COMPASS Q1 2023: Exploring Emerging Layers Within the Crypto Ecosystem

Ethereum Layer 2 (L2) solutions, Bitcoin ordinals, liquid staking total value locked, and the evolving innovations of the crypto landscape.

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It’s time once again for The CEX.IO Market Research Team to peer under the hood of the crypto ecosystem for a diagnostic analysis of its health and resilience. After witnessing a tumultuous Q1 close for the global banking system, triggered by U.S. uncertainties, crypto remained undeterred in its mission of expanding the universe of personal finance. Much like the period following the 2008 financial crash, the investment case for digital assets is once again in plain sight. Simultaneously, technological advancements in the space are driving innovation, as regulators seek in equal measure to define and restrict DeFi development. Through it all, the Market Research Team kept careful watch, parsing on-chain data in an effort to bring you the clearest vision of an industry on the move.

For this installment, we explore the sustained rise of L2 solutions on the Ethereum Network, and highlight how these augmentations are redirecting traffic among its users. Between the total value locked (TVL) on L2 chains like Arbitrum and Optimism, to the impact these burgeoning bastions had on alleviating gas fees, the numbers suggest they’re delivering on their promise. In turn, the Ethereum Network’s pending Shanghai Update is poised to enable liquid staking withdrawals, a practice we unpack in this edition. Despite repeated efforts to curtail this service, particularly in U.S. markets, participants are showing robust interest in asset mobility that also affords the possibility of rewards.

Not to be outdone, Bitcoin embraced its own version of L2 solutions and network additions to help move the legacy asset into the NFT space. Ordinals, a process of satoshi inscription, create non-fungible characteristics for storing data such as images and videos on BTC fragments. With entire ecosystems cropping up to meet the demands of this emerging market, Bitcoin is diversifying its access and further ingratiating itself within the broader DeFi landscape. Following the assessments of our Q4 2022 deep dive into Bitcoin’s community and infrastructure, these dimensions are opening new pathways for curious participants to explore the flagship asset. Plus, we discuss whether Bitcoin’s realignment with gold prices, and away from the S&P 500, suggests a sea change in the public perception of crypto. crypto.

After a chaotic calendar year, regulatory uncertainty, and early 2023 upheaval in sectors typically lauded for their scrupulous ethics, the crypto space continues to make a case for its existence. Its inclination toward creative ingenuity is a wellspring of inspiration for organic collaborations between like minded visionaries. This is reflected in the on-chain analytics that indicate a clear preference for the fruits of these forward-looking services.

We hope you’ll join us for our latest quarterly evaluation of the ecosystem, and that the insights within empower you along your crypto journey.

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