Biteye: Top Ten Events in the Cryptocurrency Market in the First Half of 2023
Let's review the top ten events in the cryptocurrency market in the first half of 2023.Author: SUSS NiFT researcher Jesse Zheng, core contributor of Biteye Fishery Isla
Editor: Core contributor of Biteye Crush Community: @BiteyeCN
*The full text is approximately 7500 words, expected reading time is 12 minutes
The first half of 2023 has passed, and cryptocurrencies are leading global risk assets. However, the process of rising has not been smooth, with prices fluctuating and causing much concern.
What breakthrough developments have occurred in the industry over the past six months? What lessons can we learn from them to find the next opportunity? In this issue, we will review the top ten events in the cryptocurrency market in the first half of 2023 to find the answers.
1. Shanghai Upgrade ------ A New Chapter for the Ethereum Network
The most important event for Ethereum in the first half of this year was undoubtedly the Shanghai upgrade. This was the final significant step in Ethereum's transition from Proof of Work (PoW) to Proof of Stake (PoS).
Seven months after Ethereum's "Merge" upgrade, Ethereum simultaneously conducted the Shanghai upgrade and the Capella upgrade on April 12 (allowing stakers who did not provide withdrawal credentials at the time of initial deposits to have the ability to provide credentials, thus enabling withdrawals).
The staking withdrawal feature was brought to the execution layer, allowing stakers to withdraw the 18 million ETH locked since 2020 from the beacon chain to the execution layer, enabling optional full withdrawals or staking yield withdrawals, thereby releasing the liquidity of staked tokens and enhancing investor confidence in Ethereum as an "internet bond," while also improving the security of the Ethereum network.
Additionally, while the Shanghai upgrade cannot reduce Gas fees, the implemented EIP-3651, EIP-3855, and EIP-3869 have reduced Gas costs for Ethereum developers and block creators.
After the completion of the Shanghai upgrade, although some early stakers made withdrawal operations, overall, the net inflow of staking still exceeded the net outflow, and the amount of staking and the number of validators showed an accelerating upward trend.
Through robust technical upgrades, Ethereum continues to improve its blockchain performance, bringing confidence to users and investors. The market has also begun to build financial infrastructure around staked Ethereum, with projects such as LSD-based stablecoin issuance, flash loan leverage, and yield enhancement receiving widespread attention.
However, currently, Lido occupies 31% of the staking market share, and the Ethereum ecosystem needs to promote decentralized node technology and attract more excellent staking service providers to participate, in order to reduce the risk of network centralization.
2. Layer 2 is the Only Path for Large-Scale Implementation
On June 12, Ethereum co-founder Vitalik Buterin pointed out in his latest blog post that for Ethereum to achieve long-term sustainable development, Layer 2 scaling is one of the important technological transformations.
If Ethereum is a kingdom, then Layer 2 is the city-state under this kingdom, and the development of the city-states is related to the rise and fall of the kingdom.
According to L2beat data, Arbitrum and Optimism have gained a first-mover advantage with the more mature Optimism Rollup technology, dominating the L2 market with approximately 64.55% and 18.58% market shares, respectively.
Users welcomed the Arbitrum airdrop on March 23, and the huge wealth effect further strengthened users' faith in the Ethereum community.
Other notable events:
Optimism completed its mainnet Bedrock upgrade on June 7, which further reduced transaction costs, shortened system latency, and improved node performance.
Coinbase launched the L2 Base based on OP Stack but does not plan to issue a dedicated token, with plans to launch the mainnet this year. Meanwhile, another L2 scaling solution, Zero Knowledge Rollup, has also made significant progress.
Type1 zkEVM: Taiko launched the Alpha-3 incentive testnet on June 7, mainly testing the economic incentives of the protocol, interactions between proposers and provers, and the initial layer (L3) of Taiko.
Type-2 zkEVM: The main projects in this track include Scroll, Linea, and Polygon zkEVM.
