New Year's Eve seems like just yesterday, but we've already lived past Jan. The past month revived memories of the altcoin season as small-cap outperformed benchmarks. Here's a recap of the month's hottest narratives.

Even after yesterday's (Jan 30) month-end retreat, 9 out of the top 10 gainers in the past 30 days still at least doubled their market caps. Among them, $GALA and $MANA are part of the GameFi/Metaverse narrative, $FXS/$LDO/$RPL are liquid staking derivatives (LSDs), and $DYDX rallied due to revamped tokenomics and delayed allocations of its token unlocking this week. The remaining gainers are L1 and L2 tokens.

$APT led the pack as its token rallied from ~$3.5 on Jan 1 to as high as $20. The emerging L1’s TVL barely increased during the same period from ~$53M to $62M. Coupled with a whopping ~$118M short liquidations across CEXs in Jan on APT futures, it’s clear that the rally became a short squeeze on the way up.

Given Aptos' nascent on-chain money market, CEXs are still $APT's main liquidity venue. According to @LookOnChain, the wallet holding the most $APT transferred 1M $APT tokens to Binance on Jan 28 (here), further triggering speculations that Aptos Foundation was selling the rally because other holders, including core contributors and early investors, won’t receive any tokens until Nov 2023.

Similar to $APT, which was FTX Ventures' protégé, FTX-linked L1 $SOL also pumped from ~$10 on Jan 1 to as high as $26 before retreating. However, CEX short liquidations were smoother as SOL's on-chain liquidity is deeper. Solana also gained as much as $60M TVL in Jan, despite some high-profile native projects (e.g., Friktion) sunsetting their vaults.

LSDs comprised 3 out of the top 10 gainers, all of which more than doubled in price. Other than $LDO and $RPL, the OG liquid staking protocols, $FXS also rode the narrative as frxETH gained massive traction and became the 5th largest LSD solution.

Frax LSD has a dual-token mechanism, namely frxETH which represents 1:1 the ETH staked on Frax’s validator nodes but does not accrue staking rewards, and sfrxETH which does accrue staking rewards generated by the entire circulating frxETH in an autocompounding manner. This mechanism separates ETH-frxETH’s spot exchange rate volatility from the actual yield earning token, and enables investors to take different risks: LPs on ETH-frxETH pairs take the depeg basis risks and earn return on trading volume in the pool and bribe rewards emission while sfrxETH holders get a larger share of staking yield compared to other LSDs.

frxETH's peg in Jan was notably stable since Frax owns a significant number of Convex Finance’s CVX tokens which allows the redirecting of CRV and CVX bribe rewards to the frxETH/ETH Curve pool. As users choose to LP their frxETH, fewer sfrxETH holders exist to split the staking yields from Frax’s Ethereum nodes. At the time of writing, Frax LSD APR (7.18%) exceeds both Lido (4.60%) and Rocket Pool (4.37%).

Yours sincerely,
Treehouse Research 🌳

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