Jan 6, 2025: Our weekly Institutional Insights explores the latest market developments — market performance, industry news, exchange-traded fund (ETF) flows, trending topics, upcoming events and token unlocks — to help you supercharge your crypto trading.

Weekly Highlight — Markets Snap Five-Day Loss Streak 

Investors are now seizing the opportunity to buy the dip in U.S. stocks after a five-day decline that erased over $1 trillion in market value. Wall Street has broken its longest losing streak since April, with the Nasdaq-100 rebounding 1.7% and the S&P 500 rising 1.3% on Friday, January 3. These gains slightly offset the week's sell-off, which had continued into the new year following a tough December.

Despite concerns about slowing earnings growth among tech giants like the Magnificent Seven, traders remain optimistic, especially regarding AI leader NVIDIA Corporation. The market believes that, as long as retail investors keep investing in AI, the associated stock market boom is expected to persist. 

Stocks reached their session highs in the afternoon after Mike Johnson was reelected as speaker of the U.S. House of Representatives, indicating potential support for a business-friendly agenda. Meanwhile, bond yields rose, with the 10-year hitting 4.6% following comments from Richmond Fed President Tom Barkin about maintaining restrictive rates. U.S. manufacturing showed modest growth, with new orders at their highest since early last year, while investors assessed economic strength against the possibility of slower interest-rate cuts.

Weekly Crypto Highlight — AI Agent Spring Coming

Many investors are eagerly anticipating an Alt Season, a period when altcoins typically surge in value. However, current market dynamics suggest we may not see a widespread altcoin rally. The sheer number of tokens, combined with limited liquidity, has led to what's known as altcoin dispersion, making it crucial to select the right sectors and tokens.

, which are thriving even as the broader market declines. This nascent sector is experiencing rapid advancements, and its associated tokens face less pressure from venture capital unlocks. Many of its top protocols lack centralized exchange listings, indicating more buyers may enter the market.

Those investors who missed previous opportunities, such as the DeFi summer of 2020 and the Alt Layer 1 trade, now have another chance. Instead of targeting individual AI agents, the best risk/reward strategy lies in investing in infrastructure plays, which serve as the foundational tools for the sector.

The leading AI agent player is Virtuals Protocol, a platform for launching tokenized AI agents on the Base network. By purchasing tokens like Luna by Virtuals (LUNA) and VaderAI (VADER), users gain governance rights over specific agents, which allows them to both influence development and share in profits. 

Recently, daily protocol fee revenues dropped significantly in mid-December 2024 as activity slowed for the holidays. However, speculation around agent-associated tokens surged as the new year approached. Currently, Virtuals Protocol generates over $1 million in daily fees, though this is 50% less than figures for early December. Despite these challenges, the VIRTUAL token has more than doubled in value, reaching a market capitalization of $4.6 billion.

Other highlighted opportunities include Zerebro, which is pivoting to a full-stack framework for AI agents; ARC, with its Rust-based framework; and 

 (GRIFFAIN), a natural language on-chain search tool. These projects are well-positioned for future growth in the evolving landscape of AI technology.

 as we delve into leading AI agent tokens and the past week’s market movements. 

Advanced

Bybit Institutional_Weekly Poster.png

Weekly Institutional Insights: Market Snaps Five-Day Loss Streak; AI Agent Spring Coming

Our weekly crypto derivatives analytics report delves into macro events, the current state of crypto and trading signals from spot trading volume, and futures, options and perpetual contracts.

December's end-of-year options expiration brought an unexpected drop as realized volatility fell to the lowest levels of the month. Perpetual swap open interest remained stable, indicating these markets weren't heavily used for hedging against expired options, likely contributing to the muted volatility. 

While most expired open interest in Bitcoin (BTC) and Ethereum (ETH) hasn't been reinvested, the balance of calls and puts remains consistent. Notably, ETH options are pricing in higher implied volatility as compared to BTC, particularly for shorter expirations, leading to a flat term structure for ETH, while BTC is offering cheaper options exposure.

