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More TradFi Players Step in To Solve Pain Points in Crypto, What’s Next?
Inflation in the U.S. rose by 3.2% from a year ago in July, still higher than the Federal Reserve’s ideal 2% rate. Bitcoin and Ethereum barely moved in response, increasing a little below 1% each over the past week. The biggest gainers this week were Solana (+9%), Uniswap (+6.83%), and Maker (+2.77%). The latter was the frontrunner in assets under management, accruing 16.52% more than last week. Maker’s surge in total value locked (TVL) can be attributed to the savings rate hike on DAI from 3% to 8%, making it one of the highest yields currently offered by a major stablecoin issuer.
Figure 1: Weekly Price and TVL Developments of Cryptoassets in Major Sectors
Source: 21Shares, CoinGecko, DeFi Llama. Close data as of August 14, 2023.
3 Things to Remember in Markets this Week:
• The Federal Reserve Prepares for Inevitable Stablecoin Adoption
As traditional players begin entering the stablecoin market, the Federal Reserve Board (FRB) announced a program to supervise the “novel activities” the banks under its jurisdiction are carrying out. The FRB has also provided guidance on the process a state bank needs to follow before engaging in stablecoin activities. State banks will require a written supervisory non-objection from the FRB before issuing, holding, or transacting in stablecoins. This comes a day after PayPal announced its launch of a fully-backed, dollar-pegged stablecoin, PYUSD, with Paxos, built on Ethereum, with zero transaction fees. PayPal expects its PYUSD to be used primarily in decentralized finance and remittances, leveraging its position as a leader in the online payments market with a 40.52% market share. While it’s still too early to tell whether PayPal’s venture into crypto will level up to its success in traditional finance, steady progress should be guaranteed, given the company’s regulatory and adoption advantages.
Figure 2: Total Supply of Stablecoins on Ethereum
Source: @21co on Dune Analytics
• Visa’s Pilot Trial to Simplify Transacting On-Chain
After Visa initially announced their experiment utilizing Account Abstraction (AA) to streamline crypto native payments on top of Ethereum back in May, the financial services giant revealed the piloted project’s latest updates. Namely, leveraging the ERC-4337 standard, more commonly known as AA, Visa was able to abstract the process of paying gas fees in ETH using a credit card. As AA allows for the asset conversion to take place in the backend, users will not have to worry about holding the right native token to pay for transaction costs. Thus, users would be met with the flexibility of paying with their cards or any other ETH-based token, and the AA smart contract will simply trigger the conversion via what’s known as a paymaster smart contract that sponsors transactions on users’ behalf. That said, Visa’s experiment has the power and potential to transform the crypto native ecosystem and make them more accessible using the average users’ traditional financial instruments and could, thus, catalyze the adoption of native blockchain applications without users necessarily becoming aware of the technical intricacies.
Figure 3: Visa’s Process to Abstract ETH Gas Fees
Source: Visa
• Fantom Considering a Return to Ethereum
Fantom is contemplating a strategic move to enhance its integration with Ethereum by establishing an optimistic-based rollup linking the two networks. While Fantom boasts crucial innovations like sharding and sharing gas costs with developers, its growth trajectory faced obstacles following the MultiChain bridge hack, resulting in a significant decline in assets and liquidity. Notably, the past month witnessed the closure of the two largest lending and exchange applications due to challenges within the network and decreasing liquidity. Thus, the decision is aimed at helping Fantom seek recovery by positioning itself as a scaling solution for Ethereum, leveraging its unparalleled user base and liquidity. This trend is not exclusive to Fantom, as Celo also recently announced a similar shift, indicating an emerging industry trend.
Figure 4: Total Assets Under Management on the Fantom Blockchain
Source: DeFi Llama, The Block
What You Should Pay Attention To
• OP Stack Establishing its Presence
Optimism’s modular framework, OP Stack, maintains its position as the leading scaling solution for Ethereum, with established players like Binance, Coinbase, Worldcoin, and A16z all opting to leverage the solution to build their customized networks. This week, Coinbase launched public access to its scaling solution dubbed Base, leveraging the OP Stack. Although developers have been allowed to deploy applications and migrate their capital since mid-June, the official bridge opened last week, allowing users to migrate their capital using official channels. That said, Base experienced tremendous growth quickly, amassing close to ~$200M in AuM in less than three weeks.
Figure 5: Coinbase Scaling Solution AuM
Source: @21co on Dune
While the initial shift was prompted by a meme coin frenzy, the ongoing surge in user activity signifies strong enthusiasm for the Ethereum ecosystem. Moreover, Base holds significant growth potential due to Coinbase’s extensive 110M user base, which can seamlessly transition to the on-chain ecosystem through user-friendly interfaces. In line with this, Coinbase revealed “on-chain summer”, an initiative to introduce users to Base’s vibrant ecosystem and showcase the network’s enhanced performance. The program was a success as the network logged more than 136K daily active users at its peak, surpassing Optimism and Polygon. Whether Base can sustain its user base in the long run, remains to be seen. However, it will certainly be a key network to look for over the next few months.
