TLDR: BTC & ETH is up bigly. Bitcoin dominance is up. The hot coin we look at this week is DYM.

BTC & ETH Market Update 📈

Crypto is looking up bigly this week, with BTC being up 9.4% and ETH up 7.7%:

Bitcoin dominance has been growing this week, starting at 48.7%, topping at almost 50% and ending the week at 49.7%. With the Bitcoin selloff slowing down as a result of the Grayscale offloading, yet demand rising with the spot ETF, and hence the price of BTC increasing over the week more than for example ETH, it is natural that Bitcoin dominance would follow suit. It’s going to be interesting to see whether this trend will continue in the short term, as capital in crypto tends to flow initially to BTC and then further out on the risk-curve, starting with altcoins like ETH and then into mid- or low-cap coins.

The Bitcoin halving is coming up beginning of April 2024. If history is any guidance we will continue to see BTC dominance climb up until after Bitcoin halving, whereafter people start to look for higher return moving further on the risk curve entering altcoins. This typically starts with ETH, and then on to mid- and low cap coins. Other coins being moved into are typically “ETH killers” like SOL, AVAX and other other L1s. Yet ETH is still the king amongst altcoins, as price action this week also shows.

With BTC dominance on the rise, the BTC/ETH ratio is trending upwards (despite a large pullback mid-week) ending the week at 18.9 ETH per BTC, underlining that BTC continues to be king in crypto, and that alts like ETH are not gaining momentum against BTC.

Hot Coin: DYM 🔥

In this week’s newsletter we dive into Dymension’s token with the ticker: $DYM.

The token was just airdropped to a ton of people. Immediately after, most decided to stake (not dump) the token. This is a strong signal that people - despite getting DYM for free - believe in the future of the project.

The price action and volume of the token has been growing consistently, and doesn’t seem to stop any time soon:

What is the project about?

RollApps represent Dymension's answer to scaling issues for various chains cross various ecosysytems. These application-specific blockchains discard the consensus overhead, focusing solely on providing a highly scalable execution environment. For a comprehensive understanding of this concept, Dymension's detailed articles, including their RollApp Development Kit (RDK) breakdown, serve as a valuable resource.

You can read more about what Stride is building in the article below:

Why is the project exciting now?

There are three main reasons why we feature this project in this week’s newsletter:

• Supply Dynamics

• Demand Dynamics

• Bull Case > Bear Case

Supply Dynamics

Dymension is a layer 1 blockchain whose core product is a RollApps as a Service (RaaS) offering. Their $DYM token is the key center piece for providing security, interoperability, and liquidity for all the RollApps that build on their platform.

CT is largely motivated by fomo and memes; the meme around DYM is that it is a Celestia-like derivative that will have a bunch of RollApp tokens airdropped to stakers just like RollUp tokens are likely to be air dropped to TIA stakers. People saw TIA melt faces and catch a ludicrous bid - surly they wouldn't want to miss out on a similar opportunity.

We saw this reflected in the stake rate right out the gates. While its not entirely clear what percentage of tokens were staked at genesis (its common for a % of tokens to be staked at genesis for cosmos chains for bootstrapping security via vesting tokens, etc), we can do a bit of digging to get a more realistic estimate.

Here are some numbers we do know:

146m circulating supply at launch (14.6% of supply), where:

• 70m to the airdrop (7% of supply)

• 10m to incentivized testnet (1% of supply)

• 66m to Ecosystem R&D (6.6% of supply)

Currently, 236m DYM are bonded to the network. We can get a *rough* estimate of the actual amount staked by subtracting any delegations >= .03% of the total supply.

After screening the val set, you can see there is ~195m DYM Bonded through delegations which match the search above criteria. We know this cant be the true amount given its larger than the circulating supply.

So using these numbers, we are can assume that there is actually roughly 41m DYM bonded, 28% of the circulating supply (still a shit ton DYM given the network just launched).

Additionally, when looking at the network wallet balances, we can assume that 17.3m DYM sits with a wallet we presume to be Binance, just given the sheer amount of inflows & spot volume associated (dym1wl60kvsq5c4wa600h7rnez8dguk5lpnqp4u0y2).

There are two other wallets we assume to be KuCoin / ByBit which account for roughly another 1m DYM. Lastly, there is another 730k DYM sitting on Osmosis.

