It’s a battle for supremacy regarding Ethereum Layer 2s. Everyone on Crypto Twitter loves Arbitrum. It’s as if the Optimistic rollup wars are over, and we’re waiting until zk-rollups start rolling out.
Well…Optimism kinda pulled a reverse uno card. Their vision of the Superchain + Coinbase partnership has sparked the industry’s attention.
Here’s what we have for you today:
- Superchain. Optimism’s vision for our multichain future.
- Coinbase’s surprise. Everything you need to know about Base L2.
- Finding 💎s. Learn a few ways to find gems for free /w DeFiLlama.
- Around the web. Liquid Staking flips DeFi lending and more.
Reading time: ~8 minutes
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Here’s your Edge ⚔️!
📉 THE MARKETS
“I fear not the man who has used 10,000 DeFi tools once, but I fear the man who has used DefiLlama 10,000 times.” – Edgy
Superchain: Optimism’s Multichain Vision
A single monolithic chain can’t fulfill the demand for blockspace. So we see all these different solutions come out, such as alternative layer 1s.
And we kinda have weird bandaid solutions to try to make them play nice together.
However, the current multichain landscape has many pitfalls:
- Bridges aren’t secure. They get hacked all the time.
- No interoperability. A chain cannot directly interact with another.
- Liquidity gets fragmented. This has second-order effects, such as reducing capital efficiency.
- Users have to jump between different chains. Spending time and energy on jumping is a major UX pain.
Everyone recognizes these issues, and some are trying to solve them in their way (Like Cosmos and appchains)
One solution is the Superchain.
Superchain will be a network of seamlessly interoperable rollup chains. For rollups to interoperate, they have to be built a certain way. Specifically, they should be built using OP Stack.
What is OP Stack? It is a collection of code modules that can be used to make rollups, similar to how Lego pieces stack upon each other to produce something greater.
As such, they are:
- Modular. Modules will be independent and interchangeable.
- Open-source. Everyone will be able to freely iterate the code.
- Standardized. Everyone will follow specific standards for all modules.
Thanks to OP Stack, creating rollups will be as simple as deploying smart contracts. Developers will be able to create a wide range of rollups, from appchains to game engines and from zk-rollups to optimistic rollups. Optimism refers to these rollups as “OP-chains.”
It kinda reminds me of countries in Europe. They join forces under a set of rules, aka the European Union.
How is this different from Cosmos or monolithic chains? They possess “atomic composability.” This means that an application in one OP-chain will be able to interact with another application in a different OP-chain, which solves several significant problems in the current multichain world.
Superchain will be a network of integrated OP-chains. And it is a much better vision than islands of ghost chains with insecure bridges.
The Coinbase Chain: Base
Last week I mentioned that people speculated that Coincase might be launching an L2 on Optimism. It’s true – it’s damn true!
So what exactly is Base? It is an Optimistic Layer 2 on Ethereum.
Why does it matter? A large centralized entity launches a chain. Hmmm…where have we seen this playbook before?
Binance -> BNB chain.
Coinbase is a marquee player in crypto, securing over $80 billion through its centralized platform. In contrast, the TVL of the entire DeFi space is only $56 billion. Coinbase has around 110 million verified users, so having its own L2 is a big deal.
What makes Base special?
- It will be the home for on-chain products from Coinbase.
- EVM-equivalence. The existing code can be copy-pasted into Base.
- dApps can use Base to leverage Coinbase’s products and distribution.
- The Coinbase brand. Many people skeptical of DeFi might try out Base chain because of the brand. It will be their initiation into DeFi.
- It is built on OP Stack from Optimism so it will be part of an integrated superchain. Coinbase has also joined the core development team of OP Stack.
Will it be successful?
Most Coinbase customers are normies who just HODL $BTC & $ETH. So we can’t expect them to start degen’ing immediately.
So in the short-term, maybe. On a long-enough timescale, definitely. Below are some reasons:
- Base is EVM-equivalent. Devs can easily copy-paste code onto it.
- Coinbase is launching an Ecosystem Fund. It aims to bootstrap a thriving DeFi ecosystem on Base.
- It is an OP-chain. Base will benefit from its superior technical architecture and open-source community.
What can YOU do?
If you’re a dev, you can start building on Base.
There are no plans for a token. But in theory, this should be beneficial for the Optimistic token.
