🟣 T-1 To ETF Deadline

We march closer. Inch by inch, gwei by gwei, sat by sat.

January 09, 2024

We are another 24 hours closer to ETF decision day! We saw another round of filings come in this morning, with the most notable takeaway being Bitwise’s revised free to a new low of 0.20%! As Eric Balchunas puts it, “it's like two years worth of fee war condensed into a couple days.”

All signs still point to approval, but the Bloomberg analysts are not budging from their 95% approval odds. It seems they are leaving room for an unexpected, politically-driven rejection/delay.

OI on CME BTC Futures just registered another all-time high of $6.2B, increasing $900M in only three days. Since the CME is the preferred venue for TradFi participants, the CME OI is generally used as a proxy for TradFi interest in BTC. With the ETF news on the horizon, everyone one is looking for exposure.

The burning question is whether the ETF launch will be a sell-the-news event. In my personal opinion, the crypto natives are going to rotate quickly in search of the new shiny thing. This has been the hot trade over the last few weeks.

But once ETF trading is live, we may see record-breaking inflows given how aggressive the fee race has been – these issuers will be in a battle for liquidity.

I won’t be overthinking this one. Blackrock is coming.

Continuing yesterday’s thoughts on Celesta, I put together a thread covering the current state of onchain activity and what the future may hold. The fee revenue generated by Celesta DA may never be sufficient to justify the current valuation. This does not mean the token is doomed to fail, but rather, the market is pricing in future growth as “modular money.” Whether or not that makes sense is up to the reader.

The idea is that TIA will be used to bootstrap rollups built on top of Celestia, creating demand for the asset. If the rollup ecosystems are sufficiently large, this idea can work. The question is if rollups would benefit by using TIA as the gas token. For one, the accounting is simplified if the gas token paid by users is the token in which the chain’s costs are denominated. Additionally, a single has token provides a better onboarding experience than a user needing 10 assets to use 10 different chains. If it is a DeFi-focused rollup, the chain may also benefit from the initial liquidity.

There’s another world where the broader Cosmos ecosystem rallies behind TIA, and it plays the role many thought ATOM would play. Cosmos chains could implement the fee abstraction module, which allows users to pay for transactions in TIA by using Osmosis to convert the TIA to the native token. This improves UX as users can hold one token and interact with many chains while also increasing the demand for TIA.

These are all nothing more than ideas, but they could indicate what the modular future looks like. At least directionally.

 - Dan Smith

Using data from Artemis, we see that the daily active addresses on Stacks, a Bitcoin L2, are up nearly 570% over the past 30 days. Similarly, the daily transaction count on the chain has grown over 800% over the past 30 days. Most likely, the increase in transactions and daily active addresses is due to inscriptions, similar to what we saw with Polygon, Avalanche, and NEAR.

On the other hand, with the rise of Ordinals, BTC DeFi experimentation, STX’s strong price action (up 100% over the past 30 days), and the BTC ETF, it might be the case that activity on BTC L2s is only just starting to run.

Flash Trade launched on mainnet on December 30th and debuted its FLP pool yesterday.

Depositing into the LP pool could potentially earn users governance tokens or enable them to receive them through a future airdrop. Within the past day, the FLP pool has already accumulated $3M in user deposits.

Flash Trade uses a pool-to-peer model (similar to GMX’s GLP), where liquidity providers deposit into the FLP, which acts as the liquidity for traders to trade against. The FLP is made up of four assets: BTC (20%), ETH (10%), SOL (15%) and USDC (55%). Liquidity providers can deposit these four assets to mint the FLP token, representing shares of the overall liquidity pool held on Flash Trade. The FLP price only tracks the underlying assets. Trading fees are paid out separately to liquidity providers in USDC.

Flash Trade also launched an NFT collection (Flash Beasts) a few weeks back to seed the protocol with its initial liquidity. The Flash Beasts earn 100% of all trading fees from the initial liquidity pool on Flash Trade. Flash Beast holders can claim this fee share daily once the fee distribution feature launches. Holders can also earn referral rebates by referring new traders through their unique custom link, but the webpage does not specify how these rebates are distributed.

It should be noted that the team has not implied or confirmed that providing liquidity or holding the Flash Beasts NFTs will earn users potential tokens. Additionally, with peer-to-pool models, LPs take on the opposite position of traders, which can lead to losses for LPs if sophisticated traders use the product.

Solana ended 2023 hot across NFTs, stablecoins, DEXs, liquid staking, and even memecoins. We expect a retracement in activity as the hype cools down to begin 2024. However, the continued improvements to the Solana base layer make a compelling case for the chain to onboard new users into crypto throughout the year.

Solana is generating an increasing amount of transaction fee revenue, with various fee market dynamics and ongoing proposals that are set to further accelerate this trend.

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.