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Markets turned risk-off, with Bitcoin falling below $86,000, underperforming stocks and gold ahead of a busy week of economic data. Despite the market decline, there were small pockets of outperformance, with AAVE pushing the Lending and Ethereum Eco indices higher.
We also cover the recent surge in cryptocurrency M&A deals, which have generally neglected token holders, and question whether the current incentive-driven inflows reflect perpetual on-chain demand or just rented liquidity.
Indicators
Markets turned risk-off as cryptocurrencies underperformed broader assets. Gold closed the day flat, while Bitcoin (-2.01%) fell along with stocks, with the S&P 500 (-0.26%) and Nasdaq 100 (-0.57%) lower as investors turned defensive.
On the macro side, investors are positioned cautiously ahead of a crowded slate of economic data in the last full trading week of the year for stocks. The October and November Nonfarm Payrolls report is scheduled for release today, since the October report was delayed due to the US government shutdown earlier this quarter.
Meanwhile, speculation about Powell’s successor has intensified in the final days before his term ends in May 2026. While Kevin Hassett emerged as the front-runner to head the Fed earlier this month, Kevin Warsh now leads by a slight margin, underscoring that the race remains fluid. In any case, investors expect the Fed to be more dovish under new leadership, leading to further rate cuts next year.
In terms of performance across sectors, the Lending (+2.8%) and Ethereum Eco (+2.6%) indices showed notable relative strength against the broader market decline. AAVE (+3.0%) was the best-performing asset in both indices, with Aave founder Stani Kulichov swap Nearly $10 million worth of ETH wrapped in AAVE to signal ‘token compatibility’ after DAO vs. Labs.
Market update
The defining theme for cryptocurrencies in 2026 will be consolidation, as sectors coalesce around a few key players. Cryptocurrency M&A deal activity has accelerated over the past year, suggesting that we are already seeing the early stages of this trend. According to RootData, there have been 143 cryptocurrency M&A deals so far in 2025, although only 21 have disclosed the acquisition amount, the most notable being the Dunamu deal. $10.3 billion acquisition By Never.
Although mergers indicate the industry is maturing, a number of M&A deals over the past couple of months have highlighted what may be the most important issue in the cryptocurrency space today: as tokens get broken, most of them remain uninvestable.
What’s the theme in Pump’s acquisition of Padre, Coinbase’s acquisition of Vector, and Circle’s acquisition For Axelar’s core team and related intellectual property? They all neglected token holders, and Pump only recognized PADRE holders after backlash from the community.
At the risk of sounding like a broken record, this is the problem MetaDAO is trying to solve, and why “proprietary coins” have outperformed the broader cryptocurrency market over the past few months. Although there are many legal aspects that remain uncertain, MetaDAO integrates automated protection into its tokens, with holders able to submit a treasury redemption proposal as a last resort. The unbundling of mtnCapital demonstrated this in practice, with bondholders exchanging MTN for USDC in the treasury when it was clear that the experiment had failed.
While we’ve talked a lot about MetaDAO over the past few months, there are other projects that are approaching the same problem from a different angle. What if instead of trying to fix tokens, we introduced equity and basic capital formation on-chain? Superstate’s Opening Bell platform allows partner issuers like Galaxy (GLXY) to seamlessly move shares between traditional markets and tokenized representations of those shares on Ethereum and Solana.
Last week, Superstate introduced Direct release software – Modernizing traditional capital formation. Superstate’s infrastructure allows SEC-registered issuers to receive stablecoins directly into their own wallet from KYC-verified investors, then instantly issue token shares to the investor’s wallet and update the company’s shareholder registry in real-time.
Ultimately, I don’t think investors should care whether they buy a token or token shares, as long as they know that the instrument conveys a claim to cash flows, assets, and legal recourse. Both approaches will coexist and play an integral role in 2026 and beyond as chain markets mature.
The most important thing: Is the demand constant?
Incentives, airdrops, and point farming have remained permanent features of the cryptocurrency user experience. For users, it can be profitable. An additional bonus or risk premium for participating in a new financial application. For projects, token incentives provide non-monetary customer acquisition expenses, helping to achieve a critical mass of liquidity or scale to solve the cold start problem. But eventually, the “community rewards” budget to allocate tokens will be exhausted, leaving the market to determine the viability of the financial product in the absence of incentives.
Looking back In the USDe market on Pendle for September 25 maturity, this market collected a 70x boost. Despite the zero fundamental return on the instrument, the implied return in this market has risen to over 16%, raising over $3 billion in deposits.
That was a fat layup, a layup. Users can collect a fixed 10-15% return on USDe-related PTs and replicate them on Aave at a borrowing cost of 5%-7%, all with billions of dollars in liquidity. Meanwhile, ENA incentives were working to hide the difference. Between Pendle’s USDe and sUSDe markets, this structure has pushed USDe from $5 billion to $15 billion. Following the September maturity of over $5 billion in USD-linked instruments and the end of Ethena’s Season 4 points campaign, coupled with Black Friday (October 10 liquidation) and lower funding rates, the USD supply has shrunk again to $6.8 billion.
While the ENA example is a great case study, there are in fact many such cases. Recently, Kinetiq’s KHYPE received large deposits ahead of the Kinetiq airdrop. The Pendle market for kHYPE has priced the yield at up to 15%, on an underlying fundamental yield of just 2-3%. This marketplace has amassed over 40% of kHYPE’s total supply, growing it to become the second largest listing on Pendle.
Like the USDe example, HYPE bulls can buy kHYPE PT at a fixed yield of ~10% and replicate the HYPE against it on HyperLend or Felix at a borrowing cost of 2-3%, all while maintaining the HYPE delta. However, after TGE in November and the expiration of the hot Pendle maturity period, kHYPE’s supply shrunk by 40%.
Next is a case study that may not have closed yet. USD.AIwhich brings together on-chain stablecoin suppliers to lend capital to the meat space to fund GPU, has added more than $600 million in deposits in a short time. While running a points campaign with capped deposits, exposure to the airdrop was in such high demand that participants who were blocked from deposits due to the cap raised the stablecoin above the peg by $0.04. Are the returns really good?
In fact, USD.AI markets on Pendle were offering the best stablecoin returns in the boring stablecoin farming market. Looking at the USD.AI market on Pendle for March maturity, the implied yield started at around 30%, and has since fallen around 10%, while the underlying yield pays nothing. More than 80% of USDai’s supply has been used at Pendle.
Are these returns sustainable? When the incentives end and TGE comes in, sUSDai will be left paying the return on its loan book, which currently stands at less than $1 million. Absent growth in its loans, at least 200 times, its underlying APY may fail to maintain the appeal that its $600 million-plus deposits currently have.
Although profitable for users and effective for protocols in solving the cold start problem, incentives are temporary and not permanent features of any given financial product. While pip farming is an ever-present feature of an on-chain economy, capital will always rotate to the latest and greatest risk-adjusted return.
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