# Layers 9/26/23

**Published by:** [Kintsugi Research](https://paragraph.com/@research.kintsugi/)
**Published on:** 2023-09-26
**URL:** https://paragraph.com/@research.kintsugi/layers-9-26-23-2

## Content

If you have used Waze, you’ve taken side streets to avoid traffic. Similar to highways during rush hour, blockchains get congested* too and using a blockchain layer is like taking a side street to avoid congestion. *Blockchains can settle a finite transaction volume per unit time. When blockspace demand exceeds capacity, transaction fees are used to prioritize which transactions are included in each block. So as fees rise, end users experience delays (congestion), unless they are willing to pay higher fees.LayersI won’t cover all the different types of layers here. Each deserves its own post: Optimistic rollups. ZK rollups. Sidechains. Bitcoin layers. Fast and cheap alt chains. Multichain networks. For now, let’s drive the Ethereum side streets and see how Arbitrum and Optimism are helping reduce congestion on a network that’s gone from $0 to $10B revenue as fast as Alphabet and Meta, two of the steepest growth curves in history.Optimistic RollupsArbitrum and Optimism are both optimistic rollups on the Ethereum network. An optimistic rollup is essentially a separate transaction ledger that periodically syncs with Ethereum. so a single optimistic rollup transaction on the Ethereum network represents a large bundle of transactions on the rollup. This enables use cases that would be prohibitively expensive for end users on Ethereum. For example, it costs $0.04 to send ETH on Optimism and $0.63 (15x) to send it on Ethereum. So if you are an online merchant that needs to process 10k orders, you’d pay $6.3k to process those transactions on Ethereum and only $400 on Optimism.TractionThere are over 200k daily active users interacting with Arbitrum and Optimism who have paid over $100M in transaction fees in the last 180 days. And the growth trajectory of transactions, active users, and total value locked (TVL) is much steeper on L2 versus Ethereum.Superchain ThesisOptimism posted its Superchain thesis in February:The Superchain seeks to integrate otherwise siloed L2s into a single interoperable and composable system. We need to work towards a future where launching an L2 is as straightforward as deploying a smart contract to Ethereum is today.It’s safe to say the concept found product-market fit. As described here, Coinbase built its Base chain on the OP Stack and is now doing $200k per week in profit, contributing 30% of Optimism’s profit through the end of August.The Base x Optimism partnership is a fascinating case study of a publicly traded company codeveloping an MIT-licensed public good, ie. anyone can fork or use it however they see fit, with deeply aligned economics and governance:Base pays either 2.5% of its revenue or 15% of its profits to the Optimism Collective, whichever is greater. In return, it will receive “up to approximately 118 million OP Tokens,” allowing it to have a voice within Optimism’s protocol governance. This amount will be capped at 9% of the total votable supply in order to maintain balance.Zora, Public Goods Network, and Aevo are three other promising projects building on the OP SDK.MacroRising oil stokes inflation and drags economic growth (stagflation) Country Garden stressed in China, missed $22.5m interest payment last month US deficit keeping yields elevatedRefinancing CliffsWhen rates rise quickly (and unexpectedly), it can take some time for the effects to trickle through the economy. Keep an eye on refinancing cliffs in the years ahead, particularly in a higher for longer scenario.US has $3 trillion of bonds and loans coming due in 2024-2026, $2 trillion for Europe$530 billion CRE debt due this year and $2.75 trillion between now and 2027The banks are in danger of setting off a doom-loop scenario where losses on the loans trigger banks to cut lending, which leads to further drops in property prices and yet more losses.European mortgage markets less shielded from rate hikes than USCorporate interest payments are about to riseThe overall volume of corporate debt, coupled with rising corporate bond yields, is a good predictor of the interest paid by corporations. Corporations, laden