Over the past month we have explored different layer 1 chains to understand just how many opportunities there are for profit. However, there is a problem with the number of different ecosystems: interoperability.
Different blockchains cannot communicate with each other! With so much opportunity, moving native assets from one chain to another is crucial.
Fortunately, we have a solution: wrapped assets. Today, we are going to use Bitcoin to show what wrapped assets are and how they can maximize your profits.
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Our Market Meditations are longer format educational segments. Each letter features a Market Meditation which will deep dive and analyse a relevant crypto event, theme or tool.
🥙 That’s A Wrap
A wrapped asset is a cryptocurrency token that is pegged to the value of another, native version of that token. Being pegged simply means that the value should always remain equal to that of the original asset. Bitcoin has multiple different wrapped versions, the breakdown of which can be shown using data from Nansen:
Different Kinds of Wrapped Bitcoin
Nansen.ai: 02/02/2022 - Breakdown of Wrapped Bitcoin
The largest is known as wBTC or Wrapped Bitcoin and is worth +$10bn.
Bitcoin itself cannot be used on Ethereum’s ecosystem however wBTC conforms with the technological standards (ERC-20) and therefore can be used.
Each wBTC is backed by Bitcoin itself in a 1:1 ratio. Each Bitcoin is stored by a centralized entity (such as BitGo) with the key risk of holding wBTC being the security of the wallets where that Bitcoin is held.
How can you Profit from Wrapped Assets?
Because the wrapped asset (in our case, wBTC) can be used on Ethereum, we are able to take advantage of DeFi and find high yielding opportunities. Nansen allows us to identify the largest holders of wBTC and can be used to identify some of the top opportunities to earn yield:
Nansen.ai: 02/02/2022 - Largest Holders of wBTC on Ethereum and Change Over 7 Days
The top 3 all provide yield opportunities: Maker DAO, Compound and AAVE.
The bottom 3 are all bridges to other smart contract networks. This shows that there are large amounts of wBTC being moved to different chains to optimize profits.
Whilst Avalanche is currently receiving a net inflow, interestingly Fantom is seeing a reduction of wBTC in their ecosystem.
✅ Tip: To see the hottest opportunities right now, we can sort the table by change - showing exactly what protocols wBTC is flowing into at this very moment.
Wrapped assets play an important role in the ability to use native assets such as Bitcoin across the crypto ecosystem. Understanding how these works will grant you access to opportunities across multiple ecosystems across the space. Increasingly we find projects targeting a multichain future:
Vlaunch. The first fully influencer backed multi-chain launchpad includes some of the most prominent individuals in crypto.
Multichain. The cross-chain infrastructure recently concluded a $60m financing round led by Binance Labs.
Blockchain Monster Hunt. A cross-chain GameFi project set to disrupt the NFT market.
Using Nansen will allow you to find the very best opportunities for profit.
💡 Nifty Idea
There’s a part of the blockchain world that has bucked the downward trend and actually had a few projects rapidly rise in value – it’s NFTs:
Whether it’s macro fears about interest rates or just whales de-accumulating for fun, there’s no denying the last few months have been bleak for cryptocurrency holders.
But data from The Block shows that some of the popular Non-Fungible Tokens have been doing remarkably well in that same period.
There could be several reasons for this, relating to who’s buying, why they’re buying and the psychology of letting them go.
Sam Bankman-Fried stated to The Block that being “non fungible makes them less liquid” and that being on display to the public makes them harder to sell “versus a private rebalancing of your portfolio”.
With celebrities starting to snap up popular NFTs for avatars it reinforces the notion that at a certain tipping point an NFT becomes about flexing.
This can put the expensive secondary market out of reach for many retail investors and so keeping an eye out for hot new mints is a cheaper strategy.
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☣️ Dissolving DAOs
OHM quickly rose to fame with their self-titled experiment and before long every L1 had its own OHM fork. Meanwhile, some savvy NFT holders realized that there was a market for fractional ownership of blue-chip NFTs and the ApeDAO was born.
ApeDAO was formed with a personal collection of Bored Apes and a female CryptoPunk, with a mission to be the single largest holder of BAYC. The DAO owns 81 BAYCs, 81 MAYCs, CryptoPunks, Cool Cats, Kongz, a Fidenza, etc.
$APED represents voting rights within the DAO as well as fractionalized ownership of the DAO’s treasury.
The community’s last fundraising effort was in August of 2021, with a value of $10 per token, and was slated to purchase more NFTs.
A few days ago, a community member who was unhappy with the trading price of $APED, proposed liquidating the DAO and dispersing the ETH proceeds to token-holders proportional to their holdings.
$APED was trading around $8 but after news of the liquidation broke, it has risen to a little over $12.
After returning from a few days off, the founder of the DAO was shocked to see that the community wanted to liquidate and reportedly removed liquidity from the WETH/APED pool on Uniswap to prevent users from purchasing at a steep discount.
Even a clearly defined project can find it impossible to please an entire community. Although these projects have drastically increased in value since mint, those who purchased later should watch for treasuries like this to liquidate their holdings, which affect floor price.
Not financial or tax advice. The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. We are not financial advisors. Every investment and trading move involves risk. Do your own research when making a decision. See our important security disclaimers here.
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