Looking for the next trend: Review of the top ten crypto market events in the first half of 2023

Original author: SUSS NiFT researcher Jesse Zheng, Biteye core contributor Fishery Isla
Original editor: Biteye core contributor Crush
Original source: @BiteyeCN
Halfway through 2023, cryptocurrencies are leading the rise of global risk assets. However, the rise was not smooth, and the price of the currency fluctuated during this period, which affected people's hearts.
What breakthroughs have occurred in the industry over the past six months? What lessons can we learn from them and find the next outlet? In this issue, we review the top ten crypto market events in the first half of 2023 and find the answers.
01 Shanghai Upgrade — A New Chapter for the Ethereum Network
The most important event for Ethereum in the first half of this year is the Shanghai upgrade, which is the last important step in Ethereum's transition from proof of work (PoW) to proof of stake (PoS).
Seven months after Ethereum’s “merged” upgrade, Ethereum simultaneously carried out the Shanghai upgrade and the Capella upgrade on April 12 (which enabled stakers who did not provide withdrawal receipts during the initial deposit to provide receipts and thus enable withdrawals).
Bringing the staking withdrawal function to the execution layer allows stakers to withdraw their 18 million ETH locked since 2020 from the beacon chain to the execution layer, enabling optional full withdrawals or staking income withdrawals, freeing up the liquidity of staked tokens, thereby enhancing investors' confidence in Ethereum as the "Internet bond" and improving the security of the Ethereum network.
In addition, although the Shanghai upgrade cannot reduce gas fees, the implementation of EIP-3651, EIP-3855 and EIP-3869 reduces gas fees for Ethereum developers and block creators.
After the Shanghai upgrade was implemented, although some early stakers made withdrawals, overall, the net inflow of stakes was still greater than the net outflow, and the amount of stake and the number of validators showed an accelerating upward trend.
Ethereum has continuously improved its blockchain performance through steady technical upgrades, bringing confidence to users and investors. The market has also begun to build financial infrastructure around pledged Ethereum, and projects such as stablecoin issuance based on LSD, flash loan leverage and yield enhancement have received widespread attention.
However, Lido currently accounts for 31% of the staking market share. 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.
02 Layer 2 is the only way to achieve large-scale implementation
On June 12, Ethereum co-founder Vitalik Buterin pointed out in his latest blog post that if Ethereum wants to achieve long-term sustainable development, the expansion of Layer 2 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-state is related to the rise and fall of the kingdom.
According to L 2b eat data, Arbitrum and Optimism have gained a first-mover advantage with the more mature technology Optimism Rollup, and dominate the L2 market with approximately 64.55% and 18.58% market share respectively.
Users welcomed the Arbitrum airdrop on March 23, and the huge wealth effect further strengthened users' faith in the Ethereum community.
Other events worth noting:
1. Optimism completed the mainnet Bedrock upgrade on June 7, which further reduced transaction fees, shortened system latency, and improved node performance.
2. Coinbase launched L2 Base based on OP Stack, but did not plan to issue dedicated tokens and planned to release the mainnet this year. At the same time, another L2 expansion solution, Zero Knowledge Rollup, also made important progress.
3. Type 1 zkEVM: Taiko launched the Alpha-3 incentive testnet on June 7, mainly testing the economic incentives of the protocol, the interaction between proposers and provers and the protocol, and the Taiko initial layer (L3).
4. Type-2 zkEVM: The main projects in this track include Scroll, Linea and Polygon zkEVM.
The Polygon zkEVM mainnet Beta version was launched as scheduled on March 27, using ETH to pay for Gas and MATIC tokens for staking and governance;
Scroll and the Ethereum Foundation are jointly developing zkEVM in open source, and it is expected to be launched on the mainnet in the third quarter;
Linea is expected to launch the mainnet in July, with development focus on Multi Prover and Layer 3.
5. Type-3 zkEVM: Kakarot has achieved 100% bytecode equivalence and is about to move to Type 2.5. Kakarot is committed to deploying zkEVM as L3 on Starknet.
6. Type-4 zkEVM: zkSync Era mainnet was opened to everyone on March 24. Currently, the interaction fee is high and mostly native projects, and most blue-chip protocols have not yet been deployed. Another Type-4 star project, StarkNet, upgraded its mainnet in June, officially activated Cairo 1, updated the sequencer, improved expansion and transaction delays, but the overall user experience still needs to be improved.
From the data, the locked amount of L2 denominated in ETH increased from approximately 3.64 million at the beginning of the year to 4.82 million in mid-June, and the trend of transactions shifting to L2 continued.
