Original title: (Market panic escalates, attention turns to DeFi and AI Agent tracks | Frontier Lab Crypto Market Weekly Report)
Original source: Frontier Lab
Market Overview
Main market trends
Overall market overview
The market is currently in a state of extreme panic, with the sentiment index falling from 53% to 7%, coupled with the Fed's hawkish stance (anticipation of interest rate cuts dropped from 4 to 2), triggering forced liquidation of approximately US$1 billion, indicating that the market is experiencing significant ongoing deleveraging process.
DeFi Ecosystem Development
The DeFi sector saw its first negative TVL growth in nearly two months (-2.21%), but the market value of stablecoins continued to grow (USDT +0.55%, USDC +1.44%), indicating that despite the market correction, basic liquidity is still continuing to flow in, and stable income projects such as machine gun pools are sought after.
AI Agent
The AI Agent track's market size has reached $9.9 billion, with investment focus shifting from speculative AI Meme coins to infrastructure development, indicating that the market is gradually maturing, and project directions are becoming more rational and practical.
Meme Coin Trends
The Meme coin market's heat has visibly cooled down, with funds starting to withdraw on a large scale, indicating a decrease in speculative sentiment in the market. Investors are more inclined to seek projects with substantial application value, which may signal a phase of the Meme coin craze coming to an end.
Public Chain Performance Analysis
In the midst of significant market fluctuations, the public chain sector demonstrated strong resistance to declines, becoming the preferred choice for risk-averse investors, reflecting confidence in market infrastructure.
Future Market Outlook
As the Christmas holiday approaches, market liquidity is expected to decrease. It is recommended that investors adopt defensive allocation strategies, focusing on BTC and ETH, while also paying attention to DeFi stable income and AI infrastructure projects, but being wary of potential increased volatility during the holiday period.
Market Sentiment Index Analysis
· The market sentiment index fell from 53% last week to 7%, indicating a state of extreme panic.
· Altcoins performed worse than the benchmark index this week, showing a significant downward trend. Due to leveraged positions, the market experienced forced liquidations of over $1 billion, leading to significant deleveraging in long positions. Given the current market structure, it is expected that Altcoins will remain synchronized with the benchmark index in the short term, with a low probability of independent market movement.
· Altcoins often experience upward reversals when they are in a state of extreme panic.
Overview of Overall Market Trends
· The cryptocurrency market was in a downward trend this week, with the sentiment index in a state of extreme panic.
· DeFi-related crypto projects performed prominently, indicating continued market interest in improving base yields.
· This week, the AI Agent track projects garnered high attention, indicating that investors are actively looking for the next market breakout point.
· This week, Meme projects generally declined, with funds starting to withdraw from Meme coin projects, reflecting a gradual decline in market enthusiasm for Meme coins.
Hot Tracks
AI Agent
This week, the market was in a downward trend, with all sectors experiencing declines. Although most token prices in the AI Agent sector also declined this week, it garnered the highest discussion in the market. Previously, the market focus for AI Agents was largely concentrated on meme token projects featuring AI Agents, but it is gradually shifting towards AI Agent infrastructure development.
Due to the current cycle, traditional VC token projects are not favored by the market, and Meme token projects cannot bring sustained growth to the market. Therefore, the AI Agent track is currently very likely to lead the next market development, as the AI Agent track encompasses not only AI Meme but also various other tracks such as AI DePIN, AI Platform, AI Rollup, AI infra, etc., which can all be combined with AI Agents. Essentially, blockchain projects are all forms of smart contracts, and the emergence of AI Agents aims to enhance and improve smart contracts. Therefore, AI Agents and Crypto represent an excellent combination.
