Crypto Analysis | SPS Turns Deflationary!

5 months ago

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So that's some pretty big news right there

For the first time more SPS has been burned than was printed in the last month! Over the last 2 years we have gotten used to some very big inflation for SPS. It was first over 1M/day (!) and since the airdrop stopped it is now around 600k/day. Those are still some very big numbers and it adds up to around 18M (!) a month currently. With a total supply of around 3B there is still a lot of SPS to be distributed. All of this doesn't sound great for price and it is exactly the reason why SPS has fallen from around $1 to almost 1 cents! But... the infamous fywheel seems to have actually started with players now burning large amounts of SPS to receive DEC needed for purchasing SPL assets or to stake it in LAND. When we look at the numbers around 26M has been burned over the last month! This means that the SPS supply was redued by around 8M in that time frame. Here is the chart for SPS being burned:

Crypto down, SPS up

I didn't expect the flywheel to start so soon as there are still some massive amounts of DEC in pools and player accounts. But it seems that there really isn't enough of DEC available already. I am not sure how much of the buying pressure for SPS really is coming from these conversions, since in theory it would only work if DEC was above its peg. But often times these conversions take place when it should not be profitable to burn SPS. Neverless, SPS is almost up 200% from the ATL and even yesterday when crypto in general took heavy losses, DEC and SPS have been in the green!

Future developments?

Rebellion has now recently been launched and it's a big success. Massive amounts of $ are going into these assets as well as into LAND. The card market is up as well as is general activity. As of now LAND has only a <20% utilization (meaning that only less than 20% of potential DEC has been staked on LAND) so there is still quite a potential for sinks there. LAND 2.0 is also around the corner (Q1 of 2024?) as is SOULKEEP. If the flywheel has already stated without these major releases launching soon, it seems clear that this is only the start and much more burning is about to happen. If so, how long can SPS stay deflationary and how much will it eat through the total supply?

These questions are of course quite difficult to answer since it heavily depends on player and market activity. But if we assume that these numbers stay stable, SPS' delflation would be almost another 100M over the next year; which would actually mean another 26M x 12=312M SPS burned and taken off of the total supply. But... there is a caveat.

The higher SPS' price goes the less SPS it takes to receive the same amount of DEC. In other words, the flywheel will become less effective (in terms of reducing SPS' inflation/supply) the higher the price of SPS moves. But even at a 2x or 3x from current prices should still be enough to remove significant quantities of SPS. At 10+ cents I would suppose the flywheel to get noticeably less effective (just a hunch).

But even so, SPS at 10 cents would be quite a different "beast": the token would have a 100M+ MC and should receive more attention in the crypto world. Interestingly, if the MC of Hive doesn't move up, SPS would then be very close to overcome Hive in MC (which would be a first for a L2 token on Hive)!

As a general reminder: Please keep in mind that none of this is official investment advice! Crypto trading entails a great deal of risk; never spend money that you can't afford to lose!