Hook - The competition in the Layer2 space is heating up! 💥 Let's take a closer look at Arbitrum, OP, and Base to see who's leading the pack. And more importantly, how can you profit from it? 🚀👇

According to @DefiLlama data, when it comes to on-chain TVL, Arbitrum is currently in the lead with a staggering $1.917 billion TVL. That's impressive! But keep an eye on Base, as its TVL has rapidly grown to $119.05 million, almost 1/7th of OP's TVL. 📈💪

Daily Active Addresses

Base's Daily Active Addresses have reached an impressive 96,098. While there is still some gap compared to Arbitrum and OP, the new blockchain brings endless opportunities. And with Coinbase backing Base, there is significant room for growth. 📈

There's no reason for interest to decline when a powerhouse like Coinbase is involved. The potential for Base's data to soar is undeniable. 💪

Fees

Analyzing Fees data, we can see that Base's growth is rapid. This can be attributed to the increasing transaction volume on the Base chain. On the other hand, both Arbitrum and Optimism have experienced varying degrees of decline. ⬇️

Revenue

🚀 @Artemis__xyz Base's revenue growth has been astonishing! In just 14 days of August, it has generated approximately $1.8 million in revenue, surpassing both Arbitrum and OP. 📈💰

Base's revenue has outperformed these established players in the short time span of just two weeks. This is a testament to the immense potential and growth possibilities of Base. 📊💥

Who was the leader 3 months ago? I would've said Arbitrum, but things have changed. The emergence of OP Super Chain, Worldcoin, and other top projects in OP has intensified the competition.

The competition between Arbitrum and OP Super Chain is fierce. They are neck and neck in several aspects, including Total Value Locked (TVL). The data gap is no longer as obvious as before.

We can't ignore the rapid development of Base. Although it hasn't issued coins yet, it's worth paying attention to the projects on Base. By doing so, you can potentially earn a significant amount of profit.

To get started, you'll need to transfer ETH from other chains to the Base chain. If you're wondering how, I recommend checking out @Orbiter_Finance. They provide a seamless and secure way to transfer your ETH.

Aerodrome

The imminent launch of the DEX platform on $BASE is set to establish its dominance in the market. With the esteemed support of a top-tier protocol VelodromeFi, this platform possesses unmatched potential. Its unparalleled capabilities are further strengthened by the backing it receives, solidifying its position as a leader in the industry.

BaseSwap

The Native leading DEX on Base Chain. By Based team, for Based People. From simplistic to advanced BaseSwap has it all.

DackieSwap

DackieSwap serves as a decentralized exchange (DEX) that facilitates token swaps on the Base Chain. The platform operates on an automated market maker (AMM) model, enabling users to engage in trades against a liquidity pool.

Magnate

Build a novel lending protocol with a dynamic interest rate model and more capital-efficient risk management pools.

LandTorn

LandTorn is building the BASE hub for games and developing its own unique IP-verse of games. Hope they can be the Treasure Dao in Base.

I hope you've found this thread helpful. Follow me @BTXResearch for more updates in the future.

TL;DR

The Arbitrum project is backed by a strong academic team with a deep understanding of blockchain technology’s theoretical and practical aspects. This knowledge and experience uniquely position them to address the scalability challenges faced by Ethereum and other blockchain platforms.

The Arbitrum ecosystem is rapidly developing, particularly in the areas of DeFi, DEX, and GameFi. Notable projects include Camelot, Pendle Finance, Radiant Finance, and GMX in the DeFi and DEX space, and Treasure Dao in the GameFi sector.

Major Ethereum upgrades, such as the upcoming Cancun upgrade, are significant events in the Web3 space. These upgrades often spark waves of interest and development in the Ethereum ecosystem, and Arbitrum, as a Layer 2 solution for Ethereum, stands to benefit from these advancements.

Utilizing the Mcap/TVL ratio as a metric, we have estimated the token price for the upcoming token release and during the Cancun upgrade period, projecting a potential future price range of $1.59 to $11.08.

1. Introduction of Arbitrum

1.1 The Background

Arbitrum, an innovative Layer 2 (L2) scalability solution developed by Offchain Labs, proposes a unique solution to enhancing the Ethereum network’s performance. This is achieved through the use of Optimistic Rollup technology, bolstered by a novel multi-round interactive challenge protocol. Currently, two distinct chains of Arbitrum operate on the Ethereum mainnet: Arbitrum One, which is based on Optimistic Rollup, and Arbitrum Nova, which operates under the AnyTrust principle. Both mechanisms aim to reduce Layer 1 (L1) chain dispute resolution costs by segmenting the fraud-proof process.

Being Ethereum Virtual Machine (EVM) equivalent, Arbitrum is built upon Geth, a highly flexible virtual machine capable of executing any Ethereum bytecode. Arbitrum also maintains a similar computation for gas costs, mirroring Ethereum’s.

Arbitrum’s architecture mandates that validators stake on a proposed new state and propose blocks, thereby adding an additional verification level. More specifically, validators are responsible for retrieving transaction data from the sequencerInbox contract, running the transactions on a local WebAssembly Virtual Machine (WAVM), and subsequently updating the local L2 state. Following this, validators stake on the new state, propose new blocks and enter a 7-day challenge period before finally confirming the block.

The distinguishing characteristic of Arbitrum lies within its fraud-proof mechanism. While many systems, such as Optimism, require a comprehensive execution trace to evidence fraud, Arbitrum advocates a more fine-grained approach. The concern is that comprehensive interaction might cause the fraud-proof to contain an overwhelming number of transactions and surpass the gas limit. As a solution, Arbitrum posits that a single incorrect instruction execution can initiate a fraud-proof without the necessity of executing all instructions. This allows Arbitrum to break down the fraud-proof into several steps, thus enabling the system to provide evidence of a sorter’s misconduct and save on costs by merely proving that a sorter incorrectly executed a specific instruction.

