Wednesday, 18 January 2023

Market Summary

Market Summary 18 January 2023

Bitcoin Price: US$ 21,134.81 (-0.24%)
Ethereum Price: US$ 1,565.57 (-0.72%) 


The L2 Wars

  • The adoption of layer-2 networks built on Ethereum has been impressive over the past year. In this case, the proof is in the fees: ~4% of Ethereum’s gas is now consumed by L2 contracts, up from less than 1% at the beginning of 2022. Additionally, L2s have flipped the Ethereum base layer in terms of transactions per second.
  • This is a trend we initially explored in our Year Ahead for Infrastructure report, which has been unlocked for all readers here (fair warning: it’s an action-packed read that just can’t stop leaking alpha).
  • The main characters in this story are Arbitrum and Optimism. Combined, they account for over 80% of the total value locked across all L2s. After launching in 2021, both L2s experienced a dramatic rise in adoption – driven by the lethal combination of faster speeds, lower fees, and Ethereum’s ironclad security.
  • After a blockbuster 2022, the new year is off to a great start with combined daily transactions on Arbitrum and Optimism surpassing Ethereum on Jan. 12, 2023. Over the past 6 months, combined daily transactions have increased by over 5x from 163K to 983K. However, over the past month, one of the two major L2s is increasingly doing most of the heavy lifting in this combination.
  • Optimism’s daily transaction count has steadily increased since March 2022 despite the bear market, hitting an all-time high of 800K on Jan. 12, 2023. Meanwhile, Arbitrum’s daily transaction count is down 49% from an all-time high of 576K on Nov. 8, 2022. However, TVL on Arbitrum has stayed relatively flat since November 2022, while most other blockchains have seen a decline.
  • Over the past year, Arbitrum launched Odyssey, a program that handed out NFTs for completing various tasks. These NFTs were widely thought of as the precursor to a potential airdrop. As DeFi degens flocked to the chain like a moth to a flame, the chain experienced heavy load, which caused the team to pause Odyssey. Later, the Nitro upgrade was introduced for faster transactions, lower fees, and higher throughput.
  • Optimism has seen quite a happening year as well. The L2 dropped the first round of OP tokens, which was met with frustration as some users were able to claim tokens ahead of others and many claimants chose to dump them immediately. Later, the project launched Quests, its own version of Arbitrum’s Odyssey. If you’re interested in this, today’s the last date to participate!
  • Continue on Delphi…


Blockchain’s Non-Crypto Applications Take Center Stage on Davos Day 2

  • From propping up climate solutions and delivering humanitarian aid to Ukraine to moving on from the stunning collapse of FTX, the second day of the World Economic Forum’s 2023 annual conference saw discussions very much focused on the promise of the technology underlying cryptocurrencies, rather than the often speculative financial assets themselves.
  • The day began with a panel from traditional finance players attempting to draw a line under the FTX scandal – to note that, even if it’s a crisis for the cryptocurrency industry, it’s not a crisis for other tools built on distributed ledger technology.
  • “It’s important not to conflate cryptocurrencies and CBDCs, stablecoins and DLT…. they’re very different,” said PayPal President and CEO Dan Schulman.
  • Despite the crypto crash, “the underlying tech has performed perfectly,” Schulman said. “The promise of a distributed ledger is that it can be faster and cheaper, to settle transactions simultaneously with no middlemen. That’s an important thing.”
  • Importantly, unlike previous waves of “blockchain, not bitcoin,” which mostly referred to permissioned blockchains, Tuesday’s conversations were okay with public ledgers like Ethereum and the Stellar network.
  • Lynn Martin, President of the New York Stock Exchange, appeared to take a similar line – citing the potential benefits blockchain could bring to make equity issuance more efficient, or allow settlement of financial trades to take place instantly rather than days later.


