Market panic escalates, attention turns to DeFi and AI Agent tracks

Author: Frontier Lab

Market Overview

Main Market Trends

Overall Market Situation

The current market is in a state of extreme panic, with the sentiment index falling from 53% to 7%, coupled with the hawkish stance of the Federal Reserve (the rate cut expectation has dropped from 4 times to 2 times), triggering about $1 billion in forced liquidations, indicating that the market is experiencing a significant deleveraging process.

DeFi Ecosystem Development

The DeFi sector has seen its first TVL decline in nearly two months (-2.21%), but the market capitalization of stablecoins is still growing (USDT +0.55%, USDC +1.44%), indicating that despite the market correction, basic liquidity is still flowing in, and projects like yield farming are attracting attention.

AI Agent

The market size of the AI Agent track has reached $9.9 billion, with the investment focus shifting from speculative AI Meme coins to infrastructure building, indicating that the market is gradually maturing, and project directions are becoming more rational and practical.

Meme Coin Trends

The heat of the Meme coin market has clearly cooled down, and capital has begun to withdraw on a large scale, indicating that the speculative sentiment in the market has decreased, and investors are more inclined to seek projects with real application value, which may mark the phased end of the Meme coin craze.

Public Chain Performance Analysis

Amid the significant market volatility, the public chain sector has shown strong resilience, becoming the first choice for investors to hedge, reflecting the market's continued confidence in the underlying infrastructure.

Future Market Outlook

As the Christmas holiday approaches, market liquidity is expected to decline, and 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, but be aware of the risk of increased volatility during the holiday period.

Market Sentiment Index Analysis

• The market sentiment index has fallen from 53% last week to 7%, in the extreme panic zone.

• Altcoins underperformed the benchmark index this week, showing a significant decline. Affected by leveraged positions, the market saw over $1 billion in forced liquidations, with a significant deleveraging of long positions. Given the current market structure, Altcoins are expected to move in sync with the benchmark index in the short term, with a low probability of independent performance.

• When Altcoins are in the extreme panic zone, an upward reversal often occurs.

Overall Market Trend Overview

• The cryptocurrency market was in a downward trend this week, with the sentiment index in the extreme panic zone.

• Crypto projects related to DeFi performed well, indicating that the market continues to focus on improving basic returns.

• The AI Agent track had high sentiment this week, indicating that investors are actively looking for the next market breakout point.

• Meme track projects generally declined this week, and capital began to withdraw from Meme coin projects, reflecting a gradual decline in market enthusiasm for Meme coins.

Hot Tracks

AI Agent

This week, the overall market was in a downward trend, with all tracks in a state of decline. Although the prices of most AI Agent tokens also fell this week, the discussion around this track was the highest. Previously, the market's attention to the AI Agent track was mainly focused on Meme token projects with AI Agent elements, but now it is gradually shifting towards AI Agent infrastructure building.

Due to the lack of market enthusiasm for traditional VC token projects in this cycle, and the inability of Meme coin projects to bring sustained growth, the AI Agent track is likely to lead the next market development, as it not only includes AI Meme, but also AI DePIN, AI Platform, AI Rollup, AI infra and many other tracks that can be combined with AI Agent. Essentially, each blockchain project is a manifestation of smart contracts, and the emergence of AI Agent is to improve and enhance smart contracts. Therefore, AI Agent and Crypto are a perfect combination.

Top 5 AI Agent projects by market capitalization:

DeFi Track

TVL Growth Ranking

Top 5 projects by TVL growth in the past week (excluding projects with TVL less than $30 million), data source: Defilama

VaultCraft (VCX): (Recommendation: ⭐️⭐️)

• Project Introduction: VaultCraft is a crypto project based on the Algorand public chain, aiming to reduce the costs for participants in storing and launching the network. VaultCraft's design utilizes Algorand's Proof-of-Stake consensus protocol.

• Latest Developments: This week, VaultCraft launched a 4X leveraged Looper based on Lido Finance's stETH, supporting multi-chain deployment on Base, Arbitrum, Optimism and Ethereum, and enabling direct staking from L2 to mainnet through Chainlink CCIP, providing users with over 7%+ APY returns. It also established a partnership with Matrixport and received a 1,000 BTC custody business, leading to a rapid growth in its TVL. It also formed strategic partnerships with Safe and CoWSwap.

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

• 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, using the HyperBFT consensus algorithm, capable of processing up to 200,000 orders per second.