Figure 6: Daily Active Addresses of the Four Leading Ethereum Scaling Solutions
Source: Artemis.xyz
Comparatively, Debank, a renowned portfolio tracker, has revealed plans for a social media network on the OP stack. This initiative aims to convert their messaging service into a complete social graph, rewarding users for valuable contributions like posts and time invested. Debank has already introduced a testnet version of this network, demonstrating nearly 100x lower gas costs for data storage compared to traditional blockchains. Similar to Coinbase, Debank boasts a substantial user base, offering the potential to drive decentralized social media adoption beyond Lens. Lastly, the upcoming OP Stack network releases are a net positive for the ecosystem, as a portion of their respective transaction costs is directed towards the Optimism treasury to help drive its sustainable growth.
Bookmarks:
• Inside Crypto Exchange-Traded Products; check out our 9th issue of State of Crypto
• Check out our Dune dashboard, tracking Worldcoin’s airdrop and adoption metrics, here.
Next Week’s Calendar
These are the top events we’re monitoring for next week.
• August 16: FOMC meeting minutes
• Earnings season: Walmart, Home Depot
Source: Forex Factory
Research Newsletter
Each week the 21Shares Research team will publish our data-driven insights into the crypto asset world through this newsletter. Please direct any comments, questions, and words of feedback to research@21shares.com
Disclaimer
The information provided does not constitute a prospectus or other offering material and does not contain or constitute an offer to sell or a solicitation of any offer to buy securities in any jurisdiction. Some of the information published herein may contain forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content hereof.
Dogecoin has outperformed other major cryptoassets over the past decade, while also exhibiting a low correlation to crypto and traditional assets. This creates a compelling argument for a portfolio allocation. We tested a Bitcoin-enhanced growth portfolio, which is a traditional 60/40 infused with 3% Bitcoin, and we introduced a modest 1% DOGE allocation. Since most prospective investors likely already hold Bitcoin, this offers a lens into how the two assets can complement each other.
Despite the small portfolio allocation, every approach delivered stronger returns. The benchmark returned 7.25% annually, while DOGE-enhanced portfolios reached as high as 8.95%. Sharpe ratios improved in almost all tests, indicating better risk-adjusted returns. Volatility did slightly tick up, but drawdowns remained largely contained. Even with no rebalancing, the max drawdown only deepened by a few percentage points, underscoring that even a 1% DOGE allocation adds meaningful punch without destabilizing the broader portfolio.
Rebalancing remains essential to capturing upside effectively. Without it, returns can plateau while risk quietly compounds. Monthly or weekly rebalancing offered the best balance, maximizing returns while keeping volatility and drawdowns in check, especially during periods of broader market stress, as we’ve recently seen. Given Dogecoin’s momentum-driven nature, a more strategic approach linked to broader crypto market cycles may offer even greater optimization beyond routine rebalancing.
With the right structure, a 1% allocation to Dogecoin isn’t reckless—it’s rewarding.
Bear Case
Despite strong fundamentals and a rich cultural legacy, Dogecoin’s recent rally, fueled by post-election memecoin mania, may have front-run its true cycle potential. As attention shifts to newer narratives, DOGE risks being seen as ’yesterday’s play,’ potentially underperforming even in a rising market. Still, that wouldn’t signal a flaw in its model, just a pause in a fast-rotating cycle.
Assuming a continued 10% compounded annual growth rate (CAGR) from its 2021 peak of $0.73, DOGE would be projected to land around $0.38 by 2025—still more than 2x from today’s levels but modest relative to past cycles. More notably, this would mark the first time Dogecoin fails to reach a new all-time high in a full market cycle.
Neutral Case
Dogecoin may not dominate headlines like it did at its peak, but it still holds cultural relevance and widespread recognition. In a scenario where the total crypto market cap peaks at $5 trillion this cycle and DOGE maintains a solid, albeit slightly reduced, market share of 3% instead of its previous 4%, this would result in a market capitalization of approximately $150 billion for DOGE.
At that valuation, DOGE would trade near $1 per coin, a ~5.5x gain from current levels around $0.185. This neutral case assumes Dogecoin retains its stature as the leading memecoin, despite increased competition, with stable adoption and renewed retail interest, but without the same euphoria of the last cycle.
Bull Case
If we take DOGE’s bottom price of $0.007 just before the last bull run began and fast-forward two years to the bottom of the current cycle at $0.0585, that move reflects a CAGR of 189%. If DOGE were to mirror this explosive growth, DOGE would reach approximately $1.42.
In this scenario, Dogecoin benefits from renewed memecoin mania, increasing real-world adoption, and stronger interest fueled by regulatory clarity and potential integration with major platforms like Elon Musk’s X. A full return of retail enthusiasm and broad cultural momentum could reestablish DOGE as the breakout asset of the cycle, potentially even doubling its all-time high.
Research Newsletter
Each week the 21Shares Research team will publish our data-driven insights into the crypto asset world through this newsletter. Please direct any comments, questions, and words of feedback to research@21shares.com
Disclaimer
The information provided does not constitute a prospectus or other offering material and does not contain or constitute an offer to sell or a solicitation of any offer to buy securities in any jurisdiction. Some of the information published herein may contain forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content hereof.
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