The Ultimate Guide to the Top 10 Protocols on Optimism

Executive summary: Optimism is a leading Layer-2 scaling solution for Ethereum, which uses “optimistic rollups” to make Ethereum faster and cheaper. This has allowed the company to rapidly amass nearly $1 billion in Total Value Locked (TVL).

The network’s native token, OP, has a market cap of over $660 million. If investors are optimistic about Optimism, the OP token is like investing in the “company.” Similarly, the protocols built on top of Optimism are “companies” in their own right, many spanning multiple chains.

This provides interesting opportunities for investors to buy and hold quality tokens for the long term. We’ll cover all these investing opportunities below.

top 3 projects in blockchain chart
Optimism has steady, consistent revenues. Image via Token Terminal.

What is Optimism?

Ethereum still dominates decentralized finance (DeFi), accounting for about 60% of total value locked (TVL) in the space. However, even with the transition to a Proof-of-Stake (PoS) consensus mechanism, there is still room for improvement, and that’s what Layer-2 solutions aim to achieve.

Optimism is one of the fastest-growing Layer-2 networks, and its goal is to make Ethereum faster and cheaper, driving DeFi and Web3 adoption. While Polygon and Arbitrum are still larger L2s in terms of TVL, Optimism is showing good revenue growth, particularly against Arbitrum, its closest competitor.

Optimism’s fundamental technology, called “optimistic rollups,” bundles numerous transactions into manageable portions, effectively boosting transaction speed while reducing associated costs. This approach has fostered its growth to nearly $1 billion in TVL.

total value locked
Image via DeFi Llama

Let’s break down “optimistic rollups.”

Transactions are executed on Optimism (Layer-2) and subsequently batched and submitted to Ethereum (Layer-1). These batches are the “rollups,” optimizing user experience and safeguarding transactions.

Optimism’s transactions are presumed valid until proven otherwise (an “optimistic” viewpoint), with a challenge period that offers a window for fraud detection. This results in a seven-day withdrawal period from Optimism to Ethereum, ensuring the validity and security of each transaction.

Optimism supports various DeFi wallets, as well as additional projects to be built on top of it. OP’s market cap is over $660 million at the time of writing, while the blockchain hosts over 100 decentralized finance (DeFi) applications, each their own investment opportunity.

NameYear LaunchedTotal Value Locked (TVL)Market CapDaily Active UsersMonthly RevenueBMJ Score
Uniswap V32018$4.1B$3B64,100$50M4.5
Aave V32017$5.3B$1B2,400$1B4.0
Stargate Finance2022$442M$134M30,000$1.2M3.5
Curve Finance2020$4.4B$790MN/AN/A3.0
Velodrome Finance2022$290M$29M2,300$222K2.0
Beethoven X2021$86M$5.6M127N/A1.5
Sonne Finance2022$35M$5M400$60K1.0

Top 10 Protocols on Optimism by Total Value Locked

uniswapUniswap v3

Type of dApp: DEX
BMJ Score: 4.5

Uniswap is the largest DEX by trading volume. The v1 platform was launched in 2018 as an AMM model. Uniswap v3 was launched in 2021 on Ethereum mainnet and later deployed on Optimism and four other chains. It introduces concentrated liquidity and multiple fee tiers, allowing liquidity providers (LPs) to control capital allocation and compensate risk.

The latest version offers up to 4000x capital efficiency compared to v2, leading to higher returns and lower slippage. LPs can optimize asset exposure and simulate fee-earning limit orders. Furthermore, v3’s oracles provide time-weighted average prices (TWAPs) for improved integration. Thanks to its advanced features, Uniswap v3’s Ethereum swaps are slightly cheaper than v2, while Optimism deployment significantly reduces costs.

At the time of writing, v3 accounts for almost 75% of all activity on the Uniswap ecosystem, with almost $3 billion in TVL.

AAVE logoAave v3

Type of dApp: Lending
BMJ Score: 4.0

Aave is a decentralized, non-custodial lending protocol enabling users to supply, borrow, or liquidate assets. The v3 version of the protocol enhances yield generation, borrowing power, and introduces novel features. The Portal feature facilitates cross-network liquidity flow, allowing approved bridges to transfer assets between Aave v3 markets. The Efficiency Mode optimizes borrowing power for correlated assets, promoting use cases like high-leverage forex trading and efficient yield farming. Isolation Mode permits new assets to be listed as isolated, limiting the collateral to a single asset. Siloed Borrowing allows potentially manipulable oracles (like illiquid Uniswap v3 pairs) to be borrowed separately, minimizing risk to the protocol’s solvency.

At the time of writing, Aave v3’s total value locked (TVL) is $1.4 billion compared to v2’s $4+ billion. In terms of active loans, Aave is more than 400% ahead of its nearest competitor Compound.

stargateStargate Finance

Type of dApp: Cross-chain
BMJ Score: 3.5

Stargate Finance is a LayerZero-based cross-chain bridge solution, simplifying cross-chain token trading between various blockchains such as Ethereum, Optimism, BNB Chain, Avalanche, Polygon, Arbitrum, and Fantom.

Stargate focuses on stablecoins and leverages LayerZero’s infrastructure to establish liquidity pools with attractive interest rates. Stargate addresses security concerns that are common among bridges. It relies on cross-verification technology between Oracle and LayerZero and uses omni-chain tokens instead of the wrap-token method to ensure a high level of security.

Key features include 1:1 native asset cross-chain swaps, unified liquidity pools, and earning stablecoin rewards through providing liquidity. Users can farm the native STG token and stake it to receive veSTG, Stargate’s governance token. As the leading Layer-0 bridging solution, Stargate enjoys over 20x the daily users as its nearest competitor, giving it significant revenue growth in 2023.


Type of dApp: Synthetic asset protocol
BMJ Score: 3.5

Synthetix is a decentralized finance (DeFi) protocol on Ethereum and Optimism, enabling users to mint and trade synthetic assets that mimic real-world and crypto assets without the need for intermediaries. Through the use of its native token (SNX) as collateral and smart contracts, Synthetix can generate synthetic assets (synths) like sUSD and sBTC, which track the value of the US dollar and bitcoin, respectively.

The protocol relies on decentralized price oracles to ensure accurate tracking and offers exposure to various asset classes, including commodities, fiat currencies, and indexes. Synthetix serves as a backend liquidity provider for user-facing DeFi apps, addressing liquidity and slippage issues common in DEXs. As Ethereum gas fees have increased, Synthetic has seen its revenues increase by more than 50% since the start of 2023.

curve financeCurve Finance

Type of dApp: DEX
BMJ Score: 3.0

Curve Finance is a DEX focusing on stablecoin trading. It is currently the largest DEX by TVL, with almost $5 billion worth of crypto locked on Curve at the time of writing. As an AMM similar to Uniswap, Curve facilitates efficient transactions by maintaining low fees and slippage through its liquidity pools.

The platform’s focus on stable assets, including DAI, USDT, USDC, BUSD, and TUSD, differentiates it from other DEXs. The CRV token, the native token of the Curve protocol, incentivizes liquidity provision and encourages user involvement in the governance process. Curve’s substantial liquidity makes it a valuable component of other DeFi apps, such as Yearn Finance and Compound. Utilizing a unique pricing formula, Curve minimizes slippage, even for substantial transactions, offering competitive rates comparable to centralized exchanges.

While Curve has far fewer pools then its closest competitor Uniswap, it also has more than double the TVL. With its focus on stablecoins it is poised for significant growth once the U.S. clarifies its stance on stablecoin regulation.


Type of dApp: Yield aggregator
BMJ Score: 2.0

Beefy is a decentralized, multichain yield optimizer that facilitates compound interest earning on crypto holdings. The yield aggregator supports 20 networks, including Optimism.

Through smart contract-based investment strategies, Beefy maximizes rewards from liquidity pools, AMM projects, and other yield farming opportunities. Its main product is Vaults, which allow users to stake multiple crypto tokens that are automatically compounded to increase the initial deposit. Importantly, despite the name of the product, funds are not locked, and users maintain full control.

BIFI, Beefy’s native token, offers holders a share of platform revenue and voting rights on governance issues. Staked BIFI can earn more BIFI or blue-chip tokens like ETH, BNB, and others in BIFI Earnings Pools.

While there are nearly 100 yield aggregators, Beefy is the second largest, eclipsed only by Where it really excels is in the chains supported. Where Yearn supports only 4 chans, Beefy supports 20, making it the yield aggregator with the broadest support for chains.

velodromeVelodrome Finance

Type of dApp: DEX
BMJ Score: 2.0

Velodrome Finance is a decentralized exchange (DEX) employing the Automatic Market Maker (AMM) model. It is built on the codebase of Solidly and is focused on Optimism, aiming to deliver deep liquidity, low exchange fees, and minimal slippage. Currently, it accounts for about a third of all TVL on Optimism.