• Latest Developments: This week, the overall market experienced violent fluctuations, with the market continuously setting new highs before Wednesday, and then experiencing a significant decline after the Federal Reserve meeting on Thursday. The dramatic volatility created a very good trading environment for users who wanted to participate in contract trading to obtain high returns, leading to a large number of on-chain users joining Hyperliquid to participate in trading, with the total open interest exceeding $4.3 billion. This week, Hyperliquid responded to market demand by adding leveraged trading functionality for popular token pairs such as VIRTUAL, USUAL, and PENGU, supporting up to 5x leverage, attracting a significant number of on-chain users to participate in trading.

Resolv (Unissued): (Recommendation: ⭐️⭐️)

• 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 revenue sources, allowing competitive returns to be distributed to the protocol's liquidity providers.

• Latest Developments: This week, Resolv completed integration with Base, significantly reducing transaction costs and improving transaction speed. It launched lending services for USR, USDC and wstUSR through Euler Finance, and established a liquidity pool for USR-USDC on Aerodrome, while also adjusting the Spectra YT reward distribution to 15:00 daily and optimizing the reward mechanism. It also launched a Grants program and confirmed the first 3 recipients. Through deep cooperation with projects like Base, Euler Finance and Aerodrome, Resolv has strengthened its competitiveness in the DeFi field.

Babylon (Unissued): (Recommendation: ⭐️⭐️⭐️⭐️⭐️)

• Project Introduction: The Babylon project aims to use 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, resolving the contradiction between Bitcoin holders' pursuit of asset security and their participation in high-yield projects.

