Analysis & Opinions

Oracle-Mania & the Binance Effect: A Data Perspective by IntoTheBlock

Powered by

Every week, IntoTheBlock brings you an on-chain analysis of top news stories in the crypto space. Leveraging blockchain’s public nature, IntoTheBlock’s machine learning algorithms extract key data that provide a deeper dive into the major developments in the industry. 

As Bitcoin and Ethereum have been consolidating near key levels like $12,000 and $400 respectively, some altcoins have enjoyed parabolic run-ups reminiscent of 2017. Particularly, oracles have outperformed throughout the last week, with both Chainlink and Band Protocol hitting new all-time highs. This week we cover on-chain data diving into the implications behind this price action. Similarly, we go over key indicators affected by yearn.finance’s YFI token listing in Binance.

Oracle-Mania Sees All-Time Highs

For years now, Chainlink’s avid supporters have praised the native LINK token for its many integrations with reputable partners. With most data currently not being supported on the blockchain, oracle solutions such as Chainlink fix the problem of accessing off-chain data, bridging the gap between the internet and decentralized applications. As more partners integrate Chainlink, in theory demand for LINK should increase as it is used as a utility token providing data accessed through oracle smart contracts. 

Recently, with an increased risk appetite for decentralized finance (DeFi) tokens, oracle tokens have benefited from association. While oracle services in reality span more than just financial data, they do provide price data to most of the top DeFi protocols, which may have led to them falling under this umbrella term. Benefiting from this— along with its bustling community— Chainlink has outperformed broader crypto markets with over a 10x return year-to-date. 

The price action has gone particularly parabolic since July, with LINK’s price going from $4 to $14 within less than a month and a half. Along with price activity, the number of daily active addresses using LINK has reached new all-time highs.

As of August 11, 2020 10PM (EST) using IntoTheBlock’s Chainlink addresses stats

While much of the increase in users could be attributed to demand from integrations, the spikes coinciding with price action points to large amounts of speculation taking place. 

Moreover, by classifying addresses, we can attain better insights on how LINK holders are positioning themselves amid the rapid price increase. IntoTheBlock labels as zero balance addresses those that transfer out or sell all of their tokens. It also classifies new addresses that were created and received tokens for the first time. The difference between these provides a proxy of a protocol’s network growth. As can be seen from the image below, the number of zero balance addresses for LINK has significantly outpaced the number of new addresses:

As of August 11, 2020 10PM (EST) using IntoTheBlock’s Chainlink addresses stats

While these two graphs do not necessarily signal that LINK’s price will crash right away, they do point to the fact of high speculative activity taking place where more addresses are selling than entering the network. 

Similar to Chainlink, Band Protocol offers oracles bringing off-chain data on-chain in a decentralized manner. A key difference between the two, though, is that Band Protocol’s interoperability allows it to provide oracles across multiple layer one blockchains, while Chainlink currently only supports Ethereum. Band Protocol is able to do this by leveraging Cosmos software development kit. 

While Band Protocol and its native BAND protocol have been around for less time than Chainlink, oracle-mania has propelled the BAND token to appreciate remarkably (60x year-to-date) and set all-time highs across multiple on-chain metrics too. As can be seen below, BAND daily active addresses reached an all-time high along with the tokens price on August 10.

As of August 11, 2020 11PM (EST) using BAND ERC-20 addresses stats

Despite following similar patterns to the ones seen in Chainlink, the number of new BAND addresses is increasing at a faster rate than the number of addresses going to zero. This indicates that despite there being significant speculative activity, at least Band Protocol’s network appears to be growing. 

Overall, the trend among crypto investors favoring oracles protocols’ tokens has attracted a slew of speculators, boosting token prices and on-chain activity. While there is an underlying need satisfied by oracles, expectations for these tokens may be getting ahead of themselves. Ultimately, oracle-mania is showing similarities with 2017 that traders should be cautious about before investing.

DeFi Tokens Experience the ‘Binance Effect’

experienced by many ICOs in 2017. While the products being shipped by DeFi protocols differentiate them from the vaporware pitched by ICO teams, investors’ expectations in both cases appear to be irrationally exuberant. This is evident when looking at the recent listing of yearn.finance governance token YFI in Binance. 

