Market Overview

Main Market Trends

Overall Market Situation

The market is currently in a state of extreme panic, with the sentiment index plummeting from 53% to 7%. Coupled with the Federal Reserve's hawkish statements, the interest rate cut expectations have dropped from 4 times to 2 times, leading to approximately $1 billion in forced liquidations, indicating that the market is undergoing a significant deleveraging process.

( DeFi ecosystem development

The DeFi sector has seen its first negative TVL growth in the past two months )-2.21%###, but the market capitalization of stablecoins continues to grow (USDT +0.55%, USDC +1.44%). This indicates that despite the market correction, the underlying liquidity is still flowing in, and projects with stable returns like money gun pools are favored.

( AI Agent

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

) Meme coin trend

The meme coin market has clearly cooled down, with funds beginning to withdraw on a large scale. This indicates a weakening of speculative sentiment in the market, and investors are more inclined to look for projects with substantial application value, which may mark a phase of the end of the meme coin craze.

Public Chain Performance Analysis

During significant market fluctuations, the public chain sector has demonstrated strong resilience against declines, becoming the preferred choice for investors seeking safety, reflecting the market's continued confidence in infrastructure.

Future Market Outlook

As the Christmas holiday approaches, market liquidity is expected to decline. It is recommended that investors adopt a defensive allocation strategy, focusing on BTC and ETH, while also keeping an eye on DeFi stable yield and AI infrastructure projects, but they should be wary of the increased volatility risks that may occur during the holiday period.

Market Sentiment Index Analysis

• The market sentiment index has fallen from 53% last week to 7%, indicating a state of extreme panic.
• Altcoins performed worse than the benchmark index this week, showing a significant downward trend. Due to the impact of leveraged positions, the market experienced forced liquidations of over $1 billion in positions, and long positions have significantly de-leveraged. Given the current market structure, it is expected that Altcoins will remain in sync with the benchmark index in the short term, with a low probability of independent market trends.
• Altcoins often experience upward reversals when they are in extreme fear zones.

![Market panic escalates, focus shifts to DeFi and AI Agent tracks｜Frontier Lab Crypto Market Weekly Report]###https://img-cdn.gateio.im/webp-social/moments-40183066e1913a84216b0233a6b43613.webp###

Overview of Overall Market Trends

• The cryptocurrency market is in a downward trend this week, with the sentiment index at extreme fear.
• DeFi-related crypto projects have performed outstandingly, showing that the market continues to focus on enhancing fundamental returns.
• The AI Agent track project has seen high public sentiment this week, indicating that investors are actively looking for the next market breakout point.
• This week, meme projects generally declined, with funds starting to withdraw from meme coin projects, reflecting a gradual decrease in market enthusiasm for meme coins.

Hot Tracks

( AI Agent

This week, the overall market is in a downward trend, with all sectors experiencing declines. Although most tokens in the AI Agent sector have also been on a downward trajectory this week, the level of discussion in the market is the highest. Previously, the market attention on AI Agents was mostly focused on Meme token projects associated with AI Agents, but it is now gradually shifting towards the infrastructure development of AI Agents.

Due to the lack of market popularity for traditional VC coin projects in this cycle, and the inability of Meme coin projects to bring sustained growth to the market, the AI Agent sector is currently very likely to lead the development of the market in the future. This is because the AI Agent sector not only includes AI Meme, but also encompasses numerous other sectors such as AI DePIN, AI Platform, AI Rollup, AI infra, etc., all of which can be combined with AI Agent. Essentially, all blockchain projects are expressions of smart contracts, and the birth of AI Agent is aimed at improving and enhancing smart contracts. Therefore, AI Agent and Crypto represent the best combination.

Top five AI Agent projects by market capitalization:

| Project Name | Market Cap ) Million USD ### | 7-Day Price Change | |---------|-------------|----------| | WorldCoin | 236.44 | -23.88% | | Fetch.ai | 514.39 | -25.78% | | SingularityNET | 468.79 | -22.82% | | Oraichain | 112.99 | -24.56% | | Measurable Data Token | 28.13 | -28.73% |

( DeFi track

)# TVL Growth Ranking

Top 5 projects by TVL growth in the past week (excluding projects with a smaller TVL, standard is over $30 million), data source: Defilama

| Project Name | Weekly Increase | TVL (million) | |---------|----------|----------------| | VaultCraft | 5344.32% | 102.41 | | Hyperliquid | 183.98% | 2754.63 |
| Resolv | 77.31% | 131.34 | | Babylon | 64.43% | 5774.49 | | DAO List | 48.52% | 859.86 |

VaultCraft (VCX): (Recommendation Index: ⭐️⭐️)

• Project Introduction: The VaultCraft cryptocurrency project is a public chain project based on Algorand, aimed at reducing the costs for participants when storing and launching the network. The design of VaultCraft utilizes Algorand's Proof-of-Stake consensus protocol.

• Latest developments: This week, VaultCraft launched the stETH 4X leverage Looper based on Lido Finance, supporting multi-chain deployment on Base, Arbitrum, Optimism, and Ethereum. It enables direct staking from L2 to the mainnet through Chainlink CCIP, offering users an APY yield of over 7%. Additionally, it has established a partnership with Matrixport to secure 1000 BTC in custody services, leading to a rapid increase in its TVL. Furthermore, strategic cooperation has been reached with Safe and CoWSwap.

