Data & Insights Recap - September 25, 2023

Just a Bit(coin) of transaction growth

Source: The Block

• The 7-day moving average of transactions on the Bitcoin network reached a new all-time high last week of 595.11k on September 20th. 
  • The average hit its previous high not too long ago, back in May, after an explosion of activity surrounding Ordinals and BRC-20 tokens, which brought NFTs and new token issuances to the blockchain. 
  • While the number of transactions grew, it also made blockspace competitive with the average transaction fee rising above $15, which then helped transaction count stabilize later in the summer as the high fees proved unsustainable and unattractive to Bitcoin users. 
  • The 7-day moving average of transactions on Bitcoin dropped to as low as 364.68k in July, as fees fell below $2. July seemed to serve as an inflection point, with transactions largely trending upward until now. 
  • The un-averaged data shows over 700,000 transactions on Bitcoin on September 15th, the highest amount ever, but day-to-day transactions still remain high, with most days posting around 500,000 transactions since August. 
• And while the hype around Ordinals doesn’t feel quite as frenetic as it did in the spring, they are still proving to be quite popular. There were over 440,000 Ordinals inscriptions on September 15th (coincidentally the same day as the highest number of transactions), which was also the largest number of daily Inscriptions there has ever been.
  • Ordinals volumes have been falling, but the fact that inscriptions remain so high shows that people are still interested in making their mark on the Bitcoin blockchain and adding metadata to a satoshi. 
  • There have also been a number of initiatives that have been making minting Ordinals easier, like Luminex (the Bitcoin Ordinals launchpad) creating the BRC-69 standard that claims to help reduce the cost of inscriptions by over 90%, or Binance Pool launching their Ordinals Inscription Service as a tool to facilitate Ordinals generation. 
• So even though we aren’t feeling the Ordinals excitement quite like we used to, it still seems like they are behind the recent transaction growth. 
  • But with the majority of the transactions coming from Inscriptions and not trading volumes, and the recent reduction in cost to Inscriptions with BRC-69, fees have managed to stay relatively low, although we have seen a rise from under $1 about a month ago to over $2 now. 
• The 7-day moving average of transactions has begun to drop back down, but it still remains over 500,000, which is historically high for the network.

First Digital, last laugh

Source: The Block

• It seems the rise of TUSD (TrueUSD) is over, as the share of spot volume with the stablecoin as the quote asset has fallen from over 17% in August to under 8% so far this month. This is the first month TUSD is on pace for a decline since it appeared on the scene in April.
  • The winner of most of TUSD’s volume is USDT, which has seen its share of volume rise to over 67% in September, the highest it's been since March. 
  • Another slight benefactor is FDUSD (First Digital USD). It’s accounting for almost 4% of volumes this month after never being a meaningful player but is already outpacing BUSD and putting itself in the top five quote assets.
• Binance does still seem to be running a no maker fee promotions on most, if not all, TUSD pairs. But it does look like they added back taker fees on BTC/TUSD according to their Promotional Rate list, a previously fee-less pair. 
  • But if they’re still running the promo, why is volume slipping? Daily volumes for BTC/TUSD, which would typically trend over $1 billion for much of the summer, have not surpassed $300 million since September 13th. 
  • On the other hand BTC/FDUSD, which was only listed back in August, has seen its volumes take the lead, putting up around $500 million every weekday since September 18th. 
  • What is perhaps not surprising is that there is no maker fee or taker fee on the FDUSD pair, making it the most lucrative means of trading bitcoin on the exchange and explaining its rapid rise and ability to overtake TUSD as a quote asset. BTC/FDUSD has quickly become one of the highest volume trading pairs on the exchange. 
  • The pairs for both of these stablecoins that trade into USDT and BUSD are also completely fee-less as a means to allow traders easy and cheap access to accessing the lesser-known stables that trade with benefits on the exchange. 
• The rise of FDUSD seems to be what Binance wanted after it announced it would end support for its former stablecoin darling BUSD in February and encouraged all users to swap over to the newly listed stable.
  • Binance only first listed FDUSD as an asset at the end of July, but gave it a lot of the benefits it gave to TUSD back in June, when people were speculating TUSD was Binance’s replacement to BUSD, which had its issuance stopped back in February.
  • But TUSD has been at the center of some negative attention this summer, with one of its banking partners, Prime Trust, going bankrupt and alleged ties to Justin Sun (although Sun denies these claims). Binance is facing mounting regulatory pressures in the U.S. and across the globe, so regardless of the truth to any of this, the exchange probably views it better to play safe. FDUSD seems to be its new favored stablecoin, but it does still offer some incentive to trade in TUSD.

