Forward the Original Title: DeFi Sector Valuation Reconstruction, Sector Rotation Emerges | Frontier Lab Cryptocurrency Market Weekly Report

Market Overview

Major Market Trends

• Market Sentiment and Trends:The market sentiment index fell from 91% to 53%. Although it remains in the greed zone, BTC maintained high-level oscillation, while most altcoins came under pressure, reflecting intensified market differentiation.
• Capital Flow Analysis: The market cap of USDT and USDC grew by 2.91% and 3.23%, respectively, while DeFi’s total TVL continued to rise to $54.1 billion, indicating sustained attraction of new funds into the market.
• DeFi Sector Performance: The DeFi sector led the market with a weekly return rate of 16.47%, and DEX trading volume hit a 2024 high of $63 billion, demonstrating strong growth momentum.
• Meme Coin Market: The meme sector returned to the spotlight, showing active performance amid market fluctuations and bringing new liquidity and user growth points to the market.
• Hotspots: DEX projects garnered the highest attention, while sectors like AI and GameFi showed weakness, reflecting a shift in market focus towards infrastructure and liquidity tracks.
• Investment Advice: Investors are advised to remain cautious, focusing on opportunities in re-staking projects and the DEX sector while closely monitoring potential market volatility caused by next week’s Federal Reserve meeting.

Market Sentiment Index Analysis

The market sentiment index fell from 91% last week to 53%, remaining in the bullish zone. Altcoins underperformed the benchmark index, showing a downward oscillating trend. Following a drop earlier in the week, most assets failed to recover. Leveraged positions led to approximately $2 billion in forced liquidations, with significant de-leveraging of long positions. Given the current market structure, altcoins are expected to move in sync with the benchmark index in the short term, with a low probability of independent trends.

Overall Market Trends

• The cryptocurrency market experienced wide-ranging oscillations this week, with sentiment indices remaining in the bullish phase.
• DeFi-related crypto projects performed well, showing sustained attention to improving foundational returns.
• DEX projects stood out this week, indicating increased on-chain investment activity.
• The meme sector returned to the spotlight, gaining market attention.

Hot Sectors

DEX

This week, significant market price fluctuations created many profit opportunities for investors. On-chain investors actively used DEX for trading, and with the continuous inflow of on-chain capital and users into the DEX sector, the growth trend of DEX projects was evident this week.

DEX On-Chain Data:

The most straightforward indicators for observing DEX are its TVL and trading volume, as these two metrics directly reflect the state of the DEX sector.

• TVL: The TVL of DEX sector projects rose significantly this week, increasing from $25.22 billion last week to $26.58 billion, a growth of 5.39%. This indicates that capital is actively flowing into DEX projects. (Data Source: https://defillama.com/protocols/Dexes)

Weekly Trading Volume: (Data Source: https://defillama.com/protocols/Dexes）

• DEX trading volume reached its highest level of 2024 this week, hitting $63 billion, with 24-hour trading volume reaching $7.58 billion. This demonstrates a sharp increase in trading activity within the DEX sector.

Business Model Upgrades: (Data Source: https://dune.com/hagaetc/dex-metrics）

Leading protocols such as Hyperliquid and dYdX are undergoing a strategic transformation from single trading functionality to comprehensive financial infrastructure. This evolutionary path is characterized by the integration of functions through proprietary chain-layer architectures, enabling vertical integration and creating one-stop DeFi service ecosystems. Such architectural innovations indicate that the DEX sector is transitioning from single-layer trading functionalities to a holistic financial infrastructure, signifying ongoing value reconstruction in the sector.

SUI Ecosystem

The SUI ecosystem gained significant attention in the market this week, with the SUI price increasing by 7.8%, outperforming BTC and ETH. DeFi projects within the SUI ecosystem showed exceptional growth this week.

On-Chain Data for SUI DeFi Projects

• TVL: SUI’s TVL rose rapidly this week, increasing from $1.598 billion last week to $1.793 billion, a growth of 12.88%. This reflects active inflows of on-chain capital into the SUI ecosystem.
• Accounts: The total number of users on the SUI chain reached 66,543,317, an increase of 2,184,755 accounts (3.39%) compared to last week’s 64,358,562. Although the percentage increase appears modest, achieving growth amid highly volatile market conditions highlights SUI’s ability to attract traffic.
• DEX Trading Volume: SUI’s primary DEX platforms—Cetus, Aftermath Finance, and BlueMove DEX—achieved a total transaction volume exceeding $35 billion this week, with an average daily trading volume of $4.66 billion. This indicates high activity levels on the SUI chain.
• TVL Growth in DeFi Projects: The top three projects by TVL growth within the SUI ecosystem this week are NAVI Protocol, Suilend, and Aftermath Finance, belonging to the lending and DEX sectors. Their respective weekly TVL growth rates were 1.14%, 17.22%, and 1.72%. Despite the market’s volatile trend, funds continued to flow into DeFi projects within the SUI ecosystem.

