Relief Rally, L1s Battle, L2s Gain Steam

SEP 23, 2021 • 3 Min Read

Disclosure: Delphi Ventures has invested in ETH, SOL, LUNA, AVAX, dYdX, JOE and Offchain Labs (Arbitrum). 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.

Key Takeaways

  • Crypto markets are seeing some relief on the back of receding volatility expectations following the sell-off earlier this week. Meanwhile, Chinese authorities appear to be preparing for a worst case scenario in which Evergrande collapses. With this in mind, the relief rally across global markets could be partly driven by a perceived higher probability of government intervention to manage and mitigate its potential spillover effects.

     

     

  • Over the past 30 days, ETH has struggled to keep up with other L1 tokens. A likely cause for this has been the flurry of announcements regarding new incentive programs on these L1s to attract liquidity and users. Solana, Terra, Avalanche and Fantom have all seen a surge in TVL over the past month, while Polygon seems to have plateaued, at least momentarily.

  • Avalanche’s TVL growth in particular has been steady, even amidst the recent market weakness. At the application level, Trader Joe has seen the largest inflows, with its TVL having grown ~57% over the last 7 days.

  • L2s have continued to gain steam, with them now comprising ~1% of total daily gas spend on Ethereum. Relative to the beginning of the summer, Arbitrum and Optimism have seen their share of total L2 gas consumption surge. When combined, both now account for ~50% of the total. Importantly, we should note, that this isn’t necessarily an indicator of greater success.

  • An optimal L2 should offer high throughput off-chain and an efficient / small footprint on-chain. For example, dYdX has undergone incredible growth recently in terms of trading activity yet still only accounts for ~6% of total L2 gas consumption. This is due to the fact that Starkware’s proofs benefit from economies of scale, becoming more gas efficient as they batch more transactions.

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