Data & Insights Recap: Solana's climb in revenue, Arbitrum's return to dominance

Fee-ld day

Source: DefiLlama

• Memecoin hype got another boost this week with the return of “Roaring Kitty,” the Reddit user popular on r/WallStreetBets that helped trigger the meme stock frenzy back in 2021. 
  • Keith Gill, the owner of the account, actually came back to X, posting on his once-dormant account for the first time since June 2021. No text was posted, just the popular meme of a video game player leaning forward in his chair, sometimes used to signal that things are about to get serious. 
  • The tweet alone had an outsized impact on the meme stock community. Both GameStop and AMC stock were halted several times last week due to high volatility. GME spiked more than 100% after the tweet dropped before it had to go on the trading pause. 
  • While Gill was the face of a rally that was primarily focused on the stock market, his comeback also translated over into the on-chain meme community. For instance, the GME memecoin on Solana (which has no affiliation with the company, it just has the same ticker) shot up 460% on Tuesday. It also didn’t have to deal with any pesky trading halts either. 
• As we’ve talked about before over the past few months, the network with one of the most flourishing memecoin communities is Solana. Its cheap fees make it an incredibly attractive option for people looking to trade, allowing it to amass a vast amount of users as well as token listings.
  • Part of what has helped Solana is the launch of pump.fun, which aims to simplify the token deployment process. Pump.fun’s revenue actually peaked on May 14th at $1.23 million, the day after Roaring Kitty’s post, as many people tried to create the next new popular token in the light of the recent memecoin draw. 
  • Pump.fun was also exploited for $1.9 million last week by a former employee, who used both a flash loan as well as illegitimate access to withdraw authority to pull off the heist. While pump.fun had to temporarily pause trading, they have now resumed operations and are offering free trading in the week post-mortem.
  • Despite the memecoin resurgence, the total amount of fees being paid on Solana is still lower than in mid to late March, which was when Solana-based memecoins were really at their zenith of popularity. But fees are still quite high for the network, as typically $1 million is spent to transact on Solana each day, a far cry from the $50,000 that was being paid in early 2023. 
• But while Solana has held on to its high usage regime, Ethereum has seen a sharp drop in block demand, resulting in some of the lowest total fees paid on the network we’ve seen in a long time. It has now become uncommon for $4 million of fees to be paid on Ethereum, whereas it used to be the standard for that to be the minimum. 
  • This has allowed the ratio of the fees paid on Solana relative to Ethereum to reach a new high. Solana’s revenue was over 60% of Ethereum’s some days last week, a significant portion, especially compared to the fractions of a percent the ratio was up until the end of last year. 
  • It just goes to show Solana’s newfound dominance as it continues to rebound its reputation in a post-FTX world as a fast and cheap alternative to what came before it. 

ARB-en’t you glad I didn’t say Base?

Source: Block Scanners

• In the wake of the Dencun upgrade, which helped lower costs for many Ethereum layer 2 networks by introducing “blobs” for cheaper data storage, it was hard not to talk about Base. Fees on the Coinbase-backed layer 2 plummeted as a result, attracting many users back to the platform, which had seen activity fade a bit after its launch hype back in the late summer.
  • While all layer 2s that implemented blob data saw a significant reduction in transaction costs, Base’s were some of the lowest initially, with the daily median transaction fee falling below one cent, allowing it to quickly capture the market’s attention.
  • Base was then able to also tap into that memecoin mania in May, with DEXs on the rollup seeing new highs in volume and a swath of new tokens launching on the network. 
  • The 7-day moving average of transactions on Base climbed to 3.09 million in mid-April during the hype, marking a new high for the optimistic rollup.
• But in typical fashion, hype sort of fades away, and the moving average of transactions on Base has slipped down to 1.92 million, which is still quite elevated compared to where the number of transactions on the network was prior to the Dencun upgrade.
  • Part of what also could have been weighing on Base was that with the increased demand, fees could not stay as low as they initially were. While Base is still extremely inexpensive to interact with, the median transaction fee got as high as $0.32 in late March, although it did drop back down. Fees now typically range from one to three cents, which is comparable to most other layer 2s that have moved to blobs. 
  • This has allowed the other layer 2s to begin attracting some of the user base that Base had accumulated so quickly. In particular, the 7-day moving average of transactions on Arbitrum has accelerated from under 750,000 when Dencun went live on mainnet to 2.57 million now, reasserting itself as the optimistic rollup with the highest number of transactions, a title it held from October 2023, after Base’s post-launch excitement wore off, until March of this year. 
  • The median transaction fee on Arbitrum has come in at less than one cent a day since April 4th, which makes it one of the cheapest layer 2s more recently. Uniswap on Arbitrum also recently crossed the $150 billion cumulative volume mark, the first layer 2 network to reach that threshold, and a testament to its continued popularity.
  • Airdrop claims like UXLINK, which encourage users to do daily check-ins to earn more tokens, have also contributed to more activity on the network. 
• Ethereum layer 2s are likely to continue gaining momentum, especially now that costs for most of them have declined dramatically post-Dencun. It was unlikely that Base would be able to keep its strong grip on the L2 market forever.