Crypto Conglomerate DCG Suspends Dividends Amid Distress at Genesis Unit

  • Cryptocurrency conglomerate Digital Currency Group has informed its shareholders the firm is suspending dividends until further notice.
  • “In response to the current market environment, DCG has been focused on strengthening our balance sheet by reducing operating expenses and preserving liquidity. As such, we have made the decision to suspend DCG’s quarterly dividend distribution until further notice,” DCG said in a letter to shareholders sent on Tuesday.
  • DCG, which owns CoinDesk and other crypto companies, has become embroiled in the financial distress at its once-prolific lending platform Genesis. DCG owner Barry Silbert has been locked in negotiations with billionaire entrepreneurs Cameron and Tyler Winklevoss, whose crypto exchange Gemini offered a lending product that fell apart because Genesis, its partner, halted customer withdrawals.


CBDCs Are the Future of Money, IBM Exec Says

  • Central bank digital currencies (CBDCs) have the potential to change payment systems, Shyam Nagarajan, an executive partner at IBM Consulting, said Monday on CoinDesk TV’s “First Mover” from the World Economic Forum’s annual conference in Davos, Switzerland.
  • Nagarajan said that CBDCs are the future of money, but issuers need to consider a hybrid-like model.
  • “They are replacing the current digital currency system, and in a way, they are controlled,” Nagarajan said. “This is an excellent position where a combination of permissioned and permissionless is necessary.”
  • While many CBDC pilot projects are still in a development phases, Nagarajan said payments will eventually be made with CBDCs. In the meantime, stablecoins, which are a form of cryptocurrency pegged to real-world assets such as gold or the U.S. dollar, are working as “stopgaps until CBDCS are available in the market.”
  • Rob Massey, global tax leader, blockchain and cryptocurrency at Deloitte, echoed Nagarajan’s comments in a separate segment on “First Mover.” He said the ability to use programmable money with smart contracts can reduce friction and “help large-scale enterprises elevate their level of transparency and real-time payment systems.”
  • “It’s absolutely where we’re going,” Massey said, although he cautioned that not all CBDCs, stablecoins and smart-contract protocols “are created equal.”


4th Quarter Market Outlook: The CoinDesk DeFi Index (DCF)

  • If there was one crypto sector that had both winners and losers from the FTX debacle, it was decentralized finance (DeFi). As worries grew about the stability and future of centralized exchanges (CEX), tokens associated with decentralized exchanges (DEX) soared.
  • The industry contracted, and some large decentralized lending platforms took big hits from loan defaults. Total value locked (TVL) in the DeFi sector – a key barometer of overall interest – lost around 22% in value during the quarter, to $41 billion, data from DeFiLlama shows.
  • As of Dec 15, 2022, DCF lost 18.2% for the quarter to date (QTD), and included 45 digital assets assigned to 12 industries in seven industry groups according to the CoinDesk Digital Asset Classification Standard (DACS). Fully 38 constituents remained in DCF the entire fourth quarter with 31 or 81.6% losing and 7, or 18.4%, gaining.
  • Best performer: dYdX (DYDX), gained 30% and is part of the DACS CLOB Industry assigned to the Exchanges Industry Group. The advanced decentralized exchange appeared to have been one of the few protocols to benefit from the FTX fiasco, as CEX trust eroded and funds were seen to be heavily moved back on-chain.
  • Worst performer: Maple lost 79%, and is part of the DACS Lending/Borrowing Industry assigned to the Credit Platform Industry Group. The largest unsecured crypto lending platform has been grappling with a $54 million debt crisis while gearing up for a major system upgrade. As CoinDesk recently reported, Maple Finance was badly affected by the FTX collapse as borrowers were forced to default on their loans. Unlike traditional collateralized DeFi credit platforms that have a built-in auto-liquidation function to protect the protocol, Maple relies on a centralized group of individuals to approve uncollateralized loans. However, both dYdX and Maple are relatively small, with a combined total weight just over 1.0% of DCF at the end of the period.
  • Other notable winners: Aragon (ANT), which supports decentralized autonomous organizations, gained 27%.
  • Biggest asset: Uniswap, comprising 37.3% of the sector. While UNI lost 9% QTD, it ranked as the 10th best performing asset in the sector. According to DefiLlama, TVL across DeFi protocols is down 22% on the quarter, to just over $40 billion, the lowest since March of 2021, and down from a high of nearly $200 billion almost exactly a year ago.


