Gate Institutional Weekly: BTC Volatility Rises, LST Sector Declines Across the Board

Summary

• Last week, the market sentiment reversed sharply. The US April CPI exceeding expectations, a lack of substantive breakthroughs in US-China talks, and the renewed escalation of tensions in the Strait of Hormuz collectively pushed US bond yields higher and triggered a risk asset correction; after hitting new all-time highs, the S&P 500 and Dow Jones fell sharply on Friday, leading the market to reassess the policy path of the Fed under the Walsh era.

• BTC ETFs saw net outflows of approximately $996 million for the week, while ETH ETFs saw net outflows of approximately $255 million, a significant weakening compared to the previous week, indicating a phase shift towards defensive positioning by institutional capital. However, the overall AUM of BTC and ETH ETFs remains near historical highs.

• On-chain TradFi and CEX derivative trading continue to be dominated by safe-haven assets like gold. The stronger-than-expected US CPI and geopolitical risks drove higher volumes in gold-linked perpetual contracts; meanwhile, the share of trading related to stocks and tech stocks has rebounded, with macro factors becoming more prominent.

• On-chain liquidity remains concentrated in top DEXs like PancakeSwap and Raydium, while deep liquidity and stablecoin swap protocols saw significant volume contraction. The stablecoin market leans more towards dollar-denominated assets with stronger compliance, payment, and banking channel characteristics.

• Lending on Aave mainnet and the LST sector saw a pullback, with leveraged demand on both the ETH and Solana sides cooling simultaneously. At the same time, newer chains like Plasma and MegaETH continued to attract structural capital migration.

• The derivatives market entered a deleveraging phase. BTC funding rates turned negative, OI continued to decline, the ratio of Puts traded and the negative 25D Skew widened in tandem, and the DVOL volatility index trended upwards, indicating a significant increase in market pricing of downside risk and volatility.

• Gate's institutional spot market share bucked the trend, growing 10% week-over-week. Cross-margin lending volume grew 10% week-over-week. Spot SBE is expected to go live in June. Order placement and cancellation latency on key CrossEx exchanges decreased from 16.6ms to 1.5ms, a 91% improvement.

1. Market Focus

Over the past week, the market situation reversed sharply, with stronger-than-expected inflation data and increased policy uncertainty challenging the rally in risk assets. On Thursday, US stocks hit record highs, with the S&P 500 closing above 7,500 for the first time and the Dow Jones Industrial Average returning above the 50,000 mark. However, they fell sharply on Friday as the market reassessed the inflation and policy environment. First, the April CPI data released on Tuesday was stronger than expected, with headline inflation rising 3.8% year-over-year, above the consensus expectation of 3.7% and a 0.6% month-over-month increase. Second, the bilateral US-China talks on Wednesday and Thursday failed to yield any substantive policy breakthroughs. Third, geopolitical tensions escalated again, with another military clash erupting in the Strait of Hormuz on Friday, intensifying fears that the de-escalation process could deteriorate.

Interest rate markets reacted strongly to this. As federal funds futures prices adjusted significantly, reflecting market expectations for tighter policy, the 10-year US Treasury yield rose 28 basis points for the week to 4.58%, its highest level since September 2025. The USD/JPY exchange rate continued to climb on the back of a stronger dollar. The market lowered its expectations for easing and began to price in the possibility of further tightening. The Powell era officially ended last Friday as Jerome Powell's term as Fed Chair concluded on May 15th, and Kevin Walsh was sworn in as his successor over the weekend. Walsh will preside over the FOMC meeting on June 16-17, which will release updated economic projections and a revised dot plot, offering the market its first official look at the policy outlook under Walsh's leadership.

2. Liquidity Analysis

2.1 BTC ETF Scale Continues to Expand

Last week, the BTC ETF market showed a clear trend of capital outflows. Early in the week, May 11 still recorded a net inflow of about $27.2 million, but market sentiment quickly weakened. On May 12 and May 13, substantial net outflows of approximately $233.2 million and $630.4 million occurred, respectively, indicating that institutional capital began to withdraw from risk assets. Overall, last week's cumulative net outflow from Bitcoin ETFs was approximately $995.5 million, nearing the $1 billion mark. Compared to the net inflow of around $623 million in the previous week (May 4 - May 8), market risk appetite has reversed significantly, with institutional investors generally leaning towards profit-taking and phase-based risk aversion.

The ETH ETF market also faced pressure. Over the past week, ETH ETFs recorded net outflows for several consecutive trading days, with a cumulative weekly net outflow of approximately $255.2 million, a stark contrast to the net inflow of about $70.49 million the previous week. This indicates that against the backdrop of macro uncertainty and heightened market volatility, ETH assets have also been affected by capital reductions, and overall sentiment is weaker than previously expected.