Rewarding endeavor

Source: beaconcha.in

• ETH.STORE, developed by beaconcha.in, is a metric measuring the earnings of an Ethereum validator. According to the developers, it represents the average financial return validators on the Ethereum network have achieved in a 24-hour period. It is calculated by taking the total daily rewards earned, which includes both transaction fees and consensus rewards, and dividing that by the effective balance across all active validators for the day (and then annualizing it).
  • Validators prefer when the rate is high, as it indicates higher returns for their efforts in providing consensus to Ethereum. 
  • Based on the calculation, there are two things that could make the rate higher, higher rewards earned (which can happen when transaction fees pick up or during an increased period of network activity) or a decrease in the effective balance, which essentially just means fewer validators.
  • We saw an uptick in the ETH.STORE rate in May, amidst the memecoin mania that caused a lot of trading activity, pushing the rate to 8.62% at its peak with the increase in transaction fees.
• But on the converse, the rate can also decrease in the inversion of either of the scenarios from before. But consensus rewards tend to be pretty consistent, and the total rewards across all validators have trended around 2,500 ETH since from the summer until now.
  • ETH.STORE, though, has been decreasing since its peak in May, reaching just 3.54% on September 23rd, the lowest it's ever been. 
  • The main driver is the fact that the number of Ethereum validators continues to grow. Even in a post-Shanghai world, meaning validators are able to withdraw their staked ETH, people are still eager to stake and earn rewards and help secure the network. There are over 818,000 active validators, compared to around 558,000 in March when the Shanghai upgrade went live. 
  • The more validators there are, the more you have to share the earned rewards, so it makes sense that this would push the rewards rate lower. 
  • The under 4% rate still seems to be lucrative, though, as deposits continue to outweigh withdrawals to the Beacon Chain smart contract. 

Airdrops galore

Source: Blockscan

• The highest number of new addresses on Optimism was on September 22nd, when 1.2 million addresses were generated on the network, less than a week after an announcement that the rollup would be distributing unclaimed funds from its first airdrop.
  • The number of new addresses first shot up on the same day as the announcement, to 858.07k on September 16th, which at the time marked a new high, but new addresses have stayed high since the news.  
• This is Optimism's third airdrop, with this one focusing on rewarding users who delegated OP tokens and participated in the Optimism Collective governance. 31,870 addresses were eligible for the airdrop, and about $26 million worth of tokens were distributed (or 19.4 million OP).
  • Even though eligibility was measured from January to July of this year and there was no actual claiming to do (the funds were distributed directly to the eligible wallets), it seems people still moved to get on Optimism. The second and third Optimism airdrops were somewhat surprising, so users could see using Optimism as a lucrative opportunity if they think another airdrop is coming at some point in the future. Its competitor, Arbitrum, has only done one airdrop so far, which is the more common practice for protocols. 
  • But activity on the network did not pick up, with the 7-day moving average of transactions on Optimism continuing to drop, reaching 334.31k yesterday, the lowest it's been since June. 
• Shortly after the airdrop, Optimism announced it would be selling 116 million OP tokens, worth around $162 million, in a private token sale. 
  • The tokens came from an “unallocated portion of the OP token treasury” and fell within the foundation’s original budget of 30% of the token supply. 
  • OP’s price fell from around $1.40 on September 20th (the day of the announcement) to $1.25 today, but news of a large sell event is a common driver of a decrease in prices.
• The third large player in the optimistic rollup space, which has also seen continued address growth, is Coinbase’s new network Base. 
  • While originally, the team had said there would be no token for Base, quelling airdrop hopes, Coinbase’s Chief Legal Officer said a token was not “ruled out entirely.”

An ETH ETF in your future?

Source: Grayscale

• In some sense it was spot bitcoin ETF summer, and we might be rolling into ether ETF autumn.
  • Both ether ETFs based on futures and spot have been in the works recently, with many firms looking to give investors exposure to the second largest crypto by market capitalization.
  • At the start of August, we saw a flurry of applications for ether futures ETFs, echoing the influx of spot bitcoin ETFs we saw in June into July. Familiar firms like Bitwise, ProShares and Grayscale were among those vying to get an ether ETF on the market. Companies also took to applying for ETFs offering exposure to both bitcoin and ether futures as a means to grant broader crypto access. 
• Things were looking pretty good on the ether futures ETF front when a Bloomberg report indicated that the SEC was all set to green-light these investment vehicles. 
  • But that report came out ahead of the Grayscale legal victory, which seemed to suggest that if a futures-based ETF exists for an asset, then it makes sense to also offer a spot-based ETF. The main point of contention was that the SEC’s rejection of spot bitcoin ETFs over market manipulation fears was invalid, given that futures track the price of spot.
  • No ether futures ETF has been approved yet, which might be a more weighty decision for the SEC given how the Grayscale case stands and the gray area that ether stands in as to whether it's viewed as a security or a commodity in regulators’ eyes. 
  • ARK Invest and 21Shares, known spot bitcoin ETF proponents, also filed for a spot ether ETF this month, further piling onto the ether ETF frenzy. 
  • Grayscale last week also filed for another ether futures ETF, but under the Securities Act of 1933 as opposed to the Investment Company Act of 1940 like their last one. Bitcoin futures ETFs have been approved under both acts, but the Securities Act of 1933 is meant to govern commodities-based ETFs, while the Investment Company Act of 1940 is meant to guide securities-based ETFs. 
• Where does this all leave the Grayscale Ethereum Trust? It’s in a similar spot to GBTC, which we have talked about before, with its irredeemable shares causing the shares in the trust to trade at a large discount to their net asset value. 
  • While there is no ether futures ETF yet, ETHE shares were still buoyed by the spot bitcoin ETF filings and the Grayscale legal victory, with the shares’ discount to the NAV dropping from 56% in June to only 24.7% this month, the closest the shares have been trading to their NAV in about a year. 
  • The gap has been widening slightly this month, reaching 28.35% at close on Friday, but it is still quite narrow. 
  • There seems to still be a long way to go before a spot ether ETF reaches the market, and Grayscale hasn’t even attempted to convert ETHE, but the hope is now stronger than ever.