Uhhh…what caused the crash?

By EdgyJanuary 4, 2024


Welcome to 2024!

Our welcome cocktail was a crash that wiped out $100b from Crypto’s market cap yesterday.

Every year since 2020 has been some interesting times. I expect nothing less from 2024.

Let’s hope we make out of this year healthier & wealthier. Cheers!

Here’s what we got today:

  • What caused the crash? A combo of FUD & leverage.
  • Monad, hot new L1. Catch up on what everyone’s talking about.
  • ETH Charts. ETH $ has been lagging, let’s see what’s going on.
  • Around the Web. Gas Hero is live, Unibot is coming to Solana, Gains Network has started its incentive program, and more.

Here’s your Edge 🗡️!


Market

Why Crypto Crashed: FUD & Leverage

Dalle-E generated image.


Crypto lost $100 billion from its Market Cap within 3 hours yesterday.

What happened? No one ever knows 100%, but we can make a few strong guesses.

​Everyone has been expecting Bitcoin Spot ETFs to be approved in January. So, there wasn’t any dumping yet.

Enter Matrixport. They are a company that provides easy-to-use crypto investment products and financial services.

On January 2nd, they published a report titled “Why the SEC will reject Bitcoin Spot ETFs again.” This began to circulate crypto circles via “news” outlets and Twitter.

Soon, the FUD spread everywhere. Many assumed ETF was going to be rejected. And people started selling.

Here’s what the CEO of Matrixport had to say in response:


Matrixport is kinda tiny. If anything, I think The Block retweeting their report caused the flash crash.

​We’ve talked about how high levels of leverage create volatility in crypto. The same story repeated.

BTC Liquidations

In high-leverage trades, degens are borrowing money to buy more BTC. When the price of BTC dipped due to the FUD, they reached a point where the value of BTC was exactly equal to cover the loan, aka the liquidation point.

At the liquidation point, degens are forced to sell BTC at the market. Which makes BTC drop even more. Which will in turn force another group of degens to liquidate. And so on and on. This is called a liquidation cascade.

And on Jan 3rd, BTC fell 6% within 3 hours, from ~$45k to ~$42k. And alongside that, $100 billion was wiped off the total crypto market cap.

That happened because of an unverified report from a random company. To be clear, most experts do expect the Spot ETF to be approved this month.


Here are a few takeaways:

• 
Expect tons of crashes during a bull market. It’s healthy for the markets and a way to keep leverage in check.

• Be careful using leverage. If you must, then less than 25% is good.


New Protocol

Monad: Scaling ETH by 1000x

Monad logo
Source: monad.xyz


Monad is creating hype among crypto circles. Yes, the space is crowded with Alt L1s and L2s, but this is one you should be paying attention to.

What is Monad? It’s an upcoming Alternative Layer-1 blockchain that promises ~10k transactions per second. In contrast, Solana is also promising ~10k while Ethereum only has ~20 txn/s.

What’s special about Monad? It’s tapping into Ethereum’s network effects.

Solana is the current winner of the “fast and cheap” blockchain. However, it got here with some trade-offs. Comparatively, it is less decentralized. And it had to create its execution engine, Solana VM. Therefore, all the tools and network effects of EVM couldn’t be used on Solana.

(Remember, EVM = Ethereum virtual machine. EVM is the engine behind Ethereum’s smart contracts and transactions)

This slowed down the growth of the Solana ecosystem.

In contrast, Monad is making EVM faster and cheaper. It means they can tap into the gigantic network effects built by Ethereum.

  • Devs can deploy any Ethereum dApp to Monad.
  • Ethereum Wallets (like MetaMask) will be compatible.
  • Existing analytics tools such as Etherscan and Dune Analytics will work.
  • Developer tooling (such as Hardhat, Apeworx, and Foundry) can also be used.

It uses the latest crypto buzzword: parallelization.

Tech buzzwords are effective marketing tools in crypto. “Modular blockchain” is a major crypto buzzword. Celestia rose to a $1.8 billion market cap by leveraging this buzzword.

A reason for Solana’s low cost and high speed is “Parallelization.” And Solana’s success made it a crypto buzzword.

SEI, another new blockchain, uses “Parallelization” in its technology. And its token has already pumped 213.7% in the last 30 days.

Monad has already won half the battle by having a solid tech + marketing buzzword is the key to

It also has huge potential as an ETH L2.

Ethereum has already outsourced its execution to rollups. And Monad claims to have the best version of Ethereum’s execution engine.

So, somebody is going to use Monad’s EVM and deploy it as an L2. Maybe the Monad team itself might do it. Or existing rollups might update their execution engines.

Hot tip: when the new L2s start implementing Monad’s technology, they might airdrop some of it for Monad’s users. So, to qualify for those, use Monad. And when its token comes out, go and stake it as well.

Why should you care? Monad is 100% going to have a token. And most likely, token airdrop.

They’ll probably airdrop some to active crypto users of different communities. For example, if you’ve been in L2 ecosystems, you’ll probably receive some allocation.

