The Bonk Effect: Solana DeFi in January

Read about the Bonk Effect and how it energized Solana DeFi in January.

The Bonk Effect: Solana DeFi in January

Note: This article is not financial advice. Kamino Finance does not endorse any tokens or platforms mentioned in this article.

Kamino’s January DeFi Data Report focuses primarily on the introduction of Bonk Inu (BONK) to the Solana ecosystem and the effects of this token on Solana DeFi. Overall, nearly every DeFi metric on Solana received a boost compared to previous months.

According to CoinGecko, BONK’s recorded trade volume for January (1-31) totaled over one billion dollars ($1,057,608,637) combining data from centralized (CEXs) and decentralized exchanges (DEXs). As a Solana-native memecoin, all DEX trades for Bonk were executed on Solana, and this report will examine how the token entering the ecosystem affected decentralized trading on the network.

What is Bonk Inu (BONK)?

Bonk Inu is a Solana-native dog coin (memecoin) styled after the bonk meme. It was introduced to the Solana ecosystem on Christmas 2022 through an airdrop to 40 prominent NFT projects and other Solana network users.

The project's core thesis and whitepaper announced Bonk was launched in reaction to "predatory VC tokens that prey on the wider Solana community." Translated into tokenomics, Bonk has allocated about half of Bonk's liquidity to community tokens:

  • 40 NFT Projects (21%)
  • Market Participants and DeFi Users (15.8%)
  • 1/1 Artists and Collectors (10.5%)
  • Solana Devs (5.3%)

The Bonk launch follows in the footsteps of several other dog coin projects that were launched as jokes or “just for fun.” Two of the most famous of these projects are Dogecoin (DOGE) and Shiba Inu (SHIB), and each currently holds a space in the crypto Top 20 (a trillion-dollar market) as measured by market cap.

  • Dogecoin, which was launched in late 2013 as a joke, aimed its satire at the Bitcoin network and the proliferation of alt-coins created at the time. A community rallied around the “fun” aspects of Dogecoin versus the “serious” aspects of BTC.
  • Eventually, the token became famous outside of the crypto community, became a public meme, and at one point served as an accepted form of payment at the NBA’s Dallas Mavericks stadium.
  • Shiba Inu was launched in 2020 as a satire of Dogecoin, and it featured the same dog breed as the memecoin to which it lampooned. The ERC-20 token existed in relative obscurity until a rally in May 2021, and then it reached a new all-time high at the year's end.
  • During SHIB's rally, Vitalik Buterin, co-founder of Ethereum, donated around $1 billion worth of SHIB to Covid relief efforts in India and then burned nearly 40% of the token's total supply.

On Memecoins and Dog Coins as Crypto Primitives

Arguably, memecoins, and especially dog coins, have become a financial primitive in crypto. They might represent not much more than the mascot of a dog, the spirit of commodity, and the desire to trade, but they have become basic building blocks of the crypto community.

What is a primitive?

In cryptography, a cryptographic primitive is a basic algorithm used to build a more complex system, a cryptographic protocol. They're the well-known building blocks, something someone already figured out—that works—and they are reiterated because they work.

In DeFi, the term "primitive" has become more loosely associated with systems an English teacher would call an archetype. There's the tragic hero, and then there's the yield farm: one must have its rise and fall, and the other must have a deposit and a rewards token.

It's been said that a DeFi primitive cannot exist without tokenization, leaving the door wide open for interpretation, and also closing the door on pre-existing forms. The AMM is a primitive, but not the order book.

From their inception, like stablecoins or yield farms, memecoins have proliferated based on a single and persistent concept (utility?) that wouldn't be possible without blockchain technology. They're ubiquitous, and as Bonk demonstrated in January, they can help galvanize a community and attract new members to DeFi trading.

(Source: Flipside)

The Boom and Bust Memecoin Microcosm of a Market Cycle

Overall unique BONK buyers and sellers (Source: Flipside)

Bonk active users peaked on January 5 with 62.2k users, and the month ended with an average of 21.8k Bonk users. Since peaking in early January, Bonk saw a steady decline in activity with less than 20k users after the 13th and spikes above that level on the 18th (25.6k) and the 26th (20k) only.

The influx of new users participating in the Bonk rally mimics the rise in BONK’s price on the charts. As with most memecoins, the token's chart experiences a steep rise followed by a steep decline in a very short period of time as early adopters exit their positions, and sellers begin outnumbering buyers.

Bonk Inu's January chart.

The launch of Bonk Inu replicated some of the successes shared by past meme tokens within a short period of time. It provided a fun way to participate in Solana DeFi, and the community reacted positively to this meme-inspired injection of jollity.

It took years for the crypto community to embrace Dogecoin, months for Shiba Inu, but only days for the Solana community to make Bonk Inu Eiffel Tower on the charts.

Dogecoin's lifetime chart.
Shiba Inu's lifetime chart.