In the perpetual markets, low volatility and minimal spot movements have led funding rates for nearly all tokens to mirror broader market sentiment throughout the holiday season. On the options side, BTC's term structure is noticeably lower and steeper than ETH's, with realized volatility now dipping below implied volatility levels, highlighting an intriguing shift in market dynamics.

Please check out the report’s highlights.

Open Interest Solid Amid Year-End Options Expiration

Although open interest for both BTC and ETH perpetual swaps hasn’t returned to early December 2024 highs, it remained robust throughout the significant end-of-year options expiration event. This suggests that these markets weren’t heavily utilized to 

 of the expiring options contracts, likely contributing to the lack of volatility observed during this period. Instead, trading volumes have dipped noticeably during the winter holiday season, coinciding with a collapse in realized volatility back to December 2024’s lowest levels.

BTC Option Curve Remains Steep During Call-Put Parity

The expiration of December's end-of-year options didn’t trigger the anticipated surge in volatility; instead, realized volatility has plummeted to the lower end of its recent range. The implied volatility term structure remains steep compared to both its recent behavior and ETH's, with longer-dated implied volatility around 57%, and 1-week at-the-money options trading about five points lower. Much of the expired open interest hasn’t yet been rolled into new positions, maintaining a neutral balance between puts and calls. Consequently, BTC's options market positioning is relatively neutral, lacking the leverage it had at the start of December 2024.

Huge ETH Option Expiring Doesn’t Cause Volatility

A late December spike in realized volatility didn’t carry into the new year, with ETH’s spot price currently exhibiting volatility below that of short-tenor implied volatility. Interestingly, the implied volatility term structure has undergone a steepening and re-flattening over the past week, contrasting with BTC’s slightly steeper profile. This suggests that ETH’s options market is anticipating higher short-term volatility in spot price movements. 

Despite the significant expiration of options open interest at the end of December 2024, which didn’t lead to a rollover into later expirations, call options continue to dominate the market and have increased at the start of 2025.

block-scholes-x-bybit-report.jpeg

Bybit X Block Scholes Crypto Derivatives Analytics Report (Jan 2, 2025): BTC Options Continue to See Call-Put Parity, With Lower Short-Term Volatility Expected

Dive into FLock, a decentralized platform that revolutionizes the way AI models are developed, trained and deployed.

Artificial intelligence (AI) is poised to transform countless industries, but its development often raises questions about privacy, control and inclusivity. 

 is a unique decentralized platform that democratizes AI training, fine-tuning and inferencing. With its blockchain-powered infrastructure, FLock ensures transparency, security and community-driven decision-making, paving the way for AI models that align with established societal values. 

In this article, we’ll explore how FLock decentralizes AI training, its key features and its potential impact on developers, communities and users.

 platform that revolutionizes the way AI models are developed, trained and deployed. By leveraging blockchain technology and a novel approach called 

, FLock addresses critical issues in AI development, such as centralized control, lack of transparency and privacy concerns.

At its core, FLock’s mission is to democratize AI by enabling communities to participate directly in the creation and refinement of AI models. Through federated learning, FLock trains AI models across multiple decentralized devices or servers. This method ensures that data remains local, eliminating the need for raw data exchange while still enabling robust model training. By decentralizing the training process, FLock not only protects individual privacy, but also fosters a more inclusive ecosystem in which diverse contributors can collaborate.

What sets FLock apart is its integration of 

. This ensures that all contributions — whether data, compute power or feedback — are transparently recorded and fairly rewarded. Blockchain tech’s immutable ledger enhances trust among participants and safeguards the process against manipulation. Additionally, the platform’s on-chain incentive mechanisms encourage participation from a wide range of contributors, ensuring that rewards are distributed equitably.

Ultimately, FLock empowers communities to develop bespoke AI models tailored to their specific needs. By decentralizing the process and prioritizing transparency and collaboration, FLock breaks the monopoly of large corporations, creating an AI ecosystem that aligns with public ethics and societal values.

