Hi all, happy Wednesday! 

Both US markets and crypto continue to struggle due to the AI-fueled tech sell-off, and investors and traders await labor market and inflation data. 

We also evaluate the successes and failures of L2s.

US markets were subdued as investors anticipated key economic data to be released later in the week. The S&P 500 edged down 0.09%, while the Nasdaq-100 fell 0.33%. US Treasuries rallied for a fourth consecutive session after weaker-than-expected retail sales data: Month-on-month sales were flat in December versus expectations of 0.4% growth. Ten-year Treasury yields dropped 5 basis points to 4.15%. Labor-market figures are due today and inflation data on Friday, with traders potentially reluctant to take large positions ahead of those releases.

A rotation out of tech continued. US equity funds focused on non-tech shares have attracted $62 billion of inflows in the past five weeks, exceeding the $50 billion added to such funds in all of 2025. Eight of the S&P 500’s eleven sectors have risen year-to-date, with only tech, financials, and consumer discretionary falling. The small-cap Russell 2000 has outperformed the Nasdaq by more than 10% over the past three months. Energy, materials, and consumer staples have led gains, with Walmart’s market cap surging past $1 trillion. The rotation accelerated last week following the release of new coding tools by Anthropic and the new Codex release by OpenAI, which triggered a sharp selloff in software stocks.

In Japan, the Nikkei 225 hit record highs earlier in the week after Prime Minister Sanae Takaichi’s landslide election victory gave the LDP its largest majority since 1955. The index broke through 57,000 for the first time on Monday before the Topix rose a further 1.9% yesterday to fresh records. Technology and machinery stocks led the rally, with Advantest up 11.5%. The yen strengthened 1.1% to ¥154.19 against the dollar, as Japanese government bond yields pulled back 5bp to 2.24% following Monday’s selloff. Japan is now outperforming the US by about 10 percentage points year-to-date.

Gold slipped 0.03% while precious metals continued their volatile swings, with silver down 2.3% to $81.31 and gold falling 0.6% to $5,036 per troy ounce in the underlying market.

Bitcoin fell 1.92%, with the broader crypto market under pressure. Over the past day, we saw losses across every segment, led by perps being down 7.93%, DeFi being down 5.51%, and crypto miners being down 4.27%. L1 tokens fell 3.80% on the day, extending year-to-date losses to 31.56%.

 — Boccaccio

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Layer 2s: Ethereum’s biggest failure and greatest success

In 2020, the original Ethereum 2.0 vision relied on execution sharding (splitting the blockchain into 64 distinct chains to process transactions in parallel). However, this was deemed too difficult, while the bigger-blocks alternative (scaling the L1 directly) would hurt home stakers. 

Enter the Rollup-centric Roadmap. 

Rollups would keep decentralization intact, make sure security stayed robust, and scale Ethereum — the trilemma finally was solved.

Let’s take a look at some of L2s’ shortcomings and successes. 

Failures

Interoperability

Firstly, L2s don’t feel like extensions of Ethereum. I need third-party bridges to quickly and affordably move funds between apps; this, however, feels the same as moving funds to an entirely different chain.

Security

Secondly, no major rollup has reached Stage 2. Moreover, many teams are nowhere close to Stage 2 or have no intention of getting there. Moving to Stage 2 is risky. If there is a bug in the ZK circuit or fraud proof logic, and no Security Council can intervene, the chain dies. Thus, teams are incentivized to keep the training wheels on indefinitely.

Fee Generation

Lastly, since blobs came into the picture, the fees paid to Ethereum from all of these L2s have been, well...abysmal. 

Successes

Ecosystem and Talent Retention

Despite the friction, the Rollup-centric Roadmap likely saved Ethereum from irrelevance. Without L2s offering cheap fees, retail users and developers would have migrated entirely to high-throughput chains like Solana or Sui. In fact, most lending activity happens on Ethereum and its L2s, with Aave an order of magnitude ahead of its nearest non-Ethereum competitor. L2s kept these developers within the Ethereum gravitational pull. This helped keep the EVM as the most popular VM (developers keep tools, languages, and mental models), which was key to the next success. 