In 2017, the term “Coinbase Effect” was coined after Litecoin and Bitcoin Cash’s price increased by over 50% within days of being listed on the San Francisco-based crypto exchange. In 2020, we have seen the same happen with the listings of OMG and MKR in Coinbase in late May and early June respectively. More recently, the hyped YFI and BAL tokens have experienced similar price run-ups after getting listed on Binance, as traders have been eager to get their hands on DeFi tokens. 

Within a couple of days of the BAL listing, Binance proceeded to add yearn.finance’s YFI token to their platform on August 10. Despite yearn.finance’s Andre Cronje repeatedly stating that YFI was meant to be earned and that it would be a valueless token, Binance traders begged to differ as YFI’s price blew up by over 50% within 24 hours. 

As Binance users rushed to buy YFI, the total number of holders increased along with it. Currently, the number of YFI addresses with a balance is approaching 5,000, growing by over 10% on the day it got listed on Binance.

As of August 11, 2020 10PM (EST) using IntoTheBlock’s YFI addresses stats

While a 10% increase in the number of addresses with a balance may not seem as significant, it is important to note that centralized exchanges hold users’ private keys. By doing so, they often aggregate multiple users’ tokens within one or a few addresses. This points to the likelihood that the number of YFI holders increased by more than 10%. 

On the other hand, in DEXs, users do hold their own keys, so the assumption of one address being equal to one user is more accurate in this case. In YFI’s case, the growth in total addresses with a balance may be linked to users buying YFI in Binance and transferring their tokens to the YFI protocol. 

There had been rumors of YFI being one of the most hyped tokens in the Eastern hemisphere. This led to the Chinese forked version YFII and the Korean fork Asuka token, the latter which concluded in an exit scam. Using IntoTheBlock’s East vs West metric we can track an on-chain heuristic classifying transactions that occur during Eastern market hours versus those happening in Western trading times.

As of August 11, 2020 10PM (EST) using IntoTheBlock’s YFI East vs West

As shown in the graph above, Eastern transactions had dominated on August 8 and by an even larger ratio of 3-to-1 on August 7. This trend reversed the day prior to the Binance listing, with 60% of transactions occurring in the West. On August 10, as YFI was listed on Binance, Western transactions consisted of 66% of the total of 3,800 transactions. 

While this has consolidated YFI’s appeal as a global token, sudden increases like these in particular time zones are relevant for traders following YFI when there is volatility like that seen on August 10. 

DeFi tokens have become the most recent benefactor of listings in large exchanges. While in 2017, Coinbase was the focal point, the Binance effect is appearing to gain some steam with the listings of BAL and YFI. Asides from the evident price increases and growing speculation in DeFi tokens, on-chain data suggests that listings in large exchanges benefit the tokens with a broader reach of institutional and retail investors, as well as further liquidity. Ultimately, this should contribute positively to these tokens and their respective protocols, but it is important to proceed with caution as these price spikes signal high speculative activity taking place.

This article contains links to third-party websites or other content for information purposes only (“Third-Party Sites”). The Third-Party Sites are not under the control of CoinMarketCap, and CoinMarketCap is not responsible for the content of any Third-Party Site, including without limitation any link contained in a Third-Party Site, or any changes or updates to a Third-Party Site. CoinMarketCap is providing these links to you only as a convenience, and the inclusion of any link does not imply endorsement, approval or recommendation by CoinMarketCap of the site or any association with its operators.

This article is intended to be used and must be used for informational purposes only. It is important to do your own research and analysis before making any material decisions related to any of the products or services described. This article is not intended as, and shall not be construed as, financial advice. 

The views and opinions expressed in this article are the author’s own and do not necessarily reflect those of CoinMarketCap.

ITB is a tribe of data scientists, cryptocurrency experts and AI geeks that set out on a journey to unlock the mysteries of crypto assets and provide investors with relevant intelligence about the market.

%d bloggers like this: