Source: TradingView, CNBC, Bloomberg, Messari
Looking for growth
Positive price action continued in crypto markets, and once again, it was hard to find a real root cause other than the upcoming election.
Total exchange volumes saw a large bounce, up 23% week-over-week, led by centralized exchanges (spot volumes up 21% and derivatives volumes up 23% WoW).
Source: Arca Internal Calculations and Artemis
While overall volumes are still nowhere close to the peaks seen earlier this year or the peaks from the 2020/2021 bull run, decentralized exchange volume as a percentage of overall volumes continues to hit new highs. Part of this is due to FTX's bankruptcy, but it’s still clear that more and more traders and crypto users are moving on-chain.
Even more perplexing is that this growth in on-chain volumes is entirely driven by spot trading. A similar graph of just decentralized derivative exchange volumes as a percentage of overall derivatives volumes shows a decline. Said another way, while the likes of Uniswap and Aerodrome are driving spot volumes on-chain, Binance and Deribit still dominate derivatives trading.
Elsewhere, Bitcoin (BTC) failed to outperform ETH and SOL last week, which is not something we’ve said much since 2023. Moreover, Bitcoin mining stocks also outperformed BTC last week, rising +19% on average compared to BTC's +9.3%. This outperformance came from the strong price performance and growth in BTC hash price ($50, up from $41 one month ago).
Source: TradingView and Hashrate Index
Finally, the gaming sector, which has lagged the crypto market for most of the year, got a shot in the arm last week after the Avalanche Subnet-based video game, Off the Grid, reached the top rank on the Epic Games store. Off the Grid launched across multiple platforms – Playstation, Xbox, and the Epic Games Store on PC – marking a major shift from most existing crypto games, typically only available via a web browser or mobile app. The cyberpunk-themed battle royale game features PVE (player versus environment) and PVP (player versus player) gameplay with AAA graphics and a marketplace with in-game rewards powered by the GUNZ blockchain and an associated token.
As Galaxy Digital wrote:
“Off the Grid is a differentiated implementation of blockchain technology within a video game. Unlike previous iterations of blockchain-based video games, the game itself exists offchain with in-game elements being onchain as ERC-20 tokens and non-fungible tokens (NFTs). In the game, users receive the GUN token, which is an ERC-20, and NFTs as rewards at the end of each battle royale. They can then use the GUN token to unwrap, or claim, their NFT rewards or buy other content in the game which exist as onchain tokens. In this case, the blockchain is just validating and accounting for the state, distribution, and transactions of rewards, skins, and the like, instead of the state of the game itself or the player actions within it. The issue the latter approach has is the actions of the game are constrained by the underlying blockchain, as every move made by players must invoke an onchain action that is then executed and verified. This has been a hindrance to the adoption of previous onchain video games. Off the Grid’s angle to the intersection of blockchains and video games lifts these limitations by allowing the developers to build an ordinary video game, while backing up the marketplace and “transactable” actions to a blockchain. This approach also improves upon existing in-game marketplace architecture by making rewards and collectables transferable and tradable between players. Most video games that exist today have limited transactability of rewards and collectables and lack any market dynamic of in-game earnings. This brings an additional differentiating factor to the gameplay of Off the Grid and introduces the possibility of improving transactions downstream of the game itself (e.g. payments to content creators and onboarding fiat for in-game purchases).”
Our venture PM, David Nage, provides a first-hand account of playing the game with his two sons:
“ In terms of gameplay, having tested it out for the past two weeks with my two gamer kids at home who are avid Fortnite players, the game is fun, beautifully designed, and has a fantastic backstory, creating that ever-needed aspect of lore. I've been around long enough to remember blockchain-based gaming requiring a PhD in computer science, with an instruction manual comparable to reading War and Peace. Not here. You enter the game and immediately start building out your avatar (which you own) with all of their weaponry and artifacts (that are NFT's but the user has no idea). In the first week, the PVP aspect took about two minutes to load as the matching engines in the game stack found other players to go against. Within the first two days of general public release, it went down to 30 seconds or less.”
Polymarket Versus Polls
As Ilan Solot of Marex Solutions recently told me on an episode of Two Satoshis Live, “crypto no longer suffers from an existential crisis, but rather, it now has a relevance crisis.”
Said another way, we know blockchain technology works, but what we don’t know is whether blockchain usage will be as impactful as many of us think it will be. Some of this is due to what we’ve called the crypto investing paradox, which states that technology usage is restricted by regulation, not innovation. But regardless, the fact remains that crypto usage has been somewhat underwhelming due to a lack of popular applications. There is a lot of gambling/trading, and there is a lot of stablecoin usage, but there haven’t been successful consumer-facing apps. ChatGPT, for example, reached 100 million downloads in just four days. So did the Threads app within Facebook/Meta. Nothing in crypto has come even close to this level of engagement.
This is why the excitement over Off the Grid is so high currently and why newcomers like Axie Infinity, Farcaster, OpenSea, and StepN got so much attention early on, even though none could sustain the early growth. The market is starving for a successful, long-lasting, consumer-facing crypto app.
Polymarket might be the one. The USDC-powered prediction market platform has seized outsized attention in the lead-up to the Presidential election. Polymarket’s presidential betting market alone has crossed $2 billion in total volume, though open interest remains relatively lower at $200 million across all markets. Polymarket’s breakout success in this cycle may become a template for other crypto-based applications, as the platform is accessible without a wallet (at least to use, not to transact) and utilizes blockchain technology to arbitrate disputes in a decentralized way.
It’s hard to argue that Polymarket has been a success, even though many still don’t understand the difference between prediction markets and polls. Polls indicate the number of votes, while prediction markets indicate the probability of winning. For example, out of 100 possible votes, a poll comes back split 50-50. This would equate to a 50% probability on a prediction market since it is quite literally a toss-up. But let’s say that the same poll came back 52-48, and the market viewed this poll to have a high degree of confidence. Well, even though it’s a slim margin, if you’re confident in the outcome, then a prediction market might have an 80-90% probability. It doesn’t matter how much you win by. Only the binary outcome matters for prediction markets.
The Presidential prediction market on Polymarket has moved heavily in Trump’s favor recently, which is likely responsible for the majority of the recent gains in gold, crypto, and certain sectors within the equity market.
However, the polls still indicate that this is very close.
So ultimately, both the polls and the prediction markets can be right. A very very slight recent edge in the polls for Trump in swing states could lead to a large increase in the probability of him winning come election night.
But back to crypto, it doesn’t really matter whether or not Polymarket is predictive or not. What matters is whether or not anyone still cares about Polymarket after the presidential election is over. For those who have been hearing about prediction markets for decades (like myself), consider me skeptical. Blockchain did not create prediction markets; it's simply a pretty good product built at the right time that happens to use blockchain. Further, even within crypto’s history, we’ve seen prediction markets fall by the wayside after an election. Below is the TVL of Augur, (the leading prediction market 4 years ago), and you can see how TVL fell off a cliff after the 2020 election.
Here’s hoping Polymarket has more staying power.
