Web3 Watch – 5 Apr 24

Base Summer 

Bird’s Eye View

In our recent Web3 Watch , we noted the outflow of funds from Solana into Ethereum, and amongst the L2s, mostly to Base, using debridge as a data and sentiment proxy. We also shared that Base may have been the next ecosystem where a summer may take place. A week later, we are seeing clear signals to back this.

Similar to the Solana ecosystem, Base already had a fair share of memecoins within its ecosystem. In late March the dominant memecoins on the Base ecosystem were $BRETT and $TOSHI. Here is a quick table of the performance of the top memecoins in the ecosystem on 22 March versus 5 April (~2 weeks later):

Green shoots of a Base Summer has also appeared in the form of new memecoins such as $BLERF, $MFER and the rise of $DEGEN. We also are observing a new “meta” of sorts where memecoins are creating their own chains, inspired by $DEGEN. We will continue to monitor the activity and performance of tokens in the Base ecosystem to see if this summer is here to stay, or is fast fleeting.  

The Rise of $DEGEN 

With a ~190% move up in the past week, $DEGEN has made its way to the front and center of the Base ecosystem. What started off as a reward for active participants in Degen’s Farcaster (a social-fi platform) channel, has now evolved into an L3. There are two aspects of Degen we think are worth looking at:

• Modularity: The Degen Chain is built with Arbitrum Orbit, utilizing Base’s settlement layer, and AnyTrust for its data availability layer. 
• Blockchain goals: To distinguish themselves from conventional chains, Degen rides off its community strength to build a chain tailored for its community to experiment tipping, community rewards, payments, gaming, and more. 

Here are some noteworthy statistics (as of 1st April):

Despite the tremendous success Degen has enjoyed thus far, Twitter user @0xCygaar shares a contrarian view that the current landscape of L2s indicates that they are still on ‘training wheels’ and have not fully inherited the security of Ethereum as intended. This inefficiency is evident in two areas:

1. Fraud Proofs and ZK Proofs

• Fraud proofs are currently permissioned on Arbitrium and not present in OP Stack.
• ZK proofs are permissioned across the board.
• These require greater trust in these chains, which reduces their security.

2. The bridge contract that holds all the rollup’s bridged ETH is currently upgradeable.  

• This means that the ETH in the bridge can be stolen (if either the DAO or multisig approves of it).

Hence, L3s can be seen analogous to folding an origami as an L2 on another L2. This inherently means the negative externalities introduced by L2s are carried down to L3s which results in even weaker security. 

While these concerns are valid with regard to the long term sustainability of Degen Chain (as well as the sustainability of this narrative in the long term), this does not mean that money cannot be made in the short to medium term. We could potentially see more inflows into Degen chain as more primitives are built on the L3. More communities within Farcaster might also tokenize and follow into the footsteps of $DEGEN.