🟣 Closing September on a pullback

Plus, Ethena looks to scale

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Donovan Choy & Macauley Peterson
September 30, 2024

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Welcome back to 0xResearch. Here's what we’ve got for you today:

  • Is it “just a pullback, bro”?

  • Gov: Ethena mulls an L3 

  • Chart: EIGEN to start trading

  • Degen: Spend DeFi yields in the real world with Zeal

You’ve probably heard the expression, “everyone wants a pullback until it actually comes.”

After breaking above the prior daily high mark in August at just over $64k, bitcoin has returned for a retest to start the week. The 200-day moving average sits at $63,745.

Crypto majors BTC and SOL have been chopping sideways since April. Will investors see a reversing daily trend and pull the trigger?

“[Bitcoin] prices have us still stuck in the same flag pattern that we’ve been in for months now,” notes John Glover, CIO of Ledn. “What is of interest is the fact that we are testing the top of the channel for the third time. It’s common to break out of a flag-continuation pattern on the third attempt.”

The long-term effects of US bitcoin and ether ETFs were a frequent topic of discussion at last week’s European Blockchain Convention in Barcelona, following the approval of options in the US market.

For those worried about a “paper” bitcoin market, Evolve ETFs’ CIO Elliot Johnson pointed out that Canadian bitcoin ETFs had options almost immediately after launch, and the market saw no negative effects. ETFs necessarily add liquidity to any asset class, and that can have a dampening impact on volatility. Plus, ETF options should improve liquidity and tighten spreads, Johnson said.

The US ETFs registered a solid week of inflows, including $494 million on Friday, the highest uptake since June 4.

Ether has been noticeably weaker throughout “Choptember.”

Bitwise’s Matt Hougan said in Barcelona that ETH ETFs arrived sooner than expected — perhaps too soon. “It takes the market time to digest bitcoin ETFs,” he said, noting that ETH is like “the middle child” missing from the narrative. He then predicted that inflows, while not bad, will be better in 2025.

Also discussed was the fact that ETFs which pass through Ethereum staking rewards are available in the EU and Canada but not the US, and will remain off limits pending a change from policymakers.

The potential for yield is not yet a substantial driver of interest in ether in the US market anyway, according to David Lawant, head of research at FalconX. “The spread between the fed funds rate and the Composite Ether Staking Rate (CESR) has been negative since June 2023,” he said in a research note Monday. The gap is narrowing as interest rates fall, however, and it is now at its narrowest point since December 2023.

“This spread will likely continue to shrink, and eventually turn positive over the next couple of quarters due to a double-whammy effect” of rising yields and a falling fed funds rate, Lawant said.

— Macauley Peterson (X: @yeluacaM | Farcaster: @Macauley)

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lpETH invites you to the on-chain Pool Party!

Built by Tenderize Labs, lpETH is an on-chain clearinghouse that reinvents liquidity for (re)staked ETH. Users can instantly unstake ETH and anyone can deposit ETH as liquidity to earn yield collected from swap fees, token bribes and lpETH native incentives. Pre-launch deposits are open for another 21 days, be sure to sign up through Turtle Club before depositing ETH to claim a 66% boost in incentives and a referral code.

EIGEN to start trading:

After multiple pseudo-“airdrops” (EigenLayer calls them “stakedrops”) and months of token transferability delays, the EIGEN token will finally be tradable some time today. About 11.95% (200 million) of EIGEN’s total 1,673,646,668 supply is set to hit public trading markets.

Based on Hyperliquid’s futures market of EIGEN, the current market cap can be estimated to be about $830 million, making it the 95th largest crypto token. 

But only about 114 million of that total has been claimed, Kairos Research estimates. After accounting for another 73 million EIGEN already restaked on EigenLayer, the float of EIGEN is about 2.42% (40.43 million EIGEN) — putting it in the dreaded territory of “low float, high FDV.”

Kairos is now walking back that claim, but regardless of how low the actual float of EIGEN is, it’s not necessarily a bad thing for the EIGEN token. Allowing a just-launched token to trade at a lower valuation out the gate, then subsequently enter price discovery on liquid markets, could entice investors to take a bet on a perceived “smaller” token, in contrast to the “down only” trajectory of many new altcoin charts in recent months.

— Donovan Choy (X: @donovanchoy | Farcaster: @donovan)

The Ethena community is mulling an L3 perps DEX.

Just when you thought there couldn’t be more decentralized derivatives, another one is on the way.

Ethena is eyeing Ethereal, an onchain spot and perpetuals L3 DEX, to be built on top of the upcoming Ethena Network L2.

Based on the proposal on Ethena governance forums, Ethereal would directly leverage Ethena’s risk engine and liquidity for its trading product, as well as “specific features which can augment the functionality of the core DEX (e.g. borrow/lend markets).” Ethena’s reserve fund currently has about $46.7 million of funds.

An Ethereal testnet is expected in Q4 2024. The “proposal” was promptly shared by the official Ethena X account and will go into a Snapshot vote today. Based on those facts, the idea seems much more like a pro forma process that has already received the stamp of approval from the core Ethena team.

From the perspective of Ethena’s community, it seems to be a no-brainer approval. Not only will ENA holders receive a 15% allocation of a future Ethereal governance token, but Ethena’s vertical integration into the DEX market will also bring more utility to its USDe synthetic dollar.

— Donovan Choy

Spend DeFi yields in the real world with Zeal.

The self-custodial wallet Zeal announced last Thursday the launch of “Recharge,” a feature that allows spending of DeFi yields directly with a “Gnosis Pay” Visa card.

With Zeal wallet, users can deposit stablecoins or ETH into selected protocols like Aave, Lido and Sky, which generate a variable yield rate of up to 8%. 

At the point of purchase with a real-world merchant, Zeal takes that earned yield and swaps it under the hood with the CowSwap DEX to the required stablecoin, which is then converted to fiat on Visa rails. 

The Recharge feature is available only to customers in Europe and the UK for now.

— Donovan Choy

Although Metis is one of the longest standing Ethereum L2s, the protocol has struggled to attract developers and users. Currently with approximately 0.5% market share relative to leading L2s — including Arbitrum and Optimism — and secularly declining TVL and fees, the team is executing a large-scale plan to revive the declining ecosystem. 

SKALE is a network of EVM-compatible chains with pooled security. SKALE stands out by offering a gas-free blockchain experience for end-users. It is able to do this by shifting validator compensation to developers. This business model has allowed SKALE to find traction in the gaming sector, demonstrated by the activity in the Nebula and Calypso hubs. As the network matures, SKALE chain growth will be a key metric to follow as the network’s economic sustainability depends on new chains joining the network and paying their monthly subscription fee.

Is AI x crypto overhyped? Permissionless is bringing you the highest signal conversations at the nexus of these two nascent technology sectors.

First it was MicroStrategy, then Block. Now over a dozen companies have bought bitcoin, treating it the same as cash.

Meanwhile, a16z announced its first raise for a decentralized science (DeSci) project.

The insights, views and outlooks presented in the report are not to be taken as financial advice. Blockworks Research analysts are not registered broker/dealers or financial advisors. Blockworks Research analysts may hold assets mentioned in this report, further outlined in the Firm’s Financial Disclosures.