The cryptoeconomy was shellacked in the second week of March 2020, as the top U.S. stock indexes sunk into bear market territory amid the coronavirus pandemic and an oil price war breaking out between Russia and Saudi Arabia.
The ensuing end of an 11-year Wall Street bull market caused de-risking sell-offs across risk-on assets. The crypto space was hit particularly hard on Thursday, March 12th, as bitcoin (BTC) and ether (ETH) respectively plunged 40 and 50 percent intraday.
As such, that 24 hour span of trading was one of the craziest, most active sessions the fledgling cryptoeconomy has seen yet. Yet the entire week saw numerous crypto milestones set in and around the space, which we’ll now briefly review to better track all that’s happened.
DEX Volume Explodes
As crypto traders headed for the exits in droves in this week’s de-risking environment, some decentralized exchanges, like Uniswap, experienced new volume records.
Indeed, on March 12th Uniswap saw its daily volume levels acutely reach over $53 million — a new all-time high milestone for the platform. With that said, the stress test showed that the dApp could gracefully weather major upticks in activity.
“I don’t feel like celebrating but I’m glad it was able to handle the massively increased load without issue,” Uniswap creator Hayden Adams said on the news.
Similarly, on-chain liquidity aggregator project Kyber Network also hit a new all-time daily trade volume record of over $27 million on Thursday. One day later the project notably had its second best day of volume ever, having brought in more than $21 million on Friday. Kyber’s prior record was $13 million on March 9th, when U.S. stocks first started decisively sinking toward bear territory.
The Monday trading boon was seen in smaller projects, too, like beta stablecoin DEX Curve Finance, which backed more than $7 million in trades on the day.
Coinbase Also Sees Monster Volume
San Francisco-based U.S. crypto exchange giant Coinbase notched numerous trading milestones last week, as well.
For one, the exchange set new weekly volume records on both its BTC/USD and ETH/USD trading pairs, showing just how much acute sell pressure occurred. Notably, Coinbase facilitated $1.1 billion in trades on March 12th and then $1.5 billion on March 13th, the exchange’s best volume days year-to-date.
Compound Liquidations Spike
Amid what Compound CEO Robert Leshner hailed as the “first major test” of DeFi, the Compound dApp — a very popular lending platform on Ethereum — held firm during last week’s major Ethereum price drop.
Unsurprisingly, the dApp experienced a surge of lending position liquidations on Black Thursday — to the tune of $5 million worth — more than it ever has before. But even in the tumult, demand for borrowing the Dai stablecoin also spiked on the platform.
Due to extreme price movements in the market today ($DAI is currently trading > $1.05), borrowing demand for DAI is currently at record levels.
Further, the Ethereum network is clogged.
Compound is operating normally, but it may take longer than normal to withdraw DAI.
— Compound Labs (@compoundfinance) March 12, 2020
Compound’s leadership asserted that the de facto stress test indicated we were on the precipice of a new financial era.
“And all of this sets the foundation for the reinvention of financial infrastructure,” Compound CEO Robert Leshner said in the wake of the Thursday sell-off.
Ethereum Fees Acutely Skyrocket
As Black Thursday created massive sell pressure on risk-on assets, many crypto traders decided to flee to the safety of cash or stablecoins. That dynamic led an explosion of demand for activity on the Ethereum network, which caused gas prices to temporarily surge.
Gas is a pricing unit of ether (ETH) that is denominated in “gwei,” or one-billionth of an ETH. On March 12th when Ethereum got congested with lots of demand for block space, average gas prices surged to more than 100 gwei per transaction at one point. That increased marked a 900% rise in gas prices on the day.
Maker Gets Protocol Debt
MakerDAO is the leading lending dApp in Ethereum’s DeFi sector. Through it, users can put down crypto collateral like ETH and Basic Attention Token (BAT) in order to draw out automated loans in Dai, the project’s stablecoin.
Last week, the platform notably experienced one of its most trying periods yet. Amid Black Thursday’s de-risking environment, the ETH price tanked and put more than a few users’ Maker lending positions undercollateralized and thus underwater.
This price drop, high gas prices, and other anomalies around Maker’s liquidation process allowed one liquidator — dubbed a “Keeper” in Maker jargon — to buy up nearly $5 million worth of underwater ETH collateral, but effectively for free.
The fact this collateral was atypically bought for free left some Maker borrowers with the entirety of their collateral lost rather than the 13% liquidation penalty they would normally face, and the Maker system was accordingly left with nearly $5 million in protocol debt.
To make up for this protocol shortfall, the Maker project will be minting new MKR tokens — the lending dApp’s governance token — for the first time so as to be auctioned off. That auction will take place on March 19th, in which MKR will be auctioned off in lots.
The crisis was unprecedented but enlightening, the Maker team said:
“The community successfully navigated a brutal storm of external realities, which included rapid devaluation of collateral and a spike in gas prices. The events ultimately showcase the critical importance of an entire community coming together to monitor and protect the system as it decentralizes.”
Insurance Funds Affected
Crypto derivatives markets BitMEX and Deribit maintain two of the most high-profile insurances funds in the ecosystem, but they performed in starkly contrasting fashion last week.
For instance, the BitMEX insurance fund reached a new record high of 36,493 bitcoin as swathes of its traders were liquidated on Black Thursday.
On the flip side, Deribit’s insurance fund was sliced nearly in half over the week, as its protective trove sunk from 392 bitcoin on March 11th to 198 bitcoin on March 13th due to “extreme volatility,” the company explained. To shore up that insurance, the exchange announced a 500 bitcoin infusion on Friday.
“In order to prevent socialized losses we have decided to support the insurance fund and strengthen it by injecting 500 BTC of company funds,” Deribit said.
The Fed Announces Emergency Rate Cut
On March 15th, the Federal Reserve — the central banking system of the U.S. — doubled down on fighting the growing economic risk with a series of major moves, including a new emergency rate cut targeted at between 0 percent and 0.25 percent and a huge, $700 billion round of quantitative easing.
As the institution explained on Sunday:
“The Federal Reserve is carefully monitoring credit markets and is prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals.”
Whether the maneuvers will be enough to steady the recently ugly markets remains to be seen. And while some analysts think quantitative easing is good for the value proposition of a deflationary digital currency like bitcoin, how the wider macro situation will play out over the next few years is an open question, too.
What Next?
It’s impossible to say with any precision, but at this point, with the wider global economic arena positioned how it is right now, it’s not unreasonable to think that things may get worse before they get better in the markets on a short-term and medium-term timeframe.
For the cryptoeconomy, that means it may continue to be hit hard as a relatively small, risk-on sector. But that’s a far cry from saying there are no worthwhile innovations in the arena, even if interest acutely dries up. In fact, on the technical front the space has never been more impressive. We’ll have to see how it all plays out in the months ahead.