Welcome to our February market recap as we follow up on last month’s issue. A lot has happened this past month, and here’s what we have to share.

Among the top 10 gainers in the last 30 days, 3 have more than doubled their market cap, with $CFX leading the race at a phenomenal 839.48% growth.

Majority of the tokens rallied due to these three main drivers: the China Narrative, the AI hype from ChatGPT’s rise, and the Ordinal NFTs. Beyond that, notable gainers include $BNX, $ANKR, $DYDX, and $OP.

$BNX rallied due to its 1:100 token split, which increased its maximum supply from 21M to 2.1B.

$ANKR saw a huge price increase due to its partnership announcement with tech giant, Microsoft. This enables Ankr to tap into Microsoft's massive customer base, where users can access Ankr’s blockchain infrastructure services through Microsoft's Azure marketplace.

$DYDX continued to climb higher as investors accumulated more $DYDX tokens after its revamped tokenomics announcement on 24 January. $OP jumped primarily because of Coinbase’s launch of its own Layer-2 (L2) network, Base, powered by Optimism’s OP Stack. Base will commit a portion of transaction fees revenue to the Optimism Collective, thus accruing value for $OP.

As for the China narrative, the Chinese government’s attitude towards Web3 and crypto has eased significantly in the last month. Beijing has announced multiple initiatives that are potentially beneficial for the crypto space, such as the launch of the National Blockchain Research Centre and the subtle approval of Hong Kong’s new bill to allow for regulated crypto trading. Like how Hong Kong has always acted as the gateway for Chinese investors to connect with the global markets, this bill may indicate the potential to use Hong Kong as the testing ground for wider crypto adoption.

In addition, the Chinese central bank has been injecting liquidity to boost post-pandemic economic recovery. The US$92B of liquidity poured in is believed by many to be for increasing the demand for risky assets. As shown in Figure 2, liquidity injection through reverse repos jumped significantly and went as high as US$70B within a single day.

As a result, almost all “China-related” cryptocurrencies have seen a significant bull rally in the past month. The biggest winner, Conflux Network ($CFX), is the only “regulatory-compliant” Layer-1 (L1) blockchain operating in China with endorsement from multiple provincial governments. Before the China narrative, $CFX saw several bull rallies from its partnership with XiaoHongShu (Little Red Book) for its NFT initiative in January and its collaboration with China Telecom to build the first blockchain-based SIM cards in early February. With the market’s reaction to the potential change in attitude towards crypto, $CFX’s price tripled in just one week.

Conflux’s fundamentals have also changed to reflect this hype. Throughout the month, the total TVL of the blockchain has more than doubled. However, its ecosystem remains small, with only a few dApps formally deployed on the blockchain.

Technologically, Conflux claims to be a superior version of Ethereum, which operates on a hybrid mechanism of Proof-of-Work (PoW) and Proof-of-Stake (PoS). While the network claims to have solved the blockchain trilemma, reaching a TPS of 6,000, various established L1 blockchains have far surpassed this threshold, such as Solana at 700K TPS and Fantom at 25K TPS. The Conflux Network is also severely undertested with only 120M transactions so far, at a TPS of 0.07, according to ConfluxScan. This is far inferior to slower blockchains such as Ethereum and BNB Chain, with 1.9T transactions at 10.9 TPS and 3.9T transactions at 48.6 TPS, respectively. For comparison, Solana, as an L1 that joined the competition significantly later, has had 148T transactions at an average TPS of 4.3K, according to SolScan.

Apart from $CFX, the “China Narrative” has also spread to other projects such as $NEO, the native token for the Neo Blockchain, believed to be the first public blockchain in China, and $OKB, the exchange token for OKX, a Chinese founded centralized exchange (CEX) that has a large userbase in Hong Kong, with more than 30% gains in the last month.

With the success of ChatGPT, the AI narrative burst into not only the equities market but also the crypto market. Most AI tokens have seen a massive rally, with Microsoft announcing a US$10B investment in ChatGPT on 23 January. Since then, projects or companies remotely related to AI have seen a huge lift in price. The Graph and SingularityNET were huge beneficiaries of this narrative, becoming the two largest AI-linked tokens based on market cap.

The Graph has also seen strong growth in both query activities and revenue fees. Total fees are up by 82% in the past 30 days, and unique indexers are also up by 81% from 1 December. The growth in these network metrics could continue once more subgraphs migrate to mainnet in the coming quarters.

Lastly, with the inception of ordinals and inscriptions, Stacks rose to popularity due to its connection to Bitcoin’s NFT narrative. The excitement surrounding Ordinals continues to grow as the project recently crossed the milestone of 200K inscriptions on the Bitcoin blockchain. This achievement comes just a day after the project hit 100K inscriptions, and the cumulative fees for digital collectibles topped ~US$1.3M. The surge in Ordinals has caused the memory usage per block to exceed the standard capacity. Still, many Bitcoin enthusiasts see this as a positive development for the top-ranked blockchain by market cap. Some view the lack of programmability and smart contract support in Ordinals as an asset, and its rise is seen as a benefit to Bitcoin’s sidechain developers. It is clear that the interest in Ordinals and NFTs on Bitcoin will continue to intrigue the crypto market.

The launch of Ordinals on the Stacks blockchain generated more interest and adoption of the Stacks ecosystem, including its native token $STX, which is required to pay the fees for inscribing these digital assets. As more users participate in the creation and trading of Ordinals, the increased demand for $STX to pay transaction fees and for trading on exchanges led to a price increase, jumping ~218% over two weeks from 14 February and posting an increase of ~US$872M in market cap.

Additionally, the development of L2 solutions like Stacks 2.0 and the emergence of new projects built on top of the Stacks blockchain also contributed to the growing interest and demand for $STX. As more developers and users flock to the Stacks ecosystem, the demand for $STX is increasing by the minute.

Yours sincerely,
Treehouse Research 🌳

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