Delayed Ethereum Merger Proves Costly

Bitcoin’s feverish connection to the S&P 500 finally broke in June, with the 30-day S&P/BTC correlation falling from 0.77 to 0.25.As Ethereum represents ~65% of the AUM locked in DeFi, ETH was disproportionately sold.Exchange tokens fell 28% this month, modestly outperforming the market overall.Fallout continued from Ethereum’s (ETH-USD) delayed transition from proof of work to proof of stake. We take a closer look at the impact, and discuss the prospects of widening adoption of NFT technology.Bitcoin’s (BTC-USD) feverish connection to the S&P 500 finally broke in June, with the 30-day S&P/BTC correlation falling from 0.77 to 0.25. Unfortunately for crypto investors, the reason was an industry-specific deleveraging event catalyzed by a duration mismatch tied to Ethereum’s delayed transition to proof-of-stake.Entities like Three Arrows Capital and Celsius staked Ethereum and received a token stETH in return, which they used as collateral for leveraged positions across crypto. Once Ethereum’s merge is complete, stETH will be redeemable at par for ETH. But when Ethereum core developers announced a delay to the merge to proof-of-stake on June 9, stETH ($5B outstanding as of 6/28/2022) price fell sharply versus ETH, prompting lenders to demand more collateral precisely as retail outflows were accelerating. In all, total TVL (total value locked) in DeFi (DEFI), a proxy for leverage in the space, fell from $88B on May 31 to $...