Welcome to the final newsletter of the year.
One of the biggest leverage points in my life is the ability to reflect. You take everything that happened and distill it into a few key lessons. It’s a way to “upgrade” your mental algorithms.
Here are a few questions to help you out:
- What activities and metrics should you measure next year to achieve your goals?
- What skills do you need to master to achieve your desired success?
- What were the big wins and memories from this year?
- What decisions are you procrastinating on?
The squad and I will be here to help you crush next year!
Here’s what we got today:
- Q1 2024 Outlook. What am I looking at?
- Top Ethereum Narratives. Review of $ETH price drivers.
- Chart of the Week. Stablecoin volume across different chains.
- Around the Web. WINR Protocol is expanding to Solana, Resatked rollup using EigenLayer, zkSync outage, and more.
Here’s your Edge 🗡️!
Q1 2024 Outlook
The past few months has been pretty insane. I do believe the past two months were the first dish in a long Japanese Omakase course.
Here are some things we’re paying attention to next quarter.
Bitcoin Spot ETF
Everyone is expecting it to pass in Jan 2024. If it doesn’t, that’ll mean big bearish vibes.
But I’m expecting it to pass. If it does, its performance will be another big factor. Everyone is expecting an inflow of billions of institutional money into BTC. For BTC to continue pumping sustainably, this needs to happen.
So, the ETF will determine the fate of BTC. Now, let’s look at the second biggest crypto.
Ethereum Dencun upgrade
Relative to other tokens, Ethereum is currently underperforming. I think this will change in Q1 of 2024.
Ethereum’s next upgrade, the Dencun upgrade, is tentatively scheduled for Jan 2024. It will be a catalyst that will bring attention to Ethereum ecosystem.
The Dencun upgrade will implement “proto-danksharding”. This means that the cost of rollups to settle onto Ethereum will be reduced by more than 90%. This is a gigantic reduction.
This, in turn, will make L2s more competitive with Alt-L1s, such as Solana and Avalanche. And activity in the Ethereum ecosystem will likely rise. And this, of course, will benefit $ETH as well.
Frax Finance
I’ve now talked about Frax several times. Frax is one of those teams that ships a ton. They have a lot planned for Q1 2024, from their partnership with PayPal to Frax Bonds and BAMM.
But as we don’t have the space to cover everything, I want to talk about FraxChain. I’m really excited about this.
FraxChain is a general-purpose rollup like Optimism and Arbitrum. But it will come with several innovations. Here are three that excite me:
1) First, Blockspace incentives. Users and developers will earn locked veFXS and/or factal points for using the chain. Since veFXS will be locked, some might earn more than they spend. So, we can expect much more activity across the chain.
2) Integration with its Liquid Staking Service. Similar to how Blast stakes bridged Ether in Lido, Frax can stake bridged ETH using sfrxETH. This will increase its yield comparatively to other competitors.
3) Third are the L3s on top of FraxChain. These might be called fraxtals and will have direct access to Frax’s financial services, such as stablecoin, LSTs, swapping, and lending. They may also be able to use DA externally to Ethereum.
As of now, this is all an informed speculation. And final release may vary.
Solana and Alt-L1s
For now, the current bull market’s biggest winner is Solana. On October 1st, SOL was around $21. Right now, it is closer to $110. Their ecosystem activity has also boomed. And metrics indicate a continuation of this trend; look at this week’s chart for more details.
In Q1 of 2024, money will flow into Alt-L1s as well. And they’ll start pumping.
Avalanche is the 2nd leading Alt-L1 right now. The price has been going up. Many metrics, from TVL to active addresses and transactions, have been up only. This can continue in Q1 2024 as well.
Fantom and SEI are the beta plays to Solana’s “fast and cheap monolithic L1” narrative.
1) Fantom is a blockchain from the last cycle co-founded by the star developer Andre Cronje. They have introduced a new upgrade called Fantom Sonic. It’ll make Fantom more faster and cheaper.
2) SEI is a new chain with a smaller ecosystem. They are also releasing new technical improvements such as optimistic parallelization and storage optimization. New ecosystems present the opportunity for airdrop hunting as well. When money starts rotating, these catalysts can easily turn into narratives.
3) The Injective is a Cosmos L1 Chain. While the TVL is only $17 million, it has already pumped 2880% this year. This gigantic price increase might attract attention to the ecosystem, and it can grow. There’s potential for airdrop hunting in this chain as well.