1.2 Team Background

The Arbitrum project is developed by Offchain Labs, a team led by experienced academics and professionals in the field of computer science.

The co-founding team comprises Ed Felten, a former White House Deputy Chief Technology Officer and a Professor of Computer Science at Princeton University. Alongside Felten, the team is rounded out by Steven Goldfeder and Harry Kalodner, who were Ph.D. students in computer science at Princeton University at the time of Arbitrum’s inception.

This strong academic background and professional expertise give the Offchain Labs team a deep understanding of blockchain technology’s theoretical and practical aspects. This combination of knowledge and experience uniquely positions them to address Ethereum’s and other blockchain platforms’ scalability challenges.

1.3 Arbitrum Development Timeline

August 2018: Arbitrum introduced Arbitrum Virtual Machines (AVMs) at the Usenix Security Conference, proposing the execution of transactions off-chain.

August 2021: The launch of Arbitrum One mainnet, a full Optimistic Rollup solution, took place.

September 2021: The Arbitrum Sequencer experienced a brief offline period due to an overload of transactions.

October 2021: The team proposed Arbitrum Nitro, an upgrade of Arbitrum One, planning to convert AVM to Web Assembly (WASM) and replace the EVM emulator with Geth for better performance and EVM compatibility.

March 2022: AnyTrust Chain was proposed, storing transaction data off-chain for lower transaction fees and faster speeds, mainly targeting the gaming industry.

August 2022: The launch of Arbitrum Nova mainnet, based on AnyTrust technology, took place.

August 31, 2022: The Arbitrum Nitro mainnet went live, offering lower transaction fees and better EVM compatibility.

February 2023: the development team announced that a new programming language, Stylus, would be launched for Arbitrum One and Arbitrum Nova later in the year.

March 2023: the $ARB token was listed to most CEX and DEX.

1.4 Fundraising Information

Data Source: Crunchbase

Data source: https://www.crunchbase.com/organization/offchain-labs/company_financials

2. Arbitrum Ecosystem

From the chart, we can observe that the development of DeFi, DEX, and GameFi on Arbitrum is extremely rapid

2.1 DeFi

2.1.1 Camelot

Camelot is an ecosystem-centric and community-driven Decentralized Exchange (DEX) that allows liquidity pool builders and users to leverage its customizable infrastructure for deep, sustainable, and adaptable custom liquidity. Camelot supports the launch of new protocols on Arbitrum, providing tools for initiating, guiding, and maintaining growth liquidity.

2.1.2 Pendle Finance

Pendle Finance is an innovative, permissionless DeFi yield trading protocol that enables users to manage their yields effectively. It allows users to separate and purchase the yield derived from staked ETH at a discounted rate. Pendle uniquely transforms yield tokens into standardized yield tokens (SY) and separates them into two distinct types: principal tokens (PT) and yield tokens (YT). These tokens can be traded using a custom V2 Automated Market Maker (AMM). In this system, PTs operate similarly to zero-coupon bonds, while YTs function like coupon payments, providing a unique approach to yield management in the DeFi space.

2.1.3 Radient Finance

Radiant Finance is a pioneering lending protocol built on the LayerZero architecture. Originating on Arbitrum, it has expanded to the BSC public chain to create a cross-chain lending protocol. This allows users to deposit on the Arbitrum public chain and borrow, and withdraw assets on other public chains such as Polygon, ETH, and BSC. Previously, such complex operations required the use of multiple lending protocols and cross-chain bridges simultaneously. Radiant Finance simplifies this process by offering a one-click solution.

As we move towards a future with multiple coexisting chains, the problem of liquidity fragmentation across different public chains needs to be addressed. Radiant Finance solves this issue by allowing users to move freely between various public chains. This functionality sets Radiant Finance apart from mainstream lending protocols such as Aave and Compound, which do not currently offer this feature.

2.1.4 GMX

GMX is a Decentralized Exchange (DEX) specializing in spot and perpetual contract trading, particularly on derivatives. Initially launched on the BSC chain as Gambit, GMX has since transitioned to Arbitrum and extended its support to the Avalanche (AVAX) chain. Setting itself apart from platforms like dYdX and PerpetualProtocol that utilize order book or AMM models, GMX employs a global liquidity model. This model allows users to provide liquidity not by supplying two tokens in a 1:1 ratio, such as ETH/USDT, but by directly purchasing and staking the GMX-issued liquidity token, GLP. By staking GLP, users effectively participate in GMX’s market-making.

2.2 GameFi

2.2.1 Treasure Dao

Treasure aims to create a “Decentralized Wonderland” composed of a series of on-chain games. These games are interconnected through the interoperability of in-game assets and using Treasure’s native token, MAGIC, as a shared currency. The platform hosts a variety of popular games, including strategic games like Bridgeworld, role-playing games like The Beacon and Smolverse, and resource management and strategic games like Realm.

3. Potential Hotspot Narratives

3.1 Cancun Upgrade

Major Ethereum upgrades are always noteworthy events in the Web3 space. The Shanghai upgrade in the first half of this year sparked a wave of LSD Summer. On ACDE#163 3, the scope of the Cancun upgrade was finalized. The Cancun upgrade includes EIP 4844, EIP 1153, EIP 4788, EIP 5656, and EIP 6780(The list of included EIPs can be found in cancun.md 87), with the most notable being the capacity expansion-focused proposal, EIP-4844.

3.1.1 Data Availability is The Critical Bottleneck for Scalability.

In a roll-up transaction, the costs are divided into execution, storage/state, and data availability. The first two costs are incurred on the Rollup network and constitute a minor portion of the total cost. The significant bottleneck is the cost of data availability, which involves publishing data to Layer 1 (L1).

Data availability is essential as it allows anyone to reconstruct the state without permission. The scalability provided by Layer 2 (L2) is achieved by separating execution checks and data security. This separation allows us to synchronize and obtain data to verify the state without direct influence from the sequencer.

