Web3 Watch – 22 Jul 23

In a bid to not only be the dominant DEX on Ethereum, but across other chains, Uniswap expanded its offerings to the Avalanche Network on 13 July. As of 17 July, Uniswap has since collected $1,521 in fees on AVAX. 

Trader Joe, the dominant DEX on Avalanche, recently began its cross-chain expansion efforts by launching on Arbitrum back in January 2023. It remains to be seen if Trader Joe will remain as the king of Avalanche, or if the attack of the unicorns would prove overwhelming.  

Four days after the ‘Ava-launch’, Uniswap announced UniswapX, a new permissionless, open source (GPL), auction-based protocol for trading across AMMs & other liquidity sources. 

We note in particular that a couple of the main features of UniswapX would be better liquidity and prices (via routing outsourced to an open network of fillers such as MEV searchers, market makers etc.), and gas-free swaps where fillers pay gas on swappers’ behalf.

Many have likened UniswapX to Cowswap. However, Cowswap does not immediately search for sources of liquidity, but prioritizes coincidences first. In a closer comparison, others have likened it to 1inch Fusion but with cross-chain functionality, due to the similarity of a dutch auction-based system.

We believe UniswapX’s launch will positively impact on end-users, but would probably hurt liquidity providers moving forward, due to the design change in Uniswap’s market structure that favors the more ‘professional’ fillers such as MEV searchers and market makers over retail liquidity providers.

The resurrection of Memecoins?: $YYY and $MIC

In recent weeks, a few tokens have managed to breathe life and attention back to the memecoin space, at least for the time being.

The rise of NPC Tiktok livestreamer, Pinkydoll, with her patented “Yes Yes Yes” response to donors, gave birth to the memecoin, $YYY (YES YES YES). Earliest movers who sold the top, would have earned an eye-watering 279,196% in profit.

$MIC (Magic Internet Cash), a memecoin  launched in mid June, pumped 90,000+ %  at launch, then crashed, and remained suppressed and flat in the last few days of the month. $MIC’s lackluster price action continued in the first half of July, but made a huge comeback when it catapulted +2000% from 15 to 17 July. The $MIC team also attempted to replicate $BITCOIN’s (HARRYPOTTEROBAMASONIC10INU – yes, that’s the full name of the token and yes, $BITCOIN is actually the ticker name) Sproto Gremlins NFT collection, by launching an NFT collection of their own, $MIC Wizards. 

On a more lighthearted note, Hamsters.gg, the world’s first live-streamed hamster racing and betting platform has launched on Ethereum and BNB, with its native token, $HAMS. $HAMS holders earn a portion of the revenue from the betting activity, and its earliest token holders are sitting on a 3196% profit as of 21 July. The hamster races that are livestreamed are real, where the first hamster that crosses the line wins. A Twitter user reports there is an average of ~$2k in betting volume per race, with a race conducted every hour. Is this project just a fad? Maybe. For now, most are having fun watching their favorite furry friends such as Rocky, Milo and Oliver take to the tracks. 

Is a sale of Celsius’ portfolio tokens coming?

Twitter users watching Celsius addresses on Dune, as well as Blockworks, report that Celsius has made its first on-chain moves last week, by transferring tokens to deposit wallets on FalconX and OKX. Below is a table showing the tokens sent to FalconX:

Knee-jerk reactions in pricing some of these tokens can be found here. Despite the negative reaction, the selling of these tokens may not impact prices that much as (i) selling may be done over the counter, and that (ii) certain holdings of specific tokens are small compared to its trading volume on exchanges. At the same time, there is still a possibility of overreaction in the markets.

Impact of Eigenlayer’s mainnet launch on LSD protocols 

On 12 July, Eigenlayer increased its capacity for ETH to be re-staked, to a total of 30,000 staked ETH across all its types of LSTs that can be deposited there (Lido’s stETH, Rocketpool’s rETH and Coinbase’s cbETH), with a cap of 15,000 tokens for each LST. The 30,000 staked ETH cap was filled extremely quickly, within ~40 minutes of its opening, with stETH hitting its max cap much faster than its peers (~8 min). As such, the cap was immediately increased to 45,000 staked ETH. 

The maximum cap for rETH and cbETH was eventually reached as well, albeit at a much slower rate than stETH’s cap. The chart below shows the rate at which each type of LST was being re-staked to Eigenlayer, while the floodgates were still open.

      Chart 1: Deposited ETH LSTs on Eigenlayer by Type /h (Source: @CC2Ventures on Twitter)

With the increased cap, there was a ~ 400% surge in TVL of Eigenlayer, from  ~$16m to ~$80m (Chart below). 

