The charts and themes from the past week that tell an interesting story in crypto and investing…

1. What are airdrops used for again?

If you have read my previous writings, you'd be able to discern that I am anti-airdrop as they don't usually fulfill their purported use case. Back in April, I wrote about airdrops, and how they ultimately get dumped in the end. I used the famous Arbitrum airdrop as a case study. Then, just two weeks after the airdrop ~60% of the recipient had dumped or transferred $ARB. You can imagine that number to be higher as $ARB has been on a free fall since launch.

I'm here to poke that bear again but from another lens. This time to looks at the long-term retention of airdrop users — how long they spent with the protocol post airdrop. And how much it costs this protocol per user.

Looking at 4 months post airdrop, Arbitrum (42%) and Uniswap (34.6%) appear to have a higher retention power than optimism (20%) and 1inch (13%).

Airdrop recipients aren't diamond hand 💎 🤲, as the holding rate is all below 20%.

Accessing the number of retained users and the value of the given airdrop token we can get the consumer acquisition cost (CAC). An acquired customer is someone who stuck around for more than 4 months.

Uniswap: $11,208
Arbitrum: $5,148
1inch: $4,505
Paraswap: $1,017

Would be cool to see what value airdrop recipients are driving to this protocol today versus non-airdrop recipients. To be fair, perhaps the first 4 months. Comparing acquired customers to non-acquired customers to see if the CAC is worth it.

You might make the argument that airdrop creates the necessary buzz. For instance; Solana during the 2021 cycle: Solana was effectively an airdrop hub then. The buzz the airdrop generated drew in users, and with users came builders. Solana pumped as a result, and the NFT ecosystem of Solana was born. The NFT ecosystem gave rise to the community power that Solana has today. This is the classic argument pro-airdroppers will make.

While the above thesis is directionally correct, I don't buy it full-time. I think people would have used Solana regardless of the airdrop. The thesis pro-aidroppers laid out means that without airdrops people wouldn't have used Solana, meaning airdrops are very important, and a success protocol is a function of an airdrop. Only for you to look at failed airdrops and see that it isn't just airdrops. Yes, airdrops play a part, but successful airdrops went alongside really good protocols. You can even say that the success of an airdrop is the function of a good protocol. Meaning that a project could still do well, even without an airdrop.

On the other hand, I think the thesis laid out by pro-airdroppers is directionally correct since only about 40% of airdrop farmers/users get the airdrop in the end, meaning the remaining 60% of users were gotten for free. So even if the cost to acquire users in the form of airdrops is negative, protocols will keep doing it, because of the remaining 60% of users they get for free, which turns out to be the ones that stay. So it's more like a marketing move.

If you want to get granular and see the ROI on airdrops by looking at the airdrop recipients, the value of the airdrop token, and the value they drove to the protocol in the form of txt counts, vol, fees, etc… I can bet it's a negative. Financially it's a negative, socially it's a plus, and social capital can be converted into financial capital, if and only if the protocol is good to start with.

2. How CoWs Will Save DeFi Swaps

Earlier in the week, I published a new research piece on CoW protocol.

In the research piece;

🎯 I start by exploring what batch auctions are and how they'd enable one price per token per block preventing MEV-like frontrunning.

🎯 I then explored CoWs and ring trades, removing the need for LP, and leading to better trade execution.

🎯 Also explored signed orders which enables gas-less transactions.

🎯 I close out by discussing CoW Swap🐮, which is a DEX built on top of CoW protocol that implements things like batch auctions, CoWs, and signed orders which also taps on-chain liquidity across various protocols.

CoW Swap🐮 and signed orders are similar to Uniswap X and intents. So if you have been struggling to wrap your head around Uniswap X, here's a mental model using CoW Swap🐮. You can check out the article here.

3. Are we there yet?

Bitcoin Coin Days Destroyed (CDD) is a metric that measures the amount of BTC that has been sold or spent in a given time. It is calculated by multiplying the number of BTC sold or spent by the number of days that the BTC was held. The chart above shows the 7-day moving average of BTC CDD. As you can see, CDD has been trending down in recent months, having lower spikes, which suggests that there is less selling pressure on Bitcoin. We also saw the highest spike in CDD YTD.

Bitcoin's net realized profit and loss (NRPL) is a metric that measures the difference between realized profit and realized loss on all Bitcoin transactions. It is calculated by dividing the total realized profit by the total realized loss. NRPL can be used to gauge investor sentiment and market health. A high NRPL indicates that investors are selling at a profit, while a low NRPL indicates that investors are selling at a loss.

When you juxtapose NRPL to CDD, you'd see that despite having the highest spike in CDD YTD, we also registered the lowest realized loss, meaning that most coins on the move are in profit.

Realized price is the average price at which all bitcoins were last transacted on-chain. It is often considered to be the "on-chain cost basis" of the market. While the MVRV ratio is the ratio of bitcoin's market price to its realized price. It can be used to gauge how overvalued or undervalued Bitcoin is relative to its historical cost basis.

Realized price is currently at ~$20,200. If you are a Bitcoin bear, you should be willing to change your mind at that point. But I think it's very unlikely we will visit that level again, this year. The MVRV ratio at 1.32 suggests that on average market participants are up 32% in USD terms.

4. Crypto's Use Case

Stablecoins are crypto PMFs. In the space of 6 years, stables have gone from ~0 to near ~0 to near parity with visa. Give this chart a few more cycles. Stables coming for ACH

For those who consider Bitcoin as a MOE, stablecoins have greatly surpassed Bitcoin in terms of on-chain value. Stables accounted for 10% of on-chain transactions in 2019. today, it's over 70%+. On-chain value settled is also at a 10-year low in Bitcoin terms.

And that’s it for this week.

Have a great weekend everyone!

-Pascal

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