First Mover Asia: Crypto Liquidity Providers Can Be Profitable by Considering Trade Volume, Volatility and Other Factors, Data Firm Says

Good morning. Here’s what’s happening:

Prices: Ether holds near $1.9K ahead of the Shanghai upgrade; bitcoin hovers near $28K.

Insights: Becoming a successful crypto liquidity provider requires an active approach that considers trade volume, volatility and other factors.

Prices

CoinDesk Market Index (CMI) 1,226 −15.3 ▼ 1.2% Bitcoin (BTC) $27,908 −686.5 ▼ 2.4% Ethereum (ETH) $1,891 −19.3 ▼ 1.0% S&P 500 4,090.38 −10.2 ▼ 0.2% Gold $2,031 +8.4 ▲ 0.4% Nikkei 225 27,813.26 −474.2 ▼ 1.7% BTC/ETH prices per CoinDesk Indices, as of 7 a.m. ET (11 a.m. UTC)CoinDesk Market Index (CMI) 1,226 −15.3 ▼ 1.2% Bitcoin (BTC) $27,908 −686.5 ▼ 2.4% Ethereum (ETH) $1,891 −19.3 ▼ 1.0% S&P 500 4,090.38 −10.2 ▼ 0.2% Gold $2,031 +8.4 ▲ 0.4% Nikkei 225 27,813.26 −474.2 ▼ 1.7% BTC/ETH prices per CoinDesk Indices, as of 7 a.m. ET (11 a.m. UTC)

Ether Inches Down but Bests Bitcoin

Ether (ETH)dropped on Thursday but continued this week's trend of outperforming bitcoin (BTC).

The second-largest cryptocurrency was recently holding steady a few dollars shy of the $1,900 perch it assumed Wednesday, down 1% over the past 24 hours, but up more than 5% from the start of the week when it was lingering below $1,800.

Investors seem increasingly enamored by the Shanghai hard fork, which is slated to occur on April 12. The upgrade, also called Shapella, will mark the completion of Ethereum’s full transition to a proof-of-stake (PoS) network and enable staked ETH withdrawals.

"This hard fork will allow people to withdraw from their validator balance into their Ethereum balance, which is great for increased liquidity across the market and accessibility for those that trade in staked ether," Victoria Bills, chief investment strategist at financial services firm Banrion Capital Management, told CoinDesk TV's "First Mover" program. "And one thing that we can probably expect from that is an increase in activity across the chain when it comes to Ethereum."

To be sure, some ether observers say the impending unlocking of ETH deposited in the network to boost security in return for rewards will spur a rush of token liquidations. But others maintain that the event could prove bullish for ether because staking and capturing yields directly from the blockchain will become more accessible.

"This is an amazing opportunity for ether and even has shown for its year-to-date high up," Bills said. "As it continues to become more of liquid and more accessible, we'll probably be seeing a lot more of that asset being traded."

Bitcoin recently dipped below $28,000, off about 2.2%, after spending much of the day above this threshold as it has for most of the last three weeks. The largest cryptocurrency in market capitalization has held steady as investors ponder multiple signs of economic contraction and potential aftershocks of the recent banking crisis.

Other major cryptos were recently in the red, albeit lightly shaded. Popular meme coin DOGE, a big winner after Twitter replaced its blue bird logo atop its homepage with the crypto's Shiba Inu dog emblem, tumbled more than 4.5%.

Equity markets closed mixed, with the Dow Jones Industrial Average (DJIA) ticking up but the tech-heavy Nasdaq and S&P 500 dropped 1% and 0.2%, respectively.

Banrion's Bills noted that bitcoin's price has steadied as the banking turbulence has subsided. "Bitcoin had a shoot-up through the roof when we had a lot of turmoil, and then we're seeing it kind of come back to a more steady state around $28K," she said.

Insights

The Keys to Becoming a Successful Crypto Liquidity Provider

A new research report that crypto data firm Amberdata shared with CoinDesk says that providing token liquidity to decentralized finance (DeFi) applications could be more lucrative than simply holding those tokens.

