A recent report by the Ethereum “inner circle” is telling us that ETH is digital oil. But reasoning by analogy is problematic. ETH is not digital oil. Neither is “data.” Oil is just oil.

— Donovan

Permissionless IV is hitting Brooklyn on June 24-26. Tix are $499 — but refer 5 friends to the 0xResearch newsletter and score a free Permissionless ticket. Scroll down to grab your code.

Hyperliquid (HYPE) price vs. staking:

Another day, another ATHH (all-time HYPE high)!

The twin-panel chart plots HYPE’s price (top) vs. staked supply (bottom) since January. Self-proclaimed Hyperliquid maxi “Holosas” argues that staking flows lead price, and the data lends some support, though it may also warn of volatility ahead.

In March, about 5 million HYPE unlocked as price first crossed $35. Contrary to expectations of a selloff, the market digested the extra float and pushed higher, implying a strong underlying bid. (Not for nothing, Blockworks Research has been on board with that narrative.)

On the flip side, this past week, nearly four million tokens have moved back into staking while price held above $40, contracting the liquid float. That points to a plausible run toward $50 by month end.

The lower panel shows that staking oscillates in multi-week waves, however, and every surge in locked coins has eventually reversed. If a fresh unlock aligns with profit-taking, upside could stall once again.

There isn’t a ton of history, but traders would do well to watch staking activity for clues.

— Macauley Peterson

Chess clocks ticking, pull-up bars waiting, dunk tank ready — all hosted by the 0xResearch and Blockworks Research teams.

Expect real arguments, fast plays, and a crowd that knows the difference between conviction and cope.

📅 June 24-26 | Brooklyn

ETH is digital oil

World War II’s outcome was fundamentally determined by access to oil.

So depleted was the resource by the final stages of the war that Nazi Germany resorted to extraordinary measures to maintain basic mobility — pulling trucks by oxen, four at a time.

The oil situation for the armies of Imperial Japan proved equally dire. In Daniel Yergin’s Pulitzer Prize-winning book The Prize, he documented how the Japanese kamikaze suicide pilots would fill their tanks to only halfway since they were not meant to return from their missions.

The armies of both Nazi Germany and Imperial Japan were defeated not for lack of manpower or armaments, but because they ran out of oil.

Oil’s enduring legacy in the history of the deadliest conflict in human history continues to influence and reverberate throughout contemporary thinking.

For instance, “data is the new oil” is the rally cry of Big Tech critics when they clamor for stronger regulations of tech companies. 

Whether they do it unknowingly or not, the metaphor draws a parallel between oil’s historical importance and the emerging value of data in the digital economy.

That analogy too has permeated crypto, evident in our use of words like “gas” and “burn.”

Channeling that meme to the fullest is last week’s “The Bull Case For ETH” report co-authored by top Ethereum stakeholders.

In the report, ETH is projected at a value of $8k per ETH ($1t market cap) in the short term.

The long-term moon math goes even further: ETH at a $85t asset of $706k per ETH — a steal at today’s prices!

Part of this valuation model benchmarks ETH against today’s $85t oil market valuation.

But the case for ETH as “digital oil” is more complex than that.

For one, unlike real armies, the heaviest gas guzzlers of ETH have cheaper alternatives.

Ethereum’s largest gas guzzlers have historically been Uniswap and Tether. Both are actively moving their execution onto more gas-optimized environments (Unichain and Plasma).

Though Plasma isn’t live yet, and Unichain is still in its early days, it does considerably weaken the case for ETH as “digital oil.”

What about data availability?

The biggest ETH-denominated bill for L2s is the cost of using Ethereum DA, namely publishing your raw transaction data to the L1. 

Before the introduction of blob space with EIP-4844, 1 kB of call data would cost about 16,000 gas, or about $1.44 (assuming ETH at $3000).

That’s a non-trivial 80-90% of a typical L2 fee.

EIP-4844 brought legacy call data costs down by ~99%, yet it is still cheaper by ~20-30x if rollups use an alternative-DA layer like Celestia or EigenDA.

The ETH as “digital oil” thesis crumbles further when you consider that Ethereum itself faces stiff competition from competing L1s.

If Ethereum can claim its native asset as “digital oil,” so can Solana, Sui and every other ecosystem.

Yes, Ethereum is the largest crypto economy and the second largest crypto asset. But the Ethereum economy is not so far ahead of its peers that ETH would have the same overwhelming influence that oil does.

The whole analogy of ETH as “digital oil” rests on shaky premises.

ETH may very well be a global reserve asset, but memeing that into existence would be tough for institutional investors to swallow.

— Donovan Choy

Some yield opportunities are too good to pass up, even if they may evaporate in short order. Others are more “fire and forget” longer-term plays. I spent part of my weekend looking at one of each.

First up is the baffling status of Morpho on Unchain, where borrow incentives paid in stablecoins are providing negative interest rates! If you have ETH or ether LSTs, or WBTC or UNI lying around, you can get paid to borrow USDC or USDT0 against it.

Since hedging with futures is generally carrying positive funding rates, there are high-yielding delta-neutral strategies available as a result.

The main problem is liquidity — this kind of market distortion means nearly all available USDC is spoken for. There is still about $500k available in the LayerZero version of tether, though, as of 11 am ET.

For lenders, Earn rates are currently pushing 10% on USDC and — unlike many high-yielding vaults — that’s native yield, not gimmicky token incentives.

I presume the main reason this doesn’t get more efficiently arbitraged is just the bridge friction, but both Uniswap’s built in cross-chain swap with Across (or Stargate) will move your assets over swiftly and cheaply.

If swapping USDC/USDT0 on Unichain’s Uniswap, just be mindful of the default slippage settings, which can be excessive. Manually adjust to taste.

In the long-term camp, we find sBOLD, a new staked version of Liquity’s immutable crypto-backed stablecoin. For the yield-hungry, sBOLD is a Stability Pool deposit with auto-compounding rewards.

But it’s also newly available in yield-trading platform Spectra Finance (SPECTRA). Like Pendle, Spectra offers principal (PT) and yield (YT) tokens. The fix-rate of the former for December expiry is clocking in at 12-13% on positions up to about $170,000.

Anyone want to fund their Christmas shopping early?

— Macauley Peterson