The Polygon zkEVM mainnet Beta version was launched on March 27 as scheduled, using ETH to pay Gas and MATIC tokens for staking and governance;
Scroll is developing zkEVM in collaboration with the Ethereum Foundation and is expected to launch the mainnet in the third quarter;
Linea is expected to launch the mainnet in July, focusing on Multi Prover and Layer 3 development.
Type-3 zkEVM: Kakarot has achieved 100% bytecode equivalence and is about to transition to Type 2.5. Kakarot aims to deploy zkEVM as L3 on top of Starknet.
Type-4 zkEVM: The zkSync Era mainnet was opened to everyone on March 24, with currently high interaction costs and mostly native projects, while most blue-chip protocols have not yet deployed. Another Type-4 star project, StarkNet, underwent a mainnet upgrade in June, officially activating Cairo 1, updating the sequencer, and improving scalability and transaction latency, but the overall user experience still needs improvement.
From the data, the locked amount of L2 in ETH has increased from about 3.64 million at the beginning of the year to 4.82 million by mid-June, with a continuous trend of transactions moving to L2.
However, currently, the transaction volume per second for all L2s is still lower than that of Ethereum. Aside from a few leading L2s, most L2s have very low transaction volumes. Moreover, several L2s are scheduled to launch their mainnets in the second half of the year. Whether the market needs so many L2s remains to be seen.
3. Move Public Chain Ecosystem: Rise or Fall
At the beginning of 2023, as the macro environment gradually improved, Ethereum announced a definite date for the Shanghai upgrade, and the entire secondary market entered a small bull market for nearly a quarter.
The early market mainly revolved around CEX's secondary market speculation, with MEME and various first-tier trends being relatively dull. The Move public chain Aptos performed the best during this wave, with a circulating market value of $500 million, which surged to $3 billion in just 20 days, leading a wave of "unlocking pump" market.
After a brief surge, the subsequent Aptos market continued to decline, similar to most altcoins, and has now returned to the level during the FTX crash. Another star project in the Move ecosystem, SUI, peaked upon launch, and since its launch in May, the price has been continuously declining.
The Move public chain represents a different expansion development direction compared to Ethereum Layer 2, with Move's security, flexibility, and other characteristics becoming one of the new public chain's key advantages.
Currently, the Move series is still in a very early stage, with projects using the Move language including Aptos, Sui, 0L Network, and Starcoin, all of which have launched their mainnets. Therefore, Move-related developers can receive tangible benefits, which helps attract more developers and prepare for the next bull market.
Additionally, it should be noted that as a new technology, Move still needs time to prove its stability. Beosin recently discovered a critical vulnerability in Move VM that could lead to the collapse of public chains like Sui and Aptos. This vulnerability has now been addressed.
In the short term, the Move public chain has a high concentration of chips, a large amount of token unlocking, and significant price volatility, posing certain risks. In the long term, the various advantages of Move compared to EVM should provide opportunities for significant market share increases in the next bull market, competing with traditional public chains that have been validated over time.
4. Blur and the NFT Market
In the NFT market in February, the most eye-catching event was the launch of the BLUR token. The bidding mining mechanism of BLUR not only allowed a large number of users to receive BLUR airdrops but also injected significant liquidity into the NFT market, leading to a small spring in the NFT market and having a profound impact on the subsequent NFT track.
The biggest impact was that the dense bidding orders provided an opportunity for early NFT whales to exit. These whales previously held large amounts of blue-chip NFT series at very low costs, but due to the lack of liquidity during Opensea's market monopoly, the exit costs were very high. A large number of sell-offs not only had high friction costs but also risked collapsing the entire NFT market.
Thus, BLUR provided a great exit opportunity for these whales. Whales could be large institutions, KOLs, etc. As they exited, the interests became less intertwined, and the hype around BLUR also declined.
