CEL Token Inflated By Insiders
Sign up for Kaiko’s research newsletters here.
- Price Movements: DYDX has rallied 130% since the decentralized exchange announced they would postpone a planned unlock for the token.
- Market Liquidity: BUSD’s market share has held steady since Binance admitted to mismanaging reserves.
- Derivatives: The open interest to market cap ratio suggests Optimism’s OP token is highly leveraged.
- Macro Trends: European ETPs saw strong inflows in January.
Want to learn how to use implied volatility to gain a competitive edge trading crypto options? Register for our upcoming webinar here.
Trend of the Week
Scathing new report reveals Celsius’ CEL token manipulation.
An independent examiner in U.S. bankruptcy court found that Celsius Network, the defunct crypto lender, continuously misled customers and engaged in Ponzi-like behavior. The new report centers on Celsius’s CEL token, which was marketed as a rewards token that reflected the company’s corporate worth, but now appears to have been the centerpiece of a scheme to enrich executives using customer funds.
The report found that Celsius spent at least $558mn buying CEL on open markets starting mid-2020, which caused the token’s price to surge more than 14,000%.
Perhaps the most damning finding of the report were revelations that market makers within the firm placed “resting” orders that would prop up the token’s price, which were timed to offset any price drops caused by CEO Alex Mashinksy selling CEL tokens. Mashinsky sold 25mn tokens, generating close to $70mn.
Celsius first launched CEL via an ICO in 2018, and at its peak the token’s market capitalization was more than $1.8 billion. Despite its size, CEL had relatively low trade volume, peaking at under $150mn per week pre-bankruptcy.
CEL traded on very few exchanges and had only ~25 active spot markets. Notably, the token never traded on Binance or Coinbase. During the peak of CEL market activity between March 2021 and August 2021, FTX and OKX accounted for the majority of trade volume, which likely made it easier for traders within the firm to control its price. In fact, the report suggests that there were no other market makers for the token besides Celsius.
The depths of (alleged) criminality around CEL price manipulation are on the same scale as what we saw with FTX’s FTT. At the time of Celsius’ bankruptcy, most assessments (including Kaiko Research’s) focused on high-risk DeFi trading strategies as the source of the firm’s billion dollar shortfall. This new report suggests that the CEL token was the root of it all.
Price Movements
BTC drops below $23k following strong U.S. jobs report.
BTC slid below $23k to start the week, following five straight days closing in the red. The dip comes amid a similar pullback in traditional markets following a stronger-than-expected jobs report, which could signal to the Fed that rates can stay higher for longer. In other industry news, the bankrupt FTX estate is asking politicians to return donations, NFT sales reportedly surged by 38% in January, and Binance re-entered South Korean markets by acquiring a majority stake in Gopax Exchange.
Delaying unlock a welcome boost for DYDX token price.
DYDX is the native token of the perpetual futures decentralized exchange of the same name. The token was due to release 15% of its total supply on Feb 3rd, a move that would have doubled the current circulating supply. According to TokenUnlocks, a massive 77% of DYDX supply remains locked.
However, dYdX announced they will be postponing this unlock in an effort to relieve sell pressure on the token, moving the unlock date until December. DYDX has rallied 130% since the news that this negative overhang on the short term price was being postponed to the end of the year, and is up 190% year to date. Many think that delaying the unlock allows dYdX a year to improve its tokenomics, namely the potential to share revenue with token holders. More importantly, the release of v4 on Cosmos may drown out the negative headlines associated with the unlock later in the year.
ETH breaks even since Merge as FTM soars.
ETH has again reached parity with its price on the day of the Merge after previously reaching parity on November 5, just ahead of the FTX collapse. The post-Merge landscape has been a mixed bag for some of its top competitors. Solana’s SOL was one of the best performers in January but is still down nearly 30% since the Merge, largely because of its association with FTX and Alameda Research. Polkadot’s DOT has performed slightly worse than ETH while BNB Chain’s BNB has performed slightly better and is up nearly 10% in this timeframe.
Fantom’s FTM token has been the best performer and is up nearly 65%. FTM has been bolstered by the return of Andre Cronje, the DeFi builder and founder of Yearn.finance who exited Fantom last year.
Market Liquidity
Altcoin liquidity improves in January.
Liquidity improved significantly for altcoins in January amid a wider market rally. This stands in strong contrast to liquidity for BTC, which has failed to recover since FTX’s collapse. We measure liquidity using 2% market depth aggregated across all USD and stablecoin pairs for an asset on the top 18 exchanges according to Kaiko’s exchange ranking. We denominate market depth using both USD and native units in order to to get a multi-faceted understanding of liquidity that accounts for the impact of the latest price rally.
The chart above compares the percentage change in market depth from January 2nd to January 31st, with depth denominated in USD. Most crypto assets have experienced double digit returns since the start of the year, but not all assets have undergone a similar surge in market depth. Market depth for Solana’s SOL and Avalanche’s AVAX doubled between January 2 and January 31. Tron’s TRX was the worst performer, with liquidity dropping by 5% last month, despite a 12% rise in price.
When looking at the percentage change in market depth denominated in native units (charted below), which removes price effects, it is immediately clear that BTC’s poor performance is due to a sharp drop in liquidity in native units which was barely counteracted by its price increase over the past weeks. In contrast, AVAX, Bitcoin Cash (BCH) and Ethereum Classic (ETC) native units market depth rose, which suggests a more tangible improvement in liquidity.