Top five AI Agent projects by market capitalization:
DeFi Track
TVL Growth Rankings
In the past week, the top five projects by TVL growth in the market (excluding projects with low TVL, defined as above $30 million) were reported, data source: Defilama
VaultCraft (VCX): (Recommended Index: 2 Stars)
· Project Introduction: The VaultCraft crypto project is a public chain project based on Algorand, aimed at reducing participants' costs in storing and launching the network. VaultCraft's design leverages Algorand's Proof-of-Stake consensus protocol.
· Latest Developments: This week, VaultCraft launched the stETH 4X lever Looper based on Lido Finance, supporting multi-chain deployment on Base, Arbitrum, Optimism, and Ethereum. It achieved direct staking functionality from L2 to the mainnet through Chainlink CCIP, providing users with APY returns of over 7%+. Additionally, it established a partnership with Matrixport, securing 1,000 BTC custody business, leading to a rapid increase in TVL. It also reached strategic cooperation with Safe and CoWSwap.
Hyperliquid (HYPE): (Recommended Index: 5 Stars)
· Project Introduction: Hyperliquid is a high-performance decentralized finance platform focused on providing perpetual contract trading and spot trading services. It is based on its own high-performance Layer 1 blockchain, using the HyperBFT consensus algorithm, capable of processing up to 200,000 orders per second.
· Latest Developments: This week, the overall market experienced significant fluctuations. Before Wednesday, the market continued to create new highs, but after the Federal Reserve meeting on Thursday, there was a substantial drop. The volatility created a very favorable trading environment for users looking to participate in contract trading for high returns, leading many on-chain users to join Hyperliquid for trading, pushing the number of open contracts on Hyperliquid to over $4.3 billion. This week, Hyperliquid responded to market demand by adding leveraged trading features for several trending trading pairs such as VIRTUAL, USUAL, and PENGU, supporting up to 5x leverage, attracting many on-chain users to participate in trading.
Resolv (Token Not Issued): (Recommended Index: 2 Stars)
· Project Introduction: Resolv is a delta-neutral stablecoin project that revolves around the tokenization of market-neutral investment portfolios. This structure is based on economically viable and independent sources of income from fiat currency. This allows for competitive returns to be allocated to the protocol's liquidity providers.
· Latest Developments: This week, Resolv completed its integration with Base, significantly reducing transaction costs and enhancing transaction speed. It launched lending services for USR, USDC, and wstUSR through Euler Finance and introduced a USR-USDC liquidity pool on Aerodrome. Additionally, it adjusted the Spectra YT yield points to 3 PM daily, optimized the reward mechanism, initiated the Grants program, and confirmed the first three recipients. Through deep cooperation with projects like Base, Euler Finance, and Aerodrome, it strengthened its competitiveness in the DeFi sector.
Babylon (Token Not Issued): (Recommended Index: 5 Stars)
· Project Introduction: The Babylon project aims to enhance the security of other proof-of-stake blockchains by leveraging the security of Bitcoin. The 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-yield projects.
· Latest Developments: Although the market price fluctuated significantly this week, BTC's performance remained very strong, staying at high levels. Additionally, users are generally optimistic about BTC's future development, leading them to firmly hold onto their BTC while seeking to unlock the liquidity of their holdings. As a result, they are more inclined to choose income-generating projects based on BTC. This week, Babylon deepened the application of ZK scalability technology through collaboration with Layeredge and established a strategic partnership with Sui to promote the construction of a modular ecosystem.
Lista DAO (LISTA): (Recommended Index: 3 Stars)
· Project Introduction: Lista DAO is a liquidity staking and decentralized stablecoin project based on the BSC chain, aimed at providing users with staking returns on crypto assets and lending services for the decentralized stablecoin LISUSD.
· Latest Developments: This week, Lista DAO launched the Gauge Voting and Bribe Market functions, allowing veLISTA holders to participate in the LISTA emission decisions of liquidity pools. It also announced strategic collaborations with 48Club_Official and defidotapp, especially to explore new opportunities within the BNBChain ecosystem. Additionally, it is promoting the integration of PumpBTC as innovative collateral through the LIP #012 proposal. Lista DAO is also attracting users through weekly distributions of approximately $230,000 in veLISTA rewards and a competitive borrowing rate of 5.25%. This week, Lista DAO, in collaboration with FDLabsHQ, launched a winter event totaling 7,000 USDT and provided airdrop opportunities of slisBNB and clisBNB for BNBChain holders.
