ArkStream Capital: 2024 Q4 Quarterly Report

Original Article Title: "ArkStream Capital: 2024 Q4 Quarterly Report"

Original Source: ArkStream Capital

Industry Overview

On December 5th, Bitcoin broke through the $100,000 mark, creating history as anticipated by the market. At this historic moment, the global financial industry turned its attention here. Bitcoin's new high is a milestone in the cryptocurrency field, significantly demonstrating the expanded influence and increased recognition of the cryptocurrency market, while also foreshadowing enormous growth potential in the future. This not only marks the realization of ArkStream Capital's long-standing beliefs and expectations but also symbolizes the validation of faith in the entire cryptocurrency industry. Within the industry, whether it is the primary market with risks and opportunities, the efficient and diversified secondary market, or the vibrant on-chain ecosystem, all were energized by Bitcoin's breakthrough, leading to a strong performance in the market in the fourth quarter.

Bitcoin Price Chart, Source: LSEG Workspace

Bitcoin's successful crossing of the $100,000 milestone has benefited from various factors. The most crucial boost came from the macro environment's interest rate cut expectations and Trump's win in the U.S. presidential election.

The Federal Reserve's two interest rate cuts in this quarter had a profound impact on the market, further stirring up the market. The rate cuts, on one hand, reduced borrowing costs, stimulating investors to seek higher-yielding assets, leading to more funds flowing into the cryptocurrency market. On the other hand, the rate cuts also improved market liquidity, helping to support asset prices. In addition, the stablecoin market benefited from the macro interest rate cuts, reaching a historic high in issuance scale, significantly increasing market liquidity and reigniting market vitality. ArkStream Capital expects that with the implementation of quantitative easing policies in 2025, liquidity will further strengthen, cryptocurrency assets will see significant gains, and the market will further expand.

During the U.S. presidential campaign, Trump clearly expressed support for the development of Bitcoin and the cryptocurrency field, making a series of positive commitments. Specifically, he proposed to establish a national strategic Bitcoin reserve, plans to incorporate Bitcoin into the national financial strategic framework, and ensure the government holds a certain amount of Bitcoin. Furthermore, Trump promised to take proactive measures in regulatory policies and support for startups to promote the healthy development of the crypto sector. After a successful election, Trump took two important actions to support the development of the cryptocurrency field: first, he nominated Paul Atkins, an advisor with deep experience in the cryptocurrency field, to serve as SEC chairman. Secondly, he established a new position of White House Director of Artificial Intelligence and Cryptocurrency Affairs, appointing former PayPal executive and an expert in big data and cryptocurrency, David Sacks, to this role.

World Liberty Financial (WLFI), a project led by the Trump family, is committed to providing users with a more equitable, efficient, and secure financial service by blending innovative financial solutions with blockchain technology, integrating DeFi. WLFI has actively invested in and collaborated in key areas such as lending, RWA, and stablecoins. The partnership between WLFI and Aave offers a mature and reliable lending protocol platform and integrates new types of stablecoin assets like Ethena's sUSDe, expanding the types of collateral assets and enriching funding sources. Additionally, according to Spot On Chain data, since November 2024, WLFI's main wallet address has made significant purchases of mainstream crypto assets such as ETH, cbBTC/wBTC, LINK, AAVE, ENA, and ONDO. This has drawn close market attention to WLFI's asset movements and sparked enthusiasm for investing in WLFI's partner DeFi projects, especially those that bring actual returns from deep collaboration. A notable example is WLFI's collaboration with Ethena in mid-December 2024, where Ethena's yield-bearing stablecoin sUSDe was integrated into WLFI's lending platform's collateral asset system, adding stablecoin deposit sources to WLFI's lending platform. Upon the announcement of the partnership, the ENA token saw a price increase of over 10% in a short period, underscoring the market's recognition of WLFI's influence.

Following Trump's reelection, MicroStrategy significantly increased its investment in Bitcoin. According to recent data, the company added nearly 150,000 bitcoins in Q4 2024, spending close to $13.5 billion with an average cost of approximately $90,000 per bitcoin. In comparison, the total net assets of Bitcoin spot ETFs increased from around $600 billion at the end of Q3 to nearly $1.1 trillion at the end of Q4, with new fund inflows reaching $500 billion, and MicroStrategy's purchases alone accounting for nearly 25% of all Bitcoin spot ETF net inflows. Furthermore, MicroStrategy plans to propose up to $21 billion in equity financing and $21 billion in bond issuance through a special shareholder meeting to continue investing in Bitcoin. MicroStrategy's CEO, Michael Saylor, is also actively pushing for more traditional giants to invest in Bitcoin, such as Microsoft, despite Microsoft shareholders voting against the related proposal. The market is both eager and concerned about MicroStrategy's continued buying behavior, anticipating its collaboration with traditional giants to drive the development of the crypto industry and new highs for Bitcoin, while also fearing potential black swan events leading to market turmoil.