I’m talking about alt-l1s, but don’t sleep on ETH Layer 2s. METIS is making moves, and I expect the arbitrum ecosystem to “wake up.”
These are the top ecosystems that I’m currently paying attention to. What are some additional indicators and catalysts that I should look into? Let me know by replying to this email.
Top $ETH Narratives
Crypto Twitter has been collectively wondering why $ETH wasn’t pumping.
Some claimed that Ethereum has lost its lead, and better blockchains have taken its place. Others are saying Ethereum has a narrative problem.
So, now is a good time to revisit the major Ethereum narratives.
World Computer
This was the OG narrative.
In Web2, users have to trust other users. For example, you must trust Twitter that it won’t take away your account. Ethereum removes this need to trust.
Devs can create decentralized applications on Ethereum. And users can use them without needing to “trust” them. They can verify how apps on Ethereum work just as the devs promised.
Ethereum became the computer that anyone in the world could trust. Aka, the world computer.
In a way, this is the most foundational narrative. The majority of other ETH narratives are simply different variations of this OG one.
Most Secure Settlement Layer
In finance, settlement refers to the completion of a transaction. A transaction is settled when the transfer of ownership and money is fully completed.
Government records, bank records, or similar databases constitute this settlement layer in the traditional financial world.
Ethereum is the internet’s settlement layer. Any asset (especially digital assets), ownership, and transfer can be represented on the Ethereum chain.
And since no one can manipulate Ethereum, it is the best settlement layer. This narrative believes that almost every interaction will eventually be settled on the Ethereum network.
Ethereum’s L2 scaling strategy takes this narrative to the next level.
Remember how we said that Ethereum is the world computer? With modular scaling, computation will be carried out by L2s which inherit Ethereum’s trust. And only the final settlement will take place on Ethereum.
Ethereum will be the final arbiter of truth on the internet.
Internet Money
Bitcoin was the OG internet-native money. Some properties, such as a fixed supply, made it a better store of value than traditional fiat money.
When Ethereum arrived, $ETH also claimed to fulfill that role. $ETH even claims to be better money than $BTC in two separate ways.
#1. Programmable Money. Traditional fiat money isn’t really programmable. This programmability allows $ETH to do many things TradFi money simply can’t do. You can’t stream money from your bank account. You can do it on Ethereum.
Since BTC is also internet-native, it is also somewhat programmable. But it doesn’t come with smart contracts. ETH is infinitely more programmable in its ecosystem.
2. UltraSound Money. Bitcoin presented itself as digital gold, aka sound money. This claim was largely based on the fixed supply of $BTC. And initially, Ethereum was criticized for its inflationary nature.
But in 2022, Ethereum transitioned to proof-of-stake. This reduced the amount of Ethereum being issued. And with EIP-1559, Ethereum now burns a portion of transaction fees paid by users.
This meant that suddenly more $ETH was being burned than issued. Aka, ETH became deflationary. “Ultra-sound money” became popular as a word play on BTC’s “sound money”.
This isn’t “just a narrative or promise”. A portion of $ETH is being taken off the market constantly. This should push up the price.
Internet Bond
A bond is a way for you to lend money and gain interest and principal at some time in the future. The US T-bills are the safest bond in TradFi.
Ethereum staking claims to be the safest bond on the internet. You can become a validator by staking your ETH. In return, you’ll get interest in the form of ETH from Ethereum.
Liquid Staking Tokens (LST) such as Lido and RocketPool make this more accessible. And the entire DeFi ecosystem is now being built around these LSTs.
Upcoming Narrative: Restaking
This upcoming narrative will likely drive more yield and money to ETH.
EigenLayer is a marketplace connecting ETH stakers and protocols.
We have spoken about it several times already.
Here’s the TLDR again. Staked ETH will be re-staked for services such as computational capacity that protocols need. In exchange, protocols will provide yield to restakers.
This will increase the demand and money-ness of $ETH.
We started out talking about Ethereum’s current narrative problems. But many times in the crypto, the narrative follows price rather than vice versa.
I don’t know what the exact narrative surrounding ETH will be. But, ETH is probably the safest yield-bearing asset in Crypto. And there’s potential for a narrative about its productive nature.
When the price is going up, people will create narratives to justify the increase.