Here is the English translation of the text, with the terms in <> retained as is: Latest developments: Although the market price fluctuated quite violently this week, BTC's performance has been very strong, still maintaining at a high level. In addition, users are generally optimistic about BTC's subsequent development, so they are more determined to hold it while wanting to unlock the liquidity of their BTC holdings, and will therefore choose more BTC-based yield projects. This week, Babylon deepened the application of ZK scalability technology through cooperation 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, aiming to provide users with crypto asset staking yields and decentralized stablecoin LISUSD lending services. Latest developments: This week, Lista DAO launched the Gauge Voting and Bribe Market functions, allowing veLISTA holders to participate in the LISTA emission decision-making of liquidity pools. It also announced strategic cooperation with 48Club_Official and defidotapp, especially in exploring new opportunities in the BNBChain ecosystem, and through #012 proposal, promoted the integration of PumpBTC as collateral for the new area. Moreover, Lista DAO attracts users through weekly veLISTA rewards of about $230,000 and high APR compounding incentives, as well as a competitive 5.25% lending rate. This week, Lista DAO collaborated with FDLabsHQ to launch a $7,000 USDT winter event, and airdropped slisBNB and clisBNB to BNBChain holders. In summary, we can see that the projects with rapid TVL growth this week are mainly concentrated in the stablecoin yield sector (Vault). Overall market performance Stablecoin market capitalization steadily grew: USDT grew from $145.1 billion last week to $145.9 billion, an increase of 0.55%, and USDC grew from $41.5 billion to $42.1 billion, an increase of 1.44%. It can be seen that although the market declined this week, both USDT, which is mainly for the non-US market, and USDC, which is mainly for the US market, have seen growth, indicating that the overall market is still maintaining continuous capital inflow. Liquidity is gradually increasing: The risk-free arbitrage rate in the traditional market is constantly declining due to the continued interest rate cuts, while the arbitrage rate of on-chain Defi projects is constantly increasing due to the increase in the value of cryptocurrency assets, making a return to Defi a very good choice. Defi sector TVL (data source: https://defillama.com/categories) Capital situation: The TVL of Defi projects increased from $54.1 billion last week to $52.9 billion, experiencing a negative growth of 2.21% for the first time in nearly two months. The main reason is that the overall market experienced a significant decline this week, causing a large number of contracts and loans to be forcibly liquidated, leading to a decline in the TVL of the Defi sector, breaking the upward trend of the past two months. The focus in the next two weeks should be on the overall TVL changes and whether the downward trend will continue. Upward driving force: The core driving factors of this round of upward trend can be summarized as the following transmission path: the market entering a bull market cycle has driven the surge in liquidity demand, which in turn has pushed up the basic lending interest rate level, amplifying the profit space of the arbitrage cycle strategy in Defi protocols. Specifically: - Market environment: The bull market cycle has brought an overall increase in liquidity demand. - Interest rate end: The rise in the basic lending interest rate reflects the market's pricing expectations for capital. - Yield end: The expansion of the yield rate of the arbitrage cycle strategy has significantly improved the inherent value support of the Defi sector, forming a virtuous growth momentum. Potential risks: Due to the recent upward trend in the market, investors have been more focused on yield rates and borrowing leverage, but have ignored the risk of downside. This week, due to the Fed's unexpected adjustment of the interest rate cut forecast for next year from 4 times to 2 times, the market experienced a rapid decline, causing over $1 billion in contracts and borrowings to be liquidated, causing losses to investors. This liquidation risk may lead to a chain reaction of liquidations, causing further price declines and more asset liquidations. Other sector performance Public chains Top 5 public chain TVL growth last week (excluding public chains with small TVL), data source: Defillama Hyperliquid: This week, the overall market experienced violent fluctuations. Before Wednesday, the market kept hitting new highs, but after the Fed meeting on Thursday, the overall market experienced a significant decline. The violent fluctuations created a very good trading environment for users who wanted to participate in contract trading to obtain high returns, causing a large number of on-chain users to join Hyperliquid to participate in trading, making Hyperliquid's open interest exceed $4.3 billion. This week, Hyperliquid responded to market demand and added new popular token trading pairs such as VIRTUAL, USUAL, and PENGU, supporting up to 5x leverage, attracting many on-chain users to participate in trading. Bitcoin: This week, the market reached new highs in the first half of the week, but then experienced a significant decline after Thursday. During this period, BTC's decline was relatively small compared to other projects. Users flocked to buy BTC for hedging, and the market also became more optimistic about BTC's future rise, so users became more determined to hold BTC and chose to deposit their BTC into BTCFi projects to earn additional yields, leading to an increase in Bitcoin's TVL. BSC: This week, BNB Chain introduced new projects such as Seraph_global, SpaceIDProtocol, and cococoinbsc to join the ecosystem, actively promoting the integration of AI and Web3 in the gaming field, and strongly supporting the development of Meme projects. Through the Meme Heroes LP program, it provided $50,000 in liquidity support for the CHEEMS and $HMC projects, and launched a daily Memecoin airdrop plan including GOUT, MALOU, BUCK, and $WHALE, as well as a $200,000 Meme Innovation competition. AILayer: AILayer's activities this week were mainly focused on community operations and ecosystem cooperation: cooperating with OrochiNetwork to launch a Giveaway activity; launching a Mini App ranking activity to enhance user participation; continuing to attract community participation through interactive activities such as "Would You Rather Challenge" and "Riddle of the Week"; and hosting the EP31 AMA event themed "How AILayer uses AI to revolutionize Bitcoin", showcasing the project's vision for the integration of AI and blockchain. Mantle: Mantle achieved an important breakthrough this week by integrating Compound III, bringing $USDe lending functionality to users and supporting ETH and BTC as collateral assets. By expanding the Mantle Scouts Program to 40 top industry Scouts and launching the Mantle Meetup plan, it also launched the Moe's Rager large-scale incentive activity with a total of 1 million MNT, and successfully attracted over 110,000 users to participate in the Yield Lab project, generating 2.5 million transactions, bringing on-chain traffic to Mantle. Top 5 token price increases last week (excluding small trading volume tokens and meme coins), data source: Coinmarketcap This week's top gainers show a concentration in the public chain sector.

UXLINK: This week, UXLINK reached a strategic partnership with DuckChain and received investment support from UFLY_Labs, jointly building a Social Growth Layer (SGL). The number of LINE platform users has exceeded 2 million, and UXLINK has set a new historical high on the Upbit trading pair. UXLINK has launched a large-scale airdrop event worth $500,000, covering more than 20 Web3 projects, and continues to attract new users through joint activities with trading platforms such as OKX.

USUAL: This week, Usual launched an innovative USD0++ holder incentive vault and a delta-neutral strategy, providing users with yields of up to 76%-82% APY. Meanwhile, it has maintained stable high-yield performance in the Curve USD0/USD0++ and USD0/USDC pools, with an average of over 50%. Usual's TVL has recently experienced rapid growth, rising from $750M to $800M, and after the end of the third week's reward plan, TVL increased by 44%, while the minting rate decreased by 28%, bringing a deflationary effect to the USUAL token. The Usual project team also emphasized that 90% of the tokens are allocated to the community, and the DAO maintains a transparent operation model with 100% of the revenue.