However, the transaction volume per second of all L2s is currently lower than that of Ethereum. Except for the top few L2s, the transaction volume of most L2s is very low. In addition, there are several L2s planned to be launched on the mainnet in the second half of the year. Whether the market needs so many L2s remains to be seen.
03 Move public chain ecosystem, rising or falling
At the beginning of 2023, with the macro environment gradually improving, Ethereum also announced the confirmed time for the Shanghai upgrade, and the entire secondary market started a bull market that lasted nearly a quarter.
Since the first day of the new year, the total market value of cryptocurrencies has reversed its downward trend
The market at the beginning of the year was mainly centered around the secondary market speculation of CEX. MEME was relatively dull compared with various primary markets. Move-based public chain Aptos performed the best in this wave of market. The circulating market value of 500 million US dollars rose to 3 billion US dollars in just 20 days, leading a wave of "unlocking and pulling" market.
After a short-term rise, Aptos prices continued to fall, similar to most altcoins, and have now returned to the level when FTX crashed. SUI, another star project in the Move system, reached its peak as soon as it was launched, and its price has continued to fall since its launch in May.
The Move public chain represents a different expansion development direction from Ethereum Layer 2. Move’s security, flexibility and other features have become one of the main advantages of the new public chain.
Currently, the Move series is still in a very early stage. The projects using the Move language include: Aptos, Sui, 0 L Network and Starcoin. These four projects have all been launched on the mainnet, so Move-related developers can receive real benefits, which will help attract more developers and reserve strength for the next bull market.
In addition, it should be noted that as a new technology, Move still needs time to prove its stability. Beosin recently discovered a serious vulnerability in Move VM, which can cause the entire network of public chains such as Sui and Aptos to crash. The vulnerability has been dealt with.
In the short term, Move’s public chain chips are too concentrated, the amount of token unlocking is large, and the price fluctuates violently, which poses certain risks. In the long term, due to Move’s advantages over EVM, its market share should have the opportunity to be greatly improved in the next bull market. As a new force, it will compete with those time-tested traditional public chains for the market.
04 Blur and NFT Market
In the NFT market in February, the most eye-catching thing was the launch of the BLUR token. The bidding mining mechanism of BLUR not only allowed a large number of users to obtain BLUR airdrops, but also injected huge liquidity into the NFT market, ushering in a small spring in the NFT market and having a profound impact on the subsequent NFT track.
The biggest impact is that due to the dense bidding orders, NFT's early whales have been given the opportunity to exit. These whales used to hold a huge amount of blue-chip NFT series at very low costs, but due to the lack of liquidity during the Opensea monopoly market period, the exit cost is very high. Large-scale selling not only has high friction costs, but is also very likely to bring down the entire NFT market.
Therefore, BLUR provides a good exit opportunity for whales. Whales may be large institutions, KOLs, etc. With their exit, the interest connection decreases, and the publicity of BLUR also declines.
After this small spring, with the change in the mentality of new NFT holders and the reduction in BLUR bidding mining revenue and other factors, the liquidity of the NFT market began to shrink again. Later, there was a saying of "NFT Three Idiots (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 the projects' every move. Azuki, which was originally firmly listed as a blue chip, was removed from the blue chip list by the market due to the poor quality of its new series Elementals, which affected its main series. In the last week of the first half of the year, the price fell below double digits.
Of course, there have been some local NFT trends in the past six months. The most surprising ones are the performance of Milady Maker and Pudgy Penguins. The common point of these two projects is that the community is very active and people continue to work on things.
Community culture is the core of NFT, and it can be seen that the market still recognizes the NFT community narrative. This wave of NFT market decline has successfully screened out a group of "doing things" project parties, clarified the development direction of NFT, and also promoted the long-term development of the industry.
05 ChatGPT and other AI products affect Web3
Since the launch of ChatGPT at the end of last year, AI has once again become a hot topic in the technology venture capital circle in the past six months. The sources of upstream funds of Web3 investment institutions have always overlapped with the sources of AI funds, which means that if AI continues to be popular, it will have a siphon effect, and the funds in the Web3 track will be relatively reduced.
Therefore, Web3 project parties are trying their best to make the narrative closer to AI, or use AI technology to improve team productivity.
Therefore, how to use AI will be a topic that the Web3 team cannot avoid for some time to come. Here are some trends that are happening:
1. Smart Contract AI Audit
Before Chatgpt went online, some smart contract audit teams used AI technology to complete the initial review of customer contracts to find some basic loopholes. However, these audit teams only let AI complete the initial review, and ultimately a complete audit report must be completed manually.