Hyperliquid (HYPE): (Recommended Index: ⭐️⭐️⭐️⭐️⭐️)

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

• Latest Developments: The overall market has experienced significant fluctuations this week. Before Wednesday, the market continuously reached new highs, but after the Federal Reserve meeting on Thursday, there was a substantial decline. The extreme volatility has created a very favorable trading environment for users looking to participate in contract trading for high returns, leading many on-chain users to join Hyperliquid for trading, resulting in Hyperliquid's open contract volume exceeding $4.3 billion. This week, Hyperliquid responded to market demand by adding leveraged trading features for several popular tokens like VIRTUAL, USUAL, and PENGU, supporting up to 5x leverage, which attracted a considerable number of on-chain users to participate in trading.

Resolv (Not issued): (Recommendation index: ⭐️⭐️)

• Project Introduction: Resolv is a Delta-neutral stablecoin project that revolves around the tokenization of market-neutral investment portfolios. This architecture is based on economically viable and fiat-independent sources of income. This allows competitive returns to be distributed to the liquidity providers of the protocol.

• Latest developments: This week, Resolv completed integration with Base, significantly reducing transaction costs and improving transaction speeds. It launched lending services for USR, USDC, and wstUSR through Euler Finance, and introduced the USR-USDC liquidity pool on Aerodrome. At the same time, it adjusted the Spectra YT reward points to 15 points per day, optimized the reward mechanism, initiated the Grants program, and confirmed the first three recipients. Additionally, through deep collaborations with projects like Base, Euler Finance, and Aerodrome, it has strengthened the platform's competitiveness in the DeFi space.

Babylon (Token Not Yet Issued): (Recommendation Index: ⭐️⭐️⭐️⭐️⭐️)

• Project Introduction: The Babylon project aims to enhance the security of other proof-of-stake blockchains by leveraging the security of Bitcoin. The core idea is to activate idle Bitcoin assets through a trustless staking mechanism, addressing the conflict between Bitcoin holders' pursuit of asset security and participation in high-return projects.

• Latest developments: Although the market prices have fluctuated significantly this week, BTC's performance has been very strong, remaining at a high level. Coupled with the general optimism among users regarding BTC's future development, there is a stronger determination to hold it while also wanting to release the liquidity of held BTC, leading to more choices in 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 advance the construction of a modular ecosystem.

Lista DAO (LISTA): (Recommended Index: ⭐️⭐️⭐️)

• Project Introduction: Lista DAO is a liquidity staking and decentralized stablecoin project based on the BSC chain, aimed at providing users with crypto asset staking yields and lending services for the decentralized stablecoin LISUSD.

• Latest Developments: This week, Lista DAO launched the Gauge Voting and Bribe Market features, allowing veLISTA holders to participate in the LISTA emission decisions of liquidity pools. They also announced strategic partnerships with 48Club_Official and defidotapp, particularly to explore new opportunities within the BNBChain ecosystem, while advancing the integration of PumpBTC as innovative collateral through the LIP #012 proposal. Additionally, Lista DAO attracts users through weekly veLISTA reward distributions of approximately $230,000 and high APR compounding incentives, along with a competitive borrowing rate of 5.25%. This week, Lista DAO partnered with FDLabsHQ to conduct a winter event with a total of 7,000 USDT and provided airdrop opportunities for 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 (machine gun pool).

Overall Performance of the Track

• Stablecoin Market Value Steadily Grows: USDT increased from $145.1 billion last week to $145.9 billion, a growth rate of 0.55%. USDC rose from $41.5 billion last week to $42.1 billion, a growth rate of 1.44%. It can be seen that although the market experienced a decline this week, both USDT, which is primarily non-U.S. market-based, and USDC, which is primarily U.S. market-based, have shown growth, indicating that the overall market still maintains a continuous influx of funds.

• Liquidity is gradually increasing: The risk-free arbitrage rates in traditional markets are continuously declining with the ongoing interest rate cuts, while the arbitrage rates of on-chain DeFi projects are increasing due to the appreciation of cryptocurrency assets. Returning to DeFi will be a very good choice.

• Funding Situation: The TVL of Defi projects has risen from $54.1 billion last week to $52.9 billion now, marking the first negative growth in nearly two months, with a decline of 2.21%. The main reason for this is the significant drop in the entire market this week, which led to many contracts and loans being forced into liquidation, resulting in a decrease in TVL in the Defi sector, breaking the continuous upward trend seen in the past two months. In the next two weeks, attention should be focused on the overall changes in TVL and whether the downward trend continues.

In-depth Analysis

Driving Force of Increase:

The core driving factors of this round of increase can be summarized as follows: the market enters a bull market cycle, leading to an increase in liquidity demand, which in turn pushes up the level of basic borrowing interest rates, amplifying the profit space of arbitrage cycle strategies in DeFi protocols. Specifically:

• Market Environment: Bull market cycle brings an overall increase in liquidity demand
• Interest rate side: The base lending rate has risen, reflecting the market's pricing expectations for funds.
• Earnings Side: The yield of the cyclic arbitrage strategy has expanded, and the protocol's endogenous income has significantly improved.

This conduction mechanism strengthens the intrinsic value support of the DeFi sector, creating a virtuous growth momentum.

Potential Risks:

Due to