Analyzing the unique liquidity approach of Camelot DEX and the impact of Community Buzz on its growth
Arbitrum is gaining more attention by demonstrating the most stable growth among Optimism Rollup projects. Unlike Optimism ($OP), which experienced a sharp drop in activity immediately after the end of the incentive program, Arbitrum demonstrates strong fundamentals through a steady increase in transaction volume. Against this backdrop, there is one project in particular on the Arbitrum chain that is attracting attention with its noticeable price increase, Camelot ($GRAIL), the native DEX of Arbitrum.
Camelot is a popular DEX built on Arbitrum. It offers deep, sustainable, and adaptable liquidity, a unique liquidity approach based on non-fungible staked positions, and a dual token system consisting of GRAIL and xGRAIL. Camelot is permissionless, allowing protocols to directly interact with it without any intervention from the team. Its emissions are mostly distributed in xGRAIL, providing control over the supply flow on the market and a balance between attractive incentives and long-term sustainability.
Arbitrum is a layer-2 solution developed by Offchain Labs that aims to address Ethereum’s scalability issues by allowing smart contracts to run on a separate layer called “transaction rollups.” These batches of transactions are validated on a lower layer before moving to the Ethereum mainnet, reducing network congestion and fees. Since its beta launch in May 2021, Arbitrum has gained popularity among DeFi app developers, offering lower fees and faster throughput than the Ethereum mainnet. The network is EVM-compatible, meaning developers can build dApps without learning a new coding language.
Before we delve into Camelot, let’s first take a look at the current state of the Arbitrum DEX market. The current Arbitrum TVL is at around $1.5 billion, which is 5% of Ethereum L1, ranking 4th among all blockchains and accounting for 50% of the L2 market. The native DEX of the newborn Arbitrum, Camelot ($GRAIL), is rapidly increasing its TVL by offering real yield and incentives. In just two weeks, Camelot TVL showed a staggering trend of +186% increase.
Let’s first look at the price action comparison of Bitcoin and Camelot as an example to demonstrate the massive attention and growth this coin has seen in the past few months. Just the price action alone demonstrates that there is a lot to dissect.
The chart above demonstrates the price of $GRAIL and community buzz demonstrated through mentions of online volume of the project. As we have seen with the case of Chinese altcoins as well, there is an initial spike around the end of January, in which community buzz rises by almost 20x, while the price remains relatively stagnant. Afterwards, we see a massive rise in the price of $GRAIL, with community buzz catching up to the hype as a lagging indicator after the price first tops out.
Dissecting community buzz into positive and negative sentiment sheds a clearer perspective on what is going on. We can see that for the initial spike in volumes of mentions around the end of January, the sentiment was dominantly positive. This indicates that smart money first discussed this project online, while the price remained relatively steady with little to no interest from the general public.
Only as $GRAIL started to slowly correct after making new all time highs, did we see a slow rise in negative sentiment. Nonetheless, the overall sentiment remains dominantly positive, hinting at the expectation for further growth that the general public has for this project.
Diving deeper, we can see that the sentiment of joy provides us with a very similar insight. The massive spike in community buzz around the end of January can be labeled as a sentiment of joy, as smart money discussed the potential returns this project would provide at that point. When the sentiment of joy spiked, $GRAIL was trading at a mere $265, and brought investors a 15x return on their investment within a month. Hence, we can see the sentiment of joy spiking once again after $GRAIL reaches all time highs.
On the other hand, we can see fear spike in a meaningful way only after it drops 40% from its all time high levels, indicating that there is a high possibility that those who hopped in late, which would be the general public in this case, were left holding bags that smart money sold at the top. This thesis is consistent with the idea that the initial spike in community buzz is caused by smart money when a certain project is overlooked, and the second, larger spike that follows is caused by the general public when the price of a certain token has already peaked or is near its peak.
Analyst: Kevin Lee @ Catalyze Research