VanEck Crypto Monthly Recap for September 2024

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

Bitcoin reacted strongly to the Fed’s rate cut and China’s stimulus, rallying 7.7% and beating Gold (+5%), Ethereum (+3.2%), MSCI ACWI (+2.3%) and the S&P (+1.7%). Bitcoin ETP buyers returned with US versions attracting $1.2B in net inflows, a substantial rebound from August’s negative number and not far from the monthly average of $2B. Cumulatively, the US ETFs have bought more Bitcoin than has been mined since their launch, which makes them very important to price formation. We will have more on this topic in an upcoming ChainCheck. Notably, Bitcoin’s daily correlation with the Nasdaq is back to late 2023 levels, above 0.62 on a 30-day average. Allocators may want to see this fall before getting more aggressive.

• Notable Performers - Sui, Solana and Aptos
• Ethereum’s Gambit and L1 Token Value
• Notable Laggard - Polygon

Memecoins paced gains +31%, while DeFi +19%, Layer 1s +11%, and crypto equities +11%. ETH continued to lag +3%, reflecting market share loss and much lower fee generation. However, ETH’s market share appears to have bottomed mid-month at 5-year lows. Concurrently, Bitcoin Dominance rose to a 4-year high of 59% before slipping slightly. We remind readers that Bitcoin dominance peaked last cycle right after the election, at 70%, before falling back to 62% by the end of 2020. We think a Kamala Harris victory could produce a different outcome, challenging the pattern seen in the last cycle.

Price Returns

Source: Bloomberg as of 9/30/2024. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

Up-tober arrived early this year on the back of positive macro developments and an increase in on-chain activity. Across L1s, transaction activity increased (+3.5%) with Ethereum recapturing significant market share, from (31%) of total SCP fee revenues in August to (45%) in September. This came at the same time as Solana’s revenues collapsed, spurred by a collapse (-75%) in memecoin activity, from (24%) of all SCP revenues in July to (10%) in September. While DEX volumes for all SCPs were down slightly month on month (-1.5%), the count of Daily Active Addresses (DAAs) was up (+28%) from August’s average. Daily Active Addresses also reached a new all-time high of around 18.1M on September 12, 2024. Though DAAs is an imperfect proxy for usership due to the ability of people to control many wallets, monitoring DAAs still is valuable when it is triangulated with other metrics.

Fee Market Share: ETH, TRX, BTC, SOL, BNB

Source: TokenTerminal as of 9/27/24. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

On-chain liquidity, as measured by the market capitalization of stablecoins for cryptocurrencies, has reached $172.5B which is $3B more than at the start of September and $32.5B more than at the beginning of 2024. However, most likely tied to the decline in DEX volumes and CEX Volumes (-20%), average daily stablecoin transfer volumes dropped from $58B per day in August to $50B per day in September.

Stablecoins on the Rise

Interest in stablecoins continued to grow in September as Sony Bank and Revolut announced they will launch stablecoins. Meanwhile, Blackrock partnered with stablecoin issuer Ethena to create a new stablecoin, called UStB backed by Blackrock’s onchain BUIDL treasury fund. Following Ethena’s earlier launch of a stablecoin backed by derivative positions on ETH, the large crypto market maker DWF will debut its own synthetic stablecoin as early as 4Q2024. Circle announced that its stablecoin USDC is now available for usage in Brazil and Mexico. Ripple claims that its own stablecoin will first appear over the coming weeks. Meanwhile VanEck-backed Agora Finance,¹ with its AUSD offering, continued strong growth with $60M in AUM and onchain trading volumes exceeding $500M since launch.

The rush to create new stablecoins backed by fiat assets and short-term debt has been gaining momentum as more financial institutions recognize their potential. Stablecoins began in earnest with the introduction of Tether in 2014 and initially found usage quickly routing liquidity between crypto exchanges to rectify interexchange pricing disparities. The market capitalization of stablecoins has grown roughly 39x since 2020 which compares to 8x for that of BTC. The vast majority of stablecoins, more than (99%) by supply, are pegged to the US dollar. Additionally, (~93%), are backed by fiat assets like cash deposits, repurchase agreements and short-term US treasury debt. Stablecoins are now the base pair for most of cryptocurrency trading on both centralized (CEXes) and decentralized exchanges (DEXes). For example, (87%) of Binance’s trading volumes are based in either FDUSD, USDT, or USDC.