, an Oxford alumnus with a robust background in AI and blockchain technology. Sun, who serves as FLock's CEO, has an impressive career trajectory, having worked as the Director of AI for the Royal Bank of Canada and as an AI Research Fellow at Imperial College London. His vision for FLock stems from a deep understanding of both the technical and ethical challenges of AI development.

The founding team also includes other Oxford alumni, boasting over a decade of combined experience in AI research and the cryptocurrency industry. This team brings a collective blend of academic excellence and practical expertise that positions FLock to lead the decentralized AI movement.

FLock has successfully raised $11 million in funding across two rounds, reflecting strong investor confidence in its vision. In May 2024, FLock secured a $6 million seed round co-led by Lightspeed Faction and Tagus Capital, with additional backing from Digital Currency Group (DCG), Volt Capital, OKX Ventures and Inception Capital.

Later, in December 2024, FLock announced a $3 million successful funding round led by DCG and joined by prominent names like Animoca Brands, Fenbushi Capital, GnosisVC and GSR. These investments are being channelled into enhancing the platform’s testnet and federated learning client, accelerating FLock’s mission of enabling secure, collaborative AI development.

With this funding and over 1,500 nodes contributing from platforms like Numerai and Kaggle, FLock is rapidly scaling its impact on decentralized AI training.

FLock AI revolutionizes AI development through its decentralized training framework. This approach allows participants to contribute to AI model training without ever sharing their personal data. Instead, models are trained locally across devices using federated learning, which ensures that data remains with its owners while still enhancing the accuracy of the model overall. 

FLock’s reward system is designed to incentivize active participation. Contributors who provide data, computational power and/or feedback are compensated with FLOCK tokens, ensuring a fair distribution of rewards. 

FLock empowers its community through a robust governance framework. Decisions regarding AI model development, deployment and ethical considerations are driven by the community, ensuring alignment with established societal values. Through blockchain-based voting mechanisms, contributors can influence the direction of AI projects, fostering transparency and public accountability. 

FLock’s modular architecture allows contributors to participate in specific aspects of AI model development. Whether providing raw data or computational power or even refining algorithms, the platform enables a collaborative and scalable development process. 

At the core of FLock’s philosophy is its commitment to privacy and security. By leveraging blockchain technology, the platform ensures that no single entity controls the AI development process. Data remains local and protected by cryptographic measures, while the immutability of blockchain guarantees transparency in every transaction and model update. 

 begins with a blockchain and an AI layer.

The blockchain layer underpins FLock’s incentivization and security mechanisms.

The AI layer facilitates model training, refinement and deployment, leveraging both centralized and federated approaches.

Let’s have a look at the supply and demand for the FLOCK token.

FLock adopts a 1:2 ratio model between team/investors (33.3%) and community (66.7%), prioritizing community-driven growth and ecosystem expansion. The majority of tokens are allocated to incentivize user participation and long-term ecosystem success.

FLock aims to improve the future of AI development by decentralizing the training process and ensuring transparency, privacy and inclusivity. By leveraging blockchain and federated learning, FLock empowers communities to contribute to AI creation without compromising on privacy. Its innovative reward system and community-driven governance foster a fair and collaborative ecosystem. 

With significant backing and a growing network of contributors, FLock is positioning itself as a leader in decentralized AI, offering a more ethical and secure alternative to traditional AI development models. As it continues to scale, FLock is set to transform the way AI models are built and deployed.

 — and earn a share of a 10 million FLOCK prize pool. For more details, visit 

Intermediate

flock.png

FLock AI: Decentralized AI Training

In this tutorial, we’ll explore how you can complete a series of tasks in Network3 for Bybit Web3 Airdrop Arcade.

Task 1: Register for a Network3 Account and Connect Your Bybit Wallet 

: Navigate to the campaign page and click on the 

task. Click on the task, and Galxe will ask to redirect you to the Network3 register page.