Currently, rollups upload data to L1 as calldata, which is expensive and inefficient. Therefore, methods such as calldata compression and EIP-4488, which reduces the cost of calldata from 16 gas to 3 gas per non-zero byte, have been introduced.

However, using calldata is unsustainable as it brings unnecessary legacy costs to L2. The EIP-4844 proposal allows us to trim the data, as under this proposal, the data only needs to be available for a sufficient length of time for honest network participants to reconstruct the complete state and challenge the sequencer.

3.1.2 What is EIP 4844?

EIP-4844, also referred to as Proto-Danksharding, is a proposal aiming to lay down the groundwork for a full Danksharding specification without immediately implementing any sharding. Under this model, all validators and users are still responsible for directly verifying the availability of all data.

Blob-Carrying Transaction: The main innovation introduced by Proto-Danksharding is a new kind of transaction, the blob-carrying transaction. Similar to a regular transaction, a blob-carrying transaction carries an additional piece of data known as a blob. These blobs are substantial in size (~125 kB) and can be more cost-effective than comparable quantities of calldata. However, the Ethereum Virtual Machine (EVM) can only observe a commitment to the blob, with no access to the blob data itself.

The Operation Process of Blob-Carrying Transaction

In this process, the Sequencer initially furnishes the data, which is then solidified on the Layer 1 (L1). Following this, the Blob sidecar is extracted from the Blob transaction, while the execution within the Blob transaction transpires within the Execution Payload. Subsequently, the necessary data for rollup state validation is relocated to a separate database. This allows Layer 2 (L2) validators to access, download, and synchronize these sidecars with L2, ensuring the seamless operation of the network.

Two Remarkable Features of Blob-Carrying Transaction

They are inaccessible for contract reading.

The values contained within a Blob are set for removal by the consensus layer nodes after a one-month period. Transactions have traditionally consumed block space. However, with the advent of Layer 2 (L2), Layer 1 (L1) transitions towards acting as a data layer for L2, consequently causing Calldata to occupy more block space. The scheduled deletion of Blob data offers an effective solution to the issue of state bloat on L1.

3.1.3 How Does Proto-Danksharding (EIP-4844) Compare to EIP-4488?

EIP-4488 is an earlier and simpler attempt to solve the same average-case / worst-case load mismatch problem. EIP-4488 did this with two simple rules:

Calldata gas cost reduced from 16 gas per byte to 3 gas per byte

A limit of 1 MB per block plus an extra 300 bytes per transaction (theoretical max: ~1.4 MB)

Proto-dank sharding is a method that creates a distinct transaction type capable of holding cheaper, large, fixed-size data blobs. There’s a limit to the number of blobs per block, and these blobs are not accessible from the EVM, but only their commitments are. The consensus layer (beacon chain), not the execution layer, stores these blobs.

The main practical difference between EIP-4488 and proto-dank sharding lies in the extent of changes they initiate. EIP-4488 seeks to minimize immediate changes, while proto-dank sharding implements more changes now to limit future modifications necessary to upgrade to full sharding.

Though implementing full sharding is complex, even with proto-danksharding, this complexity is confined to the consensus layer. Post proto-danksharding implementation, execution layer client teams, rollup developers, and users do not need to do further work to complete the transition to full sharding. Furthermore, proto-danksharding separates blob data from calldata, making it simpler for clients to store blob data for a shorter duration.

3.1.4 Primary Benefits of EIP-4844

Dedicated Block Space for Data Availability

Reduce Costs of Layer-2 Rollups

Introduce Forward Compatibility with Full Danksharding

Experimentation with ZK Proofs

3.1.5 What opportunities are worth paying attention to?

Rollup and Danksharding stand as Ethereum’s sole trustless scaling solutions for the foreseeable future and perhaps indefinitely. Clearly, this will significantly benefit the entire Layer2 Rollup landscape. It’s noteworthy that Arbitrum, a topic of our discussion today, also features prominently in the Layer2 landscape.

4. Analysis of Layer2 Competitors

4.1 TVL

Source:Defillama

The chart above illustrates the trend of Arbitrum’s Total Value Locked (TVL) from the beginning of this year to the present. We have observed a consistent growth trend since the start of the year. Arbitrum’s TVL increased from $978.92 million USD at the beginning of the year to its current $2.198 billion USD, an impressive growth rate of 125%. This represents a remarkably rapid growth trajectory.

Source:Defillama

When comparing Arbitrum’s data within the overall Layer2 Rollup ecosystem, whether in terms of the number of Protocols or Total Value Locked (TVL), Arbitrum maintains a leading position, significantly ahead of Optimism, which ranks second.

Source:Defillama

From the perspective of Total Value Locked (TVL) market share in the Layer2 Rollup ecosystem, Arbitrum holds a dominant position with a 66.3% market share, significantly ahead of Optimism in second place with 25.6%. Another crucial on-chain metric to consider is the Mcap/TVL ratio. Currently, Arbitrum’s Mcap/TVL stands at just 0.68, the lowest among all Layer 2 Rollup ecosystems with a token issuance.

4.2 More Active On-Chain Users in Layer 2

Source: Dune analytics

Ever since the launch of its token, Arbitrum’s on-chain active user data has consistently outperformed that of Optimism. At times, it even surpassed the on-chain active user metrics of Ethereum and Polygon.

4.3 Compare Chain Transactions

Source:Dune

From the graph, we can discern that over the past three months, Arbitrum’s on-chain transaction volume has consistently overwhelmed that of Optimism, and at times, it has even approached the transaction volume of Polygon.

L2 Activity Table

Source:L2BEAT

When we compare the transaction volume of the entire Layer 2 ecosystem with that of the Ethereum chain, we can observe that although the transaction volume on the Ethereum chain remains the highest, many Layer 2s have already approached the level of Ethereum. We can see that Arbitrum’s Maximum Daily Transactions Per Second (TPS) is 31.64, ranking second in the top 10. Its transaction volume over the past 30 days has reached 24.76 million, ranking first in the Layer 2 domain.

