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With announcements aplenty, it’s been a big news week in crypto. Price action may be just around the corner.
By Billy Endres
Prices have remained relatively stable across most top crypto trading pairs, with Bitcoin and Ethereum holding ranges of about 5%. However, with major announcements from Coinbase and growing conversations surrounding the Ethereum Shanghai upgrade, increased price action may not be far off.
Introducing Base
This week, popular crypto trading exchange Coinbase announced the testnet launch of its Ethereum layer-2 (L2) blockchain and its goal to onboard the next one billion users to Web3.
“Today, we’re excited to announce the testnet launch of Base, an Ethereum L2 network offering a secure, low-cost, developer-friendly way for anyone, anywhere, to build decentralized apps or ‘dapps’ on-chain. Our goal with Base is to make on-chain the next online and onboard 1B+ users into the crypto economy,” Coinbase said.
As an L2 blockchain, Base is designed to act as a secondary network built on top of the Ethereum mainnet. Its primary purpose is to address the scalability and high transaction costs of the Ethereum blockchain – all the while inheriting its security.
Layer-2 competition
Several similar projects are already in operation, including Arbitrum and Polygon. However, with over 110 million verified users and access to $80 billion in assets across the Coinbase ecosystem, Base has distinct advantages over its competitors.
In addition, Base announced that it will collaborate with the core development team of the already successful L2 project, Optimism.
These teams share a vision for developing an interoperable superchain in which developers, users and the broader crypto community can all benefit from an optimized version of Ethereum.
Decentralization and global accessibility are highlighted as primary goals, with Base and Optimism stating that their developers are confident they will progress from a stage 0-1 rollup in 2023 to a stage 2 rollup in 2024.
Coinbase has announced that Base has no intention of releasing a network token. However, the benefits of a well-respected and publicly listed company advancing blockchain technology will go a long way in helping to bring crypto mainstream.
LSDs in the spotlight
The second trending crypto topic of the week is LSDs – liquid staking derivatives.
Ethereum LSDs have emerged as a popular way for users to earn increased yield by delegating their coins via a liquid staking protocol such as Lido DAO (LDO) or Rocket Pool (RPL) and receiving a derivative token in exchange. These tokens represent the user’s ETH stake on a 1:1 basis and can be used throughout the decentralized finance (DeFi) sector, allowing for multiple potential revenue streams.
While already hugely popular, accounting for over $10 billion worth of the total value locked (TVL) in DeFi, LSDs have garnered particular attention lately due to Ethereum’s upcoming development – the Shanghai upgrade.
Set to launch in March, the Shanghai upgrade will allow for over 13 million ETH held in smart contracts for up to 2 years to be unlocked at a maximum rate of 45,000 per day.
This means approximately $28 billion worth of Ethereum could hit the market over the coming months. At first, this seems like a negative catalyst that could lead to an oversaturated market. However, LSD projects and the surrounding DeFi protocols have planned for the upgrade, which may positively affect ETH’s price moving forward.
Why should ETH stakers choose LSDs
The best way for LSD issuers and DeFi protocols to entice ETH holders to utilize their platforms rather than selling or opting for single-sided staking is with increased incentives in the form of yield.
With enough incentives and high annual percentage rates (APRs), LSDs have the potential to absorb most of ETH’s unlocked supply and even replace it as Web3’s go-to currency.
DeFi protocols such as Balancer (BAL), Curve (CRV), Convex (CVX) and Aura Finance (AURA) are working hard to accommodate LSD issuers, offering deep liquidity and high APRs. In return for favorable LP pools, LSD providers are incentivizing – or bribing – these DeFi platforms and their token holders for protocol governance votes.
As LSD issuers battle to offer the best APRs and the LSD wars heat up, the value of these bribes will likely increase in size, benefitting all parties and helping to create what’s referred to as a “liquidity flywheel”.
Image: Liquidity flywheel | Source: Aura.Finance
This type of “real yield” generation benefits token holders and protocols and is a much more sustainable way of offering returns compared to what has been done during previous DeFi cycles.
DeFi Summer 2.0
Although the market has been relatively flat, things may soon turn around for the better.
With Coinbase launching its Base project in collaboration with popular L2 blockchain Optimism, big businesses and retail investors will no doubt be paying attention.
A goal to onboard the next billion users to Web3 is ambitious, but Coinbase has proven itself as a long-term key player in the crypto space and continues to hit development targets.
If the Ethereum Shanghai upgrade is a success and the liquidity flywheel takes full effect, the TVL in Ethereum-based DeFi protocols has the potential to skyrocket.
Stay tuned – DeFi Summer 2.0 may be just around the corner.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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