After this small spring, with the psychological shift of new NFT holders and the diminishing returns from BLUR's bidding mining, the liquidity of the NFT market began to shrink again, leading to the term "NFT three fools (Doodles, Clone X, Moonbirds)," which is also a microcosm of the entire NFT market.
In such a sluggish NFT market, the market has become particularly sensitive to every move of project parties. Originally firmly listed among blue-chip projects, Azuki was removed from the blue-chip list in the last week of the first half of the year as its new series Elementals was of poor quality, affecting the main series, causing its price to fall below double digits.
Of course, there have been some localized trends in NFTs over the past six months, with the most surprising performances being from Milady Maker and Pudgy Penguins. The commonality of these two projects is that their communities are very active, with continuous efforts being made.
Community culture is at the core of NFTs, and it can be seen that the market still recognizes the narrative of NFT communities. The decline of this wave of NFT trends has successfully filtered out a group of "active" project parties, clarifying the development direction of NFTs, which also promotes the long-term development of the industry.
5. The Impact of AI Products like ChatGPT on Web3
Since the launch of ChatGPT at the end of last year, AI has once again become a hot topic in the tech venture capital circle over the past six months. Historically, there has been some overlap between the sources of upstream funding for Web3 investment institutions and AI funding, which means that if AI continues to thrive, it will create a siphoning effect, leading to a relative decrease in funding for the Web3 sector.
As a result, Web3 project parties are trying to align their narratives with AI or utilize AI technology to enhance team productivity.
Thus, how to utilize AI will be a topic that Web3 teams cannot avoid for some time. Here are some trends that are currently happening:
1. AI Auditing of Smart Contracts
Before the launch of ChatGPT, some smart contract auditing teams used AI technology to conduct preliminary reviews of client contracts to identify basic vulnerabilities. However, these auditing teams only allowed AI to complete the initial review, and ultimately, human auditors were still needed to produce complete audit reports.
ChatGPT is more powerful than any previous AI, so many people have renewed hope that AI can complete a highly reliable smart contract audit. OpenZeppelin recently conducted an experiment comparing ChatGPT with 28 Ethernaut challenges to see if it could identify smart contract vulnerabilities.
Among the 23 challenges introduced before the cutoff date of ChatGPT's training data in September 2021, GPT successfully solved 19. Although this result is impressive, GPT performed poorly on the latest Ethernaut levels, failing 4 out of 5 questions.
This indicates that while AI can be used as a tool to discover certain security vulnerabilities, it still cannot replace the need for human auditors.
2. AI Replacing Positions in Web3 Teams
Just as the emergence of ChatGPT has made many people worry about their jobs being completely replaced by AI, Web3 team members share the same concern.
Although it is harsh, from the perspective of Web3 industry investors who are keen on trying new things and leading trends, the trend of using AI to replace Web3 team members may come faster than expected.
On April 23, digital artist Rhett Mankind tweeted that he provided instructions to ChatGPT with a budget of $69, allowing ChatGPT to independently issue a Memecoin.
Additionally, the author detailed in a YouTube video the decision-making process for the memecoin's name and other aspects, and the AI tool even wrote the smart contract code for the project.
The market responded positively to this theme, and after a few days of speculation, the project's market value once exceeded $50 million. Although the experience of this Meme project may not be replicable, it can inspire us to optimize Web3 project positions through AI.
6. The Collapse of Crypto-Friendly Banks in the U.S. Highlights Bitcoin's Value
In March of this year, the U.S. banking sector faced a severe bank run crisis, with stock prices plummeting. Crypto-friendly banks Silvergate Bank, Silicon Valley Bank, and Signature Bank collapsed one after another, with the failures of Silicon Valley Bank and Signature Bank being regarded as the second and third largest bank collapses in U.S. history.
