Data & Insights Recap - Dencun makes storage cheaper, March spot volumes already at 2-year high

When all is said and Dencun

Source: The Block

• The highlight of last week in the crypto-world, besides bitcoin climbing to over $73,000, was the Dencun upgrade coming to the Ethereum mainnet on March 13th.
  • The main feature of this launch was the introduction of “blobs” as a cheaper means of data storage, primarily helping layer 2 networks that used to publish their data directly in the “calldata” of Ethereum transactions. The blobs are stored off-chain and are capable of holding more data than the “calldata” of a transaction, both of which are features helping to bring down costs. 
  • The upgrade introduced a new transaction type to the network, so you can still send blobless, type 2 (EIP-1559) transactions, which is likely to remain the default for most protocols. It is really the rollups that are the groups most eager to jump in on EIP-4844. Most scaling platforms do have plans to integrate the type 3 transactions, but projects are moving with different degrees of urgency.
• Most major layer 2s have already made the switch, including both optimistic rollups like Arbitrum, Optimism, and Base and ZK rollups like Starknet and zkSync. 
  • And just as intended, fees were reduced dramatically for these protocols as a result. Layer 2s were already cheaper to interact with than Ethereum itself, so the average transaction fee on most networks was already pretty modest, typically in the $0.50 to $1.00 range. But after switching over to blobs, fees dropped to less than one cent on some networks, putting them more in line with the likes of Solana in terms of extremely low-cost transactions. 
  • That being said, blobs are still in the early days, so demand for them is still quite low. It is possible that as more and more people start adopting EIP-4844 transactions, fees will rise due to increased competition for blobspace. But still, the costs should be reduced compared to using “calldata,” the fees just might not be able to stay below $0.01 forever. 
  • Across layer 2s, the amount of money being spent publishing data on the Ethereum mainnet dropped from over $2.2 million on March 12th to under $800,000 since March 15th. Not every scaling network has made the transition, as Scroll and Linea have now become two of the rollups paying the most to publish data. But for Arbitrum total fees have dropped from $631,000 the day before Dencun to below $5,000 for the past two days. A similarly drastic drop has occurred for Optimism, Base, zkSync, and Zora, which have all made the switch over.
  • The upgrade has not been a walk in the park for every layer 2, though. The recently launched Blast stopped producing blocks in the wake of the update for about 2 hours.

Into the ether.fi

• A few weeks back, we talked about the popularity of restaking protocol Eigenlayer, which saw its total value locked surpass $10 billion earlier this month. 
  • The main idea behind restaking is that other protocols can tap into Ethereum’s vast security network. Eigenlayer accepts both native staked ETH and liquid staked ETH tokens and will eventually use these funds to secure third-party networks. The re-stakers are hoping for additional yield, and newer protocols can benefit by not needing to bootstrap liquidity to get off the ground. 
  • But a new genre of protocols is emerging: liquid restaking. Similar to how there are Ethereum staking protocols where you can deposit ETH and let the project handle spinning up a validator, and liquid staking protocols that do the same thing but also provide a staking derivative token; there are also protocols that do the same thing as Eigenlayer but give depositors a token representing their locked funds. In fact, a lot of them actually do the restaking part via Eigenlayer itself.
• One of the most popular liquid restaking protocols is ether.fi, which has a TVL of over $3 billion and announced a $27 million funding round at the end of February. 
  • Ether.fi does restake through Eigenlayer, but gives its depositors EETH in return. Since the protocol utilized Eigenlayer, its homepage boasts that it has accumulated over 570 million Eigenlayer Points, which many think is a precursor to a potential airdrop. It also has distributed more than 40 billion ether.fi Loyalty Points, which also seems to imply a reward is coming soon to early users. 
  • A potential ether.fi governance token seemed to be on the horizon last week. On March 12th, Binance Launchpool announced it would let users farm ETHFI in the coming days and said trading would begin for the token today, and OKX similarly revealed on March 15th that it would list the token starting today, too.
  • Unsurprisingly, on the same day that Binance announced its Launchpad program for the token, the number of depositors to ether.fi shot up. Just under 3,000 addresses deposited to ether.fi on March 14th, the fourth highest day on record, coming in below only a handful of days in early February from around when Eigenlayer lifted its deposit cap. 
  • It’s likely this surge was caused by people looking to get into ether.fi before a potential airdrop snapshot happened since the launch of its token was now confirmed. Ether.fi announced its upcoming airdrop over the weekend but changed the initial allocation plans after discovering that TRON founder Justin Sun would receive a large allocation. The Season 1 airdrop will be based on behavior up to March 15th, indicating that hope might not be lost for that group of new depositors. 