• Overall AUM: As of May 14, cumulative net inflows into BTC ETFs had reached approximately $58.63 billion, with assets under management (AUM) of about $107.75 billion. Cumulative net inflows into ETH ETFs were approximately $11.9 billion, with an AUM of about $13.45 billion. Despite short-term fluctuations in capital flows, the overall scale of ETFs remains near historical highs, indicating that institutional allocation demand has not fundamentally reversed.

• Institutional Moves: Capital differentiation was evident last week. For BTC ETFs, BlackRock's IBIT saw net outflows of approximately $317.1 million for the week, while Morgan Stanley's MSBT bucked the trend with net inflows of about $39.1 million, reflecting some institutions engaging in structural repositioning and buying at lower levels. For ETH ETFs, BlackRock's ETHB saw small net inflows, while ETHA experienced larger outflows, indicating that the market still has clear preferences for different products based on liquidity, fee structures, and long-term allocation value.

2.2 TradFi Liquidity

• TradFi Perp DEX: Over the past week, the trading structure for TradFi assets on Perp DEXes continued the pattern of "commodities dominating, indices supporting, stocks recovering." Looking at the share of volume, commodities remain the absolute core, with their overall share roughly maintained in the 45% to 65% range for the week. While slightly down from the peak period in March-April, they still represent the primary source of liquidity for on-chain TradFi derivative trading. Within this, gold-related assets remain at the trading core, reflecting the market's continued preference for safe-haven assets and macro trading themes amid persistent inflation, rising geopolitical risks, and fluctuating USD interest rate expectations. Meanwhile, the share of stock-related assets rebounded notably over the past week, recovering from below 10% to nearly 30%. This suggests that as US stock market volatility expanded, on-chain users' demand for trading tech stocks, US stock indices, and AI-related concepts has picked up. The current user base for on-chain TradFi Perps still consists mainly of crypto-native traders with a high tolerance for volatility and leverage, rather than a full-scale migration of traditional macro capital.

• TradFi Perp CEX: Over the past week, overall trading activity in the CEX TradFi perpetual contracts market remained high, but structurally showed a clear pattern of "precious metals leading, stocks supporting, other sectors inactive." Analyzing the daily TradFi Perp volume distribution, metals assets like gold remain the absolute core, with the vast majority of trading days seeing volumes between $300 million and $700 million, occasionally exceeding $1 billion during periods of high volatility. Notably, there was a peak phase in mid-to-late March exceeding $1.5 billion. While last week's overall volume was lower than those extreme highs, it remained significantly above early February levels, indicating sustained demand for safe-haven and macro trading. In terms of rhythm, volume picked up again in the second week of May, especially against the backdrop of the stronger-than-expected US CPI, escalating Middle East geopolitical risks, and fluctuating USD rate expectations, making gold-linked perpetual contracts the primary trading direction for capital. Concurrently, trading volume in stock-related assets also rebounded, reflecting short-term trading demand driven by volatility in US stock indices and tech stocks. Overall, the current CEX TradFi Perp market has gradually shifted from being purely a crypto beta trade to being more strongly macro-driven and operating under a cross-asset allocation logic.

• Number of CEX TradFi Assets: The number of TradFi asset categories on CEXes expanded further in the past week. The total number of TradFi assets (TradFi and CFD sector only, excluding perpetuals) on three major CEXs increased from 1,107 to 1,174, a week-over-week increase of 6.10%. Stocks saw the most significant growth, rising from 748 to 809, a week-over-week increase of 8.20%. Among the three CEXs, Gate showed the highest growth rate, with its stock-based TradFi assets increasing by 62 week-over-week, a growth rate of 16.71%.

• TradFi Order Book Depth: We selected XAUT, the TradFi asset with the highest trading volume, and analyzed its order book depth (Delta). Last week, XAUT's order book liquidity showed a clear pattern of "safe-haven capital flowing in phase, then weakening." From May 6 to May 12, the XAUT price oscillated at highs around $4,700, accompanied by several large positive Delta inflows. Around May 12, there was a net liquidity injection of nearly $2.8 million, indicating that, against the backdrop of the stronger-than-expected US CPI and escalating Middle East risks, capital flowed into gold-related assets for safe-haven allocation. However, the market structure reversed sharply after May 13, with the order book seeing consecutive large negative Deltas, with individual outflows exceeding $2 million. The XAUT price also broke below $4,650, falling back to the $4,520-$4,550 range, reflecting phase-based profit-taking by earlier safe-haven capital. Notably, from May 15 to May 17, while the price continued to weaken, the order book showed a series of medium-sized positive Delta accumulations, suggesting that some capital was attempting to buy the dip, and the market was not in a phase of one-sided liquidity withdrawal. Overall, XAUT currently appears to be in a "post-safe-haven sentiment cooling, high-level rebalancing" phase. Its short-term trajectory will remain highly dependent on macro variables such as Fed rate cut expectations, the USD interest rate path, and the situation in the Strait of Hormuz.

