In this interview, research analysts from Nansen reveal two shocking facts about Terra’s collapse while also shedding some light on the current state of the industry from an institutional standpoint.
Nansen is a blockchain analytics platform and has quickly become one of the more prominent and popular data resources in the industry.
The platform is designed to combine on-chain data alongside a constantly growing database that contains millions of wallet labels. The team surfaces the signals in blockchain data, takes that information, enriches, and aggregates it.
Nansen also does data engineering, where they present the available information in comprehensive dashboards where cryptocurrency investors can more easily surface actionable insights and draw conclusions.
This July, during ETHCC 5 in Paris, CryptoPotato had the chance to sit with Daniel Khoo and Elizabeth Yeung from Nansen. Elizabeth is the Senior Research Analyst on Attributions, and Daniel is a research analyst on Nansen’s Alpha Team.
We discussed various trending topics such as the ongoing market conditions, non-fungible tokens, where the next hype will come from, as well as some exciting yet not-so-widely-known details of the Terra fiasco.
Following Smart Money to Identify Trends
Nansen tracks ten different chains – most of the EVM-compatible ones, but also Solana, Terra, and even has a dedicated dashboard for Ronin – the network of Axie Infinity.
They provide many insights on non-fungible tokens (NFTs) where users can track blue-chip NFTs like Crypto Punks, Bored Apes, and other lesser-known collections.
Based on incoming information, prices for art-related NFT projects also seem to be moving in cycles, albeit sometimes differently relative to Bitcoin or Ethereum.
“I think, historically, NFTs also sometimes perform a bit differently from just Ethereum or Bitcoin – like, the general market. Sometimes, even if the market is not doing so well, they can possibly perform better. In general, looking at our NFT indexes provides a good gauge for how the market is trending for NFTs.”
In regards to the possibility of foreseeing incoming and future trends, according to Khoo, using on-chain data can help track smart money going in and out of the market.
“Smart money is either investors who have been very profitable historically or funds and financial institutions who are active on-chain.
More or less, we generally follow this smart money as they are mostly seed investors or private investors, and they normally identify trends very early. This is how we use this data to look at what the big funds are looking at and what trends they are identifying as well.”
‘Many Big Institutions Are Starting to Buy Back’
In the past couple of months, we saw many big companies, such as Celsius Network (one of the industry’s largest institutional and retail lenders), as well as Three Arrows Capital (3AC – a leading cryptocurrency hedge fund), default because of excessive leverage and improper risk management.
The collapse of the entire Terra ecosystem caught many, including the above, off guard and led to catastrophic losses across the board – an event that many refer to as “the deleveraging.”
According to Nansen, though, there are other factors that also contribute to the ongoing bear market.
“There was not only the big players deleveraging but also the macro situation and a general loss of confidence in certain assets as well. All these contagion effects coming from, for example – the Luna and Terra collapse – come to play and affect all markets as well.
With so much fear in the market, even the funds taking profits and selling as well, we can definitely see that prices have been dropping quite a lot.”
However, on the more positive side, Khoo revealed that “many big institutions are actually starting to buy back, and that might be a good signal.”
Moreover, comparing the current market conditions to those of 2018, institutions seem to be the key differentiators.
“Even now, when prices have fallen quite a bit, we do see very strong support from many big institutions that are buying back in bulk and holding for the long term.
Back in 2018, there might have been less institutional money, less money in stablecoins that is ready to be deployed. I think the main difference is that people have higher purchasing power now and also a lot of institutions are able to hold for long periods of time.”
The Terra Collapse: More Than One Entity Caused the Attack
The collapse of the Terra ecosystem left the entire cryptocurrency community and perhaps the tech world, in general, in awe. The multi-billion dollar project lost all of its value in less than a week in an event that has never been seen before.
The implications are still felt to this date as many projects suffer from the contagion. One narrative that slipped through was that there was a single entity responsible for the attack on the UST algorithmic stablecoin, pushing it below its peg. However, according to on-chain data, Nansen claims that’s not entirely true.
“After digging into the on-chain data, we found out that it wasn’t just one entity, but it was actually a few wallets that sort of started the depeg. We obviously don’t know whether they were in cahoots or what their intentions were.”
It’s also important to note that their intentions might not have been to intentionally depeg the stablecoin “but just rotating and causing some imbalances in the pool when they actually draw some liquidity out.”
“The second shocking thing is that for the stETH staking discount that is trading currently and also during the time when Celsius had to unwind their leverage positions.
We can see that it all started from the UST and Terra collapse, which actually caused the situation of the staking trading at the discount, because Terra, Luna, and UST were quite a big investment for these entities.”
On the bright side, however, we might be done with the contagion effects of the collapse, although the market might not be out of the woods yet. This has to do with certain cryptocurrency exchanges halting withdrawals and transactions.
Nansen doesn’t track off-chain data and describes this situation as “a bit scary” because they “cannot see what is going on with their (read: centralized entities) books. Definitely, there are some things happening behind the scene that we’re unable to track, and this situation might not be totally over, but we’ll never know.”
The Future of Nansen
Speaking on the future of Nansen, Yeung revealed a lot about Nansen Connect – a messenger application that enables users who hold a specific NFT to connect with other holders who own it, as well as join chat rooms based on wallet labels.
“This is a very exciting feature that we released recently. If you have a specific label to your name – maybe you are a smart investor, the smart money – you are able to connect and chat with others of a similar profile.”
Nansen aims to become the information super-app of Web3 by integrating Layer 1 and Layer 2 blockchains, expanding its coverage and wallet labels.