Why Liquidity Data is Crucial to DeFi's Sustainability?

Transcript

[Music] foreign hi everyone I'm Anastasia I'm the head of D5 data at Geico so kaiko is a cryptocurrency market data provider we have been around since 2014 and we collect data from more than 100 centralized and decentralized exchanges as well as from many landing and borrowing protocols so with this data we also provide quantitative analytics as well as BMR compliant rates and indices and research and today I'm very excited to to to do some analysis looking at

kaiko's liquidity data and show you why this data is essential to learning and borrowing protocol sustainability focusing around the liquidity of the CRV token so um in contrary to common misconception High market capitalization does not always match with high liquidity in the markets uh to assist investors actually to accurately assess tokens liquidity that they hold but also to to dispelling misconceptions about the market capitalization Geico has developed what we call the liquidity ranking which measures the liquidity based on the unique measure that we have

developed ourselves and which is based on three unique metrics so those three metrics is are those that you see on the screen so we have the market depth the beta spread and the trade volume so for those that are not familiar with the subject the market depth is gives a the exact dollar value of the liquidity available within a specific specific percentage range of of a price the trading volume gives an idea of the activity of price takers and the spread is determined by market makers and

is tied to Market depth and trading volume and now that we're all aligned on what is a liquidity and how we can measure it you may wonder where can we find the highest liquidity for a specific token uh so in the crypto space there are two locations kind of where we can find the liquidity of a token uh so two types of markets so we have centralized markets and decentralized markets uh so taking the two largest stable coins as example we observe that usdc is primarily used in defy and so its liquidity is mainly available on decentralized exchanges and we have a totally different story when it comes to usdt

but the token on which I wanted to focus my analysis today is not a stable coin it's CRV so CRV is curves governance token and the reason why I wanted to focus my analysis on it it's not only because it has been a Hot Topic on crypto Twitter lately but also because its liquidity is heavily concentrated in specific markets additionally CRV is extensively utilized as collateral on landing and boring protocols and specifically by curves founder namely Michael egrov and during this presentation I'll show you why Michael eggroll's position exemplifies the importance for token holders and

Landing protocols specifically to closely monitor liquidity data and what can be also the consequences for those protocols in terms of financial losses if their smart contracts actually fail to monitor the appropriate liquidity data so as I told you um service liquidity is quite concentrated specifically on decentralized exchanges and specifically on curve itself and there is actually six times more CRV tokens that are put in collateral by Michael ekrov in several landing and burning protocols then there is liquidity in the markets and obviously this

seems very concerning so if we dive into the curves founder position a bit more we see that those 433 million CRV tokens are spread across four Landing platforms so Ave Abracadabra fraxland and inverse and those 433 million CRV represent around a bit more than 300 million dollars and they actually represent more than 50 percent of CRV circulating Supply uh so my objective now is to show you not only based on those figures but also

based on past events um why as a landing protocol neglecting those uh figures can be uh can have huge consequences and specifically Financial consequences so in November 2022 so a few months ago there was an incident involving a curves founder and an attacker named Avi Eisenberg so essenberg back then tried to cause the liquidation of Michael eggerov's position so the position was made of CRV in collateral and usdt that has been Borrowed by Michael egrov and the objective of Avi Eisenberg was

actually to expose based on this attack the limitations of the Ave protocol he to do so he borrowed CRV on Ave then he short sold those tokens on okiex with the objective to drop the price but the the problem is that Avi eisenberg's plan totally failed uh since unexpectedly uh curve decided to release the CRV USD so there's stable coins uh white paper or earlier than earlier than expected which caused an increase in the price and so as a result it was not Michael eggerov's position that got liquidated

based on the attack of Avi Eisenberg but it was eisenberg's position that ended up being liquidated instead but the problem is not the I mean the the most important thing to remember about this story is not the story itself but it's its consequences its consequence was liquidation of a huge position so Avi eisenberg's position which was worth of around 40 million dollars back then and as previous figures that I showed you suggests there was less liquidity in the markets than the size of Avi eisenberg's position

