Arca CIO: 11 Ideas Driving the Crypto Market Forward
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Arca CIO: 11 Ideas Driving the Crypto Market Forward
11 Observations and Reflections on the Cryptocurrency Market, including the Rise of Solana and Terra, Perspectives on the Current Market, a Comprehensive Summary of the BTC vs. ETH Debate, Coinbase's Investment Value...
Navigating Web3 tides with focused insightsAuthor: Jeff Dorman
Compiled by: TechFlow
Jeff Dorman is the Chief Investment Officer at Arca. Here are his recent 11 observations and thoughts on the cryptocurrency market, covering the rise of Solana and Terra, views on the current market, a comprehensive summary of the BTC vs. ETH debate, Coinbase's investment value...
#1 Axie Infinity and OpenSea Are Driving Ethereum Fee Burns
Since the recent implementation of the EIP-1559 upgrade, over 50,000 ETH (approximately $150 million) has been burned. While much of the discussion centers around DeFi, it’s actually NFTs and gaming that are driving most of Ethereum’s activity today.
The largest NFT marketplace (OpenSea) is also the biggest contributor to fee burn, followed closely by the game Axie Infinity, which ranks third. DeFi remains a major driver too—Uniswap, the largest decentralized exchange, ranks second. In other words, Ethereum now hosts a wide range of platform activities that simply didn’t exist when ETH last hit its all-time high in 2017.
Put differently, Ethereum’s ecosystem has been thriving for years, but now we have a tangible scoreboard through the ETH burning mechanism.
#2 We Might Actually Have Real Competitors to Ethereum—Enter Solana and Terra
While Ethereum still dominates, this was a pivotal week for Solana, whose total value locked across protocols surpassed $1.8 billion—all-time high. Over 10,000 people waited late Friday night for an NFT drop that sold out in eight minutes, and Mango Markets raised $70 million last week.
Meanwhile, Terra’s TVL is nearly triple that of Solana, leveraging its native token (LUNA) inflation to collateralize a suite of algorithmic stablecoins—increasing utility as more stablecoins enter circulation. While casual observers of digital assets may know legacy Layer 1 protocols like EOS and Cardano, it’s this new wave of Layer 1 blockchains attracting real economic activity and application growth.
Native tokens Solana (SOL) and Terra (LUNA) trade at just 5% and 3% of Ethereum’s (ETH) market cap respectively, meaning these networks are nowhere near their full scale potential. Statistically speaking, they may be the first truly winning blockchains in terms of market value capture.
#3 If $1 Trillion Is Parked in Reverse Repo, The Rally Isn't Ending
It’s fascinating to hear arguments about why stock prices and digital asset prices are doomed to fail—even as both continue accelerating with nowhere else to park capital.
Last week, the Federal Reserve’s reverse repo facility hit a record $1.087 trillion in cash. As our friends at Cliffwater noted: “While money market funds flood into the Fed’s overnight reverse repo agreement for yield, large U.S. banks are using the program to offload unwanted deposits. The mechanism serves as a last-resort investment absorbing excess cash, especially when short-term funding rates hover near zero.”
Analysts say demand for the Fed’s reverse repo could remain elevated due to strong foreign reserves. Usage could reach $2 trillion by year-end.
“U.S. equities just wrapped one of the best earnings quarters ever, with 87% of S&P 500 companies beating Q2 expectations. Meanwhile, digital asset markets are seeing quarterly growth of 30–50% in volume, users, revenue, and other key performance metrics. With so much capital sidelined, it’s hard to see this momentum reversing anytime soon.”
#4 On-chain, Real-Time Data Is Remarkable
Dune Analytics is an all-in-one platform for querying, visualizing, sharing, and exploring smart contract data from public blockchains. Our friends at Multicoin Capital recently invested in the project and wrote a great blog post about it.
We frequently cite data from Dune Analytics, along with sources like Token Terminal, The Block, Bybt, Glassnode, Skew, Etherscan, and many other excellent data providers. But what makes our job easier as analysts isn’t just data aggregators—companies and projects themselves are making things far simpler by offering real-time financial dashboards:
Nexus Mutual offers real-time insurance reports, now viewable on their aggregate yield page.
MakerDAO’s entire balance sheet is computed in real time via on-chain data dashboards.
Yearn Finance publishes quarterly reports directly in its GitHub repository.
Rally Network released a financial update detailing all expenses within its finance department, with plans to publish quarterly.
The future of finance isn’t stale sell-side research or delayed quarterly reports. The future is real-time reporting and transparency—we’re witnessing the beginning of the end of traditional financial reporting.
#5 Decentralized M&A Could Be Fascinating
Polygon acquired Hermez Network, a zk-Rollup scaling solution platform, financing the deal by swapping MATIC tokens for HEZ tokens at a 3.5:1 ratio. This will deploy approximately $250 million—about 2.5% of Polygon’s treasury.
Note: These aren’t corporations—they’re decentralized networks. Yet the financing looks remarkably similar to equity-financed acquisitions. The merger arbitrage was swift—HEZ rose immediately after the announcement, hitting precisely the expected conversion price. Even without dedicated M&A funds, we’re starting to see efficiency emerge in digital assets.
More importantly, using discounted cash flow analysis to value digital assets makes terminal value particularly tricky. But if M&A activity picks up, that problem disappears.