Bonk’s Stimulating Effects on the Solana Ecosystem

Bonk Inu became the second-most integrated token on Solana programs in January (190), sitting only behind USDC (438) and ahead of USDT (176). Several NFT projects began accepting BONK to buy JPEGs, bet, or join raffles, and the DeFi space began integrating BONK, introducing wave of users to the possibilities of peer-to-peer finance.

Bonk became the second most integrated token on Solana. (Source: Flipside)

From comparing Bonk's activity with DeFi activity on chain, it can be argued that Bonk contributed to an uptick in DeFi usership on Solana. Many users began connecting to Solana DEXs for the first time during this period.

Daily active wallets on Solana DEXs surged to a peak during the height of Bonk-mania on the day of BONK’s January 5 ATH. A correlation most likely exists between Bonk trading volume and the rise in daily active wallets on Solana’ds DEXs.

Daily active wallets on Solana DEXs (Source: Dune)
Daily active wallets on Solana DEXs (Source: Hello Moon)

In the chart below, it can be seen that there was a significant increase in new users on Solana DEXs during BONK’s most actively traded periods between January 3-8.

Daily new users on Solana DEXs (Source: Hello Moon)

Looking at one DEX specifically, January was the first month since August that Orca accommodated more new users than existing users on the platform. However, the correlation is not direct. While BONK peaked at its ATH on January 8, Orca experienced its peak in new users on January 5.

Orca welcomed over 10.5k new users on January 5, 2023. (Source: Flipside)

January also nearly doubled the number of whirlpools created per month prior to the launch of Bonk—and this is referring to the middle of the month. By January 14, there were 54 Whirlpools featuring BONK out of 458 Whirlpools.

From March to December 2022, new Whirlpools were added to Orca at a rate of 34.3 per month with a low of nine pools in August and a high of 68 in December.

Bonk added to the majority of new Whirlpools early on. (Source: Flipside)

By the end of January, the number of Whirpools on Orca increased dramatically. In two weeks, there were 20 new BONK pools opened as well as an additional 258 Whirpools, an extreme increase in pools when compared to all prior months.

Exponentially more Whirpools launched post-Bonk (Source: Flipside)

On January 5, Solana recorded more active wallets than any other DeFi network with 678k wallets versus runner-up Ethereum with 528k. From the 9th until the 28th, there were only two occasions (the 21st and 27th) where Solana was not the top DeFi blockchain counting for active wallets.

More daily active addresses interacted with Solana in January. (Source: Artemis)

This period also witnessed an increase in the DeFi TVL on Solana. For example, on January 2, Solana's DeFi TVL was at $205.89M.

(Source: DeFi Llama)

Two days later, Solana's DeFi TVL increased to $228.18M.

(Source: DeFi Llama)

This increase in TVL occurred as the price of SOL and the price of BONK rose in lockstep. A day later, the price of BONK began to moon, but this had little effect on the overall DeFi TVL of the network.

While overall DeFi TVL remained steady during BONK's peak, the TVL for Solana’s two largest CLMM DEXs, Orca and Raydium, also seemed to remain relatively unaffected over this same period.

One possibility for this anomaly is that due to a reliance on concentrated liquidity to facilitate a growing number of swaps, fewer tokens held in liquidity pools were capable of helping users execute a high volume of trade with optimized capital efficiency.

Part 2 of Kamino's January Data Report further explores the DeFi Velocity of the network and the capital efficiency of Solana's decentralized trading ecosystem. 

On several days in early January, Orca’s concentrated liquidity pools handled around 10x the 24h trading volume for BONK as the liquidity held in Bonk's concentrated Whirpools. According to the data from Kamino Bonk vaults, users managed to yield around 20% APY in a single day from fees partly in thanks to the capital efficiency of CLMMs.

It's difficult to gauge how much new capital entered Solana from CEXs during January, but chain data shows that users were bridging funds onto the network from other chains.

Nearly $30 million in new capital entered Solana via Wormhole during the Bonk-January. This represented more than 10% of Solana's DeFi TVL at the time.

Although some funds were bridged off Solana, the majority of token traffic was bridged inbound. It’s possible to see much more inflow ($48.4M) than outflow ($8.7M) of tokens to and from other blockchains between 12/24 and 1/31:

(Source: Hello Moon)

The chart below shows most of the different tokens bridged onto Solana with Wormhole from Bonk's Christmas launch and then through all of January:

When isolating a single asset on the chart, it's possible to see that the majority of the tokens bridged onto Solana via Wormhole arrived in the form of USDC moving off Ethereum:

A Merry Bonkmas and an Active DeFi January

The addition of Bonk to the Solana ecosystem was one of the most dominant narratives of January. It's most likely the catalyst for the spike in new users on the Top 20 DeFi dApps on Solana, but it's difficult to say how much new capital Bonk's launch brought to the network.

January was marked by a relief rally across all of crypto, and SOL managed to climb out of the basement while drawing some stairs on the charts. The network also increased its DeFi TVL from around $206M to around $260M across all of January.

It's impossible to draw a correlation from Bonk to much of January's improvement in numbers, but Part 2 of the Kamino Data Report will show that the bull rally that occurred across all of DeFi began earliest on Solana, and by days.