4.4 What Is The Most Profitable L2?

Source:Dune

Profitability is also a key metric in evaluating a project. In this case, considering our Layer 2 tokens already issued, namely Arbitrum and Optimism, the L2 Profit Comparison chart reveals that Arbitrum’s revenue outperforms Optimism’s most often. In March 2023, when Arbitrum was issued, its revenue peaked at 1,506 ETH. At least based on the current data, Arbitrum remains the most profitable layer 2.

Another point that we should not overlook is that a multitude of different types of projects are currently under development on Arbitrum, enriching the ecosystem of Arbitrum. This is beneficial for increasing the transaction volume and revenue on Arbitrum. Moreover, due to its potential promotional effect on Layers, the Cancun upgrade might to a certain extent, boost the development of Arbitrum’s ecosystem and amplify the growth of transaction volume and revenue on Arbitrum.

4.5 Token Release Plan with Greater Investment Potential

Arbitrum Token Release Schedule

Source: Token Unlock

The schedule for the token release of Aritrum, as depicted in the provided diagram, reveals no new ARB tokens being introduced into circulation from the present moment until March 2024. It is highly anticipated that the Cancun upgrade will be completed by the end of 2023. This suggests that no new ARB tokens will be released throughout the period of narrative development and completion of the Cancun upgrade, thereby eliminating any potential selling pressure. This condition sets a favorable environment for the healthy appreciation in the price of ARB tokens.

Optimism Token Release Schedule

Source: Token Unlock

The above chart displays the token release schedule for Optimism. As we can see, from now until March 2024, approximately 251 million OP tokens, accounting for 39% of the current token supply and 5.8% of the total issued token supply, will be released. This new token release is primarily composed of Core Contributors and Investors.

Given the quantity, OP tokens will still face substantial potential selling pressure from the sizable token release during the Cancun upgrade. However, it is fortunate that these tokens are not released all at once but gradually over time, providing the market with an opportunity to absorb the selling pressure incrementally. As a result, there may not be significant price volatility during this period. Yet, prior to each token release, there remains a certain opportunity for short selling.

5.$ARB Token Data Analysis

5.1 On-Chain Big Whale Analysis

$ARB Top 100 Traders Data:https://docs.google.com/spreadsheets/d/1R5ZBOHaaGetG8xIzlGC0lcuH_R6ytDBrE5UfwoYQMbs/edit#gid=0

We have conducted an in-depth analysis on the on-chain data of the Top 100 traders of $ARB, the detailed information can be found in the attached link. Based on our statistical analysis of this data, it is apparent that the average cost basis for these significant on-chain entities is $1.29, with an average rate of return of -12.51%.

Data Source: from BTX Research

When categorizing the returns of these Top 100 traders, we find that only 7% of these major on-chain traders are profitable, while 82% face losses. Nevertheless, despite the prevailing negative returns among these major holders, none of them have shown any signs of reducing their positions in the past 7 days. In fact, only three holders have scaled down their holdings over the past 30 days. Despite the current market downturn, this steadfast holding pattern among most traders suggests a prevalent confidence in the value of the $ARB token.

We should also note that, over the past 30 days, 35 of the top 100 traders, representing 35%, have elected to either increase their existing positions or initiate new ones. We further examined the subset of traders who had added most significantly to their holdings. For instance, the trader identified as 0x3737 began consistently acquiring additional $ARB tokens following a significant decline in its price. The average cost for these additional purchases is approximately $1.07. Importantly, this trader has increased their position, with no evidence of any sell-offs or profit-taking. Similarly, the trader known as 0x83ee has an average acquisition cost of around $1.15, with these purchases representing 98.3% of their current holdings. Even during periods of price decline, this trader did not undertake any stop-loss measures.

There are exceptions amongst these major holders. For example, the holder identified as 0x92fe sold a portion of their tokens on June 10, 2023, to mitigate risk during a substantial price drop, appearing less like a staunch holder. However, this trader proceeded to reaccumulate at a price point of approximately $1.14 on June 30, 2023. Other major holders have average acquisition costs in the range of $1.00 to $1.15. These traders have not been prompted to sell their holdings due to falling prices. Quite the contrary, many have taken advantage of these lower prices to increase their positions, thereby reducing their average cost basis.

5.2 Valuation

Project Key Metrics

Presently, the sole function of the ARB and OP tokens is governance, affording holders the capacity to vote on the future direction of the projects. However, past proposals have incited confusion, undermining the certainty of voting rights. From a revenue standpoint, this only confirms that the Arbitrum protocol and project have a certain earning potential, yet the ARB token has not demonstrated any value capture in this regard.

We currently lack a robust valuation model for this type of governance token. Thus, for this study, we use the Mcap/TVL (Market Capitalization to Total Value Locked) ratio, a key metric, for ARB’s valuation. It is also important to note that using the Mcap/TVL ratio for ARB’s valuation will only remain valid until the next token release of $ARB. As we previously highlighted, a substantial release of tokens will occur during the next unlock, which could trigger substantial fluctuations in the Mcap/TVL valuation and thereby render the current valuation invalid.

$ARB Valuation Based on Mcap/TVL

Utilizing the Mcap/TVL ratio as a metric, we have estimated the token price for the upcoming token release and during the Cancun upgrade period, projecting a potential future price range of $1.59 to $11.08. Coupled with our previous whale analysis, where the average cost basis of the whales was found to be around $1.29, and considering that the typical accumulation range for major holders during prior price plunges was between $1.00 and $1.15, it appears that, even at a conservatively estimated price of $1.59, significant holders still have room for future profits.

For retail investors with less available capital, a viable strategy could involve buying $ARB tokens at a price lower than the major holders’ average accumulation cost or within the accumulation range of these significant holders. This approach could result in a more favorable risk-reward ratio for retail investors.

