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Ethereum Lost $1.8 Billion to Ronin in 2 Weeks – Value Flow Report

Posted by
Pedro Herrera

In two weeks lots of value moved from Ethereum to Ronin’s Katana DEX

$1.8 billion in net assets bridged from Ethereum to Ronin since Katana’s launch

This document belongs to a new series of reports that introduce the idea of Value Flow within the Blockchain. In this edition, we’ll focus on Katana, the new DeFi dapp running on Ronin.

Two weeks ago, Sky Mavis, the team behind Axie Infinity, launched Katana, the first Decentralized Exchange running fully on Ronin, achieving impressive results already. Coupled with the 90-day liquidity mining program for farming RON, Ronin’s governance token, the sidechain is seeing an important flow of value. But where is it coming from? 

With the help of on-chain data, we’ll try to understand where the value is coming from. Firstly, by analyzing the Ronin Ethereum bridge, the sidechain’s main entrance gate. Analyzing the net flows of the three most important tokens in Ronin. Finally, we dive deeper into three of the most important Decentralized Exchanges to monitor the liquidity of the aforementioned assets and conclude where Katana’s value is coming from.

Key takeaways

  • $1.8 billion in net assets bridged from Ethereum to Ronin since Katana’s launch; with $0.8 billion coming in the form of ETH, while $1.1 billion worth of AXS were added. However, Ronin lost $0.1 billion worth of SLP.
  • Two weeks since launch, Katana has reached $1.3 billion in Total Value Locked.
  • In the last 30 days, the Ronin Bridge has been the most used Ethereum bridge generating over $7.5 billion in volume; in the same timeframe AXS and ETH represent over 57% of the total assets bridged from Ethereum.
  • After Katana’s launch, 10,700 AXS tokens worth $1.58 million were drained from Uniswap, while Sushiswap lost $5.2 million worth of AXS.

Table of Contents

Katana paving the way for a holistic Ronin ecosystem

Axie Infinity has become one of the biggest success stories of 2021. The story began in April when Sky Mavis launched Ronin. The sidechain achieves to counter the Ethereum network’s well-known scalability and high gas fees issues. As a result of a solid Ronin deployment, Axie became the spearhead of a play-to-earn movement that gains more supporters by the day. At the time of writing, Axie attracts more than 2 million Daily Active Players. 

By launching the Katana Decentralized Exchange (DEX), the Ronin network became a better-integrated ecosystem. The introduction of the Katana exchange increased the liquidity of all assets in the ecosystem, while also enabling a more accessible way of interacting with them. 

Currently, Katana allows users to swap between four tokens, while also enabling three liquidity pools, two of which allow users to farm RON, Ronin’s native and governance token. Farming is an activity truly evoking DeFi. It became the catalyst of the DeFi summer, and Katana’s current liquidity program looks no different. Propelling the DEX past $1.3 billion in Total Value Locked (TVL) already.

Source: DappRadar

The liquidity mining program currently running on Katana will distribute 10% of RON’s supply between two liquidity pools. The first pool consists of an AXS/ETH pair that represents 59% of the protocol’s TVL at the time of writing. The second one is made up of the SLP/ETH pair and holds 40% of the TVL. Since 99% of the protocol’s value is concentrated in three tokens, those will be considered as the scope for this report.

Although the Sky Mavis team had launched Ronin’s AXS staking pool on September 30, it is Katana that provides the sidechain with a real taste of DeFi. Users get a taste of token farming and participating in a shared economy by locking and staking liquidity. With $1.3 billion in TVL, the platform performs strongly when it comes to the most important metric to assess the state of DeFi. 

$1.8 billion in assets bridged to Ronin since Katana’s launch

Bridges in blockchain are platforms, or smart contracts, that allow users to transfer their assets from one network to another in a secure manner. Blockchains like Solana, Polygon, Arbitrum, among several others, have built solutions to move their assets in and out of Ethereum. Ronin is no different. The Ronin bridge has been fully functioning since May. However, it was the launch of Katana that opened the floodgates, as over $1.8 billion in net assets have been bridged to Ronin since November 3rd. 

