Apart from GMX, what other opportunities are Smart Money considering on Arbitrum?

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    The Datafi
    Published on
    · 4 min read
  • Are you ready for the Arbitrum token launch event? In this article, DataFi will show you how to identify which projects within an ecosystem are attracting smart money inflows.

    Recently, money has been pouring into Arbitrum, with a continuous stream of capital inflows.

    USD inflows into the Arbitrum ecosystem

    Source: Defillama

    To identify tokens that are poised for growth (i.e., attracting capital inflows) within an ecosystem, DataFi uses the "smart money/whale flow" analysis method. Based on the team's experience, protocols that are supported by smart money and whales tend to have a higher probability of success. Therefore, DataFi's criteria for selecting "promising" protocols within an ecosystem include:

    • Protocols with significant participation from VCs, Smart Money, and Market Makers
    • Protocols with innovative technology and strong mechanisms to retain liquidity (high innovative, high APY, etc.)
    • Protocols with relatively low valuations (MC/TVL, P/E, P/S, etc.)

    To determine which protocol the money is in, we need to know which stablecoin is mainly in the system. For the Arbitrum ecosystem, we see that there is $1.4 billion in stablecoins, including USDC, USDT, DAI, etc.. USDC and USDT account for ~85% of the liquidity in the system. This means protocols that attract USDC and USDT are the important ones in Arbitrum.

    Distribution of Stablecoins in the Arbitrum ecosystem

    Source: Defillama, compiled and processed by DataFi.

    Next, check which protocols hold most of the USDC and USDT on Arbitrum. Looking at the chart below, you probably have your answer.

    Distribution of USDC across the Arbitrum ecosystem by protocol

    Source: Nansen, compiled and processed by DataFi

    No surprises that GMX is the protocol attracting the most liquidity for USDC on Arbitrum. However, what's worth noting is the names of three newly emerged protocols, Radiant Capital (lending/borrowing protocol), Vela Exchange (Derivative exchange), and Zyberswap (AMM exchange), appearing in positions 2, 3, and 4, respectively.

    In this week's report, DataFi will go with ZyberSwap first:

    • Oapital Capital provides liquidity for the WETH/USDC pair on Zyber, demonstrating the trust in Zyber. Additionally, Oapital is a fund with an investment taste similar to Arca Fund - a "speculative" VC that seeks projects with high short-term profit potential.

    Top individuals providing liquidity to the WETH-USDC pool on ZyberSwap

    Source: Nansen, compiled and processed by DataFi

    • Zyber has already attracted some prominent DeFi OGs such as Woshifi.eth and SifuVision participating in yield farming.
    • Currently, the APY of ZyberSwap is quite high, up to 119% from the emission of ZYB.
    • In terms of relative valuation, the protocol currently attracts over $117M TVL and a fully-diluted Cap of $98M, equivalent to MC/TVL = 0.83, while the average MC/TVL for this kind of protocols can fall between 1 - 1.1 such as Uniswap or Pancakeswap. Therefore, the protocol is relatively "inexpensive" compared to similar products in the same segment. This will be an advantage in communication during market growth phases as well as if Arbitrum releases a token for the ecosystem. In addition, the current circulating supply of the project is very low (only $5M), which could easily influence the sentiment of new retail investors entering the market.

    Furthermore, there is an important note that DataFi wants to emphasize to new market participants: Scammers often go where there is money and reputation to disguise themselves as potential projects, especially memes. Currently, many trashy projects and scams, rug pulls, and unprepared launches have appeared on Arbitrum, especially those with the word "Arbi," trend-following projects, and promising projects that require extra caution. If it is a good project, you will have the opportunity to invest without haste.

    We hope you are always ready for investment opportunities!