Key Insights, Ethereum's Glow Up

Supporting the market’s upward momentum, Ethereum soared by 40% this week following its Pectra upgrade. Open interest in Bitcoin and Ethereum rose 6.4% and 38.5%, reaching $67b and $28.5b, respectively. Funding rates showed a bullish skew as traders paid higher premiums to maintain long positions. Amid the sentiment shift, over $1b shorts were liquidated between both assets last week.

The Altcoin Index exited Bitcoin territory, fueled by staking sector gains from the Pectra upgrade and a surge in memecoin speculation, driving the altcoin market cap close to its three month highs. As prices rallied, institutional adoption also accelerated: Stripe launched stablecoin accounts in 101 countries and Ramp introduced stablecoin-backed cards, even as the GENIUS Stablecoin Act failed to advance in the U.S. Senate.

Our take: The Altcoin Index exiting Bitcoin territory, Ethereum open interest spiking to February levels, a sharp drop in Bitcoin dominance, and record 0DTE option volumes, all reinforce signs of a broader altcoin rally.

Stablecoins saw a net onchain burn of ~0.94% this week, led by a 1.44% drop in USDC supply. This trend was driven by investors rotating from stables into volatile assets, particularly on Solana, which saw a $929m stablecoin outflow for the week. Meanwhile, USDS and FDUSD expanded supply by 1.44% and 3.25% respectively, driven by incentive-led growth.

At the chain level, Ethereum saw the largest inflows, up $394m, coinciding with the Pectra upgrade and strong ETH rally. Sei gained $41.1m, driven by anticipation around its upcoming ‘Giga’ upgrade and momentum in its trading ecosystem.

Protocol inflows continue to be concentrated around Bitcoin-related DeFi and RWAs. Satoshi Protocol benefitted from growing interest in unlocking BTC liquidity amid the orange coin regaining the $100k mark, with TVL up 164% on the week. Centrifuge and Anemoy Capital, a web3 native asset manager powered by Centrifuge, posted ~64% and ~85% in TVL growth respectively. The gains are centered around the Janus Henderson Anemoy Treasury Fund, which received an AA+f / S1+ rating from S&P Global Ratings, the highest assigned to any tokenized fund.

Our take: Capital rotation this week signals the start of a bifurcated market. As majors rally and altcoins begin to show signs of sentiment improvement, speculative flows into protocols and chains with risk-driven activity will intensify. At the same time, institutional allocation into RWAs will accelerate. We expect this dual-track rotation, into volatility and real-world structure, to define onchain activity through Q2.

Ethereum activated its Pectra upgrade this week, arguably the most impactful upgrade to Ethereum to-date. The upgrade introduced a series of infrastructure level improvements. Among the most impactful was EIP-7691, which doubled blob capacity per block from 3 to 6.

Post-upgrade, 4-day average blobs per block increased from 2.99 to 3.5, a 17% rise in usage. Importantly, on the cost side, 4-day average blob fees dropped from $2.18/MB to effectively zero (1 wei ≈ <$0.01/MB), dramatically improving rollup margins. So far, these savings haven’t been passed on to users by reducing L2 gas fees. Once passed on to users, we expect the nature of L2 DeFi to shift closer to the type of low fee use cases seen in Solana, for example frequently rebalancing yield strategies, while consequently boosting L2 DeFi activity.

Interestingly, Ethereum is not currently the data availability of choice. Celestia, with an average blob cost of ~$0.07/MB processes on average ~92% of blobs, with Ethereum processing the remainder. This is where the clear impact arises; the cost reductions associated with Pectra should lead to a dramatic shift in L2 data availability preferences.

Our take: Pectra has dramatically improved Ethereum’s data availability economics. With blob fees near zero, we expect a gradual shift in L2 preference back toward Ethereum from Celestia, particularly as rollups begin passing cost savings on to users. Lower L2 gas fees will unlock new use cases and ultimately drive increased onchain activity.

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