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Macro-related headwinds continue to reflect poorly on asset prices. Markets briefly rallied after Fed Chair Powell signalled that a 75bp rate hike is not being “actively considered” by central bank officials after last week’s FOMC meeting. However, this dovish commentary was not enough to curb negative sentiment as crypto and equity prices have experienced a significant sell-off over the course of the last week due to a multitude of geopolitical and economic factors. Along with a 50bp rate hike, the Fed unveiled its plan to reduce its balance sheet holdings by a maximum of $95bn per month, the largest quantitative tightening program in history. April’s CPI print also came in this morning at 8.3%, higher than what was expected but lower than March’s CPI of 8.5% and this caused a further sell off in crypto markets.

The most profound crypto-specific topic circulating through the industry is the de-pegging of UST. UST is a stablecoin backed by LUNA, the Terra blockchain’s native token. To support the backing of UST, the Luna Foundation Guard began to accumulate billions worth of BTC in their treasury reserves. On Saturday May 7^th^, UST’s peg began to deviate from parity due to large UST exits on the Curve 3pool. LFG and other large institutions stepped in to defend the peg, but Monday’s volatility made the situation increasingly worse, as at one point, UST dipped all the way to ~$0.60.

In response to Monday’s events, the Luna Foundation Guard moved 42,350 BTC ($1.3bn notional) from their treasury reserve wallet, and introduced a plan to loan $750mn to OTC trading firms to defend the peg. LUNA’s price continued to fall as it transpired that a capital raise had failed and as such, LUNA reached a low of ~$0.80 on early Wednesday, down over 99% from its all time high of $119.18.

In the Ethereum space, there has not been much additional color surrounding a potential delay of the merge, and we remain optimistic that the merge will be on track for mid-late Q3. Given the volatility affecting the broader market, it is not surprising that Ethereum TVL is down ~15% in the last 7 days, however, the amount of ETH staked on the beacon chain continues to increase steadily, and currently sits at 11.3m ETH ($26.6bn notional).

Hop Protocol, which is a bridge between Ethereum, sidechains, and L2s announced over the weekend that they will be doing an airdrop for early users. This follows the recent announcement of the Optimism token airdrop. Layer 2 and interoperability protocols continue to attract more attention, and as more continue to launch and airdrop tokens, we believe that increased activity on these protocols will accrue a significant amount of value back to the Ethereum ecosystem.