Top 10 Events in the Cryptocurrency Market in the First Half of 2023: Shanghai Upgrade, MOVE

Reprinted from the "Biteye" community, please indicate the source. Biteye

Author: Jesse Zheng, Researcher at SUSS NiFT, Fishery Isla, Core Contributor at Biteye

Editor: Crush, Core Contributor at Biteye
Community: @BiteyeCN

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*The full text is about 7500 words, with an estimated reading time of 12 minutes.

More than half of 2023 has passed, and cryptocurrencies have led the global risk assets to rise. However, the upward process has not been smooth sailing, with prices fluctuating and affecting people's emotions. What groundbreaking developments have occurred in the industry in the past half year? What experiences can we draw from them to find the next opportunity? In this issue, let's review the top ten events in the cryptocurrency market in the first half of 2023 and find the answers.

Shanghai Upgrade—A New Chapter for the Ethereum Network

One of the most significant events for Ethereum in the first half of this year was the Shanghai upgrade. This marks the final step of Ethereum's transition from Proof of Work (PoW) to Proof of Stake (PoS).

After seven months since the "merge" upgrade, Ethereum underwent the Shanghai upgrade and the Capella upgrade on April 12th (allowing stakers who did not provide withdrawal credentials at the time of deposit to provide them, enabling withdrawals).

The upgrade brought the withdrawal function to the execution layer, allowing stakers to withdraw the 18 million ETH locked since 2020 from the beacon chain to the execution layer, enabling full withdrawals or staking rewards withdrawals, enhancing the liquidity of staked tokens. This boosts investor confidence in Ethereum as an "internet bond" and enhances the security of the Ethereum network.

Furthermore, while the Shanghai upgrade did not reduce Gas fees, the implementation of EIP-3651, EIP-3855, and EIP-3869 reduced Gas fees for Ethereum developers and block creators.

Following the completion of the Shanghai upgrade, although some early stakers made withdrawals, overall, the net inflow of staking was greater than outflow, with staking volume and validator numbers showing an accelerating upward trend.

Through robust technical upgrades, Ethereum continues to improve its blockchain performance, instilling confidence in users and investors. The market is also starting to build financial infrastructure around staked Ethereum, with projects like LSD-based stablecoin issuance, flash loans leveraging, and yield enhancement gaining widespread attention.

However, Lido currently holds a 31% market share in the staking market, indicating the Ethereum ecosystem needs to promote decentralized node technology and attract more excellent staking service providers to reduce the risk of network centralization.

Layer 2 is the Necessary Path to Mass Adoption

On June 12th, Ethereum co-founder Vitalik Buterin pointed out in his latest blog post that for Ethereum's long-term sustainable development, the expansion of Layer 2 is a crucial technological shift.

If Ethereum is a kingdom, then Layer 2 is the city-state under this kingdom, and the development of city-states is crucial to the prosperity of the kingdom.

According to L2beat data, Arbitrum and Optimism have taken the lead in the L2 market with approximately 64.55% and 18.58% market share, respectively, using the Optimism Rollup technology.

Users received an airdrop from Arbitrum on March 23, further enhancing users' faith in the Ethereum community.

Other notable events include:

1. Optimism completed the mainnet upgrade to Bedrock on June 7, lowering transaction fees, reducing system latency, and improving network performance.

2. Coinbase launched an L2 Base based on the OP Stack but has no plans to issue dedicated tokens, aiming for a mainnet launch later this year. Meanwhile, another L2 scaling solution, Zero Knowledge Rollup, has made significant progress.

3. Type1 zkEVM: Taiko launched the Alpha-3 incentive testnet on June 7, primarily testing economic incentives in the protocol, interactions between proposers and verifiers, and with the protocol, and the Taiko base layer (L3).

4. Type-2 zkEVM: Key projects in this track include Scroll, Linea, and Polygon zkEVM.

• • Polygon zkEVM mainnet Beta version was launched as scheduled on March 27, using ETH for gas payments, MATIC tokens for staking and governance;
  • Scroll, in collaboration with the Ethereum Foundation, is open-source developing zkEVM, expected to launch the mainnet in the third quarter;
  • Linea is expected to launch the mainnet in July, focusing on Multi Prover and Layer3.

5. Type-3 zkEVM: Kakarot has achieved 100% bytecode equivalence, transitioning to Type 2.5. Kakarot is committed to deploying zkEVM as L3 on Starknet.

6. Type-4 zkEVM: zkSync Era mainnet opened to the public on March 24, currently with higher interaction fees and mostly native projects, with most blue-chip protocols yet to be deployed. Another Type-4 star project, StarkNet, underwent a mainnet upgrade in June, officially activating Cairo 1, updating the sequencer, improving scalability, and transaction latency, but the overall user experience still needs improvement.