From hero to LayerZero

Source: LayerZero Scan

• Sorry to bring up another airdrop in this newsletter, but they continue to be an outsized source of drama in the crypto industry.
  • The one we will be talking about today is LayerZero, a cross-chain communication protocol. While information on the actual token launch is scarce, the protocol confirmed that they had taken their snapshot for the airdrop, which determines which addresses quality, at the very end of May 1st, with more information to come. 
  • LayerZero Labs did announce a unique approach to fighting sybil farmers, or users who engage with the protocol only as a means of acquiring a larger airdrop allocation, as opposed to organically using LayerZero. LayerZero Labs posted that they would rather distribute their token to durable platform users since the typical point of an airdrop is both to reward early adopters but also build a group of users committed to decentralized governance going forward. The sybil farmers are more likely to dump their tokens as soon as they get them, simply just looking to get the reward. 
  • The strategy involves allowing sybil farmers to self-report themselves and get 15% of the allocation they would have received. The reporting period would be open for two weeks, and these airdrop farmers faced the risk that if they did not report and they were flagged by LayerZero Labs’ internal sybil report, then they would get nothing at all. 
  • By May 14th, over 100,000 addresses had self-reported, with the data then being used to help identify the non-reported sybils. By the end of the reporting period, LayerZero, Chaos Labs, and Nansen had identified over 803,000 between the self-reports and separate analyses. 
  • After LayerZero cleared out “industrial clusters” of sybil farmers with their analysis, the “bounty-hunter” phase of the sybil strategy began, allowing people to report other addresses as sybil farmers on the network and claim part of their airdrop allocation as a reward. This program had to be paused a day after it went live due to it already attracting 3,000 reports and 30,000 appeals. The downtime is expected to be temporary as the team makes improvements to the current system, possibly by requiring a small bond to submit a report. 
• Regardless of how this experiment ends, it has weighed heavily on LayerZero’s activity. The number of messages being sent has dropped from 348,000 on April 30th, right ahead of the snapshot date, to only 70,000 by May 5th. The number has dropped below 40,000 more recently, pushing the daily message count down to levels not seen since March 2023, before activity really took off on the platform. 
  • Given the significant drop, it seems like there are a lot of sybil farmers to catch. It will be interesting to see in the end how many addresses get access to their full claim and how many get nothing. 

