Carbono Insights #59 | Altcoin Season
Altcoin season is when things move fast, and investors become careless. With liquidity reaching every corner of crypto, every project looks successful. It’s easy to get swept up in the excitement.
Can you smell the altcoins in bloom? Altcoin season is when altcoins outperform Bitcoin, and the market becomes equally exciting and dangerous.
According to the Blockchain Center, altcoin season is when 75% of the top 50 coins outperform Bitcoin over the last 90 days, excluding stablecoins and asset-backed tokens.
This would include L2 tokens, dex tokens, Gamefi…According to this definition, we’re still in strong Bitcoin territory, but we can hear the siren songs of altcoin season in the distance.
It’s also an exciting moment of thriving creativity, so if it finally comes, enjoy it. Just make sure to take your DYOR pills every day.
We chose altcoins in bloom as the motif for this issue’s NFT. Share this newsletter on Twitter, tagging @carbono_com, and we’ll send you a copy of this week’s INTERPOLATION.
In this issue:
- Where to look after Shapella
- The zk-rollup ecosystem
- Recent macro indicators bullish for crypto
- Real-world assets are still alive and kicking.
- EIP-4844: the scalability to come
- Solana seeks resurrection through a smartphone
⬡ Six Angles
1. Ethereum | Where to look after Shapella
Devs did their thing and forked Ethereum successfully and painlessly, and Shapella did what was expected: it worked. Ethereum withdrawals are already running at full speed. Now is the time to stop predicting and start watching to see how all the different elements of the equation play out.
- ETH staked. Most predictions say that the amount of ETH staked will increase after the initial period of volatility. So far, staked ETH is a net negative. But we should keep looking at the charts these days to see if the predictions stand.
- APRs. APRs from staking depend on two things: block rewards, which remain almost constant, validation “extras” like tips and MEV, which rely on blockchain activity.ç
Staked ETH will likely go up, leading to lower APRs (more people to distribute rewards to). And on-chain activity does not depend on Shapella: we’ll have to wait for other indicators, like macro movements of the NFT market.
It will be interesting to see what LSD attracts the predicted inflows of ETH.
- Validators. Validators might want to switch their ways. Many of them put their nodes to work in earlier iterations of the system, and after all this time, they could find more favorable conditions. Rocket Pool has been working hard to become the most validator-friendly platform.
- New actors. New alternatives for people interested in staking are coming into the space. Eigen Layer just launched their testnet. Eigen Layer is a restaking protocol. It could mean serious competition to current LSD providers. Other projects like Pendle offer tangential services based on LSDs that could bring more demand but change how it looks. They call this LSDFi.
- Institutional adoption. Staking is a straightforward business model, and Ethereum is the second favorite chain for institutional investors. So it would be reasonable to assume that institutional investors would approach staking now that liquidity risk is over. But there’s a significant hurdle. Staking has been in the crosshairs of regulators (remember the SEC fined Kraken because of their staking services), so this might not spark until there’s a little more regulatory clarity, this might not spark.
If you want to decide about the different options available in the LSD space these days, check out our snapshot to see where Lido, Rocket Pool, Coinbase, and Frax stand.
2. Scalability | Zk-rollup ecosystem
Scalability is the other most crucial ongoing trend in 2023, and zero-knowledge rollups are the main act these days. There are mainly three leading contenders operating.
- Starknet is a zero-knowledge OG. It has done a 3x in the last 30d thanks to the whole zk narrative, even though they’ve hardly made any changes or announcements, except that Aave is on its way to deploying there. Starknet’s TVL is still humble, though, with ~$7.6M. In addition, they have a very modest ecosystem (4 dexes, according to DeFiLlama).
- Polygon’s zkEVM seems like a promising solution, but they’re immature. However, they have good cred (Vitalik approves) and keep delivering code audits to assure the community. Nevertheless, so far, they only have $1.7M TVL. Also, they have a significant downside when attracting degens: they’ve already announced that MATIC will be the protocol token, so they are missing all the “wen token” “wen airdrop” hype.
- This leads us to zkSync Era, the clear leader in zk rollups. They’re approaching $120M TVL, led mainly by Dexes. zkSync Era is attracting airdrop farmers. Matter Labs, creators of zkSync, have always said that decentralization is a core part of their roadmap and that there needs to be a token for that. Also, some of the significant protocols within Era have announced tokens, too, so a double airdrop strategy is available.
3. Macro | Recent indicators bullish for crypto
Job market data showed a slowdown, an intended consequence of the Fed’s rate hikes. The unemployment rate remains at 3.5%. Jobs are increasing but slower, and this exemplifies that type of bad news that is good news.
CPI also provided some relief, with price changes slightly below expectations (forecasted MoM CPI was 0.2%, and the actual rise was only 0.1%). Nevertheless, inflation is still high, at 5% -way above the FED’s desired 2%.
Both metrics provide reasons to believe in a potential relaxation in upcoming interest rate decisions.
In the meantime, the banking crisis narrative refuses to fade. Recently, the Wall Street Journal ran an article about how loans can be a comparable burden, if not bigger, than the HTM bonds that killed Silicon Valley Bank.
4. RWA | Real-world assets are still around
The real-world asset (RWA) narrative worked during the bear market when traditional finance offered the only interesting APRs, thanks to the interest rate. But now, with all the exciting developments happening inside the crypto world, like Ethereum and Layer 2 solutions, we don’t need RWAs to keep us interested. However, RWAs are at the core of one possible endgame for crypto: the one where crypto and TradFi are perfectly interconnected. So, while the RWA narrative may have lost some of its sparkles, it’s still worth watching.
These days we learned that Maple Finance would allow accredited investors and corporate treasuries outside the U.S. to invest in U.S. Treasury bonds on-chain through a US Treasury pool. Maple has had its share of challenges because of its proximity to FTX and other CeFi bad apples. But they continue to spearhead RWA experimentation together with Goldfinch.
5. Ethereum | EIP-4844
During the live broadcast of the Shapella fork, someone asked Vitalik what he looked forward to after withdrawals were activated, and his answer revolved mostly around EIP-4844.
EIP-4844, or proto-danksharding, will significantly boost scalability by creating a new data type called blobs. TL;DR of blobs: they’re a cheap, fast way to provide data to L2s. Because, indeed, EIP-4844 is meant to improve Ethereum’s scalability through its rollup-centric vision. So expect more buzz around Arbitrum, Optimism, zkSync, Polygon zkEVM, etc.
Rollups are, in the short and medium term, and possibly in the long term, the only trustless scaling solution for Ethereum. L1 transaction fees are a significant blocker for new users and applications. EIP-4844 will help facilitate an ecosystem-wide move to rollups. https://www.eip4844.com/#why
6. Adoption | Solana Saga mobile
Solana, the high-performance blockchain network, has yet to recover from the FTX debacle. However, some positive developments could help it regain its footing.
FTX liquidators have hinted at the possibility that FTX might re-open shop. It could help unlock SOL and potentially restore some of the network’s lost reputation.
But the most critical catalyzer could be its Saga project: a crypto smartphone that aims to bring the power of blockchain to the masses. While it may not be L1 season right now, anything that aims at adoption has our sword.