MOCA: This week, Moca released the Moca 3.0 version, introducing the "integrated account" concept and launching the AIR Kit, aiming to solve the problem of Web3 user identity fragmentation. Moca has reached an important partnership with SK Planet, integrating Moca into the OK Cashbag application, reaching a user base of 28 million Koreans. The MOCA token will soon be listed on the major Korean exchanges Upbit and Bithumb. Moca has significantly improved user experience and ecosystem participation through deep cooperation with Nifty Island and the launch of the Fixed Mode optimization of the MocaDrop mechanism.

HYPE: This week, the overall market experienced violent fluctuations. Before Wednesday, the market kept creating new highs, but after the FOMC meeting on Thursday, the market experienced a significant decline. The violent volatility created an excellent trading environment for users who wanted to participate in contract trading to obtain high returns, leading to a large number of on-chain users joining Hyperliquid to participate in trading, with the number of open contracts exceeding $4.3 billion. This week, Hyperliquid responded to market demand by adding leverage trading functionality for popular tokens such as VIRTUAL, USUAL, and PENGU, supporting up to 5x leverage, attracting more on-chain users to participate in trading.

VELO: This week, Velodrome reached a partnership with the Soneium platform developed by Sony Block Solutions Labs, expanding Velodrome to this new-generation Layer 2 solution based on the Optimism Superchain. It also made important progress in liquidity building, with inkonchain locking 2.5M veVELO and providing $1.4M in incentive funds, as well as providing liquidity support for the proxy tokens of the Mode Network.

Meme Token Price Increase Ranking

Data source: coinmarketcap.com

This week, Meme projects were significantly impacted by the market decline. In the first half of the week, they did not follow the overall market uptrend, and after the decline on Wednesday, they followed the overall market in a significant decline, resulting in very few Meme tokens showing an upward trend this week. It is clear that the market's attention and capital are not currently focused on the Meme token sector.

Social Media Hotspots

Based on the top five daily growth data from LunarCrush and the top five AI scores from Scopechat, the statistical data for this week (12.14-12.20) is as follows:

The most frequently mentioned topic was L1s, and the listed tokens are as follows (excluding tokens with small trading volumes and meme tokens):

Data source: Lunarcrush and Scopechat

Based on the data analysis, the L1 projects received the highest social media attention this week. After the FOMC meeting on Thursday, where the expected rate hikes for next year were reduced from four to two, the market experienced a significant decline, with the various public chains performing better than other sectors. When the overall market experiences a decline, investors often allocate funds to BTC, ETH, and various public chains for hedging, and these public chains tend to be the first to rebound when the decline ends.

Overall Market Sector Overview

Data source: SoSoValue

Based on weekly returns, the CeFi sector performed the best, while the GameFi sector performed the worst.

• CeFi sector: In the CeFi sector, BNB and BGB account for a large proportion, with 86.07% and 5.45% respectively, totaling 91.52%. This week, Binance has been continuously listing new tokens, bringing in a lot of traffic, and BNB has outperformed the overall market, declining by only 2.58%, better than BTC and ETH. Meanwhile, Bitgit has been performing well recently, continuously listing popular tokens, and its token BGB rose 37.93% this week, driving the overall performance of the CeFi sector.

• GameFi sector: In this cycle, the GameFi sector has not received much market attention, resulting in a lack of capital and traffic inflow, and the "wealth creation" effect has diminished. The top tokens in this sector, including IMX, BEAM, GALA, SAND, and AXS, account for 82.14% of the sector, and their performance this week was weaker than the overall market, leading to the worst performance of the GameFi sector.

Preview of Major Crypto Events Next Week

• Thursday (December 26th): U.S. Initial Jobless Claims

Outlook for Next Week

• Macroeconomic Factors Analysis

Next week, the U.S. will enter the Christmas holiday period, with few macroeconomic data releases. Historically, during the Christmas and New Year's holidays, when the U.S. is the main driving force of the market, purchasing power tends to decline, leading to increased market volatility.

• Sector Rotation Trends

Although the current market environment for the DeFi sector is poor, investors generally expect the market to rebound in the first quarter of next year, so most investors are reluctant to sell their tokens. At the same time, to increase their token holdings' yields, they are actively participating in high-yield DeFi projects. The AI sector, particularly the AI Agent segment, continues to receive market attention, with a market size of $9.9 billion. The integration of Web2 and Web3 ecosystems is accelerating, and the integration of data networks, functional AI Agents, and existing crypto products is gaining momentum.

• Investment Strategy Recommendations: Maintain a defensive configuration, increase the allocation of top assets like BTC and ETH to enhance the risk-hedging properties of the portfolio. Investors can also participate in high-yield DeFi projects, but should exercise caution, control their positions, and manage risks effectively.