Solana price corrects as recent (SOL) rally factors come under question

November 6, 2023 Coin Telegraph

SOL price has started to cool off as investors potentially question the reasons for the most recent double-digit rally.

Solana (SOL) experienced a notable 36.6% increase in value between Oct. 30 and Nov. 2. However, SOL’s failure to breach the $44.50 mark resulted in a 10% correction down to $40 on Nov. 6. This movement has left many investors pondering whether the ecosystem growth and network activity support Solana’s present $16.9 billion market capitalization.

Solana's peak at $44.50 on Nov. 2 was the highest it had reached since August 2022, and coincided with the Solana Breakpoint 2023 global conference held in Amsterdam. The price hype during this period even prompted BitMEX co-founder Arthur Hayes to admit to being a "degen" and invest in SOL, despite referring to the token as "just a meme."

During the Breakpoint conference, the Solana Foundation unveiled the testnet launch of Firedancer, a new client aimed at enhancing speed, reliability, and reducing hardware requirements for validators, addressing a longstanding criticism of this layer-1 blockchain that offers parallel computing for smart contracts.

Additionally, on Oct. 31, the Solana Foundation announced the availability of its network dataset on Google Cloud BigQuery, a serverless data warehouse solution with built-in machine learning and artificial intelligence. This enables developers and companies to access archival data and analytical insights transparently and securely.

On the development front, the Solana Foundation has maintained a consistent level of activity. This includes the approval by validators in September of the v.1.16 update, which introduced confidential transactions for SPL tokens on the Solana network using zero-knowledge (ZK) proofs.

However, not all news has been positive for Solana despite its token's price performance. For example, on Oct. 17, the decentralized liquid staking protocol, Lido Finance, announced its decision to cease operations on the network, citing unsustainable financials and low fees, which led to a community vote sealing the service's termination.

The central question that lingers is whether the on-chain activity and metrics related to decentralized applications (DApps) support the SOL price hike. Thus, one should analyze how Solana's on-chain data and ecosystem growth compares to its competitors.

Solana’s reduced total value locked and activity pose considerable risks

Solana's primary DApp metric began showing weakness in September as the network's total value locked (TVL), measuring the amount deposited in its smart contracts, reached its lowest levels in over 2 years on Nov. 5.

*Solana network Total Value Locked, SOL. Source: DefiLlama*

Notably, Solana's DApp deposits experienced a 30% decrease in 30 days at 9.83 million SOL. As a point of comparison, Ethereum's TVL in ETH declined by 2% during the same period, while BNB Chain saw an 8% decrease in BNB terms.

Furthermore, Solana's low fees and continued development after the FTX-Alameda Research collapse have not necessarily translated into a large number of active users. Solana's largest decentralized exchange (DEX), Raydium, recorded only 17,380 active addresses in the past 30 days. Similarly, Solana's most widely used game, Star Atlas, had 12,420 unique addresses during the same period.

In contrast, BNB Chain's DEX, PancakeSwap, boasted 513,060 active addresses in the last 30 days, and its Stargate game had 106,400 users. Meanwhile, Avalanche's DEX, Trader Joe, garnered 54,130 active addresses, and its leading game, Galxe, had 32,040 unique addresses.

Perhaps more concerning is the fact that Solana's DApps' volume reached $609 million in the last 30 days, as reported by DappRadar. This number pales in comparison to BNB Chain's $11 billion, Polygon's $5.3 billion, and Avalanche's $727 million in DApps volume.

*DApps volume ranking, 30 days, USD. Source: DappRadar*

In addition to these issues, criticism has arisen regarding the need for Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements to become a network validator, as highlighted by user StakeWithPride on a social network.

To add to the concerns, X social network user arixoneth revealed that out of 1,997 validators, 1,818 received delegations from the Solana Foundation or Alameda, accounting for nearly 90% of all validators.

2/ I wrote a script to get precise numbers and here is what I got:

Out of 1997 validators 1818 received delegations from the foundation & Alameda.

In total they have delegated 106M SOL, 73M from the foundation and 33M from Alameda. pic.twitter.com/Il3eyabeZ8
— arixon.eth (@arixoneth) October 3, 2023

These participants effectively delegated 106 million SOL from these two entities, raising questions about centralization and dissatisfaction among SOL token holders, both concerning the validators and development subsidies as well as the comparatively small DApps user base in relation to other networks. Ultimately, Solana’s on-chain activity contradicts the recent price surge and does not support further price increases.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Polygon (MATIC) rally comes to an end as competitors devour market share

October 10, 2023 Coin Telegraph

Arbitrum

MATIC price has retraced a majority of its recent gains. Cointelegraph explores why.

Polygon’s native token (MATIC) experienced a 16.4% rally that coincided with the launch of Polygon 2.0 Goreli testnet on Oct. 4. However, the resistance at $0.60 proved stronger than anticipated and was followed by a 10.6% decline over the six days leading into Oct. 10.

This decline was exacerbated by negative news regarding the departure of a key co-founder and weak activity in Polygon’s zero-knowledge rollup (ZK-rollup) subnet.

*Polygon (MATIC) 12-hour price in USD. Source: TradingView*

MATIC’s price has wiped out previous gains from the early October rally, erasing the bullish momentum driven by the expectations of the protocol’s upgrades.