Liquidity providers (LP) are investors who stake their cryptocurrency tokens on decentralized exchanges (DEX) to earn transaction fees, usually in the form of token rewards. Providing liquidity to crypto markets remains a key pillar of the ecosystem – with tens of billions of dollars supplied by users to smart contracts.

But becoming a successful liquidity provider is not as simple as passively depositing assets into a pool and waiting to earn a profit. LPs must address dreaded impermanent loss, smart contract risks and exploits.

The Amberdata report provided a detailed analysis of four Uniswap version (v)2 pools, focusing on their behavior and performance metrics.

The analysis compared the dai (DAI) and ether (ETH) with the ether and USD coin (USDC) pools, which both involve trading ETH against a stablecoin. It also compared the DAI and USDC liquidity pair with a DAI and tether (USDT) pair, which involves trading different stablecoins against each other.

The report found there were significant differences in the capital efficiency and profitability of Uniswap v2 pools. The ETH/USDC pool had higher capital efficiency compared to the DAI/ETH pool, while the DAI/USDT pool had significantly higher capital efficiency than the DAI/USDC pool.

This was due to differences in liquidity among stablecoin pairs that could be attributed to factors such as market demand, availability and investor sentiment.

The demand for a particular stablecoin as a trading pair can influence the liquidity and trading volume in a pool, and therefore impact capital efficiency and profitability.

Additionally, investor sentiment toward a particular stablecoin, such as trust in its stability or market performance, can also impact liquidity and trading volume.

For traders interested in providing liquidity, Amberdata said the factors to consider are the total value locked (TVL) of a pair, the number of trades, or trading volume, per day of the pair, and the characteristics and volatility of the asset itself.

“Our final takeaway is that providing liquidity on Uniswap v2 may be a profitable strategy for those who are looking for a safer way to hold crypto assets,” Amberdata analysts said. “LP strategies perform well in choppy market conditions and do not have significant differences from holding the assets during upward and downward trends.”

Biggest Gainers

Asset Ticker Returns DACS Sector Cosmos ATOM +1.1% Smart Contract Platform Decentraland MANA +0.2% Entertainment

Biggest Losers

Asset Ticker Returns DACS Sector Dogecoin DOGE −5.3% Currency Chainlink LINK −3.1% Computing Polkadot DOT −3.0% Smart Contract Platform

Important events

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8:30 p.m. HKT/SGT(12:30 UTC) Canada Unemployment Rate (March)

7:50 a.m. HKT/SGT(23:50 UTC) Japan Overall Household Spending (YoY/February)

CoinDesk TV

In case you missed it, here is the most recent episode of "First Mover" on CoinDesk TV:

Ether Jumps to Nine-Month High Ahead of Shapella; Citi's Future of Finance Global Head on CBDCs

"First Mover" dove into the crypto markets ahead of Shapella, a portmanteau of Shanghai and Capella, two major Ethereum network upgrades expected to occur simultaneously on April 12. Victoria Bills, Banrion Capital Management's chief investment strategist, joined the conversation. Ronit Ghose, future of finance global head at Citi, explained why the potential of blockchain will be measured in billions of users and trillions of dollars in value. Plus, Komainu CEO Nicolas Bertrand discussed the cryptocurrency custody joint venture of Nomura, Ledger and CoinShares.

Headlines

Happy 48th Birthday, Satoshi Nakamoto: We love you but we don’t miss you.

CoinDesk’s Ethereum Validator Enters Final Weeks, Sitting on More Than $30K of Gains: To better chronicle the Ethereum blockchain's transition to a proof-of-stake network, CoinDesk started its own validator. We plunked down the 32 ETH (roughly $15K at the time) and laid the technical groundwork. With staking withdrawals due to start April 12, we take stock of the project.

Dogecoin Futures Set Record After Twitter Adopts Token's Dog Logo: Open interest, which can be used to determine market strength behind price trends, jumped to all-time highs in dogecoin terms.

Developers Fork Uniswap V3, Protocol Attracts $123M in Total Value Locked: The majority of value is locked on Binance Smart Chain (BSC).

Ethereum's Shanghai Upgrade Could Bring $2.4B Selling Pressure to Ether, Observers: The 1 million instantly withdrawable ether has become a point of concern for the market.