Velodrome combines the Vote-Escrow Token (veVELO) and Olympus DAO (3.3) game theory mechanisms, rewarding liquidity providers and veVELO holders with VELO emissions and encouraging long-term holding.

Its unique “bribe” feature enables users to incentivize veVELO holders to vote for their preferred liquidity pools. With up to 500 supported pairs and multiple liquidity pools, Velodrome offers a diverse, low-cost trading platform that benefits traders, veVELO holders, and the broader Optimism ecosystem.

beethovenBeethoven X

Type of dApp: DEX
BMJ Score: 1.5

Beethoven X is a community-driven DEX and DeFi platform residing on Optimism and Fantom Opera. It was developed by an anonymous team and represents a fork of the Balancer v2 protocol, one of the largest DEXs.

Beethoven X offers innovative, capital-efficient DeFi solutions for crypto traders and investors. It encompasses programmable liquidity, offering a future-oriented product adaptable to the evolving needs of the industry. Its core infrastructure includes unique features such as Weighted and Boosted Pools as well as Liquidity Bootstrapping Pools (LBPs). The pools comprise up to 8 crypto assets and function as self-balancing index funds.

The platform generates revenue through trading and flash loan fees, part of which is redistributed as BEET rewards to fBEETS holders (representing LP positions). Users can earn rebalancing fees and additional incentives by maintaining the crypto equivalent of an index fund.


Type of dApp: Asset management
BMJ Score: 1.5

dHedge is a decentralized asset management platform operating on Ethereum-based blockchains, including Ethereum, Polygon, and Optimism. The non-custodial and censorship-resistant protocol enables users to maintain full ownership of their assets while benefiting from expert management strategies.

By connecting any ERC-20 compatible wallet to the dApp, individuals can deposit, store, and sell trust-minimized vault tokens without lockups. The platform puts a great emphasis on transparency, with all transactions being verifiable on the blockchain. Key features of dHedge include non-custodial fund ownership, decentralization, social interactions between managers and depositors, and verifiable transactions. Users can invest in various strategies based on transparent track records.

Besides using the platform as a way to find potential fund managers, trading in the DHT token can be quite lucrative as it tends to trade in a fairly well defined range.

sonnefinanceSonne Finance

Type of dApp: Lending
BMJ Score: 1.0

Sonne Finance is a decentralized, transparent, and non-custodial lending and borrowing protocol native to the Optimism network. Compatible with the Ethereum Virtual Machine (EVM), it operates similarly to established platforms like Compound Finance and Aave.

Sonne Finance offers high-liquidity money markets with dynamically adjusted incentives for assets such as wETH, USDC, USDT, DAI, OP, and sUSD. The platform aims to be the leading lending solution on Optimism by providing competitive incentives, deep liquidity, and native integration. Additionally, it introduces a unique bribe-reward mechanism in collaboration with Velodrome Finance, benefiting sSONNE stakers with revenue shares and VELO tokens.

Investor Takeaway

Optimism’s Layer-2 scaling solution presents significant growth potential for Ethereum, effectively addressing scalability and cost issues. Its user-friendly interface, compatibility with various DeFi wallets, and support for over 100 DeFi applications position it as a promising investment opportunity.

The native token, OP, has shown consistent stability, with its price ranging from $1.70 to $3.00 for most of this year. By contrast, Arbitrum’s ARB token, after surging at the start of the year, has been dropping steadily for most of 2023. Polygon’s MATIC has seen a similar pattern, doubling to start the year and then returning nearly to its baseline.

The prominent protocols operating on Optimism, including Velodrome Finance, Synthetix, Aave, and Uniswap, are innovative DeFi solutions with large user bases, reinforcing Optimism’s potential for substantial growth.

However, if Ethereum can solve its scalability issues, we do not know if L2s will be needed long-term. Even if they are, we don’t know which L2(s) will capture most of the market. While we believe in Ethereum as an L1, the battle for L2 supremacy is just beginning, and it’s still anyone’s game.


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The post The Ultimate Guide to the Top 10 Protocols on Optimism appeared first on Bitcoin Market Journal.

China Exploring Hong Kong as a Crypto Hub: Investor’s Narrative

Executive summary: Despite China’s ban on crypto operations, Hong Kong is positioning itself as a regional crypto and Web3 hub, attracting blockchain firms and legalizing retail cryptocurrency trading. With a robust regulatory framework in place, Hong Kong has already received expressions of interest from over 80 companies providing crypto-related services.

Bitcoin (BTC) and Ethereum (ETH) are expected to be the chief beneficiaries, but emerging Web3 services also warrant attention. Investors should monitor the evolving regulatory landscape and follow mainland China’s moves, as loosening crypto restrictions could cause the market to surge.

China’s Evolving Stance on Crypto

During the initial years of bitcoin’s existence, China was one of the most important countries for the crypto industry, as it hosted many companies operating exchange platforms, wallets, and other services. Moreover, China alone accounted for about two-thirds of all bitcoin mining in 2019-2020.

However, the Chinese government subsequently decided bitcoin and other cryptocurrencies pose many risks that outweigh the potential benefits. The result was Chinese authorities gradually cracking down on all retail crypto operations.

In 2017, it started with initial coin offerings (ICOs). The government shut down all ICO platforms and operations when they were at their peak. If a local exchange sold ICO tokens, they had to return the funds to investors.

During that time, China cracked down on many crypto exchanges, but the countrywide ban came in 2021. As bitcoin skyrocketed to fresh records, China banned crypto mining and prohibited all crypto transactions altogether, forcing mining and exchange companies to relocate.

share of global hashrate monthly average
Evolution of the countries’ share of mining operations. Via Cambridge Centre for Alternative Finance.

Hong Kong as an Experiment

Even though Hong Kong is officially part of China, it remains somewhat separate due to its status as a special administrative region (SAR). This status gives the city more freedom; thus it might choose not to enforce Beijing’s crypto rules. Due to the proximity to the mainland territory, many crypto companies might relocate to Hong Kong in search of better conditions.

The good news is that Hong Kong plans to become a regional crypto and Web3 hub and even compete with Singapore to attract blockchain firms, especially after Singapore moved to a tough stance on crypto businesses last year. Crucially, Hong Kong has reportedly obtained the nod from Beijing.

At the end of 2022, Hong Kong said during its government-backed fintech week event that it planned to legalize cryptocurrency retail trading and develop a licensing system for crypto exchanges and other blockchain companies.

Some believe that China will closely monitor Hong Kong’s crypto story before returning to the crypto question itself.

Deng Chao, CEO of digital asset manager Hashkey Capital, commented on Hong Kong’s crypto initiative:

“In the future, it may serve as a model for policy formulation in other regions [in China] if it proves successful.”

Strong Regulation Expected

As Hong Kong prepares to become crypto-friendly, it is creating an extensive regulatory framework for digital assets and blockchain operations. In February 2023, the city’s Securities and Futures Commission (SFC) released draft rules enabling investors to trade certain major cryptocurrencies starting June 1, 2023. However, it didn’t mention which coins would be supported.

The financial regulator plans to introduce a new licensing regime to take effect on June 1. The new rules will require all centralized crypto exchanges doing business in Hong Kong to be licensed by the SFC. The regulatory requirements are expected to be similar to those for licensed securities brokers and automated trading venues.

SFC CEO Julia Leung stated:

“In light of the recent turmoil and the collapse of some leading crypto trading platforms around the world, there is clear consensus among regulators globally for regulation in the virtual asset space to ensure investors are adequately protected and key risks are effectively managed.”

Who is Interested?

In February, the city’s Department for Foreign Direct Investment received “expressions of interest” from more than 80 companies offering crypto-related services. The companies, located in mainland China and abroad, include crypto exchanges, blockchain infrastructure firms, blockchain network security firms, crypto wallets and payment operators, and other Web3 companies.

group listening to a speaker

KuCoin, one of the largest crypto exchanges by trading volume, stated last year that it would open an office in Hong Kong. Other major companies planning to expand their presence in the city are Huobi, OKX, and

Interestingly, crypto firms have found an unexpected ally: Chinese state-owned banks. Bloomberg cited people familiar with the matter saying that Chinese banks, including Shanghai Pudong Development Bank (600000:CH), the Bank of Communications Co. (BKFCF:US), and Bank of China Ltd. (3988:HK), have either started providing banking services to crypto companies in Hong Kong or made inquiries with crypto firms.

Institutional investors are also monitoring Hong Kong’s transformation into a potential crypto hub, looking to become early beneficiaries in the competition to win market share.

Which Tokens Might Benefit Most?