Rallies tend to follow mainnet and protocol updates

Polygon 2.0 is a network of ZK-based layer-2 chains unified via a novel cross-chain coordination protocol. Polygon’s 2.0 scaling technology was unveiled in June 2023 as a plan for a scaling ecosystem consisting of four layers: staking, execution, interoperability and proving. Each of these layers contributes to creating an interconnected ecosystem of chains that facilitate secure, fast and highly cost-effective transfers.

Among the benefits of Polygon 2.0 are enhanced security and privacy through ZK-proofs, full compatibility with the Ethereum Virtual Machine (EVM) and instant cross-chain interactions without requiring additional security or trust assumptions. It’s worth noting that the project is continuing to develop its Zero-Knowledge Scalable Transparent Argument of Knowledge-based layer-2 solution, Miden.

One could argue that the recent 10.6% retracement merely reflects an adjustment to the overexcitement triggered by the testnet launch. However, other factors may have contributed to investors’ worsening sentiment toward Polygon. For instance, Polygon’s ZK subnet, zkEVM, has lagged behind competitors in activity and deposits.

Network data shows Polygon losing steam as new competition emerges

*ZK networks daily active and transactions. Source: artemis.xyz*

Metrics from Artemis, an on-chain data provider, reveal a significant disparity between Polygon zkEVM’s 6,210 active addresses compared to StarkNet’s 154,390 and zkSync ERA’s 239,810. A similar discrepancy exists when analyzing the number of daily transactions, with Polygon’s ZK-rollup also trailing competitors.

Taking a broader perspective on the total number of transactions and deposits in the Polygon network yields suboptimal results. For example, Polygon’s total value locked (TVL) stands at $756 million, according to DefiLlama, which is less than half of Arbitrum’s layer-2 scaling solution.

*Total value locked (TVL) in USD. Source: DefiLlama*

It’s noteworthy that despite being launched much earlier than most Ethereum layer-2 solutions in June 2020, Polygon is now facing direct competition from Optimism and Base.

The departure of Polygon’s co-founder, Jaynti Kanani, on Oct. 4 after six years with the project also triggered some degree of discomfort among investors, given the project’s proximity to the crucial completion of its improved multiple-layer scalability solution. Interestingly, this decision follows the departure of Polygon Lab’s CEO, Ryan Wyatt, in July 2023, not long after joining the company in February 2022.

Further impacting MATIC’s performance was a decline in the number of active addresses using the Polygon network’s decentralized applications (DApps).

*Polygon network DApps active addresses, 30-day change. Source: DappRadar*

On average, the top 12 DApps on the Polygon network experienced a 17% decline in the number of active addresses over the last 30 days. This issue was particularly concerning in the NFT and decentralized finance markets, notably affecting applications like Uniswap, OpenSea and Move Stake.

Regardless of the reasons behind MATIC’s token surge earlier in October, the recent 10.6% negative performance can be attributed to reduced network activity, the departure of a co-founder during a critical upgrade phase and stiff competition from other ZK scaling solutions.

Ultimately, there is enough bearish news flow to justify this correction, although the team has been consistently delivering the necessary updates and improvements to the Polygon network. Investors should closely monitor the project’s progress in addressing these challenges and capitalizing on the innovations of Polygon 2.0.

3 reasons why Solana (SOL) price is up this week

October 6, 2023 Coin Telegraph

Coin Telegraph

Solana price staged a double-digit recovery since September and a portion of the move was caused by improving fundamentals.

Solana (SOL) price experienced a 20% gain between Sept. 28 and Oct. 6, but is the rally a tandem move with Bitcoin (BTC) price or is it being driven by other factors. Prior to the price breakout, or perhaps, it’s recovery, SOL faced a turbulent period after a U.S. court approved the sale of $1.3 billion in SOL from the bankrupt exchange FTX.

*Solana daily price index, USD. Source: TradingView*

The bankruptcy court has taken measures to ensure that the liquidation of FTX assets won't become a burden for the crypto market, demanding the sale to occur through an investment adviser in weekly batches in accordance with pre-established rules.

Following the initial impact, which drove Solana's price down to a 2-month low of $17.34 on Sept. 11, some degree of confidence among bulls emerged as it re-established the $20 support on Sept. 29. This movement coincided with a successful upgrade to version 1.16, boosting the SOL token by 16% over the next 7 days.

Solana's rally was also supported by growth in decentralized applications (Dapps) usage and increased nonfungible token (NFT) volumes. Solana's price is now attempting to establish a $23 support and consolidate its position as the fifth-largest cryptocurrency (excluding stablecoins) by market capitalization, surpassing Cardano's $9.22 billion.

Solana’s DApp and NFT market activity surges

When analyzing networks focused on Dapp execution, the number of active users should be a top priority. Therefore, one should begin by quantifying the addresses involved with smart contracts, which serve as a proxy for the number of users.

*Solana Dapps active addresses, 7-days. Source: DappRadar*

Notice that the increase in activity was consistent across all sectors, including NFT marketplaces, decentralized finance (DeFi), collectibles, social, and gaming. Furthermore, Solana's active addresses engaging with Dapps exceeded those of Ethereum in the same period, which were capped at 55,230.

Solana has been gaining traction in the NFT market due to its cost-efficient and scalable solution, as data is compressed and stored off-chain. This allows for more viable production in larger quantities, as they require lower minting fees, enabling creators to reach wider audiences.

*NFT sales per blockchain, 7-days. Source: Cryptoslam*

Over the past 7 days, the Solana network surpassed Polygon (MATIC) in NFT sales, accumulating $6.8 million in value according to Cryptoslam. In September, the situation was reversed, with Solana totaling $23.9 million, while the Polygon network achieved $31 million in NFT sales.

