Camelot is an Arbitrum native DEX designed to be a home for Arbitrum builders and users. Camelot’s TVL has grown by 114% in the past 3 months and currently ranks 6th on Arbitrum, behind heavyweight protocols such as GMX, Uniswap, Aave, Balancer and Pendle. What attracted me to Camelot is that the average daily trading volume on their platform over the past 30 days is around $100 million, which puts them among the top 10 Dexes by this metric. Still, it has a market capitalization of just $31.3 million.
While Camelot launched in December 2022, interest in the platform has increased since October 2023. This has driven its native token, GRAIL, from lows of $700 to highs around $2,000. In this post, I will look at some of the reasons behind this growth and whether the price action will continue moving forward.
1. Arbitrum Short-term Incentive Plan
As part of the 50M STIP approved by the Arbitrum DAO, Camelot received 3M ARB incentives to incentivize liquidity providers over a 3-month period. Other protocols such as Gamma and Radiant have also allocated part of their STIP grants to support liquidity for native tokens on Camelot. These incentives have increased Camelot’s TVL. Overall, Arbitrum has seen an increase in trading volume from STIP grants and hype about L2, some of which has also filtered down to Camelot.
2. Camelot and Uniswap
A quick look at Defillama shows that the leading Dex on Arbitrum is Uniswap across all metrics including TVL, volume, and fees. But if you dig deeper into the data, you’ll see that Camelot has been eating into Uniswap’s market share in terms of monthly transactions, volume, and TVL.
Monthly transactions of various DEXs (Source: Artemis)
Monthly trading volume of each DEX (Source: Artemis)
What’s even more interesting is that this is happening despite swap fees on Camelot being slightly higher than those on Uniswap. One explanation could be that relying solely on Arbitrum has allowed Camelot to attract a set of users who are bullish on Arbitrum as an ecosystem and want to support Dapps built natively on Arbitrum. Camelot’s STIP grant received the highest number of FOR votes, with over 201 million ARB voted in its favor.
Camelot has transcended the traditional role of a DEX to become a hub for Arbitrum builders and the community. This is truly where its value proposition lies compared to other Dex on Arbitrum.
The Camelot Roundtable has over 25 official partners, with over 40 builders leveraging Camelot to scale sustainable mobility. Examples include:
Saint bot: Allows users to cheaply and quickly deploy tokens directly on Camelot.
Jones DAO: A liquidity management strategy built on Camelot.
Gamma: An AMM Treasury that manages pooled liquidity on Camelot
Stella: Provides 5x leverage based on the Camelot automated v3 strategy.
3. Token Economics
Camelot’s native token is the GRAIL token, which has a maximum supply of 100,000. There are currently only 18,180 GRAIL in circulation. GRAIL can be locked into xGRAIL, which can then be assigned to 3 different plugins. Assigning xGRAIL to the Dividend plugin allows users to receive a share of the protocol’s revenue. Assigning xGRAIL to the Yield Increase plugin allows users to increase agricultural emissions by up to 2.5x. Assigning xGRAIL to the Launchpad plugin allows users to have first access to protocols launched on their launchpad and be whitelisted for early purchase. Notable protocols launched on Camelot include PNP and WINR.
Exchanging xGRAIL for GRAIL implies vesting, the duration of which can be selected by the user. A minimum vesting period of 15 days will allow users to redeem GRAIL at a ratio of 1:0.5, while choosing a 6-month period will allow users to redeem GRAIL at a ratio of 1:1.
Token Allocation
During the genesis period, 27,500 tokens were initially released, of which 17,500 are in circulation and the other 10,000 are locked as xGRAIL. It is worth noting that Camelot did not raise any funds in previous rounds to prevent dumping by initial investors. Although 22.5% of GRAIL has been allocated to liquidity mining for 3 years, the team mentioned that the actual emissions have been significantly reduced and are working on releasing the actual emissions for 2023.
4. Revenue Drivers
Version 3 Splitting revenue from swap fees
Interestingly, the amount used for GRAIL buybacks and burns dropped from 12.5% in version 2 to 3.5% in version 3, and dividends dropped from 22.5% to 7%. I think this is a big change for Camelot. Camelot is currently in a growth phase, and like other growing companies in TradFi, they should reinvest funds into the protocol instead of paying through dividends or token buybacks. Providing higher fees to liquidity providers can create stability for the DEX, which is essential for future growth.
5. Token Destruction
As mentioned earlier, GRAIL will be repurchased and destroyed regularly, and 3056 GRAIL tokens were destroyed in 2023, accounting for 3.06% of the total supply.
Locking GRAIL into xGRAIL also works as a token receiver. From this amazing dashboard on Dune, we can see that 17,371 tokens are locked into xGRAIL, which is about 50% of the tokens on the market.