Looking at the data, the amount of ETH locked in L2 priced in ETH increased from about 3.64 million at the beginning of the year to 4.82 million in mid-June, indicating a continued trend of transactions shifting to L2.

However, the transaction volume of all L2s is currently lower than Ethereum's. Apart from a few top-tier L2s, most L2s have very low transaction volumes. Additionally, several L2 projects are scheduled to launch their mainnets in the second half of the year, raising questions about the necessity of so many L2 solutions in the market.

Move Public Chain Ecosystem: Rise or Fall

As the year began, with the macro environment gradually improving, Ethereum also announced the confirmed timing for the Shanghai upgrade, sparking a mini bull market in the second-tier market for nearly a quarter.

The bullish market mainly revolved around CEX second-tier market speculation, with relatively muted activity in meme coins and other primary markets. The Move ecosystem's Aptos project stood out during this market surge, with a circulating market value of $500 million, which surged to $3 billion within 20 days, leading a wave of "unlocking frenzy."

After the brief surge, Aptos' subsequent market performance continued to decline, typical of most altcoins, and has since retraced to the levels seen during FTX's flash crash. On the other hand, another star project in the Move ecosystem, SUI, peaked upon launch and has since seen a continuous decline in token price since its introduction in May.

The Move ecosystem represents a different scaling direction from Ethereum Layer 2, with security and flexibility among its main advantages.

Currently, the Move series is still in its early stages, with projects using the Move language including Aptos, Sui, 0L Network, and Starcoin, all of which have already launched their mainnets. Therefore, developers using Move can earn real income, attracting more developers to prepare for the next bull market.

However, it's worth noting 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 a collapse of public chains like Sui and Aptos. The vulnerability has been addressed.

In the short term, the Move ecosystem faces risks due to concentrated token holdings, large token unlocks, and price volatility. Long-term prospects suggest that Move's advantages over EVM could lead to a significant increase in market share in the next bull market, positioning it as a new force competing with traditional public chains that have been time-tested.

Blur and NFT Market Trends

In the NFT market in February, the most notable event was the launch of the BLUR token. The BLUR token's bid mining mechanism not only airdropped a large number of users but also injected significant liquidity into the NFT market, sparking a small spring in the NFT market and having a profound impact on subsequent NFT projects.

The most significant impact was that the dense bid orders provided early whales with an exit opportunity, allowing these whales, who previously held large amounts of blue-chip NFT series at very low costs, to exit. Due to a lack of liquidity during the OpenSea market monopoly period, the cost of exiting was high, leading to the possibility of a massive sell-off that could potentially crash the entire NFT market.

Therefore, BLUR provided a good exit opportunity for large whales. These whales could be large institutions, KOLs, etc., and with their exit, the reduced interest in NFTs led to a decline in BLUR's publicity.

Following this small spring, as new NFT holders' psychology shifted, BLUR bid mining rewards decreased, and other factors influenced the NFT market's liquidity, leading to another shrinkage. This led to the emergence of the "NFT Three Stooges (Doodles, Clone X, Moonbirds)," a microcosm of the entire NFT market.

Within this sluggish NFT market, the market has become particularly sensitive to project actions. Azuki, which was once considered a blue-chip project, was kicked off the list of blue-chip projects due to the poor quality of its new Elementals series, causing its price to drop below double digits in the last week of the first half of the year.

However, there have been some localized market trends in the NFT market in the first half of the year. The most surprising performers were Milady Maker and Pudgy Penguins. The common denominator of these two projects is their active community involvement and continued productivity.

Community culture is at the core of NFTs, and it is evident that the market still recognizes NFT community narratives. The decline in this wave of NFT market trends successfully filtered out a group of "working" projects, clarifying the development direction of NFTs and promoting the long-term development of the industry.

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 technology venture capital circles in the first half of this year. Historically, the upstream funding sources for Web3 investment institutions have partially overlapped with AI funding sources, indicating that if AI continues to be popular, it will create a suction effect, reducing funding for the Web3 major track.

Therefore, Web3 projects are striving to align their narratives with AI or leverage AI technology to improve team productivity.

Thus, how to utilize AI will be a topic that Web3 teams cannot avoid in the future. Here are some trends currently unfolding:

1. AI Auditing for Smart Contracts

Prior to the launch of ChatGPT, smart contract auditing teams used AI technology to conduct preliminary audits of client contracts to discover basic vulnerabilities. However, these auditing teams only allowed AI to conduct preliminary reviews, and ultimately, human intervention was still required to complete a comprehensive audit report.