The business model of the stablecoin issuer is to partner with entities that can attract usage demand such as crypto exchanges, blockchains, and dApps. These partnerships involve the sharing of revenues that stablecoins generate on the assets backing their assets with the partners that bring new holders. For example, Coinbase, which is a distribution partner of Circle’s USDC, receives roughly (50%) of Circle’s revenues. Due to the sizable revenue opportunities and disputes over value add, stablecoins firms and their partners often have a tenuous relationship. Recently, Binance again reassessed its partnership with Tether’s USDT and instead chose to back FDUSD on Binance’s exchange. To direct trading to FDUSD, Binance offered free trading on BTC, ETH and Binance’s four other highest volume spot tokens if traders employed FDUSD. The result was that trading in Binance’s flagship product, BTC, went from being based in USDT in 99% of trades in the month prior to FDUSD’s debut in September 2023, to roughly 40% afterwards.

FDUSD Now Accounts for 60% of BTC Volumes in 2024

Source: Binance as of 9/13/2024. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

Notable Performers - Sui, Solana and Aptos

Sui, Aptos and Solana DAAs Are Up 984% Since Jan 2024

Source: Artemis XYZ as of 9/26/2024. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

So-called “monolithic” blockchains, which bundle consensus, execution, and data availability layers into a single protocol stack, outperformed in September, especially Sui whose SUI token was up (+118%) to reach $5B market cap. Sui also saw strength in active addresses (+140%) and revenues (+48%) compared to August. The biggest driver of activity on Sui has been memecoin speculation and the introduction of native stablecoins like AUSD and USDC. Sui is a project we closely watch due to its unique object-based architecture that supports higher throughput of transactions and lower latency than competitors like Solana and Ethereum. If we are to segment our investment theses on Layer-1 blockchains, we put Sui in the camp with Solana and Aptos as chains that are leveraging their high-performance characteristics to appeal to Web2 developers. Solana (+14%) and Aptos (+23%) also outperformed in September.

In late September, Solana supporters gathered for Solana’s annual conference in Singapore. Among the most impactful announcements was the release of the much anticipated “Frankendancer” on Solana Mainnet and stand-up of “Firedancer” on Solana testnet. Both of the “Dancers” are new upgrades to Solana’s core software which will enable Solana to process more transactions. The Dancers are a series of progressive implementations with Frankendancer launched first to incorporate some of Firedancer’s early features. Firedancer claims to be able to scale Solana transactions throughput by a factor of 20x while also making the blockchain, known for days of downtime a few years back, more reliable. Thus far, it has been able to achieve 89k TPS on testnet. The leader of Solana, Anatoly Yakovenko, is so confident in Firedancer’s breakthrough capabilities that he has announced he will remove Solana’s “Beta” tag once Firedancer is implemented.

Aptos had a strong September despite a ~11M ($90.2M) token unlock, an (-8%) decline in fee revenue, and a (-2%) drop in DEX volumes. The main price catalyst for Aptos was the upgrade to Aptos’s core software called Raptr that helped attract a (+30%) MtM increase in DAAs. Expected to launch in “the near future,” Aptos claims its end-to-end finality could be as low as 800ms while supporting “much higher throughput.” This compares to current Solana finality of ~2-3s while putting it on par with Sui’s which is currently around 800ms. We are excited to see more specific details of the upgrade in an upcoming whitepaper release. While the improvements in Aptos’s technology is laudable, for Aptos’s APT token to work, it will need to marry its advanced capabilities with compelling, novel use cases that summon new users to its blockchain. As this has not occurred yet; Aptos’s share of Sui/Solana/Aptos’s userbase has fallen from (12%) at the start of 2024, to (5%) today.

Ethereum’s Gambit and L1 Token Value

ETH's (+14%) Return is ~1/3rd that of BTC's (+44%) in 2024

Source: Artemis XYZ as of 9/27/2024. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

ETH is up (+14%) YTD, but it’s trailing behind BTC (+49%) and SOL (+52%). The catalyst? EIP-4844, implemented on March 13, 2024, which shifted Ethereum's economic model. EIP-4844 created a separate transaction layer for Layer-2 (L2) blockchains to post data cheaply, drastically reducing their demand for Ethereum’s blockspace. Previously, L2s accounted for 20% of Ethereum’s blockspace usage—now, that demand has evaporated.

The result? A collapse in Ethereum’s transaction prices. Annual revenues plummeted from $7.2B in March to just $1.2B in September. Net ETH emissions flipped from deflationary (-1.15%) to inflationary (+0.34%)—more supply, less demand. This shift is directly tied to ETH’s underperformance.

