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Relief Rally, L1s Battle, L2s Gain Steam

Sep 23, 2021 · 3 min read

By Jeremy Ong, and Joo Kian

Market Update

The wider crypto market seems to be experiencing some relief on the back of receding volatility expectations following the market 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.

ETH Lags Other L1s
  • 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.
  • We would like to single out Avalanche and its massive $280m ecosystem investment round led by Polychain Capital & 3AC. In addition to this, on August 18th, the Avalanche Foundation set aside $180m for a liquidity mining program which is now worth ~$600m. You can read about these recent Avalanche developments and more in our post from September 9th.

L1s Battle For Liquidity
  • 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 broader market weakness that we’ve experienced in September.
  • At the application level, Trader Joe has seen the largest inflows, with its TVL having grown ~57% over the last 7 days.

L2 Gas Consumption
  • 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.

Notable Tweets

Our very own @cangurel hosting Hop Protocol.

Solrise launches a KYC enabled DEX for institutions.

Good way to think about funding.

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