6.Conclusion

In conclusion, Arbitrum represents a significant advancement in Layer 2 scalability solutions for the Ethereum network. Its unique use of Optimistic Rollup technology and a multi-round interactive challenge protocol demonstrates a novel approach to enhancing network performance and reducing dispute resolution costs.

The strong academic and professional background of the Offchain Labs team, which is behind Arbitrum, ensures a deep understanding of blockchain technology’s theoretical and practical aspects. This knowledge and experience uniquely position them to address the scalability challenges faced by Ethereum and other blockchain platforms.

The rapid development of the Arbitrum ecosystem, particularly in the areas of DeFi, DEX, and GameFi, underscores the platform’s potential for fostering innovation and growth in the blockchain space. Notable projects such as Camelot, Pendle Finance, Radiant Finance, GMX, and Treasure Dao are a testament to the diverse range of applications that can be built on Arbitrum.

Major Ethereum upgrades like the upcoming Cancun upgrade will likely stimulate development in the Ethereum ecosystem further. As a Layer 2 solution for Ethereum, Arbitrum benefits significantly from these advancements. Therefore, it is crucial for stakeholders to closely monitor the progress of Arbitrum and its ecosystem, as it is poised to play a pivotal role in the future of Ethereum and the broader blockchain landscape.

Disclosure

All content was produced independently by the author(s) and does not necessarily reflect the opinions of BTX Research. Author(s) may hold cryptocurrencies named in this report. This report is meant for informational purposes only. It is not meant to serve as investment advice. You should conduct your own research and consult an independent financial, tax, or legal advisor before making any investment decisions. Nothing contained in this report is a recommendation or suggestion, directly or indirectly, to buy, sell, make, or hold any investment, loan, commodity, or security or to undertake any investment or trading strategy with respect to any investment, loan, commodity, security, or any issuer. This report should not be construed as an offer to sell or soliciting an offer to buy any security or commodity. BTX Research does not guarantee the sequence, accuracy, completeness, or timeliness of any information provided in this report.

BTX Capital, a leading cryptocurrency trading firm, has announced its participation in the EDCON 2023 Community Ethereum Development Conference, to take place from May 19 to 23 in Podgorica, the capital of Montenegro. The event will bring together Ethereum community leaders and research experts from around the world to explore development trends and challenges in various fields such as blockchain regulation, Layer 3, decentralized society, decentralized governance, network states, among others.

https://twitter.com/edcon2023/status/1648636441780719616?s=46&t=nS4NldbQXUuCQXHbJ8eSIQ

EDCON 2023 will invite many outstanding talents in the blockchain field, such as Ethereum co-founder Vitalik Buterin, members of the Ethereum Foundation including Andy Guzman, Piper Merriam, Leo Lara, Skylar Weaver, Vlad Zamfir, Tim Beiko, the author of “Network States” Balaji Srinivasan, co-founder of Gitcoin Scott Moore, Primavera De Filippi from the French National Center for Scientific Research and Harvard University Blockchain Researchers, and Cy Li, the director of the University of Ethereum. The conference will host keynote speeches, technical workshops, and thematic discussions to provide participants with a wealth of academic exchanges and cooperation opportunities. In addition, to strengthen on-site collaboration and provide ample opportunities for discussion, EDCON 2023 will also host Ethereum Quorum, Community Activity Day, and Super Demo competition, among other colorful events.

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Confirmed speakers:

BTX Capital hopes to share experiences and insights with top technical developers, innovators, and thought leaders in the industry at EDCON 2023, and jointly outline the future blueprint of the Ethereum community. At the same time, BTX Capital will also showcase its professional capabilities in cryptocurrency investment and provide participants with comprehensive industry insights and investment advice.

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Key Insights



Approximately 562K+ validators staked over 18M ETH in the Beacon chain.

Liquid Staking is the largest player in the market, accounting for over 6M staked ETH and 33.3% of the market.

We have considered the scenario of maximum selling pressure and conducted calculations on the potential sell-off. Our results indicate that the maximum selling pressure could reach 284,400 ETH, which represents 5.27% of the 24-hour trading volume for ETH. However, when considering factors such as liquidity, returns, and user staking, the selling pressure could possibly be reduced to 59,391 ETH, representing 1.1% of the trading volume. Please provide a grammatically correct English translation.

There is no need to worry about the long-term impact of the Shanghai Upgrade's withdrawals on ETH selling pressure. However, there may be more significant selling pressure within the first five days after the completion of the ETH Shanghai Upgrade.



What is the ShangHai Upgrade?



Ethereum developers have set the target date on 12 April 2023, at 10:27:35 PM UTC, during slot 6209536. EIP-4895 is the key upgrade of the ETH ShangHai upgrade. The Beacon Chain brought staking to Ethereum, but it functioned as a one-way process, meaning validators could deposit ETH into the Beacon Chain without the ability to withdraw it. With EIP-4895, the primary enhancement in the Shanghai Upgrade, validators will finally be able to access and retrieve their ETH along with any accumulated staking rewards.



As the new era of unlocked ETH approaches, crypto traders are closely watching how the market may respond. Some traders speculate that there will be sell pressure once staked ETH is unlocked, while others believe the Shanghai upgrade will encourage more staking.



How can a Validator Unstake its ETH?



For validators who are concerned about sell pressure, there are two options for unstaking their ETH once Shanghai goes live. The first option is to set up a "withdrawal credential," which will automatically unstake the rewards earned from the validator. The second option is to fully exit the Beacon Chain by voluntarily sending a message to remove the validator from the blockchain and unstake all 32 ETH.



What are the Two Types of Withdrawals?



Partial withdrawals: Balances in excess of 32 ETH (earned rewards) are withdrawn to an Ethereum address and can be spent immediately. The validator will continue to be a part of the beacon chain and validate as expected.

Full withdrawals: The validator will exit and stop being a part of the beacon chain. The entire balance (32 ETH principle and any rewards) of the validator is then unlocked and allowed to be spent after the exit and withdrawal mechanism is complete.