MicroStrategy's BTC Holdings, Source: https://treasuries.bitbo.io/microstrategy/

Within the cryptocurrency market, due to the market's focus once being concentrated on Bitcoin itself and on-chain speculative memes, value investing focused on infrastructure development and application implementation almost fell into a pessimistic low. However, with the November political environment stabilizing, value investing began to see the dawn of recovery. The value of DeFi, infrastructure, emerging public chains, and other sectors is gradually being re-recognized by the market. Patient investors have begun to receive stable returns, and value investing is once again receiving attention. Looking at specific projects, the popularity of projects like Ethena and Usual reflects the market's preference for RWA and stablecoins strengthening. Additionally, protocols like Curve, with their low slippage characteristics in stablecoin swaps, have also performed well. Foundational strong projects that conducted Token Generation Events (TGE) this quarter, such as HypeLiquid and Morpho, as well as projects that focus on product application implementation, such as Virtuals, have shown strong performance at both the data level and in terms of their token prices reaching new highs. These trends indicate a return to value investing, with innovation still being one of the core driving forces of the cryptocurrency industry's development, and attention and funds are shifting to these areas.

However, everything has two sides. Recently, primary market fundraising activities have shown a declining trend in both quantity and amount, which has become disconnected from the secondary market's trends. Moreover, projects that have fundraised in the past two years are now facing a queue to list on top-tier exchanges, while second-tier exchanges continue to suffer from insufficient liquidity. In addition, the recent surge in on-chain speculation and the market's anti-traditional venture capital sentiment during the early Q4 has adversely affected the pricing of projects post-listing, further squeezing the investment return space. In the process of transitioning to the secondary market, primary market projects not only face the challenge of a liquidity window but also encounter fierce competition on the same track and limited exchange resources. These factors have compounded, leading primary market investment and fundraising activities into unprecedented challenges.

Quarterly Primary Market Financing, Source: https://www.rootdata.com/

In the secondary market, to pursue returns surpassing that of Bitcoin, one would typically seek investment opportunities in the altcoin market. However, in the tough market environment of Q2 and Q3, despite Bitcoin maintaining a high price, many fundamentally sound altcoins performed poorly. This indicates that timing is crucial. Even if the fundamentals of the asset are strong, if the entry timing is wrong, one might face unfavorable entry prices or long-term capital costs. Furthermore, the secondary market also needs to address challenges such as position management and risk control, as a slight misstep could lead to fund withdrawals or losses. Therefore, while secondary market trading strategies do not need to consider token listings and liquidity issues, they still have to deal with challenges such as target selection and timing. Overall, the secondary market's strategy has lower determinacy, higher risk-reward ratio, and challenges in scaling up capital.

Altcoin Market Performance, Source: https://www.tradingview.com/symbols/TOTAL3/

Focus Track

DeFi

In 2024, the DeFi sector saw a strong resurgence. As a key force driving industry disruption in the previous cycle, DeFi continued to receive widespread recognition within the industry. Meanwhile, with the rise of BTC and altcoin ETFs, as well as the potential for significant inflows of funds at the U.S. policy level, the growing demand from new users for lending, DEX, and stablecoin trading has provided significant potential for the steady increase in DeFi's Total Value Locked (TVL) and asset size.

The post-election market trend has preliminarily validated this. According to DeFiLlama's data, from November 6 to December 15, the incremental capital brought in by new and existing investors and the increase in lending demand propelled DeFi's TVL from $870 billion to $1.3 trillion, a surge of over 50%.

