Do you have an ETH bag? Do you want to see number go up? If so, it’s key to understand that ETH’s success hinges on the resource of data availability, particularly how much it sells to L2s. Today, let’s unpack the market dynamics of data availability.

In other news…are you coming to Permissionless IV Brooklyn in June? Tickets are $399 (for now!) but you can get one for half price with a unique 50% off discount code if you successfully refer 10 new subscribers to the 0xResearch newsletter. Scroll down for details.

Key DeFi numbers:

Based on Dune, the Arbitrum chain led net transfer volumes among EVM chains for stablecoins at $5.8b last month. Base followed as a close second with $3.3b, and Polygon close behind at $2.6b.

Also, the market share of DeFi lending apps (~60%) is beginning to eclipse CeFi lending as of Q4 2024. The total size of the crypto lending market then was ~$38b, about 78% down from its all-time highs of $63b in Q4 2021, but up from the bear market lows of $14.2b in Q3 2023.

— Donovan Choy

Permissionless IV is where the builders show up — devs, founders, protocol teams, product minds. No waiting on the next bull. Just shipping.

The lineup: Jesse Pollak, Hayden Adams, Kain Warwick, Mert Mumtaz, Smokey the Bera + more.

The themes: Infra, AI x crypto, modular, DeFi, consumer apps, Bitcoin, token design.

💻 Hackathon: $100K+ in bounties

🎟️ Developer tickets available

📅 June 22–26 | Brooklyn, NY

How much can Ethereum make on DA?

ETH is trading at ~$1,600 today.

Can ETH pump again? Wen moon?

Getting to the heart of this simple question requires an inevitable detour into the boring, technical weeds of data availability (DA).

The ELI5 explanation of data availability is storage fees, or bandwidth resource. All chains – L1s and L2s – need them to operate, but their primary supplier is the L1.

Here’s the rough train of thought: 

1. What is the fate of ETH as an asset?

2. That depends on how well Ethereum can generate fees.

3. Ethereum generates fees in three primary ways: execution, MEV, and data availability.

4. Execution fees (aka congestion fees) have largely been given up to L2s, as per the intent of the rollup-centric roadmap.

5. MEV fees are compressing due to better research. More and more wallets and apps are finding better ways to retain MEV and return them to users. The below chart of Ethereum’s REV (real economic value), excluding blob fees, is a rough proxy for how Ethereum’s MEV has been trending down over time.

6. As more rollups launch, and since every chain needs DA, DA fees remain ETH's last bastion of value accrual.

So we’ve established that data availability fees are essential to Ethereum’s success.

That is not just my opinion; it is the explicit position of leading Ethereum researchers like Justin Drake. As he puts it in the latest Ethereum Foundation Reddit AMA, DA is “the only sustainable source of flows for L1s,” not execution or MEV fees.

(I realize this is a simplification. There are efforts to scale the L1 and to attract institutional capital to the L1, but put that aside for now.)

Now, let’s look at how much Ethereum makes from DA today.

Unfortunately, not much. Since the inception of EIP-4844 in March 2024, Ethereum has generated a total of $26m in fees.

Reaching that fee level is a function of both demand (rollups) and supply (Ethereum L1 DA capacity). 

Let’s assume Ethereum had sufficient user demand today. Even then, Ethereum lacks the supply. 

EIP-4844 introduced blobs to Ethereum’s DA capacity in March 2024. Blob capacity is about 384 KB per slot, or approximately 32 KB/s. 

For context, alternative-DA layers like Celestia have 8 MB blocks today that are about 182% larger. (Celestia is gearing up for 128 MB blocks.)

Yes, blob capacity is expanding, but it’s slow. DA capacity is set to expand from 3 blobs to 6 blobs in the Pectra hard fork next month. The eventual plan is to expand blob capacity to 48-72 in the subsequent Fusaka hard fork, but who knows when that’s going to happen.

Now, let’s look at the DA market.

More bad news. It’s a competitive market. There’s Celestia, EigenDA and Avail.

Celestia is the main alternative DA provider today, so let’s just consider them. Celestia’s DA is dirt cheap. Celestia’s co-founder, Mustafa Al-Bassam, states that this is not a competitive pricing strategy but rather a move to "achieve spam resistance" for the chain.

In any case, Celestia’s enormous price advantage means it dominates the DA market share compared to Ethereum (for now). Though it’s still early days for Celestia, it already attracts DA demand from L2s like Eclipse. In other words, less demand for Ethereum DA.

Celestia may even be competing with Ethereum on proof verification as per its "Accidental Computer" roadmap, as Delphi Digital analyst Facundo Indabera pointed out elsewhere. But that’s a whole other story.

— Donovan Choy