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How Did the Market React to Curve’s $62M Exploit, After ~70% Returned?
The Curve exploit, and the fear of a DeFi contagion took a toll on investor sentiment over the past week. In a quick turn of events, the hacker returned around 70% of the $62M they stole from one of the industry’s largest decentralized exchanges, exploiting code vulnerabilities in the programming language used by Curve. While Bitcoin and Ethereum fell by 0.19% and 1.63%, respectively, over the past week, the biggest gainer was indeed Curve (+7.57%) on the back of the returned funds. While it hasn’t fully recovered yet, a 25.47% jump in total value locked indicates that most stolen funds are back and haven’t been moved off-chain.
Figure 1: Weekly Price and TVL Developments of Cryptoassets in Major Sectors
Source: 21Shares, CoinGecko, DeFi Llama. Close data as of August 7, 2023.
3 Things to Remember in Markets this Week:
• Arbitrum Decentralizes its Validation Technology
Arbitrum, a leading scaling solution for Ethereum, has introduced Bounded Liquidity Delay (BOLD) software. BOLD decentralizes validation by enabling anyone to submit fraud proofs, contest transaction validity, and enhance dispute resolution. While Optimistic Rollup scaling solutions, like Arbitrum, introduce a 7-day validation challenge delay, they remain susceptible to flooding attacks due to the previous model’s central validator. A flaw that could sometimes lead to prolonged withdrawal delays is why BOLD significantly advances Ethereum’s scaling decentralization as it finally sets a fixed, not probable, upper bound of seven days on the time taken to contest transactions. Finally, Arbitrum recorded the most newly deployed contracts on the day of launch. Thus, we’ll closely monitor the true impact on Arbitrum’s ecosystem growth and its influence on similarly-designed scaling solutions.
Figure 2: Total of Arbitrum Contracts Created
Source: @HenryStats on Dune
• Tether’s Flight to BTC
The issuer behind the US-denominated stablecoin has become the 11th largest holder of Bitcoin. Following their announced plans to convert surplus profits into BTC, Tether has accumulated 55K units of Bitcoin, amounting to ~$1.6B in market value. Per its latest attestation report published last week, the company’s excess reserves increased by ~$800M over Q2, bringing the total to $3.3B. This is a significant development to watch closely, given that Tether’s decision boosts Bitcoin’s demand for corporate treasury management.
Conversely, Tether should convert surplus BTC and treasury profits into cash to fortify the company’s resilience against unforeseen challenges and furnish the necessary capital for swift deployment in potential bank run scenarios especially as their current cash reserves were significantly reduced to $90 million from $5.3 billion in December 2022, which is not preferable for a stablecoin with a $85B market cap, despite their access to several other liquid instruments like US treasuries, REPOs, and money market funds. Finally, although the address hasn’t been personally confirmed by Tether, the wallet holdings do match the quarterly holdings of the issuer.
Figure 3: Tether’s Potential BTC Holdings
Source: 21.co on Dune
• Worldcoin Under Scrutiny
On July 24, OpenAI’s CEO Sam Altman launched Worldcoin, a decentralized identity verification solution built on Optimism that requires users to scan their irises to obtain an online ID.
Worldcoin’s motive bodes well at first glance. However, collecting biometric data from the masses has been scrutinized by the community, especially since they started with users from developing countries like Kenya. Though, the country’s privacy regulations allow the data collection practices adopted by Worldcoin, which was how the company collected an undisclosed number of iris scans from Kenya out of the over 2.2M collected worldwide. On August 2, the Communications Authority of Kenya published a statement listing five privacy concerns, including questions on the security and storage of the collected biometric data and obtaining data subjects’ consent in return for monetary reward. The authority ordered Worldcoin to cease its data collection practices until further notice.
In France, the privacy authority told the media that it is aware that Worldcoin collected biometric data and has initiated investigations into the matter. Many other countries from the developed world, including UK and Germany, are closely monitoring the project; some have even been investigating it since November 2022. Despite the regulatory push-back, Worldcoin’s adoption is still on the rise, as shown below. Altman still hopes to work with regulators to expand Worldcoin’s services to governments and companies while reassuring that the data collected is preserved by a zero-knowledge (ZK) proof verification mechanism.