ChatGPT is more powerful than any other AI before it, and many believe that AI can conduct a 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 ChatGPT training data cutoff date in September 2021, GPT successfully solved 19. While this was a remarkable performance, GPT did not perform well at the latest Ethernaut levels, failing 4 out of 5 questions.

This shows that while AI can be used as a tool to discover some security vulnerabilities, it still cannot replace the need for human auditors.

2. AI Replacing Roles in Web3 Teams

Just as the introduction of ChatGPT made many people fear being replaced by AI in various roles, Web3 team members also share similar concerns.

Although it may seem harsh, from the perspective of Web3 industry investors who enjoy innovation and leading trends, the trend of using AI to replace Web3 team members may be faster than imagined.

On April 23, digital artist Rhett Mankind tweeted that he provided instructions to ChatGPT and a budget of $69 to independently issue a Memecoin. He detailed the AI tool's decision-making process for meme coin names in a YouTube video. The AI tool even wrote the smart contract code for the project.

The market was very receptive to this theme, and after a few days of hype, the project's market value surpassed $50 million. Although the experience of this meme project may not be replicable, it does inspire us to use AI to optimize Web3 project roles.

US Cryptocurrency-Friendly Banks Collapse Highlights Bitcoin's Value

In March of this year, the US banking sector faced a severe liquidity crisis, leading to a sharp decline in stock prices. Cryptocurrency-friendly banks like Silvergate Bank, Silicon Valley Bank, and Signature Bank collapsed, with Silicon Valley Bank and Signature Bank's collapses being seen as the second and third-largest bank collapse events in US history.

Silvergate faced a liquidity crisis due to accepting too many deposits from the cryptocurrency industry after the FTX flash crash. Meanwhile, Silicon Valley Bank purchased a large number of long-term bonds during the low-interest rate period, which were severely discounted during the interest rate hike period. The bank's liquidity crisis forced them to sell the bonds at a discount, turning unrealized losses into reality.

Signature Bank had been the subject of multiple investigations in the past, and entering the cryptocurrency market subjected it to stricter scrutiny.

On March 11, stablecoin service provider Circle admitted to having funds in Silicon Valley Bank, sparking market panic, causing USDC to detach, and digital currency prices to plummet.

Regulators have long been concerned that the development of digital assets could impact traditional financial markets. However, this time, traditional financial markets launched a surprise attack on digital assets, sounding the risk isolation alarm for cryptocurrency industry practitioners.

Interestingly, this banking crisis once again reminded insiders and outsiders of Bitcoin's original purpose as envisioned by Satoshi Nakamoto: "Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles, leading to the shrinking of private wealth."

On March 10, Silicon Valley Bank's collapse led to an inflow of $397 million into the ARK Innovation ETF associated with cryptocurrencies, the largest inflow for the fund since April 2021.

Originally held USDC positions were partially converted to other stablecoins, while some directly purchased Bitcoin and Ethereum, leading to a price surge and initiating another mini bull market.

MEME Craze and Shiba Dog Chaos

From late April to early May, the entire market was dominated by MEME and Shiba Inu coins, while the overall market surged before experiencing a sharp correction.

It perfectly illustrated the adage that Shiba Inu coins mark the peak frenzy in the market. During this market phase, two standout projects emerged, inspiring a wave of imitators after their success.

Pepe

On April 5th, the Pepe project released its first tweet and launched the PEPE token on April 15th. Pepe's official Twitter stated their goal of redefining memecoins and changing the status quo of many derivative meme tokens in the market.

Pepe's specific mechanisms include several aspects. Firstly, Pepe tokens were not presold, meaning everyone had an equal opportunity to participate in the project. Secondly, Pepe tokens had no burn tax, meaning no tokens were destroyed during transactions. Additionally, Pepe renounced contract permissions, making token issuance and trading more decentralized.

Most importantly, Pepe's liquidity team was well-funded and well-connected, garnering market attention through price manipulation and eventually listing on Binance on May 6th, reaching its all-time high, followed by a gradual decline.

AIDOGE

AIDOGE launched on April 15th and immediately garnered widespread market attention. The project captured the preferences of investors by planning to introduce an AI NFT series for training, creation, and production.

Furthermore, AIDOGE's operations were very efficient, successively listing on centralized exchanges like Matcha and Bitget.

AIDOGE's success was chiefly due to several factors. Firstly, it had a descending "fair" launch; the team leveraged insider information to obtain a large number of chips at an early, decreasing cost to use for future trading.

Secondly, AIDOGE offered a higher yield rate than the normal market level when providing liquidity and compounding interest.

Moreover, users who purchased AIDOGE tokens equivalent to 100