Institutions start buying back: Interview with Nansen

Nansen is a blockchain analytics platform and has quickly become one of the most prominent and popular data resources in the industry.

The platform is designed to combine on-chain data together with an ever-growing database containing millions of wallet tags. The team displays the signals in blockchain data, takes this information, enriches it and aggregates it.

Nansen is also involved in data engineering, where he presents available information in comprehensive dashboards where cryptocurrency investors can more easily extract insights and draw conclusions.

This July, during ETHCC 5 in Paris, CryptoPotato had the opportunity to sit down with Daniel Khoo and Elizabeth Jung by Nansen. Elizabeth is the Senior Research Analyst for Attributions and Daniel is a researcher on Nansen’s Alpha Team.

We discussed various trending topics such as ongoing market conditions, non-tradable tokens, where the next hype will come from, and some fascinating but not-so-well-known details of the Terra fiasco.

Follow Smart Money to spot trends

Nansen tracks ten different chains – most of the EVM compatible ones, but also Solana, Terra, and even has a dedicated board for Ronin – his Axie Infinity network.

They provide a lot of information on non-tradable tokens (NFTs), where users can track blue chip NFTs such as Crypto Punks, Bored Apes and other lesser known collections.

Based on incoming information, prices for art-related NFT projects also seem to move in cycles, albeit sometimes differently than Bitcoin or Ethereum.

“I think, historically, NFTs have also sometimes performed a little bit differently than Ethereum or Bitcoin – like the general market. Sometimes, even if the market is not doing so well, they can perform better. In general, looking at our NFT indicators provides a good instrument for the market trend for NFTs.”

As for the ability to predict incoming and future trends, according to Khoo, Using on-chain data can help track smart money entering and exiting the market.

“Smart money is either investors who have been very profitable historically or funds and financial institutions that operate on the chain.

More or less, we generally follow these smart money as they are mostly seed investors or retail investors and they usually spot the trends very early. That’s how we use that data to see what the big funds are seeing and what trends they’re spotting as well.”

“Many large institutions are starting to buy back”

In the last couple of months, we have seen many large companies such as Celsius Network (one of the largest institutional and retail lenders in the industry), as well as Three Arrows Capital (3AC – a leading cryptocurrency hedge fund), go bankrupt due to excessive leverage and mismanagement risks.

The collapse of the entire Terra ecosystem caught many, including the above, off guard and led to catastrophic losses across the board – an event many refer to as “deleveraging”.

According to Nansen, however, there are other factors also contributing to the ongoing bear market.

“It wasn’t just the deleveraging of the big players, but the macroeconomic situation and a general loss of confidence in some assets as well. All these contagion effects that come from, for example – the collapse of Luna and Terra – come into play and affect all markets as well.

With so much fear in the market, even mutual funds that are taking profits and selling as well, we can certainly see that prices have fallen quite a bit.”

On the bright side, however, Khoo revealed that “a lot of large institutions are actually starting to buy back, and that might be a good sign.”

Additionally, comparing current market conditions to 2018, institutions appear to be the key differentiators.

“Even now, when prices have come down quite a bit, we’re seeing very strong support from a lot of large institutions buying back in bulk and holding for the long term.

In 2018, there may have been less institutional money, less money in stablecoins ready to be used. I think the main difference is that people have higher purchasing power now and also many institutions can be sustained for long periods of time.”

The Terra Collapse: More than one entity caused the attack

The collapse of the Terra ecosystem has left the entire cryptocurrency community, and perhaps the tech world in general, in awe. The multi-billion dollar project lost all its value in less than a week in an unprecedented event.

The effects are still felt to this day, with many projects suffering from the contagion. One narrative he dispelled was that there was a single entity responsible for attacking UST’s algorithmic stablecoin, pushing it under its peg. However, according to on-chain data, Nansen claims this is not entirely true.

“After digging into the chain data, we discovered that it wasn’t just one entity, but actually several wallets that started depeg. Obviously we don’t know if they were in conflict or what their intentions were.”

It’s also important to note that their intentions may not have been to intentionally decompress the stablecoin “but just to rotate and cause some imbalances in the pool when they actually pump some liquidity.”

“The second shocking thing is that for the stETH staking discount that is currently trading and also during the period that Celsius had to unwind their leveraged positions.

We can see that it all started with the collapse of UST and Terra, which actually caused the discount trading situation because Terra, Luna and UST were a pretty big investment for those entities.”

On the bright side, however, we may be done with the contagion effects of the crash, although the market may not be out of the woods yet. This has to do with some cryptocurrency exchanges stopping withdrawals and transactions.

Nansen doesn’t track data off-chain and describes this situation as “a bit scary” because “they can’t see what’s going on with their ledgers (read: central entities). Sure, there are some things going on behind the scenes that we can’t to watch and this situation may not be completely over, but we will never know.”

Nansen’s future

Speaking about Nansen’s future, Yeung revealed a lot Nansen Connect – a messenger app that allows users who own a particular NFT to connect with other holders who own it, as well as participate in chat rooms based on wallet tags.

“This is a very exciting feature that has been released recently. If you have a certain label to your name – maybe you’re a smart investor, the smart money – you can connect and chat with others of a similar profile.”

Nansen aims to become the information hyper-application of Web3 by integrating Layer 1 and Layer 2 blockchains, extending coverage and wallet tags.