Polygon Completes Hard Fork to Reduce Gas Fee Spikes, Disruptive Reorgs

  • Polygon, an Ethereum-scaling project, successfully completed a hard fork designed to reduce instances of spiking gas fees and disruptive chain reorganizations known as “reorgs.”
  • The software upgrade occurred at 10:45 UTC (5:45 a.m. ET) on Tuesday, according to a tweet from Polygon Labs, the lead company behind the project.
  • The two proposals included in the hard fork were put forth in December. Some 87% of Polygon validator teams that participated voted for approval. Only 15 validator teams took part in the voting process, which is extremely low given the number of active validators at a time is limited to 100.
  • The first proposal adjusted a mechanism that sets gas fees – a kind of tax one pays in order to transact on a blockchain. The new mechanism aims to keep gas prices low when there is a lot of activity on the network.
  • The second proposal aims to reduce the amount of time it takes to complete a data block – part of an effort to prevent frequent reorgs, which occur when a validator node receives information that temporarily creates a new version of the blockchain.


South Korea Launches Metaverse Replica of Seoul

  • South Korea is bringing Seoul to the metaverse, launching a virtual replica of the capital city with a goal of improving its public services, Forkast reported Monday.
  • Known as Metaverse Seoul, the virtual world is estimated to be completed by 2026. The initial stage invites citizens to use avatars to get their tax questions answered, access youth counseling, find support for small businesses and even read e-books.
  • In future stages, the virtual world will expand to real estate and foreign investor services, incorporating augmented reality to manage municipal infrastructure. It also plans to introduce blockchain technologies including cryptocurrency.
  • South Korea has been expanding its metaverse initiatives as a part of its “Digital New Deal” political initiative. In February 2022, the nation announced plans to earmark about $200 million to fund metaverse projects, giving out grants to universities and companies to help expand their technologies. The Bank of Korea also reportedly completed a test of central bank digital currencies in November.
  • South Korea isn’t the only country making substantial investments in the metaverse. In October, Japan’s Prime Minister, Fumio Kishida, laid out the country’s plans to invest in non-fungible tokens (NFT) and metaverse services.


Coinshares sees first inflow of ETH after two months; AUM up most since 2021

  • Coinshares saw the first inflows into ethereum in two months as assets under management rose 13% thanks to the recent increase in crypto prices, the largest gain since Oct. 2021.
  • Digital asset investment products saw minor inflows of $9.2 million, though trading volumes were low at $866 million, the company said in its digital asset fund flows weekly report. Bitcoin saw the largest flows at $10 million, while ethereum reversed eight weeks of outflows with $5.6 million coming in.
  • Multi-asset investment products saw outflows as investors moved toward specific digital assets.


Solana Foundation, Ripple, GBBC and Others Form Partnership to Promote Crypto Solutions for Climate Change

  • DAVOS, Switzerland — Solana Foundation and Ripple are partnering with Eqo Networks, industry group Global Blockchain Business Council (GBBC), and blockchain-climate collective BxCi to accelerate the use of crypto-based solutions for climate change.
  • The newly founded non-profit organization, called Blockchain x Climate Leadership Network (BxC), aims to be the “single largest common gathering of climate action innovators, leaders and builders under one global umbrella,” according to a press statement shared with CoinDesk.
  • BxC’s launch was announced at GBBC’s gathering on the sidelines of the 2023 annual meeting of the World Economic Forum held in Davos, Switzerland. The event, which gathers world leaders and top businesses in the Swiss Alps, attracted a slew of crypto entities to last year’s meeting just ahead of the series of high-profile company collapses that left the industry scrambling to pick up the pieces.


