Data & Insights: Longs Liquidated, Staked ETH ATH

Poly-tical Predictions

• As of the end of last week, Polymarket saw a record high of $387M in monthly volume for July 2024.
  • This figure represents a 71% MoM increase compared to the previous month and is also worth pointing out that monthly volume in July alone was higher than the cumulative volume of the previous 9 months combined ($376M) from October 2023 to June 2024.
  • To really put this into perspective, Polymarket managed to generate more volume in a single month than it did in the previous three quarters combined! This isn't just growth; it's an explosion.
• Polymarket’s user growth is equally impressive, with active traders on the platform reaching a record monthly high of 44.5K as well.
  • This figure is up 51% MoM compared to the previous month and has recorded an average growth rate of 62.7% per month over the past 12 months.
  • This figure looks even better when you zoom in, with an average MoM growth rate of 190% over the past 3 months alone. This means Polymarket has nearly tripled its user base every month for the past 3 months.
  • This exponential growth in active users underscores the platform's ability to continuously both retain and attract users at an exponential rate.
  • However, it's worth noting that active "users" on the platform is not an accurate representation of actual users or individuals. This is because one entity could make and use multiple wallets to trade on Polymarket. Hence, this makes the "active users" metric a slightly inflated one, though regardless, it is still a positive indicator of the platform's growth.
• On the other hand, if volume and user growth weren't enough, open interest (OI) on the platform has also grown at an exponential rate this year.
  • At the beginning of 2024, the platform had just $7.07 Million in open interest. As of the end of July 2024, this figure has multiplied by over 12X in just seven months, clocking in at just over $88 Million at the time of writing.
  • The most significant period of this growth occurred over a two-month period, in which OI on Polymarket started at $22.15 million at the beginning of June 2024 and quadrupled by the end of July.
• The increasing popularity of betting markets in general, which Polymarket has been a main beneficiary of, given its position as the leading crypto-focused betting market platform, is likely related to 2024 being an election year with the upcoming US presidential elections, as well as major sporting events such as the European football championship and Olympics taking place.
  • As recently reported by The Block, a bet on the US presidential election winner itself has seen over $474 million in volume, which comprises more than 45% of Polymarket’s overall volume to date.
  • Moreover, another reason for the rise of prediction and betting markets is how they may offer a more reliable and unbiased measure of market sentiment and event probabilities compared to traditional centralized polls.
  • Unlike conventional surveys that can be influenced by various biases or manipulated to fit specific narratives, prediction markets aggregate the collective wisdom and financial stakes of participants, potentially providing a more accurate reflection of real-world expectations and outcomes.
  • As we move closer to the U.S. presidential election, it will be interesting to see if Polymarket can maintain its current growth trajectory after this event.

All Pain, No Gain 

• The largest amount of single-day long liquidations in nearly half a year occurred this week, with over $471 Million worth of longs liquidated on August 8, 2024.
  • This was the largest liquidation of longs since April 2024.
  • This was triggered by substantial drops in the market, with BTC and ETH falling by 15% and 20%, respectively. For BTC, this represented the most severe single-day decline since the FTX collapse in November 2022.
  • To add salt to the wound, these losses compounded an already challenging week, with BTC having already fallen by 15% in the previous week.
• Furthermore, $3.7 Billion in aggregated open interest (OI) of BTC futures, which represents 12% of the total, was wiped out last week, going from $30.64 Billion at the beginning of last week to $26.94 Billion at the time of writing. 
  • Bybit bore the brunt of this liquidation event, accounting for $1.14 Billion of the OI loss on BTC futures.
• The broader crypto market wasn't spared either. To further show how grim the situation was, the GM30 index, which tracks the top 30 cryptocurrencies by market cap, registered a 28% decline over the week.
  • Meanwhile, the GMMEME index which represents the top memecoins by market cap, plummeted by 35% in the same period.
• While a comprehensive analysis is pending, the primary catalyst appears to be the Bank of Japan's (BOJ) increasingly hawkish stance, following two rate hikes earlier in the year. This, coupled with recession fears in the US, created a perfect storm for a mass sell-off.
  • The situation led to a speculated unwinding of the Yen carry trade. Previously, traders had borrowed Yen at near-zero interest rates to invest in higher-yielding non-Japanese assets.
  • As the BOJ raised rates and hinted at further increases, these carry traders began selling their assets and buying Yen to repay loans. This surge in Yen demand drove up its value, forcing more traders to follow suit and creating a self-reinforcing cycle of rising prices and forced buying - a classic liquidation cascade.
• Adding to the market tension, on-chain analysis revealed that Jump Crypto deposited hundreds of millions of dollars worth of crypto assets over the weekend, including Ethereum, into centralized exchanges, fueling speculation that the firm might be liquidating its crypto holdings.