Network upgrade enhances privacy and eases the stress on validators

A potential driver behind Solana's recent 20% price gains was the network upgrade to version 1.16 on Sept. 28, which introduced a "gate system" to ensure the gradual activation of new features on the network. This process helps maintain network stability and prevents issues caused by sudden changes.

Another notable change in this update is "confidential transfers," which use zero-knowledge proofs to encrypt transaction details, enhancing user privacy. The release also includes improvements in RAM usage for validators, resizable data accounts, and a mechanism to identify corrupted data.

Overall, this update brings improved efficiency, privacy, and security to the Solana blockchain, marking a significant milestone in its development.

Stiff competition from Ethereum layer-2 solutions

Despite Solana's competition with other blockchain networks, there is no doubt that Ethereum layer-2 solutions have gained more traction in terms of total value locked (TVL) and activity. For instance, Arbitrum holds $1.73 billion in TVL, and Optimism holds another $637 million, both vastly superior to Solana's $326 million, according to DeFiLlama.

Even as Solana continues to make progress in terms of privacy, scaling, and security, external factors are at play beyond the FTX bankruptcy drama, making the $23 resistance harder to breach than anticipated.

Ultimately, investors remain largely focused on the Ethereum ecosystem, as it remains the leader in terms of developers and consolidated decentralized applications.

3 key Ethereum price metrics suggest that ETH is gearing up for volatility

September 15, 2023 Coin Telegraph

Binance

Network, futures and user data all point toward Ethereum potentially charting a new course.

Ether (ETH) price has been dealing with some strong headwinds and on Sept. 11, the price of the altcoin endured a critical test when it plunged to the $1,530 support level. In the days that followed, Ether managed to stage an impressive recovery, by surging by 6%. This resurgence may signal a pivotal moment, following a month that had seen ETH endure losses of 16%.

Even with the somewhat swift recovery, Ether’s price performance raises questions among investors about whether it has the potential to climb back to $1,850, and ETH derivatives and network activity might hold the key to this puzzle.

*Ether/USD price index, 1-day. Source:* *TradingView*

Macroeconomic factors have played a significant role in mitigating investor pessimism given that inflation in the United States accelerated for the second consecutive month, reaching 3.7% according to the most recent CPI report. Such data reinforces the belief that the U.S. government's debt will continue to surge, compelling the Treasury to offer higher yields.

Scarce assets are poised to benefit from the inflationary pressure and the expansive monetary policies aimed at bridging the budget deficit. However, the cryptocurrency sector is grappling with its own set of challenges.

Regulatory uncertainty and high network fees limit investors’ appetite

There's the looming possibility of Binance exchange facing indictment by the U.S. Department of Justice. Furthermore, Binance.US has found itself entangled in legal battles with the U.S. Securities and Exchange Commission (SEC), leading to layoffs and top executives departing from the company.

Besides the regulatory hurdles faced by cryptocurrencies, the Ethereum network has witnessed a notable decline in its smart contract activity, which is at the core of its original purpose. The network still grapples with persistently high average fees, hovering above the $3 mark.

*Ethereum network dApps rank by active addresses. Source: DappRadar*

Over the past 30 days, the top Ethereum dApps have seen an average 26% decrease in the number of active addresses. An exception to this trend is the Lido (LDO) liquid staking project, which saw a 7% increase in its total value locked (TVL) in ETH terms during the same period. It's worth mentioning that Lido's success has been met with criticism due to the project's dominance, accounting for a substantial 72% of all staked ETH.

Vitalik Buterin, co-founder of Ethereum, has acknowledged the need for Ethereum to become more accessible for everyday people to run nodes in order to maintain decentralization in the long term. However, Vitalik does not anticipate a viable solution to this challenge within the next decade. Consequently, investors have legitimate concerns about centralization, including the influence of services like Lido.

ETH futures and options show reduced interest from leverage longs

A look at derivatives metrics will better explain how Ether’s professional traders are positioned in the current market conditions. Ether monthly futures typically trade at a 5 to 10% annualized premium — a situation known as contango, which is not unique to crypto markets.

*Ether 2-month futures annualized premium. Source: Laevitas.ch*

The premium for Ether futures hit its lowest point in three weeks, standing at 2.2%, indicating a lack of demand for leveraged long positions. Interestingly, not even the 6% gain following the retest of the $1,530 support level on Sept. 11 managed to push ETH futures into the 5% neutral threshold.

One should look at the options markets to better gauge market sentiment, as the 25% delta skew can confirm whether professional traders are leaning bearish. In short, if traders expect a drop in Bitcoin’s price, the skew metric will rise above 7%, while periods of excitement typically have a -7% skew.

*Ether 30-day options 25% delta skew. Source: Laevitas.ch*

On Sept. 14 the Ether 25% delta skew indicator briefly shifted to a bullish stance. This shift was driven by put (sell) options trading at an 8% discount compared to similar call (buy) options. However, this sentiment waned on Sept. 15, with both call and put options now trading at a similar premium. Essentially, Ether derivatives traders are displaying reduced interest in leverage long positions, despite the successful defense of the $1,530 price level.

On one hand, Ether has potential catalysts, including requests for a spot ETH exchange-traded fund (ETF) and macroeconomic factors driven by inflationary pressure. However, the dwindling use of dApps and ongoing regulatory uncertainties create a fertile ground for FUD. This is likely to continue exerting downward pressure on Ether's price, making a rally to $1,850 in the short to medium term appear unlikely.