: Register for a Network3 account using your email address. You may indicate a 

Task 2: Download the Network3 App and Run a Node for One Hour

 and choose your operating system to download the Network3 app.

 or powerbutton, depending upon which operating system you’re using. For ease of reference, we’ve used macOS and iOS as examples below.

: Keep running the node until the timer reaches 

Beginner

network3 tutorial.png

How to Complete Network3 Tasks for Bybit Web3 Airdrop Arcade

Bybit Learn

Bybit UTA

Customize your collateralized assets with Bybit UTA — first in the industry assets customization feature. Learn how to manage risk while enjoying an enhanced capital efficiency. 

The Bybit Unified Trading Account (UTA) is highly valued by traders and investors for its versatile customization and accessibility. It allows traders to combine trading and cross-collateral margin without switching between accounts. Most investors prefer UTA for its capital efficiency optimization. 

In this guide, we’ll explore the newly added feature of collateral assets customization and learn some tips and tricks to avoid common pitfalls when using this feature.

The Bybit Unified Trading Account (UTA) offers traders access to multi currency trading functions, unlocking the powerful capability to combine and customize their assets and collateralized assets without switching between accounts. 

 modes to trade other assets’ margin contracts, without selling their assets, by using support margin assets as collateral. At the same time, their unrealized profits can be used as a margin to open new positions. The margin under UTA is calculated based on the overall account margin level, rather than a position level. 

Traders utilizing Bybit UTA for Cross Margin and Portfolio Margin trading can greatly benefit, as they don’t need to sell off their assets to trade other margin contracts. This is where collateral assets come into the picture. 

To understand collateral assets, let’s take 

 as an example. The concept of margin is closely related to leverage, which uses borrowed capital to magnify 

 (ROI). With Margin Trading, funds are borrowed from a broker to boost the purchasing power and add leverage for larger capital. Thus, 

leverage is closely tied to margin, as it involves utilizing borrowed money to amplify your ROI. 

Assuming the market is against the trader, it may trigger a Margin Call, whereby traders need to deposit additional funds to meet the margin requirements. These margins are dubbed collateral, as they maintain the longevity of the position. If a trader fails to meet the margin, the resulting shortfall will lead to 

 mode is activated under Bybit UTA, the calculation for the margin requirements will change. Unlike traditional calculation, it considers the overall risk of a portfolio, rather than each position in isolation. By reviewing portfolio-level risk, Bybit can reduce a trader’s margin requirements, increasing their buying power and trading flexibility. In other words, traders can trade larger positions requiring less margin, while maintaining a balanced portfolio of hedged positions with increased leverage. 

Newly Added Feature: Custom Collateral Assets

With the customization of collateral assets, traders enjoy enhanced capital efficiency, even as they effectively manage their liquidation risks without risking the assets they wish to hold.

Benefits of Customizing Collateral Assets

With the continuous upgrade of Bybit UTA, the newly launched collateral assets customization function is the first in the industry to allow users to customize their collateralized assets, offering them a better-managed portfolio of hedged positions. 

Users who preserve their assets can choose not to use a specific asset as collateral. To do this, a user needs to set the desired currency as non-collateral, and the system will show that the asset isn’t eligible for collateralization. When a user sets a currency as non-collateral, the asset will be exempted from UTA liquidation. This also means that positions in Spot and Derivatives won’t affect one another. 

Trader A decides to exclude BTC under a Cross Margin or Portfolio Margin mode, so the uncollateralized assets in the UTA won’t be converted to USD. Thus, different collateral value ratios will only apply to different assets based on the chosen collateralized assets. 

The total margin balance in USD value of the UTA is calculated based on the following formula: 

= Sum (Asset 1 × Corresponding USD Index Price × Corresponding Collateral Value Ratio + Asset 2 × Corresponding USD Index Price × Corresponding Collateral Value Ratio + … + Asset N × Corresponding USD Index Price × Corresponding Collateral Value Ratio)

If there is no USDT Perpetual Index Price for a certain coin, the Last Traded Price from the Bybit Spot market will be referenced. For example, the USD index price for ETH will be calculated as 

Note, however, the account’s Maintenance Margin (MM) rate will still trigger the liquidation. 

