Hope you’re all doing well? We’d imagine anyone who bought SOL is feeling pretty good. And we’re doing well knowing that we helped a few people identify this opportunity:
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If you haven’t got time to stick around, here’s 5 things you should know about the crypto markets today:
Our Market Meditations are longer format educational segments. Each letter features a Market Meditation which will deep dive and analyse a relevant crypto event, theme or tool.
⛷ Crypto Avalanche: Staying Still Is Not An Option
Few forces in nature are as powerful as an avalanche. Be it through a natural disaster or provoked by a rebellious off-piste skier, these events are a beautiful portrayal of disruption. So too does the Avalanche Foundation hope to disrupt DeFi. Indeed their token AVAX is up over 200% in August. Here’s what we know about Avalanche so far:
Avalanche is an open-source platform for launching DeFi applications and enterprise blockchain deployments. It is backed by Galaxy Digital and Three Arrows Capital to name a few.
It is a relatively new Layer-1 blockchain network that has seen significant increase in price and adoption as of recently. Remember, Layer-1 describes an underlying main blockchain network. Layer-2, on the other hand, is an overlaying network that lies on top of the underlying blockchain.
As a Layer-1 network, Avalanche competes with the likes of Ethereum (which has been struggling with skyrocketing gas fees and relatively slower processing times). A lot of Alternative Layer-1 solutions have emerged that seek to take advantage of Ethereum’s shortcomings and to acquire some Layer-1 market share.
On Aug. 18, Avalanche launched Avalanche Rush, a $180 Million liquidity mining incentive program hoping to introduce more applications and assets to its growing DeFi ecosystem. Avalanche Rush will bring Aave and Curve to launch on Avalanche. Aave allows users to supply and borrow crypto assets and earn interest on crypto assets supplied to the protocol. Curve will enable Avalanche users to exchange stablecoins with low fees and slippage.
Avalanche plans to integrate more blue-chip DeFi protocols as part of the Avalanche Rush program. As of Aug.24, it was announced that Sushi joined the program too. When asked to comment, Sushi contributor OxMaki claimed “the community is one of the most compelling reasons to align incentives with the Avalanche chain”.
Phase 1 of the Rush program will launch soon and provide the Avalanche native token, AVAX, as liquidity mining incentives for Aave and Curve users over a 3 month period. The Avalanche Foundation has allocated up to $20 Million AVAX for Aave users and $7 Million for Curve users, with additional allocations planned for Phase 2 in the coming months.
✅ TIP: did you know you can search ‘fees.wtf’ and see exactly how much you’ve spent on Ethereum gas fees? That is, if you want to know… 💀
The Avalanche Rush incentive program will certainly aid in their effort to scale DeFi and “create a more accessible, decentralized and cost-effective ecosystem”.
As well as Avalanche Rush, Avalanche benefits from:
1️⃣ Favourable Tokenomics: a transaction fee burning mechanism that helps reduce the circulating supply over time. This puts deflationary pressure on AVAX.
2️⃣ The Avalanche Bridge: this facilitates transfers of assets between the Avalanche and Ethereum networks.
What can we take away from all this? At the very least, it seems sensible to conclude that alternative layer 1 solutions are a hot theme in the crypto markets. If Ethereum is unable to find a solution for high transaction costs imminently, it’s likely that assets and liquidity will migrate to chains such as Avalanche. Certainly if we consider the rise of the NFT market (which primarily transacts on Ethereum) we can see the scale of appetite for a solution and the level of demand for transactions in this space (which shows no sign of slowing down).
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How much did this “Rare Pepe” NFT sell for?
🧻 Rollup, Rollup!
Blockchain scalability is a hot topic, with Solana working hard to be an Ethereum killer. But Ethereum has momentum and there’s an important launch very soon for Arbitrum, one of the Layer 2 rollups. Let’s break it down:
To increase the speed of Ethereum and lower transaction costs, a combination of sharding the main Layer 1 network and sending computation off-chain (Layer 2) is being pursued.
There are three major types of Layer 2 scaling: state channels, Plasma and rollups – for connoisseurs of detail, Vitalik Buterin beautifully breaks down the differences here.
Rollups come in two flavours: Optimistic or Zero Knowledge (ZK). The former relies on Fraud Proofs (“Prove I’m Wrong”), whereas the latter relies on Validity Proofs (“Proof I’m Right”).
Arbitrum is an optimistic rollup that launched its beta version on the mainnet in May. Since then it has done an impressive job in attracting dApps, wallets and tools to migrate over in readiness for the official user launch. Check out their portal Arbitrum One.
It can process up to 5000 Transactions Per Second (~ 100x improvement on Ethereum’s 45 TPS), but there will be limits in place during the launch phase.
One thing to note is that optimistic rollups have a 7-day withdrawal period (the interval for fraud claims), but some projects are working on speeding this up with liquidity bridges.
And while Arbitrum itself does not currently have its own token, the same could be said about UniSwap until it airdropped one to every user…
So a Layer 2 solution at scale may be right around the corner and with mass user adoption could have a significant impact on the market and its participants, especially for those projects using the protocol. To learn more about Layer 2 competitors, check out this comprehensive report by Delphi Digital.
With the NFT craze booming, we see yet more interesting and rare NFTs being sold. This one is based on Satoshi Nakamoto and was sold on opensea.io for a price of 149.99 ETH given this NFTs “Rareness Score” is 97 and is “one of the most rare Pepes in existence” this is a highly sought after asset to hold.
Those of you who have been with Market Meditations for a while may remember us commenting back in March on another rare Pepe, Homer Simpson which sold for around $320,000. This new sale just goes to show that these assets are still highly sought after.
To take advantage of this we would suggest that you check out last week's article on NFT Strategies, and draw your attention to the “Riding Momentum” section as you often find similar assets will perform highly shortly after hype like this.
Not financial or tax advice. The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. We are not financial advisors. Every investment and trading move involves risk. Do your own research when making a decision. See our important security disclaimers here.
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