How many ETH stake in Beacon Chain?

(Source:beaconcha.in, date:04/06/2023)

Approximately 562K+ validators staked over 18M ETH in the Beacon chain. It takes 32 ETH to initially set up a validator and the average balance is 34.01ETH now.

(Source:Dune@hildobby)

Liquid Staking is the largest player in the market, accounting for over 6M staked ETH and 33.3% of the market. Lido holds a dominant 93.78% share of the liquid staking market and has staked 5,671,616 ETH. Lido is a liquid staking service that offers the stETH token to users as a representation of staked ETH on its platform.

(Sourece:Dune@hildobby, Date:04/06/2023)

The leading exchanges in the staking market are Coinbase, Kraken, and Binance, collectively handling over 4M ETH and approximately 27.3% of the market share. Among these, Coinbase and Binance offer users liquidity through their cbETH and bETH derivatives, respectively.



Nearly 22.4% of the market is also held by unidentified stakers. These might be individuals running nodes from their homes or smaller groups who are running private staking pools.

Liquid Staking vs Illiquid Staking

(Source:Dune, Date:04/06/2023)

The primary components of liquid staking consist of Lido, and centralized exchanges Binance and Coinbase, accounting for 53.7% of the market share. On the other hand, the main constituents of illiquid staking include centralized exchange Kraken and private staking pools, which account for 46.3%. Liquid staking offers liquidity mechanisms to validators, such as stETH, bETH, and cbETH. As a result, 53.7% of users have already attained liquidity for their staked and earned ETH, so the selling pressure for this portion should not be substantial. Perhaps we should be more concerned about the selling pressure arising from the 46.3% portion without liquidity

How Many Stakers are in Profit？

（Source:Dune@hildobby, Date:04/06/2023）

Based on the data, we can observe that a significant amount of ETH staked falls within the price ranges of around 600 USD and 1600 USD.

(Source: Dune@hildobby, Date:04/06/2023)

The proportion of validators who are In the Money and Underwater shows a significant difference, with 28.7% and 71.3%, respectively. Only 28.7% validators are in the Money, and this group, who has earned profits, may have a strong incentive to withdraw their ETH gains and sell them.



Sell Pressure Estimated



First, the staked ETH by validators is divided into two portions for unlocking: the principal portion (32 ETH) is subject to a limited queue for unstaking, and withdrawing means the validator exits the staking; while the profit portion can be withdrawn at any time, and after withdrawing the earnings, the validator still maintains the staked status.



Number of Full Withdrawals per Day

(Source:https://consensys.net/shanghai-capella-upgrade/)

The number of validators that can unstake each day is limited.Currently, the churn limit is 8 and the maximum is 1,800 validators unstaking per day, corresponding to 57,600 ETH being unlocked. As for the profit portion, since it can be withdrawn at any time, its limit is related to the number of blocks produced on the Ethereum chain, allowing roughly 115,200 validators to withdraw daily.

Hence, if full withdrawal requests reach the daily maximum, theoretically, up to 1,800 validators can complete full withdrawals, while the number of daily profit and partial withdrawals would be 115,200 minus 1,800, which equals 113,400.

Data Overview

(Source:BTX Research, Date:04/06/2023)

We can start to calculate the selling pressure following the Ethereum Shanghai Upgrade. Before making any estimations, we need to establish certain assumptions, such as all unstakes will do so as quickly as possible, and all profits will be promptly withdrawn. First, let's consider the worst-case scenario, which represents the maximum potential selling pressure.



Theoretical Maximum Selling Pressure



Theoretical Result



（Source:BTX Research, Date:04/06/2023）

By utilizing partial withdrawals to extract the profit portion, theoretically, up to 226,800 ETH can be withdrawn daily for 5 days. Meanwhile, full withdrawals can release a maximum of 57,600 ETH per day, with the entire withdrawal process taking 313 days. Therefore, in the first five days following the completion of the Shanghai Upgrade, the theoretical maximum average selling pressure is 284,400 ETH per day, and under the assumption that no new ETH is staked, the entire release will take 313 days.



Better Case for Selling Pressure



We need to consider that 53.7% of validators' staked ETH has already achieved a certain level of liquidity and doesn't need to be unlocked. Therefore, the selling pressure from the portion that has already gained liquidity may have been partially released in advance.



Better Case Result

（Source:BTX Research, Date:04/06/2023）

Assuming that 30% of the 53.7% of validators who have already gained liquidity will withdraw ETH and sell, we can estimate that the daily amount of ETH withdrawn through partial withdrawals would be 141,546 ETH, lasting for 3 days. The full withdrawal portion remains at 57,600 ETH per day, lasting for 196 days. Thus, the potential daily selling pressure for the first three days after the completion of the Shanghai Upgrade will be 199,146 ETH.

Considering the Stake Profit for Selling Pressure

Estimated Result for Considering the Stake Profit

（Source:BTX Research, Date:04/06/2023）

From the data mentioned before, we know that In the Money validators account for 28.7%. Combining this with the previous selling pressure calculations, we can determine that the daily profit extracted from the partial withdrawal portion would be 40,624 ETH, lasting for one day. The full withdrawal portion remains at 57,600 ETH per day, lasting for 57 days. Considering that only 1,422 validators have exited so far, users who start to unstake after the completion of the Shanghai Upgrade would need to wait at least 1.1 days before they can begin withdrawing ETH. Thus, the potential selling pressure one day after the completion of the Shanghai Upgrade wil be 86,128 ETH, followed by a daily selling pressure of 57,600 ETH.



Considering the Situation of Users Staking



Estimated Result for Considering the Users Staking

（Source:BTX Research, Date:04/06/2023）

If we consider that after the Shanghai Upgrade, users may be more willing to stake ETH due to the increased liquidity of staked ETH, and if validators maintain the average daily staking quantity of ETH from the past seven weeks, then the selling pressure after the Shanghai Upgrade will potentially be further reduced.