Figure 4: Worldcoin Adoption
Source: @21co on Dune
What You Should Pay Attention To
• More TradFi Web2 Players Are Entering the Stablecoin Space
Paypal partnered with stablecoin issuer Paxos to launch their USD-pegged stablecoin, PYUSD, built on Ethereum and fully backed by U.S. dollar deposits, short-term U.S. treasuries, and similar cash equivalents. According to the press release, eligible U.S. customers will be able to pay for their purchases using PYUSD in the same manner that Gnosis Pay announced it would empower European customers to pay for their purchases with Monerium’s euro-pegged stablecoin (EURe) via its Visa card, with a convergence mechanism running in the backend. This trend aims to boost mass adoption by solving two ailing issues stifling the industry by providing users with a familiar user interface while complying with regulations. Moreover, onboarding more traditional players from the second generation of the internet shows the institutional appetite for the stablecoin subsector, whose market cap is valued at $124.5B, with USDT dominating by 67%. More traditional players, especially those with existing tools to their advantage, will likely follow suit, aiming to topple this dominance in their favor. In the grand scheme of things, the more regulated players in the space, the healthier the market.
• The Ramification of the Curve Hack
The top stablecoin DEX was exploited, resulting in an initial loss of $62 million. The vulnerability, termed a reentrancy attack, stems from an Ethereum programming language named Vyper. This flaw enabled the attacker to repetitively trigger the withdrawal function, bypassing safeguards and ultimately draining all assets from the four impacted pools, leaving them fully depleted. The hacker has since returned 73% of the stolen funds while retaining $18 million tied to CRV/ETH, one of the four affected pools.
Figure 5: Curve’s Hacker Balance on CRV/ETH
Source: @21shares on Dune
Fortunately, the security bug was limited to three specific versions, so the damage was relatively contained. That said, despite the hack not severely impacting the DEX, it calls into question the reliability of DeFi’s risk management practices. For context, Curve’s founder Michael Egorosv, owned close to ~35% of the token’s circulating supply, which he then used to secure several loans on the three largest lending protocols. Thus, even though the hacker didn’t hold a substantial amount of CRV, his selling of the token, under last week’s thin liquidity conditions, would have triggered a chain of liquidations starting with Michael’s $85M loan backed by 168M units of CRV. Although Michael has been increasing his margin over the past week and raising it to ~$57M via selling CRV over the counter to dampen the market impact and help mitigate the contagion, the true market implications of the exploit will still linger.
Figure 6: Total amount of CRV sold via OTC by Curve Founder
Source: @0xramen on Dune
Thus, we anticipate lending protocols to reduce the debt ceiling for supplying CRV in order to avoid accruing bad debt in the interim and until the supply of CRV is further diluted. Finally, the broader lending segment could pivot towards a dynamic interest rate model that adjusts automatically to extreme market movement, inspired by Frax’s V2 design, combined with isolated lending markets which confine risk to singular assets.
Bookmarks:
• Our Dune dashboard, along with our researcher Tom Wan’s insights, was mentioned in The Block’s report about Tether. Read here.
• Check out our Dune dashboard, tracking Worldcoin’s airdrop and adoption metrics, here.
• Top 5 Trends in Crypto: User Experience Improvements, Scaling Solutions, and More. Watch here.
• Our latest issue of Cryptoassets of the Month: Find out the biggest gainers of July. Read here.
Next Week’s Calendar
These are the top 3 events we’re monitoring for next week.
• August 9th: Coinbase’s scaling solution, Base, goes live on Mainnet
• August 10th: Next US CPI print
• August 13th: Next deadline for SEC on ARK Spot ETF
Source: Forex Factory
Research Newsletter
Each week the 21Shares Research team will publish our data-driven insights into the crypto asset world through this newsletter. Please direct any comments, questions, and words of feedback to research@21shares.com
Disclaimer
The information provided does not constitute a prospectus or other offering material and does not contain or constitute an offer to sell or a solicitation of any offer to buy securities in any jurisdiction. Some of the information published herein may contain forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content hereof.
2024 was a landmark year for bitcoin, solidifying its role as a fully institutionalised asset class.
Institutional inflows into physical bitcoin exchange-traded products (ETPs) reached nearly $35 billion globally, signalling a major shift in how traditional investors view crypto. As bitcoin continued to enhance portfolios’ risk-return profiles, more institutional investors followed suit, reshaping the financial landscape.
Looking ahead, 2025 promises to bring exciting developments across the crypto ecosystem. Here are the top five crypto trends to watch.
Fear of being left behind
The era of bitcoin as a niche investment is over. Institutional adoption is creating a ripple effect, forcing hesitant players to reconsider. Portfolios with bitcoin allocations are consistently outperforming those without, highlighting its growing importance.