Eigen, EigOUT

Source: The Block

• We talked a few weeks ago about how the reaction to EigenLayer’s EIGEN airdrop saw the amount of queued withdrawers on the platform shoot up. 
  • While there were some points of contention about the airdrop, including VPN restrictions and the initial period of non-transferability imposed on the tokens, the Eigen Foundation came out a few days later to both expand airdrop allocations and clarify some of the timing around the token unlocks and transferability going forward, which helped calm some fears. 
  • It is possible that some users who had only deposited into EigenLayer to farm the airdrop were also content to exit the platform in the wake of the snapshot being taken, not only users being mad about the initial EIGEN reveal. 
  • However, we are now starting to see the actual impacts of that withdrawal queue uptick. Since withdrawers are subjected to a 7-day escrow period before they are able to withdraw their funds, actual outflows from the platform are tracked on a roughly a week delay compared to when they were initiated. The amount of queue withdrawers first picked up on April 29th, when the tokenomics for EIGEN was first announced, but we saw the number of actual withdrawers from EigenLayer surge starting on May 6th, after the escrow period was up. 
• But beyond just withdrawers, we can now more clearly see the capital flight facing EigenLayer. The number of depositors to EigenLayer shot up in mid-April, after they launched their mainnet and unpaused deposits for liquid staking tokens, so the uptick in withdrawals did not necessarily have to be cause for much issue for the restaking platform. 
  • And it seems like so far the pressure has been relatively manageable. Since May 6th, there have been four days where daily net flows have exceeded -$45 million, indicating a decent amount of funds leaving the platform. However, $45 million still pales in comparison to EigenLayer’s almost $15 billion in TVL, so the amount of funds securing their restaking network has remained largely unchanged. 
  • While net negative days have become more common in the wake of the EIGEN launch, net positive days still happen, with the platform bringing in $57 million on May 15th. It also looks like the initial surge in withdrawers has been calming down, although the daily level does still tend to be higher compared to before the token was revealed. 
  • But now that EigenLayer has launched its mainnet, it is now in a position to pass on that extra yield to depositors that it had promised before. And since EigenLayer is the restaking platform with the largest security network by far, it will likely be the most attractive option for new services looking to bypass bootstrapping their own liquidity. So EigenLayer is in a good position to help attract new services to boost their depositors’ additional rewards, which may also be enough to get users to now keep their money with the protocol. 

Spot ETFs go global

Source: The Block

• The freshly launched Hong Kong spot crypto ETFs have now been on the market for almost three weeks. As a part of Hong Kong’s push to become a crypto hub, the region approved six spot ETFs, three bitcoin and three ether, from three issuers, ChinaAMC, Harvest Global, and Bosera and HashKey. 
  • While the debut was not anticipated to make as much of a splash as the U.S. spot bitcoin ETFs did back in January, it was still a notable achievement. Not only would these be the first spot crypto ETFs in Asia, they would also provide in-kind creation and redemption, allowing investors to use bitcoin and ether to directly trade the ETFs. In the U.S., the funds are cash redemption, so when someone wants to redeem a share, the issuer must first sell the bitcoin it represents and give them back the cash value, as opposed to giving them back the bitcoin directly. 
  • The funds are also not available to investors in mainland China, making the target audience for these funds somewhat smaller, but qualified investors outside the city can still invest if they so choose, in addition to Hong Kong-based traders. 
  • On the launch day, the six ETFs did just over $11 million in volume, with $8.56 million in the bitcoin ETFs compared to only $2.54 million for the ether ETFs. For both types of funds, volumes peaked on launch day. The U.S. funds initially also peaked on launch day, with a $4.5 billion trading debut, but the bitcoin rally in March helped push volumes higher on bullish sentiment. 
  • Another key difference between the U.S. and Hong Kong launches is the fact that it seems like the Hong Kong ETFs had brought in AUM ahead of the launch, whereas the U.S. funds lined up investors to buy in on the first day which helps with marketing and optics since it helps juice first day volumes. 
  • The ETFs did have a successful launch if you look at Hong Kong data. The $123 million brought in by ChinaAMC’s bitcoin ETF ranked it 6th of the 82 ETFs that have launched in the region in the past three years, according to Bloomberg ETF analyst Eric Blachunas. 
• That being said, it only took four days before the HK ETFs started posting outflows, with both the bitcoin and ether sides posting net negative flows driven by money exiting ChinaAMC on May 6th. While Grayscale was a big driver of outflows in the U.S., the new funds didn’t see sizable outflows until months after launch. This is, though, somewhat a byproduct of launch time. In mid-January bitcoin and the broader market were on a tear, whereas that rally has fizzled in the second quarter after a series of hot inflation prints this year. 
  • Last week marked the largest day of outflows for both the bitcoin and ether ETFs in Hong Kong, as all six funds posted net outflows individually for the first time. 
• But the tepid start does leave room for growth down the line. Wintermute announced liquidity support for these funds earlier this month, and Harvest Global seems to be open to applying to offer their ETFs in mainland China.