The crypto market is facing a big dump, with DeFi stable returns and AI infrastructure projects being sought after.

Market Overview

Main Market Trends

Overall Market Situation

This week, the cryptocurrency market experienced a significant pullback, with panic spreading. The sentiment index plummeted from 53% to 7%, indicating an extreme state of fear. The Federal Reserve released hawkish signals, lowering next year's expected rate cuts from 4 times to 2 times, triggering about $1 billion in forced liquidations, and the market is undergoing a notable deleveraging process.

DeFi Ecosystem Development

The DeFi sector's TVL has seen its first negative growth in nearly two months (-2.21%). However, the market cap of stablecoins continues to grow (USDT +0.55%, USDC +1.44%), indicating that despite the market correction, the underlying liquidity is still flowing in. Projects like the machine gun pool are in high demand.

AI Agent Track

The market size of the AI Agent track has reached 9.9 billion USD. Investment focus has shifted from speculative AI Meme coins to infrastructure construction, indicating that the market is gradually maturing, with project directions becoming more rational and practical.

Meme Coin Trend

The market heat for Meme coins has clearly cooled down, with funds starting to withdraw on a large scale. Investors are more inclined to seek projects with substantive application value, which may signify a phase of the Meme coin craze coming to an end.

Public Chain Performance Analysis

During significant market fluctuations, the public chain sector has shown strong resilience against declines, becoming the first choice for investors seeking safety, reflecting that market confidence in infrastructure remains solid.

Future Market Outlook

As the Christmas holiday approaches, market liquidity is expected to decrease. It is recommended that investors adopt a defensive allocation strategy, focusing on BTC and ETH, while also paying attention to DeFi stable income and AI infrastructure projects. However, one should be wary of the potential risk of increased volatility during the holiday period.

Market Sentiment Index Analysis

• The market sentiment index has fallen from 53% last week to 7%, entering the extreme fear range.
• Altcoins underperformed the benchmark index this week, showing a significant decline. Due to leveraged positions, the market experienced forced liquidations of over $1 billion, with long positions significantly deleveraging. Given the current market structure, it is expected that Altcoins will move in sync with the benchmark index in the short term, with a low probability of independent trends.
• Altcoins often experience upward reversals when they are in extreme fear zones.

Overview of Overall Market Trends ###

• The cryptocurrency market is in a downtrend this week, with the sentiment index in extreme fear.

• DeFi-related cryptocurrency projects have performed remarkably well, indicating the market's continued focus on enhancing fundamental returns.

• The AI Agent track project has garnered significant public attention this week, indicating that investors are starting to actively seek the next market breakout point.

• This week, Meme project tokens generally declined, and funds began to withdraw from Meme coin projects, reflecting a gradual decrease in market enthusiasm for Meme coins.

Hot Track

AI Agent

This week, the overall market is in a downward trend, and all sectors are experiencing declines. Although most token prices in the AI Agent sector have also been falling this week, it has the highest level of discussion in the market. Previously, the market focus on AI Agent was mostly concentrated on Meme token projects associated with AI Agent, but it is now gradually shifting towards the infrastructure development of AI Agent.

Due to the fact that traditional VC coin projects are not favored by the market in this cycle, and Meme coin projects cannot bring sustained growth to the market, the AI Agent track is currently very likely to lead the next market development. This is because the AI Agent track not only includes AI Meme but also encompasses many other tracks such as AI DePIN, AI Platform, AI Rollup, and AI infra, all of which can be combined with AI Agent. Essentially, all blockchain projects are forms of smart contracts, and the birth of AI Agent is aimed at improving and enhancing smart contracts. Therefore, AI Agent and Crypto are the best combination.

Top five AI Agent projects by market capitalization:

DeFi track

TVL Growth Ranking

Top 5 projects by TVL growth in the past week (excluding projects with a lower TVL, with a standard of over $30 million), data source: Defilama

|-------------|----------|--------------| | Project Name | Seven-Day Increase | TVL (million) | | VaultCraft | 5344.32% | 102.41 | | Hyperliquid | 183.98% | 2754.63 | | Resolv | 77.31% | 131.34 | | Babylon | 64.43% | 5774.49 | | DAO List | 48.52% | 859.86 |

VaultCraft (VCX): (Recommended Rating: ⭐️⭐️)

• Project Introduction: The VaultCraft cryptocurrency project is a public chain project based on Algorand, aimed at reducing the costs for participants in storing and launching the network. VaultCraft's design leverages Algorand's Proof-of-Stake consensus protocol.

• Latest developments: This week VaultCraft launched the stETH 4X leverage Looper based on Lido Finance, while supporting multi-chain deployment on Base, Arbitrum, Optimism, and Ethereum. It utilizes Chainlink CCIP to achieve direct staking functionality from L2 to the mainnet, providing users with an APY return of over 7%. Additionally, it has established a partnership with Matrixport and secured 1000 BTC custody business, leading to a rapid increase in its TVL. It has also reached strategic cooperation with Safe and CoWSwap.

Hyperliquid (HYPE): (Recommendation Index: ⭐️⭐️⭐️⭐️⭐️)

• Project Introduction: Hyperliquid is a high-performance decentralized finance platform focused on providing perpetual contract trading and spot trading services. It is based on its own high-performance Layer 1 blockchain and uses the HyperBFT consensus algorithm, capable of processing up to 200,000 orders per second.

