• Ethereum loans increased to 32% of Genesis’s total book, up from 27.9% during the second quarter
  • Incentive programs have catalyzed cross-chain activity, leading to a reduction of ETH’s market share in favor of competing layer-1s

The third quarter was marked by traditional finance moving into crypto, a market rotation into layer-1 tokens and growing institutional interest in DeFi, according to a report published by Genesis on Thursday. 

The New York-based company’s loan originations reached $35.7 billion, a company record that was up over 586% year-on-year and represented an increase of 40% versus the prior quarter.

While bitcoin loans increased overall, the composition of the loan book continued to rotate. BTC loans accounted for 32.4% of outstanding loans, down from 42.3% at the end of the second quarter, while ETH loans increased to 32% of the total book, up from 27.9% in Q2.

It was the first time ETH loans reached more than 30% of Genesis’ total loan book, according to Genesis Market Insights Head Noelle Acheson, who pointed to a trend of greater borrowing appetite in ETH from institutions to post as collateral or liquidity pairs across DeFi applications.

“BTC continues to function as a gateway asset, but we are seeing institutional investors express growing interest in diversifying their crypto portfolio,” she told Blockworks. “We expect this interest in greater diversification and demand for ETH to continue.”

Though interest from crypto-native institutions has shifted away from bitcoin to Ethereum and DeFi tokens, the listing of the first bitcoin futures ETFs last month served as a catalyst for the widening of the BTC basis, the Genesis report states. This could continue as more organic flow from traditional institutions, 401(k) accounts and registered investment advisors enter the market, it adds.

The third quarter also brought the acceleration in the development of emerging layer-1 protocols, both in terms of technology and community, Acheson noted. 

While layer-1s compete on transaction speed and security, incentive programs have sparked cross-chain activity, leading to a reduction of Ethereum’s market share in favor of competitors such as Solana (SOL), Terra (LUNA), Avalanche (AVAX) and Fantom (FTM), the report states.

Avalanche announced in August a $180 million liquidity mining incentive program that brought DeFi protocols Aave and Curve to the Avalanche public blockchain.

Rotation into these protocols outpaced the market capitalization gains of Ethereum alternatives such as Binance Smart Chain (BSC), Polkadot (DOT) and Polygon (MATIC) seen during the second quarter, the research adds.

“Over the next few months we’re excited to see how development across the ecosystem can support progress on individual blockchains as well as the interplay between them, offering new opportunities for diversification and attracting new types of investors into the crypto markets,” Acheson said.

The report comes as Ethereum reached an all-time high above $4,600 on Wednesday. The asset’s price had fallen to 4,517.75 as of 5 pm ET on Thursday, according to CoinGecko.

Mikkel Morch, executive director at crypto hedge fund ARK36, noted that Ethereum has now outperformed bitcoin almost five times in terms of year-to-date returns.  

“As this current bull market is heating up and as DeFi and NFTs continue to enter the mainstream ever more decisively,” he said, “Ethereum seems to be on a path to a double digit price tag within the next few months.”

  • Ben Strack is a Denver-based reporter covering macro and crypto-native funds, financial advisors, structured products, and the integration of digital assets and decentralized finance (DeFi) into traditional finance. Prior to joining Blockworks, he covered the asset management industry for Fund Intelligence and was a reporter and editor for various local newspapers on Long Island. He graduated from the University of Maryland with a degree in journalism. Contact Ben via email at [email protected]