Distribution & Active Accounts

528,523 addresses claimed the airdrop, per Dymension's twitter. Mintscan shows that 216,419 addresses have made at least one txn (note their data lags). So roughly half of the eligible claimers have interacted some way.

So to summarize, of the initial 146m circulating supply

~41m is staked (28% of circ sup)

~18.82m is on exchanges (13% of circ sup)

~ 66m in the R&D fund (45% of circ sup)

~ 20.69 misc/unknown (14% of circ sup)

Demand Dynamics

Cosmos chains are more cognizant of the token death spiral than most other protocols, given their tokens are pivotal for their success, or lack there of. Put otherwise, they need demand drivers for the token. Given Dymension is providing security for all the RollApps that could be built on it, they've baked two deflationary features into the network from the start:

1. Validating Bridge Fee: There aren't details on the docs about this, but it is a parameter that can be altered via governance.

2. Protocol Swap Fee: For all liquidity pools hosted on Dymension, there is a 0.10% swap fee which is converted into DYM & burnt.

To model out #2, let's use Osmosis, a DEX in the Cosmos as a benchmark. Osmosis also has swap fees, so we can assume similar user behavior, but at a fraction of the volume. For the sake of this example, let's assume Dymension is doing just 1% of Osmosis weekly volume (currently at $261m), using the current price of DYM at $7.43

Objectively, to make a material impact the price of DYM would have to be lower and volume would have to be higher. However, the burnt swap fee could potentially be increased via governance. Alright, now that we're familiar with the relevant information let's explore the Bull Case.

DYM Bull Case

Personally, I operate on the axiom that most crypto networks & protocols trade based off supply/demand dynamics and not on a cash-flow basis. I.e., these things trade more like weird internet commodities than equities. Unfortunately, or fortunately, depending on your view, memetic momentum is also a demand driver. There were 14k+ RollApps deployed on the testnet. These RollApps are essentially tiny app-chains that outsource consensus to Dymension itself, but allow for customization of application specific logic. As mentioned above, Dymension also has AMMs built into their chain, allowing for RollApps to launch their own tokens & pair against DYM on liquidity pools.

To summarize, these are the bullish demand drivers:

- RollApp token LP pairs suck DYM liquidity away from spot bid on exchanges

- People stake a ton of DYM, decreasing the circulating supply

- Burn narrative from RollApp token/DYM volume

- The RollApps don't even need users, they just need trading volume

- The higher DYM price goes, the more incentives the foundation has to attract developers to the ecosystem

If you let your inner bull win, you can see how a potential flywheel could kick off here. Now, let's examine the other side of the coin.

Bear Case

The RaaS model is a crowded sector, with ALT already launching, Conduit in the mix, along with others. For Dymension specifically, its not entirely clear how this protocol actually accrues value outside of the burnt swap fees. And as we examined, volume would have to pick up pretty drastically to make a material impact on the total supply of 1bn DYM.

Additionally, when looking at the RollApps that were actually deployed on testnet, none of them are particularly compelling.

The second largest RollApp on testnet (Kynraze Hub) is autoblocked by my browser, the four largest (FEKU | feed me bro) is linked to a guy's twitter with 93 followers & one tweet, the fifth largest is a turkish website for minting an NFT. The 7th largest has a website that doesn't load, the list goes on.

View them for yourself here: https://devnet.dymension.xyz/rollapps

I don't mean to say something novel and good couldn't be built here in the future, because of course this is a testnet where things don't really matter, but the current cohort is unremarkable imo.

Additionally, the testnet usage doesn't appear to be organic, but again, who cares. Its a testnet.

Also, when considering developer talent, we are unsure exactly how Dymension will attract long term builders outside of token incentives. Right now, if you're an ambitious and talented developer, there seems to be a higher value in launching your own ETH L2 than a RollApp.

Lastly, when considering the RollApp airdrop meme, if Dymension fails to gain traction, you may see a mass unbonding event; much akin to a crowded room with a small door. This could be driven by price action as well. If there aren't enough net-new buyers for DYM, you'll likely see it all come tumbling down. And at the current MC & FDV, there may be a struggle to find those new net-new buyers.

So to summarize the bear case:

• RaaS is a crowded space, DYM overvalued to ALT

• Supply overhang & dilution

• Unremarkable Testnet RollApps

• Key testnet metrics seem spoofed, may lead to underwhelming results in practice

• Trust and incentives amongst stakers need to remain strong