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Best of Delphi Researh January 2021

Our free January Delphi Research Recap gives readers elaborate summaries of our most popular research pieces from last month.

Example reports we cover include:

  • Bitcoin Monthly Outlook
  • Ethereum Ecosystem Analysis
  • Mirror vs. Synthetix? How About Terra?
  • UNI vs. SUSHI
  • Frax Finance
  • NFTs: A Multifaceted Ecosystem
  • Curve: Crypto’s Forex Leader

DeFi Aggregators

Key Takeaways:

  • Liquidity is the lifeblood of financial markets. As protocols begin competing on technical and capital efficiency, there’s an opportunity for specialized aggregators to help improve the user experience of DeFi.
  • DeFi protocols have $40 billion of locked liquidity, but this is split across numerous protocols. Aggregators pull quotes from each of these protocols and show them to users, abstracting away the need to manually find the best execution terms.
  • There are three core aggregator types: liquidity aggregators, yield aggregators, and UX aggregators.
  • Liquidity aggregators that service DEXes are the most popular aggregators and had a breakout year. 1inch Exchange, Paraswap, and Matcha cumulatively recorded $9.93 billion of volume in 2020. However, 1inch alone has facilitated $9.92 of volume in January & February 2021 so far on the back of its token launch, indicating an acceleration in growth.
  • If liquidity aggregators gain further usage, investors may be forced to re-think their theses. For example, aggregators like 1inch are looking for the best price and don’t care about the UI/UX of the underlying protocols. In many cases, under-utilized liquidity sources like Kyber and Bancor stand out on aggregators by offering less slippage on bigger orders for certain pairs. In an aggregator-centric world, protocols with less direct adoption but better capital efficiency will stand out.
  • Matcha, a DEX aggregator built on 0x, facilitated close to $3.5 billion of volume since its launch in July 2020. It accounts for 15-20% of 0x’s volume and has already outgrown Paraswap.
  • Metamask launched its own DEX aggregation service as a means of monetizing its large userbase. Since launching, Metamask has swapped over $1.2 billion of assets and earned $11 million in fee revenue.
  • Yield aggregators like Yearn and Harvest were only conceived in 2020, but they saw significant success as yield farming (liquidity mining) took off. At their peaks, Yearn and Harvest each had $1 billion of capital allocated through their products and generated real cash flows for token investors.
  • UX aggregators, perhaps the most important category of all, aim to be to the complete frontend of DeFi. These platforms have already seen moderate success, with Zapper helping $243 million worth of activity navigate their way through DeFi in the past month alone.
  • In summary, aggregators abstract the complexity of DeFi from regular users while enhancing the UX. With the space targeting mass adoption, aggregators will play a critical role in onboarding and retaining new users.




MicroStrategy’s Bitcoin Blueprint by Kevin Kelly

How Nexus Can Incentivize Auditors by Medio Demarco

Key Takeaways:

  • Alpha Homora V2 was exploited for ~$38m. As DeFi TVLs rise, the reward dichotomy between being an honest actor rather than a malicious one is becoming increasingly imbalanced. This type of trial by fire will improve smart contract resiliency over time but its time to fix the incentive for being a bad actor.
  • A big problem is getting auditors to sign up to an incentivized system. Why would an audit firm pay a cost to enter an incentivized system where they could then be slashed for making a mistake? Why not just continue with business as usual, get paid for audits and never have any capital-at-risk yourself?
  • For an incentivized system to work, a token needs to be involved to alter the incentive dynamics. That way auditors/white hat hackers aren’t just doing it for a small near-term payment but rather long-term value accrual they don’t want to have slashed.
  • We proposed a possible solution to the Nexus community, as their platform is already the market leader in offering cover against smart contract risk. Our proposal gives Nexus it’s own in-house, incentivized audit capabilities, making it a one stop shop for smart contract audits, technical risk pricing and buying protection. This would be a first in the space and greatly increase the value proposition of Nexus and the defensibility of its moat.

NFTX – Good Idea, Bad Design by Guest Analyst


Please note: While some are calling this a hit piece, if you take the time to read this – it’s clear that we’re trying to offer our thoughts on flaws we see in the model to have the team and community improve and hopefully succeed as they envision long term. As always, our biggest mission at Delphi is to help move the space forward in any way we can.

Key Takeaways:

  • NFTX is an indexing platform for turning baskets of NFTs into ERC20 tokens which can then be traded with all the benefits of fungibility. There are 2 types of funds, D1 and D2.
  • D1 funds are made up of the NFTs themselves and D1 tokens represent 1:1 backing of NFTs in the fund. In the eyes of a D1 token, every asset in its D1 fund has exactly the same value. This is where our first issue arises. This token creates an arbitrage opportunity because not all NFTs are equal in value. There is no incentive for anyone to add an NFT with an above average value to the pool. On the contrary, someone will most likely buy an NFT with minimum acceptable value to the pool and repeatedly trade it in and out for D1 tokens until they randomly hit the higher valued NFTs.
  • D2 funds partially bandage this issue, by allowing you to create very narrow funds on the D1 layer and create diversification on the D2 layer. Despite that, D2 tokens fail to efficiently create diversification because assets will constantly need to be recategorized into different D1 funds as asset values diverge and parameters need to be changed anyway. This could destroy any current plan to create narrow tranches on the D1 Layer and simply organize them on the D2 layer.
  • Another issue for NFTX includes a poor token distribution with a large portion of tokens going to a handful of NFT/Cryptopunk whales and 10% going to the founder, with nothing set aside for a treasury to fund other team members and future development. This initial distribution combined with a lack of future treasury funding may inhibit NFTX long term.
  • There are likely several effective solutions that incorporate valuation games in some capacity. We are excited to follow this segment as it emerges over the coming years. We believe existing projects are too primitive to fully execute on the index use case.


NFTs: The Lay of The Land by Piers Kicks

The NFT market is undeniably hot right now, with the vast majority of record-breaking sales happening within the last 30 days. We have seen an Axie Estate sell for 888 ETH, Danny pickup a HashMask for 420 ETH, and an all-time high CryptoPunk sale for 605 ETH. Millions of dollars are changing hands daily across projects both old and new.

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Some pundits have argued against MicroStrategy’s aggressive decisions to accumulate more bitcoin, but it seems Michael Saylor & co. have laid out the blueprint for similar offerings to come. It won’t make sense for every company, of course, but it may make sense for some, especially those with otherwise healthy balance sheets looking to rejuvenate excitement around their brand or stock. After all, MicroStrategy has experienced several years of negative sales growth, despite the message its stock has been sending as shown above.



As mentioned, we will continue to iterate on the design of our Delphi Debrief based on your feedback—so please let us know which section you enjoy the most and what else you’d like to see!

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