I get knocked down, but I get up again

Source: The Block

• There are just under two weeks left in March, but it is already shaping up to be quite a memorable month. The most significant upgrade hit the Ethereum mainnet since the Shapella upgrade of April last year, as we talked about before, and bitcoin had its first run above $70,000. 
  • And the excitement in the market has caused other tokens to also have exciting rallies earlier in the month, with ether climbing above $4,000 and several memecoins posting gains of thousands of percentage points. 
  • While there does seem to have been some drawdown across the market in the tail of last week and over the weekend, that doesn’t change the fact that earlier this month, we saw the 7-day moving average of daily spot volumes across centralized exchanges surpass $100 billion for the first time since November 2021. 
• March has already posted more spot volume than February, with over $1.5 trillion of trades being done this month, guaranteeing that this month will be the highest month of volume since December 2021, and there’s still room for volumes to grow. 
  • It also means that March will be the sixth consecutive month of growth for spot volumes, climbing from the dearths of September, when volumes were only $324 billion. 
• This month is also slated to be a strong one for Binance. The exchange giant has accounted for roughly $727.5 billion of the total volume this month, putting it on pace for a market share of just over 46%. 
  • If it manages to continue at this pace, it will be Binance’s largest market share since June 2023. Its share dropped as low as 37.5% at the end of last year as the exchange faced regulatory pressures and dwindling volumes in the wake of the end of its zero-fee bitcoin trading promotion. 
  • It’s still a far cry from Binance’s 62% market share at its peak, but it does signal that Binance seems to have found its footing and has likely faced the bottom in terms of its market share decline.  
• While volumes seem like they might have peaked earlier this month, they still remain quite elevated compared to earlier in the year, partially because most assets have appreciated in value since the start of the year. It’s likely that volumes for March will exceed February by quite a wide margin.

Halving a good time

Source: The Block

• While bitcoin miners are preparing for a hit after the halving next month, which will take the block reward for mining a block on the network down to 3.125 BTC down from 6.25 BTC, they have enjoyed the perks of higher revenue due to bitcoin’s recent rally.
  • The 7-day moving average of daily miner revenue came in at $71.7 million on March 13th, a new all-time high, primarily driven by $68.8 million worth of block subsidy rewards but additionally consisting of $2.9 million of transaction fees. 
  • With a block time targeted around around 10 minutes, there are always about 144 blocks produced on bitcoin per day; so the amount of subsidy earned in BTC terms is more or less consistent from day to day. So the only things that can really boost the overall miner revenue is a rise in bitcoin’s price or higher transaction fees, which are variable based on demand for bitcoin blockspace. But fees are relatively low right now, especially compared to how high they had gotten during peak Ordinals hype a few months ago, so most of this falls back on value appreciation.
• The previous peak in the moving average of bitcoin miner revenue happened back in May 2021, similarly driven by a spike in bitcoin’s price. But the story is not exactly the same as May 2021. 
  • The previous halving was in 2020, so the block reward was still 6.25 BTC so the overall amount of BTC being earned on the subsidy side was roughly the same. 
  • But bitcoin’s hashrate is more than triple what it was back then, climbing from around 180 EH/s right ahead of China’s crackdown on bitcoin mining to over 600 EH/s now.
  • That is to say, the mining market is much more competitive. While the total miner compensation in May 2021 and now is roughly the same, there are a lot more miners that are splitting that pie since there’s so much more hashing power securing the network. 
  • The 7-day moving average of bitcoin miner revenue per TH/s is about $0.12 right now, compared to about $0.38 during the last peak. Back in 2017, the revenue was over $3 since there were so few miners and the block reward was still 12.5 BTC. However, as long as the revenue stays above the cost of running a bitcoin miner, then miners still stand to make a profit. 
  • A Bloomberg report found 13 major bitcoin mining firms ordering over $1 billion worth of mining rigs since February, indicating that many of them are looking to bolster profits in the bull run. Marathon Digital also just announced an $87 million equipment deal, too, to help boost production ahead of the reward cut. 

To risk or not to risk?

Source: CryptoCompare, Yahoo Finance

• Bitcoin has cooled off from its strong rally over the past few weeks, dropping below $66,000 briefly over the weekend and losing its footing over the $69,000 mark, where the asset exceeded its previous peak set in November 2021.
  • Part of that might have been a healthy correction. With bitcoin soaring to $73,500, there was likely to be some profit-taking.
  • But we also saw a higher-than-expected consumer price index (CPI) reading come out of the U.S. during the week that could have also muted some risk appetite, as it signaled that maybe the Federal Reserve will delay rate cuts since inflation is still running quite hot. 
  • The report came out on March 13th and had a relatively clear immediate effect on the stock market while bitcoin continued pushing higher, but the asset’s descent began just a day later. 
• And while bitcoin was rallying over the past few months, largely due to the spot ETF approval, the stock market was also proving to be a fruitful investment for the most part.
  • There was a lot of interest in tech stocks as many piled into hype for AI, which helped bolster the S&P 500 and Nasdaq 100. Both indices continued to climb to new all time highs throughout March. Investors were also somewhat more open to risk-taking due to confidence in the fact that the Fed looked poised to make rate cuts later this year. While at the end of last year, traders were overzealous and expecting up to eight cuts in 2024, the market and the Fed now seem to be in agreement that the central bank will reduce the interest rate three times, which will still hopefully serve as a boost to economic activity.
  • But on the other hand, geopolitical tensions are still high and there are a lot of significant elections slated to take place in the year ahead. Gold has also been rising as people look for a safe haven asset in what is likely to be a tumultuous year. Gold also reached a new peak this month.
• So, it’s not surprising that we have seen a rise in bitcoin’s correlations with these assets.
  • On March 14th, bitcoin’s 30-day Pearson correlation with the Nasdaq 100 was 0.8, 0.84 with gold, and 0.91 with the S&P 500. It’s the first time the largest crypto asset has correlations above 0.8 for all three since January 2023. 
  • What this essentially means is that in the 30 days leading up to March 14th, bitcoin’s daily price movements were similar to the price movements of gold and the stock indices. Bitcoin is up by a much larger margin over the past month compared to its more traditional counterparts, but other assets have been climbing, as well.