Can Solana Bounce Back?
Dear Bankless Nation,
This month's surprise XRP ruling gave a welcome boost to altcoins hamstrung by SEC aggression. One of the biggest winners was Solana, which catapulted in value in the immediate aftermath of the summary judgment and is still up nearly 20% month-over-month during a time when the overall crypto market cap contracted.
This month, our analyst team gave their takes on the future performance of SOL, LYRA, PENDLE and XRP! View everything in the Bankless Token Hub, available exclusively to Citizens! 📊
- Bankless team
Token Hub | August 2023 Update
In the Bankless Token Hub, our analyst team has amassed coverage of dozens of noteworthy crypto assets, analyzing on-chain and off-chain data to assess whether we're bullish, bearish or neutral on the token's future performance.
If you dig into Token Hub, you can also see where we're placing our bets via Bankless Bags, our internal investment club that provides skin in the game for our calls by taking long positions in what we feel are the highest upside “Bullish” tokens.
Token Hub is updated throughout the month, meaning that Bankless premium subscribers get access to coverage initiations and ratings changes in real time.
Without further ado... the token ratings!
🟣 Solana (SOL)
- Type: Ratings Upgrade
- Risk Rating: Low
- Sector: L1
- Current FDV: $12.9B
We’re upgrading our rating of Solana from neutral to bullish.
After suffering with a TVL that managed to do nothing other than fall throughout 2022, Solana managed to increase this metric by 50% ($102M) during the first half of 2023. While Solana remains dwarfed by its primary L1 competitors (e.g.; ETH, TRX, and BNB), the ecosystem’s impressive growth in TVL mimics the relative success of Ethereum’s L2s.
Q3 has been off to an especially fruitful start for the Solana ecosystem, which has enjoyed a 14.1% increase ($38M) in TVL in the start of July alone, with renewed excitement emerging for select Solana DeFi projects.
Jito, a Solana LSD project tapping into MEV, and marginfi, a borrow/lend platform, are two examples of Solana DeFi protocols that have witnessed explosive growth in July. The two protocols have seen their TVLs increasing by a respective 86% ($11.9M) and 481% ($14.8M) just this month!
With the impending launch of Firedancer, a client from Jump Crypto that promises to massively boost Solana’s throughput to 1M transactions per second, there also exists a potentially bullish technical unlock for the ecosystem to achieve 👀
Encouraging signs of life are emerging from Solana’s DeFi ecosystem at an inflection point where the chain walks the razor’s edge between high performance EVM alternative of the future and discarded alt-L1 of a cycle past.
Over the past month, Solana-native protocols have demonstrated that while the ecosystem’s liquidity is constrained, enough is present for projects to break out! We expect Solana’s TVL growth to continue to outpace that of Ethereum and we anticipate SOL price will appreciate further relative to ETH in the near term.
🟢 Lyra (LYRA)
- Type: Initiation
- Risk Rating: Medium
- Sector: DeFi
- Current FDV: $64.4M
We’re initiating coverage of Lyra Finance with a rating of bullish.
Due to substantial improvements for the Lyra protocol and token proposed in the team’s V2 vision, we’re initiating coverage of LYRA with a rating of bullish.
Lyra has long been one of the easiest ways for degens to permissionlessly access crypto options, but the protocol is now moving to provide a comprehensive exchange experience by offering spot and perpetual trading markets. Settlement will be facilitated on Lyra Chain, an OP Stack rollup providing high throughput and low costs. Under a new tokenomic scheme, LYRA holders will receive trading fees, liquidation fees, interest rate spreads, and 50% of gas fees generated.
Despite the high historical profitability of providing liquidity on Lyra – flagship ETH LP pools have averaged 6-8% in real yield over the past 1.5 years – options must be fully collateralized, a requirement that makes the Lyra AMM highly capital inefficient. To combat this, Lyra V2 options writers can take advantage of portfolio margin. This feature will increase liquidity per dollar of TVL and allow Lyra V2 to support current volumes with less than 7% of its current TVL!
Spot and perpetual trading volumes have migrated onchain in 2023 after many in crypto lost faith in centralized actors after the implosions of the year prior. Lyra may be a slightly longer-term play, as significant token price appreciation versus ETH will likely not occur until V2 launches, but the protocol is positioning itself to take advantage of this trend and establish itself as a clear leader in the crypto options space.
