The Protocol: Using the Money Printer

One thing blockchain teams succeeded in long ago: coopting the money printer, from the initial coin offerings, or ICOs, in the late 2010s, to the current-vintage “token generation events,” or TGEs. In the old days, stocks were sold by investment banks to clients lucky enough to get an allocation. Nowadays, hot projects just airdrop the newly manufactured tokens to users as rewards, and they start to trade. This week saw airdrops from the cross-chain bridge team Wormhole and the “synthetic dollar” project Ethena, whose tokens suddenly have a combined circulating market capitalization of more than $3 billion.

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Ethereum’s new “blob market” enters “price discovery mode.”
Vitalik Buterin riffs on meme coins.
Top picks from the past week’s

Protocol Village

column on blockchain tech news: Celestia, Arbitrum, Degen, Picasso, Cosmos, Avail, dWallet, Somnia.
>$75M of crypto project fundraisings.
Leaders and laggards in the benchmark

CoinDesk 20

index for March.

Network news

SYNTHESIZING DOLLARS: Back in February, The Protocol wrote about the perceived risks around the crypto project Ethena, with its new USDe token – termed a “synthetic dollar” with eye-catching yields (currently 35%) from funding perpetual futures positions on derivatives exchanges. There are plenty of believers in the project, apparently, or at least plenty of speculators. On Tuesday, Ethena airdropped some 750 million ENA tokens, or roughly 5% of the overall supply – for a first-day circulating market capitalization of about $1.2 billion. (The fully diluted valuation, based on the overall supply, works out to about $12 billion.) The success of the airdrop might reflect the current appetite for risk-taking among crypto traders, and the unbowed willingness of crypto structured-finance alchemists to test the waters for products with ever-increasing complexity. Earlier this week, a separate project, the derivatives protocol Cega, unveiled “Gold Rush, a basket options strategy involving the Ethereum blockchain’s ether (ETH) token and Tether’s gold-backed XAUT tokens as underlying assets, alongside a safety component that protects users’ capital from a 30% drop in the assets’ prices,” as reported by CoinDesk’s Omkar Godbole. “The product offers an annualized percentage yield of up to 83% to investors who stake ETH, Lido’s staked ether (stETH), wrapped bitcoin (wBTC), or stablecoin USDC in the option strategy vault, Cega said. The yield is paid out in the form of the coins staked, so ETH stakers receive ETH in yield, providing an asymmetric upside in a bullish market.” The hope, of course, is to avoid any asymmetric downside.

BLOBS, BLOBS, BLOBS. The Ethereum blockchain just a couple weeks ago completed its landmark Dencun upgrade, including the highly anticipated EIP-4844 proposal that created a dedicated space for storing data – known as “blobs,” under a plan to reduce fees while also relieving congestion. But it didn’t take long for a new project to come along and jam up the so-called blob space, sending fees soaring and providing the nascent blob market with its first big stress test. As reported last week by our Margaux Nijkerk, Ethereum gas fees for blobs spiked “after a project called Ethscriptions created a new way of inscribing data, or minting inscriptions, on the data blobs, called ‘blobscriptions.'” In a blog post on Thursday, Ethereum co-founder Vitalik Buterin acknowledged that the Blobscriptions episode had pushed the new blob-fee market into “price discovery mode,” but he added that the data fees still remained far cheaper than they would have been under the old system of parking data as “calldata” in a regular Ethereum transaction.

Speaking of Buterin, he also riffed on meme coins. “One answer to this conundrum is to shake our heads and virtue-signal about how much we are utterly abhorred by and stand against this stupidity. And to some extent, this is the correct thing to do,” he wrote. “But at the same time, we can also ask another question: If people value having fun, and financialized games seem to at least sometimes provide that, then could there be a more positive-sum version of this whole concept?” Spoiler alert: His answer was not yes/no. (Fwiw go here for our own riff last week on the meme coin frenzy on Coinbase’s Ethereum layer-2 chain, Base.)

Wormhole, the blockchain bridge project,

airdropped its W token

on the Solana blockchain, with

plans

eventually to expand to Ethereum and layer-2 networks via its “Wormhole Native Token Transfers,” or NTTs. As reported by our Oliver Knight: “Holders will be able to delegate W tokens to take part in governance votes. Delegation can take place on Solana or any of the compatible Ethereum-based chains in a process that is being dubbed the ‘

first ever

‘ mutlichain governance system.”
Roughly $503 million was lost across 233 on-chain security incidents in the first quarter, a 54% increase versus the first quarter of 2023, according to a new

report

by the blockchain security firm CertiK. Private key compromises were the most costly attack vector.

Protocol Village

Top picks of the past week from our Protocol Village column, highlighting key blockchain tech upgrades and news.

Schematic showing how Celestia’s Blobstream works. (Celestia)

1. Celestia, a blockchain data-availability project, said its Blobstream product – for relaying commitments of Celestia’s data root using an on-chain light client, has deployed to Arbitrum One. According to the team: “Developers can soon deploy Orbits with Celestia underneath on Arbitrum One and Base, the first modular DA integration with working Nitro fraud proofs.”

2. Degen, a community token in the Farcaster ecosystem, and Syndicate, a Web3 infrastructure provider, launched Degen Chain, an ultra-low-cost L3 for the $DEGEN community built with Arbitrum Orbit, Base for settlement, and AnyTrust for data availability. According to the team: “The chain’s native gas token is $DEGEN, making it one of the first community tokens with its own L3.”