Assessing the Appeal of a Public Chain: TVL growth or decline is the most direct criterion for determining whether a public chain is favoured by the market. Based on the above data, it is evident that the SUI chain is maintaining rapid development. With SUI’s price outperforming the broader market, its underlying assets are continually appreciating, driving the growth of APY in on-chain DeFi projects. Moreover, the overall market volatility presents profit opportunities, attracting a significant number of on-chain users to participate, thereby driving the development of the entire SUI ecosystem.

DeFi Sector

TVL Growth Rankings

The top five projects by TVL growth over the past week (excluding projects with smaller TVLs, with a threshold of $30 million or more). Data source: DefiLlama.

Synthetix (SNX): (Recommendation Rating: ⭐️⭐️⭐️⭐️)

• Project Overview: Synthetix is a decentralized synthetic asset protocol based on Ethereum, aiming to provide on-chain exposure to real-world assets through blockchain technology. Core features include allowing users to mint synthetic assets by staking their SNX tokens.
• Recent Developments: This week, Synthetix increased APY for LP users by implementing SCCP-373, raising the transaction fee share for V3 LPs from 40% to 60%. Additionally, the Synthetix Treasury plans to charge integrator fees to increase V3 LP income. The project also announced the acquisition of the leveraged token platform TLX, aiming to integrate TLX’s leveraged token functionality by improving parameters and redeploying contracts. They also launched an incentive program for leveraged tokens.

Babylon (No Token Yet): (Recommendation Rating: ⭐️⭐️⭐️⭐️⭐️)

• Project Overview: Babylon is a project designed to enhance the security of other proof-of-stake blockchains by leveraging Bitcoin’s security. Its core idea is to activate idle Bitcoin assets through a trustless staking mechanism, resolving the conflict between Bitcoin holders’ pursuit of asset security and participation in high-return projects.
• Recent Developments: Despite significant market price fluctuations this week, BTC remained strong at high levels. Combined with a generally optimistic outlook for BTC’s future, users were more inclined to hold their BTC while unlocking its liquidity through Bitcoin-based yield projects. This week, Binance announced that BTC can be directly staked in Babylon from Binance accounts, bringing substantial new capital to Babylon. During the promotional period, Binance users participating in the event received up to a 12% points boost, incentivizing many Binance users to participate.

Usual Money (USUAL): (Recommendation Rating: ⭐️⭐️⭐️)

• Project Overview: Usual Money is a Binance-backed stablecoin project aimed at providing a new decentralized stablecoin solution. Its core mechanism involves three main tokens: the stablecoin USD0, the bond product USD0++, and the governance token USUAL.
• Recent Developments: Usual Money recently upgraded its Checker system, increasing the annualized yield for USD0++ holders to 48%. The average APY for the USD0/USD0++ pool on Curve reached 54%, while the USD0/USDC pool’s average APY was 52%. Additionally, the minting volume of USUAL tokens decreased by 17%, boosting the price of USUAL. These changes attracted numerous users to participate in Usual Money for high annualized arbitrage returns.

BounceBit (BB): (Recommendation Rating: ⭐️⭐️⭐️⭐️)

• Project Overview: BounceBit is a restaking infrastructure layer built on the Bitcoin ecosystem. Designed in close collaboration with Binance, it incorporates high-yield CeDeFi components and has established the BounceBit Chain to provide concrete use cases for restaking.
• Recent Developments: BounceBit recently increased staking rates for various tokens, with 30-day annualized returns reaching 54.25% for USDT, 24.55% for BTC, 37.13% for BNB, and 37.7% for ETH. These high rates attracted a significant influx of user assets into BounceBit for staking. Furthermore, BounceBit partnered with Ondo to introduce tokenized RWA (real-world assets) to its ecosystem, marking its entry into the RWA sector.

Equilibria (EQB): (Recommendation Rating: ⭐️⭐️⭐️)

• Project Overview: Equilibria is a yield aggregator aiming to generate high returns for users. It utilizes the veToken model adopted by Pendle, offering a tokenized version of vePENDLE (ePENDLE) to provide higher returns for LPs and additional rewards for PENDLE holders.
• Recent Developments: This week, Equilibria strengthened its collaboration with Curve by launching its first enhanced pool, the scrvUSD pool, to boost user yields. Subsequently, additional enhanced pools for SolvBTC, cmETH, and ePENDLE were introduced, with APYs reaching up to 59%, attracting many users to participate in arbitrage opportunities.

