VanEck Crypto Monthly Recap for July 2024

Please note that VanEck may have a position(s) in the digital asset(s) described below.

Bitcoin rose (+6%) in July vs. ETH (-4%), while the Nasdaq and S&P 500 were (-1%) and (+1%), respectively. Bitcoin Magazine held its annual conference in Nashville, which VanEck attended, along with two of the three Presidential candidates (Trump and RFK Jr.), both of whom announced plans to establish US strategic reserves of BTC. We’ve been writing about this possibility for years and released a new model detailing some of our assumptions in July.

• Notable Performers: Helium (HLT) and Hivemapper (HONEY)
• Notable Laggards: Uniswap (UNI) and Lido (LDO)

Versus’ bitcoin’s (+6%) gain, the market capitalization of layer 1 smart contract platform (SCP) tokens rose (+4%). Among SCPs, the clear winner of the month was Solana’s SOL token, which recorded a gain of (+20%). Though it was not the worst-performing token of the month, Ethereum’s ETH (-2%) lagged other majors as the ETH ETPs saw outflows of -$750M over the first 5 trading days.

Some of the largest catalysts for the month included the ether ETP launches, the German State of Saxony selling large tranches of BTC ($3B), and the return of BTC to Mt Gox claimants. Since July 5, Mt Gox has remitted $7B of its total $9B to estate account holders. Additionally, the US Congress failed to override the veto of the SAB 121 bill, as expected, while Circle obtained approval to issue USDC and EURC under Europe’s MiCA regulatory framework.

Price Returns

Source: Bloomberg, as of 31/07/2024. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

US ETH ETPs finally launched on 23 July. Net selling of the high-priced ETHE offering totaled -$1.7b or (-20%) of starting AUM compared to GBTC selling of -$2.1B (-8% of AUM) over the first 5 days of trading. In total, ETH ETPs saw outflows of -$750M vs bitcoin ETPs gaining +$846M of inflows. Though we partly attribute ETH’s weakness to the outflows from the ETP launch, ETH also stumbled in July due to more pressing issues around its economics.

The financial effects of Ethereum’s decision to implement EIP-4844 are still dragging on the price of ETH. This is because Ethereum fee revenue from user transactions continues to disappoint as the result of the changes enabled by EIP-4844. At the time of writing, ETH’s average daily fee revenue was only $3M, the lowest since October 2023. This revenue drop occurs because EIP-4844 Ethereum created a new layer for Layer-2 data that reduced demand for transaction blockspace. The new layer, called “Blob Space,” is specifically designed to offer cheaper prices to Ethereum’s L2 roll-ups who post their data to Ethereum. Blob Space also has its own pricing mechanism that adjusts pricing according to blockchain usage. However, since the demand for Blob Space is below targeted capacity, Blob Space prices have remained minuscule, averaging between $25k-$50k per day. Due to EIP-4844 lowering L2 prices, it is speculated that Ethereum L2s users have saved over $680M since EIP-4844 was instantiated on 13 March 2024.

July Daily Blob Space Fees (USD) are the 2nd Lowest Recorded

Source: Dune @Hildobby as of 29/07/24. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

Outside of the ETPs and government selling, the crypto news cycle spun out relatively few noteworthy items as we have reached the seasonal bear market for hard work (summer). Bitcoin fees declined an epic (-75%) in July compared to June. Curiously, the transaction count for Bitcoin was up (+7%) month to month, but the fee revenue for Runes, Inscriptions, and Regular transactions was down (-76%), (-59%), and (-79%), respectively. These declines in activity occurred because we did not see wild swings in transaction fees due to demand surges to trade Bitcoin’s NFTs (Runes and Inscriptions).

Solana, whose SOL token had a banner month surging (+20%), also flipped Ethereum in average daily DEX volume for the first time in smart contract blockchain history. However, there is some dispute about the data due to the prevalence of wash trading on Solana versus Ethereum. Solana also recently announced an upgrade to compress the size of its blockchain history through zero-knowledge proof data compression. The upgrade enables Solana to retain and potentially improve its decentralized over the long-term (+10 years). Due to Solana’s high throughput of transactions, Solana’s blockchain requires massive amounts of data storage. Without effective data compression, Solana’s blockchain growth would increasingly demand higher network bandwidth and more expensive servers to run nodes, resulting in more centralization. Hamilton Lane also made a big announcement to allow investors access to a private credit fund called SCOPE on Solana.