Conclusion

Based on data from CoinGecko, the trading volume of ETH in the past 24 hours was 5,392,296 ETH. Considering the maximum selling pressure, the proportion of selling pressure in the first five days would be 5.27%, with the selling pressure being relatively larger. If we consider the factors such as profits, liquidity, and users restaking, the early selling pressure may further decrease to 1.1%. Therefore, based on our estimations, there is no need to worry about the long-term impact of the Shanghai Upgrade's withdrawals on ETH selling pressure. However, there may be more significant selling pressure within the first five days after the completion of the Shanghai Upgrade.

In addition, due to the ever-changing nature of the market, a significant fluctuation or drop in the price of Shanghai upgrades on the day of the event may cause panic among investors. Moreover, market manipulators may capitalize on the Shanghai upgrade event to sell off their ETH holdings, which could potentially increase the likelihood of massive selling pressure on ETH after it is unstaked.

Reference

1.https://dune.com/hildobby/eth2-staking

Disclosure

All content was produced independently by the author(s) and does not necessarily reflect the opinions of BTX Research. Author(s) may hold cryptocurrencies named in this report. This report is meant for informational purposes only. It is not meant to serve as investment advice. You should conduct your own research, and consult an independent financial, tax, or legal advisor before making any investment decisions. Nothing contained in this report is a recommendation or suggestion, directly or indirectly, to buy, sell, make, or hold any investment, loan, commodity, or security, or to undertake any investment or trading strategy with respect to any investment, loan, commodity, security, or any issuer. This report should not be construed as an offer to sell or the solicitation of an offer to buy any security or commodity. BTX Research does not guarantee the sequence, accuracy, completeness, or timeliness of any information provided in this report.

We have introduced a monitoring system that can help operation teams more efficiently track the performance of the system. Currently in internal testing.

This system provides precise time services to clients by setting up a local NTP server, ensuring the timeliness of monitoring data. In addition, we also offer the ability to configure NTP services in bulk, allowing customers to quickly set up a large number of machines, eliminating the tedious manual configuration process.

The system also integrates Prometheus, a data collection module, and a database, allowing it to store monitoring data indefinitely and provide powerful query functions. Additionally, we have deployed grafana-server to display monitoring data, giving customers a clear view of the system's performance through graphs and dashboard instruments.

Through the prometheus+grafana architecture, the system can display the physical operation of each instance on demand, such as CPU utilization, memory usage, and disk I/O activity, as well as the performance of each project node, such as node health and network connectivity between nodes. This information can help operations teams stay informed about the system's performance and take timely action to address any issues.

DM is open is you need the test version of our product: media@btx.capital

@CurveFinance, the DEX protocol known for its stableswap and multi-asset pool design, recently announced its stablecoin design.

The 2 most important pillars of its design are LLAMMA and PegKeeper.

LLAMMA stands for Lending-Liquidating AMM Algorithm. It is an automated liquidation/deliquidation procedure, using the features of @Uniswap v3.

Compared to other lending protocols such as @AaveAave, the liquidation procedure is automated. The AMM converts the collateral to Curve’s stablecoin (let us call it crvUSD for now) when the collateral price drops, converts crvUSD back to the collateral when the price rises.

Due to this feature, there exists a in-the-middle state that is between total liquidation and total deliquidation/collateralization. What is even more interesting is users can potentially get their collaterals back instead of a permanent liquidation, thanks to the range order feature of Uniswap v3.

But why does Curve not use its own in-house AMM, Curve v2?

First, there is no concept of price range in Curve v2. It is a full price range (0 to inf) AMM. Second, there is no analytical solution to calculate the final state for each “price band”. Its calculation involves solving a cubic equation.

The crvUSD white paper divides the entire liquidation range into price bands, with the upper price and lower price for each band denoted as P_up and P_down.

The advantage of rebalancing over multi-bands versus over a single price band is better slippage, by refocusing the liquidity for each band.

The way it denotes the relation between the base price and the upper and lower price for each band is equivalent to price ticks in Uniswap v3.

In each band, the liquidity is uniformly distributed. Therefore, we can provide a simple proof for equation (9) and (10) in the white paper though the author arrived at these relations using numeric computations:

The fungible liquidity inside each price range is also beneficial to multi-user liquidations.

Due to rebalancing, there are permanent losses. How to choose the best parameters (A, n) seems like a challenging problem to tackle.

Permanent loss, slippage, and gas cost all need to be considered.

The 2nd most important pillar, the crvUSD’s PegKeeper, maintains the USD peg of crvUSD as the name suggests.

This is achieved by varying the interest rate based on the discrepancy between the oracle price and instantaneous price in LLAMMA.

If there is increasing demand for crvUSD, lower the interest rate to incentivize borrowing. If the demand is decreasing, dial up the interest rate to incentivize redeeming and burning of crvUSD.

Why not choose other stablecoins to implement this?

First, native stablecoin can generate revenue for Curve. Second, currently there is no other stablecoin that supports LLAMMA.

crvUSD can also take advantage of the existing stableswap infrastructure and related liquidity.

crvUSD White Paper: https://github.com/curvefi/curve-stablecoin/blob/master/doc/curve-stablecoin.pdf

@binance recently announced @HookedProtocol ($HOOK) token sale on its launchpad.

Hooked Protocol claims to be “the on-ramp layer for massive Web3 adoption to form the ecosystem of future community-owned economies”.

Its first app, Wild Cash, allegedly has achieved 50K DAU and 3M MAU, on top of the Google Play leaderboard in Indonesia.

But compared to the previous X2E project @Stepnofficial, everything seems rushed to be shipped, with a lot of information undisclosed and unclear.

Hooked Protocol adopts a triple-currency design similar in Web2 games, where $HGT (Gold) is the tertiary token, $uHGT is the secondary token, $HOOK is the primary/governance token.