ChatGPT is more powerful than any previous AI, so many people have rekindled hope that AI can complete a highly reliable smart contract audit. OpenZeppelin recently conducted an experiment to compare ChatGPT with 28 Ethernaut challenges to see if it can identify smart contract vulnerabilities.
GPT successfully solved 19 of the 23 challenges introduced before the ChatGPT training data cutoff of September 2021. While this is impressive, GPT did not perform well on the latest Ethernaut levels, failing 4 out of 5 problems.
This suggests that while AI can be used as a tool to discover certain security vulnerabilities, it cannot currently replace the need for human auditors.
2. AI replaces positions in Web3 teams
Just as the emergence of ChatGPT has made many people worry that their jobs will be completely replaced by AI, practitioners in the Web3 team have the same concerns.
Although it is cruel, from the perspective of Web3 industry investors who love to try new things and lead 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 and a $69 budget to ChatGPT to allow ChatGPT to independently issue a Memecoin.
At the same time, the author introduced in detail in the YouTube video how the AI ​​tool decided on the name of memecoin. In addition, the AI ​​tool also wrote the smart contract code for the project.
The market was very enthusiastic about this topic. After a few days of hype, the market value of the project once exceeded 50 million US dollars. Although the experience of this Meme project may not be replicated, it can also inspire us to achieve job optimization of Web3 projects through AI.
06 The collapse of a crypto-friendly bank in the United States highlights the value of Bitcoin
In March this year, the US banking industry suffered a severe bank run crisis and stock prices plummeted. Crypto-friendly banks Silvergate Bank, Silicon Valley Bank and Signature Bank collapsed one after another. The collapse of Silicon Valley Bank and Signature Bank was regarded as the second and third largest bank collapses in US history.
Silvergate suffered a run after the FTX crash due to accepting too many deposits from the cryptocurrency industry. Silicon Valley Bank bought a large number of long-term bonds during the low interest rate period. These bonds were severely discounted during the interest rate hike cycle. The bank run forced it to sell bonds at a discount, making unrealized losses a reality.
Signature Bank has been the target of multiple investigations in the past, and its entry into the crypto market has put it under even greater scrutiny.
On March 11, stablecoin service provider Circle admitted that some of its funds were deposited in Silicon Valley Bank, causing market panic, USDC decoupling, and digital currency prices plummeting.
Regulators have always been worried that the development of encrypted digital assets will have an impact on traditional financial markets, but this time it was a sneak attack on encrypted digital assets by traditional financial markets, which sounded the alarm for crypto industry practitioners to isolate risks.
Interestingly, this banking crisis has once again reminded people inside and outside the crypto industry of why Satoshi Nakamoto invented Bitcoin: “Banks must be trusted to manage money and keep that wealth circulating in the form of electronic currency, but banks use currency to create credit bubbles, shrinking private wealth.”
Obviously, 15 years later, these banks have proven Satoshi Nakamoto's foresight through their repeated bankruptcies. It is indeed difficult for banks to manage users' money.
On March 10, the collapse of Silicon Valley Bank led to inflows of up to $397 million into the cryptocurrency-linked ARK Innovation ETF, the fund's largest inflow since April 2021.
Part of the original USDC positions in the market were converted into other stablecoins by cryptocurrency investors, and part of them were directly used to purchase Bitcoin and Ethereum to push up prices, triggering another small bull market.
07 MEME craze and local dog chaos
From late April to early May, the entire market was purely a show for MEME and local dogs, while the broader market just hit a high and then fell across the board.
The total market value of cryptocurrencies has been rising since the MEME market became active in mid-April and then has been corrected (green arrow)
This perfectly proves the old saying that local dogs are the last madness of the market. In this market, there are two most dazzling projects. After their success, batches of projects imitating them have emerged.
Baby
The Pepe project released its first tweet on April 5 and launched the PEPE token on April 15. Pepe's official Twitter account stated that they hope to redefine memecoins and change the status quo of many derivative meme tokens on the market.
The specific mechanism of the Pepe project includes several aspects. First, there is no pre-sale of Pepe tokens, which means that everyone has an equal opportunity to participate in the project.
Secondly, Pepe tokens have no burn tax, which means no tokens will be destroyed during transactions. In addition, Pepe gives up contract authority, making the issuance and trading of tokens more decentralized.
