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- 🟣 Sentiment on Ethereum is tracking price
🟣 Sentiment on Ethereum is tracking price
Upscaling activity takes time
Macauley Peterson & Donovan Choy
August 09, 2024
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Welcome back to 0xResearch. Here's what we’ve got for you today:
The demise of ETH or great success?
DePIN Glows up
Zora daily active addresses spike
CT: The ETH value prop
The sentiment around ETH on the Crypto Twitter timeline has been rapidly souring for some time, and it seems to be reaching an inflection point.
Complaints are typically accompanied by a depressing ETH/BTC or ETH/SOL chart to demonstrate ETH’s relative lack of strength. As the saying goes, narrative follows price.
There are many rationalizations being offered for ETH’s subpar price action, but one explanation stands out more than others: “parasitic” L2s. The long and short is that ETH is now unattractive because users are transacting on L2s for its cheap fees, rather than the L1. As such, MEV value is now being captured by L2s in the form of sequencer revenues. In the past, the extraordinarily high gas fees on the L1 would contribute to a much faster ETH burn (thanks to EIP-1559), thereby accruing value to ETH holders.
There’s an irony to this complaint. It’s technically true, yet it is a testament to Ethereum’s successful execution. Ethereum, after all, had long been committed to a multi-year rollup-based roadmap to scale. On all fronts, that seems to be playing out pretty well, given the $37 billion locked on L2s today. Sure, “rollup fatigue” has opened the doors to new problems like fragmented liquidity, but that’s a separate problem being solved by shared sequencer players and liquidity aggregators.
Secondly, users are flocking en masse from the L1 to L2s thanks to successful network upgrades like EIP-4844 (aka Proto-Danksharding). This has significantly reduced the data availability (DA) costs for L2s to post data back down to the L1, a clear net benefit for Ethereum as a whole. Optimistic rollup Base, for instance, took advantage of blob fees immediately on its March 13 launch date, and DA costs were cut from $9.34m in Q1 2024 to $699k in Q2 2024 — a non-trivial reduction of ~13x.
So while the dynamics surrounding ETH as a value-accrual asset are certainly less attractive, it’s hard to argue that the average consumer isn’t much better off. Users have never had a larger variety of cheap alternatives for transacting onchain. The modular ecosystem is thriving, with alt-DA layers like Celestia offering L2s a cheaper way to do business.
The $300 billion question is whether rollup growth will ultimately lead to decent revenue for settlement on Ethereum over the long-term.
— Donovan Choy (X: @donovanchoy | Farcaster: @donovan)
Glowing your way to the top
Glow Protocol — which incentivizes the construction of solar farms — has at least a temporary claim on being the world’s top revenue-generating DePIN project.
Though still in its beta phase, Glow reported about $350,000 of protocol revenue over the past 30 days, putting it ahead of more mature projects such as Helium and Braintrust. Glow rewards solar farms with tokens for their electricity output, as well as USDC for carbon credits resulting from green energy production (via Glow’s own carbon credit market.)
The protocol's "recursive subsidy" model aims to amplify contributions to solar energy production by requiring solar farms to reinvest all their earnings into new construction. This approach, inspired by the success of decentralized physical infrastructure networks (DePIN) like Bitcoin and Helium, positions Glow as a leader in the growing decentralized electricity sector.
What’s especially notable — at a time when Solana seems to be stealing the DePIN limelight: Glow is on Ethereum.
All 1000X listeners know that when Jonah and Avi give guidance on the markets, it’s best to pay heed.
Catch them live and in person at Permissionless III in October as they answer the perennial question: “Where are we in the cycle?”
Zora daily active addresses spike:
The Zora L2 chain saw a burst in activity on Wednesday. Daily active addresses spiked to 75,000, almost a 275% increase from the previous day. What’s going on?
In short, Zora is entering pump.fun territory with the launch of an extension to its ERC-1155 NFT standard. The new standard wraps and unwraps NFTs with the fungible ERC-20 standard, making Zora NFTs tradable on a DEX like Uniswap. To bootstrap liquidity for trading, a portion of the fees from any Zora mint (Zora NFTs are typically mintable only in an early 3-day window) is added to a Uniswap pool.
Zora is opening the doors to memecoins, or memeNFTs, since these NFTs are now tradable in secondary markets with their very own tickers. Secondary market royalties are enforced onchain as opposed to the offchain enforceability seen with Blur or OpenSea. Expanding on the memecoins analogy, the 3-day minting period resembles some memecoins’ presale window.
As Zora co-founder Jacob Horne puts it: “When the mint ends, the market begins.”
— Donovan Choy
Chainlink’s first-mover advantage, platform offering and key partnerships have positioned it as the undisputed leader in the RWA infrastructure space.
Lido has generated over $100m in the last year alone. It is the 4th highest revenue-generating app across all apps in 2024. With year to date earnings of $26m, it also maintains a top four status in profitability. Despite strong fundamentals, the LDO token has decreased by over 60% in 2024, leading to Lido's valuation dropping to historic lows. It currently trades at a 9.0x price-to-sales (P/S) ratio, among the lowest in its peer group. Upcoming and current initiatives like Vaults and the Staking Router are poised to further solidify Lido’s dominance.
MicroStrategy executives have been well rewarded for turning the stock around, with bitcoin’s help.
The Empire crew digs into the data days after crypto prices swung wild.
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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.