DeFi TVL, Source: https://defillama.com/

The lending track, as a cornerstone of the DeFi sector, particularly excelled in Q4 of 2024. The TVL of the decentralized lending market has reached $55 billion, surpassing the previous cycle's peak of $51.2 billion. AAVE consistently maintained its market-leading position this quarter, holding over 40% market share and controlling nearly 70% of the DeFi lending market with an active loan volume managed between $7-8 billion. Aave's TVL growth was mainly driven by several factors: first, improvements in the post-U.S. election market sentiment prompted investors to seek higher yields, leading to increased lending demand; second, in a "easy money" market, investor interest in leverage trading enhanced further driving lending activities. Data shows that as a core lending asset, the Ethereum (ETH) supply's Annual Percentage Yield (APY) increased from 1.8% in early September to 2.5% in mid-December, while the supply APYs for stablecoins USDT and USDC rose from 3% and 4% to highs of 15% and 17% respectively, indicating a significant increase in market demand for high-yield assets. Meanwhile, the Loan-to-Value (LTV) ratio increased from $7.5 billion in early September to $16 billion in mid-December, demonstrating a significant expansion in lending volume. Currently, Aave's TVL has reached approximately $21 billion, surpassing the previous cycle's peak of $19 billion by about 11%; the token price stands at $370, still with around 80% room to rise from the previous cycle's high of $665. The expected further decrease in US bank lending rates is likely to drive more funds into the DeFi lending market, boosting Aave's TVL.

As a newcomer project listed in Q4 2024, Morpho has inherited the advantages of top-tier lending protocols in terms of security and credibility. At a time when the market is witnessing a resurgence in lending demand, Morpho quickly attracted a significant amount of liquidity. Morpho Blue is Morpho's lending layer, allowing the creation of independent markets without permission, catering to diverse risk appetites and use case requirements in the market. Designed based on the Morpho Blue protocol, MetaMorpho enables different types of lenders to create vaults in MetaMorpho without permission, customize risk exposure, and allocate deposits inside to one or more Morpho Blue markets.

Morpho Architecture, Source: https://docs.morpho.org/

Designs like Morpho's provide efficient interest solutions for stablecoin and stablecoin-like whale holders, meeting their demand for a secure and high-yield investment. Additionally, Morpho rewards lenders with Morpho tokens as an incentive, boosting the Net Annual Percentage Yield (Net APY) to 110%-120% of the base APY. Morpho integrates rewards from emerging stablecoin protocols such as Usual and ENA, further enhancing the platform's attractiveness and providing users with more diversified revenue opportunities. At its Token Generation Event (TGE), Morpho had a market cap of only $50 million. However, as the market gradually recognized the excellence of its products, investors in the secondary market showed strong confidence in Morpho, driving its market cap to $4.6 billion in Q4. As of now, Morpho's Total Value Locked (TVL) has reached $32 billion. Considering the continued demand for DeFi lending in the market and Morpho's ability to innovate and optimize its product in a fiercely competitive environment, its growth trend is expected to continue in the future. This case of Morpho illustrates that even in a mature DeFi track, protocol layer innovations based on user demand still have significant room for growth.

In terms of trading and liquidity services, decentralized exchanges (DEXes) remain a key pillar of the DeFi ecosystem. Curve's primary value lies in providing ultra-low slippage exchange depth for stable assets, meeting the fast and low-cost swapping needs between various stablecoins. However, Curve's founder previously engaged in leveraged trading using CRV and was liquidated due to a token price drop, causing its market value to slump and its value to be underestimated. According to DefiLlama data, at the beginning of Q4 2024, Curve's TVL was only $20 billion, growing to $25 billion by the end of the quarter, with a relatively limited increase. However, the stablecoin market remained active during this quarter, with Tether alone issuing an additional $3 billion USDT from October 30 to November 14, while the inclusion of emerging stablecoins such as sUSDe, USDe, USD 0, and popular Real-World Asset (RWA) stablecoin protocols significantly increased the trading volume. This is reflected in transaction fees and revenue, with Curve's monthly fee income at around $1.5 million, still showing significant growth potential compared to the historical high of $11.5 million in January 2022, but with some improvement from the earlier period. Its token price has risen from a low point of $0.23 in September-October 2024 to around $1, representing a 330% increase, but still has room for growth compared to the previous peak of $6.4.

Hyperliquid is an innovative decentralized platform focused on efficient perpetual contract trading, utilizing an order book trading mechanism. It offers perpetual contracts and spot trading, achieving a low-latency, high-throughput trading environment on Layer 1 chain. The platform consists of the consensus layer HyperBFT and the execution layer RustVM. HyperBFT is a consensus algorithm based on a modified LibraBFT that can support up to 2 million TPS. Through continuous optimization, Hyperliquid can now provide a seamless trading experience comparable to centralized exchanges. Its HIP-1 mechanism allows for the deployment of native tokens and an on-chain spot order book, reducing risk and latency; the HIP-2 mechanism (Permanent Liquidity Commitment) differs from the traditional AMM model by dynamically adjusting liquidity based on market conditions. Furthermore, with no KYC requirement and low fees, Hyperliquid is an ideal choice for arbitrageurs. Compared to GMX, which relies on Chainlink oracles, Hyperliquid eliminates concerns about oracle data manipulation or issues. Unlike dYdX, which also uses an order book, Hyperliquid is not constrained by performance limitations, avoiding network congestion and slippage due to transaction confirmation times. Additionally, Hyperliquid enhances community confidence and engagement through the airdrop of the HYPE token to incentivize participation in its ongoing development.