Arbitrum (ARB) falls to all-time low as network usage metrics decline

September 11, 2023 Coin Telegraph

BASE

ARB’s price slumps to a new low as a decline in TVL, a decline in active addresses engaging with its DApps and a general malaise across the crypto market take their toll.

Arbitrum has emerged as a leading contender within the Ethereum network’s layer-2 scalability solutions, boasting a significant total value locked (TVL) and notable activity. However, between Sept. 9 and Sept. 11, the price of Arbitrum (ARB) tokens experienced a sharp decline of 14.5%, marking its lowest point in history.

Investors are now eagerly seeking insight into the factors driving this movement and questioning whether Arbitrum still possesses the competitive edge, especially considering that irrespective of the ARB token performance, the network TVL exceeds $1.6 billion.

*Arbitrum (ARB) vs. competitors Polygon (MATIC), Optimism (OP) and Loopring (LRC). Source: TradingView*

It is worth noting that the past week has been challenging for most cryptocurrencies, but among Ethereum’s scaling solutions, none experienced a drop exceeding 9%, except for Arbitrum.

ARB governance proposals bring questionable benefits

One potential source of concern stems from the absence of any instances of fraud proof issuance since the launch of the Arbitrum mainnet in August 2021. Offchain Labs confirmed this information to Cointelegraph on Sept. 4. Developers, however, have explained that this situation aligns with the intended operation of the system, as validators with malicious intentions risk losing their entire stake. Consequently, this data is unlikely to have significantly impacted the price in the past week.

Additional factors that may help elucidate the recent price downturn are associated with governance proposals from Arbitrum's decentralized autonomous organization (DAO). The first proposal, posted on Sept. 2, aims to allocate up to 75 million ARB tokens from the project’s treasury to address “short-term community needs” for active decentralized applications (DApps) within the ecosystem. However, even if approved, this allocation represents less than 2% of the DAO treasury holdings and is unlikely to have triggered the ARB token price correction, regardless of one’s stance on the proposal.

Another governance proposal that has garnered attention was introduced on Sept. 9 by PlutusDAO. This proposal seeks to return tokens from the DAO treasury to ARB holders through the activation of a staking mechanism, creating a native yield for participants, which could involve up to 2% of the total supply annually. Nevertheless, some investors view this inflationary approach as unnecessary and argue that it only exerts downward pressure on prices.

im not a VC so i'd "benefit" from this but..

dilution through inflation would be a PVP proposal, instead of trying to bring more value into the ecosystem it extracts it from other ARB holders

Arbitrum is in a good position all round, one of the most popular chains, huge… https://t.co/IDpcdQfQHT
— PSY (@PSYTWEAK) September 10, 2023

As user Psy highlighted on the X (formerly Twitter) social network, “dilution through inflation” does not contribute positively to the ecosystem, as it merely distributes DAO treasury holdings.

Beyond token governance, there are also concerns related to liquidation risks on both centralized and decentralized exchanges that offer leveraged trading. For instance, Lookonchain has observed a whale withdrawing ARB tokens from the Aave lending platform and transferring some to Binance.

A whale who is long $ARB on #Aave is selling $ARB to repay the debt.

Over the past 5 hours, the whale has withdrawn 5M $ARB ($3.85M) from #Aave and deposited 3.8M $ARB ($2.93M) to #Binance.

And the whale currently holds 8M $ARB ($6.16M).https://t.co/HpuZnHbap4 pic.twitter.com/qduKeWC4ul
— Lookonchain (@lookonchain) September 11, 2023

The challenge with this analysis lies in the ambiguity of cause and effect. Typically, leverage long positions are compelled to close when token prices have already fallen, rather than the reverse. This underscores the importance of investors examining Arbitrum’s activity and deposit trends over the past couple of months, which could have potentially triggered the recent price performance.

Declining network activity is most likely the culprit

Arbitrum's TVL has notably declined to $1.67 billion, marking its lowest level since mid-February.

*Arbitrum network total value locked. Source: DefiLlama*

This 25% decrease over the past two months raises several concerns, primarily indicating a loss of investor confidence. This downturn has the potential to reduce liquidity and undermine the project’s overall viability. Furthermore, it might deter new participants, impeding network growth and adoption.

Next, it's crucial to examine the number of active addresses within the network's top DApps.

*Arbitrum network top decentralized applications by active addresses. Source: DappRadar*

There is a noticeable decline in 30-day active addresses, even among well-established DApps like Uniswap, 1inch, Radiant, SushiSwap and GMX. Therefore, when considering the decrease in TVL alongside reduced user activity, it becomes evident that there is a substantial decline in demand for the network. While pinpointing a singular cause for this movement is challenging, one can speculate that competing chains such as zkSync Era and Coinbase’s Base may have contributed.

The data suggests that Arbitrum’s 14.5% correction appears to result from a combination of investor dissatisfaction with the governance mechanism and the network’s lackluster activity, despite offering significantly lower fees compared to Ethereum. Unless there is an upswing in transactions and an expansion of its user base, it is unlikely that ARB will be able to close the price performance gap with its competitors.

3 reasons why Ethereum price is still pinned below $1,900

August 10, 2023 Coin Telegraph

3 reasons why Ethereum price is still pinned below ,900

Activity

PayPal’s stablecoin announcement and a handful of Ether ETF applications are bulls’ biggest hopes for a price trend reversal.

