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The DeFi market evolving, Formalizing DIPOR, The CME's Report
April 15  |  3 min read

Information Cascade

BeQuant Analytics, a daily cryptocurrency market analysis contributor

It is notoriously difficult to measure institutional demand, not only are there too many assumptions to take into account but even data that on paper indicates "institutional" demand is far from being clear cut. Most recently, the CME Commitment of Traders report indicted a sharp increase in demand from asset managers/institutional market participants, which is, of course, a good sign for a cryptocurrency market trying to clean up its image and appeal to professional money managers. However, CME’s latest report has indicated that the healthy appetite has been somewhat short lived.

The data shows that as of April 9, institutional investors and asset managers had 244 open long positions, a decrease of 71 from April 2, and 80 open short positions, nine less than there were one week before. The data shows only three open spreading positions for institutional investors, 32 less than the previous week. The crypto media is in disarray…

Now, something to remember is that, unlike the short-termist approach that dominates the crypto industry, the decision to enter a new asset class by an investment manager, especially a passive one, would require many months of preparation, and not only the approval of the investment committee but possible alterations to its mandate (i.e. objectives).

In terms of cryptocurrency price action over the weekend, Bitcoin flirted with the underside of the 5,000 USD level, while Ethereum looked set to break the $160 level, having traded in the high $180s all last week. The fact that the levels were held is a very positive signal for the crypto market and suggests that the upward momentum remains intact. Also, keep an eye on the Ethereum futures curve where the contango has tightened to $7 from $15 on the back of profit taking. Another sign of renewed strength is that even with yet another stability fee hike by MakerDAO to bring the rate to 11.5%, there is little to indicate that cryptocurrency market participants will unwind their leveraged positions. As it stands, 2.07% of the total ETH supply is locked in the credit ecosystem.

Finally, the DeFi market continues to evolve and MakerDAO is at the very heart of it. Last week, 14 members of the Open Finance community came together for the inaugural call to discuss DIPOR (Decentralized Inter-Protocol Offered Rate) in order to lay the foundations for defining and formalizing DIPOR and, more specifically, to discuss how MakerDAO’s Risk Management teams can benefit from DIPOR. In summary, DIPOR is an on-chain oracle for the volume-weighted average borrow interest rate of specific cryptocurrencies. For MakerDAO, DIPOR would represent another data point, alongside market maker inventories and a broader analysis of supply & demand dynamics, for determining Stability Fee adjustments.

Thank you for reading,
The BeQuant’s Analytics team