Data & Insights Recap: A quarter of ETH staked, ERC-404 tokens spike fees

Stake in the mud

Source: Ethereum Validator Queue

• It has been over a year since Ethereum completed The Merge and became a proof-of-stake network, and it has been 10 months (to today exactly, actually) since the network activated the Shapella upgrade.
  • To set the scene, the proof-of-stake transition was a long time coming. The Beacon Chain began accepting deposits back in 2020. The point was to begin accumulating validators ahead of the actual Merge so that when the blockchain switched consensus mechanisms, it would be sufficiently secured. People who staked during this period could not withdraw their funds, they were locked in to help bring the network PoS. The Beacon Chain ran in parallel with Ethereum while it was still using proof-of-work, and also made sure there were no major technical snares.
  • So, for over three years, users have been able to help secure the Ethereum network, whether it be by depositing 32 ETH themselves and spinning up their own validator or contributing to a third-party staking provider. For supporting the blockchain, the stakers would earn validator rewards in return, which helped motivate people to participate. 
  • The Merge actually happened in August 2022, which brought the proof-of-stake to the mainnet, but people could still not unstake their funds. The Shapella upgrade hit the blockchain on April 12th, 2023, which finally granted users the mechanism to take their deposits out of the Beacon Chain contract and also access any rewards they had earned. 
• When Shapella launched, there were some ruminations that it would cause Ethereum’s security to plummet as validators who had been securing the network for several years pulled their funds after earning sufficient rewards.
  • However, the enablement of withdrawals did not cause any mass exit of validators. While there were many people who withdrew their rewards at the start, only a handful of validators actually took the opportunity to fully leave.
  • There are a couple of reasons why the exodus did not actually transpire. For starters, the popularity of liquid staking meant that many ETH depositors were not actually without access to the funds they locked up because they received staking derivative tokens. People also actually began to be more trusting of depositing in the wake of Shapella, as it quelled fears about never being able to be returned. It proved that it was possible to get your money back, which was still somewhat up in the air before the upgrade actually went live. 
• So, in turn, we have seen the amount of ETH staked continue to grow.
  • The massive pour-in of validators has declined, with the validator queue shrinking from over 96,000 back in June to typically just a couple hundred per day more recently, but we are still seeing deposits flow in.
  • And as a tribute to how popular ETH staking is, 25% of ETH’s supply is now being staked and used to secure the network. 
  • While centralization fears have been running rampant given the significant portion of validators that staking providers control, there is definitely no issue surrounding how much value is going toward securing the network. 

First Digital dominates

Source: The Block

• Binance has managed to stop its market share slump coming into the new year. After the exchange fell from 62% of spot volume market share in February 2023 down to 37.5% in November, it has managed to hover in the high 30 percent area since then and is actually on pace to account for 42% of volumes in February so far. 
  • As we have previously talked about in this newsletter, part of Binance’s decline was driven by an end to their zero-fee bitcoin trading promotion, which put pressure on their overall volumes. 
  • But we have also talked about how Binance began to use trading promotions to help boost certain pairs, but more specifically, certain stablecoins it was looking to replace BUSD with. 
  • Binance’s main targets were TUSD and FDUSD. Initially, Binance focused its efforts on TUSD, and while there are still no maker fees on TUSD pairs, FDUSD seemed to become the ultimate winner in Binance’s eyes, with BTC/FDUSD and FDUSD/USDT being the only two pairs completely free to trade on the platform, no maker fee on FDUSD pairs, and an emphasis on conversion from BUSD to FDUSD when the exchange it announced it would be ending support for its original stablecoin darling. 
  • But when TUSD was the stablecoin in the spotlight, it was initially much more successful than FDUSD. While it took a while to catch on, TUSD pairs accounted for 30% of trading volume on Binance at their peak in August 2023. That same month, TUSD was the second largest quote asset by volume across several exchanges, falling only behind USDT. 
• For a while, it seemed like FDUSD was not catching on like TUSD had. Binance really solidified its dedication to FDUSD at the start of September when it put the taker fee back on BTC/TUSD and made BTC/FDUSD the only free bitcoin pair on the exchange. 
  • While FDUSD did account for about 14.5% of volume by quote asset in October and was also the second largest denomination, its share fell later in the year. 
  • On Binance itself, after FDUSD pairs accounted for 25% of volumes on the exchange in October, their dominance fell into the teens in the following months. 
  • Part of the issue might have been how unknown FDUSD was. While TUSD was also not quite as popular as the giants like USDT or USDC, it at least had a bit of history behind it, first launching in 2018. FDUSD, on the other hand, launched in the summer of 2023. Its market cap when Binance began promoting it was just $260 million, way smaller than anything it was competing against. 
  • But FDUSD has been showing a strong start to the year, bouncing back to 26.7% of Binance’s volumes in January and on pace to hit 38% in February, much higher than TUSD ever reached. 
  • It’s hard to say what caused the shift. The settlement with Binance and the DOJ in the U.S. probably helped the exchange overall since it helped alleviate some concerns about its future. Heavy trading in bitcoin in the wake of the ETF approval and subsequent market movements probably helped FDUSD in particular since it offers the most lucrative BTC pair on the exchange.
  • If FDUSD is able to maintain the share it has amassed in February so far, it is on pace to be as popular as BUSD was at its peak, signaling a win for Binance its stablecoin succession plan.