Ether (ETH) price has been locked within a tight trading range spanning from $1,800 to $1,900 since July 21. This remarkable lack of volatility has instilled a sense of uncertainty and skepticism among investors, despite recent positive developments which include the launch of PayPal's Ethereum-based stablecoin, and a surge in requests for Ether-based exchange-traded funds (ETFs).

PayPal's entrance into the world of cryptocurrencies could signify a major step toward mainstream adoption for Ethereum. However, this move also raises concerns about centralization and the potential loss of control over personal assets.

At the same time, the United States Securities and Exchange Commission (SEC) has recently witnessed a surge in applications for Ether exchange-traded funds (ETFs), which mirrors a trend of major asset management firms seeking to establish spot Bitcoin ETFs.

ETH’s drop in DApp deposits and active users is concerning

The Ethereum network is having problems because of high gas fees, which are the costs for transactions, including those done with smart contracts. For the past two months, the average transaction fee has been more than $4, which limited the demand for its decentralized apps (DApps).

*Ethereum network applications' total deposits in ETH. Source: DefiLlama*

There has been a noticeable decline in the total value of deposits locked (TVL) in the Ethereum network. This decrease marked the lowest TVL level observed over the past three years, as reported by DefiLlama.

While there may have been some shifts in this trend over the past week, the current scenario still reflects a substantial reduction in Ether deposits, specifically around 12.9 million, in contrast to the 14.75 million recorded three months ago.

To ascertain whether the decline in Ethereum's TVL correlates with a decline in its user base, investors should monitor the utilization of decentralized applications (DApps). It's important to note that certain DApps, such as gaming platforms and marketplaces, do not require substantial deposits.

*Ethereum's 30-day DApp activity. Source: DappRadar*

The number of active addresses using DApps is also down, which is concerning. In the last 30 days, the main DApps on Ethereum had 25% fewer active users. This might reflect that investors aren't satisfied about how much it costs to transact on the network.

Now, let's examine Ether derivatives to figure out whether the $1,800 level could actually prove a reliable support based on how ETH investors are positioned.

Derivatives metrics show balanced demand between bulls and bears

Ether quarterly futures are popular among whales and arbitrage desks. However, these fixed-month contracts typically trade at a slight premium to spot markets, indicating that sellers are asking for more money to delay settlement. As a result, ETH futures contracts in healthy markets should trade at a 5 to 10% annualized premium — a situation known as contango, which is not unique to crypto markets.

*Ether 3-month futures annualized premium. Source: Laevitas*

As per the futures premium, also referred to as the basis indicator, professional traders in the Ether market have remained unable to adopt a bullish stance since July 16. The current level of 5% hovers on the brink of neutral-to-bearish threshold, indicating a state of equilibrium in demand between leveraged long and short positions.

The recent unveiling of Coinbase's Base network on Aug. 9 could contribute to Ether's challenge in surpassing the $1,900 mark. Several development teams within the ecosystem have announced their offerings for the Base network, which presently incorporates a version of the decentralized exchange Uniswap.

While Ether's bullish prospects are fueled by the potential approval of an ETF and the substantial user base facilitated by PayPal's stablecoin, the network finds itself confronted by the competition from existing smart contract platforms and challengers with ample resources. Such a scenario introduces an element of uncertainty surrounding the resilience of the $1,800 support level.

Optimism transactions surpass Arbitrum, but what’s behind the uptick in users?

August 3, 2023 Coin Telegraph

Coin Telegraph

Transactions on Optimism recently eclipsed the Arbitrum network, but do the project’s fundamentals support a sustainable growth trajectory?

Optimism (OP) is a Layer 2 scaling solution, which operates as a separate blockchain built on top of Ethereum. Despite having a smaller total value locked (TVL) than its rivals, Optimism may still have the potential to thrive in the increasingly competitive DeFi landscape.

Being one of the pioneers in the DeF space, Optimism initially gained an initial but had to contend with fierce competition. The project has been trailing behind other scaling solutions in terms of daily transactions for the past six months. However, in late July, the situation changed as Optimism finally overtook its main competitor Arbitrum and is showing signs of increasing demand from users.

The rise of Layer 2 scaling solutions

The increase in Layer 2 activity on Ethereum has been significant, surpassing mainnet activity by more than four times, according to data from L2beat. Various solutions have emerged to address Ethereum's scalability challenges and each Layer 2 project focuses on different aspects such as privacy, specific decentralized applications and NFT marketplaces.

Consequently, the leaderboard of transactions and volumes constantly fluctuates based on demand, and each solution comes with its own advantages and drawbacks.

Optimism operates using rollups, bundling all transactions into a single transaction to be executed on the base layer, inheriting all security features from Ethereum. The philosophy behind Optimism assumes that all transactions are valid unless challenged and proven otherwise, allowing for cost-effective and fast transactions for users.

*Transactions: Ethereum mainnet vs. Layer-2. Source: L2beat*

While Optimism and Arbitrum (ARB) rely on rollups, the core difference lies in Arbitrum's centralized approach where a single entity (sequencer) is responsible for submitting fraud proof. On Optimism, anyone can submit them.

*Layer-2 transactions per second, 7-day change. Source: L2beat*

Among the Layer-2 competitors, Optimism has been the standout performer since July 20, experiencing a 47% growth in daily transactions. This growth has enabled Optimism to surpass its competitor Arbitrum in daily transactions for the first time in 6 months.

Furthermore, the Optimism protocol has witnessed a surge in daily active addresses, with a 27.6% increase in 30 days, while Arbitrum's activity declined by 7.5%.

