Words by Maven 11 Venture

In this month's Maven's Insights, we spotlight three transformative developments in blockchain and finance. First, the Ethereum Dencun upgrade brings Proto-Danksharding to the mainnet, aiming to slash fees and boost data efficiency, though it faces early hurdles. Next, Blackrock and Grayscale's launch of Tokenized Asset Funds signals a major step toward merging blockchain with mainstream finance. Lastly, Renzo and Swell lead the liquid restaking space, promising enhanced rewards and protocol engagement. Catch up on these groundbreaking developments that are charting the future of the digital economy.

Ethereum Dencun upgrade: mixed results and challenges

The highly anticipated Ethereum Dencun upgrade finally went live this month. This introduces Proto-Danksharding (EIP-4844) which comes with a separate fee markettype  meant to reduce the mainnet fees that rollups pay. The reduction in fees comes from the introduction of a new market for data “blobs” which are only stored transiently, allowing for larger and more efficient data storage of rollups. Although theoretically promising, blobs have fallen short of expectations in practice. This is due to the introduction of Blobscriptions, which enables inscribing data such as images and texts onto blobs. This caused gas fees for blobs to skyrocket, diminishing their anticipated impact on reducing fees for layer 2 rollups. Additionally, blobs have introduced propagation challenges within Ethereum's networking layer. These shortcomings highlight the ongoing need for alternative data availability solutions, such as Celestia. The Dencun upgrade does lay the foundation for the next set of Ethereum scalability upgrades that will work up towards full Danksharding. Other fundamental improvements to the Ethereum network came from Coinbase enhancing its Ethereum staking services by adding support for two additional execution clients Nethermind and Erigon, alongside the dominant Geth software. This move helps improve Ethereum client diversity, addressing concerns over the network’s reliance on Geth, which currently represents about 74% of all Ethereum clients. Coinbase’s initiative follows a recent incident where a bug in the Nethermind client disrupted 8% of Ethereum validators, highlighting the risks of insufficient client diversity in the Ethereum network.

Spot ETF Success: Bitcoin wins, Ethereum waits

Bitcoin spot ETF inflows are still reporting consistently strong numbers, even against the Grayscale  outflows. Grayscale outflows are a result of the 1.5% management fee they charge for their Bitcoin Trust, whereas clients are currently also able to invest in spot Bitcoin ETFs with fees as low as 0%. Following in the wake of the Bitcoin spot ETF approval, another highly anticipated event is the approval of an Ethereum spot ETF application, which many now consider to be the next major financial product for crypto to break into the traditional financial sector. The biggest players who are in the application process are Blackrock, Fidelity, Bitwise, Ark, and VanEck. According to a Bloomberg senior ETF analyst, the chances of approval are 25%, which is much lower than the Bitcoin Spot ETF approval predictions were. Analysts mainly put this down to the SEC’s dubious reasoning about the legal status of ETH as an asset, having previously claimed that it is a security, which may impede the approval process. On the back of the approval of  Bitcoin spot ETFs,  institutional investors are dipping their toes further into our industry. BlackRock has introduced its first-ever tokenized asset fund on a public blockchain. The fund has a minimum investment of $5 million. and $245 million in deposits within its first week. Additionally, Grayscale also announced it is launching a "dynamic income fund" that will focus on investing in Proof-of-Stake tokens. The aim is to optimize income in the form of staking rewards associated with Proof-of-Stake digital assets.

Crypto exchanges face tougher rules in the EU

New European Anti-Money Laundering Regulations (AMLR) regarding crypto-asset service providers (CASPs) have received committee approval from the European parliament. The regulation in the EU primarily targets institutions, crypto-asset service providers and non-financial entities prone to money laundering risks. It excludes hardware/software providers and self-custody wallets without asset access control, which importantly excludes wallet products such as Metamask and Ledger. Exchanges, brokers and entities that fall under MiCA regulations must adhere to KYC/AML procedures, prohibiting anonymous accounts and services for privacy coins, aligning with existing practices. The regulations will come into effect in around three years.

Solana Ecosystem Booms

The Solana ecosystem experienced another dominant month, with a series of days seeing daily DEX volumes flipping those of Ethereum. Volumes peaked at $7.8 billion and liquidity on DEXs doubled over the same time period. Much of that volume came from a very overheated memecoin market, with multiple of such coins achieving multi-million dollar and some even billion dollar market capitalization. The ease of use and very low gas fees make Solana an attractive chain for new entrants and retail speculators. The ecosystem is still rapidly growing with the Ethereum Naming Service (ENS) coming over to Solana, as well as the Binance web3 wallet integrating with the Solana blockchain.

Restaking growth, ZK-rollup development, and Web3 gaming updates

The relatively new EigenLayer liquid restaking narrative continues to grow as we get closer to the launch set for Q2 this year. Renzo and Swell are two of our portfolio companies that are deeply rooted in this ecosystem. In February, Renzo quadrupled their TVL and in March, Renzo saw another large inflow which brought their current TVL to $2 billion. Swell also more than doubled their restaking TVL to $250 million, and the total protocol now sits at $1 billion TVL. Swell also announced their plans to build an L2 for restaking with their very own zkEVM, powered by EigenDA and AltLayer, with the launch planned for Q3 this year. Furthermore, as the web3 gaming industry continues to grow, our portfolio company Saga prepares for its eagerly anticipated launch next month. Saga is launching their chain which enables developers to automatically spin up parallelized and interoperable ‘chainlets’ that scale with their specific Web3 applications. And lastly, Sovereign Labs is ramping up their progress as the integrations of their Sovereign SDK start to pile up. Their SDK enables developers to write any Rust code, including any VM, as their rollup's State Transition logic. The first ZK-rollup on Bitcoin called Citrea, built their core codebase on the Sovereign SDK. In addition to that, Movement Labs also chose to use the Sovereign SDK to build out their Move rollup.