M6 Labs L1, L2 & DeFi Weekly

GM, Anon! It appears that the market is on the rise once more. Could this signal that we're emerging from the recent downturn and heading towards new all-time highs? We certainly hope so! In the meantime, airdrops are in full swing, adding to the excitement in the crypto ecosystem across the board. Let’s dive in!

Alpha Take

State Of The Market

TLDR

• BTC dominance has risen, indicating a preference for Bitcoin over alternative digital assets.

• Altcoins have dipped from their recent local high, suggesting a short-term decline in investor interest and confidence.

• GBTC's dominance in daily trading volumes among ETFs has diminished, now representing approximately 30% of the market.

• Solana's bridge activity has surged by 335%, largely due to the Jupiter airdrop, stimulating cross-chain interactions and liquidity flows.

• Ethereum staking has reached its highest point since last summer, with approximately 30M ETH staked, reflecting growing confidence in Ethereum's future.

• Various airdrops have captured attention, including DYM's mainnet launch setback, Stride's Celestia stakers' airdrop, and Eigenlayer's removal of caps on staking pools to attract liquidity.

Industry Updates: In the realm of finance and regulations, Federal Reserve Chairman Powell hinted at a delay in interest rate cuts until after March to ensure sustainable achievement of the 2% inflation target, with expectations of three cuts this year, albeit at a slower pace than anticipated. Meanwhile, US Treasury Secretary Yellen advocated for crypto legislation to address existing gaps in enforcement, while Trump expressed concerns over central bank digital currencies and AI's power. 

• In other developments, the SEC introduced a rule potentially requiring DEX liquidity positions above $50M to register, and a judge ruled in favor of the SEC in demanding Ripple disclose financial statements. 

• On the market front, New York Community Bank stock plummeted 25%, prompting concerns over its assets, while Major French Bank SocGen announced plans to cut around 900 jobs. 

• Solana forged a partnership with Abu Dhabi Global Market to accelerate web3 adoption in the UAE, as OKX encountered potential probes in South Korea. In regulatory changes, Thailand exempted value-added tax on crypto gains, highlighting a distinction from India's persistent controversial crypto tax stance. 

• Concurrently, Hong Kong initiated an inquiry into Worldcoin due to data privacy apprehensions. Amidst the recent market stagnation, Michael Saylor capitalized by acquiring an additional 850 BTC.

• In ETF news, Ark Invest and 21Shares amended their joint application for a spot Ethereum ETF, focusing on cash-based transactions and hinting at ETH staking. Additionally, FTX filed a motion to offload a stake in AI startup Anthropic, while Binance faced a data leak on GitHub, exposing security measures. 

• Finally, Chinese scholars emphasized the urgency of addressing cryptocurrency-related money laundering, with the revised draft of China's Anti-Money Laundering Law expected in 2025.

Project Updates: Within the Ethereum ecosystem, some significant developments have emerged. Notably, the Ethereum experiment ERC404, blending NFTs and crypto, has gained considerable traction, boasting $87M in trading volume. 

• Additionally, prominent bots like BananaGunBot have integrated support for ERC404, signaling growing adoption. 

• Meanwhile, the Ethereum Dencun upgrade has gone live on Holesky, introducing "proto-danksharding" to enhance scalability and reduce transaction costs for layer-2 blockchains.

• In a bid to enhance scalability and explore new avenues for growth, the Ethereum Name Service (ENS) has expressed openness to constructing its layer 2 solutions. ENS director Khori Whittaker underscores the organization's commitment to intensive research and development efforts, with a particular focus on Optimism and other layer 2 solutions.

• Elsewhere in the DeFi space, dYdX has unveiled its ambitious 2024 product roadmap, centered on three core areas: permissionless market, core transaction enhancements, and UX/onboarding updates. This roadmap includes plans for instant liquidity through LP Vaults, scalable oracles, and the implementation of cross-margin and isolation margin features.

• EigenLayer has reopened uncapped restaking deposits, coinciding with a surge in market capitalization, while Dymension gears up for its imminent mainnet launch.

• On the accessibility front, MetaMask has expanded its functionality to allow users to purchase cryptocurrencies directly through Robinhood, aiming to streamline the crypto acquisition process for its users.

• In terms of innovative advancements, 0xngmi has introduced smolrefuel for gasless swaps, offering a convenient solution for users navigating gas fees. Additionally, Helium Mobile has been added to Coinbase Assets Roadmap.

• Frax has recently launched Fraxtal, its Layer 2 network, alongside various partner applications, marking a significant expansion in its ecosystem. Concurrently, Ondo Finance has broadened its offerings by introducing its US Treasury-backed stablecoin to the Sui blockchain. These developments highlight a growing trend of financial innovation and blockchain interoperability, with Frax enhancing its network capabilities and Ondo Finance leveraging new blockchain platforms to extend the reach of its stablecoin.

• However, not all news is positive, as Polygon Labs has announced a 19% reduction in its workforce, citing the need for "enhanced performance." Furthermore, the 3AC Founders-Backed Exchange OPNX is set to cease operations by February 14, marking the end of its tenure as a hybrid bankruptcy claims platform and crypto exchange.

Inflows & Outflows: Last week, digital asset investment products received significant inflows totaling $708M, bringing the year-to-date inflows to $1.6B and total global assets under management to $53B. 

• Bitcoin dominated the inflows, comprising 99% of all flows, with Solana also seeing notable inflows of $13M. 

• The focus remained on the US, with newly issued ETFs averaging $1.9B inflows over the last four weeks, totaling $7.7B since launch. 

• However, there were minor outflows from short-bitcoin products totaling $5.3M. 

• Despite this, trading volumes in ETPs fell compared to the prior week, but remained well above the average in 2023. 

• Regionally, the US saw $721M inflows, with significant reductions in momentum of outflows from incumbent issuers observed in recent weeks. 

• Additionally, blockchain equities experienced $147M outflows from one issuer, while other issuers saw $11M inflows.

In January, the crypto venture capital space saw a total of 113 publicly disclosed investment projects, marking a 10.8% increase from December 2023 and a 1.8% increase from January 2023. 

• Among various industries, DeFi accounted for approximately 19% of financing, while infrastructure projects constituted about 12%, NFT/GameFi and CeFi each represented around 12% and 6%, respectively, and L1/L2 made up roughly 4%. 

• The total fundraising amount for the month reached $650M, showcasing a 28.6% decrease from December 2023 but a 3.2% increase from January 2023. 

• Notable funding rounds included HashKey Group's Series A funding, Core Scientific's successful equity offering, Flowdesk's Series B round, and Sygnum's strategic financing round. 

• Other significant investments were made in projects like Portal, Polymer Labs, Ingonyama, Axiom, Kiln, and SkyArk Chronicles, illustrating the diverse range of initiatives garnering investor interest in the crypto space.