[Key Insights] a16z 2023 State of Crypto Report

Is Shapella Bad for LSDs? | Arbitrum $700M Drama Continues

April 12, 2023

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Good Morning,

The Shapella upgrade is happening today. Crypto Twitter can finally end the debate whether its a bullish or bearish unlock. Also, a16z 2023 crypto index report shows that the US is losing its strides as developers go offshore — unsurprising 🤷

Let's dive in.

In Today's Email:

  • What Matters: $7B+ a16z releases its 2023 crypto report đź“ť

  • Case Study: Shapella upgrade effect on LSDs đź’§

  • Governance & Features: Arbitrum DAO wants $700M back đź’°

Check out our weekend issue, Breaking Down Businesses, covering Aave, here. 

Reply to this email to let us know what protocols/companies you want us to cover!

Narratives: Liquid Staking Derivatives, pay close attention to what these protocols do post the Shapella upgrade.

WHAT MATTERS

a16z 2023 Crypto Index Report

State of play: One of the world’s largest crypto venture fund, a16z crypto, has released its 2023 state of crypto report. Here are some key takeaways:

  • Blockchain networks active addresses hit an all-time high of 15 million.

  • DeFi and NFT activities re-appear, with $100B traded last month.

  • The number of crypto developers remain steady at ~30,000.

  • Blockchain scaling continue to improve, with L2 solutions accounting for 7% of the total fees paid on Ethereum.

  • Zero knowledge technologies is gaining momentum.

  • The US is losing its web3 lead, with its proportion of developers falling by 26% compared to the rest of the world.

  • Key indicators (market cap, developer activity, deal flows) have all been increasing steadily.

Why it matters: Product cycle is different from financial cycle. By zooming out, crypto industry participants can see that significant progress have been made in the industry.

For builders: a16z crypto has over $7B in AUM. Understanding what trends they’re seeing and finding (not forcing!) a synergy with the products that you’re building is key.

For investors: Depending on the size of your capital, crypto investing needs to be adjusted accordingly. Understand whether you’re investing in the money-making business side of crypto, or on the advancement of technologies via more experimental protocols.

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CASE STUDY

Shapella Effects on LSD Protocols

State of play: The Shapella upgrade is happening today. As the most anticipated crypto events after the merge, Shapella will finally allow ETH stakers to withdraw their funds.

  • LSD protocols, which has been enabling ETH stakers to access liquidity while earning yield, will need to differentiate their strategies.

  • There might be an influx of new ETH stakers. At the same time, the value prop that comes from just being an LSD protocols will diminish.

  • The average price of staked ETH is $2,135.

  • Some funds have been selling LSD tokens.

Our take: Post Shapella, ETH staking rate should increase as market participants get the certainty that they can withdraw their assets at all times. 

To capitalize on this, LSD protocols need to play their cards right and get into other DeFi verticals.Revenue that simply comes from just being an LSD protocol won’t increase significantly as there’s no longer technical edge. Competition in the LSD space will ramp up as it becomes easier to provider a derivative of ETH when staking is easily accessible.We’re already seeing protocols such as EigenLayer that’s trying to take the concept one step further via re-staking.

Take a peek at our new referral reward at the bottom of this issue. Share this newsletter and receive our list of 100 smart crypto investors' wallet addresses đź‘‡

FEATURES & GOVERNANCE UPDATE

Arbitrum Community Wants $700M Back

Arbitrum drama continues. A proposal called AIP 1.05 was submitted by a community member seeking back the 700M in ARB tokens that the Arbitrum Foundation had given out without approvals from tokenholders.

  • The proposal was initiated on April 8 and will end on April 14.

  • At the time of writing, 82% of voters opposed the proposal.

  • The proposal was meant to provide awareness to DAO governance, and ask one important question: “Does tokenholders actually have a say in governance?”

Why it matters: The Arbitrum Foundation is still facing backlash from the community members because of AIP 1. The outcome of this vote will further set the tone of the relationship between the DAO and the Foundation.

Other notable feature updates:

QUICK BITES

  • a16z unveils new crypto index report.

  • G7 plans to discuss crypto regulation.

  • SEC adds attorneys to crypto enforcement unit.

  • MicroStrategy reportedly back in profit on its $4B BTC bet.

  • Winklevoss Twins lend $100M to their own Gemini exchange.

  • FTX Bankruptcy Team bills $30M for their February work.

  • Aptos rose ahead of $50M token unlock.

  • JPMorgan, Fidelity thoughts on Ethereum’s Shapella upgrade.

  • SushiSwap recovered stolen funds.

MEME & NOTEWORTHY READS

  • Arthur Hayes’ read on Shapella.

  • Packy McCormick read on crypto’s role in solving Twitter-Substack issues.

  • David Z. Morris’ read on the NYT skewed Bitcoin mining bias.

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.