Figure 1: Bitcoin in a multi-asset portfolio
| 60/40 Global Portfolio | 1% Bitcoin Portfolio | 3% Bitcoin Portfolio | 5% Bitcoin Portfolio | 10% Bitcoin Portfolio | MSCI AC World | Bloomberg Multiverse | Bitcoin | |
| Annualised Return | 5.77% | 6.46% | 7.83% | 9.20% | 12.57% | 9.07% | 0.56% | 56.24% |
| Volatility | 8.79% | 8.86% | 9.14% | 9.62% | 11.42% | 13.94% | 5.05% | 67.28% |
| Sharpe Ratio | 0.48 | 0.55 | 0.68 | 0.79 | 0.96 | 0.54 | -0.20 | 0.81 |
| Information Ratio | 1.01 | 1.01 | 1.01 | 1.00 | ||||
| Beta | 70% | 71% | 73% | 75% | 81% | 100% | 24% | 181% |
Source: Bloomberg, WisdomTree. From 31 December 2013 to 30 November 2024. In USD. Based on daily returns. The 60/40 Global Portfolio is composed of 60% MSCI All Country World and 40% Bloomberg Multiverse. You cannot invest directly in an index. Historical performance is not an indication of future performance and any investment may go down in value.
With bitcoin’s ability to noticeably improve portfolios’ risk-return profiles, asset managers face a clear choice: integrate bitcoin into multi-asset portfolios or risk falling behind in a rapidly evolving financial landscape. In 2025, expect the competition to heat up as clients demand exposure to this powerhouse cryptocurrency.
Expanding crypto investment options
In 2024, regulatory breakthroughs opened the doors for physical bitcoin and ether ETPs in key developed markets. This marked a critical step towards making cryptocurrencies mainstream, providing seamless access to institutional and retail investors alike.
Figure 2: Global physical crypto ETP assets under management (AUM) and 2024 net flows
Source: Bloomberg, WisdomTree. 02 January 2025. Historical performance is not an indication of future performance and any investment may go down in value.
In 2025, this momentum is expected to accelerate as the crypto regulatory environment becomes more friendly in the United States and as key developed markets follow Europe’s lead and approve ETPs for altcoins such as Solana and XRP. With their clear utility and growing adoption, these altcoins are strong candidates for institutional investment vehicles.
This next wave of altcoin ETPs will expand the diversity of crypto investment opportunities and further integrate cryptocurrencies into the global financial system.
The maturing of Ethereum’s layer-2 ecosystem
Ethereum’s role as the backbone of decentralised finance (DeFi), non-fungible tokens (NFTs), and Web3 is unmatched, but its scalability challenges remain a hurdle. Layer-2 solutions—technologies such as Arbitrum and Optimism—are transforming Ethereum’s scalability and usability by enabling faster, cheaper transactions.
In 2025, Ethereum’s recent upgrades, such as Proto-Danksharding (introduced in the ‘Dencun’ upgrade), will drive layer-2 adoption even further. Innovations like Visa’s layer-2 payment platform leveraging Ethereum for instant cross-border transactions will underscore the platform’s evolution.
Expect Ethereum’s layer-2 ecosystem to power real-world use cases ranging from tokenized assets to decentralised gaming, positioning it as the infrastructure of a truly scalable digital economy.
Stablecoins: bridging finance and blockchain
Stablecoins are becoming indispensable to the global financial system, offering the stability of traditional assets with the efficiency of blockchain. Platforms such as Ethereum dominate the stablecoin landscape, hosting stablecoin giants Tether (USDT) and USD Coin (USDC), which facilitate billions in daily transactions.
Figure 3: Key stablecoin chains
Source: Artemis Terminal, WisdomTree. 05 January 2025. Historical performance is not an indication of future performance and any investment may go down in value.
As we move into 2025, stablecoins will increasingly interact with blockchain ecosystems such as Solana and XRP. Solana’s high-speed, low-cost infrastructure makes it ideal for stablecoin payments and remittances, while XRP Ledger’s focus on cross-border efficiency positions it as a leader in global settlements. With institutional adoption rising and DeFi applications booming, stablecoins will serve as the backbone of a seamless, interconnected financial ecosystem.
Tokenization: redefining ownership and revolutionising finance
Tokenization is set to redefine how we think about ownership and value. By converting tangible assets like real estate, commodities, stocks, and art into digital tokens, tokenization breaks down barriers to entry and creates unprecedented liquidity.
In 2025, tokenization will expand dramatically, empowering investors to own fractions of high-value assets. Platforms such as Paxos Gold and AspenCoin are already showcasing how tokenization can revolutionize markets for gold and luxury real estate. The integration of tokenized assets into DeFi will unlock new financial opportunities, such as using tokenized real estate as collateral for loans. As tokenization matures, it will transform industries ranging from private equity to venture capital, creating a more inclusive and efficient financial system.