Institutions

The greatest validation of the Rollup-centric Roadmap is that major corporations are not building their own L1s but instead launching branded L2s. These L2s include Coinbase, Ant Group/Alipay (Jovay), Robinhood Chain, Ernst & Young (Nightfall), Sony (Soneium), M-Pesa Africa (ADI Chain), Kraken (Ink), Worldcoin and more. L2 teams act as the business-development arm for Ethereum (not ETH) and are slowly but surely integrating TradFi. 

Years ago, the common rhetoric was that banks would never touch public blockchains, hence the need for private chains. But now the narrative has completely flipped. JPMorgan launched its deposit token on Base, major banks are issuing stablecoins, tokenized bonds, and other assets directly on Ethereum.

Research & Development

The rapid growth of Layer 2 networks has not only scaled Ethereum’s transaction throughput, but has also accelerated its broader technical evolution, driving innovations that mainnet would have been too conservative to pursue alone. This includes next-generation clients like Reth, developed to handle high data demands and improve client diversity; major advances in zero-knowledge cryptography fueled by the ZK-rollup race; the emergence of native rollups as a potential path toward execution sharding without compromising core Ethereum properties; and the shift toward multi-VM environments, where L2s support languages beyond the EVM such as Rust, C++, WASM, Move and Cairo.

Enshrinement

Perhaps the most important outcome of this was the motivation to enshrine previously outsourced and externally researched mechanisms. Call it a pivot, call it an evolution, or say it was always part of the plan — regardless, the Ethereum community is finally onboard with bigger blocks, doubling the gas limit in less than one year. (The first gas-limit increases since 2021!)

This has led to record levels of transactions and addresses while lowering transaction costs.

This is not an abandonment of L2s; Ethereum has plenty of space left for them.

This is a resurgence of the L1.

Conclusion

Ultimately, the Rollup-centric Roadmap is neither the victory lap nor the outright failure its harshest critics claim. Rather, it’s a messy, market-driven compromise. Ethereum chose modular scaling over IBRL, and in doing so traded away some of its most elegant properties (atomic composability, unified liquidity and simple security assumptions) in exchange for survival, throughput and institutional adoption.

The roadmap’s real verdict is still unfinished. If rollups can progress toward genuine decentralization, improve interoperability, and realign economically with L1, Ethereum’s bet will look prescient. Although concerns about fragmentation and security councils are valid, the coming years will likely center on addressing and improving these issues. If 2020-2024 was about unbundling Ethereum to scale it, the next era will be about rebundling it to make it usable.

— Marc

1. The Hidden War Over Your Stablecoins

Stablecoin issuers operate an extremely lucrative, low-complexity business by holding user deposits in cash-like reserves and earning the risk-free rate, but those profits are increasingly contested. Applications like exchanges, wallets, and DeFi protocols control user distribution and are negotiating for a share of the float, sometimes even launching branded or white-labeled stablecoins to capture economics directly. 

Issuers still retain leverage through network effects and deep liquidity, yet growing user expectations for yield (especially in developed markets) are pushing apps to pass returns back to customers, intensifying the tug-of-war. Ultimately, the stablecoin profit stack is being renegotiated, and users may end up as the primary beneficiaries.

2. The Stress Test: Aero vs Uni

This analysis compares Aerodrome and Uniswap’s low-fee pools on Base, finding Aerodrome LPs face much higher gross and net LVR due to greater arbitrage-driven flow, though the gap narrows when adjusted for volume. LP rewards on both platforms fail to fully offset rebalancing losses, but Aerodrome’s emissions can improve profitability if AERO rises, shifting costs to tokenholders. 

At the protocol level, Aerodrome is already meaningfully profitable for veAERO holders, while Uniswap captures little without the fee switch, making Aerodrome stronger for tokenholders but still challenged on LP economics.

3. 0xResearch Podcast: MegaETH, Saylor and Tempo

Danny and Boccaccio discuss the MegaETH launch, Saylor’s 12% slippage BTC buys, and the upcoming Tempo chain. 

They also ruminate over the death of crypto as they know it, except for one constant: Normies still hate crypto.

Crypto’s premier institutional conference is back this March 24–26 in NYC.

Don’t miss SEC Chairman Paul S. Atkins’ keynote on Day 1.