Ethereum made this move to expand its blockspace capacity for mass adoption, following a strategy similar to Solana’s low-cost blockspace model. But for short-term investors, reducing Ethereum’s “take rate” killed the narrative of ETH as a deflationary, dividend-like asset.

EIP-4844 isn’t just a tactical shift; it fundamentally alters Ethereum’s business model. Before, ETH generated revenue by monetizing transaction activity (base fees, priority fees, MEV fees). It charged users to access blockspace and positioned transactions within each block. Now, Ethereum aims to become a settlement and data availability layer for its L2s.

Ethereum’s long-term vision assumes that L2s will scale to millions of users, paying ETH for settlement. This creates a system where L2s charge their customers in ETH, fueling the asset’s value. Ethereum’s core believers argue that this makes ETH “money.” While ETH can be money within Ethereum’s ecosystem, it only holds value if L2s remain “Ethereum aligned.” So far, Ethereum hasn’t enforced any real alignment, making this framework feel more like a loose confederacy.

The pact between Ethereum and its L2s could break if the economics shift. L2s are closer to end users, and historically, the closer you are to the user, the more valuable the business. If L2 ecosystems gain enough momentum and applications, they might leave Ethereum altogether to capture the monetary premium for themselves.

This leads to a critical question: what drives the value of a blockchain like Ethereum or Solana? Blockchains compete on three fronts:

1. Economic value of blockspace
2. Liveness (the guarantee to transact)
3. Safety (the security of balances)

Ethereum’s strategy is to dominate on liveness and safety, leaving economic value to L2s. With $90B in locked value and 1M validators, Ethereum positions itself as the champion of “immutable property rights,” guaranteeing that users’ assets remain secure and usable.

Meanwhile, Solana and other monolithic chains are laser-focused on maximizing their Layer-1 (L1) economic value. These competitors have dedicated business development teams onboarding new projects, prioritizing users and applications. As Solana’s economic value grows, security and liveness tend to follow, attracting more validators to the network.

Solana is also scaling usability—offering 1,000x more transaction throughput than Ethereum’s L1 with lower latency. This allows Solana to serve a larger user base directly with better app interoperability, where SOL remains the only form of money. So, Solana binds users directly, while ETH relies on intermediaries (L2s) for value accrual.

Despite its current struggles, Ethereum’s long-term vision still holds potential. Ethereum’s robust censorship resistance (liveness) and security provide stronger property rights than Solana, making it a more permissionless and secure platform. Ethereum can still outcompete Web2 platforms that take massive fees (30%+).

Most importantly, Ethereum can still control its own destiny. Developers could force L2s to implement “based sequencers,” requiring validators to hold ETH for transaction sequencing. Ethereum could offer stronger guarantees like faster finality for L2s that remit more value to the main chain or even require L2s to collateralize ETH to use Ethereum’s blob transaction layer. There is talk of implementing ETH’s next fork in a way that minimizes excess supply.

If Ethereum makes these moves, it could regain lost economic value and stave off competition from its L2s or even Solana. Like with corporations and their stock price, an underperforming token can often trigger a pivot. Ethereum might be nearing that inflection point.

L2 Margins for Optimism Are Up Nearly 4x to 99% Since Jan 2024

Source: Dune @sealaunch as of 9/30/2024;
We define L2 margins as the profits of L2 transactions/revenues of transactions. Profits are the transaction fee revenues on L2s less the costs associated with posting data to Ethereum (call data + blob fees) and verification of proofs (Zk L2s). Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

NEAR (+30.9%)

NEAR Protocol (NEAR) is up (+30.9%) over the last 30 days, rebounding after underperforming in August. Year-to-date, NEAR has delivered mid-range returns compared to other top Layer-1 protocols, exhibiting deeper drawdowns during the summer doldrums but more volatile upside in September’s market resurgence. A $100 investment in NEAR on January 1st would now be worth $143.83, compared to $251.17 for TON, $208.73 for SUI, $189.01 for BNB, and $113.04 for Ethereum.

NEAR Fees Are Up 94%, DAAs Are Up 200% Since Jan 2024

Source: Artemis.xyz as of 9/30/2024. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

NEAR’s outperformance appears to be driven by both technical improvements and strategic user growth initiatives. In late August, NEAR implemented Nightshade 2.0, a key milestone in its scalability roadmap. Nightshade’s sharding architecture splits the blockchain into multiple “shards”. Each shard processes transactions in parallel, boosting throughput and efficiency. Additionally, stateless validation was introduced, meaning that validators no longer need to store the whole blockchain’s state locally. Instead, validators need only retrieve the necessary parts (the “state witnesses”), which increases decentralization by lowering validator operating costs. Looking ahead, Nightshade 2.0 sets the stage for "dynamic re-sharding," a key upgrade planned for early 2025 that will allow the network to automatically adjust its shard count based on demand.