Silvergate suffered a bank run due to accepting too many deposits from the cryptocurrency industry after the FTX crash. Silicon Valley Bank had purchased a large number of long-term bonds during a low-interest period, and during the rate hike cycle, these bonds were severely discounted. The bank run forced it to sell bonds at a discount, turning unrealized losses into reality.
Signature Bank had previously been the target of multiple investigations, and its entry into the crypto market subjected it to stricter scrutiny.
On March 11, stablecoin service provider Circle admitted that some funds were held in Silicon Valley Bank, triggering market panic, causing USDC to depeg, and leading to a sharp drop in cryptocurrency prices.
Regulators have long been concerned that the development of crypto digital assets could impact traditional financial markets, but this time, it was traditional financial markets that launched a surprise attack on crypto digital assets, ringing alarm bells for crypto industry practitioners about isolating risks.
Interestingly, this banking crisis once again reminded people inside and outside the crypto industry of the reasons Satoshi Nakamoto invented Bitcoin: "Banks must earn people's trust to manage wealth and allow these assets to circulate in electronic currency, but banks use money to create credit bubbles, leading to the shrinkage of private wealth."
Clearly, 15 years later, these banks have repeatedly proven Satoshi's foresight through their collapses, as banks indeed struggle to manage wealth for users.
On March 10, the collapse of Silicon Valley Bank led to an influx of $397 million into the ARK Innovation ETF associated with cryptocurrencies, marking the largest inflow for the fund since April 2021.
In the market, some of the USDC positions were converted by cryptocurrency investors into other stablecoins, while some directly purchased Bitcoin and Ethereum to drive up prices, initiating another small bull market.
7. The MEME Craze and the Chaos of Shitcoins
From late April to early May, the entire market was purely a showcase for MEME and shitcoins, while the overall market surged and then corrected.
This perfectly confirms the old saying that shitcoins represent the market's last frenzy. During this trend, two particularly eye-catching projects emerged, and after their success, a wave of imitators followed.
Pepe
The Pepe project released its first tweet on April 5 and launched the PEPE token on April 15. The official Twitter of Pepe stated that they aim to redefine memecoins and change the status quo of numerous derivative meme tokens in the market.
The specific mechanisms of the Pepe project include several aspects. First, the Pepe token had no presale, meaning everyone had an equal opportunity to participate in the project.
Second, the Pepe token has no burn tax, meaning no tokens are destroyed during transactions. Additionally, Pepe relinquished contract privileges, making the issuance and trading of tokens more decentralized.
Most importantly, Pepe's market-making team is well-funded and well-connected, drawing the attention of the entire market through pump strategies, ultimately launching on Binance on May 6 and reaching an all-time high before gradually retreating.
AIDOGE
AIDOGE launched on April 15 and attracted widespread market attention from the outset. The AIDOGE project team grasped investor preferences and planned to launch an AI NFT series for training, creation, and production.
Moreover, AIDOGE's operations were very effective, successively launching on centralized exchanges like MEXC and Bitget.
AIDOGE's success can be attributed to several factors. First, it employed a decreasing "fair" launch, which is in quotes because the team could leverage insider knowledge to acquire a large amount of early tokens at no cost for future manipulation.
Second, AIDOGE can provide liquidity and calculate compound interest while achieving a yield that exceeds normal market levels.
Additionally, when users purchase AIDOGE tokens worth 100-1000 on-chain, they can participate in a lucky draw every half hour. This frequency and probability stimulate users' gambling instincts and increase market speculation.
Compared to PEPE, AIDOGE lacked the price effect of being listed on Binance, peaking on April 30 before declining sharply.
From these two representative shitcoins/MEMEs, it can be seen that such projects experience significant pullbacks after reaching peak popularity, with high secondary risks. Do not forget the old saying: "Behind every successful MEME are countless failures," and the risks of taking over these projects are even higher.
If you wish to invest in such projects, be prepared to potentially lose all your principal.