Through the HIP-1 and HIP-2 mechanisms, Hyperliquid maintains a significant Open Interest (OI) in contracts, with key trading pairs including ETH-USD, BTC-USD, SOL-USD, and more. Currently, in the perpetual contract DEX space, Hyperliquid's trading volume accounts for over 50%, establishing it as the clear market leader. According to data from Coinalyze and CVI.Finance, its Open Interest is approximately 10% of Binance's. In December 2024, Hyperliquid generated around $30 million in USDC revenue, with an annualized revenue exceeding $3.6 billion, trailing only Ethereum, Solana, and Polkadot. The price of the HYPE token has surged from its debut at $3 to over $30, nearly a 10x increase within a month, further solidifying its position as a market leader. While Hyperliquid's market capitalization is still below that of other L1 and L2 platforms, its annualized revenue-to-circulating market cap ratio is significantly ahead.

Hyperliquid Revenue, Source: https://defillama.com/protocol/hyperliquid?tvl=false&fees=true&groupBy=daily

Overall, the recovery of the DeFi sector in Q4 2024 was mainly driven by products offering real yields, with product usability and security being key competitive advantages. For example, Aave and Morpho attracted a large number of users in the lending space by providing reliable and efficient services. Curve continued to play a significant role in stablecoin exchanges, meeting the market's demand for fast and low-cost transactions. Additionally, emerging decentralized exchanges like Hyperliquid quickly rose in derivative trading, further enriching the DeFi ecosystem. Web3 wallets from major exchanges also continued to attract users into the DeFi ecosystem, driving growth in the space. In general, DeFi steadily expanded in lending, DEX, and stablecoin interactions, and its future large-scale outbreak will benefit from policy support and ongoing innovation.

RWA and Stablecoins

RWA covers a wide range of asset classes, including stablecoins, private credit, US Treasuries, commodities, and stocks. Among these assets, stablecoins, due to their uniqueness and importance, can be seen as a separate track. For non-stablecoin RWA, due to the complexity of asset standardization and incomplete regulatory frameworks, the scale is relatively small, so we will focus on the stablecoin field.

In the cryptocurrency market, since 2018, USD-pegged stablecoins have played a critical role. They not only serve as the base currency for trading but also act as shadow USD assets, active in various scenarios such as transfer payments. As of December 1, 2024, the total market capitalization of stablecoins has increased to $1.93 trillion, a 48% year-on-year growth. Taking the on-chain daily average transfer volume as an example, the current daily transfer volume remains in the high range of $250 billion to $300 billion, and even in market downturn periods, this data has not fallen below $100 billion. In terms of trading volume, referring to CoinMarketCap's industry data, the monthly trading volume in November reached $6 trillion, indicating that stablecoins account for 30% of the industry's trading volume in centralized exchanges. This ratio does not yet include on-chain stablecoin trading volume, meaning the actual share may be even higher. In addition to circulation, trading volume, and transfer volume as the three core indicators, stablecoins have also introduced stable income assets such as US Treasuries as underlying assets, providing stable and sustainable returns, bringing positive externalities to the industry, further promoting the interconnection and integration of Web3 and the real world.

Stablecoin Daily Trading Volume, Source: https://studio.glassnode.com/charts/usd-transfer-volume

In the stablecoin market, as market demand grows, various types of stablecoins have gradually emerged, including fiat-backed stablecoins, decentralized collateralized stablecoins, algorithmic stablecoins, and more. Among them, fiat-backed stablecoins have taken the majority of the market share and the market size continues to grow. However, due to the emerging trading demands in the market, decentralized stablecoins have been exploring new paths.

