Arbitrum's Bridge Activity and Its Impact on DeFi Sentiment
SEP 15, 2021 • 4 Min Read
Disclosure: Delphi Ventures and members of our team have invested in tokens mentioned in this report. This statement is intended to disclose any conflict of interest and should not be misconstrued as a recommendation to purchase any token. This content is for informational purposes only and you should not make decisions based solely on it. This is not investment advice.
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Market Update
The market is bouncing for a second consecutive day, and every session (Asia, Europe, North America) opened up with strength. CRV is on an absolute tear today, but other top DeFi tokens are in the green as well.
Arbitrum’s Lively Bridge
- Ethereum has the most well-capitalized DeFi ecosystem, with over $100B of capital locked in smart contracts and more on the sideline. As a result, it makes sense to evaluate how much of this capital is moving to other networks.
- Less than a week after launching, the value locked in Arbitrum’s bridge is closing in on that of Polygon. There was a flurry of liquidity mining announcements across Avalanche, Fantom, and Harmony over the last few weeks. Despite this, Arbitrum has been able to outshine its EVM-compatible competitors. If anything, this is evidence of just how much the market had been anticipating Arbitrum’s launch.
- A sharp increase over the weekend brings the total value locked on the Arbitrum Bridge to $2.4b. On the other hand, Polygon’s Bridge TVL has been on a slow decline and hovering around $2.5b since peaking at ~$4.6b. Notable mentions to Fantom and Avalanche, both of whom have done a good job of attracting capital.
- Arbitrum’s bridge contract had a mere $22M locked in it on Sep. 1, which meant the bridge represented just 0.047% of total TVL in Ethereum bridges. In the past two weeks, a few speculative farms and legit protocols have pushed this share up to 32% — a 640x increase in bridge share in just 15 days.
- As noted above, most capital in Arbitrum is farming an extremely speculative token, NYAN, so this isn’t necessarily a sign that this was driven by quality projects migrating to Arbitrum. However, it would be naive not to expect this to happen given the caliber of projects that will soon be deploying on Arbitrum.
Correction: The above chart excluded Polygon’s ETH and Plasma bridges, as well as Optimism’s ETH bridge. Arbitrum’s true bridge TVL was 23.45% — still an impressive increase.
- Looking deeper into the breakdown of assets being bridged out of Ethereum, it’s no surprise that WETH/ETH, USDC, USDT, DAI, and WBTC account for nearly 90% of asset value.
- The reason for this is pretty obvious: liquidity for these assets on Ethereum’s DeFi layer is extremely deep, in part due to their large market caps. Most DeFi liquidity pools and yield farms support one or all of these assets, making them the most logical choice to bridge over and get a feel for a new ecosystem.
Coincidence or L2 Impact?
- Arbitrum’s take-off in early September coincides with a sharp decrease in the daily median gas price on Ethereum mainnet. Theoretically, this would make sense, as L2s like Arbitrum scale Ethereum’s throughput to a great degree. However, it’s tough to ascertain whether this is just a pleasant coincidence or if there’s a causal relationship.
- Notably, NFTs have lost and steam — and they contributed greatly to the increase in gas prices from July to September. The slowdown in NFTs has certainly played a vital role in bringing gas prices down again.
DeFi Autumn?
- So from the above four charts, it’s pretty obvious that the future of L2s looks extremely promising (despite some hiccups). The market may be looking favorably towards DeFi assets, which have had a rough past six months.
- Blue chips like CRV, SNX, AAVE, and COMP are leading the bounce, followed by derivative protocol tokens like PERP and MCB. DEXes are lagging behind the rest of DeFi despite undoubtedly having the most secure product-market fit, highlighting a potential opportunity for investors.
- MKR has been lagging even majors like ETH and BTC, which is quite unusual given the strength it had earlier this year.
Notable Tweets
OpenSea acknowledges accusations of employee front-running users.
We’re conducting a thorough review of yesterday’s incident and are committed to doing the right thing for OpenSea users.
We have posted an official statement here: https://t.co/NWExSdThOf
— Devin Finzer (dfinzer.eth) (@dfinzer) September 15, 2021
ImmutableX raises $60M in Series B funding
We’re thrilled to announce our $60M Series B to bring Ethereum L2 NFTs to the world, led by Bitkraft Ventures & King River Capital.
We’ll be putting this towards growing @Immutable X, @GodsUnchained, and @GuildOfGuardian.
Full article at https://t.co/Qw68kZp9ZM
— Immutable (@Immutable) September 15, 2021
An in-depth analysis of ETH 2.0’s imminent Altair upgrade
New article looking at the impact of the coming Altair upgrade to the Ethereum beacon chain (also known as eth2 or the consensus layer…)https://t.co/DztrRbGffh
— pintail (@pintail_xyz) September 14, 2021