*Arbitrum vs. Optimism, number of unique daily active addresses. Source: GrowThePie*

This trend indicates a potential shift in dominance, although drawing conclusions prematurely would be unwise. Arbitrum's main advantage lies in its much larger total value locked (TVL) compared to Optimism.

According to DefiLlama, Arbitrum currently holds a significant TVL of $2.35 billion, whereas Optimism's TVL is comparatively lower at $920 million. Arbitrum's dominance is especially evident in the decentralized finance (DeFi) applications it shares with Optimism, such as Uniswap and AAVE. Additionally, Arbitrum boasts an impressive $500 million TVL in the derivatives exchange GMX.

Coinbase and Worldcoin back the recent surge in Optimism activity

Two of the main reasons for higher demand on Optimism are increased use from Coinbase and Worldcoin. The project is also on track to implement important privacy mechanisms that could create another use case.

A pivotal moment for Optimism came with the launch of Coinbase's sandbox on July 21, providing developers with a test environment to build and deploy new applications on this Layer 2 solution. This initiative incentivizes the creation of new tools, applications, and protocols, fostering growth and innovation.

One of the projects utilizing Optimism as a scaling solution is Worldcoin, which has been gaining substantial attention. The token airdrop on July 26 further boosted activity on Optimism after supporting Uniswap on the Optimism mainnet. Worldcoin has also deployed most of its Safe wallets on Optimism. This adoption has contributed significantly to the daily activity on the network, accounting for around 40%.

*Share of transactions on Optimism Network, July 27. Source: Dune Analytics*

New privacy features could benefit Optimism

Optimism's ecosystem is set to undergo several developments, including two proposals by O(1) Labs and RISC Zero to implement zero-knowledge proof systems. This move will provide the network with its own ZKP layers, akin to developments on Polygon (MATIC) and ZKSync.

The growth in active addresses on Optimism is a positive indicator for the network's success and the successful launch of the Worldcoin project marked a milestone for this scaling solution.

The surge in daily active addresses is also promising, signifying the network's continuous growth and potential opportunities with the successful implementation of its privacy solutions.

AAVE price takes double-digit hit, but strong fundamentals point to eventual recovery

August 2, 2023 Coin Telegraph

Coin Telegraph

AAVE price may have been impacted by this week’s Curve Finance scandal, but a robust insurance fund and steady fee revenue could protect against further downside.

AAVE, the governance token of the decentralized finance (DeFi) protocol Aave, experienced a 17% decline between July 30 and August 1, reaching the $62 level.

While the $62 support has demonstrated its resilience, the current price of $64.40 is still 12% below the daily close on July 30. Investors are now questioning whether this movement signifies a more cautious approach to the sector or if other factors are exerting pressure on the AAVE token price.

*AAVE price index, 12-hour chart. Source: TradingView*

Part of the recent movement in the AAVE token can be attributed to the risks of cascading liquidations on DeFi protocols, resulting from the Curve Finance pool exploit that commenced on July 30. However, Aave's decentralized liquidity protocol has successfully survived previous identical scenarios and the protocol has a substantial $295.6 million deposited in its Safety Module.

Notably, Michael Egorov, the founder of Curve, currently holds a substantial $76.6 million loan backed by 357.3 million CRV tokens across three DeFi applications, as reported by Delphi Digital. This represents 40.5% of the entire CRV circulating supply and poses risks to the ecosystem, raising concerns about potential liquidation repercussions on major protocols, including Aave.

18/ Update: Having paid down some of his loans, Egorov has managed to significantly reduce his liquidation price points.

*Note on his Fraxlend position: Utlization has fallen to 37% so the APY should continue to decline* pic.twitter.com/LUyeopWRMp
— Delphi Digital (@Delphi_Digital) August 1, 2023

According to Delphi Digital data, specifically on Aave, Egorov holds 267 million CRV tokens, backing a 54.2 million Tether (USDT) loan. With a 55% liquidation threshold, the current liquidation price for the CRV token stands at $0.37, which appears relatively secure at the moment. However, it's essential to note that Egorov is paying a significant 50% APY for this loan.

This situation serves as evidence that Aave and other top DeFi protocols function as intended, without special rules or bailouts, even for project founders. While the Curve token debacle continues, there's no distinct issue with the Aave protocol, aside from notable players taking assertive actions to close their positions.

Aave stablecoin trading below $1 is an ongoing concern

Another factor influencing AAVE's token performance is the stablecoin GHO, which has been trading below the $1 peg since its launch on July 16. According to 21Shares' on-chain data and research analyst, Tom Wan, the stablecoin's low fixed-rate borrowing presents a double-edged sword.

The lack of DeFi integration and farming opportunities for GHO discourages borrowers from holding the token, as they seek higher yields in other stablecoins. Tom Wan emphasizes that this selling pressure leads to the depegging of the GHO stablecoin on decentralized exchanges.

The Aave protocol currently boasts a substantial $5.1 billion in Total Value Locked (TVL) across six chains, but it has experienced a recent 12.5% decline in this figure within just one week. In comparison, Uniswap's and Compound's TVL remained relatively stable at $3.75 billion and $2.23 billion, respectively.

*Total value locked (TVL), USD. Source: DefiLlama*

However, it is worth noting that Aave's annualized revenue is $12 million, as per DefiLlama data, which falls significantly short of Convex Finance's $52 million and Radiant's $20 million.