Hong Kong is about to shortlist the cryptocurrencies to be accepted for trading starting on June 1. While it hasn’t indicated which digital assets would be accepted, the list will likely include bitcoin (BTC) and Ethereum (ETH), which will probably remain the primary beneficiaries.

Ethereum can be a major winner as Hong Kong has suggested it plans to become a Web3 hub. The majority of decentralized applications (dapps), non-fungible tokens (NFTs), and other Web3 elements rely on Ethereum as their underlying infrastructure.

In terms of currently popular dapps in the Asian region, the decentralized exchange 1inch (INCH) continues to see great interest. In terms of centralized exchanges, leaders include Binance (BNB) and Kucoin (KCS), along with OKX.

Another potential winning blockchain will be Polygon (MATIC). This ties into the popularity of gaming in Asia in general and in China specifically. According to a DappRadar study, Polygon is the favored blockchain for game development, with 30.8% of web studio game developers choosing Polygon. This is important, because Asia has 55% of the total global gamers, representing some 1.7 billion users.

In China gaming is dominated by Tencent (TCEHY:US), and while the company isn’t currently developing blockchain games, it has recently announced a number of partnerships that indicate it may be moving into the blockchain space in response to the news. Tencent will jointly develop a suite of blockchain API services with Web3 infrastructure provider Ankr (ANKR), and is also partnering with several Web3 infrastructure builders, including Avalanche (AVAX), Scroll, a Layer-2 scaling solution for Ethereum; and Sui (SUI), a relatively young Layer-1 blockchain created by ex-Meta employees.

Can Hong Kong Become a Crypto Hub?

Despite the strict regulations anticipated, the Hong Kong crypto hub plan has all prerequisites to become a reality. The city’s initiative is becoming even more relevant today as the US, until recently one of the best jurisdictions for crypto businesses, has been cracking down on crypto operations in reaction to the collapse of FTX.

Coinbase, the largest crypto exchange in the US, is considering relocating due to “regulatory uncertainty.” As we can see, the lack of clear regulation can be a problem. It remains to be seen how restrictive Hong Kong is going to be.

Investor Takeaway

As Hong Kong takes steps to become a crypto and Web3 hub, investors should keep a close eye on the evolving regulatory landscape and the potential impact on the crypto space. It makes sense to monitor the list of approved tokens when it becomes public and the level of support from mainland China. If the latter starts loosening its crypto ban, the market will likely explode.

Bitcoin (BTC) and Ethereum (ETH) are expected to be the major beneficiaries, but emerging Web3 services deserve attention as well.


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The Intersection of Smart Contracts and AI

Executive Summary: We explore the potential of combining blockchain smart contracts with artificial intelligence. By merging these technologies, various industries will benefit from enhanced security, analytics, auditing, predictive modeling, fraud detection, and cross-chain interoperability.

Key applications include decentralized prediction markets, fraud detection, supply chain management, decentralized autonomous organizations (DAOs), and personalized investment portfolios. Investors can capitalize on this convergence by seeking exposure to innovative AI projects that are showing early user traction.

Blockchain and artificial intelligence (AI) are perhaps the two most disruptive technologies of our time. Can you imagine what they might do together?

Both technologies are a part of what is being called the fourth industrial revolution. While blockchain has been in the spotlight over the past few years, AI has attracted less attention until very recently. The launch of OpenAI’s ChatGPT at the end of 2022 changed everything, with the tool hitting the 5 million user mark in only five days.

Even more important for investors is the forecast for the AI and smart contracts market to grow by 53.4% CAGR through the end of the decade, going from $20.7 billion in 2022 to $414.8 billion in 2029.

global ai and smart contracts

This amazing growth can be attributed to the process efficiencies that businesses can secure from AI, and the ability of smart contracts to automatically implement these efficiencies.

Why AI and Smart Contracts go Together

AI can make smart contracts way smarter. Since blockchains operate with data and transactions, they can significantly benefit from AI, a technology that uses data to learn and improve.

Here is how AI could benefit smart contracts:

Security – Smart contracts already provide a high level of security thanks to decentralization. AI can enhance security by identifying potential vulnerabilities and loopholes, contributing to the overall security of smart contracts and reducing the risk of exploitation.

Analytics – AI can be used to build analytics tools that provide insights into smart contract performance, enabling developers and users to make decisions based on data patterns.

Auditing – AI can automatically audit smart contracts to ensure they comply with industry standards and best practices based on the jurisdictions they operate in.

Predictive modeling – AI can navigate historical data to predict smart contract and transaction outcomes, helping parties better understand the potential risks and rewards of a given smart contract. AI can also be used to simulate transactions before they go live.

Dispute resolution – Developers can integrate AI into smart contracts to analyze contract data and suggest fair resolutions in case of conflicts, improving the dispute resolution process and reducing reliance on human intermediaries.

Anomaly detection – AI can monitor contract activity in real-time and identify unusual patterns or red flags, allowing for quick intervention and mitigation of risks.

Cross-chain interoperability – Cross-chain communication is essential for the fragmented blockchain market. AI can facilitate the development of interoperable smart contracts, enabling seamless interactions between different chains and promoting a more cohesive ecosystem.

ai chip

Current and Future Use Cases

For investors researching real projects using AI and blockchain, here are a few examples of live projects (with their token symbols), as well as potential future applications.

Use Case #1: Decentralized Prediction Markets

Decentralized prediction markets are blockchain-based markets where users trade the outcome of events, which can be related to finance, sports, politics, contests, etc. Some of the largest prediction markets operating in decentralized finance (DeFi) are Augur (REP), Polymarket, and Gnosis (GNO). A total of over $10.6 billion worth of crypto are locked with these three protocols.


Augur is the OG of prediction markets. Founded in 2014, its tagline is “the world’s most accessible, no-limit betting exchange.” It uses the “Wisdom of Crowds” to ostensibly create an accurate forecasting platform. The platform enables users to create a market for forecasting a specific future event, such as who will win a sporting event, or whether the price of an asset will reach a certain level by a specific time.


Polymarket is an information markets platform. Like other prediction markets, it allows users to speculate on the outcome of various current events. With Polymarket, users are able to build a portfolio of forecasts, profiting if those forecasts are right. Market prices reflect what traders think are the odds of future events, turning trading activity into actionable insights that help people make better decisions. This potentially makes Polymarket a valid source of unbiased and real-time data about future events. Unlike other prediction markets, Polymarket does not have its own token. Instead it uses USDC in its marketplace. With over $5 million TVL it is among the largest prediction marketplaces at the time of this writing.


Gnosis began as a prediction market on Ethereum back in 2015. Since then it has evolved into the Gnosis Chain, an open framework for development, and supports a number of third-party dapp prediction markets like Azuro, Omen, and Reality Card. These platforms allow users to bet on the outcome of sport events, cryptocurrency prices, technology developments and politics, among other categories. Other products developed by Gnosis include Conditional Tokens, a new asset class designed to facilitate the creation of highly liquid prediction markets; the C0W protocol, which is a permissionless trading protocol; and Safe, a decentralized custody protocol and asset management platform.

AI can take prediction markets to another level by enhancing their efficiency, accuracy, and security. AI algorithms can work alongside smart contracts to improve various aspects, including data analysis, decision-making, and dispute resolution.

AI can analyze massive amounts of historical and real-time data, helping users make informed decisions on market outcomes and potentially develop prediction strategies. This opens the door to more accurate predictions by identifying trends and patterns, which can lead to improved market performance.

Besides analytics, AI can be used for automation, as it can streamline the execution of prediction market transactions, ensuring transparent, tamper-proof, and trustless settlements.

Use Case #2: Fraud Detection

The combination of AI and smart contracts can lead to a more efficient fraud detection system that is adaptable to different threats. Enterprises and researchers can train machine learning models to detect suspicious activities and inconsistencies in transaction data. AI systems with the ability to recognize fraud indicators can monitor transactions in real-time to protect user funds.

Based on AI findings, smart contracts can enforce predefined responses to avoid fund losses, such as freezing accounts, alerting the involved parties, or launching follow-up investigations.

Integrating AI and smart contracts in fraud detection systems represent a powerful solution to reduce financial fraud. Combining AI capabilities in pattern recognition and data analysis with the automation potential of smart contracts enables organizations to build a proactive and resilient fraud detection system to protect end users against financial threats.

Use Case #3: Supply Chain Management

In supply chain management, the two technologies can be merged to enhance transparency, efficiency, and traceability of goods. For example, AI can analyze data from multiple sources, such as Internet of Things (IoT) devices, to monitor the movements of goods and anticipate bottlenecks or disruptions.