Considering the last 30 days, the Ronin bridge has been the most used solution to move assets out of Ethereum, generating over $7.5 billion in volume in that timeframe. In the process, the Ronin bridge has outpaced important bridges like the ones for Avalanche and Polygon. Also, it is worth highlighting that over the last 30 days, AXS and ETH represent over 57% of the total assets bridged from Ethereum. Proving once again the strong appetite for the Ronin ecosystem. 

To gain additional insights on how much value Ronin is generating as a result of Katana, we commence by focusing the analysis on the bridge transactions that involve ETH, AXS, and SLP.   

$836 million worth of ETH bridged from Ethereum to Ronin since November 3

By net flow, we understand the net value (inflows – outflows) that are either entering or leaving a certain network. The net flows of ETH in the Ronin bridge increased considerably on November 4th, the day Katana was fully functioning. Since November 3rd, Ronin has received more than 182,600 net ETH, or $836.38 million in net value approximately.

Before Katana was brought into the scene, the main use of ETH within Ronin was to purchase Axie NFTs, either pets or lands. However, those uses were multiplied as soon as Katana’s DeFi features were unlocked. 

From the value incoming to Ronin in the form of ETH, 73% is locked within Katana liquidity pools, providing the dapp with over $615 million in ETH liquidity. The remaining 27% was most probably used for other purposes like NFT trading or swapping for other assets like AXS or SLP. One can bridge ETH to Ronin and then swap half of their holdings for AXS, after which they can contribute to the AXS/WETH liquidity pool.

Source: DappRadar

Users bridge $1.1 billion worth of AXS from Ethereum to Ronin

We observe a similar scenario with the net flows of AXS. Over 7.74 million net AXS have been bridged to Ronin since November 3rd. An amount worth $1.1 billion. Furthermore, 70% of that bridge activity occurred between the 3rd and 4th of November.

Even though this report focuses on the value generated by Katana, it is also worth highlighting that the recent wave of AXS bridged into Ronin, represents less than half of the net flows registered at the beginning of October. A three-day span that saw more than 12 million net AXS flowing into Ronin as a result of the AXS staking pool launch. Another important trigger in the value flow comes into Ronin.  

At the time of writing, we identify that $363.7 million worth of AXS is locked in Katana to farm RON. That would represent almost 33% of the recorded AXS net flow from November 3. In the same way, we estimate that 2.95 million AXS, or 38% of the net AXS bridged in the same period, were locked into the AXS staking contract. In the case of AXS, the remaining 29% of the AXS bridged to Ronin could be used to swap for SLP, or for in-game purposes like breeding. 

Source: DappRadar

$78 million in SLP sent back to Ethereum

The case of the third token in review, SLP, is different from the two previously revised currencies. SLP (Smooth Love Potion) is the game’s main currency. Players can obtain this token by completing adventure tasks or winning PvP battles. Axie gamers use the token to breed new Axies. 

Furthermore, SLP has been the funnel to cash out Axie Infinity’s play-to-earn model rewards. Through a Centralized Exchange (CEX), Axie players are able to convert their SLP earnings into their local currency. Thus, it is natural to see SLP net flows on a more negative side. Also, since Katana’s deployment, the price of SLP appreciated by 90%, causing the bridged volumes for this token to skyrocket. 

While between November 5 and 6, an inflow record of 288 million SLP, or $26 million in SLP tokens were bridged into Ronin, the bigger picture signals another scenario. One where, in the case of SLP, Ronin loses value.  Due to the aforementioned reasons, around 887 million SLP moved from Ronin to Ethereum on November 4th. That represents $78.44 million of net loss for Ronin. 

All in all, putting all the tokens on the table, we certainly observe that there is an evident value flow cycle going from Etherum to Ronin. From November 3rd around $1.8 billion in net assets have been bridged to Ronin since Katana’s launch. The next section drills down to a dapp level, to trace any potential trend that can hint at value flowing from Katana from established DeFi dapps.

AXS liquidity drained from important DEXs

Firstly, looking at the ETH net flow on Centralized Exchanges, we see a clear outflow trend in November. Investors were actively purchasing ETH from CEXs to utilize it within the blockchain ecosystem, perhaps in DeFi or to purchase an NFT on an Ethereum marketplace.