So whenever the MM rate reaches 100%, and Trader A still holds multiple positions, but one or some of the positions have losses may cause the account Maintenance Margin (MM) rate to hit 100%, thus, liquidation will be triggered. 

Start upgrading your account by following these steps:

1. Visit Bybit Spot, Derivatives, or Options trading page or head to your Spot, Derivatives or USDC Derivatives Account under the Assets page

2. Click "Upgrade to Unified Trading Account"

3. Complete the Bybit UTA tutorial in a pop-up and pass all of the short quizzes to get started.

Limitations of Customized Collateral Assets

Users can isolate the liquidation risk of some currencies while using a unified trading account. However, there are several limitations.

When an account is in liquidation, collateral assets customization cannot be adjusted. This is because Spot or Derivatives positions may have already generated an 

. Depending on the MM rate, the liquidation process may have already been initiated. Thus, changing the collateral assets may affect liquidation risks. Traders should confirm their customized collateral assets before confirming their Spot or Derivatives market orders.

If the Initial Margin (IM) rate in a trader’s UTA reaches

 or exceeds 80%, the customization of collateralized assets won’t be adjusted. For example, if the IMR was 70% before, and while adjusting certain collateral the system tries to calculate that the IM may reach or exceed 80%, this adjustment won’t be successful. That said, if the traders’s wallet balance is below 0, the collateral assets can no longer be customized. 

As much as we would love to provide this function to all traders, it’s currently only available for traders in categories from VIP 0 to PRO. Bybit is working to upgrade this feature in the hopes of making it available to Institutional Loan users in the future. 

Common Mistakes to Avoid When Customizing Collateral Assets

Customizing your collateral assets for Derivatives or Spot Trading is important for risk management and enhanced capital efficiency. However, traders may under- or overestimate the power of doing so. 

 should avoid when collateralizing assets. 

Relying heavily on a single type of collateral asset can expose a trader or institution to significant risks. Diversification helps spread risk across different assets, reducing the impact of an asset's price or value swing in a volatile trading environment. 

For example, using a highly volatile asset as collateral may increase the risk of a margin call. If the value of a collateralized asset drops significantly, you might be required to post additional collateral to cover the margin call.

 are the percentage reduction applied to collateral value to account for potential market fluctuations. Failing to apply appropriate haircuts can lead to underestimating the risk associated with collateral assets, potentially exposing a trader to greater loss.

Collateral assets should be continuously monitored to ensure they meet the necessary requirements. Failing to keep track of the value and quality of your collateral can lead to “surprises” and potentially costly margin calls.

Accepting low-quality or low-rated assets as collateral can lead to higher risk exposure. Proper due diligence should be performed to assess the quality and creditworthiness of collateral assets.

Market conditions change over time, and the values of various assets can fluctuate. Failing to rebalance your collateral portfolio periodically can lead to an imbalance in your risk exposure.

In summary, customizing collateral assets for derivatives or spot trading requires careful consideration and risk management. Avoiding these common mistakes can help ensure a more secure and stable trading environment. 

The Bybit UTA custom collateral assets function allows traders to easily customize their collateralized assets for a better-managed portfolio of hedged positions. Users can also strategically utilize their gains and losses generated from different trading markets to offset each other, based on their desired trading strategies and the assets chosen. 

Although the feature is not yet available for Institutional Loan traders, Bybit is actively upgrading the platform with better features to fit the demands of all traders. All in all, trading with collateral assets involves higher risks. Please consult a financial advisor and do your due diligence before trading. 

Mastering Bybit UTA: How to Customize Your Collateralized Assets

Grab Up to 5,000 USDT in Rewards

Grab Up to 5,000 USDT in Rewards