This week in a Valentine’s Day edition of The Context: Bitcoin crushes hard on a 2024 high, Ethereum plays the dating game, and crypto falls in love with restaking.
[BTC Flirts with $50K 😘]
The price of Bitcoin kissed $50,000 this week for the first time since 2021. 📈
What Journalists Said 🧑💻:
Bitcoin has “more than recovered since tumbling below $40,000” right after BTC exchange-traded funds were introduced, said Stephen Alpher (CoinDesk). After enduring the collapse of FTX in 2022 and the demise of crypto firms throughout 2022, crypto winter is over. 🏖️
Though we’ve seen $50K before, this time everybody’s a lot more mellow, suggested Blockworks co-founder Mike Ippolito. “No [mainstream media] coverage. No texts from family. Timeline is unbothered. Man is this a good time to be alive.” 😎
There are several forces at play, explained Elijah Nicholson-Messmer and David Pan (of mainstream outlet Bloomberg). First, there’s “optimism that last month’s US approval of spot Bitcoin exchange-traded funds is leading to greater mainstream acceptance.” Second, traders may be buying “riskier assets” because they see looser monetary policy on the horizon. Finally, in April, the supply of new BTC earned by miners will be halved.
Why It Matters ⁉️:
Price is a primary narrative. When it goes down, the public may think, “Crypto’s done.” Higher prices keep crypto in the public consciousness, in turn facilitating development and encouraging adoption.
[Dencun Sets a Date 📅 💕]
If you don’t know what proto-danksharding is, you’re about to (DeFi Definition provided below 👇). That’s because Ethereum developers have targeted March 13 (or near it) for the “Dencun” upgrade, which will bring danksharding’s forerunner to the network.
What People Said 🧑💻:
What is this about? Sander Lutz (Decrypt) explained that danksharding will “streamline how data is verified on Ethereum’s layer-2 networks” such as Optimism and Polygon, sampling data instead of checking all of it. Phase 1: Proto-danksharding, which uses “blobs” to “temporarily store data off-chain.” 💽
“Blob-carrying transactions are like normal transactions except that they carry an extra piece of data,” wrote Brayden Lindrea (Cointelegraph). The upshot is that they actually “create more block space on Ethereum layer 2s,” leading to “cheaper transactions.”
This is the biggest change to the network since last April, when users could start withdrawing staked assets. The Dencun upgrade is “long-awaited,” wrote Margaux Nijkerk (CoinDesk), with “technical delays” pushing its release from 2023 to this year.
Why It Matters ⁉️:
As interest in Bitcoin rises, so will interest in all of Web3. As the blockchain with the most daily transactions, Ethereum’s gas fees are prone to spiking when under pressure. Here’s hoping this upgrade means Ethereum won’t embarrass us in front of our friends and family, whom we’ve been trying to convert for years, when they do delve into the crypto world.
[Crypto Swipes Right on Restaking 📱]
Crypto restaking protocol landed in the top 5 DeFi protocols for TVL—a USD-denominated measure of the “total value locked” in a protocol. Meanwhile, Puffer Finance became the second-biggest liquid restaking protocol within two weeks of launching.
What Journalists Said🧑💻:
By the TVL metric, EigenLayer is now bigger than name brands like Uniswap and Compound, wrote Bessie Liu (Blockworks). All because it temporarily lifted a cap on total deposits. As of February 14, there’s $6.8 billion in the protocol.
Why are people using EigenLayer? As James Hunt (The Block) explains, people can have their ETH and stake it too: “EigenLayer’s protocol allows users to deposit and re-stake ether via liquid staking tokens, allocating those funds to secure third-party networks and potentially earn additional rewards.”
Seeing EigenLayer’s success, Puffer Finance and others have followed suit, attracting users with rewards programs. But, said Oliver Knight and Sam Kessler (CoinDesk), some Ethereum developers think the EigenLayer model “might strain the network.”
Why It Matters ⁉️ :
Restaking presents both opportunities and risks for the DeFi ecosystem. It encourages innovation and diversity in DeFi by making it easier for new projects to enter the market. However, restaking locks assets up in multiple protocols simultaneously. This interconnectedness can amplify the impact of individual failures, leading to systemic risks for the entire ecosystem.
[Image Of The Week]
[DeFi Definitions]
A segment exploring one particular aspect of DeFi. View previous entries here.
This week: ‘’Proto-Danksharding” by Leila Stein.
Danksharding is a novel take on “sharding” first introduced by researcher Dankrad Feist within Ethereum Improvement Proposal 4844.
Sharding refers to splitting a network and can be implemented to scale Ethereum. In regular sharding, each shard has a block builder that is different from the block proposer, but in danksharding, the block builders must choose the data and transactions that go into each slot of a block. This process is designed to mitigate proposers’ ability to cherrypick the most lucrative block of transactions.
The usual disclaimer: This newsletter collates the main themes and headlines of the week in DeFi/crypto/metaverse/Web3/NFT land and tries to provide unbiased context. It's aimed at anyone who wants to keep an eye on the space. It's put together by a team at YAP and doesn't contain any promotion of our clients (if one is mentioned, we'll flag that).
The team: Founder Samantha Yap and consulting editor Jeff Benson, Sam O'Donohoe, Ewan Brewster, Andrew Wickerson, Tiffany Mac Sherry, Liam Quinn, Becky Corbel and Delon Chan. Your feedback is, as always, welcome. Ping us at thecontext@yapglobal.com. Old newsletters can be found here.
This newsletter is prepared by YAP Global, an international P.R. Consultancy focusing on helping cryptocurrency, Decentralised Finance (DeFi) and brands through impactful storytelling. Find out more about us here.