*Collateralized Debt, Yield and Lending protocols revenue rank. Source: DefiLlama*

Despite this, some proponents argue that Aave's higher fees compared to its competitors leave room for potential future revenue growth.

Recent events might have tamed investors’ views on Aave

In May 2023, the older version of Aave protocol (v2) encountered a bug that hindered users from withdrawing $110 million worth of assets on the Polygon Network implementation. The issue arose due to an interest rate curve patch on May 16, but it was promptly resolved within a week, and no funds were reported lost in this occurrence.

Another recent contentious event on Aave took place on June 12 when a proposal was introduced to prevent a specific account, belonging to Curve founder Michael Egorov, from accumulating further debt. This move sparked debates among participants, with some contending that it infringed upon the principle of censorship-resistance or "neutrality" in DeFi.

Despite the recent 17% decline in the AAVE token price and a 12.5% drop in TVL, Aave's decentralized application remains a strong contender in the DeFi space. With a robust insurance fund and protocol fees, the protocol is well-equipped to weather market fluctuations and potential risks.

Although Aave's annualized revenue may be lower compared to some competitors, the higher fees could potentially pave the way for future revenue growth. Overall, Aave's solid foundation and significant TVL signal its resilience and potential for continued success.

Crypto survey finds 47% of investors expect Ether to ‘surpass’ Bitcoin

July 18, 2023 Coin Telegraph

Coin Telegraph

Fidelity Digital Assets gave a bullish forecast for ETH in the next 12 months, while a separate survey from CryptoVantage found 47% of investors expect Ether to “surpass” Bitcoin.

Fidelity Digital Assets released a “Q2 2023 Signals Report” on July 18, which claimed that Ether’s outlook for the next 12 months and the long term is positive. Year-to-date, Ether (ETH) has gained 62%, but while the investment firm might be short-term bullish on Ether, that does not mean it believes that the month-long bullish channel will be sustained.

While institutional investors like Fidelity Digital Assets may have a bullish longer-term vision for ETH's price, let’s compare their analysis against network and market data to see if they’re on the money.

*Ether/USD 1-day price index. Source: TradingView*

Beyond the technical indicators, the rationale behind Fidelity’s bullish outlook for Ether is the network’s higher burn rate versus coin issuance, the “new address momentum” and a growth in the number of network validators.

*Fidelity “Q2 2023 Signals Report,” July 18. Source: Fidelity Digital Assets*

According to the Fidelity report, the net issuance since the Merge in September 2022 resulted in a net supply decrease of more than 700,000 Ether. Additionally, the analysts claim that Glassnode data showing an increasing number of Ethereum addresses that transacted for the first time ever proves healthy network adoption.

The report also points to a 15% increase in the number of active Ethereum validators in the second quarter.

The expectation around EIP-1153 is also building momentum for the Ethereum network, as the “transient storage opcode” improves smart contract efficiency, reduces costs and amplifies the Ethereum Virtual Machine design. The change is especially meaningful for decentralized exchanges (DEXs), where Ethereum’s dominance declined to 46% from 60% six months prior, according to DefiLlama data.

Dencun upgrade expected to reduce transaction costs

Another potentially bullish factor for the Ethereum network is the anticipated upgrade on the leading DEX, Uniswap. According to a July 17 presentation at the Ethereum Community Conference, the upcoming Uniswap v4 will allow users to build unlimited types of pools using programmable buttons (hooks), native ETH support and a singleton contract that performs internal transactions before settling final balances.

The announcement fueled the likelihood that EIP-1153 will be included in the next “Dencun” upgrade, which triggered Slingshot and DeFi Pulse co-founder Scott Lewis.

i had missed the news that uniswap labs got eip1153 into cancun.

they kept the details for wanting eip1153 secret from the community, only publishing v4 only after inclusion was finalized.

informal governance captured by an insider-aligned, for-profit monopoly. sad day.
— scottlewis.canto➕ (@scott_lew_is) June 13, 2023

If approved, the implementation will be vital for the Ethereum network to recoup the market share lost due to high gas fees, as the seven-day average transaction cost has been above $4 since February. Consequently, Ethereum’s total value locked has dropped to its lowest level since April 2020, at 13.55 million ETH, according to DefiLlama.

Moreover, decentralized application activity has dwindled, as shown by DappRadar’s unique active wallets’ 30-day data: Uniswap, minus 28%; 1inch Network, minus 14%; MetaMask Swap, minus 8%; and OpenSea, minus 5%. As a comparison, in the same period, BNB Smart Chain’s PancakeSwap gained 10%, and Polygon’s Uniswap users increased 8%.

Derivatives metrics remain flat

Ether quarterly futures have been signaling unease among professional traders. Those fixed-month contracts typically trade at a 5% to 10% premium compared to spot markets to compensate for the delayed settlement, a situation known as contango.

*Ether 3-month futures premium. Source: Laevitas*

According to data from Laevitas, the Ether three-month futures premium currently stands at 4%, which is below the neutral threshold and lower than the 5.5% level seen on July 14. This indicator is clear evidence that traders are less inclined to use leverage for bullish ETH positions.

More concerningly, Ether’s 59% gains year-to-date might have caused investors to become overly optimistic. A recent survey from CryptoVantage of 1,000 North Americans that invested in cryptocurrencies over the past five years found that 46% named Ether as the top contender to surpass Bitcoin (BTC).

*Coins with the best chances of surpassing Bitcoin. Source: 2023 CryptoVantage survey*

This is a somewhat startling point of view, but it could be misleading since the survey did not ask whether any coin would eventually flip Bitcoin, so respondents don’t necessarily place strong odds on this outcome.

