Data & Insights Recap: May 15, 2023

So valid

Source: The Block, BeaconScan, Coin Metrics

• The 7-day moving average of daily Ethereum validator revenue reached $6.41 million on May 11th, the highest amount since The Merge in September, when the network converted from Proof-of-Work to Proof-of-Stake, ending the tens of millions of dollars of miner subsidy revenue that used to be generated. 
  • Prior to The Merge, daily issuance of ETH was around 13,000 ETH a day as miners needed a hefty reward to offset the electricity costs associated with running a Proof-of-Work miner. The conversion to Proof-of-Stake means validators don’t have to keep crunching numbers all day, but instead, the network relies on the fact that the 32 ETH stake they have is an incentive for them to be good actors. In turn, it's much cheaper to run a validator, so dropping the block reward became sustainable after the Merge.
  • The amount of ETH issued post-Merge is a function of how much ETH is staked, and since 2022 has typically come in between 1,300 and 1,900 ETH and has been normally around 1,500 ETH after the Shapella upgrade. 
• It wasn’t a sudden jump in ETH issuance that has driven up validator revenue, though, but rather a rise in transaction fees, the second component of validator earnings. 
  • Validator revenue coming from transaction fees on the 11th was $3.56 million, the highest since a year ago during the collapse of Terra. 
  • The reason the fees are so high is because of the recent memecoin mania on the network, with the 7-day moving average of the average transaction fee hitting $22.49 on May 11th, roughly 4 times where it was a month ago. 
  • Many users were willing to cough up high gas prices for the gas needed to complete transactions on the Ethereum network to get their transactions prioritized, with the median gas price reaching over 140 gwei, also a new high post-Luna fallout. 
  • The ETH.STORE Ethereum Staking Reward Reference Rate developed by beaconcha.in reached a new all-time high of 8.62% earlier this month, which is calculated by taking total rewards (including both transaction fees and consensus rewards) for the day as a fraction of the total effective balance across validators, and annualizing it. 

Passive addresses

Source: The Block

• In a somewhat unexpected turn of events, the 7-day moving average of active addresses on the Bitcoin network dropped down to 754.52k on May 13th, the lowest since July 2021. 
  • On the converse, the 7-day moving average of transactions on the network reached a new all-time high of over 587,000 the day before.
    As a note, active addresses account for both originators and recipients of Bitcoin transactions. 
• This means Bitcoin’s latest transaction action has been spurred by fewer addresses than are typically active on the network. Why could that be?
  • There are a couple of things to consider. For starters, the increased congestion has caused fees to rise, with the 7-day moving average of the average transaction fee reaching an almost two-year high of $16.08. The high fees could have users priced out of wanting to transact.
  • We can also turn to the source of the transaction rise, Ordinals and BRC-20, as a reason for why people might be winding down activity. Ordinals brought NFTs over to Bitcoin and BRC-20 came with the ability to issue new tokens, which both seem like fun and novel ideas. However, there are some criticizing the recent trend, both because it is causing a rise in fees and because they take the stance that Bitcoin block space should be used only for Bitcoin transactions as opposed to storing the data needed for Ordinals and BRC-20 tokens to exist. An angry community seeing the success of these projects could have them turning their back.
  • But a few hundred thousand inactive addresses are not cramping Bitcoin’s style as the fans of these ideas keep leading them to further success. There have been over 250,000 Ordinals Inscriptions every day since May 6th and there have been over 18,000 different BRC-20 tokens issued with a total market cap over half a billion dollars. 

Miss me much?

