Data & Insights Recap - April 24, 2023

In my zkSync Era

Source: The Block

• At the end of last month, we saw the launch of zkSync Era, the first zkEVM to hit the Ethereum mainnet for the wider public. Three days later, we saw Polygon drop Polygon zkEVM, heating up the ZK rollup competition. 
  • Before zkSync Era, zkSync already had a ZK rollup solution on the market called zkSync Lite, which was not EVM compatible, making it more difficult for protocols to port their existing Ethereum code onto the layer 2. 
  • Optimistic rollups, like Arbitrum and Optimism, are EVM-compatible by nature, so they have garnered a lot of layer 2 market share up to this point.
    As a reminder, rollups are the most popular layer 2 solutions on Ethereum.
  • They help minimize fees by batching transactions off-chain but then tap into Ethereum’s mainnet security by publishing a summary of the data on-chain. 
• Optimistic and zero-knowledge rollups publish their data on-chain differently.
  • Optimistic rollups publish batches of transactions in the calldata on the Ethereum mainnet, but you have to wait for a dispute period to pass to ensure the sequencer is not publishing invalid transactions before withdrawing. 
  • ZK-rollups require a validity proof to be posted on-chain, much larger than the data requirements of ORs. This, in theory, means the amount of gas per published batch is higher, but the proof additionally removes the need for the dispute period.
  • That being said, given Arbitrum is currently bolstering much more activity than any other rollup solution (over 7x more transactions than the leading zk-rollup), its average cost to publish its calldata outweighs the current validity proofs due to the volume of transactions it’s processing. 
• zkSync Era is the breakout star so far this month, on pace to account for almost 20% of the fees paid by layer 2s on mainnet Ethereum in April.
  • In March, the new zkEVM made up 8.54% of the share, impressive for a project that launched one week before the month ended. 
  • Arbitrum has stayed relatively steady in terms of its dominance in fees paid to Ethereum, whereas Optimism has wobbled a bit after the release of zkSync Era, dropping to 25.9% so far this month, its lowest share since July 2021. 
  • zkSync Lite saw much of its original supremacy fade away in the rise of optimistic rollups, but now with the release of zkEVM, it seems a new leaf could be turning.
  • However, Polygon zkEVM does not seem to be taking off quite like Era has, and many people are speculating a zkSync airdrop after it was suggested that the rollups sequencer would need to be decentralized about a year after launch. 

All the (g)wei up

Source: The Block

• The median gas price on the Ethereum blockchain reached 72.49 gwei this week, on April 19th specifically, amidst a memecoin mania. 
  • This notably exceeded the spike on March 11th, the day USDC depegged, and marks the highest the median gas price has been since June 2022 (and also the highest it's been post-Merge). 
  • The average transaction fee on the network also breached $10 this week, the first first time since June 2022, and the highest it's been since May.
• The main cause of all the activity driving up gas prices was the trading of the new memecoin PEPE, as well as others like CHAD and WOJAK.
  • A lot of these tokens did perform quite well in the middle of last week and drummed up a lot of hype, naturally leading to their increase in trading volumes.
  • However, something deeper was at play. That something being MEV bot jaredfromsubway.eth. The bot spent over $1.1 million on network fees alone in just 24 hours (over 7% of total gas usage) as they moved to front-run transactions that were trading these low liquidity memecoins. 
  • jaredfromsubway, while spending 7 figures on gas, did seem to be engaging in highly profitable sandwich attacks on unassuming traders looking to cash in on the excitement, putting them in the green from all their activity. 
  • And while racking up profits for themselves, in turn, the MEV bot drove up gas prices for everyone else looking to transact on Ethereum. 
• On the topic of layer 2’s, the percentage of gas spent on posting L2 data onto the Ethereum mainnet out of the total amount of gas used is at 5.41% for April so far, on track to be the highest ever. It’s likely layer 2’s are seeing upticks in activity as it becomes more expensive to transact on the layer 1 directly. 
  • The median gas price has since dropped down to 41.52 gwei as of yesterday, which is still higher than where gas has been for the majority of 2023. 

