The Decentralised: Beware of token unlocks

GM, Tim here.

Here’s what caught my DeFi-eye recently:

• Dencun lowers layer 2 fees by as much as 98%

• A Kanye West-themed memecoin burns investors

• Arbitrum’s token unlock is weighing on its price

Ethereum layer 2 fees undercut Solana — but activity still lags

Ethereum's Dencun upgrade has cut layer 2 fees by up to 98% after it went live last Wednesday.

ZkSync, Starknet, Optimism, Arbitrum, and Base are among the networks that have already started offering lower fees.

Layer 2s built using Optimism’s OP Stack — namely Optimism and Base — have, at points, undercut fees on rival blockchain Solana.

And the low fees seem to already be having an effect. Base registered an all-time high of 855,000 daily active users on March 16.

Despite Base’s growth, it’s still behind Solana, which generated a whopping $6.3 billion in total trading volume over the weekend. Base only handled around $340 million of trades in the same period.

With Solana solidifying its position as the premier place to trade on chain, other blockchains with similarly low fees may find it hard to lure users.

The layer 2 transaction savings are all thanks to “blobs” — a novel transaction format for Ethereum that distinguishes between everyday user transactions and those initiated by layer 2 networks.

This concept can be likened to a highway system, where layer 2 networks enjoy the advantage of a dedicated lane, while other users navigate a shared main highway.

However, as more layer 2s start using blobs, fees on Optimism and Base will likely rise.

Many layer 2s have yet to launch their own upgrades that will allow them to make use of blobs. Linea, a layer 2 network built by MetaMask owner Consensys, is set to start offering cheaper transactions after its March 26 upgrade.

Not everyone is making money on memecoins

Solana’s memecoin mania has minted many new millionaires who placed early bets on tokens like BONK and WIF.

But for every winner there are dozens or more traders who lose money.

One recent case involves a memecoin themed around rapper Kanye West. It soared and plummeted in a matter of hours late Friday after an Instagram account belonging to the rapper followed an account connected to the coin.

Hours after its launch, West’s Instagram account unfollowed the memecoin and it plunged 95%, taking many traders’ profits with it.

West has not yet commented publicly on the incident.

As long as there’s money to be made in celebrity-themed memecoins, expect more of the same.

Arbitrum unlocks 1.1bn tokens with more on the way

Layer 2 network Arbitrum has just unlocked 1.1 billion ARB tokens in one of the biggest such events of the year.

The tokens, worth around $2.1 billion at the time of the unlock, were distributed to team members and advisors of Offchain Labs — the company behind Arbitrum — as well as early investors in the company.

These tokens were given out when Arbitrum launched its ARB governance token in February last year. But the tokens were vested, meaning that they were locked in a smart contract for a pre-determined period of time.

Now that the tokens have unlocked, their owners are free to sell them on the market, if they wish to do so.

Most crypto traders view unlocks as bearish. This is because those who receive them — prominently early investors — often choose to sell them to lock in profits.

And the data backs this view. According to an October analysis by blockchain data platform The Tie, prices of tokens that experienced significant unlocks fell below their initial prices at the time of the unlock within two weeks.

In the case of ARB, it’s already fallen over 14% since the unlock. To what extent this drop was caused by the unlocks or broader crypto market weakness isn’t clear, though.

Another 92 million ARB tokens will unlock on April 15.

Data of the week

Big token unlocks don’t happen all the time, but when they do, they’re worth paying attention to.

Pyth Network’s 2.19 billion PYTH token unlock on May 20 is the next — and it’s set to be another big one.

As always, DefiLlama’s token unlocks dashboard has up-to-date information on all upcoming unlocks, including PYTH.

This week in DeFi governance

VOTE: Gitcoin to use UMA’s oSnap for automatic grant distribution

VOTE: Arbitrum DAO supports 200 million ARB allocation for a Gaming Catalyst Program

VOTE: Lido DAO to add ‘simple onchain delegation’ for voting

Post of the week

X user Coingurruu puts the cost of using the Ethereum mainnet into perspective.

Token swaps now regularly cost users over $150 when the network is busy. With this being the case, it’s no wonder blockchains like Solana and Base are seeing increased use.

What we’re watching

Uniswap is inching closer to an onchain vote that will decide if the decentralised exchange turns on its fee switch, distributing protocol revenue to UNI token holders.

According to Uniswap Foundation executive director Devin Walsh, the vote is currently scheduled for mid-April.

Got a tip about DeFi? Reach out at [email protected].

DL News is an independent news organisation that provides original, in-depth reporting on the largely misunderstood world of cryptocurrency and decentralised finance. From original stories to investigations, our journalism is accurate, honest and responsible.

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