8. Bitcoin Ecosystem Experiences a Revival
Bitcoin is unique; it is always part of the conversation when discussing hot topics, which is where BTC's value lies. A group of dedicated developers quietly contribute, generating value out of passion rather than relying on financing or initial team allocations like most projects.
Unlike the familiar Ethereum/EVM ecosystem projects, the BTC community is very open, with no paid small groups or entities like the Ethereum Foundation. Any new developments in the BTC ecosystem are published on public forums, although the dissemination of these community updates to the outside world is slow.
Especially in the Chinese-speaking community, it is often the last to realize significant developments in the BTC ecosystem.
Nostr is a prime example. Last year, when former Twitter CEO Jack tweeted in support of Bitcoin's second layer/social layer Nostr, it garnered almost no attention in the Chinese-speaking community, with only Biteye publishing an original article introducing the pioneering Nostr.
It wasn't until February of this year that the Chinese-speaking community gradually recognized the importance of Nostr and its social app Damus, sparking a wave of mutual following.
In the past week, Damus has again been in the spotlight, with news on June 13 that Apple's App Store threatened to remove Damus, facing pressure from the world's largest tech giant, causing concern in the community about Nostr's future.
However, the reversal came swiftly. Just a day later, after a communication meeting between Damus and Apple, Damus stated that it could remain in the App Store as long as it adjusted the Zaps feature. The ability of a decentralized application to communicate so smoothly with Apple is astonishing.
This aligns with Biteye's judgment from six months ago, as former Twitter CEO Jack, as an investor in Nostr, has diligently helped coordinate resources between Web2 and Web3 for the Nostr ecosystem.
This "light at the end of the tunnel" narrative is likely to draw more attention to Nostr and raise expectations for the BTC ecosystem's social track.
In the first half of the year, another hot topic in the BTC ecosystem was the ordinal theory. Based on this theory, the groundbreaking Brc20 was created, followed by micro-innovations like Orc20, GBRC721, and Stamp, which also received acclaim.
Although Ordinals does not have a complete decentralized solution and its technology still needs improvement, it has allowed users who frequently follow the BTC community and are willing to experiment to reap substantial rewards.
This market trend reminds us that the information from the BTC community should not be overlooked, and any innovation is worth trying. Moving forward, we must pay attention to the BTC ecosystem track.
9. Hong Kong Takes Bold Steps Towards Web3
Hong Kong was once the headquarters for many important Web3 institutions, but policy fluctuations led some projects to relocate their headquarters away from Hong Kong.
During last year's bear market, various cryptocurrency exchanges and lending platforms collapsed, and countries like the U.S. and Singapore tightened regulations, leaving many practitioners and investors disheartened and feeling uncertain about the future.
However, at the Hong Kong FinTech Week in November 2022, the Hong Kong government released a "Policy Declaration on the Development of Virtual Assets," stating an open and inclusive attitude towards virtual asset practitioners and recognizing that Web3 and distributed technologies have the potential to become trends in the future development of finance and commerce.
This has been interpreted by the industry as the beginning of the Hong Kong government's renewed embrace of Web3, and the policy support has provided some relief to practitioners.
In April of this year, Hong Kong held a Web3 carnival event, becoming the largest gathering of cryptocurrency enthusiasts in Asia since the pandemic.
At the carnival, the Hong Kong government announced multiple policies to support Web3 development, including a budget allocation of HKD 50 million to promote industry development, a financial technology internship program for brokerage students, and encouragement for more talented individuals to enter the fintech industry.
In contrast to Singapore's discouragement of retail trading, Hong Kong has adopted a more proactive stance, allowing exchanges to apply for retail digital asset trading licenses starting June 1.
In public places in Hong Kong, one can see promotional slogans for cryptocurrencies. Additionally, Hong Kong has issued tokenized government green bonds and is expected to launch a regulatory framework for stablecoins by the end of 2024.