⚫️ XRP (XRP)
- Type: Initiation
- Risk Rating: High
- Sector: L1
- Current FDV: $66.5B
We’re initiating coverage on XRP with a rating of bearish.
In a monumental legal decision, the Court presiding over the SEC v. Ripple Labs case ruled that XRP, as a digital token, is not a contract, transaction, or scheme, a prerequisite needed to satisfy the Howey Test -- and is therefore not an investment contract! Now crypto’s attention rests squarely on XRP.
While the chain boasts an orderbook-based DEX, it is just now moving to construct an AMM that will allow users to passively provide liquidity. Hooks are an upcoming improvement that should provide for some further developer programmability, but offer extremely limited functionality. An EVM sidechain under development by Peersyst is serving as a proof of concept for bringing smart contracts to the XRPL, offering some amount of hope that the network may eventually move to implement them.
Much of the activity to supplant traditional payments rails in the XRP ecosystem is carried out by Ripple Labs. Through RippleNet, a closed network of banks and financial institutions can access liquidity on cross-border transactions and crypto assets with Ripple’s “On-Demand Liquidity.” The firm claims to be in conversations with over 20 countries on their CBDC plans and recently enhanced its CBDC platform and the Central Bank of Columbia recently announced a partnership with Ripple to enhance its high-value payments system.
While XRP was an easy ticker for hot money to ape, the logic applied by the Court separating the underlying asset from the transaction schemes in which it was offered should extend to the context of other crypto assets. We believe that XRP is overbought relative to other crypto assets and should struggle to continue to outperform ETH.
Despite the victory for the broader crypto industry, Ripple Labs remains in hot water! The issue of Ripple’s institutional sales must proceed to trial, where the SEC will seek to clawback illegally raised funds and prohibit Ripple from selling or offering XRP to any entity or person. Should the SEC get its way, Ripple Labs, the XRP ecosystem’s champion at the infrastructure and TradFi partnership levels, would no longer have economic incentives to continue developing use cases for XRP. We see a substantially higher risk in XRP due to key party dependencies compared to more decentralized L1 tokens that derive their success from the development efforts of independent groups.
The XRPL is unable to compete with the programmability offered by smart contract L1s like Ethereum and Solana. From a technical perspective, there is little exciting development coming down the pipe for XRP at the L1. It will be difficult for the XRPL to attract and retain a user base if the chain continues in failing to provide them with anything to do.
While XRP witnessed a momentary breakout catalyzed by a monumental legal decision, we expect the rally to be short lived and anticipate XRP/ETH resumes its longer-term trend downwards.
⚫️ Pendle Finance (PENDLE)
- Type: Initiation
- Risk Rating: Medium
- Sector: DeFi
- Current FDV: $178.2M
We’re initiating coverage on Pendle Finance with a rating of neutral.
Pendle Finance has established itself as a dominant player within DeFi’s yield splitting sector and received a renewed wave of adoption during the first half of 2023, with TVL increasing by an explosive 726% during this period.
Over recent months, Pendle has cemented itself as a cornerstone of the LSDFi market, successfully implemented sustainable ve (3,3) tokenomics, and deployed to Arbitrum, all catalysts helping to increase TVL and drive real users to the protocol.
A retail-oriented version of Pendle’s “Markets” called “Discounts” allows users to purchase yield-bearing collateral at a discount and has greatly reduced the friction imposed by the Protocol’s underlying financial engineering by making the concept of fixed rate taking accessible for normal DeFi users.
Pendle performed incredibly throughout the first half of 2023, but after successfully riding an LSDFi wave, deploying to Ethereum’s top L2, and implementing the trendiest tokenomic model of the year, sane PENDLE hodlers must begin to question how much better it can get.
While it is undeniable that DeFi will need solutions to fix and swap rates before it receives meaningful adoption from sophisticated institutions and very true that Pendle’s dominance over the yield splitting sector could allow it to play a substantial role in this future, we anticipate that the pathway for Pendle’s near-term growth fails to reflect the parabolic trajectory we’ve witnessed.
Despite seeing limited upside for PENDLE within the next 6 months, we remain long-term bullish on Pendle and its products and expect the token’s performance to become more correlated with broader market conditions, rather than endogenous growth factors, during this period.
Want more Token Hub ratings? Visit our website and dig into our newly redesigned dashboard!