Chart 2: Eigenlayer TVL (Source: Dune Analytics, @sankin)

Here are some interesting points about the staked ETH deposits, by Twitter user, @deranzxc:

• Address 0x1be, a Rocket Pool Node operator, deposited 1000 stETH, which is ironic, as it was expected they would support their own rETH pools
• A Wintermute-labeled wallet deposited 750 stETH into the stETH pool
• The top 20 stETH depositors are responsible for 70.4% of the entire stETH pool. (~20m USD), while rETH seems the most balanced, with 25.8% contributed by the top 20 addresses. Although cbETH has its top 20 addresses contributing 43% to its Eigenlayer pool, Chart 4 shows that like rETH, there are many small contributors of staked ETH ranging from < 0.1 to 1 ETH, while the stETH pool has a more ‘whale-like’ profile.

Chart 3: Staked ETH Deposit Metrics (Source: Nansen, via @deranzxc)

Chart 4: Number of Depositors by amount of ETH and type (Source: Nansen, via @deranzxc)

We had mentioned in a previous Web3 Watch, that the launch of Eigenlayer on mainnet would have a positive impact on the LST protocols that it integrates for re-staking. (ie. Lido, Rocketpool, Coinbase Staking) Thus far, Eigenlayer has provided LST owners 2 opportunities to re-stake their LSTs – once on 14 June that increased its TVL to ~ $16-18m, and the second on 12 July. Let’s take a look at how the 3 LSTs that have been integrated into Eigenlayer, have performed during these periods (Chart below).

Chart 5: TVL of Coinbase Staked ETH and Rocketpool Staked ETH (in ETH, 2m)

Chart 6: TVL of Lido Staked ETH (in ETH, 2m)

Approximately a month before the first round of LSTs were accepted into Eigenlayer, there was ~118m ETH staked with Coinbase, ~35.1m ETH staked with Rocketpool, and ~671m ETH staked with Lido.

A few days after the first round of LSTs were accepted into Eigenlayer, there was ~44.6m ETH staked with Rocketpool (~ +27%) and ~722m ETH staked with Lido (~ +7.6%). Coinbase was the only staked ETH “protocol”, that saw a decrease in ETH staked with them, at ~113m ETH (~ – 4.23%). 

Possible explanations for Coinbase staking, seeing the only drop in staked ETH, could be spillover fears from the SEC vs. Binance debacle that began spreading on 5 June, and/or fears of centralization. This goes to show that Eigenlayer’s presence on mainnet does indeed have a positive impact on LSD protocols that are integrated with them, from a TVL aspect. 

Impact on pricing of $LDO and $RPL

We also examine the price action of $LDO and $RPL (LSD protocol’s native tokens) when Eigenlayer opened up its first round of staked ETH deposits on 14 June and 12 July, respectively.

Chart 7: LDO / USDT

 White line on left – 14 June: Eigenlayer opens first round of deposits, (ii) White line on right – 12 July: Eigenlayer opens second round of deposits

$LDO first fell by ⁓ 8% within the first day (14 June) that Eigenlayer opened its first round of deposits. However, looking at a 7 day and 10 day horizon, traders that bought $LDO on 14 June, would have gained a humble profit of ⁓ 7-8% and ⁓ 15% respectively.

For traders that entered a long $LDO position when Eigenlayer opened its second round of staked ETH deposits (12 July), they would have seen a profit of ⁓ 28% within the same day.

Chart 8: RPL / USDT

As for $RPL, we observe a similar price action to $LDO on 14 June, where its price had fallen by ⁓ 6.6% within the day. However, unlike $LDO, $RPL did not see much of an increase a week after 14 June. (⁓ + 3.11%)

For the second round of staked ETH deposits on Eigenlayer (12 July), traders would have seen a ⁓ 6.36% profit within 2 days. However, as of 17 July, $RPL has returned to similar levels as it was on 12 July.

It is important to note that $LDO accrues value through staking rewards with the Lido DAO receiving 5% of all staking rewards in real-time. Assuming all other factors remain the same, means that $LDO should increase in value, as more ETH, MATIC and SOL are staked with Lido. Unlike $LDO, $RPL does not accrue revenue and instead is generally used to control behavior, as incentives and for governance. With Eigenlayer attracting more ETH holders to stake with Lido, $LDO theoretically should increase in price. Looking at Lido’s revenue and fee metrics (Chart below), there has been a 2.8% drop in revenue within the past 30 days when the 2 rounds of deposits by Eigenlayer was opened.

Chart 9: Revenue and Fees of Lido DAO

This indicates that the increase in $LDO’s price was not through its revenue accrual mechanism, but rather market forces. The increase in  $LDO and $RPL prices following Eigenlayer opening its second round of staked deposits on 14 July may not be idiosyncratic, as it coincided with the news of Ripple’s partial win against the SEC, that saw a positive impact on the overall crypto market.

While we acknowledged Eigenlayer’s positive impact on LSD TVLs earlier, the native token prices of such protocols remain largely subject to narratives and open-market forces thus far, regardless of its tokenomics. We will revisit this topic when Eigenlayer launches fully and opens up their pools once more. In the meantime, LSDfi projects such as Pendle and Lybra (amongst others) and LRTs (ie. EigenETH by Stader) are worth keeping an eye on as well.