Among them, Ethena has emerged as a standout, with Ethena's issuance of USDe, a synthetic dollar, occupying a place in the DeFi field with its innovative financial solution. The distinguishing feature of USDe is its use of an advanced Delta hedging strategy to maintain its peg to the dollar, setting it apart from traditional stablecoins. In just over a year, the issuance scale of USDe has steadily grown, successfully withstanding the downturn in the market in Q2 and Q3, and it has now risen to third place, behind only USDT and USDC, re-entering a phase of rapid growth.

Stablecoin Data, Source: https://app.rwa.xyz/stablecoins

In addition, leveraging BlackRock, the world's largest asset management company, Ethena has issued a new institutional-grade stablecoin, USDtb. As a product independent of USDe, USDtb provides users with a new option with distinct risk characteristics. Its presence allows USDe to more effectively address market challenges, especially during negative interest rate periods. Ethena can close USDe's hedging position and reallocate assets to USDtb to mitigate associated risks, strengthening the overall system's stability and risk resilience.

USDtb Data, Source: https://usdtb.money/transparency

Apart from Ethena, USD 0 issued by Usual is also noteworthy. This stablecoin introduces RWA as underlying support, deeply integrating the stability of traditional financial instruments with DeFi's transparency, efficiency, and composability. USD 0, with its permissionless, compliant framework, directly channels real returns from RWA to the community users, showcasing the competitiveness of the new type of stablecoin in the market. The emergence of these innovative stablecoins not only enriches market diversity but also provides users with more choices and investment opportunities.

ArkStream Capital believes that stablecoins play a crucial role in the crypto industry by navigating through market bull and bear cycles. The momentum of stablecoins will not stop, and various data indicators of stablecoins in both the payment and trading sectors will continue to grow. Decentralized stablecoins significantly outperform traditional stablecoins in terms of transparency, decentralization, and yield, making them worthy of long-term attention and investment. Currently, Ethena has shown its dominance, while Usual is actively trying to expand its market share. In the future, decentralized stablecoins will not only grow along with the entire sector but also have enormous potential to capture more market share from the traditional centralized stablecoin market.

AI Agent

In Q4 2024, the AI Agent sector in the crypto industry experienced unprecedented attention and rapid growth. AI Agents have evolved from being mere auxiliaries to traditional AI models to becoming the core driving force of the community ecosystem, shedding their singular "tool attribute" positioning. During this quarter, whether it be ai16z and ELIZA on the Solana chain or VIRTUAL and AIXBT on the Base chain, their market capitalization has multiplied several times due to the market's enthusiasm. Meanwhile, traditional AI Agents in the industry have shown relatively subdued performance. In the transition from old to new, the positioning of AI Agents has changed. Previously, AI Agents in the crypto market were mainly used to assist in the update and iteration of existing products, such as FET and OLAS, focusing more on the combination of blockchain and AI model training or building practical application scenarios such as workflow assistance and emotional companionship (similar to the original intention of humans creating robots to assist in daily life). However, the current development model has shifted from being "product-oriented" to "community-oriented," focusing more on the growth of the AI Agent itself and the construction of the ecosystem (similar to creating a fully robotic autonomous community).

AI Agent Market Cap and Share, Source: https://www.cookie.fun/

In the current "community-oriented" development model, ai16z and Virtuals are undoubtedly the two most prominent representative projects. According to the latest data from Cookie.fun, the overall market capitalization of AI Agents has reached nearly $16.7 billion, with a growth rate of nearly 37% in the final week of Q4 2024. The combined market capitalization of ai16z and Virtuals accounts for nearly 50% of the AI Agent market share. ai16z is essentially a decentralized DAO that uses AI for investment management. Its core component is the open-source AI Agent framework ElizaOS, which is used to create, deploy, and manage AI Agents. Under this framework, there are two core applications: ai16z and degenai. ai16z is a governance token, and holders can participate in voting on investment proposals and fund distribution. degenai is a self-trading AI Agent chatbot that acts as an AI trader in ai16z, allowing users to interact with degenai and influence its trading decisions.

Similar to the ElizaOS framework, the Virtuals Protocol is committed to advancing the AI agent field. Its predecessor, the gaming guild Path DAO, underwent a strategic transformation in 2023 and rebranded as the Virtuals Protocol. By launching the fun.virtuals platform, the Virtuals Protocol enables users to easily build and deploy their own AI agents and supports one-click deployment functionality. Virtuals provides a full AI agent creation and token issuance platform similar to the "Apple system," forming a closed-loop ecosystem. a16z emphasizes open-source frameworks and decentralized governance, both of which have their own unique features in technical architecture, tokenomics, and market strategy to meet the needs of different users.

