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Summary
In this edition, we cover:
The growing need for bridging within Web3
The dominance of bridging between EVM ecosystems
How alternative ecosystems can grow economic activity through enhanced bridging infra as well as native integrations and issuances
Of Islands and Economies
Dominica is a small Caribbean island visited by 60,000 people per year.
The main gateway to access the island is through their small airport - essentially a small ‘shack’ that only has 3 gates for all its visitors.
The island showcases some of the most beautiful white sand beaches for those holiday jet setters seeking regular pina coladas in hand.
Yet, the only way to visit is through interconnecting flights through other destinations. The total journey time can take up to a prohibitively long 15 hours. 20 hours+ for others.
The island also can’t easily export its unique goods or services.
The CEO of the airport said: “You can have the best attractions, the best hotels. The best brands. But if it’s difficult to get to the island, it adds that much more friction to the journey of a visitor”.
Experience is one thing. It’s also about capturing the mindshare of visitors too.
He added: “We’re an island in a chain of islands, so they could easily land in any of our sister islands which are easier instead of ours”.
Just like Caribbean islands, crypto faces an increasingly competitive blockchain landscape where projects are fighting over a finite set of liquidity, users, and developer talent.
Instead of Caribbean islands, we have ecosystems. Instead of plane journeys, we have the act of bridging - moving assets on cross-chain infra so that a user can be active in another destination.
Web3 Ecosystem Flows
Ethereum, the longest-standing smart contract platform today is the source for a significant amount of bridge volume - the ‘Heathrow airport’ of Web3.
Ethereum has seen ~$3.1B of net flows over the past month. We notice that the top recipients of liquidity are Arbitrum, Base, Optimism, zkSync, and Polygon.
What can we glean from this?
Those ecosystems that are Ethereum-aligned or EVM-centric are more likely to have greater bridge volume from Ethereum L1.
This is because EVM bridging is relatively less complex than bridging Ethereum to Solana given the connective tissue is not as well established.
It’s easier flying from London to Paris than it is to Namibia.
Just like Dominica, you can have all the attractive qualities (niche) but the accessibility of your territory is key to bringing users and contributing to the economy.
Colour coding the EVM-centric flows from the chart above (purple) vs. non-EVM (green) shows the difference accessibility makes.
All is not lost for non-EVM ecosystems. The point is that non-EVM ecosystems may just have an uphill battle in getting to the same destination. But they will get there.
Despite technical and cost challenges, the demand for bridging to non-EVM ecosystems will drive continued innovation for enabling infra.
Dominica’s decision to open a new scalable $300m airport comes from the desire to expand its visitor funnel and remain competitive with other islands.
A similar trend is emerging within Web3. Bridge volume involving non-EVM chains is on the rise.
We should also consider natively born economics within an ecosystem.
Countries don’t exclusively rely on tourism for GDP. Perhaps they have high exports of commodities to other countries.
Activity on-chain within an ecosystem can be driven endogenously. A native stablecoin issuer can issue stablecoins natively within an ecosystem.
If that ecosystem produces a strong stablecoin economy (e.g. low-cost, scalable architecture), users may increasingly seek to ‘export’ their stablecoin assets to other destinations.
Take Solana. It’s a non-EVM ecosystem that facilitates the majority of stablecoin volumes today (>55%) without being the largest recipient of stablecoin imports.
Over $325B of stablecoins are now traded on Solana in any given week.
Some of those assets will be kept within the ecosystem while others will be ‘exported’.
To illustrate the rapid shift in exporting, total export volumes from Solana to other ecosystems totalled $380m.
In the last 3 months alone, Solana facilitated $115m. In other words, Solana has exported >30% since February of total exports since its inception.
Final Remarks
Ecosystems will come and go.
The success or failure of ecosystems will be dependent on their ability to attract sticky users and developers in the long term based on their differentiation.
We’re in the early stages of Web3 bridging. But to understand bridging is to understand it’s a two-way street - of imports and exports.
And just like with Dominica, it’s all about making it easy to do both for the broader economic picture.
Sfrx Takes the Lead on Stablecoin Yield
With MakerDAO further reducing sDAI yield soon in another governance vote, users are looking towards other similar systems to make up the yield difference.
One option is sFRAX. FRAX is a smaller stablecoin, but the sFRAX system distributes profits and earnings to FRAX stakers, functioning much in the same way to MakerDAO's sDAI.
FRAX has worked to onboard RWA collateral, as well as continues to expand its AMO operations to gain yield in DeFi.
As a result, sFRAX is earning over 15% for holders. One of the new yield-earning AMO integrations will be with the Re7FRAX MetaMorpho vault, where Re7Labs will provide an open vault for FRAX depositors to earn yield by lending against sUSDe and USDe collateral.
The borrow demand for these assets remains high as sUSDe is earning over 10% yield and airdrop speculators continue to leverage farm Ethena's Sats program.
FRAX DAO has approved up to $200m in FRAX allocation to a Morpho sUSDe/USDe AMO, and the Re7FRAX vault is set to be the first to receive an allocation.
Regular FRAX users will also be able to benefit from the high yield and MORPHO rewards by depositing in the vault.
Global MCAP
$2.24T; Global market capitalisation appears to be within a consolidation range, reaching a local floor at $1.13T. This support was at the same level as the local peak in April 2022.
ETH/BTC
0.045; ETH/BTC has broken below its longer-term support of 0.05 and wedge. ETH/BTC crossed just 4% above the next possible support at 0.0455 - resistance turned to support from Feb 2021.
US Domestic Liquidity
A minor decline in US domestic liquidity over the past month (which impacts asset prices broadly). Tax receipts added $200b to treasury general account (TGA), putting more pressure to stop issuing treasuries by running the TGA down to address the deficit issues. Running the TGA down will increase US domestic liquidity all else equal.
Bitcoin ETF Net Inflows
-$80m; Mixed bag for US BTC spot inflows over the last month with strong net flows being seen when BTC slipped below $60k to $58-$59k range.
BTC Perpetuals
Bitcoin OI-weighted funding rates are marginally positive reflecting no strong trader positioning today (market inertia?).
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