In summary, we can see that this week, projects with rapid TVL growth are mainly concentrated in the stablecoin yield sector (yield farming).
Overall Performance of Tracks
· The market capitalization of stablecoins is steadily growing: USDT increased from $145.1 billion last week to $145.9 billion, a growth rate of 0.55%. USDC rose from $41.5 billion to $42.1 billion, a growth rate of 1.44%. It can be observed that although the market experienced a decline this week, both USDT, which is primarily non-US markets, and USDC, which is primarily US markets, saw growth, indicating that the entire market still maintains continuous capital inflow.
· Liquidity is gradually increasing: The risk-free arbitrage rate in traditional markets is continuously declining due to ongoing interest rate cuts, while the arbitrage rate of on-chain DeFi projects is increasing due to the rising value of cryptocurrency assets. Returning to DeFi will be a very good choice.
TVL of Various DeFi Tracks (Data Source: https://defillama.com/categories)
· Funding Situation: The TVL of DeFi projects rose from $54.1 billion last week to $52.9 billion, marking the first negative growth in nearly two months, with a decline of 2.21%. The main reason is that the overall market experienced a significant drop this week, leading to the forced liquidation of many contracts and loans, resulting in a decrease in TVL in the DeFi sector, breaking the continuous growth trend of the last two months. In the next two weeks, focus should be on the overall changes in TVL and whether the downward trend continues.
In-depth Analysis
Driving Forces of Growth: The core driving factors of this round of growth can be summarized as follows: the market entering a bull cycle drives an increase in liquidity demand, which in turn pushes up the base borrowing rate level, amplifying the yield space for arbitrage cyclic strategies within DeFi protocols.
Specifically:
· Market Environment: The bull market cycle brings an overall increase in liquidity demand.
· Interest Rate Side: The base borrowing rate has risen, reflecting the market's pricing expectations for funds.
· Yield Side: The yield of circular arbitrage strategies has expanded, and the significant improvement in endogenous yields within the protocol has strengthened the intrinsic value support of the DeFi sector, forming a healthy growth momentum.
Potential Risks: Due to the recent upward trend in the market, investors are focusing more on yields and borrowing leverage while neglecting the risks of downturns. This week, following an unexpected adjustment by the Federal Reserve to reduce the anticipated interest rate cuts from four times to two, the market experienced a rapid decline, causing over $1 billion in contracts and loan assets to be liquidated, resulting in losses for investors. This liquidation risk could lead to a chain reaction of further liquidations, causing prices to drop even more and liquidating additional assets.
Performance of Other Tracks
Public Chains
In the past week, the top five public chains by TVL growth (excluding chains with low TVL) were reported, data source: Defilama
Hyperliquid: This week, the overall market experienced significant fluctuations. Before Wednesday, the market continued to create new highs, but after the Federal Reserve meeting on Thursday, there was a substantial drop. The volatility created a very favorable trading environment for users looking to participate in contract trading for high returns, leading many on-chain users to join Hyperliquid for trading, pushing the number of open contracts on Hyperliquid to over $4.3 billion. This week, Hyperliquid responded to market demand by adding leveraged trading features for several trending trading pairs such as VIRTUAL, USUAL, and PENGU, supporting up to 5x leverage, attracting many on-chain users to participate in trading.
Bitcoin: This week, the market hit new highs in the first half of the week but saw a substantial drop after Thursday. The overall market prices experienced significant declines, with BTC declining less than other projects. Users bought BTC to hedge against risks, and market participants were more optimistic about BTC's future rise, firmly holding onto BTC. As a result, during the holding period, users opted to invest BTC in BTCFi projects for additional returns, leading to an increase in Bitcoin's TVL.