Early redemption of GRAIL tokens will also result in the destruction of any under-vested tokens.
Analysis of upcoming xGRAIL token redemptions shows that approximately 4,538 tokens will be unlocked over the next 6 months, which is approximately 4.5% of the total supply.
6. Valuation
Link to a dashboard I created to track valuation metrics.
Looking at the FDV/TVL metric and the FDV/Fees metric, Camelot is below the average and median levels, indicating that it is undervalued. This is especially true for the FDV/Fees metric. Another interesting metric for Dexes that I like to focus on is the 30-day annualized volume/TVL. This indicates the capital efficiency of the Dex. For this metric, the higher the ratio, the better, but Camelot is once again well above the average and median.
Comparing Camelot’s valuations over the past 6 months, we can observe that while FDV/TVL has been fluctuating around 1.5x, the FDV/fee metric has been trending downward since September 2023, which is a good sign.
FDV/TVL ratio since July 23 (Source: Artemis)
FDV/30-day annualized expense ratio (Source: Artemis)
7. Upcoming Catalysts (Beta Drivers)
I regressed GRAIL's % return against ARB's % return since July 23rd and got a coefficient of 0.73. Any catalyst that benefits ARB is likely to benefit GRAIL as well. There are some catalysts coming up for Arbitrum, such as the Dencun upgrade, the Arbitrum Stylus upgrade, and potential ARB staking.
8. Upcoming Catalysts (Alpha Drivers)
Let’s look at some of Camelot’s catalysts that will allow it to outperform ARB.
-GRAIL Wars: Magpie has published a post on August 18, 2023 about how this integration will work. Essentially, users will be able to lock their GRAIL tokens on Magpie instead of directly on GRAIL. This allows users to earn dividends without holding an illiquid position in xGRAIL.
There are also rumors on PlutusDAO about launching plsGRAIL. This is bullish for GRAIL as a higher percentage of GRAIL will be locked in these yield aggregators. However, before the GRAIL Wars can begin, Camelot needs to add governance features to the GRAIL token so that bribes can be distributed through voting.
- Camelot fork on Metis: Hercules is a fork of Camelot on Metis and reserves 7.5% of the token supply to the Camelot DAO. While it has not been officially announced, Camelot may give these tokens to xGRAIL holders and incentivize more users to lock up their GRAIL.
- Orbit Chain Launch: Camelot will be deployed on XAI Chain, the layer 3 solution for AAA games on Arbitrum. XAI tokens will be listed on Camelot in the coming weeks, which will make Camelot the leading liquidity solution for Arbitrum Orbit Chains. I would not be surprised to see more Orbit Chains follow suit, which will increase Camelot’s liquidity and trading volume. This will create more value for GRAIL holders.
-Arbitrum Long-Term Incentive Program (LTIP): The Arbitrum DAO has passed an initial snapshot vote to fund the LTIP with 45.8 million ARB ($90 million). Given Camelot’s overwhelming support for previous incentive programs, we may see similar support again.
9. High-level forecasting
To get a rough gauge of the upcoming GRAIL token inflation in the coming year, I made a rough projection of volume and fees for 2024. A rough gauge shows Camelot December 2024 volumes slightly higher than Uniswap’s current volumes on Arbitrum. I believe this is feasible given Camelot’s growth, upcoming catalysts, and general market sentiment. Additionally, these volumes indicate a buyback of 3.1% of total supply. This is conservative as a similar percentage is expected to be bought back in 2023 due to the higher percentage of fees allocated to buybacks and burns in version 2.
Monthly sales and repurchase forecasts
Given the lack of clarity on 2023 token emission, I made some assumptions about the 2024 emission rate. Given that the vesting schedule is linear and that 2024 liquidity mining emissions should be similar, I assume that total emission will continue to be close to the 2023 level of 10%. Of this, I assume that 50% will be locked as xGRAIL (based on the current percentage of tokens locked) and another 3.1% will be burned. Taking into account the xGRAIL unlock, the total inflation increase is about 7.24%, which is acceptable. If the catalyst plays out, the introduced supply decline and demand creation for GRAIL should exceed the increase in inflation.
Inflation forecast for 2024
10. Conclusion
I'm still learning more about technical analysis so I'm mainly using it for setting stops and potential entry/exit points. Current levels do look attractive and we may see it break out to the upside soon. However, if it breaks below the trendline, I'd place a stop loss around the 1242 level. If we see prices recover, I'd take profits around 2080 and keep some for catalysts to play out. If you're bullish on Layer 2 and Arbitrum, Camelot should be on your radar as it's uniquely positioned as a hub for builders and users of the Arbitrum ecosystem.