Elsewhere, smart contracts can automate transactions, payments, and contract agreements between participants, ensuring the smooth flow of goods and data. This technological symbiosis can ensure better collaboration between multiple parties, reduce paperwork and manual intervention, and boost the overall reliability of supply chains.

group working together

One company that already uses both technologies for the supply chain is Bext360. It employs AI and blockchain to improve transparency and efficiency in the supply chain systems employed in the coffee, lumber, seafood, and mineral industries. AI evaluates crops and anticipates growth patterns, while blockchain ensures that a product’s supply chain is monitored closely from seed to completed product.

Use Case #4: Decentralized Autonomous Organizations (DAOs)

A decentralized autonomous organization (DAO) is a community-driven enterprise or organization where the decision-making power is in the hands of users and ecosystem members rather than centralized managers. AI can improve DAOs by bringing more efficiency and responsiveness.

AI-powered DAOs could well become the next big thing in governance. The relationship can get its acronym soon: AI DAOs, which will make better governance decisions by eliminating human bias while integrating with other DAOs and projects.

Interestingly, AI and DAOs have a dual relationship, as they can improve each other. Not only can AI automate DAO processes, but decentralized organizations can effectively be used to develop AI infrastructure. is a relevant example that reflects both scenarios, with an emphasizes on the latter. Its goal is to democratize the AI creation process thanks to DAOs, which enable everyone to create or support AI technologies. allows anyone to create an AI NFT, which is a type of machine learning model that also acts as a new asset class capable of encapsulating neural networks or a digital genome that can be represented by a person’s voice, face or other biometric data. uses a unique consensus method it calls “Proof of Human,“ a complex blockchain-based governance, consensus and verification system that ensures that every AI NFT is backed by a human decision.” With this consensus, the blockchain ensures that every NFT issued is under human supervision. This allows anyone to participate in the governance and management of the AI, while ensuring that it remains aligned with human objectives. They call this “ethical AI.”

One of the roles of these AI NFTs is in governance of the network. Because each person can set the rules behind how their AI NFT responds to requests, in time these NFTs will be able to autonomously govern decisions.

Use Case #5: Personalized Investment Portfolios

The merger of AI and smart contracts has a lot of potential applications in finance. For investors, a great example would be personalized investment portfolios.

AI and smart contracts can transform the way investment portfolios are created and managed, resulting in efficient and personalized strategies tailored to individual risk profiles.

AI can be used to analyze large amounts of financial data, such as market trends, asset correlations, and investment approaches, optimizing the creation of personalized strategies. With machine algorithms and predictive models, AI can discover investment opportunities, assess the risks related to them, simulate outcomes, and determine the most balanced allocation based on an investor’s unique goal and investment horizon.

two colleagues working together

On the other hand, smart contracts can automate the execution of these personalized investment strategies, especially when the portfolios are focused on digital assets.

For example, investors can pick digital assets with the help of tools like Token Metrics, which uses AI to analyze crypto trends for personal investment purposes. The technology tracks the performance of over 6,000 crypto and NFT projects and extracts relevant insights.

We also wonder how a combination of AI and smart contracts might improve the performance of our elegantly simple, and already successful Blockchain Believers portfolio.

Investor Takeaway

The intersection of smart contracts and AI offers a plethora of opportunities for investors. To begin with, investors can take advantage of this growing synergy by investing in projects poised to lead the AI and blockchain integration trend.

They can also diversify investments across projects that demonstrate successful proof of concept, showcasing the potential of AI and smart contract collaboration in various sectors, such as finance, logistics, governance, and security.

By embracing the convergence of AI and smart contracts, investors can position themselves at the forefront of a technological revolution, benefiting from being early adopters in this rapidly evolving landscape.

Lastly, investors should keep an eye on regulatory developments surrounding AI and smart contracts, as they can impact the growth and adoption pace of related projects and technologies.


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Best Interest Rates: Stablecoins vs. Fiat Currencies

Executive Summary

Stablecoins – digital currencies pegged to traditional assets – have driven crypto adoption by mitigating volatility and facilitating access to digital assets. Representing 11% of the crypto market, leading stablecoins USDT, USDC, and BUSD have remained stable over the long term, despite the downfall of some algorithmic stablecoins.

StablecoinsHighest Rate (and where)Lowest Rate (and where)
USDT157.88% (Kucoin)0.78% (Vesper)
USDC12.40% (Vesper)1.40% (Aave)
DAI8.20% (Coinloan)1.02% (Aave)
BUSD8.20% (Coinloan)2.54% (Binance)
USD SavingsHighest Rate (and where)Lowest Rate (and where)
1-Year CD5.15% (Limelight)0.02% (Industrial Bank)
3-Year CD5.39% (Merchants Bank of Indiana)0.04% (PNC Bank)
5-Year CD5.00% (All in Credit Union)0.03% (Bank of America)
Bank Savings5.05% (Customers Bank)0.01% (Webster Bank)
Money Market5.02% (CFG Bank)0.01% (PNC Bank)

Acting as a vital link between traditional finance and the crypto space, stablecoins have fueled the expansion of the decentralized finance (DeFi) sector. Although stablecoins and fiat currencies have distinct roles, their combined use fosters a more versatile and interconnected global financial landscape.

In this analysis, we explore the impact and significance of stablecoins in the evolving financial landscape, comparing them to traditional fiat currencies. We also discuss their potential role as a global reserve currency and examine how they contribute to a more diverse and technology-oriented global financial ecosystem.

A Brief History of Stablecoins

Stablecoins are blockchain-based digital currencies or tokens designed to have their value linked to a traditional fiat currency, commodity, or collection of assets.

In most instances, a stablecoin mirrors the value of a particular fiat currency, with the US dollar being by far the most prevalent. Generally, stablecoins maintain a 1:1 backing ratio with their corresponding fiat. The main goal of these tokens was initially to mitigate the high volatility of cryptocurrencies, though they’ve taken on a number of other important roles.

Stablecoins have significantly contributed to the adoption of crypto assets among institutional and retail investors due to their near-elimination of volatility while offering effortless access to various digital currencies and assets. They have served as a connecting point or gateway between traditional finance and the crypto ecosystem, facilitating seamless on-ramp and off-ramp systems for investors.

Also, they have been the driving force behind the exponential growth of decentralized finance (DeFi), one of the most important trends in blockchain.

As of this writing, the top three stablecoins by market cap are USDT, USDC, and BUSD. These three stablecoins rank among the top 15 largest cryptocurrencies, collectively representing about 11% of the entire crypto market, with a total market cap exceeding $120 billion as of this writing.

The stablecoin boom came in 2020-2021, along with the DeFi craze, when the combined market cap increased from less than $7 billion in March 2020 to over $60 billion in March 2021. It exceeded the $180 billion mark in March 2022, surging 2,500% in 2 years.

top stablecoins
Top stablecoins, via CoinGecko.

The success of stablecoins lies in their ability to combine the stability and liquidity of traditional currencies with the distinctive characteristics of blockchain technology, such as decentralization, security, speed, and transparency. These tokens can be integrated into conventional finance use cases like payments, international transactions, and remittances.

While the dramatic collapse of several algorithmic stablecoins, like Terra USD (UST), has cast a negative light on the crypto market, fiat-collateralized and crypto-collateralized stablecoins have demonstrated their resilience despite the recent crisis of USDC.

Stablecoin Pros and Cons

Stablecoins nearly eliminate volatility, which has been a major problem for the crypto market.Algorithmic stablecoins rely on smart contracts to manage their peg and are prone to smart contract bugs, hacks, or market manipulation. The collapse of UST is a relevant example of how algorithmic stablecoins can fail.
They provide liquidity in the crypto market, facilitating easier trading, investing, and conversion between digital currencies and fiat.Fiat-collateralized stablecoins rely on centralized entities to maintain their peg, which contradicts the decentralization principle of cryptocurrencies.
Stablecoins act as a bridge between traditional finance and the crypto ecosystem, enabling seamless on-ramp and off-ramp systems for investors.There is still a regulatory vagueness in many jurisdictions regarding stablecoins.
Stablecoins offer faster and cheaper cross-border transactions compared to traditional financial systems.

Fiat Currencies

Fiat currencies are government-issued legal tender that is not backed by a physical commodity like gold or silver. Instead, their value is derived from the trust and confidence people have in the stability of the issuing government and its economy. The US Dollar (USD), Euro (EUR), Japanese Yen (JPY), and British Pound (GBP) are examples of fiat currencies. They are predominantly used as a medium of exchange for goods and services, a store of value, and a unit of account.

Fiat currencies play a crucial role in the global economy, as they facilitate trade and commerce both domestically and internationally. They are used in everyday transactions, such as buying groceries, paying bills, or settling debts, as well as in more complex financial transactions, like investing, lending, and borrowing.

