Data & Insights Recap - January 15, 2023

Futures are a thing of the past

Source: Yahoo Finance

• The big day was finally upon us last week! The highly anticipated approval of a spot bitcoin ETF! 
  • It was not a seamless process. For starters, we had the fake out on Tuesday when the Securities and Exchange Commission’s official X account was hacked and posted a hoax approval message, a day earlier than many were expecting. There was also drama on the day of the approval, with Cboe publishing listing notifications ahead of the official acceptance and a mysterious document that seemed to confirm the greenlight for all eleven spot ETFs that appeared on the SEC’s website before it was taken down and posted about 40 minutes later to the correct location. It was truly a spectacle unlike any other, and as some pointed out, an event that felt like it could only happen in crypto. You can get the full rundown on all the shenanigans that ensued in this retrospective from our editorial team. 
  • It was also very obvious from the get-go that this was going to be an extremely competitive market. With the expectation that all eleven funds would go live at the same time, it meant that these firms were eager to drop fees and hope to amass market share. While many of the initial amended S-1s came in last Monday and revealed some already very low fees, we began to see even more updates flow in as firms continued to slash the cost of their offerings. 
• Notably, Grayscale’s GBTC claimed the highest fee at 1.5%. Grayscale did have a major advantage over the other issuers, though, in the fact that GBTC already has a large swath of investors, given its existence as a bitcoin trust beforehand. It doesn’t need to bring in new customers as much as it needs to retain current ones. 
  • Grayscale already had $27 billion in assets under management for GBTC, and on its GBTC information page, it touts the title of “the world’s largest Bitcoin ETF,” with the note that it’s based on AUM snapped on January 10th, 2024, the day of ETF approval. 
  • Grayscale also dominated volumes on the first day of spot ETF trading, putting up just over 50% of the $3.95 billion of volume put up across the freshly launched products. BlackRock’s IBIT and Fidelity’s FBTC seem to be the other two major winners. 
  • Grayscale’s victory in the volumes might not necessarily be a huge win for them since their high volumes might be indicative of more outflows as holders of GBTC finally got the opportunity for their redemption.  
• One thing seems clear, though. Bitcoin futures ETFs seem like they will soon be on the fringe of relevancy. While ProShares’ BITO, the largest bitcoin futures ETF, had its highest day of trading on the 11th, it was already dwarfed by spot ETF volumes. 
  • With the new existence of spot ETFs, which track prices better than futures since there is no need for contract rotation, it's likely more investors will opt to take the spot route moving forward. 

What comes next?

Source: The Block

• The spot bitcoin ETF was the big narrative in the second half of 2023. It really served as a bit of a turning point for crypto sentiment. 
  • While bitcoin itself hasn’t been performing that well on the heels of the approval (which was a bit expected as some shorter-term traders cashed in on the profits they made on the run-up to the launch), there is a broader consensus that the new investment vehicles are broadly positive for the industry and will hopefully begin a new wave of adoption. 
• Naturally, people are now looking to latch on to the next big thing. What is the next monumental crypto event that will push the industry forward (or at least push prices upwards)?
  • There is the current optimism around a pivot from central banks across the world, but specifically in the U.S. The hope that lower borrowing costs and lower inflation levels trigger more widespread investment is bullish for crypto as well as more traditional markets. 
  • There is also the upcoming Bitcoin halving, which will take the block reward down to 3.125 BTC. It’s slated to arrive in April and is often viewed as a catalyst for a bull run as supply growth slows. 
• But something new that people seem to be anticipating in the wake of the spot bitcoin ETF approval is the greenlight for a spot ether ETF. 
  • This is not a completely out-of-the-blue notion. Upon the heat for the spot bitcoin ETF, some firms, including heavyweight BlackRock, filed for an ether counterpart. And there are ether futures ETFs, which is a good sign considering that bitcoin futures ETF approval was one of the major reasons that the SEC had to see the spot ETF through, per the Grayscale ruling. 
  • But it’s not as clear cut, especially since the SEC is much more critical of ether, more so now that the network switched to Proof-of-Stake. Besides just the fears of market manipulation and fraud in the spot market that the SEC touted when blocking a spot bitcoin ETF, the agency probably has a bit more leeway to make a different argument for blocking a spot ether ETF. 
  • The first decision deadline for a spot ether ETF is coming up in May, and so far, it's anyone’s bet on what happens. Ether’s price has been surging in the wake of the bitcoin ETF launches, in the hope that ETH has its time to shine next. It has been outperforming bitcoin so far in 2024 after lagging behind it in 2023. Eric Balchunas, an ETF analyst at Bloomberg who has become quite popular with the crypto community due to his spot bitcoin ETF coverage, gives a 70% chance of approval for an ether ETF. Larry Fink, BlackRock’s CEO, said he “sees value” in a spot Ethereum ETF in an interview after IBIT’s successful launch. However, JPMorgan analysts do not see more than a 50% chance of approval by May. 