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Source: The Block

• There’s a new token standard in town! It is a sort of hybrid between the traditional ERC-20 fungible token standard on Ethereum along with NFTs to create what the team behind the idea calls a semi-fungible token, with the standard ERC-404.
  • You can read our editorial team’s feature on the new concept here, but the basic gist is that a project offers an equal amount of tokens and NFTs, with each token being linked to an NFT. If someone buys a fraction of a token, the NFT it corresponds to is burned, but users can also buy more portions of a token and have an NFT minted back into their wallet. 
  • The four-person team that came up with the standard launched their project, Pandora, on February 2nd, the first ERC-404 token project to hit the market with 10,000 Pandora tokens and 10,000 Replicants NFTs.
  • The Pandora tokens have already surpassed $490 million of trading volume on DEXs and the price of the tokens (which each represent a Replicant NFT) has surged from around $1,500 at launch to over $32,000 at their peak on Friday. 
  • A couple of other ERC-404 tokens have been breaking out, with Monarch and DeFrogs being some popular ones. 
• But with all this NFT minting and burning, it's bound to get a bit costly. A developer who goes by quit on X highlighted how this ERC-404 standard is more expensive than traditional NFT projects.
  • So, unsurprisingly, we’ve already begun to see the impacts of these new tokens on Ethereum network dynamics. 
  • The amount of ether burned on the network climbed to over 7,000 on February 9th, up 323% from 1,700 just five days earlier. It’s the highest amount of daily ETH burn since May 2023, when the network faced increased demand due to memecoin mania. 
  • On the same note, net ETH emissions sank down to the lowest they’ve been since May, as well, with ether’s supply shrinking by over 5,000 on the 9th.
  • The median gas price shot up to 65 gwei, and the 7-day moving average of the average transaction fee on the network now sits at $11.13 compared to $4.07 on January 29th. 
  • While these new tokens are exciting and novel, time will tell if their popularity is sustained, especially as costly transactions weigh on their future. The ERC-404 team has said they are working on optimizing for this issue, which could help bring fees down if they are successful. 

Say it to my Base

Source: Optimistic Etherscan, Arbiscan, BaseScan

• Base had a little bit of a fifteen minutes of fame moment. When it launched last summer, it was met with a lot of fanfare. It was a new optimistic rollup built by Coinbase on Optimism's OP Stack, so it had a lot going for it.
  • And it did spring up to incredible heights. On September 19th, the 7-day moving average of daily transactions on Base was just under 1.5 million. Comparatively, Base’s two largest competitors in the optimistic rollup space, Arbitrum and OP Mainnet, were both doing less than half the transactions on Base. 
  • Base was also home to friend.tech, one of the most popular protocols of the late summer and early, which helped boost activity on the scaling solution. Base was also the host of a slew of memecoins like BALD in its early days. This all helped Base’s very quick run-up to success.
  • However, nothing lasts forever, and it seems some of the initial Base hype faded out. Friend.tech is all but abandoned these days and Base’s TVL has been overtaken by Manta Pacific, a newer layer 2 tapping into Celestia’s data availability layer. And most importantly, the 7-day moving average of transactions on Base fell below both Arbitrum and Optimism. From November 2023 through January 2024, it was the optimistic rollup with the least amount of activity from the big three. 
• But it was never all over Base. Base’s transaction count was always comparable to that of OP Mainnet, which was still pretty impressive for a newly launched rollup, especially one that had tampered expectations of an airdrop (protocols on Base have had airdrops, but Base itself has said from the start it will not have a token). 
  • And since February 3rd, the 7-day moving average of transactions on Base has actually pulled ahead of that of OP Mainnet, putting up over 476,000 transactions a day, over 150,000 more than its trailing competitor. 
  • Aribtrum One is still ahead of Base by over 200,000 daily transactions, but its number has been falling. On January 1st, Arbitrum was putting up 1.05 million transactions compared to just 693.27k now. 
  • There’s not one metric that defines an optimistic rollup’s success, and it’s not like Base is pulling ahead of its main rivals in terms of transactions by any large margin. However, Base continues to pull in revenue through transaction fees on the network, which is probably the most important part of its viability in the future.

We are so back

Source: CoinGecko

• The total market capitalization across all cryptocurrencies climbed to $1.89 trillion over the weekend.
  • While not yet hitting that $2 trillion milestone, the upswing is still significant since it propelled the market cap past the $1.86 trillion valuation that it reached on the day of spot bitcoin ETF approval. 
  • That $1.86 trillion marked a peak as the green light for the new funds triggered a selloff of many crypto assets after a huge run-up that had begun in October of last year. Many traders took profits on investments they had made during the strong performance leading up to the ETF launch, and additional sell pressure was put in place due to the outflows from GBTC. 
  • Crypto’s total market cap fell to around $1.61 trillion on January 23rd, shedding off over $200 billion in value from the peak. 
  • But January 23rd seemed to mark the start of a turnaround. Outflows from GBTC were slowing down and the trend in the overall market was bullish, with the S&P 500 continuing to reach new highs, showing some more risk appetite from investors ahead of anticipated rate cuts across the globe. 
• So now, crypto’s valuation is the highest it's been since April 2022, right before the collapse of the Terra ecosystem marred the industry.
  • Bitcoin itself has now also erased its post-ETF losses, sitting over $48,000 this morning after dropping below $40,000 at the end of January, putting many ETF investors in the green and also showing the asset’s resilience to the sell-the-news phenomenon. 
  • The drawdown seemed to be very short-term, as now, just after a month since the ETF launches, we have seen the crypto ecosystem as a whole rebound from its erosion and show more positive momentum again.