🟣 ETH value accrual tea leaves
Vitalik and team on the vision and value proposition
Macauley Peterson & Donovan Choy
September 06, 2024
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Welcome back to 0xResearch. Here's what we’ve got for you today:
Ethereum AMA
Chart: Aave dominance
Cosmos Hub proposal #952
CT: Nobody knows anything
Traders are running scared. After an initial bounce on release of today’s US jobs report, markets quickly reversed, with BTC sliding back into sub-$55k territory, like a month ago.
I won’t pretend to understand that. The numbers were roughly in line with expectations and the unemployment rate fell back to 4.2% — these are supportive of the "soft landing" camp, which means a "healthy" 25 bips cut by the FOMC should be expected, as opposed to a "panicky" 50 bips cut. But apparently, the latter is now considered more likely, if only by a bit.
As they say, the trend is your friend. Bitcoin Put Options contracts have overtaken calls, according to a recent report from crypto exchange Bybit and research firm Block Scholes.
"Bearish sentiment is strong in BTC options markets, with puts now showing more open interest than calls. This trend is also reflected in ETH, though call options remain slightly ahead, hinting at more cautious optimism in Ether markets," the authors wrote.
Speaking of Ethereum…
Several prominent Ethereum Foundation researchers took to Reddit yesterday for an AskMeAnything session — among them, Vitalik Buterin, Justin Drake and Dankrad Feist.
Many of the questioners wanted to know what Ethereum’s leading lights thought about value accrual for ETH the asset.
Drake’s take? The primary value thesis for ETH is its role as programmable money for the internet. ETH’s value is essential for securing decentralized stablecoins, providing robust economic security, and attracting significant economic actors.
That view of ETH is shared by many in the Ethereum Foundation, but not all researchers agree on its importance. Feist, for example, believes that value should naturally follow from building a valuable ecosystem, stating, "I think that value capture will ultimately come naturally."
Anders Elowsson echoed a similar sentiment, explaining that "value accrues to ETH when Ethereum facilitates sustainable economic activity." He added that Ethereum’s long-term success is tied to ETH value accrual, suggesting, like Drake, that it is deeply linked to ETH acting as the platform’s trustless money.
In terms of scaling Ethereum mainnet, there is strong enthusiasm for leveraging SNARK technology. Justin Drake discussed a long-term plan to use SNARKs to scale execution without overloading validators, allowing nodes to run on lightweight devices. He described this as enabling "gas limit increases by orders of magnitude," benefiting users and validators alike.
Vitalik Buterin also pointed to the significant potential of scaling solutions, particularly SNARKs, stating that Ethereum aims to use technologies like zkEVM to prove "hundreds of thousands of hashes per second."
The long-term vision for Ethereum is closely tied to zkEVMs, formal verification, and stateless clients. George Kadianakis and Antonio Sanso discussed Ethereum’s work on zk research, pointing to promising developments for layer-1 execution.
Alex Hicks is leading efforts on zkEVM formal verification, with a $20 million budget to ensure Ethereum’s security is thoroughly audited.
Layer-2 rollups and the issue of decentralizing sequencers were other major focal points. Drake contended that rollups will ultimately have a "symbiotic" relationship with Mainnet, settling valuable transactions on Ethereum while benefiting from its security. He also addressed concerns about rollups becoming parasitic, explaining that rollups should decentralize their sequencers, as this maximizes both fees and composability. According to Drake, "sequencer fees are bad for cross-L2 composability," and decentralization will be necessary to preserve Ethereum’s neutrality.
Davide Crapis focused on refining the blob fee markets, which are essential for rollups, and Feist took a pragmatic view of the current structure, explaining that blob fees will likely not be the primary mechanism for value capture from rollups. Feist emphasized that Ethereum Mainnet would continue to handle the highest-value transactions, ensuring that it remains a key player in the ecosystem.
Economic security remains a central focus for Ethereum’s researchers. Drake stressed that ETH’s value is vital to securing trillions in decentralized stablecoins and ensuring the network can withstand attacks from even the most powerful adversaries. He also linked ETH’s success to its future market dominance, suggesting that once ETH flips Bitcoin in market cap, Ethereum will become an "unstoppable force."
At the moment that seems well and far away.
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Aave leading the market:
Source: Token Terminal
Aave is doing pretty well. Based on active loans, Aave currently has a 65% market share, about 4.6x more outstanding borrows on its protocol than its second-biggest competitor Spark (itself based on Aave’s open-source code).
Broken down by chain, the bulk of these loans (84%) are still on Ethereum Mainnet, with only about 6% on its Arbitrum deployment. Quietly growing, however, is Scroll’s Aave deployment. Based on the absolute number of depositors across Aave V3, Scroll seems to be seeing a surge of users above 400K. Having said that, Scroll’s Aave V3 TVL is still fairly miniscule at $141 million, about 4.1x less than Arbitrum.
— Donovan Choy (X: @donovanchoy | Farcaster: @donovan)
The Aptos ecosystem is accelerating, with both the network and core projects gaining notable volume, transactional activity and deposits. Aptos’ TVL has grown significantly, rising 263% year to date from $116 million at the start of the year to over $425 million today. Ondo Finance’s tokenized US Treasurys product, USDY, has surpassed $15 million, bringing RWAs to Aptos and highlighting the realities of new innovative financial products that bridge TradFi and decentralized platforms.
Cosmos Hub Proposal #952
Frustration within the Cosmos community culminated in an unprecedented Proposal #952 two weeks ago. That proposal, titled "Declaration of No Confidence in the Interchain Foundation (ICF) Leadership: A Call to Action," has passed with 28.42% in favor, 18.85% against, and 46.36% abstaining from the vote.
Specifically, Proposal 952 is calling for comprehensive financial audits of the ICF’s fiscal spending in the last six years.
The ICF is taking note. Just three days before the conclusion of the vote, the ICF released its first-ever monthly treasury snapshot update, and is committing to more frequent quarterly updates. It’s also worth noting that ICF released a comprehensive annual report for 2023 on August 15, about a week before Proposal 952 was sent to vote.
Source: Interchain Foundation
President of the ICF Josh Cincinnati told Blockworks that the Foundation currently undergoes annual financial audits with the Swiss government. He acknowledged the merits of complaints around the Foundation’s lack of transparency around its funding distribution to core teams, but he said that is set to change.
Yet, many of the complaints today are in a sense misdirected, Cincinnati said. "It’s a fight against the ICF that existed three years ago, and it’s a completely different organization today."
— Donovan Choy
We believe DRIFT offers a unique addition to portfolios as Solana fundamental beta, with a number of idiosyncratic potential future catalysts, particularly in the context of its valuation relative to some peers.
This month's PPGC mainly focused on two subjects. First is a discussion about the Ahmedabad Hard Fork and the PIPs included with it (PIP-30, PIP-36 and PIP-45). The second subject revolves around the MATIC-POL transition and the stakeholders it primarily impacts.
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The FBI has a warning for crypto: North Korean hackers are on the prowl.
Pavel Durov, in a Telegram message, breaks his silence about his arrest in France.
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The insights, views and outlooks presented in the report are not to be taken as financial advice. Blockworks Research analysts are not registered broker/dealers or financial advisors. Blockworks Research analysts may hold assets mentioned in this report, further outlined in the Firm’s Financial Disclosures.
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