On June 12, Liang Hanqing, the head of the Financial Services and FinTech Division of the Hong Kong Investment Promotion Agency, stated at a closed-door Web3 meeting that the essence of Hong Kong's proposal to build a Web3 center is not about the securitization of virtual product assets, but rather about introducing resources for Hong Kong's future economic and social transformation.
This illustrates the significant importance of Web3 to Hong Kong. Hong Kong's friendly attitude towards Web3 is expected to attract a large number of practitioners constrained by regulations to explore new opportunities in Hong Kong.
Hong Kong and mainland China have different roles and development directions, with mainland China having a wealth of technical talent and artists, which can provide cultural IP and technical support for Hong Kong.
As a pilot demonstration point for China's innovative practices, Hong Kong will become a bridgehead for the development of China's virtual economy.
10. The SEC and the Crypto Community's Tug-of-War
On June 5, the SEC sued Binance, Binance US, and CEO Changpeng Zhao for allegedly violating federal securities laws by illegally offering and selling securities to U.S. investors.
In this filing, various cryptocurrencies, including but not limited to BNB and BUSD, were classified as securities: SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, and COTI.
This follows the lawsuit filed by the U.S. Commodity Futures Trading Commission (CFTC) against Binance and its CEO on March 28 for allegedly violating trading and derivatives rules, marking another instance of pressure from U.S. regulators.
This regulatory action is not only aimed at Binance; the SEC also filed a lawsuit against Coinbase the following day, claiming that Coinbase provided multiple digital currency transactions deemed securities without ever registering as a broker, national securities exchange, or clearing agency.
As the cryptocurrency market grows, reasonable regulation will benefit compliance and the healthy development of the industry.
Issuing clear and appropriate rules is not only the responsibility of regulators but also a demand from practitioners in the crypto industry.
Only with clear and well-defined rules will hesitant funds enter the market. However, the SEC has been slow to release a clear rulebook, initiating multiple lawsuits and causing chaos in the crypto market.
Moreover, there has yet to be a unified opinion among U.S. regulators, with the SEC and CFTC issuing contradictory statements, competing for control over cryptocurrency regulation.
According to Zippia, approximately 44.3 million people in the U.S. hold cryptocurrencies, accounting for 13.22% of the total population, making it a country with a high acceptance of digital currencies.
The SEC's recent raids on the crypto community have prompted some market makers to sell off altcoins, sharply reducing market liquidity and causing significant losses for investors.
Regulators should balance regulatory and developmental functions; applying outdated regulatory frameworks to innovative asset classes is a form of lazy governance and irresponsibility.
From this, we can foresee that practitioners originally in the U.S. may consider relocating to more crypto-friendly countries and regions due to regulatory pressure.
It is essential to understand that tokenization is not meant to evade securities laws; it is a product of blockchain technology arising from real-world demands and an improvement over traditional organizational systems.
The decentralized nature of blockchain makes it more resilient to attacks than any centralized system. If one node is attacked, thousands of other nodes continue to operate.
While some governments may suppress it, others will support it. The contrasting regulatory attitudes of the U.S. and Hong Kong lead us to ponder that this may mark the beginning of the East rising and the West falling.
11. Conclusion
The financial market may have bubbles, but technology does not. Both Bitcoin and the Ethereum ecosystem have made significant progress in the first half of this year.
As the cryptocurrency market expands, comprehensive regulation will also be welcomed. Regulation is not necessarily a "wolf is coming" scenario; it may be aimed at making the market more standardized and preparing for large-scale applications. Let us continue to participate in building the crypto market and lead more people towards Web3 to enjoy a better internet.
Note:
This article is part of the hot events section of the SUSS NiFT Blockchain Ecosystem Security Alliance's 2023 semi-annual report on Web3 blockchain security. The co-creation partners of the semi-annual report include SUSS NiFT, Beosin, Biteye, LegalDAO, Footprint Analytis, and Shellboxes. Readers can read the rest of the semi-annual report through the following link.