BSC: This week, BNB Chain introduced new projects such as Seraph_global, SpaceIDProtocol, and cococoinbsc into its ecosystem, actively promoting the integration of AI and Web3 in the gaming sector, strongly supporting the development of Meme projects, providing $50,000 in liquidity support for CHEEMS and $HMC projects through the Meme Heroes LP program, while launching daily Memecoin airdrop plans that include GOUT, MALOU, BUCK, $WHALE, among others, and initiating a total of $200,000 in the Meme Innovation competition.
AILayer: This week, AILayer's activities focused mainly on community operations and ecological cooperation: collaborating with OrochiNetwork to launch a Giveaway event; launching the Mini App leaderboard activity to enhance user engagement; continuously attracting community participation through interactive activities such as 'Would You Rather Challenge' and 'Riddle of the Week'; and holding an AMA event themed 'How AILayer Revolutionizes Bitcoin with AI', showcasing the project's vision in combining AI and blockchain.
Mantle: This week, Mantle integrated Compound III, achieving significant breakthroughs. It brought $USDe lending functionality to users and supports ETH and BTC as collateral assets. By expanding the Mantle Scouts Program to 40 top industry Scouts and launching the Mantle Meetup program, it introduced a large incentive event worth up to 1 million MNT in the Moe's Rager program, successfully attracting over 110,000 users through the Yield Lab project, generating a total of 2.5 million transactions and bringing on-chain traffic to Mantle.
Overview of Growth Rankings
In the past week, the top five tokens by growth in the market (excluding tokens with very low trading volume and meme coins) were reported, data source: Coinmarketcap
This week's growth rankings displayed a concentrated trend, with most of the rising tokens belonging to the public chain sector.
UXLINK: This week, UXLINK reached a strategic partnership with DuckChain and received investment support from UFLY_Labs, jointly building a Social Growth Layer (SGL). The LINE platform's user base has surpassed 2 million users, while UXLINK set a historical high in Upbit trading pairs. UXLINK launched a large airdrop event worth $500,000, covering over 20 Web3 projects, and continuously attracted new users through joint activities with trading platforms like OKX.
USUAL: This week, Usual launched an innovative USD0++ holder incentive treasury and delta-neutral strategy, providing users with APY returns of up to 76%-82%. It maintained stable high-yield performance in Curve's USD0/USD0++ and USD0/USDC pools, averaging over 50%. Usual's TVL recently experienced rapid growth, climbing from $750M to $800M. After the third week of the reward program ended, TVL showed a 44% increase, while the minting rate dropped by 28%, bringing a deflationary effect to the USUAL token. Meanwhile, the Usual team emphasized that 90% of token distribution goes to the community, while the DAO retains a transparent operational model with 100% of revenue.
MOCA: This week, Moca released the Moca 3.0 version, introducing the 'Integrated Account' concept and launching the AIR Kit, aimed at solving the fragmented identity problem for Web3 users. Moca formed an important partnership with SK Planet, integrating Moca into the OK Cashbag application, effectively reaching a user base of 28 million in South Korea. Meanwhile, the MOCA token will soon be listed on the two major South Korean exchanges, Upbit and Bithumb. Moca significantly improved user experience and ecological participation through deep cooperation with Nifty Island and the launch of Fixed Mode to optimize the MocaDrop mechanism.
HYPE: This week, the overall market experienced significant fluctuations. Before Wednesday, the market continued to create new highs, but after the Federal Reserve meeting on Thursday, there was a substantial drop. The volatility created a very favorable trading environment for users looking to participate in contract trading for high returns, leading many on-chain users to join Hyperliquid for trading, pushing the number of open contracts on Hyperliquid to over $4.3 billion. This week, Hyperliquid responded to market demand by adding leveraged trading features for several trending trading pairs such as VIRTUAL, USUAL, and PENGU, supporting up to 5x leverage, attracting many on-chain users to participate in trading.