Find Gems using DeFiLlama.
Everyone complains that they’re always too late for narratives and projects. And if you listen to “influencers”, you’re going to be their exit liquidity.
So I’m going to teach you how to find your own gems. These are the same methods I’ve used to find 10x gems, even in bear markets.
First, you should see which chains are hot. It’s kinda like you want to buy an investment property. You’d first see which cities are hot, right?
BNB was hot at one point. Then there was a Solunavax rotation. Now it’s Layer-2 season. Hot chains will keep changing; you should be where the money is.
DefiLlama.com is an excellent tool for discovering which chains are hot.
#1 Chain TVL Growth
One simple indicator is the Total Value Locked (TVL) growth percentage.
1) Go to DeFi → Chains
2) Look at the 7d and 1m metrics
Out of the top 10, only Arbitrum and Optimism are growing. This shouldn’t surprise anyone since we’re in the ETH Layer 2 season.
#2 Stablecoin Inflows
But TVL doesn’t tell the whole story.
One underrated indicator is stablecoin inflow, which shows NEW money flowing into an ecosystem, i.e., real growth.
• Go to Stables → Chains
While Optimism has positive TVL traction, their stablecoin flows are negative.
Arbitrum has positive TVL and stablecoin inflows, making it more attractive to degen into than Optimism.
Alright, this email’s already long, so visit my thread below for more juice.
📊 Liquid Staking flips DeFi Lending
The table lists major DeFi sectors and their TVLs.
Last week, Liquid Staking’s TVL overtook DeFi Lending’s TVL as the second-largest crypto sector. This is crazy, as lending has always been one of the cornerstones of DeFi.
We’ve been harping about Liquid Staking for several weeks. It is the best-performing crypto sector this year, with a TVL growth approaching 60%. The combined TVL of all the Liquid Staking Protocols is $14.42 billion.
There are several reasons behind the massive growth of Liquid Staking.
- Ethereum’s shift to PoS. We’ve discussed this several times in the newsletter.
- The yield differential between the two sectors. Most Liquid Staking Providers offer somewhere between 4-8% annual return. In this market, lending protocols don’t offer that much on blue chips.
There will be no slowdown in liquid staking TVL any time soon. Only 14% of Ether has been staked. This contrasts with other major L1s, where the staking ratio is between 60%-98%. The Shanghai upgrade will probably intensify this trend.
However, everything isn’t sunshine and roses. Staking is under regulatory scrutiny. People are considering renaming Liquid Staking Derivatives (LSDs) as Liquid Staking Tokens (LSTs.)
🌍 What’s Happening?
📰 Industry News
Oasis, a “DeFi” platform, seized assets tied to the $140 million Wormhole hack. This was in response to a Court order, and the funds will probably go to Jump Crypto.
Spotify is testing playlists that are token-gated. This feature is only available in certain regions. It won’t be available on iPhones due to Apple’s restrictions.
Jane Street is suspected of being involved in a $UST depeg. A Coinbase wallet that interacted with the de-pegger was tracked to Jane Street.
Metamask SDK was launched in the Unity Asset Store. It will allow devs to connect their games to the Metamask wallet.
Solana experienced yet another Network Outage. The root cause of the outage is still unknown.
Polygon experienced a 157-block reorg, and its nodes were out of sync for some time. This affected many applications, including the explorer.
🍿 DeFi Bites
Scroll zkEVM was launched on Goerli testnet. It is 100% permissionless and is the final step before the mainnet launch.
Aave is discussing onboarding a Real World Asset Facilitator for $GHO. Centrifuge is taking the initiative to become one.
Frax Finance decided to fully collateralize its stablecoin, $FRAX. Over time, the algorithmic component of the stablecoin will be removed.
Uniswap’s NFT marketplace will now allow NFT traders to use any token on the Ethereum Network to buy NFTs. This is not the case with most other platforms.
Eclipse launched the Polygon Solana Virtual Machine. It is an L2 blockchain that will allow dApps built for Solana to settle on Polygon.
Perpetual Protocol introduced Hot Tub, a vault implementing a delta-neutral, on-chain trading strategy.
MakerDAO reactivated the Direct Deposit Module (D3M) with Aave. This will allow Maker to easily lend DAI on Aave and enforce a maximum borrow rate.