At the forefront of the wave, we have to mention the memes of the GOAT and ACT AI agents. Although they themselves have no practical utility, they were the first to break the traditional AI agent's single technological positioning, combining it with meme culture, quickly attracting the attention of users and capital. Subsequently, the market's pursuit of AI agents shifted from pure memes to infrastructure projects dominated by future narratives. Virtuals introduced its unique IAO (Initial Agent Offering) model, combining "AI agent functionality + Token + Meme," propelling it to new heights. In the Virtuals ecosystem, these AI agents not only have tools like virtual personalities and value analysis but also play a role as memes. In the cryptocurrency industry, AI agents are no longer just service providers but have become core players in the ecosystem, serving as the primary drivers of user interaction and community ecosystem development.

Currently, the AI agent market is mainly divided into two major types of projects: one is the "technical support layer," focusing on providing underlying technology and infrastructure support for AI agents; the other is the "scenario implementation layer," dedicated to applying AI agents to specific business scenarios to realize their practical application value.

In the rapid development and evolution of AI agents, their development trajectory is similar to the early hype of the blockchain industry. For example, distribution platforms such as Virtuals, vvaifu, Zerebro, and frameworks like ElizaOS, ARC, Swarms, the current competitive landscape resembles the early Layer 1 public chain competition. According to the theory of time machines, it can be inferred that, compared to application-oriented projects, AI agent infrastructure projects attract more attention from mainstream market funds in terms of survival cycle and market cap due to their strategic importance, enjoying a premium due to scarcity.

With the maturation and saturation of infrastructure, the collaborative development of infrastructure and applications will become the core theme of the next stage, driving the field into a period of deep integration. Unlike traditional project development, AI Agent applications focus more on post-Roadmap and TGE, continuously driving ecosystem innovation and development through pre-market validation and mechanisms such as ecosystem tokens or associated tokens, achieving several-fold growth in overall market value within this quarter. With the emergence of the wealth effect, an increasing number of new projects are coming to the forefront, showcasing significant potential in various subfields, including market analysis, on-chain operations, and intent execution. For example, Aixbt's Twitter bot can answer user questions online 24/7 and provide real-time market analysis, serving as an AI version of an analytical opinion leader; AVA focuses on the social sphere, offering emotional companionship and personalized services through AI virtual personalities; CGPT integrates functions such as trading, market analysis, and NFT generation to become a comprehensive AI Agent tool.

ArkStream believes that the current enthusiasm in this race is obvious, with funds of all kinds pouring in under the driving force of FOMO, trying to get a piece of the pie. This rapid expansion pattern has led to a proliferation of projects like mushrooms after the rain, but currently, no single project has a market value exceeding tens of billions. This stage can be considered the "early stage" of the Web3 AI Agent track, characterized by a time-oriented approach: market participants generally hold a speculative mindset and are eager to enter the track at the fastest speed.

ArkStream Capital predicts that the "second stage" is on the horizon, shifting the market's focus to product quality, followed by a great reshuffle—low-quality, speculative projects will be quickly eliminated by mainstream funds. With the continuous iterative upgrades of traditional AI technology, ArkStream Capital remains optimistic about the prospects of the entire track. The current level of heat is sufficient to indicate its potential development space, and it is expected that the first batch of AI Agent projects with a market value exceeding tens of billions will soon become a significant milestone in the industry's development.

Meme

Over the past three months, Meme has experienced significant growth and evolution, especially in total market value, trading activity, thematic diversity, and exchange support. From October to early December, the total market value of Meme coins has grown significantly, reaching a historic high, and trading volume has also surged. The market has witnessed the emergence of various new types of Meme coins, including AI Agent-related Memes (GOAT, ACT), art BAN linked to Sotheby's art auctions, squirrel PNUT related to Trump and Elon Musk, and CHILLGUY attracting a large number of TikTok fans, among others. The rise of these emerging Memes has injected vitality into the market, spurred on-chain liquidity, attracted a large number of new investors to enter the market, and contributed to the prosperity and development of the Meme and crypto industries.

Compared to emerging Memes, traditional Memes such as DOGE, PEPE, and WIF have also shown strong performance in the market. In particular, PEPE and WIF successfully landed on Robinhood in November 2024, highlighting not only the recognition of Memes by North American compliant exchanges but also further expanding the market influence of these established Memes.