so what happened is that um since Avi Eisenberg borrowed CRV and had put in collateral usdc Liquidators had to repay CRV to receive usdc at a discount but the position was so large compared to the liquidity in the market and so it was very very difficult for Liquidators to Source CRV tokens in the markets to repay the loan in an efficient manner and if we take a look at some liquidations data we can see that it took an hour to process this liquidation with over 300 transactions and with more than 20 different Liquidators

joining in and what's most importantly this actually led to 1.5 million dollars of bad debt for Ave but that that for those that don't know it's that that will never be paid back so it's actually the lenders and the protocol itself that respectively lose money and reputation um so this was past events and uh the the figures of those past events were way lower than the figures that I showed you just before which were about today so those 433 million dollars of position

and with only uh 50 million dollars in the markets for this token and it's even more concerning because service liquidity Service uh the the collateral that agrov has in CRV actually represents more than 50 of the circulating supply of the token and so um if let's say an unexpected event happens in crypto as many actually happen all the time such as an exploit like such as what happened before or a certain market crash or any other Factor impacting the price of CRV actually agorov's positions could face liquidation however in the case of agorov's position the liquidation

process would be a bit different from the one about Avi eisenberg's liquidation because in the case of Michael agarov he has CRV in collateral he hadn't borrowed CRV but in any case the liquidation could lead to bad debt so in the case of a girl's positions Liquidators would do something like swapping if for usdt repay usdt receive a CRV Swap this CRV for eth but this process and this liquidation is only guaranteed to be profitable if they are able to immediately sell their CRV tokens they receive with decent execution additionally selling pressure

could be created by the first liquidations Liquidators that entered the liquidation process possibly to the point where the collateral is worth less than the borrower token because the price would actually decrease even more due to this liquidation process so um despite all those bad numbers and past events that are a bit stressful around CRV itself its price but also Avis Financial stability so despite all this agros position if we if we take a look at how he deals with

his position on Ave it's very assuring to observe that he actually is very Vigilant about the health of his position and possesses substantial resources to protect it um so overall if we want to summarize the situation we have a very large position a very concentrated liquidity in the markets with a very illiquid token uh the risk of having an unexpected event like flush crushes or another exploit which could Target Michael eggerov's position and this obviously leads to a liquidity risk and that that risk for D5 protocols so obviously D5

Protocols are aware that they need to manage liquidity risk however they're not equipped against such risks and that's where kaiko comes in so at Geico we provide data but we also partner with oracles and other institutions and Enterprises and with the pith Oracle we have developed a liquidity Oracle which enables any D5 protocol to Source kaiko's liquidity data that I have presented in the beginning and to effectively monitor liquidity metrics on chain so more precisely it spiffs product that has been launched back in February and it allows anyone to have access on chain

to the data that Geico initially provides off-chain three trust API so this data includes both aggregated liquidity metrics for all crypto assets across all markets as well as instrument level liquidity metrics including the market depth the volume of the Sleep Edge Etc so for those interested kaiko provides various liquidity metrics through red through its rest API so off chain in addition to the ones available on pith which can serve various use cases as one I have described here so those metrics can either cover liquidity on centralized exchanges only like the aggregated market depth or the bidask spread and others can cover

liquidity on decentralized exchanges only like the total amount of tokens that are locked in liquidity pools on decentralized exchanges and finally we have liquidity metrics that are common to centralize and decentralized exchanges as the aggregated market depth for any token across all the markets by category as well as the aggregated trading volume again for all the cryptocurrencies across all the markets of each category uh that's all I had for today thank you very much and I'm open for any questions if you have thank you [Applause] is it working okay yeah

um do you have historical data or and if so since when local data since 2 the price of Bitcoin in its volume nice and which chains do you support uh only three room for D5 data and for the centralized exchanges data we support kind of all the centralized exchanges out there right thank you [Music] thank you