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- 🟣 Market Weakness Ensues, What Will Catalyze the Next Leg up?
🟣 Market Weakness Ensues, What Will Catalyze the Next Leg up?
Will memecoins drive retail participation? Maybe, but they are driving improvements to the tech.
Hayden
April 16, 2024
đź‘‹ GM.
Welcome back to 0xResearch – quick hitting alpha for the crypto degens. Here's what we got for you today:
Thoughts on the cycle
Blob market trends
Drift Protocol announces $DRIFT
Steady lads.
Volatility ensues as markets weigh US interest rate movements, stock market weakness, geopolitical uncertainty, and SEC headwinds. While I am still bullish–I’m less concerned about the short term–recent developments bring into question, what catalyzes the recovery and extension of this cycle? Answering this question might provide a head start for how and where to expect activity and performance.
Potential catalysts looking ahead include the BTC halving, the spot ETH ETF approval, and/or an FOMC rate cut. I’d consider these the types of signals that would get more institutions involved. But what about retail… memecoins?
I know… in my last NL I talked about memecoins (and they’re are all over the TL), but here me out: in 2021, NFTs rallied retail off the sidelines—in 2024, given the rise of memecoins, and high-performance chains such as Solana, it seems fairly intuitive that memecoins would be the drivers for retail attention. Very simply, memecoins are less complicated. But, they also implicitly have the unintended consequence of testing the limits of a chain, which leads to discussion on fixes and eventually shipping them.
While memecoins don’t have intrinsic value, they generate a ton of activity–so much activity that chains cannot handle all of it. Fees on Ethereum get too high and transactions on Solana fail or get completely dropped. But when I think about it, activity that pushes the constraints of a chain is a necessary evil for the underlying tech because chains learn and improve.
In this sense, while memecoins have arguably zero intrinsic value and represent the “financial nihilism” that exists in culture today, there is some value because they bring new users into crypto and reveal problems and therefore solutions.
In the background, Solana devs are shipping improvements to the networking implementation and making changes, rollups are leveraging blobs, and other high-performance L1s are becoming increasingly relevant.
Furthermore, if we consider a scenario in which retail is fully engaged like in previous cycles, then the recent growing pains and volatility will have afforded chains the time to make the necessary changes to process more memecoin activity.
The above, of course, assumes the larger picture is not falling apart… Either way, the tech is improving.
Steady lads.
Below is a picture of the market share of blob-blocks over the last 7 days.
The first main takeaway is the blob market is taking on similar properties as the block market i.e. blob markets are centralizing like block markets. Looking deeper, vanilla validators make 2x less blocks than rsync, but have a 4x higher blob inclusion rate. This suggests builders decide the number of blobs in a block. If a small, concentrated locus of builders dominate the number of blobs in a block, then they will likely determine how blobs are priced.
As rollups gain more activity, following the blob market can yield interesting insights into what centralizing forces arise and what products or primitives are building solutions to address these concerns.
Arweave recently launched the testnet for AO computer, a new messaging protocol that will sit atop a PoS network and aims to become a scalable global compute platform through parallel processing and modularity.
Solana current design is causing users’ transactions to be displaced or dropped. Until further solutions mature, we do not see the appetite to add additional risk at present; however longer term, we think the market will eventually look past these idiosyncratic headwinds and believe SOL is still a top candidate for outperformance throughout this cycle.
Martin Grant worked with the Fed for roughly 30 years before leaving his position in 2022.
Though some expect most public miners to survive the halving, the segment’s most vulnerable could fall victim to consolidations and defaults.
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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.