Central banks are responsible for issuing and regulating fiat currencies. They rely on monetary policy tools, such as interest rates and open market operations, to control the money supply and maintain price stability within their respective economies.

In recent years, digital payment methods have become omnipresent, leading to a decline in the use of physical cash. For a better perspective, the M0 supply, which includes banknotes, coins, and bank reserves, was $5.3 trillion as of January 2023 versus M2’s $21 trillion, which also includes marketable securities and other bank deposits.

The shift towards digitization has prompted central banks to explore the development of so-called Central Bank Digital Currencies (CBDCs) inspired by stablecoins. CBDCs are digital forms of fiat money issued on a permissioned blockchain, i.e., on a private network controlled by central bank members.

CBDCs aim to provide a secure, efficient, and cost-effective alternative to existing payment systems while maintaining the stability and trust associated with fiat currencies. However, many economists are worried about privacy issues and the fact that CBDCs make banks unnecessary, leading to the centralization of the economy.

As of today, over 100 countries are exploring the benefits and features of CBDCs, including the US.

cbdc tracker
CBDC tracker, via Atlantic Council.

CBDCs have the potential to transform the financial landscape by offering several benefits, such as faster and cheaper cross-border transactions, increased financial inclusion, and improved monetary policy implementation.

Fiat Currency Pros and Cons

Fiat currencies are universally accepted for transactions, making them the default medium of exchange.The value of fiat currencies can be eroded over time due to inflation, resulting in a decrease in purchasing power. This drawback is spilled over to stablecoins as well, due to the 1:1 peg.
Fiat currencies are available in physical form, which can be convenient for in-person transactions.Fiat currencies are controlled by central banks, which may lead to the potential for misuse, corruption, or political interference.
Fiat currencies are issued and regulated by governments, providing a sense of trust and security to users.Fiat currencies are vulnerable to counterfeiting, which can undermine their value and trustworthiness. Also, storing and handling physical currency can be cumbersome.

Stablecoins vs. Fiat Currencies: Investor Use Cases

Investors can use stablecoins in several ways to take advantage of the unique opportunities offered by the crypto space.

  • Stablecoins are a gateway to the blockchain world, acting as a bridge between the traditional financial system and cryptocurrencies.
  • They enable investors to increase or reduce exposure to crypto coins like bitcoin without fiat interaction. This allows investors to speculate on the price of cryptocurrencies while leveraging the risk management benefits of stablecoins.
  • Stablecoins have become an integral part of the rapidly growing DeFi ecosystem, where investors can access various financial services, such as lending and borrowing, without intermediaries like banks.
  • Blockchain lending platforms enable users to lend their stablecoins to earn interest or borrow against their existing crypto holdings. The interest is usually higher than the yield offered by traditional savings accounts.

U.S. Dollar: The Global Reserve Currency

The US dollar has enjoyed its status as a global reserve currency since the Bretton Woods agreement in 1944, when 44 countries agreed to form a new foreign exchange system centered around the USD, which was linked to gold.

Even after the USD lost its gold peg in 1971 and became a floating currency, the greenback has maintained its global reserve status thanks to US foreign policy initiatives, such as convincing Saudi Arabia and eventually other oil-producing countries to sell their oil exclusively for USD.

According to data from the Bank for International Settlements (BIS), the USD has been involved in about 88% of all foreign exchange transactions during the last decade.

usdc dominance in fx
The USD’s dominance in FX, courtesy BIS.

Could a Stablecoin Become a Global Reserve Currency?

Today’s tectonic geopolitical changes increase the possibility of the US dollar gradually losing its reserve status, especially as Russia and China are planning to dethrone it.

Can a stablecoin manage to replace the USD as the next global reserve currency? Unlikely. Such claims were popular at the peak of UST, but its collapse has silenced such ambitions.

The more likely scenario is that another fiat, a CBDC, or a basket of fiat or CBDCs become the next standard of global reserves.

Investor Takeaway

Stablecoins and fiat currencies are complementary financial instruments, each serving a distinct purpose in the world of finance. Stablecoins, with their near-elimination of volatility, act as a gateway to the crypto ecosystem, enabling seamless on-ramp and off-ramp systems for investors. They have been instrumental in driving the growth of decentralized finance (DeFi), crypto payment systems, and other use cases.

On the other hand, fiat currencies are universally accepted and regulated by governments, providing trust and security in everyday transactions. The emergence of Central Bank Digital Currencies (CBDCs) highlights the ongoing convergence between traditional finance and the digital realm, offering potential improvements to cross-border transactions and monetary policy implementation.

Stablecoins and fiat currencies serve different purposes, but together they contribute to a more diverse and interconnected global financial ecosystem.


Some questions you may want to consider before adding stablecoins to your own portfolio:

Where to buy, sell and exchange stablecoins?

Stablecoins can be traded on centralized exchanges, such as Coinbase or Binance, as well as decentralized exchanges (DEXs), such as Uniswap or Curve.

How often are the reserves audited and how transparent is the reporting?

It differs by issuer. For example, Circle, the entity behind USDC, has its reserves audited by a third party on a monthly basis. The company switched from Grant Thornton to Deloitte in January 2023.

What’s the market cap and circulating supply?

The market cap of about 100 stablecoins tracked by DeFi Llama is over $133 billion as of this writing.


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The post Best Interest Rates: Stablecoins vs. Fiat Currencies appeared first on Bitcoin Market Journal.

2023 Guide to Cryptocurrency Taxes

While crypto taxes can be complicated, the key principles are not. Fix these ideas in your head:

Taxable events:

  • Selling crypto.
  • Trading crypto.
  • Buying stuff with crypto.
  • Receiving crypto from airdrops, hard forks, staking rewards, and the like.

Not taxable events:

  • Buying crypto.
  • Donating crypto to a tax-exempt organization.
  • Gifting cryptocurrency (though large gifts may trigger a gift tax)
  • Transferring crypto from one address to another.

How is Crypto Taxed by the IRS?

In the US, the Internal Revenue Service (IRS) treats cryptocurrency as property, suggesting that crypto income and capital gains are taxable events, while crypto losses may be tax deductible.

Note that most major centralized crypto exchanges operating in the US are reporting to the IRS. With KYC rules implemented across all reporting exchanges, crypto traders should never ignore their crypto tax obligations.

The IRS treats digital currencies as subject to rules on capital gains and losses, similar to stocks. When you purchase cryptocurrency, the original cost becomes its basis. Once you sell it, you are taxed based on the difference between the basis and the sale price.

Capital gains and losses are calculated based on the net total of all transactions in a year. For example, if you sold four different cryptocurrencies for a net profit of $2,000 and two digital assets for a loss of $6,000, you would end up with a net capital loss of $4,000.

You can deduct up to $3,000 in capital losses from your taxable income each year and carry over any remaining losses to the following years. For instance, a net capital loss of $4,000 in 2022 allows you to deduct $3,000 from your taxable income that year and apply the remaining $1,000 to your 2023 taxes.

The tax rate for capital gains depends on how long you hold the asset before selling it. If you hold your cryptocurrency for less than a year, then you’re subject to short-term capital gains. Otherwise, long-term capital gains apply, and the taxes in this case come at a significantly lower rate compared to short-term gains. Nevertheless, your exact tax rate will depend on your filing status and taxable income, and you may not have to pay any capital gains tax at all.

Necessary Crypto Tax Forms

To begin with, crypto exchanges like Coinbase send Forms 1099-MISC (miscellaneous income) to traders who earn $600 and up through crypto rewards and staking. These forms are also sent automatically to the IRS. The Infrastructure and Investment Jobs Act enforced by the Biden administration in November 2021 will require crypto exchanges to issue a 1099-B (Proceeds from Broker and Barter Exchange Transactions) beginning this year.

To report crypto on your taxes, you have to fill out the following forms and attach them to your Individual Income Tax Return Form 1040 (which is used to determine the total taxable income):

tax form

  • Form 8949 – this form is used to report capital gains or losses from selling or disposing of your crypto.
  • Form Schedule D (1040) – this form is used to report the overall capital gains and losses. You should list the totals for your short- and long-term capital gains and losses separately here.
  • Form 1040 Schedule 1 – while crypto profit is often reported as capital gains, it can also be regarded as ordinary income when it comes from mining and staking, airdrops, hard forks, and lending interest. This form covers the mentioned instances.
  • Form 1040 Schedule C – if you received crypto in the form of salary as a self-employed person (freelancer), you must fill in Schedule C.

Finding Your Tax Basis

Defining the tax basis is essential, given that it’s used to determine the amount of capital gains or losses. As a rule, the tax basis of cryptocurrency is the amount at which it was purchased, including exchange or transaction fees.

