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Top Stories of the Week - 2/23

Weekly Top Stories 3-1-24 - Galaxy Research

This week in the newsletter, we write about crazy Metamask user numbers, the launch of a new synthetic dollar, and Yuga Labs’ acquisition of Moonbirds issuer Proof.

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Ethena’s High-Yielding ‘Internet Bond’

Ethena's newly launched USDe raises concerns over its 25%+ yield offering. Since its mainnet launch on February 19, Ethena Labs' USDe has drawn significant interest over its 25%+ yield offering – the supply of USDe has grown to over $400m as of writing.

According to the Ethena Labs' official documentation, USDe is a 'synthetic dollar' that is disconnected from the traditional banking system: instead of using cash & cash equivalents or T-bills that sit in banks, USDe is collateralized with crypto assets (i.e., ETH & staked ETH assets) and corresponding equal-in-size short futures positions. This delta-hedged mechanism helps to maintain USDe's peg stability as changes in ETH spot price and mints/redeems are offset by changes in the size of short perpetual positions. In addition, this design generates yield from both staked ETH and the funding & basis spread from futures positions.

So far, positive funding rates for ETH (longs paying shorts to access leverage) have pushed the yields for USDe to ~25-30% APY over the past week, which has led to a rapid expansion in USDe supply to over $400m as of writing. The rapid adoption of the high-yielding 'synthetic dollar' has led to active discourse among the crypto community as critics fear another Terra-like collapse with an algorithmic stablecoin. The Ethena Labs team hosted a Q&A on Spaces to address many of the core security concerns around the design of USDe. Later on Thursday, the team revealed that the USDe payout had been finalized with sUSDe APY generating 44.3% APY, though the paid amount was just 15.2% - the reduced payout to USDe holders was "to ensure a slow and controlled roll out of the product" as the excess yield is currently being retained by the protocol for added security and will be distributed at a later date to USDe holders.


After the repeated failures of various stablecoins before it, critics are right to question Ethena over the risks of the USDe's delta-neutral design and the sustainability of its yield. The primary concern of critics is whether USDe is vulnerable to a 'death spiral' event similar to the collapse of Terra-LUNA. USDe follows a different mechanism from the aforementioned failed stablecoin project, but nonetheless it faces its own set of risks to its stability including funding risks (i.e., extended periods of negative funding rates) and collateral risk (e.g., duration mismatch or LST depeg):

Funding rates are typically positive as crypto is a long-biased market and participants are willing to pay to access leverage. But during periods of negative funding rates as crypto sentiment turns bearish, the protocol may fail to generate sufficient yield to offset the staked ETH yield to pay USDe holders. The team has suggested that in this scenario, USDe would likely experience a slow drawdown as holders redeem the token. In addition, the team is establishing an insurance fund (target 10% of USDe supply) to manage market risk.

And while the high initial APY offered by USDe has attracted significant demand in the first week of launching, USDe's sources of yield will be natural (i.e., from 'real' non-subsidized sources) and variable (based on market conditions and idiosyncratic events (e.g., anticipation of ETH ETF approval)). In addition, the Ethena team is monitoring the supply growth of USDe relative to the open interest levels in the market (including across both CEXes and DeFi protocols like Binance, ByBit and dYdX).

No stablecoin or 'synthetic dollar' is exempt from risks. The Ethena team has attempted to highlight these differences by including the risk disclosure at the top of its documentation. Even though there are many competitive stablecoin product offerings out there, we think Ethena's approach with USDe is differentiated from the many other competitive stablecoin product offerings out there as it attempts to mitigate collateral exposure to the traditional banking system (which has negatively impacted USDC and USDC-reliant stablecoins like Maker's DAI). The design space for dollar-pegged stablecoins is extensive - it includes fiat-backed like USDC/USDT, CDPs like Maker's DAI, overcollateralized like Frax or Curve's crvUSD, and also other delta-neutral stablecoins like Ethena's USDe. Going forward, it will be important to come up with new naming conventions to make these differences clear, especially with how these products are marketed to users. - Charles Yu

MetaMask MAU Reach 2022 Highs...Is Retail Back?

MetaMask, the most widely used self-custodial crypto wallet, experienced a more than 50% increase in monthly active users (MAU) in January 2024 compared to September 2023. Last month, MetaMask reported thirty million users, up from nineteen million in September 2023.

According to Metamask, a monthly active user is defined as someone who either loads a page within the MetaMask extension or opens the mobile app at least once during any rolling 30-day period. This surge marks the highest MAU since January 2022, nearing the end of the last cycle when MetaMask had 31.7 million MAU. At that time, Bitcoin traded in the 40-50k range, below its current price.

Over the past year, MetaMask announced several new integrations and partnerships to increase wallet usage. In early February, the wallet provider partnered with Robinhood, allowing MetaMask users to buy crypto on Robinhood and enabling Robinhood users to transfer their crypto to MetaMask. The wallet provider has also introduced new security features to protect users from hacking, a “cash out” feature for convert crypto to fiat currency within the wallet, and wallet extensions called Snaps that enable cross-chain applications and other new functionalities.

While MetaMask remains the leading self-custodial wallet provider, it faces increased competition. New entrants like Dawn wallet are introducing chat-based interactions that abstract the underlying blockchain interaction. Meanwhile, exchange wallet providers such as Coinbase Wallet leverage their centralized exchange and Layer 2 Base offering to onboard their existing user base.


The uptick in MetaMask users is one of several indicators that retail interest in crypto is gradually returning. Robinhood saw a 242% year-over-year increase in crypto volumes in December, and Coinbase's net consumer transaction revenue in the fourth quarter increased by 80% compared to the prior quarter. Both companies serve as proxies for retail interest.