3. On-Chain Data Insights

3.1 Volume Concentrated on PancakeSwap Among Leading DEXs, but Vertical Protocol Divergence Intensifies

PancakeSwap saw a rebound of about 12% compared to last week, with spot-related traffic on the BNB Chain serving as the main battleground for both institutions and retail. Uniswap saw a decline of about 7% week-over-week. Aerodrome on Base grew approximately +3% week-over-week. Activity on the Solana side remains, with the structure leaning towards high transaction counts and medium dollar volumes, where Raydium grew by about $1.26 billion week-over-week, while Meteora was roughly flat. High on-chain transaction counts indicate that Meme and routing-related trading hasn't completely subsided. Deep liquidity and stablecoin swap-focused DEX protocols like Fluid and Curve saw significant volume contraction this week.

3.2 Compliant and Payment Stablecoins Relatively Outperform, Synthetic Dollar Variants See Increased Volatility

With USDT and USDC dominating, second-tier stablecoins like PYUSD, RLUSD, EURC, and USDG—closer to payments, custodial compliance, and banking channels—outperformed established on-chain dollar stablecoins like DAI in terms of stock growth rate. USDe saw significant expansion this week, reflecting demand for yield-bearing and synthetic dollars for arbitrage and staking in volatile markets, particularly across networks. Furthermore, following the enactment of the GENIUS Act, institutional capital expenditure on stablecoin infrastructure has notably accelerated. Institutions like Bitwise have publicly stated that GENIUS has reduced regulatory uncertainty for stablecoins and tokenization projects, suggesting that subsequent market structure legislation like the Clarity Act will be key growth drivers.

3.3 LST Sector Sees Broad Pullback, Solana-Based Assets Decline More Deeply

On the ETH side, LST protocols like Lido, Rocket Pool, and StakeWise all recorded mid-to-high single-digit to approximately 10% TVL pullbacks, reflecting the correlation of staking tokens with ETH during a beta decline. On the Solana side, high-beta LSTs like jupSOL and Sanctum declined more deeply, as capital prioritized reducing high-volatility staking exposure during the risk-off shift. Overall, LSTs remain a slow-moving tool for long-term ETH/SOL allocation, but over the past week, this was not a sector-wide deleveraging; Ethereum's leading LSTs, due to their scale and liquidity, still showed slightly smaller drawdowns compared to smaller-cap LSTs.

3.4 Lending on Aave Mainnet Continues to Contract, Plasma / MegaETH Attracts Structural Migration

The Ethereum main market remains the absolute core but has contracted for a second consecutive week, indicating that institutions and whales remain cautious in the mainnet collateral market following the April rsETH risk event. Meanwhile, older L2s like Arbitrum and Ink also weakened in tandem. Relative bright spots were Plasma and MegaETH. Capital continued to migrate towards new chains offering incentives and closed-loop collateral scenarios. This aligns with Aave's risk team's recent upward adjustments to caps on new assets, suggesting the growth engine is shifting from mainnet leverage expansion towards stablecoins with clearer regulatory characteristics and new chain closed loops.

3.5 Core Borrowing Rates on Aave Normalize, WETH Leverage Drawdown Most Pronounced

Stablecoin borrowing costs have returned to the mid-single digits, reflecting easing liquidity stress and the dissipation of liquidation waves. WETH saw the largest decline, confirming the rapid fall in ETH leverage demand aligning with the decline in mainnet lending stock. Market behavior has shifted from scrambling for liquidity and protecting positions to selectively borrowing stablecoins. On the stablecoin side, there is still support from structured arbitrage, cross-border USD demand, and new chain incentive mining. On the ETH side, there is active deleveraging. This also explains why the protocol layer is more willing to raise caps on compliant stablecoins and new chain dollars rather than purely stimulating WETH loop lending.

3.6 Stablecoin Issuance is the Bedrock, Hyperliquid Expands Event Contract Trading

Tether and Circle contribute the most stable cash flows, consistent with the dominant position of dollar stablecoins in stock. Circle is strengthening the vertical integration of issuer, settlement chain, and agent payments through Arc financing and Agent Stack. Hyperliquid's revenue fell slightly week-over-week, but in absolute terms, it remains in the top tier of on-chain derivatives and continues to expand product lines like Bitcoin outcome markets. The market continues to pay for a comprehensive financial stack encompassing perpetuals + prediction/markets + validator/reserve narratives. Aave's revenue this week saw a notable decline from last week, coinciding with both a contraction in lending stock and rate normalization—meaning risk premiums decreased, but active borrowers also reduced.

4. Derivatives Tracking

4.1 BTC Funding Rate Turns Negative, OI Decline Indicates Increased Deleveraging Pressure

From May 11 to May 17, 2026, the BTC price showed an overall pattern of rallying then falling. Early in the week, the price remained around $81K. From May 11 to May 13, the funding rate was often slightly positive, indicating lingering short-term bullish momentum. However, the price failed to break higher, weakened quickly after May 14, and fell to around $77K by May 17, shifting the market from high-level consolidation to a pullback adjustment.

Regarding OI, it showed a downward trend for the week. Around May 11, OI