It makes sense to keep a record of your cost basis in order to ensure the accuracy of your capital gain or loss. No problem if you have no record: you can make an estimate by looking up the historical price of the asset at the time of purchase.

For crypto obtained from mining or staking, the cost basis is determined by the fair market value at the time you received the crypto.

Crypto Tax Types

Besides the profits made from price fluctuations, there are other crypto taxes that you should know about:

Mining Tax

The crypto generated through mining is taxed as income when earned and as capital gains when sold. If you hold the mined crypto, the capital gain will be calculated based on the cost basis at the time of mining. Individuals can report the crypto mining tax on their Form 1040 Schedule 1 on Line 8 as “Other Income.” Crypto mining businesses are eligible to deduct certain costs, such as electricity and equipment.

Airdrop Tax

The crypto funds received from an airdrop are taxed as regular income, which is reported as the value of the asset when it comes into your possession.

When you sell or trade an airdropped asset, you have to report the capital gains tax on any growth in its value from the time of receipt to the time of disposal.

Taxes on Forks

Similar to airdrops, crypto funds resulting from hard forks are taxed as regular income at their fair market value (FMV) at the time they were deposited into your wallet.

Gift/Donation Taxes

If you receive crypto as a gift, you won’t be taxed unless you take part in another taxable event, such as staking.

Also, you have the option to gift a maximum of $15,000 per person annually without incurring any taxes (with a higher limit for gifts to spouses). Going beyond that limit will require you to submit a gift tax return, although this usually doesn’t lead to immediate tax obligations.

Cryptocurrency Taxation Example

Here is an example of crypto taxation with events arranged chronologically:

EventCrypto holdingsNet fiat investedCost basisMarket value
1Bob buys 0.5 BTC for $5,0000.5 BTC$5,000$5,000$5,000
2Bob participates in a mining pool and receives $0.1 BTC0.6 BTC$5,000$6,000$6,000
3Bob receives a gift of 100 USDC0.6 BTC, 100 USDC$5,000$6,100$6,100
4BTC price increases from $10,000 to $20,0000.6 BTC, 100 USDC$5,000$6,100$12,100
5Bob moves his 0.6 BTC to a safer wallet0.6 BTC, 100 USDC$5,000$6,100$12,100
6Bob decides to cash in and sells all of his BTC holdings for $12,000100 USDC-$7,000$100$100

Analyzing all the steps during the year:

  1. Bob buys 0.5 BTC, no taxable event.
  2. Bob receives 0.1 BTC from mining, which is a taxable event and is treated as ordinary income.
  3. Bob receives 100 USDC as a gift, no taxable event.
  4. Prices go up, but no assets are disposed so there is no taxable event.
  5. Bob moves crypto holdings between his wallets –  no taxable event.
  6. Bob sells his BTC receiving a net income of $7,000.

Therefore, Bob has accumulated $6,000 of capital gains and $1,000 of ordinary income (from crypto mining).

Crypto Tax Loss Harvesting

Investors use crypto tax loss harvesting as a strategy to reduce overall tax liability. They do this by selling crypto assets at a loss during market downturns or at the end of the tax year, effectively reducing their overall tax obligation by offsetting other capital gains.

This method allows for an unlimited number of assets to be sold at a loss, and if capital losses exceed capital gains, up to $3,000 per year can be claimed as a deduction to reduce ordinary income. As mentioned earlier, any remaining losses can be carried over to offset capital gains or income in future tax years, providing an ongoing benefit.

Cryptocurrencies may be even better candidates for tax loss harvesting than stocks, as they don’t fall under the wash sale rule imposed by the IRS. It prevents investors from claiming capital losses and instantly buying back the same stock. The wash sale rule currently applies only to securities, as per IRS guidelines, while cryptocurrencies are treated as property.

What Happens if You Don’t Report Cryptocurrency on Taxes?

In the US, it is mandatory to file taxes, and failure to do so may result in penalties, interest, confiscated refunds, audits, and even imprisonment. This applies even if you do not owe any taxes or are eligible for a refund.

Crypto Tax Help is Available

Managing and monitoring cryptocurrency transactions can be a complex process, particularly when conducting hundreds or thousands of trades during the year. This is where crypto tax services come into play. These software tools are designed to sync with exchanges and wallets to automatically track and calculate gains and losses. You can use these programs to automatically generate a tax report that can be used to file with the government, simplifying the entire process for cryptocurrency traders.

Check our dedicated article discussing the best crypto tax packages, including Cointracker, TaxBit, CoinTracking, and Accointing, among others.

Investor Takeaway

Sell and trade as little as possible. Remember that most governments treat crypto as property, so every sale and trade is a taxable event. This means you either have to pay taxes on the profits (capital gains), or you can possibly claim the loss (capital losses).

However, buying crypto is free.

You don’t pay tax on purchases, which is why steady-drip investing is so powerful. You can keep investing in crypto for as long as you like and only pay taxes when you cash out. Traders have to endure a tax nightmare, while long-term hodlers can sleep well at night.

In other words, KISS (Keep It Simple, Silly).

  • A buy-and-hold approach…
  • With a monthly contribution…
  • On a trusted wallet or exchange…
  • Can reduce your tax prep to the bare minimum.

Cash out only when you’re ready, pay taxes on the gains, and you’re done.


Do I need to report my cryptocurrency transactions on my tax return?

Cryptocurrency transactions are taxable events and you have to calculate gains or losses from all transactions during a year and include them in your tax report.

How are cryptocurrency gains and losses taxed?

Short-term crypto gains on assets held for less than a year are subject to tax rates similar to all other income, which can range from 10% to 37%, depending on your federal income tax bracket. Holding crypto for more than a year would reduce the tax rate, which can range from 0% to 20%. Losses are not taxed.

Can I deduct cryptocurrency losses on my tax return?

Yes. Losses can offset gains from other crypto assets. Once total losses exceed total gains, you can reduce up to $3,000 from your regular income.

How do I calculate my cryptocurrency gains and losses?

The capital gains or losses from crypto trades are calculated based on the cost basis, which is the initial price paid for crypto or the asset value at the time of the purchase. When selling crypto, subtracting the cost basis from the sale price determines the amount of capital gain or loss.

What if I lost access to my cryptocurrency or my cryptocurrency was stolen?

Although the IRS does not offer clear guidance on how to tax lost or stolen cryptocurrency, you may be eligible for a tax exemption if you treat the lost or stolen crypto as an investment loss. It is recommended to seek advice from a crypto tax specialist.

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The post 2023 Guide to Cryptocurrency Taxes appeared first on Bitcoin Market Journal.

Sector Report: Oracles

Summary: In this Sector Report, we discuss the evolution of blockchain oracles, their role in decentralized finance (DeFi), and the investment opportunities in oracle projects such as Chainlink, Band Protocol, and API3.

Blockchain is a revolutionary technology addressing several major problems in financial systems by bringing transparency to the space and cutting out the need for intermediaries. Nevertheless, it has limitations, since blockchain networks are closed systems.

One solution to this problem is “oracles.” The function of an oracle is to provide external data to closed blockchain networks.

Blockchain oracles offer a secure and decentralized way to bring off-chain data onto the blockchain, making it available to smart contracts and other dapps. One of their main functions is to verify the accuracy and authenticity of this data.

Here, we discuss the evolution of the blockchain oracles market, and see what opportunities exist for smart crypto investors.

Industry Overview

Oracles enable decentralized applications to interact with external data sources, a must-have for many blockchain applications. For example, here are a few examples of how oracles can be used in decentralized finance (DeFi):

  • Price feeds: DeFi protocols like decentralized exchanges (DEXs) require accurate and up-to-date price feeds. Oracles provide these price feeds by sourcing data from external exchanges.
  • Asset management: Oracles can help DeFi apps that involve the management of assets, such as loans, collateral, and derivatives, which require up-to-date information about the underlying assets.
  • Event triggers: DeFi apps may require certain events to occur before executing specific actions. For example, a smart contract may require a stock price to reach a certain threshold before executing a trade. Oracles can be used to trigger these events by monitoring external data sources and sending signals to the smart contract.
  • Weather data: Some DeFi apps use weather data to calculate risk and determine payouts for insurance products. Blockchain oracles can be used to provide accurate and timely weather data from external sources.

In other words, blockchain oracles act as intermediaries between a decentralized network and external data sources: web APIs, databases, IoT sensors, real-time data feeds, even other blockchain networks.

The oracle market is not as big as stablecoins or the DeFi sector, but in our view, it is here to stay, because blockchains increasingly rely on oracles to run.

Chainlink (LINK) is by far the largest and most dominant oracle project. In fact, it is the only oracle chain in our list making the top 100 largest cryptocurrencies by market cap. The market cap of other protocols, including Band Protocol (BAND), Nest Protocol (NEST), iExec RLC (RLC), and API3, doesn’t exceed the $250 million mark.