3. Picasso Network, a Cosmos-rooted interoperability network, announced an integration between the IBC (Inter-Blockchain Communication Protocol) and Ethereum, “enabling seamless asset and data transfers between Ethereum and Cosmos” for the first time, according to the team: “Picasso selected Osmosis, the DeFi Hub, to serve as the primary destination for Ethereum assets and liquidity within the Cosmos. This integration is a step forward in bringing ‘IBC everywhere,’ and serves to connect some of the deepest liquidity reserves and most promising projects in the Ethereum and Cosmos ecosystems.” The team plans a Solana-IBC connection later this month.

4. Avail, a modular blockchain solution designed to unify Web3 and optimize data availability (DA), has partnered with dWallet Network, “a pioneering non-collusive, decentralized multi-chain layer, to bring programmable native Bitcoin to rollups in the Avail ecosystem,” according to the team: “Leveraging the newly unveiled dWallet primitive, smart contracts using rollups built on Avail DA will be able to programmatically manage native BTC for the first time while preserving user ownership.”

5. PROTOCOL VILLAGE EXCLUSIVE: The Virtual Society Foundation (VSF) is introducing the Somnia Project, consisting of an L1 and omnichain protocols tailored for the metaverse, “aiming to unite disparate virtual realms into a cohesive society capable of onboarding millions of users,” according to the team. “Developed in collaboration with Improbable, Somnia’s blockchain boasts transaction speeds >100K TPS, with sub-second finality, and affordability, addressing the fragmentation plaguing the metaverse landscape and ensuring equitable value distribution among creators. Details of the project were released Wednesday along with a litepaper. The VSF, unveiled last week, was initiated by Improbable, a British metaverse-focused startup that raised $150 million in 2022 from investors including a16z and SoftBank.

Money Center

Fundraisings

IoTeX, an Ethereum-compatible blockchain optimized for DePIN, announced a $50 million investment from Borderless Capital, Amber Group, Foresight Ventures, FutureMoney Group, SNZ, Metrics Ventures, EV3 and Waterdrip Capital into the IoTeX Ecosystem, “to meet the growing demand for bridging real-world data with IoT devices to Web3,” according to the team.
XION, a new “generalized abstraction” layer-1 blockchain launched last month by Burnt Banksy, announced a $25 million fundraise “to ultimately abstract away all crypto complexities, making Web3 accessible to everyone,” according to the team. Investors included Animoca Brands, Laser Digital (Nomura), Multicoin, Arrington Capital, Draper Dragon, Sfermion and GoldenTree, according to a press release. (EDITOR’S NOTE: Protocol Village covered the XION launch in early March when Burnt Banksy set himself on fire as part of an art-performance-cum-publicity-stunt.)
PROTOCOL VILLAGE EXCLUSIVE: Legitimate, an on-chain project to keep physical assets in sync with their digital counterparts, has closed its $4.3 million seed round, led by Lemniscap, with participation from Draper Associates, Sfermion Factor VC and others. According to the team: “Legitimate enables projects to embed a wide range of digital content into their physical goods via Legitimate’s LGT Tags, which are special encrypted NFC (Near Field Communication) chips that are integrated seamlessly into clients’ supply chains and manufacturing processes.

Deals and grants

Origin Protocol announced that its OGN token holders have proposed to merge OGN and OGV tokens, to boost Ethereum liquid staking, according to the team: “

OGN

– Origin’s first token, launched back in 2020 – was listed on Coinbase just months later.

OGV

, which has been appreciating greatly, reflects Origin’s growing revenue and total value locked. The goal of the merger is to capitalize on OGV’s undervaluation, as it serves as the value accrual token for Origin’s DeFi products, including the successful Origin Ether, which has over $160 million in total value locked. OGN is backed by Reddit co-founder Alexis Ohanian, YouTube co-founder Steve Chen and Y Combinator president Garry Tan.”
Helika

, a global infrastructure provider for traditional and Web3 gaming firms like Yuga Labs and Animoca Brands, announced it will launch a

$50 million accelerator program

funded by Pantera, Spartan Capital, Sfermion and other venture capital firms.
Stellar Development Foundation is launching the Soroban Security Audit Bank, which will distribute up to $1M in security audit credits in coordination with six top-tier audit firms to 20-30 high priority projects (financial protocols that manage on-chain value and that have the potential to be widely used) building on Soroban, their next generation smart contracts platform which just completed mainnet launch.

Data and Tokens

SHIB, DOGE Dominate CoinDesk 20 in March

We were writing about various meme coin trading frenzies for all of March – first on Solana, and then on Base. Or maybe it was really just one big meme coin trading frenzy? Whatever the case, it would be pretty hard for us to feign surprise at this point that the doggy-themed SHIB and DOGE ended up as the month’s two top-performing tokens of the month in the benchmark CoinDesk 20 index. Ethereum’s ETH was a bit more muted, gaining just 3.9% as the blockchain’s big Dencun upgrade went as smoothly as possibly could have been expected. Solana’s SOL was a big winner, gaining 43%:

Bitcoin, the oldest and largest cryptocurrency, rose 14%, extending its winning streak to seven straight months and handily beating the Standard & Poor’s 500 Index of U.S. stocks as well as the gold price: