Macauley Peterson

This is a segment from the 0xResearch newsletter. To read full editions,&nbsp;<a href="https://blockworks.co/newsletter/research" target="_blank" rel="noreferrer noopener">subscribe</a>.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Devcon Bangkok is seeing a lot of debates about Ethereum’s future. The latest keynote on the topic was Martin Koeppelmann of Gnosis, who spoke Friday on the event’s main stage.



Wearing a <a href="https://blockworks.co/tag/tornado-cash">Tornado Cash</a> t-shirt, Koeppelmann challenged the status quo of layer-2 <a href="https://blockworks.co/tag/rollups">rollups</a>, proposing that Ethereum should instead develop and deploy its own zk-proven rollups.



Koeppelmann emphasized the limitations of existing rollups such as <a href="https://blockworks.co/tag/base">Base</a>, which he argued are bringing users not to Ethereum but to corporate-controlled platforms.



&#8220;I have the highest respect for Jesse [Pollack] and Coinbase,&#8221; he remarked, &#8220;but bringing people to those L2 ecosystems is quite different from being on Ethereum.&#8221; He warned of the potential for shareholder-driven decisions — like the introduction of additional fees in the future — that could undermine the Ethereum ethos.



A central critique was the marketing claim that rollups “inherit Ethereum’s security.” While possible in principle, Koeppelmann noted that <a href="https://blockworks.co/news/layer-2-secured-by-ethereum">none of them does</a> in practice.



He illustrated vulnerabilities such as central sequencers’ ability to censor withdrawals or manipulate state in DeFi platforms like Aave, <a href="https://x.com/koeppelmann/status/1857053973431103955">as articulated</a> in a Devcon talk by James Prestwhich. Moreover, he noted that most assets on rollups are native to those chains, not subject to Ethereum’s security guarantees.



<h3 class="wp-block-heading">What would native L2’s look like?</h3>



Koeppelmann envisioned 128 identical interoperable native L2s, rigorously built with Ethereum’s high standards — no multisigs, multiple client implementations, and community scrutiny.



The number is a bit arbitrary, but &#8220;the idea is to make it clear that building on Ethereum is a long-term viable option,&#8221; he explained, with a goal to achieve a &#8220;100x increase in effective block space&#8221; over the next two years.



These rollups would maintain strong composability with Ethereum while addressing scalability, cost, and user adoption for billions of users.



Key to his proposal is integrating these rollups into Ethereum’s economic framework. For instance, Ethereum validator rewards could incentivize proof correctness, enhancing security and aligning rollups with Ethereum’s values.



Developers would have the option to build directly &#8220;on Ethereum&#8221; rather than on external ecosystems, with the choice of a specific rollup dependent on the dapp’s needs.



&#8220;If there are other applications you want to regularly interact with [on a specific rollup], then it would be wise to choose that rollup.&#8221; However, for developers requiring only Ethereum mainnet connectivity, &#8220;you should just choose the rollup that is used the least, because that will be the cheapest.&#8221;



He also called for distinct namespaces to prevent address collisions across these L2s, improving cross-chain clarity.



Koeppelmann concluded by urging the Ethereum community to act decisively. Without native L2s, he warned, Ethereum’s role could diminish: “The connection between rollups and Ethereum becomes a meme.” 



Conversely, embracing native rollups could position Ethereum as “the most important economic zone in the world.”



Ethereum stands at this crossroads, Koeppelmann said, as he challenged the broad community to rethink scalability and governance while staying true to its decentralized ideals.



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Gnosis founder argues Ethereum needs native L2s

Katherine Ross

David Canellis

<h2 class="wp-block-heading">Just keep swimming</h2>



How low can we go?



Maybe the question should be: What’s the next high?



After bitcoin (briefly) broke below $60,000 yesterday, I saw some speculation on the next support level for bitcoin.



So I chatted with John Glover, Ledn’s chief investment officer, to get some insight into technical levels for bitcoin and the market at large.



This is clearly a topic we’ve discussed a few times here in the last couple of weeks as bitcoin searches for a foothold above $65,000. One such support level I mentioned was $60,000, and with that lost, Glover said the next level would be $55,000 or $56,000 (a level we saw back in May).



If bitcoin manages to break through that level, then keep an eye on $49,000.&nbsp;



Obviously, when bitcoin drops, the larger market tends to take a beating. Glover, however, was still pretty optimistic overall. In fact, I asked about a potential “rough summer,” to which he told me he wouldn’t even characterize a summer that way, even if we went lower from here.&nbsp;



Glover’s analysis is based on the Elliott Wave, which if you’re familiar with traditional technical analysis, is a theory focused on longer-term price patterns accounting for both psychology and changes in investor sentiment.&nbsp;



If you’re a nerd like me, it’s an interesting way to gauge a longer-term outlook based on history repeating itself. And it makes for fun charts.



Putting that theory into practice, we’re in for a — shall we say, bumpy — summer. Which we sorta already knew…



Looking at the chart below, I’m happy to inform you that we’re probably at wave three. We’ve definitely gone through waves one and two, tracked by the chart. If we just hit wave three, then we could see yet another pullback before we start carving out a potential new all-time high.&nbsp;



Here’s the thing: I’m talking to analysts and investors pretty much every day right now, and I’m hearing practically the same thing from everyone. Once we get through the summer, it could be smooth sailing from there (key word: could be). I mentioned yesterday and last week that we could see bitcoin above $80,000 by year-end, based on what I was told previously.



“My core case [is] that I believe we&#8217;re going to $85,000 to $95,000 by year end, but I don&#8217;t think there&#8217;s going to be a catalyst to do that until sometimes towards the end of the summer, which will likely be an ETF approval for Ethereum by the SEC, which will drive all asset prices higher,” Glover said.&nbsp;



We could potentially see those ETFs approved by early July, with updated registration statements filed just last week, signaling that the SEC and issuers are close.



Glover’s prediction can be seen in either of the wave fives below.



<figure class="wp-block-image"><img loading="lazy" decoding="async" width="1600" height="793" src="https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-16.png" alt="" class="wp-image-88334" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-16.png?w=1600 1600w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-16.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-16.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-16.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-16.png?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-16.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-16.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-16.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-16.png?w=80 80w" sizes="auto, (max-width: 1600px) 100vw, 1600px" /><figcaption class="wp-element-caption">Glover’s Elliott Wave analysis of bitcoin</figcaption></figure>



&nbsp;Glover pointed out that, at this stage, bitcoin’s trading like a tech stock. Think Meta or Tesla a few years ago. We’ll see it pull back, but then recover just like it did yesterday.&nbsp;



Anyway, that’s enough on bitcoin specifically because I want to turn our view to other parts of the market. In an earlier edition of Empire, David pointed out that we have yet to see an altcoin season this cycle, which is clearly different from what we saw in 2022 or even earlier.&nbsp;



Part of that can be summed up to investors being different this cycle, with the highly speculative retail investor in the minority this time around as the bigwigs — like BlackRock — take center stage with their products. And perhaps that’s not surprising after the shocker that was 2022, but let’s not dredge that back up right now.



My point is that Glover thinks altcoins may not bounce back this cycle, outside of the top five or so such coins.



“The traditional investors are not buying altcoins, and it&#8217;s just the retail guys who are buying altcoins, and a lot of them got really badly hurt in 2023. I think a lot of those people who used to be more than willing to speculate like crazy in the altcoin marketplace aren&#8217;t there now, they got hurt badly, and now they&#8217;re just like, ‘I don&#8217;t want to feel that pain again.’ So I think it&#8217;s just volumes, and rightly so,” Glover said.&nbsp;



Throughout the next month or two, expect to feel slightly uncomfortable, Glover told me. But once we hit the fall, and there are clearer catalysts, get ready to run.&nbsp;



— Katherine Ross



<h2 class="wp-block-heading">Data Center</h2>



<ul class="wp-block-list">
<li>BTC is flat over the past day while ETH is up 2%. Both have bounced and are sitting at $61,200 and $3,380, respectively.</li>



<li>Memecoins and AI tokens have rebounded the most in the top 100, led by WIF, BRETT and BONK with over 17%. AAVE is in between them, gaining 16%.</li>



<li>Daily CEX <a href="https://www.coinglass.com/LiquidationData">liquidations</a> have passed $188 million, two-thirds of that coming from longs.</li>



<li>zkSync Era bridges have seen $72 million in net <a href="https://defillama.com/bridges/chains">outflows</a> in the past week, while $50 million net has altogether flowed into Polygon and Polygon zkEVM</li>



<li>Daily derivatives volume hit their highest point in a month on Monday, reaching $12.06 billion, up 150% on the previous day.</li>
</ul>



<h2 class="wp-block-heading">Ultra-elastic money</h2>



Ethereum is in the midst of its longest inflationary period so far. And it’s all blobs’ fault.



The circulating supply of ether has now risen steadily for almost 72 days in a row, having added nearly 50,000 ETH ($168.7 million) since the middle of April.



All while the number of Ethereum mainnet transactions have gone up and layer-2 activity has exploded.



ETH has only turned inflationary on a handful of occasions since the Merge in September 2022, the longest being a 40-day stretch shortly after the hard fork and a 30-day period late last year.



On top of ditching proof of work for proof of stake, the Merge allowed ether to turn deflationary on a <a href="https://blockworks.co/news/is-ether-deflationary-now-it-depends">per-block basis</a>.



Ethereum’s base fee, which users pay to transact on the network, had previously gone to miners as part of their reward for spending electricity to discover blocks. But without any electricity costs post-Merge, the total block reward would have far exceeded overheads.&nbsp;



This could’ve skewed the currency’s supply distribution over the long run, with validators eventually accumulating a disproportionate ETH that would be almost pure profit.&nbsp;



<figure class="wp-block-image"><img loading="lazy" decoding="async" width="1600" height="1149" src="https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-15.png" alt="" class="wp-image-88333" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-15.png?w=1600 1600w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-15.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-15.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-15.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-15.png?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-15.png?w=358 358w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-15.png?w=363 363w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-15.png?w=305 305w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-15.png?w=80 80w" sizes="auto, (max-width: 1600px) 100vw, 1600px" /><figcaption class="wp-element-caption">The purple line shows the total ETH supply since the Merge. Weekly fee spend is in blue, and inflationary periods are marked by the purple bands.</figcaption></figure>



To make many things fairer for regular users, developers opted for base fees to be burned. Validators instead receive a mixture of priority fees, reduced block rewards, and if they activate it, additional MEV yield. 



Meanwhile, all ETH holders benefit from any ETH burned due to increased scarcity. However, the opposite is currently happening — ETH is becoming less scarce — now that Ethereum’s base fee is sitting at some of its lowest points in the past two years.



<figure class="wp-block-image"><img loading="lazy" decoding="async" width="1600" height="1200" src="https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-17.png" alt="" class="wp-image-88335" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-17.png?w=1600 1600w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-17.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-17.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-17.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-17.png?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-17.png?w=343 343w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-17.png?w=348 348w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-17.png?w=292 292w, https://blockworks-co.imgix.net/wp-content/uploads/2024/06/image-17.png?w=80 80w" sizes="auto, (max-width: 1600px) 100vw, 1600px" /><figcaption class="wp-element-caption">Ethereum’s base fee is way down, L2 activity is way up, and mainnet activity is growing slowly.</figcaption></figure>



Ether is inflationary because there are far fewer of those base fees to burn. And blobs are the culprit. The Dencun update in March made special room in every block for layer-2 networks to settle “blobs” of transactions without bidding against regular mainnet users.&nbsp;



This, combined with more efficient data availability through proto-danksharding, led to massively reduced competition for block space.&nbsp;



With enough block space for everyone — including L2 users via blobs — Ethereum base fees have nosedived 90% since Dencun, making it more likely that every block issues more ETH than can be burned.&nbsp;



To be clear, Ethereum has burned a ton of supply since the Merge, although most of it was pre-blobs. Overall, 1.71 million ETH ($5.8 billion) has been burned and 1.36 million ETH ($4.46 billion) has been issued, resulting in a supply reduction of 346,000 ETH ($1.17 billion).&nbsp;



That puts ETH deflationary by 0.161% <a href="https://ultrasound.money/">per year</a>.



If Ethereum were still running on proof of work, the supply would have gone up by 6.76 million ETH ($22.87 billion) — yearly inflation of over 3%.&nbsp;



So, even with its recent inflationary bent, holders are still way better off, albeit slowly and slightly diluted.



— David Canellis



<h2 class="wp-block-heading">The Works</h2>



<ul class="wp-block-list">
<li>Core Scientific <a href="https://www.businesswire.com/news/home/20240625541641/en/Core-Scientific-Announces-New-Contract-with-CoreWeave-for-Delivery-of-Approximately-70-MW-of-Additional-Infrastructure-to-Host-High-Performance-Computing-Operations">announced</a> a new contract with CoreWeave which could add an additional $1.22 billion in projected revenue over the next 12 years.</li>



<li>Jump Crypto’s president Kanav Kariya, in a post on X, <a href="https://x.com/KanavKariya/status/1805245324610371761">said</a> that he was stepping down.&nbsp;</li>



<li>Strike, the bitcoin payments app, <a href="https://x.com/strikebtc_uk/status/1805546077958881706">announced</a> that it was entering the UK.&nbsp;</li>



<li>Former president Donald Trump may be heading to Nashville to speak at Bitcoin 2024, Axios <a href="https://www.axios.com/2024/06/24/trump-bitcoin-nashville-cryptocurrency">reported</a>.</li>



<li>Julian Assange agreed to plead guilty to a felony charge and will be released after <a href="https://www.nytimes.com/2024/06/24/us/politics/julian-assange-plea-deal.html">reaching a deal</a> with the US DOJ.</li>
</ul>



<h2 class="wp-block-heading">The Riff</h2>



Q: What role does retail play in crypto this cycle?



Retail often gets conflated with the degens. There’s some overlap, but they’re two different camps.



The degens are already here. They’re the ones trying to time the top on Pump.fun memecoins and points farming on blockchain networks in hopes of future airdrops.



Retail, meanwhile, is said to be largely absent from this bull market. Next time you’re in an Uber or on a night out, ask the people around you if they’re in crypto. I’d bet you’re likely to hear something like “not anymore, I lost too much already.”



It’s a cynical take, but if retail’s only role is buying the top — becoming exit liquidity for other investor classes — then crypto may have to get used to life without them for the time being.



— David Canellis



If we were to compare how many times I’ve written “institutions” or “institutional investors” versus “retail” or “retail investors,” the difference would be shocking.&nbsp;



This cycle isn’t about retail. There’s nothing wrong with that, it’s only how this is playing out. And, honestly, maybe it’s for the best. They’re still here, and that’s pretty evident in certain areas, but they’re not the driving force.



As I mentioned above, retail was hit hard the last time around. Give that group a breather, let the institutions come in, and then maybe we’ll see it shake out differently in the future.



You can’t always be the main character. The supporting cast is just as important.&nbsp;



— Katherine Ross



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Empire Newsletter: Bitcoin surfs Elliot Waves to beat the heat

Garrett Harper

On today&#8217;s episode of <a href="https://www.youtube.com/watch?v=s7jpxw8XSLk&amp;ab_channel=BlockworksCrypto" target="_blank" rel="noreferrer noopener">Empire</a>, Olaf Carlson-Wee, Coinbase&#8217;s first employee and founder of Polychain, joins Jason and Santiago to discuss his views on the state of crypto.



Olaf Carlson-Wee reflects on crypto&#8217;s cycles and reoccurring themes and how they relates to the UST meltdown and today&#8217;s bear market. We then dive into Olaf&#8217;s investment philosophy, exploring his thoughts on the multichain future and what assets will accrue value. You&#8217;ll also hear Olaf&#8217;s unique take on the &#8220;one reason&#8221; DAOs should exist.



Don&#8217;t miss this fantastic episode with one of the most interesting and successful OGs in crypto.



Plus, hear more on:



<ul class="wp-block-list"><li>UST&#8217;s fate and algo stablecoins</li><li>The market outlook</li><li>Layer-1 vs layer-2 blockchains</li><li>And so much more!</li></ul>



Check out what they had to say in the video below.👇



<figure class="wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio"><div class="wp-block-embed__wrapper">
<iframe loading="lazy" title="How To Survive A Bear Market | Olaf Carlson-Wee" width="1024" height="576" src="https://www.youtube.com/embed/s7jpxw8XSLk?feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>
</div></figure>



<h3 class="wp-block-heading">About the show</h3>



&#8220;Empire&#8221; is a twice-a-week show where we share the real crypto stories that aren’t heard elsewhere. On Mondays, Jason and Santiago Santos interview crypto industry movers and shakers to talk about their struggles, bold moves and tough decisions. Finish off the week with Friday&#8217;s weekly roundup episode that covers the top news and narratives of the week.



For any NPR or Guy Raz fans out there, you can think of &#8220;Empire&#8221; as a &#8220;How I Built This&#8221; for the bitcoin and crypto industry.



Subscribe to &#8220;Empire&#8221; today on&nbsp;<a href="https://podcasts.apple.com/us/podcast/empire/id1554930038" target="_blank" rel="noreferrer noopener">Apple</a>&nbsp;or&nbsp;<a href="https://open.spotify.com/show/4UTePv1CR3APdKOiosR3Iq" target="_blank" rel="noreferrer noopener">Spotify</a>. Watch episodes on&nbsp;<a href="https://www.youtube.com/channel/UCEOv-8wHvYC6mzsY2Gm5WcQ" target="_blank" rel="noreferrer noopener">YouTube</a>.



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<ul class="wp-block-list">
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<li><a href="https://blockworks.co/newsletter/empire">Empire</a>: Start your morning with the top news and analysis to inform your day in crypto.</li>



<li><a href="https://blockworks.co/newsletter/forwardguidance">Forward Guidance</a>: Reporting and analysis on the growing intersection of crypto and macroeconomics, policy and finance.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha directly in your inbox. Market highlights, data, degen trade ideas, governance updates, token performance and more.</li>



<li><a href="https://blockworks.co/newsletter/lightspeed">Lightspeed</a>: Built for Solana investors, developers and community members. The latest from one of crypto&#8217;s hottest networks.</li>



<li><a href="https://blockworks.co/newsletter/thedrop">The Drop</a>: For crypto collectors and traders, covering apps, games, memes and more.</li>



<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Tracking Bitcoin’s rise from internet plaything worth less than a penny to global phenomenon disrupting money as we know it.</li>
</ul>