Crypto investor HashKey Capital closes third fund at $500 million

  • Crypto investment firm HashKey Capital has closed its third fund by raising $500 million. The fund comes as the industry is reeling under pressure from recent collapses and the bear market.
  • Dubbed HashKey Fintech Investment III, the fund targets investments across crypto areas, with a focus on infrastructure and application builders, the firm announced on Monday. HashKey began raising the fund over a year ago. By January 2022, the fund had $360 million in commitments and is now officially closed.
  • The fund had initially targeted closing at $600 million, but “timing matters more than the size,” Deng Chao, CEO of HashKey Capital and head of HashKey Group Singapore, told The Block in an interview. “We are now at the bottom of the next cycle. That’s why we closed the fund and launched it officially,” said Chao. “We closed our previous two funds too at the bottom of the next cycles in 2018 and 2020.”
  • HashKey’s first two funds raised a combined $100 million and its current assets under management stand at over $1 billion. HashKey Group, a spinoff of Chinese conglomerate Wanxiang Group, was one of the earliest investors in Ethereum in 2014. Chao said the new fund will continue investing for a longer term with a focus on value.
  • “We always hold a cyclical view towards the industry,” he said. “So when we evaluate a project, we look at it from a cyclical perspective — whether it would still be around after this cycle or would be able to survive the cycles to come.”


Davos 2023: Crypto Is Down but Not Out

  • DAVOS, Switzerland — The crypto industry showed up in force at the World Economic Forum’s annual conference in May 2022.
  • Eight months, numerous bankruptcies and a major collapse later, the industry is still present in Davos, Switzerland, but with a more subdued presence. The Promenade – the road outside the main Congress Centre – still has a number of crypto companies advertising or operating “houses,” the lounges, meeting rooms or event stages meant to introduce Davos attendees to their projects.
  • But there are far fewer companies present. Those that remain include Circle, the Global Blockchain Business Council, Casper Labs and the Filecoin Foundation. Where in 2022 crypto panels were everywhere, in 2023 the crypto industry blends seamlessly into the major financial and tech giants around them. Gone are the free bitcoin-themed pizza stalls and high-volume advertising to the casual passerby.
  • “What a difference eight months makes,” said Ripple Senior Vice President Brooks Entwistle. “You couldn’t walk more than five or 10 feet without seeing a crypto house [in 2022].”


BNB Chain Burns Over $575M in BNB Tokens, Binance Confirms

  • BNB Chain has completed the burn of over $575 million worth of its native BNB tokens as part of a broader program, Binance said on Tuesday.
  • The burn was executed at around 0800 UTC on Tuesday morning in transaction 34167E903B9F662A64817266D8A6CE4FE096868DAD0B883E4F838331E280EEFF, data shows.
  • Token burn refers to the process of permanent deletion of coins from their circulating supply. Over 100 million BNB, or half of its total supply, are intended to be removed from circulation through a burning process and to eventually keep only 100 million BNB in circulation. This commitment is automatically honored each quarter and calculated according to the Auto-Burn formula, as previously reported.


Solflare Wallet Brings ‘Priority’ Gas Fees to Solana

  • Solflare, a wallet on the Solana network, announced on Monday that its users can now pay higher gas fees to muscle through network congestion.
  • “[Solflare] is the first to implement this in a user-friendly way,” Solrise Finance co-founder Vidor Gencel tweeted. “In-wallet transactions will automatically be prioritized with the current market price for fees, ensuring that your transactions are included faster than those in other wallets.”
  • “Solflare will automatically detect whether the [Solana] network is under load and slightly increase fees to prioritize your transaction over others,” the company tweeted separately. “When it matters the most, your transactions will go through and be fast.”


Glassnode: shared CryptoSlate’s Litecoin Insights

  • #Litecoin has over 170.5 million total addresses, surpassing #Ethereum
  • @litecoin
  •  wallet adoption reaches all-time highs.

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