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

• The debate behind Ethereum blobs

• Chart: WBTC market share

• Research: PRIME time

Breaking down the debate around Ethereum blobs

Running an Ethereum L2 was historically very expensive. L2s had to pay millions in data availability costs to the L1.

All that changed with the Dencun hardfork (EIP-4844) in March 2024. It introduced an expansion of blockspace called “blobs” for L2s to post batched data extremely cheaply to the L1. Blob space sits in a separate fee market from the L1. It’s about an order of a magnitude cheaper than L1 blockspace, making it a critical aspect of Ethereum’s rollup-centric roadmap.

To illustrate that point, Base paid $9.34 million in expenses for Q1 2024, which saw a sharp drop to $699k in Q2 2024 and $42k in Q3 2024, based on TokenTerminal data.

The bad news (or good?) is that blobspace is getting somewhat pricey again as onchain activity picks up in the bull market.

Blobs today are limited to six per mainnet block. When blob usage hits a target limit of 50%, or three, a base fee is introduced to regulate demand usage by hundreds of L2s. When usage hits four blobs, base fees are further increased by up to 12.5% for the next block.

That is exactly what is starting to take place over the past several weeks (see chart below).

In short, blobs aren't free anymore and L2s need to start paying “rent.” Based on ultrasound.money, blob fee burn is coming up to about 212 ETH in the last 30 days, and has generated substantial blob fees to Ethereum mainnet.

So blobs are generally great. L2s are cheaper to operate, and that’s nice for L2 users.

But people (read: ETH holders) aren’t happy because it looks like L2s are getting away with paying barely any expenses to the L1, which thereby accrues less value to ETH the asset.

This complaint centers around pessimism that blob usage will be high enough to return value to the L1 for two key reasons:

1. L2s are fundamentally a business. They will opt for a cheaper data availability provider like Celestia or EigenDA, or worse still, a centralized data availability committee (DAC) with weaker security properties.

2. L2s will simply delay posting data back to the L1 when blob markets get expensive, as we have seen Scroll and Taiko do in the past.

In a debate around blobs at Devcon, Ethereum researcher Ansgar Dietrichs acknowledged the misaligned incentives of L2s but counter-argued that Ethereum’s DA would matter more in the long term with more L2 networks coalescing around it as trust bottlenecks emerge around bridging.

There was also the “blobs is a loss leader” argument by Blueyard’s Tim Robinson. He notes that while blobs do not generate much revenue at present, they would do so very quickly due to the economics of blob design, and pay massive dividends for Ethereum in the future. According to Robinson’s blob simulator, a hypothetical Ethereum L1 processing 10,000 TPS with a 16 MB blob size (blob sizes are 125 KB today) would burn 6.5% of ETH a year. 

This potential value accrual for ETH is why blobs would be fundamentally good for Ethereum in the long run. Throttling blob limits or raising blob fees to extract more value from L2s in the short run would basically be a bad “rent-seeking” idea.

And Ethereum researchers are putting their money where their mouth is. In an Ethereum Research post published two days ago, Toni Wahrstätter called for either a conservative increase to 4/6 blobs or a higher 6/9 blob count.

In ACDE #197, Vitalik also proposed a 33% increment of blob space in the next Pectra hard fork, which he cautioned was essential. Otherwise, users would leave to other chains.

In sum, the complex debate around blobs boils down to the question of whether Ethereum wants to prioritize the average L2 user and its “Ethereum-aligned” L2 ecosystems, or prioritize value accrual to ETH the asset.

Ethereum researchers believe that prioritizing the latter may cause an exodus of users and developers to cheaper chains, and are doubling down accordingly on scaling blob space for the long term. However, that damages the perception of ETH as an economic asset, which in turn angers ETH token holders in the short run.

It’s a tricky situation for Ethereum either way, one which requires the mammoth task of crystal-balling into the future and accounting for a myriad of “what-ifs.” Time will tell which path is correct.

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

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WBTC market share:

This chart illustrates the current market share of tokenized bitcoin (BTC) assets, dominated by wrapped bitcoin (WBTC) at over $13 billion. Coinbase wrapped BTC (cbBTC), with a market cap of $1.48 billion, ranks a distant second but is poised to grow after Coinbase announced the delisting of WBTC starting December 2024.

Its move is widely seen as strategic. Mohamed Fouda of Alliance suggests that Coinbase’s delisting has the potential to spike its TVL and market share in DeFi. Critics argue this undermines competition and sets a troubling precedent, especially as cbBTC’s contracts allow freezing and modification more easily than WBTC’s decentralized framework does.

While WBTC’s market cap has remained stable, it now faces much more competition from newcomers. This shake-up could redefine tokenized BTC dominance, but it will take at least a few months to gauge the impact.

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

A PRIME play

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Centered around the Wayfinder AI agent framework and the strategic game Parallel Colony, the ecosystem targets a Q1 2025 launch on Solana. Wayfinder is a chain-agnostic toolkit enabling AI agents to interact with blockchains under user-defined constraints. Parallel Colony integrates these agents in a dystopian survival simulation where AI avatars assist players in resource gathering, crafting and combat to mint creations as NFTs.

PROMPT tokens can be earned by staking PRIME, with 45% of the supply allocated for distribution over three years.

Despite initial skepticism, AI agents are gaining traction due to projects like Anthropic’s frameworks and growing memecoin activity. Risks include potential confusion from the dual-token system and a market focus on speculative tokens.

Find the full report in Blockworks Research's latest by Boccaccio.

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• The bitcoin strategic reserve is a bad idea. Proponents argue it could hedge debt instability and safeguard against monetary devaluation, but Blockworks’ Byron Gilliam sees severe flaws. The US doesn't need reserves like other countries, bitcoin’s volatility and storage risks make it impractical, and acquiring it risks frontrunning or a resort to seizure. Worse, it could erode trust in the dollar, amplify inequality and prevent bitcoin from maturing organically. As a poisoned cherry on top, the move might trigger the crisis it seeks to prevent.

• Abundance, built by the Gelato team, introduced a rollup-as-a-service that enables apps to operate as sovereign rollups with modular bridging to Ethereum, Solana and more. Built on Celestia, these rollups — which Gelato claims can run at Gigagas throughput — let developers choose their bridges while avoiding costly external settlement layers. They tout the stack as being zk-ready with support for RiscZero and SuccinctLabs.

• Options trading commenced for the iShares Bitcoin Trust (IBIT) on Tuesday. Notably, a significant skew toward call options was observed, indicating bullish market sentiment. Eric Balchunas highlighted this trend in a graph from fellow Bloomberg analyst James Seyffart, stating:
  
  "Superb visual showing where all the action was in the $IBIT options by strike price from @JSeyff. Basically everything to the right of the right line is betting that btc will be higher in future. Left of it is betting lower."
  
  This suggests that a large majority of traders are positioning for bitcoin's price to rise.