VELO: Velodrome this week reached a partnership with the Soneium platform developed by Sony Block Solutions Labs, extending Velodrome to this new generation Layer 2 solution based on Optimism Superchain, while achieving significant progress in liquidity building. Inkonchain locked 2.5M veVELO and provided $1.4M in incentive funds; additionally, liquidity support was provided for the proxy tokens of Mode Network.
Meme Token Growth Rankings
Data Source: coinmarketcap.com
This week, Meme projects were significantly impacted by the market downturn, not following the market's rise in the first half of the week. After a drop on Wednesday, they followed the market in a substantial decline, resulting in very few Meme coins showing upward trends this week. It is evident that the current market's attention and capital are not focused on the Meme coin track.
Social Media Hot Topics
According to the data from LunarCrush for the top five daily growth and top five AI scores in Scopechat, here are the statistics for this week (12.14-12.20):
The most frequently mentioned topic is L1s, with the following tokens listed (excluding tokens with very low trading volume and meme coins):
Data Source: Lunarcrush and Scopechat
According to data analysis, the L1s project received the highest attention on social media this week. Following the Federal Reserve's unexpected adjustment of next year's anticipated interest rate cuts from four to two on Thursday, there was a significant market downturn, with the entire market following suit. The declines of various public chains were smaller compared to other tracks. In times of market downturn, public chains often perform better than other sectors. Aside from buying BTC and ETH for hedging, most investors are still investing in various public chains. When the downturn ends and the market rises, public chains generally rise before other projects.
Overall Market Topic Overview
Data Source: SoSoValue
According to weekly return statistics, the Cefi sector performed the best, while the Gamefi sector performed the worst.
· In the Cefi track, BNB and BGB have significant shares, accounting for 86.07% and 5.45% respectively, totaling 91.52%. This week, Binance continued to introduce new coins, maintaining a daily release of an influential token, which attracted considerable traffic to Binance. Meanwhile, BNB outperformed the market, declining by only 2.58%, better than BTC and ETH, while Bitgit performed remarkably well, continuously listing hot tokens, with its token BGB rising 37.93% against the trend, boosting the overall performance of the Cefi sector.
· Gamefi Track: Throughout this cycle, the Gamefi track has received little market attention, resulting in minimal capital and traffic inflow, leading to the absence of the previous wealth creation effect in the Gamefi sector and a decline in its attention. The combined share of IMX, BEAM, GALA, SAND, and AXS within this sector is as high as 82.14%, and their performance this week was worse than the market, leading to the poorest performance in the Gamefi track.
Preview of Major Crypto Events Next Week
On Thursday (December 26), the number of initial jobless claims in the U.S. for the week.
Outlook for Next Week
· Macroeconomic Factors Assessment
Next week, the United States will enter the Christmas holiday, with few macro data releases. In previous years, during the Christmas and New Year holidays, the market, primarily driven by U.S. purchases, has seen a decline in purchasing power and increased market volatility.
· Sector Rotation Trends
Although the current market environment is poor, investors generally expect the market to experience a widespread rally in the first quarter of next year. As a result, most investors remain unwilling to sell their tokens. At the same time, to increase holding returns, they are actively participating in yield farming projects to enhance returns.
The AI sector, particularly the AI Agent track, continues to receive sustained market attention, with the market size reaching $9.9 billion. The accelerated integration of Web2 and Web3 ecosystems, along with the rapid progress in integrating data networks and functional AI Agents with existing crypto products.
· Investment Strategy Recommendations
Maintain a defensive allocation, increase the allocation of major assets BTC and ETH to enhance the hedging properties of assets against risks while participating in some high-yield yield farming DeFi projects. It is recommended that investors remain cautious, strictly control their positions, and manage risks effectively.
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