Combining the relevant data of the Meme sector from the past year, as of the end of 2023, the number of Memes in the top 500 market cap was extremely limited, mainly including a few such as DOGE, SHIB, BONK, PEPE, FLOKI, and ELON, with most Memes having a lower market cap. However, by the end of 2024, the number of Memes in the top 500 market cap had significantly increased to 48, accounting for nearly 10%, with a total market cap reaching around $104.7 billion and a 24-hour trading volume of up to $7.4 billion. All of these indicate that the acceptance and market consensus of Memes are continuously breaking through.

Meme Sector Market Cap, Source: https://coinmarketcap.com/view/memes/

Especially in this quarter, Memes have become the focus of the cryptocurrency market, attracting a lot of investors' attention. With the return of the value investment trend in November, some funds began to flow out of Memes, but some newly listed popular Memes quickly listed on mainstream exchanges such as Binance and Upbit due to their good market performance and large user base. Although the lack of market relay funds caused these Memes to experience significant pullbacks from their highs, ArkStream Capital believes that this pullback is a perfect reflection of market attention economics, indicating that the flow of funds in and out of Memes will undergo significant changes with market attention fluctuations. Many Memes quickly grew their market cap to over $1 billion in a short period of time, so experiencing a pullback and time validation is reasonable.

ArkStream believes that the prosperity of Memes in the industry is not just a temporary phenomenon. As a bridge connecting Gen Z and the Web3 world, with their easy-to-understand and engaging features, Memes are expected to continue to exist and bring emotion and value to the market. Therefore, ArkStream Capital actively seeks opportunities to invest in the Meme sector. In particular, it focuses on and invests in two main areas: portals that provide token information and trading data, as well as Bot products that provide trading convenience and custom strategies, and new Meme launch platforms like Pump Fun. These are core infrastructures in the Meme sector that have sustainable revenue potential; Memes are gradually becoming a means of fair asset issuance, and many projects with actual value support are trying to adopt the Meme form to attract users. They follow the concept of organic growth, with low market cap openings, which is a relatively healthy growth model and reflects the active exploration and innovation of primary market projects in the Meme space.

Project Investment

Ethena

Project Introduction

Ethena, as an innovator in the DeFi space, is committed to providing a variety of stable and scalable crypto-native currency solutions. Its first stablecoin is the crypto-native synthetic dollar USDe, with the core innovation being the use of a Delta hedging strategy to hold a mix of crypto mainstream assets in spot and corresponding short positions to maintain intrinsically stable value. This design does not rely on the traditional banking system infrastructure's USD assets. As a result, USDe not only compares favorably in stability with USD-backed stablecoins like USDC and USDT, but also significantly improves capital efficiency and returns. The second stablecoin, USDtb, was jointly developed with the RWA sector's reputable institution Securitize, leveraging BlackRock's BUIDL to connect traditional financial products such as the dollar, short-term US Treasuries, and repurchase agreements to create a digital dollar supported by real-world asset-backed stable yields. USDtb not only has the advantages of high liquidity, low risk, and stable returns but also achieves transaction transparency and settlement efficiency through Web3 technology. These two stablecoins, USDe and USDtb, expand Ethena's presence in the stablecoin market and enhance the overall robustness and credibility of Ethena's stablecoin solution through synergies.

Why Invest in Ethena

Ethena's vision is to reshape the cryptocurrency system to bridge DeFi, CeFi, and TradFi and foster the prosperity of the next generation of Internet finance. Its first stablecoin, USDe, has achieved deep integration in several key DeFi areas, including the money market, derivative market leveraging collateral, stablecoin infrastructure, interest rate swap agreements, and spot AMM DEX. In the exchange sector, Ethena's liquidity pools support both existing centralized and decentralized trading platforms and help emerging exchanges overcome liquidity challenges in the early stages, becoming a market-leading provider of depth and off-exchange liquidity. In TradFi, Ethena's USDe is highly favored for its unique yield, integrating real yields from two billion-dollar-scale crypto assets, with its yield weakly negatively correlated with traditional financial rates, and the underlying assets are custodyed by TradFi-recognized custodians. USDe provides large investors with a convenient way to access excess returns in the cryptocurrency market through a single asset.

The ENA token plays a key role in the Ethena ecosystem, serving as a governance token that gives holders the right to participate in key decisions, such as electing Risk Committee members and shaping policy direction, as well as providing the opportunity to stake and become an sENA holder to earn additional rewards. As ENA is set to be used as a voting tool for the Ethereal derivatives exchange in the future, its importance in the Ethena development roadmap is becoming increasingly prominent. These functionalities not only solidify ENA's position as a core part of the Ethena protocol but are also crucial for maintaining the protocol's decentralized governance and incentivizing user participation. In terms of liquidity, ENA has shown outstanding performance on major exchanges, with trading volume consistently ranking at the top. This not only demonstrates the market activity of the Ethena protocol but also indicates its broad market recognition and acceptance.