Live fast, dai young

Source: The Block, CoinGecko, Coin Metrics

• There is, as always, a lot to say about stablecoins this week.
• For starters, March saw a huge surge in DAI’s supply as users minted the stablecoin amidst the crisis surrounding USDC. 
  • The supply of the crypto-collateralized stablecoin had been on the downward trend for most of 2022, with a sharp decline following the collapse of algorithmic stablecoin UST, which shook faith in non-fiat-backed stables.
  • DAI saw its supply jump from 4.94 billion to 6.46 billion in three days, recovering to October 2022 levels. 
  • However, the spike proved to be short lived as USDC quickly restablizied, with DAI’s supply now sitting at 4.78 billion. The supply dropped below where it had been prior to the USDC depegging on April 17th and has continued to decline, wiping out the almost 30% gain it saw during mid-March. 
• On the other hand, Tether minted one billion USDT on Ethereum this week, bringing its supply to 82.5 billion.
  • Tether indicated that this mint was “inventory replenish” aimed at being prepared for future chain swaps and issuance requests. 
  • Analysts at The Block Pro Research highlighted that Tether typically mints USDT when they expect higher demand, and many correlate these mintings with pending bullish sentiment. 
• TUSD saw its supply rise 60% (from 1.31 billion to 2.08 billion) at the same time DAI saw its spike.
  • The minting of the new TUSD seemed to primarily be on Tron, as less than 1 billion TUSD are currently on Ethereum. The vast majority of TUSD on Tron is held by Binance, with 4 of the top 6 TUSD wallets on the chain belonging to the exchange. 
  • But despite TUSD being Binance’s new de facto stablecoin, the supply has remained relatively steady. It dropped to 2.03 billion immediately after USDC recovered but has now risen to 2.04 billion. 
  • While it is the 5th largest stablecoin by market cap, its market cap is less than half of DAI’s and is less than a third of BUSD’s, which can’t even be issued anymore.

Pump up the pepe

Source: The Block

• As mentioned before, DEX trading saw a surge this week as several memecoins rallied. So much so that the number of DEX traders jumped to 72.19k on April 19th, the highest number of traders since December 2021. 
  • This marked a 78% increase from the 40.6k DEX traders of April 16th, just three days earlier. 
  • Not too long ago (back in February) I wrote about this chart when the number of traders had hit 57k, which, at the time, was also the highest number of traders since the end of last 2021. 
  • 2022, in general, seemed to have a low number of DEX users, with only 10 days of the whole year breaking the 50,000 mark, compared to 20 days already in 2023. 
  • It is likely that coming out of the centralized failures of 2022 that people are more likely and willing to turn to DEXs for trading needs, and it seems time after time already this year, we are seeing new highs that beat numbers from almost a year and a half ago. 
  • The number of DEX traders stayed above 72,000 for April 20th but has now slumped back down to 53.26k as the memecoins started seeing prices drop back down. 
• On the converse of this, it seems DeFi and NFTs can not coexist. NFT traders on Ethereum slumped down to 12.93k on April 19th, the lowest number of traders since July 2021.  
  • While NFT traders spiked up a bit on the launch of OpenSea Pro, the hype was not sustained. 
  • April is on track to be the second month in a row of decreasing NFT marketplace volumes on Ethereum and floor prices for many blue chip collections have been slipping in ETH terms. 
  • A testament to overall NFT sentiment is the fact that Starbucks launched another collection this week to honor its first store, but the 5,000 piece tribute did not sell out. 
  • Others are also attributing the rise in gas fees to the slowdown of NFT users, but it clearly wasn’t stopping the DEX lovers. 

Hedging ether bets

Source: CFTC COT

• Every Friday, the Commodities and Futures Trading Commission will publish a Commitment of Traders Report, giving a breakdown of open interest for a particular market on a particular exchange on Tuesday of that week. As the only crypto derivatives exchange registered with the CFTC, these reports give us a glimpse into how BTC and ETH futures are doing on CME. 
  • The updated report that dropped last Friday revealed a surge in long open interest from hedge funds on ether futures on April 18th, coming in at $360.7 million. 
  • This is the second highest long open interest has ever been for hedge funds, coming in second only to the week of November 9th, 2021.
    It also marks a huge increase from the week prior, more than doubling the $171.77 million of April 11th. 
• That being said, the net position on ether futures for hedge funds on CME is still -$18.15 million, with open interest on ether shorts increasing to $378.73 million, although not rising as drastically as long open interest did. 
  • Hedge funds have been the trader class (amongst asset managers, “other,” and “non-reported” from these filings) with the largest long open interest position in ETH futures since November 2022, but have also been the largest short ether trader class since the futures first launched on CME. 
  • From November 2022 to January 2023, hedge funds were just barely net positive on their ether futures positions, but for the most part, they have stayed stronger on the short side. However, their most recent net position is the closest they’ve been to returning to net long after their first week dropping back to net short. 
  • Asset managers saw their largest positive net ether position at $103.68 million in the latest filing and have seen a growing long position since mid-January this year. 
  • A much more polarizing category on the net positions front is BTC futures on CME, with asset managers $1.03 billion long compared to hedge funds $559.72 million short. Asset managers have been net long on bitcoin futures since July 2021, whereas they have fluctuated much more frequently for ether futures.
  • It seems somewhat bullish for ether, considering asset managers have been net long on the asset since January 17th this year, marking the longest period of net long asset managers we’ve seen for ETH. Similarly, the spike in hedge fund long activity also seems promising that investors are more confident the price of ether will go up.