Polygon (-8%), a middle of the pack performer on the month who is pushing a new “chain of chains” architecture called the “agg layer” at the same time they are introducing a token upgrade and migration, will have its new token begin replacing on 4 Sept 2024. The new token, POL, will be swappable 1:1 for the old token, MATIC. Another interesting trend that continued in July was the ascension of the NEAR (+2%) blockchain from a usership standpoint. NEAR remains the second most used blockchain, by daily active users, at 1.95M, just below TRON at 2.1M. Just over 1 year ago NEAR had only 67k daily active users. Most of NEAR’s usership is billed to be user-generated rather than bot-created, as NEAR’s activity relates to a discount shopping application called Kai Kai, which is based in Taiwan.

July’s Notable Performers - HNT (+39%)

Helium (HNT) – 1Y Market Cap (Circulating)

Source: Artemis XYZ as of 24/07/24. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

Helium Network’s native Helium Network Token (“HNT”) outperformed in July, driven by a variety of fundamental developments. Originally developed solely as an Internet of Things (IoT) network on its blockchain, Helium migrated to Solana in April 2023 before launching its consumer mobile service, Helium Mobile, in December. On 15 July Helium Mobile crossed 100,000 subscribers, demonstrating noteworthy adoption for a crypto-based consumer application.

Helium Mobile combines legacy cellular networks with its own decentralized network of hotspots, offering subscribers 5G ‘hybrid coverage’ for $20 per month. As a decentralized network, it is operated by individuals who run wireless hotspots from common places such as cafes, shops, or their homes. These operators earn MOBILE tokens as they provide coverage to nearby subscribers. In late June, Helium announced boosted hotspot rewards for New York’s most highly trafficked areas, indicating a strategy focused on delivering service to dense population centers.

Additionally, the network progressed on several other initiatives to accelerate service scaling. The newly launched Helium Mobile Licensing Program will enable third-party device manufacturers to build hardware such as RAKwireless’s mobile hotspot. The network is also becoming OpenRoaming-compatible. This allows cellular users of other networks to connect to Helium hotspots when they are out of range of their home networks. This enhances service and lowers mobile traffic costs for partnered cellular providers. We believe these developments suggest Helium’s ability to ideate and deploy new scaling incentives, signaling the potential for continued innovation and growth.

One key catalyst for HNT's outperformance in July was the re-calibration of investor expectations for Helium, driven by its potential to become a hub for thousands of DePIN projects. Previously, Helium was seen as a network with limited growth and upside potential due to its focus on WiFi, Mobile, and IoT services. However, the introduction of Helium Improvement Proposal (HIP) 128, which adds an “Energy Network” rewarding solar power and battery resources, has changed this perception.

The real value of Helium may lie not in its current businesses but in its potential to coordinate many new DePIN projects. Helium's network of operators, incentivized by HNT, will likely support and bootstrap new networks, just as they did with Helium IoT.

This new dynamic positions Helium as a launchpad for DePIN projects, offering a geographically distributed and committed network of operators. While the total addressable market and growth potential for HNT have increased, the likelihood of capturing a significant portion remains low. Nevertheless, this shift in expectations helped drive HNT to a strong +39% performance in July.

HONEY (+57%)

Weekly Mappers Earning HONEY Rewards

Source: Dune Analytics - @insights4vc as of 27/07/24. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

Hivemapper (HONEY) echoed Helium’s success as the second biggest mover this month, further suggesting market enthusiasm around maturing DePIN projects. Launched on Solana in November 2022, Hivemapper’s network aims to capture a living map of the globe through a decentralized fleet of drivers. Hivemapper’s 5,600+ weekly mapping contributors added ~0.88M unique kilometers in the past 30 days to its total unique coverage of 14.60M km, representing 24% of global coverage. In late June, Hivemapper reported that its map's growth rate is 4-5 times faster than Google's. This rapid growth is driven by investors who have equipped Uber, Lyft, Amazon, and commercial truck fleets with Hivemapper devices.

The basic idea involves users attaching specialized cameras to their cars, automatically sending images to the Hivemapper network to create highly up-to-date 3D maps. In return for supplying image data, drivers earn HONEY tokens. These images are used to update and expand a global map that Hivemapper utilizes in two main ways: to enhance its navigation app, aimed at competing with Google and Apple Maps, and to create a valuable data set available for enterprises & fleet managers to purchase exclusively with HONEY tokens. In theory, this enables users who contribute data to the network to share in the economics of reducing costs and improving resiliency in the otherwise highly monopolized market of mapping networks. According to Hivemapper’s Q2 2024 report published July 25th, the project added a Fortune 50 company, municipalities, property management companies, and two of the top 10 global online map providers to its customer base.