The most important thing is that Pepe's market-making team has strong financial resources and extensive connections. They attracted the attention of the entire market by pulling up the price. Finally, it was listed on Binance on May 6, and also reached its historical highest price at the same time, and then gradually fell back.
AIDOGE
AIDOGE was launched on April 15, and the project attracted widespread attention from the market at the beginning. The AIDOGE project team grasped the preferences of investors and planned to launch an AI NFT series for training, creation and production.
In addition, AIDOGE's operations are also very powerful, and it has successively launched centralized exchanges such as Matcha and Bitget.
The success of AIDOGE is mainly reflected in several aspects. First, it is launched in a decreasing "fair" manner. The reason for the quotation marks is that the team can rely on insider information to get a huge amount of chips in the early stage of the decrease at no cost for future operations.
Secondly, AIDOGE can achieve a higher yield than the normal market level while providing liquidity and calculating compound interest.
In addition, when users purchase AIDOGE tokens worth 100-1000 on the chain, they can participate in a lucky draw every half hour. This frequency and probability stimulates users' gambling nature and increases market competition.
Compared with PEPE, AIDOGE lacks the price effect of being listed on Binance. It peaked on April 30 and has been falling since then.
From these two representative local dogs/MEME, we can see that after the popularity of such projects reaches its peak, the degree of retracement is huge, and the secondary risk is very high. Don't forget the old saying, one general's success is the result of the sacrifice of thousands of soldiers. The trend of successful MEME is the same. There are thousands of imitators behind them, and the risk of taking over is even higher.
If you want to invest in such projects, please be prepared to lose all your capital in advance.
08 Bitcoin Ecosystem Revives
Bitcoin is very unique. It is always mentioned whenever hot topics are discussed. This is also the value of BTC. There are a group of pure developers who are silently contributing and generating electricity with love, instead of relying on financing or the initial share of the team to maintain operation like most projects.
Unlike the Ethereum/EVM ecological projects that everyone is familiar with, the BTC community is very open. There are no paid small groups or Ethereum Foundations. Any new developments in the BTC ecosystem will be published in public forums, but these new community developments are slow to spread to the outside world.
The Chinese-speaking world is especially noteworthy as it is the last to become aware of some of the major developments in the BTC ecosystem.
This is the case with Nostr. As early as last year, when former Twitter CEO Jack tweeted in support of Bitcoin's second layer/social layer Nostr, almost no one in the Chinese-speaking world paid attention to it. Only Biteye published an original article last year to introduce the pioneering nature of Nostr.
It was not until February this year that the Chinese-speaking world gradually realized the importance of Nostr and its social app Damus, sparking a wave of mutual following.
In the past week, Damus has been at the center of public attention again. On June 13, news broke that Apple's App Store threatened to remove Damus. Being suppressed by the world's largest technology giant inevitably made the community worry about the future of Nostr.
The reversal came very quickly. Just one day later, after the communication meeting between Damus and Apple, Damus said that as long as the Zaps function was adjusted, he could continue to stay in the App Store. It was amazing that a decentralized application could communicate with Apple so smoothly.
This is consistent with the judgment made in Biteye's article half a year ago. As an investor in Nostr, Jack, the former CEO of Twitter, diligently helped the Nostr ecosystem coordinate the resources of Web2 and Web3.
This wave of "after all the darkness comes the silver lining" storyline will surely attract more people's attention to Nostr and raise their 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 Brc 20 was first created to ignite the market. Subsequent micro-innovations Orc 20, GBRC 721, and Stamp were also sought after.
Although Ordinals does not have a complete decentralization solution and its technology has yet to be improved, it still allows users who often pay attention to the BTC community and are willing to try new things to get rich rewards.
This market situation tells us that the information of the BTC community cannot be ignored, and any innovation is worth trying. Next, we must pay attention to the BTC ecological track.
09 Hong Kong strides towards Web3
Hong Kong used to be the headquarters of many important Web3 organizations, but policy fluctuations have caused some projects to move their headquarters out of Hong Kong.
During last year's bear market, various cryptocurrency exchanges and lending platforms closed down, and regulations in the United States, Singapore and other countries tightened. Many practitioners and investors became discouraged and believed that the future was bleak.
However, at the Hong Kong Fintech Week in November 2022, the Hong Kong government issued the "Policy Declaration on the Development of Virtual Assets", stating that it holds an open and inclusive attitude towards virtual asset practitioners, and recognizes that Web3 and distributed technology have the potential to become the future development trend of finance and commerce.
This was interpreted by the industry as the beginning of the Hong Kong government's re-embracing of Web3, and the policy support gave practitioners a slight sigh of relief.