Washed out

Source: The Block

• There was a period of time when wash trading dominated the NFT market. What really began the massive surge in wash trading was the launch of LooksRare back at the start of 2022. While originally, the most popular NFT marketplace was OpenSea, which didn’t and still does not have a token, an onslaught of newer NFT trading venues began to emerge with trading incentives.
  • LooksRare specifically launched a vampire attack on OpenSea when it went live, giving LOOKS tokens to previous OpenSea users as a means to draw them into their platform. X2Y2 went live just a month later in a similar manner. 
  • On these marketplaces, you could earn tokens by using the platform, whether it be listing, bidding, or actually making a trade. Generally, any sort of engagement helped users obtain rewards. 
  • It is not really surprising that the launch of NFT marketplaces with this sort of structure would usher in a wave of wash trading, or trading that is not a genuine NFT trade but rather trading for the sake of earning rewards. 
  • Neither LooksRare nor X2Y2 was able to really match OpenSea’s organic trading volume, although they managed to put up quite the wash trading numbers, thus pushing the amount of wash trading in the NFT space up to over 80% at its peak. 
• Broadly speaking, since wash trading first got its hyped-up start at the beginning of 2022, it has largely been on the downward trend. 
  • Marketplaces began trying to implement tougher restrictions on rewards to disincentivize wash trading and only reward real users. And a lot of NFT marketplace tokens have depreciated quite significantly since their launch making them less attractive to farm. 
• But what might have been the final nail in the coffin for wash trading is that platforms are just stopping support for incentives altogether. 
  • In September 2023, LooksRare stopped their trading rewards system and X2Y2 is slated to stop theirs in February of this year. 
  • Overall, wash trading on Ethereum dropped down to below 2% a few days last week, reaching levels not seen since before LooksRare first launched and began the wash trading extravaganza.

Written in the stars

Source: Manta Socialscan

• While the layer 2 network Manta Pacific only launched back in September 2023, it has already gone through some significant changes. 
  • Initially, the scaling solution designed for zero-knowledge-based app development was developed using a modified version of Optimism's OP Stack and, from the get-go, had the ambition of using Celestia’s data availability layer to lower costs for its users. 
  • In October, the platform announced it would be migrating from the modified OP Stack to become a zkEVM validium utilizing Polygon’s Chain Development Kit as a means to help Manta Pacific reach its long term goals and enable faster finality, enhance security, and broaden Ethereum interoperability. 
• In December, Manta Pacific took the step to actually adopt Celestia’s modular approach to data availability as they had intended. 
  • Celestia itself did not launch all that long ago, going live on mainnet in late October of last year. Celestia is a modular network meant to help rollups and other modular chains with data availability. The data sampling strategy it employs is meant to allow nodes to confirm data availability without having to download all the data for a block. 
  • Polygon is working to integrate Celestia into its Chain Development Kit and Arbitrum is doing a similar integration for its Orbit stack so that it is easy for other layer 2s to spin up and tap into this lower-cost solution.
• We can already see how Celestia usage has been impacting fees on Manta Pacific. The cost of publishing data on Ethereum versus publishing data on Celestia is quite dramatic.
  • With the Celestia data availability price estimates determined by 1 TIA per MB of data and the Ethereum fee estimates determined by a 20 gwei gas fee and the daily ETH price, we can see the fees are typically different by orders of magnitude. 
  • Since Celestia has been integrated, data fees have peaked at $137 and tend to stay more in the $40 to $80 range. On the other hand, fees are more often than not above $10,000 on Ethereum, even reaching as high as $71,170 at their peak. Needless to say the reduction tends to be at least 100x, if not more. 
  • Given the vast improvement in costs it’s not surprising we’d see these development platforms begin to support easy access to Celestia. Although the network is still relatively new, it seems to be garnering a lot of traction, and the blockchain’s native token, TIA, has been on an upward trend since launch.

The era of zkSync

Source: Polygon zkEVM Explorer, zkSync Era Stats, Manta Pacific Scanner

• On the optimistic rollup side of the scaling solutions debate, we have seen some healthy competition amongst the major players, with Optimism, Arbitrum, and Base all having their time to shine and all tending to put up comparable amounts of transactions.
  • But there is not much debate about who is dominating in the world of ZK rollups: the leader is clearly zkSync.
  • While optimistic rollups still remain the more prominent of the scaling solution by total value locked, ZK rollups made a lot of strides in 2023 towards broader adoptions. Most notably, last year marked the launch of several zkEVM networks, which improved upon many of the existing ZK rollups that were not EVM compatible, which meant it would take some effort for teams of leading EVM projects to port their protocols over to these rollups. The idea of an EVM-compatible ZK rollup had been on the table for a while, and we first saw them hit the market in March of 2023.
• The first zkEVM to go live was zkSync Era, which had a non-EVM compatible predecessor, zkSync Lite. 
  • Very shortly after zkSync Era went live, Polygon also launched their zkEVM, as many groups were working to develop the technology beforehand. Another major zkEVM, Scroll, did not hit the mainnet until October. 
  • While it’s hard to say that zkSync Era had a first-mover advantage since Polygon zkEVM came out so quickly afterward, it does seem to have attracted quite a lot of hype. 
  • It is the ZK rollup solution with the most total value locked in escrow contracts by far, accounting for roughly one-third of the total at $551.5 million. It also dominates the number of transactions on ZK rollups by a significant margin, and it has essentially held onto that title since launch with not much trouble coming from Manta Pacific or Polygon zkEVM. While zkSync Era tends to have over 500,000 transactions a day, and more recently breaking 1 million during an uptick in action, the other two tend to stay below 100,000, although Manta Pacific has picked up into the 200,000 level lately.
  • zkSync Era actually beat out Ethereum for transactions in December as inscription activity surged on the network.
  • The network will also be home to the new Pudgy Penguins game.
  • While zkSync Era is not exactly new, many people are still holding out for a potential airdrop from the rollup. The two largest optimistic rollup solutions have done their own successful airdrops, which helped them gain liquidity and users, and when Era first launched their development team did acknowledge the need for a token to decentralize their sequencers. The hope for a token could be one of the drivers of zkSync Era’s success.