LINK is also the oldest oracle network, having launched in 2017, and its market cap of $3.8 billion makes it the 20th largest cryptocurrency.

During the crypto winter of 2022, the oracle market followed in the footsteps of the broader crypto space, losing over 60% of its value. LINK, BAND, and API3 fell by over 70%, while RLC lost over 60% of its market cap in 2022. NEST was launched in the middle of 2022, and it lost over 30% by the end of the year.

tradingview chart
Chart via TradingView

The rebound of the crypto market in 2023 has helped the oracle sector, with all major players showing signs of recovery. In the first two months of the year, RLC and API3 have gained over 55%, while BAND and LINK have increased by 45% and 33%, respectively. Meanwhile, bitcoin has increased by 40% over the same time.

tradingview chart 2
Image via TradingView

Despite the major selloff during the crypto winter, the oracle sector has rewarded those who invested three years ago. LINK, RLC, and BAND have gained 307%, 386%, and 778% since 2020, beating traditional assets by a significant margin. During its peak in 2021, BAND’s 16-month return hit a staggering 9,000%.

tradingview chart 3
Image via TradingView

The oracle market is still dominated by LINK, which will continue to play a key role in the coming years. However, there is an opportunity for smaller players as well, especially with the emergence of decentralized finance (DeFi) use cases.

Investment Thesis

As with all crypto investments, our thesis is that buying and holding the native token (for example, LINK for Chainlink) is like investing in the underlying “company.”

Like a traditional company, oracle networks generate revenue by charging fees for their services. The native cryptocurrencies of oracles reflect the revenue dynamics, and many investors get exposure to oracle tokens due to their business model.

Given that oracles have a strategic importance for blockchain, which continues to be adopted across many industries, investors have high expectations of this narrow sector.

The demand for blockchain technology is an indicator of the success of the oracle market as a whole, given that it provides a key infrastructure to decentralized networks. However, the crypto market is highly volatile, and this has had a direct impact on oracles.

Who’s Investing: Institutional Backing

The blockchain oracle ecosystem is still a narrow market, and many traditional institutional investors that are open to getting exposure to crypto are not invested in it, since they cannot accurately evaluate the importance of oracles.

On the other hand, institutions focused on blockchain are aware of oracles, and some of them are heavily invested in it. For example, in 2021, crypto fund Grayscale added LINK to its large-cap crypto fund. Grayscale also added the Chainlink Trust to its list of about 20 investment trusts. The investment product is aimed at institutional investors and has over $2 million under management.

The largest investment in Chainlink occurred during its 2017 ICO, in which Chainlink raised $32 million. Some of the primary investors in this ICO round were Limitless Crypto Investments, Nirvana Capital, Fundamental Labs, and angel investors George Burke and Andreas Schwartz.

Top Oracle Projects

ProjectTickerMarket CapTotal Value Secured in DeFiDaily Active Addresses (30-day avg)
Band ProtocolBAND$245M$346 million77
iExec RLCRLC$155MN/A137
Nest ProtocolNEST$70M$25 million19


Chainlink (LINK)

Chainlink is a decentralized oracle network providing reliable and tamper-proof inputs and outputs to smart contracts on various blockchains.

It consists of a decentralized network of nodes that collect data from various sources, including APIs, data feeds, and other off-chain systems. These nodes aggregate and verify the data before sending it to the requesting smart contract.

LINK’s market cap at the time of this writing is $3.76 billion at a price of $7.41, making it the 20th largest cryptocurrency. The token reached an all-time high in mid-2021 at over $50.

In 2022, the cumulative total of Transaction Value Enabled (TVE), which represented the USD value of all transactions enabled by LINK, hit nearly $7 trillion. Chainlink supports over a dozen major blockchains and has over 1,000 oracle networks.

Last year, Chainlink Data Feeds delivered 5.8 billion data points to on-chain reference contracts, supporting dapps across blockchains and layer 2 environments.

With its Economics 2.0 upgrade, Chainlink is introducing new monetization models that will likely support its future growth. The upgrade includes initiatives like the Chainlink BUILD Program, the Chainlink SCALE Program, and Chainlink Staking.

chainlink economics 2.0
Image via Chainlink Blog

band protocolBand Protocol (BAND)

Band Protocol is a blockchain oracle network launched in 2019. Band supports multiple smart contract blockchains and is part of the Cosmos Network, a blockchain network focused on interoperability.

Band Protocol is built on BandChain, which leverages the Cosmos SDK technology, using Tendermint’s Byzantine Fault Tolerant (Tendermint BFT) consensus mechanism. It has connectivity with other chains through Cosmos’ Inter-Blockchain Communication Protocol (IBC).

BAND, whose token is currently priced at $2, is the second-largest oracle network after LINK, with a market cap of $245 million.

BAND’s increased interoperability and security have helped it expand the ecosystem and use cases, which could help to keep it relevant in the coming years.

band protocol system
Image via Medium

iexeciExec RLC (RLC)

iExec is a decentralized network that connects cloud computing service providers and users in an open marketplace. Dapps that need computational resources can pay providers on the iExec network. RLC is the token used for operations on this decentralized marketplace.

In 2021, iExec introduced the Oracle Factory, which enables users to create custom oracles within minutes. The product leverages iExec’s TCE (Trusted Computing Environment), which uses hardware enclaves to protect the API.

Click to watch how it works.

So far, over 50 oracles have been created on the network, with most of them being price feeds. RLC is currently priced at $1.92 and has a market cap of $155 million.

The great thing about iExec is that it combines several major use cases, including the rental of computing resources and oracles, which could help keep this network relevant in the coming years.

nest protocolNest Protocol (NEST)

Twitter followers: 952,000
Discord members: 113,900
Telegram members: 115,000

NEST Protocol is a decentralized oracle network built on Ethereum and launched in 2022. It employs various modules to deliver secure and innovative solutions. Its primary focus is solving the problem of on-chain price accuracy through a decentralized incentive solution known as the price predictor.

In DeFi apps, accurate price data is critical to reflecting the actual asset price on an exchange. However, price data can be vulnerable to manipulation, leading to potential data attacks. NEST’s Price Predictor directly verifies the asset price, ensuring timely and accurate information while avoiding the risks associated with centralization.

By providing a secure and decentralized solution to the problem of price accuracy, NEST Protocol contributes to the growth and development of the DeFi ecosystem.

NEST’s market cap is about $70 million, and the token price hovers above $0.02.

api3API3 (API3)

Dubbed the “Chainlink killer,” API3 is a decentralized platform that enables dapps to access off-chain data and service through APIs, which are a well-established standard in software development. API3 offers a streamlined and standardized method for integrating the world’s data into blockchain applications through API connectivity.

API3 is offering its own decentralized APIs (dAPIs), which are fully decentralized and compatible with blockchains. dAPIs act as a multi-layer, cross-platform oracle solution and can be bridged to support any blockchain.

API3’s dAPIs gather data directly from first-party data providers, which enhances transparency, reduces the risk of third-party data manipulation, and eliminates the involvement of rent-seeking intermediaries, ultimately increasing revenue for API providers.

This unique structure sets API3 apart from other blockchain data oracle projects, including Chainlink, which often employ their own nodes as intermediaries to deliver data from external APIs to the requesting smart contracts.

Thanks to this unique model, API3 has the chance to compete with Chainlink in the long term. Today, API3 is a $125 million market with its token price at $1.57.

Investor Takeaway

Oracles provide key infrastructure to blockchains, and their functionality ensures the market is future-proof. Investors might want to take advantage of exposure to blockchain oracle protocols considering the high demand for the technology.

While LINK still dominates the oracle space, other players can succeed. For example, API3’s unique model may propel it to the top. Smaller players also have more room to grow from their current size, which could help provide better returns. Besides the protocols listed above, Universal Market Access (UMA) is another interesting opportunity to watch.


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Sector Report: Decentralized Exchanges in 2023

working on a laptop

Centralized crypto exchanges like Coinbase and Binance have contributed to the rapid adoption of digital currencies, but decentralized exchanges (DEXs) have introduced a new approach to trading: users buy, sell, and trade digital assets from each other.

This article will explore the emerging DEX industry, to see whether this new model can continue its growth in the coming years.

Industry Overview

After lending, DEXs are the second major use case to emerge in decentralized finance (DeFi). They’re a proven model that’s here to stay, enabling users to trade cryptocurrencies with each other in a decentralized environment.

One of the most important features of a DEX is the Automated Market Maker (AMM) model, which replaces centralized order books and market makers. An AMM relies on smart contract-powered pools for each trading pair, where liquidity providers lock their tokens in exchange for rewards from trading fees.