In April this year, Hong Kong held the Web3 Carnival event, which became the largest cryptocurrency enthusiasts exchange meeting in Asia after the epidemic.
At the carnival, the Hong Kong government announced a number of policies to support the development of Web3, including Hong Kong's fiscal budget announcing a grant of 50 million yuan to promote industry development and a fintech internship program for securities students to encourage more outstanding talents to join the fintech industry.
Compared with Singapore, which discourages retail trading, Hong Kong takes a more proactive attitude and allows exchanges to apply for retail digital asset trading licenses for retail investors starting from June 1.
Cryptocurrency promotional slogans can be seen in public places in Hong Kong. In addition, Hong Kong has issued tokenized government green bonds and expects to launch a stablecoin regulatory framework by the end of 2024.
At the Web3 closed-door meeting on June 12, Invest Hong Kong's Head of Finance, Banking and Fintech, John Leung, said that Hong Kong's proposal to build a Web3 center is not essentially about the securitization of virtual product assets, but about introducing Hong Kong's future economic and social transformation.
This shows the importance of Web3 to Hong Kong. Hong Kong's friendly attitude towards Web3 is expected to attract a large number of practitioners who are subject to regulatory constraints to open up a new world in Hong Kong.
Hong Kong and mainland China have different divisions of labor, which leads to different development directions. Mainland China has abundant technical talents and artists, which can provide cultural IP and technical support for Hong Kong.
As China's first trial demonstration site, Hong Kong will become a bridgehead for the development of China's virtual economy.
10 The SEC’s battle with the crypto community
On June 5, the SEC sued Binance, Binance.US, and CEO Zhao Changpeng for allegedly violating federal securities laws and illegally offering and selling securities to U.S. investors.
In this document, multiple crypto assets including but not limited to BNB and BUSD are listed as securities: SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS and COTI.
This is another pressure from U.S. regulators after Binance and its CEO were sued by the U.S. Commodity Futures Trading Commission (CFTC) on March 28 this year for allegedly violating trading and derivatives rules.
This regulation is not just aimed at Binance. The SEC also filed a lawsuit against Coinbase the next day, claiming that Coinbase provided multiple digital currency transactions that were deemed securities without ever registering as a broker, national securities exchange, or clearing agency.
As the cryptocurrency market grows, reasonable regulation will be conducive to business compliance and the healthy development of the industry.
Promulgating clear and appropriate rules is not only the responsibility of regulators, but also the demand of practitioners in the crypto industry.
Only when the rules are clear will the waiting funds enter the market. However, the SEC’s delay in releasing an unclear rulebook has triggered multiple rounds of lawsuits, turning the crypto market upside down.
In addition, there is no unified opinion at the U.S. regulatory level, and the SEC and CFTC have issued conflicting statements in their fight for control over cryptocurrencies.
According to Zippia data, approximately 44.3 million people in the United States hold cryptocurrencies, accounting for 13.22% of the total population, making the United States a country with a high acceptance of cryptocurrencies.
The SEC’s recent raids on the crypto community have prompted some market makers to dump altcoins, causing a sharp drop in market liquidity and heavy losses for investors.
Regulators should balance regulatory and development functions. Simply applying outdated regulatory systems to innovative asset classes is lazy and irresponsible.
From this we can foresee that practitioners originally in the United States will consider relocating to more crypto-friendly countries and regions due to regulatory pressure.
We need to be clear that tokenization is not intended to circumvent securities laws. It is a product of the demand for real-world applications of blockchain technology and an improvement on traditional organizational systems.
The decentralized nature of blockchain makes it more resilient to attacks than any centralized system. If one node is attacked, there are still thousands of nodes running.
Some governments are cracking down, while other governments are supporting it. The completely opposite regulatory attitudes of the United States and Hong Kong make us wonder if this may be the beginning of the rise of the East and the decline of the West.
11 Conclusion
There may be bubbles in the financial market, but there are no bubbles in technology. Both Bitcoin and Ethereum ecosystems have made significant progress in the first half of this year.
As the crypto market expands, it will also usher in comprehensive regulation. Regulation is not necessarily a sign of the coming of the wolf, but may be intended to make the market more standardized and prepare for large-scale applications.
Let us continue to participate in building the crypto market and lead more people to Web3 to enjoy a better Internet.
Note:
This article is the hot events section of the 2023 first half Web3 blockchain security semi-annual report of the SUSS NiFT blockchain ecological security alliance. 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 this link.