extract by previewing or reordering upcoming blockchain transactions. With SUAVE, developers can launch intra-block applications such as block builders or order flow auctions, leading to cheaper and more private transactions compared to standard chains like Ethereum.

Flashbots also develops MEV-boost, an MEV-optimizing middleware utilized by a majority of Ethereum validators. The Series B funding, reported by The Block via an SEC filing, showed Flashbots had already raised over $30 million of their nearly $60 million target. Further filings are expected soon, likely finalizing the round, which reportedly carried a $1 billion valuation. Flashbots, however, has not confirmed this valuation figure. Stay tuned for more developments in this sector.

hi

This week, Animoca Brands, a pioneer in metaverse gaming and digital property rights, has entered into a $30 million strategic partnership with hi, which is a Web3 financial super app and protocol.

Hong Kong-based hi operates as a neobank, offering cutting-edge digital banking services that enable users to transact in both crypto and fiat. Recently, they teamed up with Mastercard to issue unique debit cards that can be personalized with NFT imagery, heralding a new era of NFT application in everyday life.

The investment and partnership aim to deepen the integration between Animoca Brands’ broad ecosystem and hi’s innovative Web3 services. These efforts are targeted at encouraging mass adoption of Web3, enhancing the utility of fungible tokens and NFTs within the Web3 space. Hi plans to leverage Animoca Brands’ portfolio to create similar experiences to its Mastercard partnership, allowing users to directly transact with tokens from the Animoca Brands ecosystem.

Protocol News

Arbitrum Odyssey 2.0.

Y2K Finance “repeg” vault.

CoinGecko Discord Bot category.

Binance lists FDUSD.

Reddit has launched its Gen 4 Collectible NFT avatars titled Retro Reimagined on Polygon.

Atlendis Lands $1M Loan From French National Bank BPI.

Tokenization Firm Securitize Kicks Off European Campaign in Spain.

MNTGE’s New NFTs Unlock Physical Patches From Noted Artists.

Industry Updates

EDXM expands institutional access with Talos.

Ducati announces first digital collectible on XRP Ledger.

Putin Signs Digital Ruble Law Making a CBDC Possible in Russia.

Meta Remains Committed to the Metaverse Despite $13.7B Loss in 2022, Mark Zuckerberg Says.

White House Derailed Negotiation on U.S. House Stablecoin Bill: McHenry.

Ripple runs CBDC pilot with Pacific island nation of Palau.

SEC charges Quantstamp over $28 million ICO.

Grayscale pours cold water on wave of new spot bitcoin ETF applications.

Alpha Threads

Alpha is abundant on Crypto Twitter, but navigating thousands of threads in Twitter can be hard. Each week, we spend several hours researching, handpick threads packed with insights, and curate a list of weekly selection for you. Let’s dive in!

Upcoming Events

News Sources:

https://www.coindesk.com/business/2023/07/25/worldcoin-token-slumps-amid-crypto-community-unease/

https://www.reuters.com/technology/openais-sam-altman-launches-worldcoin-crypto-project-2023-07-24/

https://cointelegraph.com/news/worldcoin-launch-raises-eyebrows-as-wld-price-notches-a-double-digit-gain

https://cryptonews.com/news/worldcoin-price-prediction-as-wld-reaches-20-billion-market-cap-straight-after-launch-can-worldcoin-overtake-bitcoin.htm

https://www.coindesk.com/business/2023/07/25/zksyncs-largest-lender-struck-by-34m-exploit/

https://cointelegraph.com/news/era-lend-zksync-exploited-reentrancy-attack

https://bitcoinist.com/eralend-exploit-hackers-steal-3-4-million-dollars/

That’s it for this week. Thank you for reading this week’s edition of our Gryphsis Academy Newsletter. We hope you found our insights helpful and our updates informative.

To stay up-to-date with Gryphsis Academy, follow us on Twitter and Medium. See you in the next edition!

This newsletter is meant for informational purposes only. It is not meant to serve as investment advice. You should conduct your own research, and consult an independent financial, tax, or legal advisor before making any investment decisions. The past performance of any asset is not indicative of future results.