Digging deeper, however, retail is still only just beginning to dip their toes relative to prior cycles. For example, the Coinbase app has twice been the number one application in Apple’s App Store, in December 2017 and January 2021, both times corresponding with cycle tops and peak retail interest. Currently, Coinbase ranks #32 in the App Store, indicating a more subdued level of interest (get regular updates here).

Additionally, while retail quarter-over-quarter growth in Coinbase retail volume outpaced institutional volumes, as of Q4 2023, it still only accounts for 19% of the total volume. This is far below the 28-40% figures observed during the 2021 cycle. Retail growth in volumes was also largely driven by existing users rather than new entrants. Google search interest in Bitcoin tells a similar story, with interest levels consistent with either a bear market or the start of a bull market, despite small spikes around the ETF launch. As highlighted in ourSizing the Market for a Bitcoin ETF report, it will take at least a few months to educate and onboard RIAs before they onboard their customers.

There are several explanations for Metamask users already approaching previous cycle highs so early. For one, there is a larger user base from which to start from. estimates that Bitcoin and Ethereum holders grew by 34% in 2023. Secondly, a growing number of projects have introduced significant liquidity mining and airdrop farming programs, incentivizing individuals to use self-custodial wallets like MetaMask to earn rewards. This has the added effect of incentivizing users to sybil multiple wallets to increase their rewards, artificially driving up the number of wallets tied to unique users. Phantom, a leading wallet provider on Solana, for example, saw installs increase by nearly 500% last year as Solana projects rolled out a series of airdrops.

History doesn't repeat itself, but it often rhymes. With the bitcoin halving on the horizon and an Ethereum ETF under consideration it seems more likely we’re just beginning to see a new trend of retail flows entering crypto rather than any cycle top. - Lucas Tcheyan

Bored Apes Acquire Moonbirds

Yuga Labs, the largest NFT studio in the world behind BAYC and Otherside, acquired the intellectual property for the Moonbirds NFT project, as well as the rest of Proof’s collection IP. After the acquisition, Yuga Labs stated that "Moonbirds is a collection with great potential and many unifying brand elements with Otherside." (The Otherside is Yuga's gaming and metaverse initiative that provides in game utility for Yuga NFT collections.) Yuga highlighted in October 2023 that the company is restructuring internal operations to prioritize improving the Otherside ecosystem.

The acquisition of the Moonbirds NFT project increases Yuga's IP brand value by 19.7k ETH, approximately $59.2m. Yuga's market share of the total Ethereum NFT market is now 33%, up 80 basis points from before the acquisition. Shortly after the Moonbirds acquisition, Yuga's founder, Greg Solano, announced that he will be returning as the CEO of Yuga Labs.


The Ethereum NFT market's low trading volume and lack of active collectors is hindering the growth for most blue-chip NFT projects. Yuga's most valuable original project, BAYC, is particularly struggling as the projects floor price (cheapest available NFT for sale) is down 82% from its all-time high of 128 ETH. Additionally, BAYC’s floor price has been relatively flat for the past six months.

While Yuga Labs NFT collections struggle to gain market share, the Pudgy Penguins collection floor price increased over 380% in the past four months, making it the third most valuable NFT project on Ethereum. The success of Pudgy Penguins is tied to the collection's focus on brand awareness through their plush toy campaign with Walmart that we wrote about in September 2023. Recently, Walmart announced that they are adding the Pudgy Penguin toys to an additional 1,100 U.S stores, increasing the total store count holding the plush toys to 3,100. Pudgy Penguins have also established brand awareness through their GIFs, which accumulated over 3.1bn views in 2023. While Pudgy Penguins is building brand awareness through traditional methods, Yuga Labs is following 2022 bull market growth strategies like throwing parties (like Ape fest, which reportedly blinded some participants last year) and buying other NFT IP.

Pudgy Penguins competing with BAYC is significant when considering that Luca Netz, the founder of Pudgy Penguins, acquired the NFT collection for $2.5m in April 2022 and only raised $9m to date. In comparison, Yuga Labs has raised $450m to date. The success of Pudgy Penguins underscores that large venture capital backing is not the only way to create sustained positive growth for NFT collections. Brand awareness initiatives, like those Pudgy Penguins has utilized, may be a more sustainable and durable pathway to collection adoption. - Gabe Parker

Charts of the Week

EigenLayer total value locked (TVL) is at $7.9b (2.62m ETH and ETH liquid staking tokens) as of February 22, 2024. The restaking platform saw 1.46m ETH and ETH liquid staking tokens (LSTs) deposited in the five-day period ending February 9, 2024 in which it temporarily suspended the deposit cap.

EigenLayer Total Value Locked by Asset - Chart

stETH (Lido staked ETH) occupies the largest share of EigenLayer deposits by U.S. dollar value at 38%. Natively restaked ETH holds the second largest share at 33%. The remaining 29% is split among an assortment of LSTs, of which Swell’s SWETH holds the largest share of. Swell also operates a liquid restaking product that allows users to create liquid representations of their EigenLayer deposits.

EigenLayer Total Value Locked Share - Chart

Other News

  • Circle ceases USDC support on TRON blockchain as part of risk management strategy

  • Tom Emmer critiques Biden’s Bitcoin mining crackdown

  • Terraform Labs' Do Kwon set to be extradited to the U.S

  • Optimism distributes over 10 million OP worth nearly $41 million in fourth airdrop

  • Ether hits $3,000 for the first time since 2022

  • Liquid restaking tokens surge past $3.5bn in total value locked

  • Bitcoin mining difficulty breaks above 80 trillion for first time

  • Uniswap V4 launch, featuring 'hooks,' tentatively set for Q3