Summary:

This week, projects with significant TVL growth were primarily concentrated in the stablecoin yield sector (yield aggregators).

Overall Performance of the Sector

• Stablecoin Market Cap Growth: USDT increased from $141 billion last week to $145.1 billion, a growth of 2.91%. USDC rose from $40.2 billion to $41.5 billion, a growth of 3.23%. This indicates that both USDT, primarily used in non-U.S. markets, and USDC, mainly used in U.S. markets, experienced growth, showing that the overall market continues to attract capital inflows.
• Liquidity Increase: As risk-free arbitrage rates in traditional markets continue to decline due to ongoing interest rate cuts, the arbitrage rates in on-chain DeFi projects are increasing due to the rising value of cryptocurrency assets. Returning to DeFi is proving to be an excellent choice.

DeFi TVL Analysis (Data Source: https://defillama.com/categories)

• Capital Status: The TVL of DeFi projects increased from $53.2 billion last week to $54.1 billion this week, a growth of 1.69%. The continued positive growth over the past two months demonstrates a steady inflow of capital into DeFi projects.

In-Depth Analysis

Driving Factors Behind the Growth: The primary drivers of this round of growth can be summarized as follows:

• Market Environment: The bull market cycle has increased overall liquidity demand.
• Interest Rates: Rising base borrowing rates reflect market expectations for the cost of capital.
• Yields: Expanded returns from cyclical arbitrage strategies have significantly improved protocol-generated yields. This mechanism has reinforced the intrinsic value of DeFi protocols, creating a positive growth momentum for the sector.

Other Sector Performances

Public Chains

Top 5 Public Chains by TVL Growth (Excluding Small Chains): (Data Source: DefiLlama)

Hyperliquid: This week saw a surge in users participating in on-chain trading due to high market volatility, particularly in contract trading. Hyperliquid’s open interest reached $3.5 billion, surpassing traditional Perp DEX leader dYdX to become the largest Perp DEX on-chain. The listing of a popular project, ME, further boosted its trading volume.

Sui: The launch of the Movement token spurred growth in the Move ecosystem, with Sui, as the leader, gaining widespread attention. Sui partnered with the Backpack wallet to support SUI tokens and reached an agreement with the Phantom wallet for integration. Additionally, the meme coin KAPI attracted significant traffic and funds to the Sui ecosystem. Sui’s DEX daily trading volume exceeded $466 million, demonstrating rapid development of its on-chain ecosystem.

Algorand: The meme coin project MONKO gained traction on the Algorand chain, drawing attention and funds. Algorand also announced strong support for RWA (real-world asset) projects on its chain. Additionally, Coinbase informed European customers that non-MiCA-compliant stablecoins would no longer be supported. Algorand’s primary stablecoins, USDCa and EURD, are MiCA-compliant and can continue serving European users.

PulseChain: Meme coin projects on PulseChain gained activity this week, though none were particularly outstanding. These projects contributed to wealth creation effects, attracting attention and new capital. PulseChain’s largest DEX, PulseX, saw a 62% increase in trading volume, boosting PulseChain’s TVL. Additionally, the announcement of Binance listing PulseChain’s PLS token led users to enter the ecosystem to earn PLS.

Bitcoin: While the broader market saw significant declines during the first half of the week, BTC performed relatively well with smaller losses and returned to historic highs in the latter half of the week. Optimistic about BTC’s future growth, users increasingly chose to hold BTC and participate in BTCFi projects to earn additional yields. This led to an increase in Bitcoin’s TVL as users deposited BTC into BTCFi projects.

Overview of Top Gainers

The top five tokens by price increase over the past week (excluding tokens with low trading volume and meme coins). Data source: CoinMarketCap.

This week’s top gainers showed a notable concentration within the public chain sector.

USUAL: Recently, Usual Money upgraded its Checker system. After the upgrade, USD0++ bond holders’ annualized yields reached 48%, the average APY for USD0/USD0++ on Curve was 54%, and the average annualized yield for USD0/USDC was 52%. Additionally, USUAL token minting decreased by 17%, raising the token price. These factors attracted numerous users to Usual Money for high annualized arbitrage returns.

BGB: Bitget has been actively listing trending tokens, especially meme coins, attracting users and funds, which helped increase its trading volume. This week, Bitget’s CEO announced plans to reconsider entering the U.S. market, aiming to expand under a potential crypto-friendly policy from the Trump administration. Bitget’s trading volume surpassed OKX this week, making it the third-ranked CEX.