Just cuz you haven’t been active doesn’t mean you are doomed.

Monad already has 60+ projects working on it. They’ll probably announce their testnet in 2024 Q1. And when it comes, play around with the testnet. It won’t cost you anything (except time).

Anyway, the key is to keep Monad on your radar. Money-making opportunities are going to present themselves.


Chart of the Week

Is Ethereum Dead?

Source: DefiLlama


Ethereum has been underperforming pricewise since the beginning of this bull market.

This has led some people to predict that Ethereum is dead, and Solana will overtake the Market Cap of Ethereum.

We don’t like to make declarations – we like to look at data.

​The above pie graph compares the Total Value Locked among blockchains, including L1s and L2s. And Ethereum holds a whopping 65.76% of TVL. In comparison, Solana only has 3.73% of Total Value Locked.

From Ethereum’s perspective, the metrics should also include rollup activities. They’ve outsourced execution/scaling of Ethereum to rollups.

So, let’s look at the activity of rollups. Is Ethereum’s scaling strategy working?

Ethereum ecosystem tps metrics.
Source: L2beat.com

The above chart tracks transactions per second (tps) on Ethereum and L2s for the past year.

Ethereum tps stayed pretty constant throughout the year. However, we can see a huge growth in txn/s of L2s.

​Throughout the period, Ethereum tps was between 10-20 tps.In the beginning, L2s only had ~15 tps. But on December 16th, L2s did ~152 tps. This is a gigantic increase. Over the last 7 days, L2s have been doing 6.3x tps of ETH tps.


This data shows that Ethereum’s strategy of outsourcing execution/activity to rollups has been successful.

​But, how does it perform against Alt-L1s?

Source: L2beat.com

The above graph shows the TVL of all L2s on Ethereum. Currently, it is at an all-time high of $19.84 billion. According to DefiLlama, the combined TVL of Solana and Avalanche is around 6 billion only.

(L2beat’s methodology may report a higher TVL than DefiLlama’s, but it doesn’t materially affect the analysis here.)

These data only show that Ethereum’s scaling strategy is working as intended.

This isn’t an argument against Alt-L1s. Alt-L1s have other advantages. For example, they don’t have bridges, which gives a better user experience. For Ethereum to catch up to the Alt-L1 UX, it’ll take more technological improvements such as smooth interoperability between rollups.

​Also for Alt-L1s, the value is captured by the L1 tokens alone. In the case of the Ethereum ecosystem, the value is distributed between $ETH and different L2 tokens.

One catalyst for the current exponential growth of Solana was the Jito airdrop. It created a wealth effect in the Solana ecosystem that started the current flywheel.

Ethereum L2s haven’t started their airdrop season. Once they start it, the flywheel will kick in for Ethereum L2s as well.

So, don’t believe proclamations of the death of the Ethereum ecosystem. Keep them on your radar.


🚀 DeFi Catalysts

Dymension airdrop is available to claim. Users from Celestia, Ethereum, Cosmos, and Solana are eligible.

Unibot is coming to Solana. It is optimized for Solana’s high-speed onchain trading and has partnerships with Jupiter and Birdeye,

Gas Hero is live. It is a Web3 Social Strategy Game by the creators of STEPN. It is live on Polygon PoS.

Morpho Core Contributors have deployed the Morpho Blue smart contract. And is transferring the ownership of the contract to Mopho DAO.

Dolomite introduced $vARB. It allows you to participate in Arbitrum governance while also borrowing against that very same $ARB.

Parallel Network testnet is live. It claims to unify liquidity from any ETH L2 into one place, which is a big opportunity.

Livepeer, a platform for decentralized live video broadcasting, is discussing spending 25k $LPT to bring Generative AI Video to the network.

Jupiter is targeting the last week of January for its airdrop. Apparently, around 40% of the JUP supply is going to be distributed among ~1 million SOL wallets.

Sommelier Finance, which provides automated vaults that earn yields, has added Aura Finance to its ecosystem.

Gains Network has started its incentive program. It is funded by 4.5M $ARB from Arbitrum STIP and 65K $GNS from Gains Network.


📰 Industry News

US citizens receiving crypto worth over $10,000 should report it to the Internal Revenue Service (IRS).

Avalanche Foundation is considering buying meme coins to promote its ecosystem, which has become controversial.

Orbit Chain, a cross-chain bridge, was hacked for ~81 million. Few are suspecting it to be North Korean hackers.

China has warned the public against using USDT as an intermediary to trade the Chinese yuan with other fiat currencies.

India is blocking URLs of nine crypto exchanges: Binance, KuCoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global and Bitfinex.


🧠 Twitter Alpha

  1. Q&A session with investment legend @hkuppy.
  2. Life-changing money advice from Pentoshi.
  3. New Blog post from Vitalik.
  4. Summary of summaries for 2024 predictions.
  5. RollApps as the new narrative?

😂 Meme