NEAR’s September efforts also extended into chain abstraction, which is the process of eliminating the technical burdens of transacting across different blockchains. Top NEAR ecosystem applications like Sweatcoin (a fitness rewards app claiming 150 million total users) prefer chain abstraction to attract wider audiences, according to NEAR cofounder Illia Polosukhin. NEAR Protocol’s most popular app, ‘HOT’ Wallet, reached all-time highs of 2M unique active wallets in September, suggesting increased network adoption. Underscoring the strategic importance of NEAR’s technical features, HOT Wallet’s ecosystem focuses on quality-of-life chain abstraction features such as gas-free swaps, cross-chain applications, and bridges.

NEAR’s AI-centric partnership strategy is also likely contributing to its strong September price performance. Hyperbolic, an AI & GPU cloud resources project which raised a $7M seed round in July, announced a partnership with NEAR this month. NEAR.AI will use Hyperbolic’s global network to process AI inference workloads from ChatGPT-like apps. Like other DePIN (“Decentralized Physical Infrastructure”) projects, this strategy aims at crowdsourcing resources to compete for business currently dominated by large, centralized players (in this case, data centers). Similarly, Ringfence.ai partnered with NEAR to use the blockchain as part of its personal data storage & monetization architecture. Arguably, this corroborates NEAR’s thesis on “user-owned AI”.

IMX (+24%)

Gaming-Oriented Blockchain Market Cap Dominance

Source: CoinMarketCap as of 9/30/2024. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

One of the oldest gaming-focused crypto projects, Immutable (IMX), is a standout on our watchlist this month. In September, IMX gained a (+36%) market share against a few other gaming blockchain tokens like APE, BEAM, FLOW, RON, WAXP, and XAI.

Immutable was founded in 2018 after its creators' NFT trading card game, Gods Unchained, congested Ethereum, driving up transaction fees and delays. To address these issues, Immutable launched its own Ethereum L2 blockchains—Immutable X and Immutable zkEVM—and evolved into a full gaming platform.

In its September update, Immutable highlighted that its zkEVM blockchain, launched in Q1, reached 3 million monthly active users, a milestone that took other Layer 2 solutions 1 to 4 years to achieve. This growth comes from just 5-10% of its games. With a range of 400+ titles, Immutable takes more "shots on goal" than competitors. Its user-friendly Passport wallet, designed to overcome gamers' resistance to crypto, exceeded 2.2 million signups in September, boosted by one-click social logins with double the completion rate of traditional wallets.

Immutable’s publicity has also been notable. At Gamescom, the world’s largest gaming event in August, 7 of the top 10 games showcased were built on Immutable. In September, the company joined MARBLEX at Korea Blockchain Week to highlight their partnership, which brings Netmarble's high-performing titles (~$80M USD in 2024 revenue, 1M+ MAUs) into Immutable’s ecosystem. The Asian market's higher crypto adoption and gaming asset spending per capita offer a promising pipeline.

The success of Immutable's titles reflects this momentum. Guild of Guardians surpassed 1 million downloads, and RavenQuest saw ~62k unique players within 9 days of early access. Immortal Rising 2, launched on Immutable’s zkEVM on September 12th, became the #1 free game on Vietnam’s iOS AppStore. Gamers can earn Gem tokens by completing quests across Immutable games and boost earnings by holding IMX tokens, potentially creating a flywheel for token demand.

Gaming-Oriented Blockchain Comp Table

Sources: DeFiLlama, DappRadar, CryptoSlam as of 9/30/2024. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

IMX's year-to-date price has been middle-of-the-pack among its peers. FLOW (-35.2%) lags, with NBA Top Shot failing to replicate its 2021 volumes. Ronin (-0.5%) is more focused on its own IP, adding 13 titles to Axie Infinity. Beam (+11.1%) recently migrated to its own Avalanche subnet. WAX, though technically up (+1,097%) from its $0.02 January opening, is down (-60%) from its peak and struggles with a high fully diluted value and low circulating supply. ApeCoin (-50.6%) has been diluted since launch, with its dedicated ApeChain still pending.