SUSHI: Sushi recently introduced the Dojo Agent and Tweet Token features, enabling users to tokenize their favorite tweets or create their own meme coins directly from Twitter. These innovations significantly boosted Sushi’s trading volume. Additionally, Sushi DAO proposed a diversified fund strategy to shift its assets from 100% SUSHI tokens to 70% stablecoins, 20% blue-chip cryptocurrencies, and 10% DeFi tokens. This aims to reduce volatility, enhance liquidity, and generate yields through staking, lending, and liquidity provision.

ORCA: ORCA strengthened its partnership with Binance this week, with its token now supported across Binance Finance, one-click buy, instant swap, leverage, dollar-cost averaging, and contract platforms. ORCA also launched a new token creation tool supporting Solana and Eclipse networks, offering full token customization without coding. Collaborations with HawkFi and NATIX Network enhanced DeFi experiences, and ORCA supported the Solana AI Hackathon.

ACX: Across Protocol announced a significant partnership with Binance, where ACX tokens were listed without any listing fees. The token is now supported on Binance Finance, one-click buy, instant swap, leverage, dollar-cost averaging, and contract platforms. ACX also partnered with HTX Global and Bitvavo exchanges, Yodl for cross-chain payment services, and deepened its collaboration with Uniswap.

Meme Token Gainers

Data source: coinmarketcap.com

Meme projects returned to the spotlight this week. Despite the market’s wide fluctuations, meme tokens performed well, creating wealth effects on-chain and attracting more users to participate in meme projects.

Social Media Highlights

Based on data from LunarCrush’s daily top five growth tokens and Scopechat’s AI top five scores, the analysis for the week of December 7–13 shows the following trends: The most frequently mentioned category was DEX tokens.

Data Source: LunarCrush and Scopechat.

Data analysis indicates that this week’s most discussed projects on social media were DEX projects, which generally outperformed other sectors. The overall market experienced wide fluctuations and sharp price swings, creating numerous trading opportunities. On-chain users actively engaged in trading, driving significant growth in DEX trading volumes, which was reflected in the price performance of DEX-related tokens.

Market Sector Overview

Data Source: SoSoValue

Based on weekly returns, the DeFi sector performed the best, while the AI sector performed the worst.

• DeFi Sector: The DeFi sector includes numerous projects, with LINK, UNI, and AAVE accounting for the largest proportions in SoSoValue’s sample, at 36.93%, 22.33%, and 11.12%, respectively, totaling 70.38%. This week, LINK, UNI, and AAVE saw respective increases of 13.71%, 19.92%, and 42.85%, driving the DeFi sector to be the best-performing among all sectors. The intense price volatility this week created numerous arbitrage opportunities on-chain, contributing to the DeFi sector’s strong performance.
• AI Sector: In the AI sector, FET, RENDER, WLD, and TAO dominated, accounting for 80.75% of the sample. These tokens experienced declines of -4.16%, -2.59%, -9.79%, and -11.85% this week, making the AI sector the worst performer overall. Despite this week’s poor price performance, the AI sector maintained high levels of market attention, particularly focused on AI Agents, which remained a hot topic.

Next Week’s Key Crypto Events

• Tuesday (December 17): U.S. November Retail Sales Monthly Rate
• Wednesday (December 18): Hong Kong’s “Stablecoin Regulation Bill” submitted to the Legislative Council for the first reading
• Thursday (December 19): U.S. Federal Reserve interest rate decision (upper limit), release of interest rate resolutions, and economic outlook summary
• Friday (December 20): U.S. November Core PCE Price Index Year-on-Year; Asia Blockchain and AI Week, Hainan International Blockchain Week

Outlook for Next Week

Macroeconomic Factors:

• The Federal Reserve’s December meeting’s 25-basis-point rate cut expectation has been fully priced in by the market.
• Attention will shift to Fed Chair Jerome Powell’s speech and the economic outlook summary to assess the direction of monetary policy in January 2025.
• In the short term, Microsoft’s shareholder meeting decisions and macroeconomic data are expected to dominate market sentiment, with the crypto market likely to remain in a volatile state.

Sector Rotation Trends:

• DeFi restaking projects are benefiting from rising risk-aversion sentiment, with increasing preference for DEXs amid heightened market volatility. Arbitrage demand has driven greater on-chain activity, improving the sector’s outlook.
• The AI sector, particularly the AI Agent sub-sector, continues to garner high attention, with an estimated market size of $60–70 billion. The integration of Web2 and Web3 ecosystems is accelerating, with functional AI Agents increasingly being integrated with existing crypto products.

Investment Strategy Recommendations:

• Maintain defensive allocations, focusing on the safe-haven properties of leading assets such as BTC and ETH.
• While hedging risks, selectively invest in high-quality DeFi sectors with inherent yields.
• Investors are advised to exercise caution, strictly control positions, and implement robust risk management strategies.

Disclaimer:

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