Fidelity’s analysis has given valid reasons for why the firm is bullish on Ether’s 12-month price performance, but in the shorter term, the recurrent high gas fees and lack of interest from leverage buyers signal increased odds of the Ether price breaking below the channel support.

Cardano price turns bullish, but is there substance to the ADA rally?

July 14, 2023 Coin Telegraph

Basho

Cardano’s DeFi footprint and network activity show an uptick in users, but will it be enough to sustain ADA’s recent bullish price action?

Cardano (ADA) experienced a remarkable price surge of 23.9% on July 13, leaving investors curious about the potential for further gains. This significant rally comes on the heels of a favorable judicial decision regarding XRP, leading many to question if ADA has what it takes to break above the $0.40 mark.

*Cardano 1-day price in USD at Coinbase. Source: TradingView*

There are three reasons to support Cardano’s bullish momentum, including its potential to integrate other blockchains, increased activity in decentralized applications, and the decreased regulatory risk, although the latest XRP event requires a more cautious approach.

SEC actions specifically named ADA as a potential security

Cardano and its ADA token found itself in the spotlight as the Securities and Exchange Commission (SEC) referred to it as a potential security during the recent court action against Coinbase and Binance exchange. However, it's important to distinguish that while the staking offering may be considered a security, it does not pose a direct risk to Cardano or its development companies.

Following the SEC's remarks in June, ADA faced a 36% correction, dropping to $0.24. However, the recent XRP ruling on July 13 helped alleviate regulatory risks, leading to a boost in the rally of ADA and other coins impacted by the regulator's comments.

The idea of implementing sidechains sparked additional interest

After a recent video shared by John Woods, CTO at Algo Foundation, Charles Hoskinson, co-founder of Cardano, proposed incorporating Algorand (ALGO) as a Cardano sidechain.

It might be prudent for Algorand to consider becoming a sidechain of Cardano. Always here to help. https://t.co/h3lQeF7WlK
— Charles Hoskinson (@IOHK_Charles) July 12, 2023

Although it may seem unlikely for the Algorand community to accept such a suggestion, the proposal gains relevance amidst AlgoFi's shutdown announcement on July 11. The decision followed the SEC's allegations of security-like characteristics against Algorand due to its ICO. This could provide a way for Algorand to avoid regulatory scrutiny, and it could also boost the adoption of Cardano's ecosystem.

It's worth noting that smaller altcoins could be incentivized monetarily to become a Cardano sidechain, leveraging Cardano's rich treasury and marketing potential.

Increased activity in Cardano DApps and NFT markets

Smart contract activity plays a vital role in the success of blockchains designed for decentralized applications, especially as Ethereum struggles with soaring transaction fees. Therefore, assessing ADA’s activity in terms of deposits locked on smart contracts and the number of DApp users becomes crucial in determining the sustainability of the current bull run.

*Cardano smart contracts TVL, in ADA terms. Source: DefiLlama*

According to DefiLlama, Cardano's Total Value Locked (TVL) in ADA terms increased by 10% month-on-month, reaching 550 million ADA on July 14. Additionally, DEX volumes saw a 6% increase over the past seven days.

Cardano's NFT sales, as reported by CryptoSlam, surged by 56% to $3.1 million, outperforming leading platforms like Solana and Ethereum.

Data sounds promising, but ADA could still face regulatory setbacks

The recent rally in ADA is certainly encouraging, but there are still some risks to consider before investing in the project.

Despite the beneficial XRP decision, it's important to note that Cardano's ICO was not explicitly cleared by the court ruling, as it solely addressed sales via exchanges and OTC desks. The ongoing XRP trial will further determine the fate of Cardano's regulatory status.

Additionally, ADA’s TVL of $200 million lags behind other layer-1 smart contract alternatives such as Tron ($5.9 billion), BNB Smart Chain ($3.4 billion) and Avalanche ($727 million). This suggests that there is still limited demand for ADA's services.

To solidify its position and potentially surpass the $0.40 mark, Cardano needs to continue growing and delivering on its promises, including the planned updates for 2023. Important upcoming updates include the Hydra layer-2 solution that uses sidechains to offload transactions from the main chain, and Basho, a layer-1 scalability and performance improvement proposal including improved block structure, parallelization, and pipelining.

TVL

Solana’s reduced total value locked and activity pose considerable risks

Rallies tend to follow mainnet and protocol updates

Network data shows Polygon losing steam as new competition emerges

Solana’s DApp and NFT market activity surges

Network upgrade enhances privacy and eases the stress on validators

Stiff competition from Ethereum layer-2 solutions

Regulatory uncertainty and high network fees limit investors’ appetite

ETH futures and options show reduced interest from leverage longs

ARB governance proposals bring questionable benefits

Declining network activity is most likely the culprit

ETH’s drop in DApp deposits and active users is concerning

Derivatives metrics show balanced demand between bulls and bears

The rise of Layer 2 scaling solutions

Coinbase and Worldcoin back the recent surge in Optimism activity

New privacy features could benefit Optimism

Aave stablecoin trading below $1 is an ongoing concern

Recent events might have tamed investors’ views on Aave

Dencun upgrade expected to reduce transaction costs

Derivatives metrics remain flat

SEC actions specifically named ADA as a potential security

The idea of implementing sidechains sparked additional interest

Increased activity in Cardano DApps and NFT markets

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