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Markets turned risk-off, with BTC dropping below $86,000, underperforming both equities and gold ahead of a busy week for economic data. Despite the market downturn, there were small pockets of outperformance, with AAVE pushing the Lending and Ethereum Eco indices higher.
We also cover the recent rise in crypto M&A deals, which have generally neglected token holders, and ask whether today’s incentive-driven flows reflect durable onchain demand or simply rented liquidity.
Indices
Markets turned risk-off as crypto underperformed broader assets. Gold closed the day flat, while BTC (-2.01%) slipped alongside equities, with the S&P 500 (-0.26%) and Nasdaq 100 (-0.57%) both lower as investors rotated defensively.
On the macro side, investors are positioned cautiously ahead of a busy slate of economic data in the last full trading week of the year for stocks. Both October and November nonfarm payrolls are due today, given October’s report was pushed back by the US government shutdown earlier this quarter.
Meanwhile, speculation over Powell’s successor has intensified in recent days ahead of his term ending in May 2026. While Kevin Hassett emerged as the clear frontrunner for Fed chair earlier this month, Kevin Warsh is now leading by a small margin, underscoring the race is still fluid. In any case, investors expect a more dovish Fed under new leadership, leading to further rate cuts next year.
Regarding cross-sector performance, the Lending (+2.8%) and Ethereum Eco (+2.6%) indices showed remarkable relative strength against the broader market downturn. AAVE (+3.0%) was the best performing asset in both indices, with Aave founder Stani Kulechov swapping almost $10 million of wrapped ETH into AAVE to signal “alignment with the token” following the DAO vs. Labs drama.
Market update
A defining theme for crypto in 2026 will be consolidation, with sectors coalescing around a handful of main players. Crypto M&A deal activity has accelerated over the past year, suggesting we’ve already seen the early innings of this trend. Per RootData, there have been 143 crypto M&A deals so far in 2025, though only 21 have disclosed the acquisition amount, with the most notable being Dunamu’s $10.3 billion acquisition by Naver.
Although consolidation points to a maturing industry, a number of M&A deals over the past two months have brought to light what is perhaps the most important issue in crypto today: Tokens are broken, and most remain uninvestable.
What is the prevailing theme across Pump’s acquisition of Padre, Coinbase’s acquisition of Vector, and Circle’s acquisition of the Axelar core team and related IP? All of them neglected token holders, with Pump only acknowledging PADRE holders after community backlash.
At risk of sounding like a broken record, this is the problem MetaDAO is attempting to fix, and why “ownership coins” have outperformed the broader crypto market over the past few months. Though there are many legal aspects that remain uncertain, MetaDAO embeds mechanistic protections into tokens, with holders able to submit a treasury clawback proposal as a last resort. The unwinding of mtnCapital demonstrated this in practice, with holders redeeming MTN for USDC in the treasury when it was clear the experiment had failed.
While we have talked a lot about MetaDAO over the past few months, there are other projects approaching the same problem from a different angle. What if instead of trying to fix tokens, we bring equities and primary capital formation onchain? Superstate’s Opening Bell platform allows partner issuers like Galaxy (GLXY) to move shares seamlessly between traditional markets and tokenized representations of those shares on Ethereum and Solana.
Last week, Superstate introduced Direct Issuance Programs to modernize traditional capital formation. Superstate’s infrastructure enables SEC-registered issuers to receive stablecoins directly into their own wallet from KYC-verified investors, then issues tokenized shares instantly to the investor’s wallet and updates the company’s shareholder registry in real time.
Ultimately, I don’t think investors should care whether they are buying a token or a tokenized stock, as long as they know the instrument conveys a claim on cash flows, assets and legal recourse. Both approaches will coexist and play a fundamental role in 2026 and beyond as onchain markets mature.
Top of mind: Is the demand durable?
Incentives, airdrops and points farming have remained durable features of the crypto user experience. For users, it can be lucrative. An extra kicker or risk premium to participate in a new financial application. For projects, the token incentives offer a non-cash expense for customer acquisition, helping to achieve a critical mass of liquidity or scale to solve the cold start problem. But, eventually, the “community rewards” budget of the token allocation will be exhausted, leaving the market to determine the viability of the financial product absent incentives.
Looking back at the USDe market on Pendle for the Sep. 25 maturity, this market collected a 70x sats boost. Despite zero underlying yield on the instrument, the implied yield on this market rose to over 16%, and amassed over $3 billion in deposits.
This was a fat pitch, a layup. Users could collect a 10-15% fixed yield on USDe related PTs and loop them on Aave with a borrow cost of 5-7%, all with billions of dollars in liquidity. Meanwhile, ENA incentives were papering up the spread. Between the USDe and sUSDe markets on Pendle, this structure drove the USDe from $5 billion up toward $15 billion. Following the September maturity of over $5 billion in USDe-related instruments and the end of Ethena’s Season 4 points campaign, coupled with Black Friday (Oct. 10 liquidation) and the decline in funding rates, the supply of USDe contracted back to $6.8 billion.
While the ENA example makes for a great case study, there are in fact many such cases. More recently, Kinetiq’s kHYPE garnered significant deposits in advance of the Kinetiq airdrop. Pendle’s market for kHYPE priced the yield as high as 15%, on an underlying base staking yield of only 2-3%. This market amassed over 40% of the total kHYPE supply, growing into Pendle’s second-largest listing.
Like the USDe example, HYPE bulls could buy the kHYPE PT at a ~10% fixed yield and loop HYPE against it on HyperLend or Felix with a 2-3% cost to borrow, all while maintaining HYPE delta. However, post-November TGE and the expiration of this hot Pendle maturity, the kHYPE supply has contracted by 40%.
Next is a case study which may have yet to close. USD.AI, which aggregates onchain stablecoin suppliers to lend capital in meatspace for GPU financing, has added over $600 million in deposits in short order. While running a points campaign with deposits capped, exposure to the airdrop has been so in-demand that participants blocked from deposits due to the cap had bid up the stablecoin above peg by $0.04. Are the yields really that good?
Indeed, USD.AI markets on Pendle have been putting up the best stablecoin yields in an otherwise boring stablecoin-farming market. Looking at the USD.AI market on Pendle for the March maturity, the implied yield launched at around 30%, and has since drifted lower toward 10%, while the underlying yield pays nothing. Over 80% of the USDai supply has been utilized on Pendle.
Are these yields sustainable? When the incentives end and TGE comes, sUSDai will be left paying out the yield from its loan book, which currently stands under $1 million. Absent growth in its loans, by at least 200x, the underlying APY may fail to maintain the appeal that the over $600 million in deposits enjoys currently.
Although lucrative for users and effective for protocols in solving their cold start problem, incentives are transient and not durable features of any particular financial product. While points farming is an ever-present feature of the onchain economy, capital will always rotate to the latest and greatest risk-adjusted return.
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