Macro Update

Last week, Bitcoin soared to a new all-time high of $112,000, pulled before being subject to tariff-led volatility as Trump threatened  50% tariffs on EU goods before pushing the deadline on Sunday night, signaling a pause for further negotiations.

On Wednesday, weak demand for a 20-year bond auction pushed yields over the psychologically important 5% level for only the second time since the bond’s 2020 reintroduction. This reflected broader bond market dynamics, with falling prices driving yields to levels unseen since July 2007, barring October 2023. The curve steepened, signalling growing investor concerns about long-term inflation and economic uncertainty, as longer-dated yields rise faster than shorter ones. Market’s sensitivity to bond market shifts is evidenced in the S&P 500’s 2.6% drop.

The U.S. Senate passed a procedural cloture vote for the GENIUS Act, overcoming earlier bipartisan resistance. The bill, which now proceeds to full Senate debate, mandates that stablecoins be fully backed 1:1 by U.S. dollars or similarly liquid assets such as Treasury bills, requires issuers to publish monthly reserve disclosures and adhere to AML and consumer protection standards. For foreign stablecoin issuers, the GENIUS Act requires compliance with U.S. regulatory standards or operation from jurisdictions with comparable frameworks, such as the EU’s MiCA regime. A day later, Hong Kong enacted the Stablecoins Bill, establishing a licensing regime for fiat-referenced stablecoin issuers effective later this year. Under this ordinance, any entity issuing stablecoins in Hong Kong must obtain a license from the Hong Kong Monetary Authority. The law sets stringent requirements for reserve asset management, redemption mechanisms, and client asset segregation. While regulation will restrict non-compliant stablecoins (Example: USDT in the EU's post-MiCA implementation), governmental recognition could accelerate TradFi adoption of stablecoins, significantly expanding their addressable market.

Our take: The alignment of regulatory frameworks on core stablecoin principles, such as 1:1 reserve backing and transparency, aims to reduce fragmentation and enhance cross-border interoperability. However, issuers face challenges navigating diverse compliance requirements, as jurisdictions vary in their approach to stablecoins; some prioritize traditional banking systems or view stablecoins as threats to monetary sovereignty, while others encourage their use, creating a complex and varied compliance landscape for issuers.

DeFi Update

Aave’s TVL soared to $40 billion last week, securing an 18% share of the total DeFi market. This represents a 300% increase since 2024, outpacing overall DeFi market TVL growth in the same period (130%). The protocol’s record-breaking $15 billion in active loans, a 50% rise from April lows, reflects considerable borrowing demand. Additionally, Aave’s integration with Pendle has driven over $1 billion in Pendle PT, establishing Aave as Pendle’s largest PT market. This robust activity has contributed to $217 million in revenue year-to-date, up from $147 million in the same period last year. To further drive token value, Aave’s V3.3 includes a $1 million weekly AAVE token buyback program, set to continue over the next six months.

Meteora, an emerging DeFi protocol on Solana offering dynamic liquidity and yield generation tools, generated $96 million in revenue since the relaunch of the Believe launchpad, making it the second-highest revenue-generating protocol in recent weeks. On a broader timeframe, its trading volume surged 400% year-over-year, doubling volume share on Solana to 22% in the same period, placing it third behind Raydium and Orca. Meteora’s TVL reached $1.1 billion, a fourfold increase from last year, driven by dynamic pools and vaults integrated with lending protocols to optimize yields. For context, Meteora’s Dynamic Liquidity Market Maker (DLMM), an automated system optimizing trade pricing and liquidity, enhances trading efficiency, attracts liquidity providers, and partially drives the TVL growth. Its fee structure, with dynamic trade fees of 0.15%-15% and a 5% pool migration fee for liquidity providers, aims to support returns, though high fee variability may impact some users’ profitability. If Solana’s onchain activity, still 60% below its peak, returns to previous highs and catalysts like the Believe launchpad continue to appear, Meteora is well-positioned to capture significant activity.

Our take: Strong performance of Aave and Meteora underscores that DeFi protocols with robust fundamentals and proven product-market fit are poised to dominate, capturing significant traction during risk-on market phases.

Hyperliquid Update

Last week, a trader executed a historic $1.1 billion BTC long position with 40x leverage on Hyperliquid, using $28 million in margin, marking the largest single-user position in perpetual DEX trading history. The trader also held long positions in ETH, kPEPE, and SUI, closing all positions for a $37 million net profit. On Sunday, the same trader opened a new short BTC position worth over $1 billion but exited within a few hours, incurring a $15 million loss. These high-profile trades demonstrate Hyperliquid’s capability of handling massive trade volumes, solidifying its position as a leading venue for large traders. Hyperliquid accounted for 80% of the $101 billion in perpetual futures DEX trading volume last week, with its open interest reaching a record $9 billion. The platform generates $746 million in implied annualized revenue, with 93% allocated by the Assistant Fund to buy back HYPE. Another potential revenue stream for Hyperliquid is its EVM-compatible L1, which has gained substantial traction with a $2 billion TVL. Sustained capital inflows, partly driven by speculation around potential airdrops, as 38.8% of HYPE tokens are allocated for future community distribution, could further accelerate L1 adoption and reinforce Hyperliquid’s revenue base. Meanwhile, its Unit Protocol, the asset tokenization and trading layer, hit all-time highs with $150 million daily spot volume and $240 million TVL. The recent listing of SOL and FARTCOIN on the spot market, alongside BTC and ETH, with support for Solana-based tokens and deposits now enabled for both SOL and FARTCOIN on Unit, could further strengthen Hyperliquid’s liquidity and extend its market reach. 

Our take: Hyperliquid’s robust revenue model and direct value accrual to users, combined with airdrop speculation, position it to dominate the perpetual futures DEX landscape in the near term.