Through deep collaboration with major exchanges, Ethena has implemented a series of hedging strategies to address sudden market events in derivative markets such as futures contracts, ensuring the stability and security of USDe. Additionally, the use of USDe as a trading pair base currency is gradually being implemented, thanks to Ethena's efforts to increase liquidity to mitigate risks. Resource-wise, Ethena has partnered with several top global market makers, providing liquidity and market depth, further enhancing the market adaptability and resilience of USDe.

ArkStream Capital believes that in the stablecoin field, the competitive landscape is far from being determined. While USDT and USDC hold a leading position, emerging competitors have the full ability to challenge their market dominance. The key is to select stablecoin protocols with unique mechanisms that can stably anchor value, increase market capitalization, and expand use cases. Just as DEX now accounts for 10% of CEX trading volume, decentralized financial products are rapidly capturing market resources due to their verifiability and convenience. It is expected that by 2025, decentralized stablecoins represented by Ethena will continue to grow in market size, reaching a 10% market share, equivalent to $200 billion. Additionally, Ethena will become a key financial tool for the implementation of Trump's policies. The implementation of Trump's policies will also drive Ethena's strategic position in the rejuvenation of the U.S. economy and the reshaping of global finance, becoming a key support for the domestic and global digital financial landscape.

TRex

Project Introduction

TRex aims to build a publisher network focused on gaming and entertainment content projects within the blockchain industry. Its goal is to guide project teams through high-quality, scalable, and sustainable development, providing them with support in various aspects such as resource connection, tokenomic design, strategic consulting, and marketing. Taking the recently hatched two-game projects as examples: Legend of Arcadia and Last Odyssey, both have attracted over 100,000 active users. Legend of Arcadia is a multichain card game that accounts for 7% of the total trading volume on X Layer; while Last Odyssey is an MMOSLG strategy game that holds 1.2% of the total trading volume on opBNB.

Why Invest in TRex

Leveraging the strong EVG ecosystem, TRex has a significant advantage in terms of funding and resources. EVG is one of the most successful Web3 project incubators and investment firms in the Asia-Pacific region, with investments and incubations including well-known enterprises and funds such as Celestia, Wormhole, Berachain, Animoca Brands, The Sandbox, Yuga Labs, and Kraken. Furthermore, TRex has established a deep partnership with Animoca Brands. The Sandbox, under Animoca, as a pioneer in the metaverse space, has gained widespread recognition from traditional internet and luxury brands, demonstrating Animoca's excellent incubation capabilities. Both EVG and Animoca are institutions in the Asia-Pacific region with rich resources, solid strength, and extensive experience in the Web3 field, with team members largely from traditional financial backgrounds in Hong Kong. With these advantages, TRex can adopt a high-quality, scalable, and sustainable strategy to provide comprehensive support to project teams, including resource matching, tokenomics design, strategic consulting, and marketing.

Additionally, ArkStream Capital has observed that the trend of continuous development in gaming within the Ton ecosystem and the entertainment content application trend are becoming increasingly evident, whether it be the Web3 game fund launched by traditional gaming giant Nexon or Sony's plan to launch a Layer 1 blockchain. From the Web2 game "Black Myth: Wukong" to the popularity of Taptap games on the blockchain, the market's recognition and demand for such applications are continually growing. It is foreseeable that in the near future, more developers and project teams will actively engage in this field. TRex's one-stop, customizable issuance and incubation services will help project teams develop projects at a lower cost and access higher-quality resources, undoubtedly providing strong support for the project's development.

ArkStream believes that with its outstanding track record and high-caliber team background, TRex has garnered support from multiple senior experts in the Web2, Web3 gaming, and TMT industries. The platform's planned publisher network and expanding ecosystem make TRex a high-quality project with investment value. As blockchain applications diversify and scale, the TRex network and its platform token are expected to become an indispensable component of the GameFi sector.

Research Report

ArkStream Capital: Why We Invested in Ethena After Trump's Victory

ArkStream Capital: The Meme Craze | A New Battlefield for VCs – Opportunity or Trap?

ArkStream Capital: How PayFi Unlocks a New Chapter in Crypto Payments

Original Article Link