Source: The Block

• Back in April, there was a drop off in the number of Ethereum blocks per day that seemed to be linked to an MEV-Boost relay vulnerability patch that increased latency that was causing an increased number of missed slots. The Flashbots team, in a post recognizing the additional latency added, said they believed they could significantly reduce it.
  • We saw a very large drop in the number of blocks on April 13th, right after the Shapella upgrade, which seemed to be tied to a bug in the Ethereum client Prysm that was causing invalid signatures to be generated, with an updated version being quickly released afterward. 
  • With 86% of validators registered with Flashbots MEV-Boost relay and 38% of validators using Prysm as their consensus client, it’s not shocking these two issues would cause the daily number of blocks to drop. 
  • From April 21st to March 10th, we saw over 7,100 blocks produced a day on Ethereum, signaling the drop-off was over. Those days all saw over 98% of blocks successfully proposed. 
• As a reminder of how Ethereum blocks work post-Merge, every 12 seconds, there is a new slot in which a validator is selected to propose a block. 
  • In theory, there should be one block per slot, making 7,200 blocks per day. However, in practice, that number is rarely reached as validators can miss slots if they are offline or there are issues with the clients they are running. 
• We saw another pretty significant drop off in the number of blocks a day this week, with only 7,040 blocks being produced on May 11th and even lower 6,920 blocks on May 12th. The percentage of blocks missed on the 12th was 3.5%. 
  • Both days had periods of time where the blockchain was having finality issues. Finality is achieved when validators representing at least two-thirds of staked ETH on the network have voted on the block or attested that it is valid. It typically takes about 15 minutes for a block to achieve finality. 
  • On Thursday, the cause of the situation was unclear, but the co-founder of Prysmatic Labs, Preston van Loon, tweeted, “something happened to cause several client implementations to work really hard to keep up with the chain." Finality was eventually restored after roughly a half hour. 
  • A similar event occurred on Friday for about an hour, with Van Loon claiming a fix in Prysm v4.0.4-rc.0 but that it hadn’t been thoroughly tested.
  • Patches were released for both Prysm and Teku on Saturday, and the Ethereum Foundation said the full cause was still being investigated but that it seemed related to a high load several clients were facing. 
  • The finality issues were likely tied to the drop off in blocks, as clients not being able to keep up to attest means they likely could also not keep up to propose blocks, resulting in the increased missed slots. 

Milady mania

Source: The Block

• Elon Musk announced this week that he would be stepping down as the CEO of Twitter in about 6 weeks and named Linda Yaccarino as his successor.
  • While Twitter is a top source for crypto news and fodder, that is not the Musk story we will be focusing on.
• Instead, we will be looking at the latest musings of crypto’s favorite market mover.
  • Musk has long been known for being a proponent of DOGE, causing prices to soar when he hinted DOGE payments might be integrated into Twitter and when he temporarily swapped the Twitter logo to a Shiba Inu last month, and also subsequently depressing the price when that payment plan seemed like it was no longer going to come to fruition and when the logo was eventually swapped back to the iconic bird silhouette. 
  • His latest crypto target? The NFT collection Miladys. Musk tweeted an image of a Milady with overlay text reading, “There is no meme. I love you.” 
  • This naturally caused the market for these NFTs to explode. The weekly average sale price for a Milady had been on the rise since March this year but reached almost $9,000 last week, a new all-time high.
  • Weekly trading volume for the collection also hit a new peak of over $22 million, more than triple the $7 million previous high. It was also the art and collectibles collection with the highest volume last week, beating out Bored Ape Yacht Club and Cryptopunks. 
  • Even unrelated projects that bore a semblance to the NFT gained traction, like a token with ticker LADYS that rallied 3,000%. 

Spot me in the future

Source: The Block

• Back in March, the 30-day moving average of the bitcoin spot to futures volume ratio had just dropped below 0.5, showing a remarkable shift from the period between July 2022 and January 2023, where the ratio skyrocketed all the way up to 0.68. 
  • And now the ratio has dropped down to 0.2, falling below the 0.21 ratio we started with last July and wiping out all the gains we had seen since the summer of 2022.
  • It marks the lowest the ratio has reached since August 2021. 
• When the downward trend first began, it was before Binance sent their BTC volumes on the decline. That has naturally contributed to the continuing fall. The drop from 0.43 on March 21st to 0.21 on April 20th is the fastest we have ever seen this ratio drop, and March 22nd is when Binance put fees back on bitcoin pairs.  
  • Back in March, it was more of a bitcoin derivatives renaissance driving the lower ratio. March marked $1.3 trillion in bitcoin futures volumes, a nine-month high. Volumes in April were still impressive at $934 billion but still marked a 28% decline. Bitcoin futures volumes for May are on track to outpace April, but still, come in below $1 trillion. 
  • Now, even though bitcoin futures volumes have dropped since March, spot volumes have been falling faster due to Binance’s fee reinstatement, allowing the ratio to drop to lower levels.
  • While bitcoin’s spot-to-futures volume ratio has subsided quite significantly, it is still higher than that of ether, which has consistently sat below 0.2 since November of last year and is currently 0.16. 
• Prior to the meteoric rise last summer, bitcoin’s spot-to-future ratio has tended to fall between 0.2 and 0.4, so this recent decline has put it at the lower end of where the ratio has fallen historically.
  • The ratio began rising in July which coincided with Binance first lifted the fees on the bitcoin pairs, incentivizing spot trading. The fact that adding the fees back pushed the ratio to lower than where it was prior indicates that the futures market has become quite strong.