Comparing chains is challenging due to obfuscated metrics and bots, but some general observations can still be made. IMX has a high valuation relative to its monthly unique active wallets (UAWs) and NFT buyers, suggesting a more dedicated user base. BEAM and XAI show high valuations relative to their low TVL, indicating speculative interest typical of newer ecosystems. WAX consistently lags, likely due to limited traction and bot activity. FLOW’s fewer monthly NFT buyers spend significantly more than Ronin’s, indicating either fewer bots or a more motivated collector base. Despite its weak gaming focus, FLOW’s valuation per UAW is a standout in this cohort.

Gaming-Oriented Tokens (+20%)

Year-to-Date Market Cap Growth: Gaming Tokens (Aggregate) vs. Bitcoin

Source: The Tie as of 9/29/2024. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

Gaming-Oriented Token Comp Table (Plus Bitcoin)

Source: The Tie as of 9/30/2024. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

Zooming out, we compared the aggregate valuations of 30 select gaming tokens—not just gaming blockchain tokens—against Bitcoin. Gaming tokens have shown much higher volatility than Bitcoin year-to-date. While they delivered double Bitcoin’s returns in February, nearly all those gains were wiped out by July. As of September 29th, gaming tokens are up (+20%) YTD, supported by the broader bullish trend in September’s crypto market.

As we noted in our mid-September ChainCheck, we expect Bitcoin to perform strongly in Q4. Gaming tokens could again outperform Bitcoin during a price surge, but interpreting that outperformance requires nuance. The gaming token category is driven by nascent distribution channels, evolving audiences, and speculative technologies. Prices reflect more speculation than organic demand, which may take years to materialize. Additionally, gaming tokens often suffer from low liquidity and high FDV (fully diluted valuation), meaning much of the value exists only on paper, with little realized by secondary market participants.

Thus, while gaming tokens may 'work' for VCs and token issuers, secondary market participants should exercise caution. Following the Pareto principle, we believe the long-term value in gaming will be concentrated among a few key players. In the longer run, we expect the broader gaming token category to underperform Bitcoin.

September’s Notable Laggard - POL (-4%)

1Y Returns of $100 Invested in Top Ethereum L2 Tokens

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

Polygon has been a notable laggard in September, trailing other Ethereum L2 tokens. Over the past 30 days, its token declined by (-3.96%), continuing a pattern of underperformance that’s persisted since Q1. Daily active users (DAUs) have dropped by 2/3 since July, and fees have fallen by 50%. A $100 investment in Polygon on September 30th, 2023, would be worth $79.26 a year later, while similar investments in competitors like Immutable X ($305.56) and Mantle ($160.91) have fared much better.

Polymarket, a prediction marketplace hosted on Polygon, is booming. Polymarket’s election betting volumes surged from ~$6.6M in December to over $500M in September. However, political bets comprise as much as 90% of weekly wagers. And only USDC deposits and withdrawals create onchain transactions.

Amid this disappointing price action, Polygon achieved a significant milestone in September with the MATIC token migrating to POL as part of the Polygon 2.0 roadmap. The POL token’s design provides more interoperable utility to connect the various blockchains building on top of Polygon’s “Agglayer.” Initially, POL serves as the gas and staking token of the Polygon PoS blockchain, similar to MATIC. However, in subsequent phases of Polygon 2.0’s rollout, community votes will integrate POL’s new technical capabilities into additional Polygon-connected blockchains. While activity on the decentralized “AggLayer” protocol has disappointed somewhat, with daily active addresses and transactions close to 52-week lows, Polygon Labs invested $5M in custom-built zero-knowledge VPU (“verifiable processing units”) chips for ZK proof generation to kickstart more growth.

Separately in the POL ecosystem, we are watching IoTeX, a decentralized physical infrastructure (DePIN) network that announced plans to integrate with Polygon’s AggLayer as part of its IoTeX 2.0 upgrade. Multiple Polygon-based DePIN projects, including Geodnet and Dimo, already rely on IoTeX infrastructure, suggesting potential growth opportunities for DePIN use cases on the Polygon network.

We also noticed that INX, a regulated hub for cryptocurrency and security token trading built on the Poylgon PoS Chain, added four new tokenized equities: Gamestop, Microsoft, Google, and Tesla. Although INX conducted the first-ever SEC approved token IPO, raising $125M, the INX token is down 95% from its all-time highs. Let’s see if former Grayscale CEO Michael Sonnenshein, who recently joined the board, can turn things around.

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