Market Commentary | 12.06.

The Market Commentary provides a weekly review of major issues, along with DeSpread Research's insights on key points to watch moving forward. In the December 6 edition, we examine the impact of HYPE Genesis and the trends in Korean crypto market alongside the declaration of martial law.

1. HYPE Genesis, The Aftermath and Impact

On November 27, 2024 (KST), Hyperliquid announced the $HYPE token airdrop along with its tokenomics. Out of the total supply of 1 billion tokens, 310 million tokens (31% of the total supply) were scheduled for distribution during the Genesis Airdrop event on November 29 at 4:30 PM KST. Considering that the $HYPE token was being traded in several pre-markets with a Fully Diluted Valuation (FDV) of $3.5–4B, this airdrop represented a massive event, distributing tokens valued at approximately $1–1.2B.

Following the Genesis Airdrop, $HYPE began trading at an initial price of $2 and, within just six days, saw a staggering 500% increase, reaching an all-time high of $12.95 as of December 4, 2024. Typically, newly launched projects conduct airdrops of around 10% of their total supply and allocate a portion of tokens to market makers (MMs) to stabilize price volatility. In contrast, Hyperliquid's airdrop strategy stood out as it involved a large-scale distribution of 31% of the total supply without allocating tokens to centralized exchanges or MMs. Despite this unconventional approach, the token's price demonstrated a remarkable upward trend with no significant declines, making this performance all the more noteworthy.

“There are no allocations for private investors, centralised exchanges, or market makers.”
— Excerpt from Hyperliquid Foundation's "HYPE Genesis" Article

Ahead of the recent airdrop event, approximately $200M worth of USDC was newly bridged into the Hyperliquid ecosystem, with about $130M USDC flowing specifically into the Spot market where $HYPE tokens can be traded. Furthermore, in the four days following its launch, it generated over $1B in trading volume, demonstrating the tremendous impact created through the token airdrop event.

While most projects show significantly reduced protocol activity after their token generation event (TGE) and airdrop, Hyperliquid continues to maintain high activity levels, recording daily trading volumes of $6B to $8B even after the airdrop. As Hyperliquid aims to evolve beyond being just an on-chain Perp DEX into a Layer 1 platform, it will be interesting to see if they can maintain these high activity metrics and continue expanding their ecosystem following this event.

1.1. DeSpread’s Comments

$HYPE is currently trading at around $12, recording a FDV of approximately $12B. When comparing this value alongside TVL with both Perpetual DEX and Layer projects as shown in the image above, we can observe the following analysis (the FDV for each project is based on their respective native tokens).

While this analysis is simplified, focusing solely on TVL and FDV for comparison purposes, it suggests that if Hyperliquid is considered merely as a Perpetual DEX project, it appears somewhat overvalued compared to its peer projects. However, when viewed as a Layer project, its token value could be considered fair or even slightly undervalued compared to peer projects (such as Sui, Avalanche, Aptos).

However, from a trading volume perspective, it may be difficult to say that Hyperliquid is overvalued compared to other Perp DEX projects. Hyperliquid currently commands nearly 50% of all on-chain Perp DEX trading volume. As of December 5th, it recorded a daily trading volume of approximately $8.57B. This is a dominant figure both as a single protocol (with Jupiter in second place recording $1.25B in daily trading volume) and as a single chain (with Ethereum chain in second place recording $1.77B in daily trading volume). These numbers are so significant that they are comparable to those of centralized exchanges like Deribit.

Considering these factors, rather than concerns about overvaluation controversies or potential price crashes due to $HYPE's rapid price surge after launch, we can be more optimistic about the potential re-evaluation of the project due to the upcoming HyperEVM launch and Layer 1 ecosystem expansion. While we can point out that 1) most of the increase in spot market trading volume after token launch came from HYPE trading, and 2) the spillover effect on ecosystem meme coins besides HYPE remains minimal, these aspects aren't critical to the protocol's evaluation and can likely improve over time.

Hyperliquid has created FOMO (Fear Of Missing Out) among many with its token launch and demonstrated the existence of a strong community. Can they achieve their vision of becoming the "on-chain Binance"? Regardless of how this project's future unfolds, it will undoubtedly be a project worth watching throughout the remainder of 2024 and into 2025.