Source: CryptoQuant

For the scope of this report, it is worth noting that between November 5th and 6th, around 200,000 ETH or $910 million approximately were withdrawn from Centralized Exchanges. While this number roughly matches the amount of ETH bridged into Ronin, it is illogical to assume that all the ETH value found in Katana came from CEXs. The picture would be incomplete and the outcome inaccurate. 

Thus, we move the analysis to another sector where most of the industry’s value is currently locked: DeFi. We analyze two of the most important DEXs on Ethereum, and the most important one in BSC, to identify whether Katana’s value came from inside the blockchain, or whether it was in fact proceeding from an outside layer such as a CEX. 

Starting with Uniswap, perhaps the de facto AMM-based DEX in Ethereum. Contrary to order books, Uniswap relies on liquidity pools, smart contracts holding one token pair to trade against. In the case of Uniswap, these pools are weighted at 50% for each token. To trace whether liquidity from Uniswap was transferred to Katana, we concentrate on the AXS/WETH liquidity pair.

Source: Dune

The first thing that stands out is that, on November 4th, a total of $30 million were transacted within the main AXS/WETH pool. These transactions include swaps between both currencies, as well as providing and removing liquidity from the pool. This level of transaction volumes were not seen in this Uniswap pool since early October, coinciding once again with the AXS staking feature. 

Furthermore, analyzing the supply of AXS within UniSwap sheds additional light on how AXS value locked was behaving inside the DEX. The supply of AXS was hardly affected by Katana’s liquidity mining program. Uniswap lost 10,700 AXS tokens worth $1.58 million from November 2nd to November 5th. In comparison, we identify a more visible shock in the supply of AXS as a result of the AXS staking feature once again. 27,000 AXS worth $3.67 million were withdrawn from Uniswap from September 30 to October 4. To be fair, there is no solid proof that value flowed from Uniswap to Katana in a relevant manner.

Following the same approach, we find different results in Sushiswap, another important Ethereum DEX. The AXS supply within the Sushi protocol decreased 82% from November 3 to November 6, hindering the token’s liquidity that went from $5.5 million worth of AXS to a mere $320,000. In this case, we see a behavioral trend where Katana drained AXS liquidity from Sushiswap.

Source: Sushiswap

Finally, we analyze the situation in PancakeSwap, BSC’s most prominent DEX. As a result of Katana’s launch, the AXS liquidity on PancakeSwap is stable. Fluctuating between 56,000 and 50,000 AXS during November. Thus, there isn’t any signal that indicates that value is flowing from PancakeSwap to Katana. However, similar to Uniswap, we see a drop of $9 million worth of AXS within the BSC dapp on October 1st, matching the AXS staking feature again. 

Source: PancakeSwap

In summary

Only two weeks after launching, Katana surpassed $1.3 billion in TVL. After analyzing Katana’s value flow, we were able to observe that, propelled by Katana’s liquidity mining program to farm RON, $1.8 billion worth of assets were bridged from Ethereum into Ronin. From this perspective, we identify that 33% of AXS bridged since November 3th, were used for liquidity purposes, while 71% of the ETH bridged were immediately used in liquidity pools. Complementing with off-chain data we observed that 200,000 ETH or $910 million approximately was withdrawn from Centralized Exchanges at the peak of Katana’s announcement. However, the ad-hoc on-chain analysis provides us with additional insights.

Analyzing some of the DeFi dapps holding significant AXS liquidity, we identify two main trends. Speaking about Katana, neither UniSwap nor PancakeSwap appear to be losing value by Ronin’s ongoing liquidity mining. A different scenario unfolded from the AXS staking feature where we see value coming from these DEXs. On the other hand, we see a clear diminishment of AXS liquidity within Sushiswap’s Ethereum protocol. Although on a lesser scale than the hundreds of millions in volume observed in the bridge. 

It is fair to assume that Katana is generating value organically; i.e. it is provoking investors to farm RON. The reveal of Katana as Ronin’s AMM is the latest proof that Sky Mavis is building a complete ecosystem around Axie Infinity. An ecosystem that becomes massive when factoring the $2.79 billion staked in AXS, plus the $1 billion floor market cap for Axie NFTs (pets and lands) that would be higher by considering Original Axies as a separate collection. It will be worth monitoring, when the liquidity mining program is complete in roughly 80 days, Katana will be able to maintain the strong position it built in a matter of days. 

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