The price of a pair is dictated by an algorithm based on the supply/demand dynamics of the related pool. This model is far more efficient that the traditional order book and market maker approach. (Read more on the old model here.)

Unlike centralized exchanges (CEXs) such as Coinbase, DEXs are non-custodial, i.e., they don’t hold user funds. This enables them to provide trading services without KYC (know your customer) verification. This makes them easier for new users: just connect your crypto wallet, and start trading.

While trading volumes on DEXs remain considerably smaller compared to CEXs, they have gained traction during the DeFi boom that started in 2020. As of this writing, DEX trading accounts for about 15% of all trading volume.

dex to cex spot trade volume
Image via The Block

However, all DEXs have seen declining volumes since the beginning of 2022 amid the “crypto winter.” SushiSwap has been among the worst performers, with its native token, SUSHI, losing about 87% (light blue line on the bottom):

dex since beginning of 2022

Nevertheless, the 2-year performance tells a different story. The DEX industry has had several ups and downs since the beginning of 2021, but some DEXs, such as Curve (red) and Uniswap (light purple), saw their tokens gain over 60% during this period:

dex since 2020

DEXs are still an emerging market, as they only began gaining wider adoption in 2020. The DEX sector has great potential to expand in the future thanks to its promise of non-custodial trading at low costs.

Investment Thesis

There are two ways for an investor to gain exposure to DEXs:

  • Buying the token: DEXs are fueled by their native tokens. Although the tokens may have other use cases, such as governance, staking, and rewards, the token performance is generally impacted by the exchange trading volume. We view it like buying “stock” in the DEXs with high trading volumes and great potential for future growth.
  • Liquidity mining: Another approach for investors is participating in its ecosystem by providing liquidity to one or more pools. In a classic model, a pool requires a 50/50 balance for each pair, and users have to lock both tokens of a pair (say, ETH and UNI). Liquidity miners are rewarded with a percentage of DEX trading fees.

DEX tokens have been negatively impacted over the past year, but user activity has been increasing, suggesting healthy fundamentals that should support a rebound in the coming months.

The collapse of FTX exchange has also worked in favor of DEXs. Shortly after FTX went bankrupt, one family moved over $1 million worth of crypto to DEXs, choosing not to trust centralized exchanges with their assets.

Even though DEXs have no risk of hacking attacks as they don’t hold user funds, loopholes in the smart contracts may persist. The most notable attack points are bridges that are used to connect different blockchains.

Who’s Investing: Institutional Backing

The DeFi boom has attracted institutional investors, who have poured hundreds of millions of dollars into DEXs. Many DEXs implement the Decentralized Autonomous Organization (DAO) governance model, but some are still backed by centralized entities that maintain the protocol.

For example, Uniswap is backed by Uniswap Labs, which raised $165 million in a Series B funding round held in October 2022. The round was led by Polychain Capital and was joined by other institutional and venture capital investors, including a16z crypto, Paradigm, SV Angel, and Variant. Uniswap Labs is currently valued at $1.66 billion.

In August of the same year, 0x raised $70 million in a Series B round led by private equity firm Greylock Partners. Other participants were Pantera, Sound Ventures, OpenSea, Coinbase, and A.Capital, among others.

At the end of 2021, 1inch secured $175 million in a Series B round from Amber Group, which was joined by about 50 investors, including VanEck, Fenbushi Capital, and Jane Street.

A recent report from blockchain intelligence firm Chainalysis shows that institutional investors also increased transfers from CEXs to DEXs during times of market volatility, like after the fall of FTX.

spike peak and causes

Top DEX Projects

As of this writing, here are the Big 5 DEXs to watch:

ProjectTickerMarket CapDaily Active Users
Synthetix NetworkSNX$566M2000


Uniswap (UNI)

Uniswap is a DEX founded in 2018. It focuses on Ethereum-based tokens and enables users to swap ERC-20 tokens almost instantly. It is currently the largest DEX by trading volume. Uniswap is also one of the oldest DEXs, and it thrived well before the boom of DeFi in mid-2020.

The annualized trading volume on the exchange is nearly $400 billion. Also, during the last 12 months, traders paid over $430 million in fees. Uniswap attracts over 45,000 daily active users on average.

Uniswap is backed by its proprietary token UNI. The total market cap is nearly $5 billion as of this writing, which makes it the 18th largest cryptocurrency.

The total value locked (TVL) in Uniswap’s pools is about $4 billion. Uniswap is the sixth-largest DeFi protocol by TVL and the second-largest DEX by TVL after Curve.

Uniswap’s status as a market leader will likely support its further growth. When the crypto market is recovering, UNI will likely be among the first tokens to benefit.

Uniswap raised over $160 million at the end of 2022, suggesting that large institutional investors have high expectations of this DEX and the DeFi market in general. (Read more in our Uniswap Revenue Report.)

synthetixSynthetix Network (SNX)

Synthetix Network is not a classic DEX, although it also enables users to swap different tokens. The Ethereum-based protocol acts as a decentralized synthetic asset platform that enables traders to get on-chain exposure to real-world assets, such as fiat currencies, commodities, stocks, and indices.

For those unfamiliar, synths are tokens that track the value of real-world assets and act as derivatives. On Synthetix, anyone can create synths by locking the native token, SNX, as collateral. For example, sUSD tracks the US dollar, while sBTC mimics the price of bitcoin. Synths rely on decentralized price oracles to track the performance of underlying assets. Therefore, Synthetix users can trade various synths in a trustless environment.

The annualized trading volume of Synthetix is over $4.4 billion, and the annual revenue from fees exceeds $13 million. As of today, over $400 million worth of cryptocurrency is locked on Synthetix, which helps it maintain in the top 30 DeFi protocols by TVL. The protocol hosts over 2,000 daily active users.

Synthetix used to be one of the largest DeFi projects by TVL and trading volume. Despite the dramatic decline from its 2021 peak, the project still has much to offer thanks to its unique business model.

sushiswapSushiSwap (SUSHI)

SushiSwap is an Ethereum-based DEX launched in 2020. The DEX was created by copying the open-source code of Uniswap. Thus, it works the same way as Uniswap. The promise of Sushi was to give users more decision-making power. Thus, the native token, SUSHI, acts as a governance token.

While Sushi made waves shortly after the launch, it has lost ground and is much smaller than Uniswap. Sushi’s annualized trading volume is $6.5 billion. The annualized trading fees reach $20 million. Sushi hosts less than 4,000 daily active users on average.

SUSHI has been the worst performer across DEXs during the crypto winter, and it remains to be seen if it manages to recover.

1inch1Inch (1INCH)

1Inch is a bit different from other DEXs because it is an aggregator. Rather than acting as an exchange itself, it scrapes other DEXs looking for the lowest or highest prices. It then reroutes its customers’ trades between these various exchanges to ensure that traders get the best possible price when buying and selling crypto.

Trading volumes at 1Inch routinely exceed $1 billion monthly, giving it an annualized trading volume in excess of $14 billion. All that trading volume only adds up to $3.36 million in annual fees however, as 1Inch charges very little for the service it provides.

The 1Inch token suffered along with its peers during the crypto winter, hitting a low of $0.3738 in December 2022, however it seems to be on the mend as of this writing.

0xproject.png0x (ZRX)

0x is another DEX aggregator that works with ERC-20 tokens. Its engine searches prices across multiple exchanges, finding the lowest price for buyers and the highest price for sellers. Where it differs is that it allows anyone to create their own exchange. 0x also keeps fees low for traders by conducting trades offline, thus avoiding Ethereum’s network fees.

0x is quite popular, with an annualized trading volume of $30.36 billion and over 14,000 average daily users as of this writing. It is also popular with institutional investors, having raised $70 million in April 2022 from the likes of Coinbase, Greylock Partners, Pantera Capital, and OpenSea.

It has its own native crypto token, ZRX, which is used for trading fees and is also a governance token for the network. The token had its problems in 2022 however, falling from $0.80 at the start of the year to close at just $0.15, for a loss of nearly 80%. Things are looking better as of this writing, with the token advancing by 60% at the start of 2023.

Investor Takeaway

The DEX ecosystem has been struggling since the beginning of 2022, but the need for secure, decentralized trading infrastructure is likely to recover and grow.

The collapse of FTX, preceded by the fall of other centralized crypto projects, is helping support the case of DEXs. Decentralized exchanges have a unique business model that we believe will stay relevant in the years to come.

Some DEXs that were popular in the early days of the DeFi boom, such as Sushi, may not recover. Still, there are exchanges with billions of TVL that may continue to dominate, such as Uniswap, Balancer, Curve, and PancakeSwap.


Be sure to check out our Future Winners portfolio, which has UNI as one of our four crypto picks.


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