with debt and facing high rates, are on the brink of significant increases in interest payments.CryptoMarket depth stable since FTX collapseShort term holders below cost basis corresponding with a negative shift in sentimentYTD Sharpe Ratio attractive relative to S&P500Stablecoins > Bitcoin as medium of exchangeWill stablecoins serve or subvert US interests?Stablecoin transaction value catching up to Visa and MastercardVisa expands stablecoin settlement capabilitiesthere has been significant demand to leverage newer, high performance blockchains that can send and receive stablecoins with higher speed and lower costs. For these reasons, Visa chose to add support for Solana as a high performance blockchain that its partners can choose to send or receive USDC settlement payments.Crypto x Culture3rd Annual ArtBlocks Marfa Weekend Pudgy Penguin toys in Walmart licensed from holders via OverpassIPTyga x RTFKTNew era of immersive entertainment NFTs are worthless Storing value in digital objectsArt market volatilityReferences9.21.23JP Morgan unveils blockchain token for faster paymentsFortune: Visa to send USDC over Solana to pay merchantsPredicting ProvenanceWSJ: Why a soft landing could prove elusiveWSJ: Even bigger housing crisis threatens China’s economyTBL: Inflation roars and stocks slideBill Gurley from the All In Summit EU mitigating risk of extinction from AINot Boring: The Gang Captures WashingtonTBL: Profound implications of Saylor’s latest revelationGlassnode: Investor confidence slidesMacro Compass: Policy MistakeGlassnode: BTC Pricing ModelsTBL: Profound implications of Saylor’s revelationPaypal USD now available on VenmoWSJ: Higher rates forever?WSJ: Households and higher ratesWSJ: China fighter jets and taiwanCoinbase super chain visionBlockworks L2 dashboardMessari: L1 and L2 ValuationsMessari: Ecosystem chart bookA16z: Machiavelli for DAOsTBL: World’s borrowing cost hits 10 year highBMPro: Dollar wrecking ball, good or bad for BTC?Multicoin: Exporing DePIN design spaceMacro Compass: The beatings will continueDecrypto: Optimism pumps amid Coinbase L2 launch9.14.23Digital Immersive Entertainment primerBain: New era of immersive entertainmentPitchbook: Gaming investment report Q2Macro Compass: Is the money printer off againKaiko: Low volatility, stable liquidityTurkey sees rise in adult crypto investorsGlassnode: Realized cap dashboardWSJ: Banks load up on risky depositsTBL: BNB, Binance, and BTC are on the brinkHoward Marks: Fewer losers, or more winners?Arthur Hayes: Are we there yet?Not Boring: Capitalism UnchainedZerohedge: $1.5t white gold in NevadaPantera: Emerging catalystsDecrypt: BTC miners make money when not miningGlassnode: Liquidity droughtWSJ: Hedge funds bet against treasurysAtlanta Fed: Q3 GDP NowMessari: The potential for crypto artErik Voorhees permissionless keynoteStoring value in digital objectsCollecting the algorithmThe mystery of the world’s most expensive paintingThread: Farcaster on OptimismMessari: Cosmos HubWSJ: Real estate doom loopMessari: Evolving cloud frontiersVisa deep dive on SolanaFortune: Ripple bailout for Fortress customersNot Boring: I, Exponential9.7.23TBL: Reality check chart packBrevan Howard Digital stablecoin reportMacro Compass: ChinaGlassnode: Flash CrashTBL: BTC LiquidationsCoindesk: Meet BottoTBL: Powell navigating by stars under cloudy skyWizards: Jackson HoleILO: Generative AI and JobsWSJ: Rising long term rates loomMulticoin: Long term stakingMacro Compass: Powell’s Jackson Hole SpeechGlassnode: Cointime economicsLyn Alden: Six AI themes to considerWSJ: Resilient US economyMessari: Ecosystem brief, TON growthMessari: Polygon labs launches chain development kitPolygon’s MATIC is getting a makeoverPOL whitepaperMacro Compass: Storm on the HorizonGame of Trades: Looming threat of skyrocketing interest paymentsBernstein: ETF opp doesn’t stop at BTCWizards: Payrolls on deckTBL: US Job Data SlidesTBL: Liquidity is droppingVailshire August 20230xjaypeg solana thesis threadFT: Our new geopolitical orderAkash Network: Supercloud for AI is liveAkash adds NVIDIA GPU to its networkTBL: Fed trying to kill Eurodollar banks?Decrypt: Base network rakes in feesThe Block: L2 optimistic rollup dashboard

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