They just need a catalyst to pump the prices. And the Dencun upgrade in January 2024 might just be the catalyst that Ethereum has been waiting for.
Stablecoin Volumes & Solana
We have talked about the importance of stablecoins several times. They are a good indicator of activity across different chains.
The above chart shows the percentage share of stablecoin volume across different chains for the last seven days. We can see that three chains compete intensely for the top position.
The red stands for Tron, green for Solana, and light blue for Ethereum. On average, each chain has ~30-ish percentage of stablecoin volume.
Solana’s entry into this title race is a miracle. To understand why, let’s take a look at the monthly stablecoin volume for these chains for the last year.
Until October 2023, Solana’s stablecoin volume was effectively invisible. Ethereum and Tron were the only game in town.
Then why this sudden rise in Solana? In a way, the answer is simple. Throughout the bear market, the Solana community has continuously shipped to make Solana safer, faster, and cheaper. And devs made cool apps on top of Solana.
The Solana UX was superior to everything else out there. It was faster, cheaper, and smoother. And when the bull market arrived, SOL pumped. This brought a lot of attention to Solana. There was the airdrop hunting mania. Everyone bridged stables to Solana to play with it.
The Ethereum stablecoin volume isn’t a mystery. It’s the OG DeFi chain. It has the highest number of devs, apps, and liquidity. So, the Ethereum stablecoin volume has been pretty consistent.
Looking at the Q4 2023 stats, we can see that Solana is eating into Ethereum’s lunch a little bit. Part of this is that Ethereum is slowly moving away from being a chain for low-value transactions while Solana is leaning into this domain.
Ethereum is moving most transactions onto L2s. Only really high-value transactions remain right on Ethereum. Aka, Ethereum isn’t for retail anymore. ETH is for L2s and big apps.
In contrast, Solana quickly becomes the favorite chain for lower-budget retail users. It reminds me of how Binance Smart Chain held that position in the early bull of the previous cycle.
Tron is the final contender for the top spot. Since no one really uses Tron for DeFi, this might be confusing for some in the DeFi space. Here’s the answer to that paradox: a large percentage of Tron’s stablecoin volume is coming from centralized exchanges.
Monitoring stablecoin inflow is an excellent indicator for gauging which chains are becoming hot. If you’d observed the increasing Solana stablecoin volume in October, you could’ve joined the Solana hype in November.
🚀 DeFi Catalysts
WINR Protocol is expanding to Solana. This will help them capture a brand-new developer and user base.
Hokum, a gaming-focused L3 built on top of Base that uses Celestia for Data Availability, has released its first fully onchain game.
PancakeSwap is discussing reducing the maximum supply of $CAKE from 750M to 450M. If passed, this is bullish for $CAKE price.
Curve DAO has deployed $44 million worth of CRV tokens to compensate the LPs whose funds were depleted during the Curve hack.
Arbitrum Orbit, the tool for building L3s on Arbitrum, has integrated Near Data Availability. It’ll allow rollup devs to use Near DA when using ARB Chains.
Frax Finance has decided to deploy $20 million into Centrifuge Prime, a service that’ll invest DAO treasury in RWA opportunities such as T-Bills.
Gearbox PURE is now live in alpha testing. You can now leverage trade with the deep liquidity from different DEXes.
Neon, an EVM on Solana that allows Solidity dApps to be deployed on Solana, has started Neon points. This hints at an airdrop and can drive it’s growth.
📰 Industry News
AltLayer introduced Restaked Rollup, a new type of service using EigenLayer. It’ll give better interoperability and security for ETH rollups.
Render Network is planning to move to Solana. This decision is motivated by technical requirements from a blockchain.
Phantom added support for Bitcoin. You can now buy, sell, trade, transfer, and HODL Bitcoin, Ordinals, and BRC-20 on Phantom.
zkSync had a four-hour outage. According to the team, it was caused by a bug in their servers. This is the 2nd outage within a few days.
Mt. Gox has started to repay customers who lost funds in the 2014 Bitcoin hack, according to CoinDesk. PayPal payouts have been confirmed.
🧠 Twitter Alpha
- World post ETF launch.
- Thoughts on Re-Staking.
- Crypto Narratives 2024
- Your security checklist
- Silbert stepping down as Grayscale’s chairman
😂 Meme
p.s.