• Latest Developments: The overall market experienced severe fluctuations this week, with the index continuously reaching new highs before Wednesday. After the Federal Reserve meeting on Thursday, there was a significant drop in the overall market. The intense volatility created an excellent trading environment for users looking to participate in contract trading for high returns, leading to many on-chain users flocking to Hyperliquid to engage in trading, resulting in Hyperliquid's open contract volume exceeding $4.3 billion. This week, Hyperliquid responded to market demand by adding leverage trading features for several popular cryptocurrencies such as VIRTUAL, USUAL, and PENGU, supporting up to 5 times leverage, attracting a considerable number of on-chain users to participate in trading.

Resolv (Token Not Yet Issued): (Recommendation Index: ⭐️⭐️)

• Project Introduction: Resolv is a Delta-neutral stablecoin project that focuses on the tokenization of market-neutral investment portfolios. The architecture is based on economically viable and fiat-independent sources of income. This allows competitive returns to be allocated to the liquidity providers of the protocol.

• Latest Developments: This week, Resolv has completed integration with Base, significantly reducing transaction costs and increasing transaction speed. It has launched lending services for USR, USDC, and wstUSR through Euler Finance, and introduced a USR-USDC liquidity pool on Aerodrome. Additionally, the Spectra YT yield points have been adjusted to 15 points per day, optimizing the reward mechanism. The Grants program has been initiated, and the first three recipients have been confirmed. Furthermore, through in-depth collaborations with projects such as Base, Euler Finance, and Aerodrome, the platform's competitiveness in the DeFi space has been strengthened.

Babylon (Not yet issued): (Recommended Index: ⭐️⭐️⭐️⭐️⭐️)

• Project Introduction: The Babylon project is an initiative aimed at leveraging the security of Bitcoin to enhance the security of other proof-of-stake blockchains. The core idea is to activate idle Bitcoin assets through a trustless staking mechanism, addressing the conflict between Bitcoin holders' pursuit of asset security and their desire to participate in high-yield projects.

• Latest Developments: Although the market price has fluctuated significantly this week, BTC has performed very strongly, remaining at a high level. Additionally, users are generally optimistic about BTC's future developments, leading to a more determined holding while also seeking to unlock the liquidity of their BTC holdings, thus opting for more BTC-based yield projects. This week, Babylon deepened the application of ZK scalability technology through its partnership with Layeredge and established a strategic partnership with Sui to promote the construction of a modular ecosystem.

Lista DAO (LISTA): (Recommendation Index: ⭐️⭐️⭐️)

• Project Introduction: Lista DAO is a liquidity staking and decentralized stablecoin project based on the BSC chain, aimed at providing users with cryptocurrency asset staking yields and lending services for the decentralized stablecoin LISUSD.

• Latest Development: This week, Lista DAO launched the Gauge Voting and Bribe Market features, allowing veLISTA holders to participate in the LISTA emission decisions of liquidity pools. It also announced strategic collaborations with 48Club_Official and defidotapp to explore new opportunities in the BNBChain ecosystem, while promoting the integration of PumpBTC as an innovative collateral through the LIP #012 proposal. Additionally, Lista DAO attracts users with weekly veLISTA reward distributions of approximately $230,000 and high APR compounding incentives, along with a competitive lending rate of 5.25%. This week, Lista DAO partnered with FDLabsHQ to conduct a winter event with a total of 7,000 USDT and provided airdrop opportunities for slisBNB and clisBNB to BNBChain holders.

In summary, we can see that the projects with significant TVL growth this week are mainly concentrated in the stablecoin yield sector (machine gun pool).

Overall performance of the track

• Stablecoin Market Capitalization Steadily Grows: USDT increased from $145.1 billion last week to $145.9 billion this week, a growth rate of 0.55%. USDC grew from $41.5 billion last week to $42.1 billion, a growth rate of 1.44%. It can be seen that although the market experienced a decline this week, both USDT, which is primarily non-US market-based, and USDC, which is US market-based, have shown growth, indicating that the entire market is still maintaining a continuous influx of funds.

• Liquidity is gradually increasing: The risk-free arbitrage rates in traditional markets continue to decline as interest rates decrease, while the arbitrage rates in on-chain DeFi projects are increasing due to the rising value of cryptocurrency assets. Returning to DeFi will be a very good choice.

• Capital Situation: The TVL of Defi projects has risen from 54.1 billion USD last week to 52.9 billion USD now, marking the first negative growth in nearly two months, with a negative growth rate of 2.21%. The main reason is due to a significant market downturn this week, which caused a number of contracts and loans to be forced into liquidation, leading to a decline in TVL within the Defi sector, breaking the continuous upward trend of the past two months. In the next two weeks, attention should be focused on the overall changes in TVL and whether the downward trend will continue.

  In-depth analysis

Driving Forces of Increase:

The core driving factors of this round of increase can be summarized as follows: the market entering a bull cycle boosts the demand for liquidity, which in turn drives up the level of base lending rates, amplifying the profit space for arbitrage cycle strategies in DeFi protocols. Specifically:

• Market environment: The bull market cycle brings an overall increase in liquidity demand.

• Interest rate side: The base lending rate has increased, reflecting the market's pricing expectations for funds.

• Yield side: The yield of the cyclical arbitrage strategy has expanded, and the protocol's endogenous yield has significantly improved.

This transmission mechanism strengthens the intrinsic value support of the DeFi sector, creating a positive growth momentum.

Potential Risks:

Due to the recent upward trend in the market, investors are more focused on yields and borrowing leverage, while neglecting the risk of decline. This week, after the Federal Reserve unexpectedly adjusted next year's anticipated four rate cuts to two, the market experienced a rapid decline.