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

• Wen “Uptober”?

• Chart: Progress with Ethereum solo stakers

• Governance: Ethena to onboard SOL as collateral

• Research: Hot takes on Unichain

Why bitcoin ETF flows matter

As we approach the mid-point of October, net inflows for the US bitcoin ETFs have flipped into positive territory for the first time this month.

Bitcoin ETFs notched $253.6 million in net inflows on Friday, breaking a three-day negative streak. They ended the week with a solid net of $348.5 million.

ETF flows provide insights into bitcoin price movements, acting as a potential indicator of directional trends, according to David Lawant, head of research at FalconX.

In addition to a correlation between BTC price and ETF flows overall, “a positive shock to ETF flows leads to a persistent positive effect on bitcoin prices, peaking around days 3-4 with approximately a 1.2% price increase before gradually diminishing,” Lawant wrote in a research note Friday.

BTC is up about 5% today, threatening to break above the daily high set on Sept. 28 at nearly $66,000. The brief dip below $60,000 last week has turned into a spring, setting up a bullish double-bottom chart pattern.

Ritesh Dutta, Deputy CEO at AMINA Bank, finds solace in the relative outperformance of venture capital-backed cryptos. “The recent surge in VC-backed cryptocurrencies, particularly SUI and Aptos, is a strong signal of market confidence in institutional adoption of innovative blockchain technologies,” Dutta told Blockworks. He also likes the “resilience in DeFi,” which has maintained its total value locked (TVL) in the third quarter, alongside a 14% rise in the total stablecoin market cap to $172 billion.

For most crypto assets, the anticipated “Uptober” has been more like a continuation of “Choptember.” But the present attempt to reverse a longer-term downtrend looks promising.

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

Brought to you by:

Obol Collective, the distributed validator ecosystem scaling and decentralizing Ethereum, and Liquid Collective, the trusted and secure staking standard, are collaborating to build the world’s confidence in ETH staking and risk-adjusted participation. 

Empower yourself to stake confidently with Liquid Collective and Obol’s staking research and resources.

Slow and steady progress with Ethereum solo stakers:

How well has Ethereum been preserving decentralization? According to research from Toni Wahrstätter, the reorg rate for solo stakers (dark purple line) has decreased about 0.25% since the Dencun hard fork in March 2024. 

Solo stakers may not necessarily be local block builders, however, as a certain subset are using third-party relays and MEV-Boost to outsource block building. The bad news: Based on the last 12 months, local block builders — considered the holy grail of decentralization — are still about 5x more likely to be reorged than MEV-Boost block builders.

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

Ethena proposal to onboard SOL as USDe backing asset:

In August, Ethena made the strategic decision to expand its yield-bearing synthetic stablecoin USDe to Solana with the use of LayerZero’s OFT (Omnichain Fungible Token) standard. Ethena looks to further expand its presence in Solana with a governance proposal posted last Thursday looking to onboard SOL as a backing asset to USDe.

Unlike centralized stablecoins such as USDT and USDC, USDe is collateralized by a “cash-and-carry” trade. Short positions on perpetuals futures are taken by Ethena against user-deposited BTC, ETH and possibly SOL (the long position) to exploit a difference in funding rates for profit, with a reserve fund ($46.6 million) to mitigate short-term volatility.

Posted by Ethena Labs Research, the economic rationale for the proposal is the relatively favorable funding rates of SOL perpetual futures in 2024 to BTC and ETH over the last several months. 

If approved, the plan is to target an initial allocation range of $100 to $200 million SOL for USDe. That is about 5-10% of SOL open interest, compared to Ethena’s present stake in 3% of BTC open interest and 9% of ETH open interest.

— Donovan Choy

Analysts assessed Unichain in a recent flashnote.

Our analysts presented varying hot takes on Uniswap’s latest move with Unichain. Boccaccio emphasized the potential for centralization, with large entities like the Uniswap Foundation dominating the validator set and potentially monopolizing MEV and fee rewards. He sees Uniswap’s long-term goal as becoming a liquidity hub, though it may face competition from other L2 solutions like Base.

Ryan Connor highlighted challenges related to UNI token valuation and liquidity migration. He questioned whether Unichain will attract enough liquidity to justify its high token price compared to competitors’. He also raised concerns about Ethereum losing value as more DeFi activity moves to L2s, noting that Unichain could exacerbate this trend.

Daniel Shapiro viewed Unichain as part of Uniswap’s strategy to vertically integrate and dominate the DEX space, though he cautions that security risks related to TEEs could threaten this success. He also notes that Unichain’s success depends on attracting a robust ecosystem of unique applications.

Carlos Gonzalez Campo sees Unichain as beneficial for Uniswap, improving UX and liquidity via fast, cheap cross-chain swaps. He noted that Unichain could boost UNI’s value by enabling staking and MEV revenue capture, but warned of risks like potential fragmentation of focus and competition from other DEXs.

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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.