- Market makers on a Solana-based alternate are answerable for the blockchain’s hovering stablecoin metric.
- A Phoenix contributor says stablecoin switch quantity is “not indicator of financial exercise.”
- Solana co-founder additionally requires readability in stablecoin knowledge.
At first of December, one thing sudden began occurring on the Solana blockchain. The switch quantity of stablecoins began rising quickly.
In lower than eight weeks, the metric ballooned from round $33 billion to over $144 billion — a 336% enhance.
The sudden rise in stablecoin transfers on Solana, unprecedented within the historical past of DeFi, was lauded by Solana’s neighborhood. Blockchain analysts from Sphere used the metric in post comparing stablecoin trading volume to that of Visa transfers.
However based on Eugene Chen, co-founder of Ellipsis Labs, a core contributor to decentralised alternate Phoenix, the hovering stablecoin switch metric doesn’t point out what many individuals suppose it does.
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“The metric could also be appropriate, however it isn’t indicator of financial exercise,” Chen instructed DL Information.
Chen confirmed that almost all of final week’s $144 billion switch quantity got here from the Solana-based Phoenix alternate.
Phoenix requires customers to deposit belongings earlier than putting orders on its markets. These deposits depart a document on the blockchain, and are inclined to getting lumped in with knowledge exhibiting precise stablecoin trades.
On the floor, it could seem that the rise in stablecoin switch quantity comes from the creation and cancellation of commerce orders — just like high-frequency buying and selling in conventional finance.
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On this case, nonetheless, it’s truly market makers depositing funds into particular markets on Phoenix, which is important earlier than they will place commerce orders on them.
The result’s that as exercise on Phoenix grew in latest weeks, so did Solana’s stablecoin switch quantity.
Analysts who have been unaware of how Phoenix labored assumed that Solana’s stablecoin switch quantity equated to its stablecoin buying and selling quantity — actual trades between two counterparties — when it didn’t.
DefiLlama knowledge reveals that Phoenix settled $670 million worth of trades within the week ending January 28.
Onchain stablecoin buying and selling volumes is a widely-watched metric. Analysts view it as a robust heuristic for high quality exercise as a result of it represents actual greenback equivalents moved round on a blockchain, somewhat than risky, unbacked tokens.
The metric is most helpful on blockchains with a considerable transaction payment — like Ethereum — as a result of it implies these trades are prone to characterize actual financial exercise.
‘A typical market-making sample’
In accordance with Chen, the explanation Phoenix is answerable for an outsized quantity of Solana switch quantity is due to the exercise of market makers on the alternate.
He described “a typical market-making sample” the place market makers repeatedly deposit and withdraw belongings from totally different markets on Phoenix so as to place restrict orders.
“None of that is buying and selling quantity, however as a result of it occurs very often it creates lots of token switch quantity,” Chen mentioned.
Such market-maker behaviour isn’t restricted to onchain exchanges like Phoenix.
In markets together with shares, currencies, and commodities, market makers each purchase and promote securities at aggressive costs — appearing as considerably of a wholesaler. The market maker earnings by exploiting value gaps with laser precision — lots of of algorithmic trades that may occur within the blink of a watch. Buyers profit as a result of such buying and selling exercise creates plenty of counterparties, giving them a larger capability to shortly purchase or promote a safety, particularly in giant chunks.
And as Wintermute CEO Evgeny Gaevoy instructed DL Information in an interview last year, crypto market making exercise is comparable.
“These are actual USDC token transfers, creating actual USDC switch quantity, however with little-to-no financial exercise related to them,” Chen mentioned.
The confusion arises when analysts, resembling these at Sphere, evaluate Solana’s stablecoin switch quantity — which incorporates 1000’s of onchain transfers from market makers — with that of different blockchains the place such exercise isn’t recorded onchain.
This can provide the misunderstanding that Solana customers are buying and selling many extra stablecoins than they really are.
For Solana, ensuring folks don’t overestimate the blockchain’s exercise metrics is vital. Solana co-founder Anatoly Yakovenko wrote in an X post dialog in regards to the problem:
“Pls filter out the [market-maker] transfers.”
Tim Craig is DL Information’ Edinburgh-based DeFi Correspondent. Attain out with suggestions at email@example.com.