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Markets continue to be dominated by the Ukraine situation, with increasing focus on the potential for commodity driven inflation, the likely monetary and fiscal response and what that could mean for risk assets. In many ways this is what Bitcoin was made for, i.e., a hedge against persistent negative real interest rates, particularly if commodity led inflationary concerns lead to the Fed rate being pushed out. Similarly, the freezing of Russian assets and the fact that western payments networks have pulled out of Russia have both served as a reminder of the value of permissionless money and decentralized finance. But clearly a stagflationary recession with the potential shock of much higher CPI prints would likely be bearish for overall risk sentiment and that narrative could well dominate. So at this point it’s difficult to see how the situation evolves, but we think it is fair to say that the tail risks, i.e., a dramatic move in either direction have grown. This is evident in options markets, with ETHUSD ATM implied volatility currently ~85% annualized, compared to 60-70% earlier in the year.

As we write, the crypto markets have slightly recovered, with bitcoin currently at $42k, from a low of $37.5k at the start of the week. This is primarily driven by an early leaked release of the President’s executive order on digital assets, which was generally supportive for crypto and emphasized the importance of the US encouraging financial innovation.

On chain analytics are showing a more mixed picture. There was a meaningful pickup in dormancy metrics early last week with bitcoin at around $44k which highlights some sell pressure from old hands, which is generally fairly bearish. Similarly, open interest has increased somewhat from the lows at the end of February and given funding rates (ie flat to negative) on perpetual futures, we are inclined to think this is primarily short side biased.

UST continues its relentless growth, adding around $150m per day on average, which has been supportive for the LUNA price, given 1 UST minted burns $1 of LUNA. Given the weak market, demand has been strong for Anchor deposits, which are now at $9.3bn vs $5bn at the start of the year. LUNA is currently trading at $99, close to its all time high of $103.

Yesterday, Avalanche announced the launch of Avalanche Multiverse, a $290m incentive program focused on accelerating the adoption and growth of subnets, with one of the initial focuses being the DeFi Kingdoms specific subnet. DeFi Kingdoms is a popular game currently on Harmony, which will be incentivized with AVAX tokens along with its native token CRYSTAL. Ava Labs also announced plans to develop a blockchain designed for institutional DeFi with native KYC functionality, in partnership with Aave, Wintermute, Jump and Golden Tree Asset Management, among others.

Lastly, Andrew Cronje, the Yearn founder announced over the weekend that he is leaving the space. This led to a sell off in YFI, although it has since largely recovered. However, Solidly Exchange, which is an exchange on Fantom that he has been instrumental in building, is currently trading at just over $2, from a peak of around $15 last week and has seen TVL down from over $2bn to $800m currently.