Ethereum Layer 1 Slows as Layer 2s Zoom

• Ethereum has been experiencing a lull in activity. The network's transaction count has dipped to a 5-month low, with the 7-day moving average settling at 1.12 million transactions per day, a level not seen since February 2024.
  • This slowdown isn't isolated to transaction count. Active wallet addresses have also taken a nosedive, dropping to around 400,000.
• At first glance, it might seem like Ethereum's bustling metropolis has suddenly become a quiet suburb. However, this decrease in Layer 1 activity doesn't necessarily spell doom for the Ethereum ecosystem.
  • While the main chain seems to be taking a breather, Layer 2 solutions are picking up the slack and then some:
  • Base, Coinbase's Layer 2 offering, has emerged as a clear frontrunner, boasting a whopping 3.83 million transactions.
  • This explosion in activity suggests that users are increasingly comfortable with, and preferring, Layer 2 solutions for their day-to-day transactions.
• These platforms offer faster and cheaper transactions while still benefiting from Ethereum's robust security.
• This shift in user behavior has significant implications for the Ethereum ecosystem:
  • As more activity moves to Layer 2s, the main Ethereum chain could increasingly become a settlement layer for these solutions, rather than handling individual user transactions directly.
• This transition could lead to more sustainable gas fees on the main chain:
  • Potentially making it more accessible for larger transactions or critical smart contract interactions.
  • This also allows for a more efficient use of Ethereum's base layer resources.
• However, it also raises questions about the long-term value proposition of ETH:
  • If most user activity is happening on Layer 2s with their own token ecosystems, how will this affect ETH's utility and demand?
  • Will Ethereum's role as the backbone of this expanding ecosystem be enough to drive continued growth and adoption?
• We’ll be keeping an eye out to see if the stagnation in layer 1 activity will be paired with increased layer 2 activity or if the relationship will evolve further. 

Stake It ‘Till You Make It

• The percentage of the ETH supply staked reached an all-time high of 27.95% this week.
  • This comes after a brief dip two weeks ago, when the percentage of ETH supply staked dropped by 0.76% in a single day on July 21, 2024, from 27.58% to 26.82%.
  • Since then, this figure has not only rebounded but surpassed previous highs. Notably, since the launch of the ETH ETFs, the percentage of ETH staked has increased by 1.9%.
• What's particularly interesting is how, similar to the trend in the Bitcoin network’s transaction count discussed in the previous section, ETH’s staking trend has decoupled from its price performance.
  • Since ETH hit highs of around $4,090 in March 2024, its price has dropped by approximately 30% to $2,900 at the time of writing. However, during this same period, the percentage of ETH staked has increased by ~2%, from 26% to nearly 28%.
  • With ETH’s current supply of approximately 120.25 Million, that 2% increase in staked ETH is currently valued at roughly $7 Billion.
• A direct result of this consistent increase in staked ETH is the impact on liquid staking and restaking protocols.
  • The TVL of the liquid staking sector has increased by 60% YTD, from $32.68 Billion to $52.27 Billion at the time of writing. Even more impressively, the TVL of the liquid restaking sector has grown by over 1,200% in the same period, from $1.34 Billion to $18.65 Billion
  • Breaking down some of the top performers, Eigenlayer has seen its TVL grow more than tenfold, from $1.4 Billion at the beginning of 2024 to $15.97 Billion by the end of July.
  • Meanwhile, Renzo and EtherFi have experienced exponential growth, with the former’s TVL having multiplied by about 158x, growing from $10.45 million to $1.65 Billion. EtherFi has seen a 62x increase, with its TVL jumping from $98.24 Million to $6.14 Billion.
  • However, interestingly, LDO, the governance token of Lido Finance, the largest ETH liquid staking protocol, has presented a curious case.
  • The LDO token has not benefitted from an increase in the percentage of ETH staked, with the price of LDO having fallen by 50% in 2024 so far, losing approximately $930 Million in market capitalization.
  • This is likely due to LDO not receiving any direct value from the Lido protocol's operations or growth, as it is a governance token with no fee switch, buybacks, or any form of direct value accrual mechanism.

Juicing up Jito 

• Solana's ecosystem is buzzing with activity, and Jito validators are reaping the rewards. The Block data shows a dramatic spike in Jito validator tips, reaching an all-time high of 17,290 SOL (approximately $3.19 million) last week. This surge represents a significant uptick from the relatively stable levels seen over the past six months, pointing to increased network activity and potentially changing dynamics within the Solana ecosystem.
  • Jito, a Solana-based MEV (Miner Extractable Value) solution, has been gaining traction as it allows validators to capture additional value from transaction ordering. The recent spike in tips suggests a growing recognition of Jito's value proposition among Solana users and developers.
  • While the growth in Jito tips is impressive, it's essential to contextualize this within Solana's broader ecosystem growth. Last week alone saw the launch of a staggering 68,000 new tokens on the network, raising questions as to the quality of projects building on the chain.
  • The surge in both Jito tips and new token launches paints a picture of a highly active ecosystem. However, it also prompts us to consider the quality of this activity. Are we witnessing genuine adoption and valuable projects, or is this a sign of speculative fervor?

• Looking beyond tips and token counts, other metrics like daily active addresses, transaction counts, and total value locked (TVL) can provide a more holistic view of network health. 
  • These metrics help distinguish between genuine user activity and potential bot-driven or speculative behaviors.
• The long-term implications of heightened Jito tips for the Solana ecosystem are intriguing. On one hand, it could attract more validators to the network, potentially improving decentralization and security. On the other, if tips become too lucrative, it might lead to increased competition among validators, potentially affecting transaction costs for users.
• As Solana continues to evolve, keeping an eye on these metrics will be crucial for understanding the network's true growth trajectory and long-term sustainability. The question remains: Is this the beginning of a new era for Solana, or just another period of volatility in the crypto ecosystem?