2. The Return of Ripple, and Martial... Law?

It wouldn't be an exaggeration to call November "Ripple's ($XRP) month." Particularly from November 28th, it showed over 100% growth in about a week, significantly surpassing its previous all-time high from 2021 to reach a maximum of $2.9. As a result, Ripple demonstrated a remarkable increase of approximately 480% in one month, rising from its November opening price of $0.5 to a peak of $2.9.

This surge appears to have been partly driven by strong interest from the Korean market. As mentioned in last week's market commentary, Ripple was the most traded digital asset across Korea's top 5 exchanges (Upbit, Bithumb, Coinone, Korbit, and Gopax) during the analysis period (November 20-26), recording approximately $16.4B in trading volume.

This week again, Ripple remained the most traded digital asset in the Korean market, with trading volume roughly doubling to $31B compared to the previous week, reaffirming Koreans' affection for Ripple. Considering that Dogecoin ($DOGE), which ranked second, recorded about $8B in trading volume, one can gauge the enormous interest directed toward Ripple.

The reasons for Ripple's surge can be attributed to ▲expectations of crypto regulation easing with Trump's election ▲compliance with the global standard ISO20022 ▲the November 21st announcement that Gary Gensler, known for his anti-crypto stance, would officially resign in 2025. Additionally, some suggest that the December 1st announcement of a "two-year delay in virtual asset taxation" ignited Korean investors' sentiment, naturally leading to increased trading volume for Ripple.

Meanwhile, Ki Young Ju, CEO of the on-chain analysis platform CryptoQuant, argued that Ripple's surge was led by Coinbase rather than the Korean market, citing that meaningful minute-by-minute price premiums occurred more significantly on Coinbase than on Upbit.

On December 3rd at 22:28, South Korean President Yoon Suk Yeol declared martial law for the first time in 45 years since the Chun Doo-hwan government, stating, "We will definitely eradicate anti-state forces that cause national confusion."

This led to a 'panic sell' among domestic cryptocurrency investors, who began selling their digital assets on domestic exchanges and exiting the market. As a result, Upbit's $BTC price showed a maximum negative premium of -16% compared to Binance. Both Upbit and Bithumb experienced server downtime for about 2 hours due to excessive traffic, temporarily suspending their services.

During this time, digital assets with high trading volumes on domestic exchanges, such as XRP, DOGE, ENS, and XLM, showed steeper declines compared to other digital assets. Notably, XRP, which was trading at around 3,800 KRW in Upbit's KRW trading pair before the martial law declaration, plummeted by up to 57% in 30 minutes after President Yoon's announcement, reaching 1,623 KRW.

The martial law declared by President Yoon was lifted around 1 AM on December 4th, two hours after its declaration, following the unanimous passage of a martial law termination resolution by 190 National Assembly members. Three hours later, at 4 AM, President Yoon personally announced the lifting of martial law, bringing the situation to a close. The domestic cryptocurrency market immediately responded, recovering to pre-martial law levels, though as of December 6th, Upbit's Bitcoin price maintains approximately a -1% negative premium compared to Binance.

2.1. DeSpread’s Comments

Unusual political events like the martial law declaration are increasingly destabilizing Korean asset markets, including cryptocurrencies. The Korea Composite Stock Price Index (KOSPI) has continued its downward trend due to Samsung Electronics' poor performance and spreading negative expectations about Korea following Trump's election, and now faces another potential decline due to the martial law incident.

However, we believe the cryptocurrency market has little reason to be significantly affected by Korea's political instability. Since cryptocurrencies are inherently global in nature and traded 24 hours across the world, the impact of any single country's political situation, except for major economic powers like the United States, should be minimal on this market.

While there may be potential price volatility for specific tokens where Korean exchanges hold a large share of global trading volume, this incident has likely made cryptocurrency investors more aware of blockchain-based assets' unique characteristic - the ability to transfer assets to offshore exchanges or on-chain environments as long as communication and financial systems remain operational.

Furthermore, compared to traditional Korean assets like stocks and real estate, cryptocurrencies' greater exposure to global markets makes them relatively immune to political instability. This feature is likely to attract increasing attention from Korean investors more and more.