Similar to StepN, $HOOK’s launchpad price $0.1 is close to the private sale prices $0.06 - $0.12. The initial circulating supply will be 10% (50M). In 1 year, the circulating supply will increase to 22.33%, which means ~5M/month token release speed in the first 12 months.

Given the low price and circulation at the beginning, we can at least expect short-term upward momentum. As for the long term, it is hard to predict since we currently have little to no information on the protocol revenue model, burning, $uHGT to $HOOK conversion and other mechanisms.

Its utility token $uHGT, can be converted to $HOOK but the conversion mechanism is currently unknown.

In-game currency $HGT, can be converted to $uHGT at 1:1 rate currently, once the user’s $HGT balance reaches 800K.

The price movement of $uHGT can be tracked on @PancakeSwap (need @HookedProtocol confirmation):

https://www.dextools.io/app/en/bnb/pair-explorer/0x15a277b36ca9192450fee5d1c490106f19fbe25f

$uHGT token contract (need @HookedProtocol confirmation): https://bscscan.com/token/0x4703fb53348cbb56fcfc2b46121e18be55043aaf

The $uHGT current supply is ~46B with the token price at ~$0.00000068, which means the current market cap of $uHGT is ~$30K.

One other interesting thing is this address:

https://bscscan.com/address/0x5109bd059920daaa7590ff688f18666c99c88c51

seems to periodically buy $uHGT and send them to the black hole address which we are not sure why. $uHGT burning?

Assuming a daily reward of 30K $HGT, the user can accumulate 800K balance in ~27 days. Users can increase their rewards by participating in mining and referral programs. Users can get 800K instantly if they can invite 155 friends (30K for the first referral and 5K after).

800K is only ~$0.5, but free money is free money right? Plug in the 3M MAU, we can estimate the protocol is giving away ~$1.5M per month at least.

This may explain the sudden, exponential growth of Wild Cash. The problem is the lack of token sinks. So far there is only mining rig upgrade which consumes $HGT.

Besides, it is not very clear to us how the protocol generates revenue. With more information coming, we might have a clear picture soon.

Users can also swap their $HGT for $BUSD and stake them for an estimated 20% APY. Last time we staked stablecoins for a 20% APY was with, ugh, $UST.

Wild Cash is pretty wild, are you Hooked?

Bitcoin miners are in a world of trouble now, especially the leveraged ones.

Recent FTX and Alameda fallout brought the entire crypto market down. Bitcoin price has dropped by ~20% from $20K.

Leveraged miners collateralize their mining machines to secure debt financing, which is fine in the bull market. However, as the price dumped and the profit margin squeezed, those miners accumulate debts, struggle to afford interest rates, and may eventually face defaults and liquidations.

Bitcoin miner hash price has plunged to a new all-time low of $58.3k per Exahash per day, approaching many mining rigs’ shutdown prices.

There may very well be another bitcoin miner capitulation just like the recent one shown as the grey bar in the plot below due to the LUNA collapse.

Bitcoin miners distributed an additional 8.25K Bitcoins to shore up their balance sheets amid the FTX and Alameda fallout. This leaves around 78K in miner treasuries, and erases all balance growth in 2022.

Core Scientific Inc., the largest publicly traded Bitcoin mining business in the U.S., reported a $1.7B loss for the first nine months of the year. The company anticipates that existing cash resources to be depleted by the end of 2022 or sooner.

Another Bitcoin miner Iris Energy has recently unplugged a large majority of its mining machines in response to a default notice on ~$107.8M in loans. The company had previously stated that given the current market condition, it was not making enough money to pay for loans, generating only $2M per month in gross profit, versus $7M in debt obligations.

How could the volatility of crypto assets, specifically asset-backed stablecoins spillover to the traditional financial system?

Recent study shows:

Tether becomes a stronger volatility transmitter against money market instruments when it shifts from small to large reserve adjustment, with the net volatility spillover rising noticeably from positive 4.6% to positive 19.7%.

Large reserve adjustment by Tether could change Bitcoin from a net volatility receiver to a net transmitter against money market instruments, with the net volatility spillover changing from negative 6.5% to positive 5.2%.

For the US Treasury and equity, no noticeable increase in the net spillover from small to large reserve adjustment is found.

We are worried that in extreme circumstances, failures of stablecoins could result in large-scale redemptions and fire-sales of their reserve assets, potentially posing material impacts on the traditional financial system such as the money market.

What can we do to reduce the risks of such events happening amid the FTX and Alameda fallout?

Below are the solutions:

Standardized and regular disclosures on reserve assets holdings.

Improvements on stablecoin liquidity management by imposing restrictions on the composition of reserve assets and requiring well-defined redemption rights.

Initial Circulating Supply = 175,229,156 $HFT

Market Maker Loans = 75,000,000 $HFT

Vendors and Early Service Providers = 12,096,000 $HFT

Community Rewards = 175,229,156 - 75,000,000 - 12,096,000 = 88,133,156 $HFT

To calculate selling pressure, let us assume some price levels related to the final private round price $0.4, and percentages of Initial Circulating Supply subtracted by Market Maker Loans which is 100,229,156 $HFT.

Market Makers according to Etherscan:

Binance + Wintermute + Jump = 30,475,298.1 + 14,999,953.9 + 14,199,608 = 59,674,860 $HFT

Others = 75,000,000 $HFT - 59,674,860 $HFT = 15,325,140 $HFT

I found an error in @hashflow doc where the token allocation for Future Hires should be 25,000,000 $HFT:

References:

https://docs.hashflow.com/hashflow/hft/allocation-and-distribution

https://etherscan.io/token/0xb3999f658c0391d94a37f7ff328f3fec942bcadc#balances

https://research.binance.com/en/projects/hashflow

https://www.binance.com/en/support/announcement/introducing-hashflow-hft-on-binance-launchpool-farm-hft-by-staking-bnb-and-busd-73d44e64598c446cb4ec2f83b776c2f0