Artemis Weekly Wrap-up (8/16/2024)
your go-to source for weekly fundamental updates
This week, crypto risk management startup Chaos Labs raises $55m Series A (Coindesk), El Salvador gets $1.6bn investment from Turkish company that will support the build out of Bitcoin City (Decrypt), Marathon Digital - one of the US’ largest Bitcoin mining companies - to raise $250m in convertible notes to purchase more BTC emulating Microstrategy’s model (Decrypt).
🌞 Bitcoin on Ethereum is undergoing a major change
💫 Arbitrum governance votes to enable staking
This week saw markets move sideways, except for a select few assets that saw bears win out: OP, SOL and ATOM. Each of these three posted losses averaging 9%, while the rest of the market averaged around a 2% loss. In spite of this, stablecoin volume was up across the board, with a 2.9% increase led by ETH and SOL. Good news this week was that the US Consumer Price Index, the most popular tool to measure inflation in the US, showed inflation at 2.9% YoY, under 3% for the first time since 2021.
On Wednesday, Crypto4Harris, a grassroots network of crypto advocates held a town hall to discuss the Democrats position on crypto. Among the speakers were billionaire Mark Cuban, Wall Street financier Anthony Scaramucci, congressman Adam Schiff, and Senate majority leader Chuck Schumer. They called on the Harris campaign to reset the Democratic party’s approach to digital asset policy ahead of the November elections. On the call, Senator Schumer stated that he wanted to pass a crypto bill within 2024. "We cannot afford to continue to sit on the sidelines because then we risk crypto going overseas," he said (Reuters).
🌞 Bitcoin on Ethereum is undergoing a major change
Since the advent of DeFi on Ethereum there was one major problem: how do we bring bitcoin’s liquidity onto Ethereum? Bitcoin has long been the most valuable cryptocurrency, and all of that value would be very useful in DeFi applications, but bitcoin lives on the Bitcoin blockchain, and Ethereum DeFi applications live on Ethereum. The most broadly adopted solution so far is that employed by BitGo, providers of wBTC. In short, they accept and custody BTC on the Bitcoin network, and then issue wBTC on the Ethereum network. While BitGo has been very transparent about their BTC holdings, other competitors have not, and wBTC has become the most popular and broadly used BTC wrapper on Ethereum. Today, there is over 150,000 wBTC minted on Ethereum, worth nearly $9bn.
On Aave, wBTC makes up 15% of all deposits, highlighting the degree of integration of wBTC in DeFi.
Today, wBTC makes up about 3% of all of DAI minted, and 5% of crypto-backed DAI, accounting for about $154 million DAI.
So, what happened this week?
Last Friday, BitGo, the custodians of wBTC who had been holding all bitcoin in US jurisdiction, announced a move to a multi-jurisdictional custody plan with BiT Global, a Hong Kong based company. The announcement also mentioned that this ‘is a strategic partnership between BitGo, Justin Sun, and the Tron ecosystem’. This caused fear and discussion on Twitter around Justin Sun’s involvement with wBTC, considering his past history, including with crypto exchange Poloniex.
One day after the announcement, MakerDAO governance saw a proposal to reduce the protocols exposure and reliance on wBTC. One week later, the proposal was approved by governance, and wBTC debt ceilings have been reduced to 0, meaning no new DAI can be minted against wBTC (although existing positions may remain open).
On the other hand, the Aave DAO was much less reactive, despite wBTC making up a larger portion of assets deposited in its protocol. But that may be the exact reason why Aave governance is more reluctant to immediately off-board wBTC: many of their users are wBTC users, and such an action would be like a stab in the back or a rug pull.
In response to BitGo’s announcement, competitors have begun marketing their product wrapped BTC products to take advantage of this show of weakness from BitGo, the incumbents and market leaders. Coinbase announced they would be launching cbBTC, and Ton tgBTC. The transition period for wBTC’s new custodianship is 60 days, and we will be closely observing how the situation plays out over this time period. It would be quite shocking to see BitGo lose its moat here, but all may not be lost yet.
💫 Arbitrum governance votes to enable staking
Several L2s have a native token. Arbitrum has ARB, Optimism has OP, Polygon has MATIC and Mantle has MNT, amounting to over $10bn in combined market cap. However, these tokens have little utility outside of governance voting since gas fees are paid in ETH (for the most part).
Back in June, a proposal was presented to the Arbitrum governance forums proposing to unlock the utility of the ARB token by implementing ARB staking. The driving motivation for the proposal is that a majority of ARB tokens are not used in DeFi and have little utility outside of gaining governance power. At the same time, the Arbitrum treasury has accrued 16k ETH, worth over $40m, in surplus fees. The more ETH the treasury accrues, the more attractive it becomes to perform a governance attack to gain control over the ETH. In order to prevent this, the cost of acquiring enough ARB to attack the protocol must remain relatively high so as to make it risky or simply financially unfeasible to perform such an attack. This means that the value of ARB must increase to keep up with surplus fees accruing to the treasury.
To that end, the proposal outlines a path forward to ensuring the ARB token is useful and valuable by introducing staking. Through the staking mechanism, ARB holders can delegate their voting power to active delegates, and receive stARB, a liquid staked version of ARB, to continue using in DeFi. It is important to note that this proposal does not include a fee-sharing mechanism whereby the treasury would share a portion of surplus fees with ARB holders. However, the proposal mentions that this remains a tool in the DAO’s arsenal.
Just this week, the proposal passed a temperature-check, meaning the next step is an actual onchain vote to ratify the proposal.
Arbitrum, historically the leading optimistic rollup L2 by fundamental metrics like active addresses, daily transactions, TVL, has seen competition ramp up over the past year. It has seen market share taken primary by Base, but also Blast. Despite this, the pie has generally been growing across L2s, meanign more TVL, volume, and activity for everyone.
Despite the influx of competition to the L2 market, Arbitrum has been able to maintian its position as the leading chain by Net Flows. This metrics accounts for the value of assets that were bridge into the chain vs the value of assets that were bridged out of the chain. On a net basis, Arbitrum has netted $5bn in inflows.
But where are these inflows coming from? By selecting Arbitrum as the inflow and outflow chain, we can see that nearly all (+80%) of inflows came from Ethereum, and nearly all outflows (+85%) went back to Ethereum.
It will be interesting to see whether or not ARB staking leads to stARB being used in Arbitrum DeFi, driving higher TVL, DEX volume, capital efficiency and, ultimately, fees accruing back to the DAO.
Liquid Token + Crypto VC Roles
See below for job postings from friends of Artemis! Feel free to reach out directly to us if you’re interested in applying / learning more about the roles!
Detailed dashboard for people who love more numbers in smaller font:
Note: Revenue represents fees that go to the protocol’s treasury or are returned to tokenholders via a burn mechanism.
The content is for informational purposes. None of the content is meant to be investment advice. Use your own discretion and independent decision regarding investments.
Artemis Sheets
Check out other analyses such as the Artemis Relative Valuation L1 / L2 Analysis in Google Sheets here! Track valuation multiples across key operating metrics for top blockchain including Ethereum, Arbitrum, Optimism and Solana.
Powered by Artemis Sheets 🌞