Hivemapper also started the month with a new exchange listing on Kraken, likely increasing the token’s liquidity and distribution. We believe that these factors—in addition to growing awareness of the DePIN sector more broadly—likely contributed to HONEY’s standout month.

July’s Notable Laggards - UNI (-21%)

Decentralized Exchange (DEX) Volume Market Share

Source: The Block as of 26/07/2024. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

Despite an overall surge in crypto markets, Uniswap’s native UNI token experienced a significant drawdown this month. As the largest decentralized exchange (DEX) by volume, Uniswap has been a DeFi mainstay ever since UNI reached $1B+ valuations shortly after its September 2020 airdrop. However, Uniswap faces several coinciding challenges that may drive poor market performance.

In February of this year, Uniswap’s governance proposed activating the protocol’s fee mechanism, which would distribute a percentage of the DEX’s trading fees pro rata to UNI token holders. UNI surged over 100% in the following weeks, adding approximately $4.5B to its market cap. However, the DAO rejected the proposal in March, and UNI’s price suffered shortly after.

In April, Uniswap Labs, the SoHo-based core development team, announced receiving a Wells notice from the U.S. Securities and Exchange Commission, notifying them of a planned enforcement action for violating securities laws. The matter remains pending, which the market may interpret as a significant ongoing regulatory risk.

Furthermore, Solana has taken over 300% of relative market capitalization from Ethereum over the past year, eroding Uniswap’s competitive advantage when compared to other major DEXs outside of Ethereum’s ecosystem. The bar chart above displays the relative share of volumes between six leading DEXs, illustrating how top Solana-based DEXs Raydium and Orca have steadily increased Solana’s share of DEX volumes to reach new highs in July.

Even within the Ethereum ecosystem, Uniswap is facing new competitive pressures. Ironically, Aerodrome Finance took a dominant share of DEX volumes on Coinbase’s Base network this month, while Aerodrome distributed trading fees to its token holders. As regulation, competition, and Ethereum-centric exposure are likely priced into UNI’s market, we are monitoring for shifts in these factors as potential bullish catalysts.

LDO (-15%)

Lido Market Share of Ethereum Staking Shrinking 18bps in July

Source: Artemis XYZ as of 29/07/2024. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

LDO, the most valuable liquid staking token, Ethereum, was down (-15%) on the month amid potential legal issues, Ethereum revenue challenges, and broader ETH underperformance. Lido also lost market share of Ethereum staking in July, decreasing (-18bps) from 29.15% to 28.97%, despite positive net flows into Lido’s staking contract. Though Lido’s growth in ETH TVL is encouraging, its loss of market share amid a substantial unlock (780k ETH) from Pendle Finance’s Ethereum re-staking application has disappointed many investors. However, Lido's performance was above average compared to peer token categories, Ethereum liquid staking governance tokens (median -23%) and liquid re-staking governance tokens (median -31%).

The biggest challenge facing Lido and other liquid staking tokens is the reduction in the yield earned by Ethereum stakers. The average yield accrued to ETH stakers is (-28%) lower YoY, moving from 4.1% per annum to 2.9%. Since liquid staking projects earn a take rate on ETH stakers who opt into liquid staking pools, declining yield means decreased revenues. This yield is derived from two sources: inflationary yield from Ethereum monetary policy and fee revenue captured by Ethereum. Most of the yield decline stems from the drop in Ethereum revenues. The current decrease in Ethereum revenues is the direct consequence of EIP-4844 which reduced prices for Ethereum Layer-2s to post data to Ethereum. In July, Ethereum revenues were (-36%) lower month-to-month while Lido’s were off (-15%) in dollar terms and down (-8%) in ETH terms.

Lido not only grappled with sagging revenue in July, but it also struggled with ongoing legal issues. As a consequence of an SEC lawsuit against the important Ethereum infrastructure company called Consensys, Lido was cited as an unlicensed dealer of securities. The liquid token that Lido grants users who stake their ETH with Lido’s validator network, stETH, is being deemed a security by the SEC. In their brief, the SEC argues that Lido’s stETH reward structure, ownership details, and marketing materials are strong evidence that stETH is a security. In response, Lido intends to combat the allegations by accelerating the decentralization of its network while enabling permissionless entry by new validators.

LDO Market Cap Has Been Declining Relative to Ethereum in 2024

Source: Artemis XYZ as of 29/07/2024. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

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