For the avoidance of any doubt, tokenization complements crypto by expanding the use cases of blockchain to include real-world applications.
Looking ahead
2025 is set to be a defining year for crypto, as innovation, regulation, and adoption converge. Whether it is bitcoin cementing its position as a portfolio staple, Ethereum scaling for mainstream use, or tokenization unlocking liquidity in untapped markets, the crypto ecosystem is poised for explosive growth. For investors and institutions alike, the opportunities have never been clearer or more compelling.
This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
On January 20, 2025, bitcoin (BTC) reached a new all-time high, surpassing $109,000, and this milestone coincided with Donald Trump’s inauguration for his second term as U.S. President.
Historical trends show that BTC has performed exceptionally well in the 12 months following the past three U.S. elections. If history repeats, this could signal another bullish phase. With Trump’s pro-BTC stance and a U.S. Congress aligned on favorable digital regulation, the outlook for the coming months appears highly promising.
Source: Hashdex Research with data from Messari (from November 6, 2012 to January 19, 2025).
MARKET HIGHLIGHTS | Jan 13 2025 – Jan 19 2025
Bitcoin-backed loans enabled on Coinbase’s L2
• Now customers can borrow USDC in the new base’s lending protocol by using bitcoin as collateral.
• This underscores the importance of onchain innovations as the pillar for future adoption of blockchain technology, in this case enhancing personal finance to be more decentralized and intuitive in a permissionless etho..
ETF filings reiterate bullish regulatory tailwinds
• As Donald Trump’s inauguration approaches, several asset managers have filed applications for new crypto ETF products, including those focused on assets like LTC and XRP.
• This reflects optimism for 2025’s crypto regulations and their potential to transform the regulated products landscape.
Trump to make crypto top priority in US agenda
• U.S. President-elect Donald Trump allegedly plans to issue an executive order making crypto a national policy priority and establishing an advisory council.
• The announcement signals that crypto has gained political importance. Even if not all promises are met, crypto has already crossed the chasm.
MARKET METRICS
The Nasdaq Crypto Index™
This week saw a significant rise in digital assets as the market awaits Trump’s inauguration, with the NCI™ (+15.3%) outperforming all traditional asset classes. The NCI™ (+13.2%) also outperformed BTC (+12.1%), highlighting the value of diversification in a volatile market. The performance was positively impacted by SOL’s strong 46.3% gain, while ETH’s underwhelming 3.0% growth had a dampening effect.
Source: Hashdex Research with data from CF Benchmarks and Bloomberg (from December 31, 2024 to January 19, 2025).
It was a strong week for the NCI™ , with SOL leading the pack (among others, like XRP and LINK), surging 46.3%, while BTC (12.1%) and ETH (3.0%) lagged behind. This price action seems driven by excitement around Trump’s inauguration and the crypto-friendly environment his promises suggest.
Source: Hashdex Research with data from Messari (from January 12, 2025 to January 19, 2025).
Indices tracked by Hashdex
Source: Hashdex Research with data from CF Benchmarks and Vinter (from January 19, 2024 to January 19, 2025).
5 crypto trends to watch in 2025
FGLR ETF gör hållbara investeringar i hela världen
Trump’s inauguration day, BTC all-time high and the US election bullish effect
AXA IM antar SDR-märkningar för tre aktiefonder i Storbritannien
HSDD ETF köper aktier i hållbara företag från den utvecklade världen
De mest eftersökta ETFerna i december 2024
Post-election rally cools at year end
De bästa ETFerna för värdeaktier
BlackRock slår rekord med lanseringen av bitcoin ETF
Hector McNeil kommenterar Trumps krav på Natos försvarsutgifter
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Nyheter3 veckor sedanDe mest eftersökta ETFerna i december 2024
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Nyheter3 veckor sedanDe bästa ETFerna för värdeaktier
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Nyheter2 veckor sedanPost-election rally cools at year end
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Nyheter3 veckor sedanBlackRock slår rekord med lanseringen av bitcoin ETF
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Nyheter3 veckor sedanHector McNeil kommenterar Trumps krav på Natos försvarsutgifter
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Nyheter3 veckor sedanBuffertstrategin på Nasdaq-100 med december 2024/2025 som ny målperiod
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Nyheter4 veckor sedanValour PYTH SEK spårar priset på kryptovalutan PYTH
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Nyheter1 vecka sedanHANetfs Tom Bailey om utsikterna för koppar och uran