Overall, while ETH and most altcoins registered a drop in market depth in native units, the drop was much more contained than BTC’s. It remains unclear why BTC liquidity has failed to recover in 2023.
BUSD retains market share amid mismanagement revelations.
Last month, Binance admitted fault in not always keeping one-to-one reserves for its stablecoin BUSD. BUSD is issued and managed by two seperate entities: Binance and Paxos. The portion of BUSD that Binance issues was at one point under-collateralized by $1bn, which the exchange admitted to and has since corrected, although it is not clear for how long this lasted. Despite the revelations, BUSD has managed to retain its market share in the weeks since the story broke. Today, BUSD denominates around 35% of all trade volume on the exchange, up from 9% at the start of 2021.
Liquidity imbalance positions LSD tokens for gains.
Token prices can rise and fall for many reasons. A lesser known reason for prices rallying is a lack of liquidity on the ask side. Ask side orders on exchange order books are those unfilled orders above the current price of a token. A lot of orders above the current price of a token can limit its upside — essentially the reverse effect of the better known “bid walls”, which can support a token’s price to the downside.
A high bid/ask ratio would indicate that there are more bids than asks on an order book, perhaps indicating that the token has both support to the downside in the form of bids, or a lack of resistance to a move upwards in the form of a lack of asks above the current price. Looking closer at one of 2023’s hottest narratives to start the year, liquid staking derivatives (LSD), we can see Rocketpool’s governance token’s liquidity on Binance is very skewed to the ask side, with over 4 times the amount of bids than asks. Judging from the order book imbalance, RPL may have the potential to break out to the upside. LDO and FXS are the governance tokens of two other decentralized LSD protocols, both of which are also quite imbalanced, with nearly twice as many bids as asks on Binance order books.
Liquidity surges for frxETH Curve pool.
Over $20mn worth of ETH has been added to the frxETH-ETH Curve pool since January 20, compared to just under $5mn worth of frxETH added, helping to bring the pool close to 50/50 balance. This pool is the main source of liquidity for Frax’s ETH liquid staking derivative, with over $120mn worth of ETH and frxETH currently in the pool, compared to $500k on Uniswap V3 and $3.5mn on Solidly; it is currently not available on any centralized exchanges. Liquidity is vitally important for LSDs ahead of the Shanghai upgrade, which will enable withdrawals of staked ETH.
The token has grown rapidly from its launch in October and there are currently over 85k frxETH tokens, for a market cap of nearly $150mn, almost half of which is deposited in this Curve pool. Interestingly, when users mint frxETH with ETH, the protocol is able to withhold some of the deposited ETH “to market make across DeFi”; it is currently using some of these funds to LP on Curve, a sign that Frax recognizes the importance of LSD liquidity.
Derivatives
OP and DYDX open interest suggest leverage.
The open interest to market capitalization ratio is effective at showing a token’s leverage that is at play in the derivatives market, relative to its market value. A high ratio would indicate that perpetual futures are driving a lot of the price action for a token. The two tokens with the highest ratios as of last Friday are OP, the token for the Optimism Layer 2 network on Ethereum, and DYDX, the token of the decentralized futures exchange of the same name. DYDX’s open interest rose by 200% after they announced a delay to their significant unlock.
OP remains one of the few ways for investors to get exposure to Layer 2s, which have been a popular narrative to start 2023. Its open interest aggregated on Binance and on Bybit has more than tripled in January, hitting an all-time high of $109mn on February 3. The move has been mirrored by a triple-digit surge in spot prices.
In contrast to the headline-grabbing tokens with higher ratios, tokens with a low OI/Mcap ratio are often those struggling to find a narrative that will interest speculative derivative investors. ADA, BNB and TRX have lower ratios thanks to their relative lack of speculatory volumes in futures markets for their size.
Macro Trends
BTC premium in Nigeria debunked.
After the Nigerian government limited ATM withdrawals of Nigerian Naira on December 4, stories started circulated that Nigerians were paying a BTC premium upwards of 60%. While that figure is true using the official central bank exchange rate for USD, the facts are most Nigerians don’t actually use this rate to access USD.
The majority use the black market to access USD, in which the rate differs drastically. Using that rate, BTC-Nigerian Naira pairs trade at about fair value, debunking the BTC premium stories. The so-called premium has been in place before the ATM withdrawals — were this a premium issue, that premium would have risen post-December 4. We saw no change in trend for the BTC premium. All this isn’t to say that Nigerians aren’t turning to BTC to combat government restrictions, rather they are actually paying a premium to access USD, not BTC.
Bitcoin European ETPs see strong inflows in January.
January’s rebound in risk assets has extended to crypto-linked exchange traded products (ETP) in Europe, which saw net inflows in addition to double-digit YTD percent returns. Bitcoin ETPs registered the strongest net flows — over $90mn between December 31 and January 30 — followed by ETH, SOL and DOT (Other) ETPs.
The European ETP market has grown significantly over the past few years despite facing regulatory hurdles in some countries and increased competition from US-listed ETFs. Currently over 130 ETPs are available to European investors managing $4bn in assets. Three funds have over $400mn each, with XBT’s Bitcoin Tracker Euro topping the list with $474mn followed by BTCETC Physical BTC and Ether Ticker Euro.
—
Thanks for reading and see you next week!
Written by Dessislava Aubert, Clara Medalie, Riyad Carey and Conor Ryder, CFA.
