In a market of hundreds of thousands of tokens, crypto liquid funds are turning to fundamental metrics to filter out the investable from the non-investable. Today’s 0xResearch newsletter is a part two continuation of yesterday’s edition on how liquid funds are adapting to new structural dynamics.

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Ethereum slashes blob gas costs:

One week on from Ethereum’s Pectra upgrade on May 7 (red line above) we already see a tangible impact on blob utilization and layer-2 economics. As shown in the charts, daily blob data usage began trending significantly higher after the hard fork just as blob gas prices fell sharply — dropping to near-zero levels.

Between May 7 and May 12, total blob usage jumped 31% from ~2.4 GB to over 3.1 GB.

Base was the largest contributor by far, though Arbitrum and OP Mainnet also posted strong growth.

The decline in blob gas cost, a direct result of Pectra’s doubling of the blob target per block, has now made Ethereum more attractive for L2s to publish data. The move helps Ethereum solidify its position as a scalable, data-available settlement layer for rollups that want high security.

— Macauley Peterson

0xResearch Arena: It's Going Down at Permissionless IV

We're bringing the signal to Brooklyn — with a side of chaos.

Hosted by the 0xResearch crew and Blockworks Research analysts, this space is where the smartest minds in crypto go head-to-head in live debates, blitz chess, pull-up challenges, and the occasional dunk tank.

High traffic. High energy. No takes left untested.

Think you’ve got alpha? Come prove it. 

📅 June 24–26 | Brooklyn, NY

Fundamentals investing in crypto assets

The following is part two of a multi-part series on the state of crypto liquid markets based on several conversations with liquid funds.

Yesterday’s 0xResearch newsletter looked at how the institutionalization of bitcoin and an altcoin supply glut has made it harder to invest in any crypto asset that isn’t bitcoin.

What are liquid funds doing about it? How are they adapting?

Of the eight liquid funds I spoke to, seven mentioned the importance of “fundamentals.”

“Crypto can only grow if it attracts institutional capital, and institutions care most about fundamentals. This is still limited in pockets but is improving within crypto in meaningful ways,” Pantera general partner Cosmos Jiang told me.

Fundamental investing is a lot like painting a mosaic — what is sometimes called mosaic investing in traditional equities, he said. 

“Fundamental investors are building a mosaic of all the data points that exist today — both qualitative and quantitative — to predict the earnings power of this business in the future. What matters is not today's metrics, but the cashflow potential of a business three to five years from now.”

What these metrics are, and how much they matter, depends largely on the context of the token’s business.

For instance, ParaFi Capital founder Ben Forman thinks valuable metrics for L1/L2 blockchains are “the total stablecoin and real-world asset supply issued on the chain” and “the velocity that those tokens are circulating.”

"Vanity metrics like TVL, which are often showcased by L1s but often involve wrapping of their native token, will be meaningfully less significant in the future," Forman said.

While professional investors and data wizards still can’t agree on which metrics matter most — there is at least a common belief that narratives are no longer all that matters.

“In 2021, the majority of capital being deployed was not being done so through a fundamental lens,” Theia Fund’s Noah Goldberg argued in a previous X space with 0xResearch. “There was a lot of momentum trading and retail capital that isn’t price-sensitive…Whereas today, I would say that a lot of capital in liquid markets is concentrated in the hands of funds,” he said.

One investor I spoke to pointed to how tokens with strong fundamental metrics tend to suffer less of a drawdown in a market crash.

The focus on fundamental investing also forces crypto to confront the industry’s most sacred narrative: the Bitcoin halving and four-year cycle.

Some, like Defiance’s Arthur Cheong, believe the four-year cycle of crypto has “officially ended.”

“As the marginal impact to supply of each successive halving event decreases, it will have less impact on the price going forward,” Cheong wrote in an investor letter.

Other funds dismissed it as irrelevant, since their mandate involved holding liquid tokens over a long-term horizon.

Another fund called the four-year cycle a “meme,” pointing to interest rate cycles as the real risk-on and -off toggle.

Pantera’s Cosmo Jiang saw bitcoin’s historical bull rallies as simply having coincided with global liquidity cycles, like the Eurozone debt crisis in 2012, Brexit in 2016 and Covid in 2020.

In the third and final part of this series, we’ll finally dive into some of the crypto sectors that liquid funds are looking at.

— Donovan Choy

Lido’s oracle key compromise: What did we learn?

On May 10, a hot wallet operated by staking infrastructure provider Chorus One was compromised, affecting one of Lido’s nine oracles. The breach was limited to a key used for oracle reports, and resulted in the theft of 1.46 ETH. Crucially, however, it did not endanger user funds or the Lido protocol’s integrity despite being called an “emergency.”

The oracle system is not a multisig and does not custody assets. Instead, it serves as a data bridge between Ethereum’s consensus and execution layers, reporting validator balances, stETH rebases and withdrawal statuses.

This was a point of confusion in the immediate aftermath of the exploit, since, like a multisig, the oracle uses a 5-of-9 quorum. That means a single compromised oracle cannot alter protocol state unilaterally. There are other backup mechanisms and “sanity checks” too, but these were not needed.

The Lido DAO promptly initiated a governance vote to rotate the compromised key, following procedures refined through prior incidents. Chorus One stated the affected wallet was a legacy 2021 address not held to its modern security standards and emphasized that no other infrastructure was affected.

The bigger takeaway is how Lido’s layered defenses — quorum requirements, onchain validation and active monitoring — effectively contained the risk. It’s a prime illustration of defense in depth, and a stress test of decentralized governance and operational rigor.

The incident also prompted discussions about how to improve security still further. A planned upgrade to zk-powered oracle verification later this year will reduce trust assumptions. And conversations around oracle key rotation, the use of MPC wallets and the tradeoffs between moving quickly and maintaining decentralization underscores the DAO’s growing maturity.

— Macauley Peterson