#6 Measuring Investor Interest Through Data
There are many ways to track investor interest in digital assets.
CoinShares releases weekly fund flow data, Preqin tracks growth in digital asset hedge funds, and countless surveys detail institutional interest.
But perhaps the most interesting way to gauge investor interest is watching rising demand for data collection tools. Cryptosheets—an Excel plugin API aggregator—pulls data from virtually every provider.
Cryptosheets founder Chris Ware recently told Arca he’s seen existing clients upgrading subscriptions and spending significant time filling out due diligence forms, engaging compliance teams at major traditional funds, trading desks, and other Wall Street institutions. Interest exceeds the sum of the past two cycles combined, with registrations up 500% over the past 14 days compared to the previous 30-day average.
Large institutions won’t invest in these assets without quantifiable metrics—data collection is just the first step. Recent large private financings by Dune Analytics and Messari further underscore Wall Street’s growing appetite for data.
#7 Tether Gave Critics and Supporters Exactly What They Wanted
The Wall Street Journal published a brilliant piece this weekend on confirmation bias.
In short, whether gold investors, bond vigilantes, or Amazon critics—some people latch onto ideas and cling to them regardless of evidence.
With that in mind, controversial stablecoin issuer Tether released its second quarterly attestation report—and there’s something in it for everyone. Tether confirmed holdings of approximately $14.5 billion in A-1, $14 billion in A-2, and $1.7 billion in A-3 commercial paper.
Supporters will emphasize increased transparency versus the first report three months ago—including now disclosing underlying asset categories and breakdowns of commercial paper holdings by rating and maturity.
Critics will continue asking: “Why doesn’t Tether provide exact holdings? What are they hiding?” (Though this level of detail now matches—or exceeds—that provided by Paxos and Circle for their stablecoins.) As we discussed weeks ago, shorting USDT is a great theoretical trade—but almost certainly destined to fail.
#8 Washington/Congress/Digital Asset Showdown Is a Big Step Forward
An infrastructure bill containing vague digital asset language passed the Senate and is now moving to the House, where amendments can be made and reconciliation held.
Remarkably, developments over the past week have been highly positive. Congress is now firmly focused on the digital asset industry, meaning lawmakers are digging deeper and educating themselves beyond tired narratives about energy use and ransomware payments.
This is also one of the few issues transcending partisan divides. Ted Cruz publicly backed Ron Wyden’s amendment. Ultimately, U.S. regulators want sensible safeguards that foster innovation and growth. For real institutional investment to materialize, we need regulatory clarity—and this is a crucial first step.
Another positive aspect is community mobilization and lobbying efforts. This grassroots movement surprised everyone. Yes, politics and lobbying always involve exaggeration—but this could catalyze stronger advocacy in Washington. It also signals to politicians that they have constituents deeply invested in this asset class—and it’s completely bipartisan.
For years, we’ve faced excessive regulation in digital assets, and the most common question we hear is “What about regulation?” While we wait—and until we get actual rules—investors already in the space won’t let unenforceable political headlines deter action.
#9 The Great BTC vs. ETH Debate: Summarized
Weeks ago, we wrote: “Bitcoin is a great asset, but it’s no longer representative of the asset class, as other sectors lead the way.”
Naturally, we received massive feedback from the digital asset community—many feeling compelled to take an exclusionary stance on “Bitcoin vs. everything else.” Perhaps the most balanced response came from Dave Weisberger, CEO of CoinRoutes, who tweeted:
“The dichotomy between Bitcoin and all the fundamental analysis you emphasize can be summarized as follows: Bitcoin aspires to be the denominator against which all assets are measured. NFTs, DeFi, and the technologies enabling them will be the numerator of the digital economy. Therefore, it’s absurd for Bitcoin holders to dismiss everything happening in DeFi or NFTs, just as it’s absurd for others to ignore the role of a fixed-supply store of value unattached to any particular network in an evolving digital economy.”
#10 We Need Investment Bankers, and the Olympics Need a Token
Miami is launching its own digital asset—but the design sounds poorly thought out. In our view, public city tokens should fund specific community projects. Holders would receive discounts when using publicly funded services—trains, parks, buses—and/or gain priority access (e.g., token holders enter certain park areas).
Regardless, the haphazard nature highlights why we need investment bankers in this space. Every company, municipality, and project should have a token in its capital structure—but achieving that requires real advisors: experts in token design and investor outreach.
For example, why doesn’t the Olympics have a token yet? Here’s Axios’ take:
For decades, the Olympics haven’t made economic sense. Host cities spend billions, inevitably fall into debt, and are left with venues unusable for anything else.
The 2008 Beijing Olympics cost $45 billion but generated only $3.6 billion in revenue—most of which went to the International Olympic Committee (IOC).
The 2014 Sochi Winter Games cost nearly $50 billion but generated far less revenue. Tokyo’s Olympics will cost $28 billion. The ban on spectators means another $1 billion in lost ticket sales—not to mention uncertain gains to Tokyo’s reputation as a tourist destination. Broadcast rights make up the largest share of Olympic revenue. The IOC wisely locked in billions from Comcast through 2032, when Brisbane hosts—with no other bidders.
U.S. broadcast rights alone exceed the sum of all other countries. Yet five years ago, Rio’s Olympics—perfectly timed for U.S. viewers—had disappointing ratings. Tokyo’s games, with no live audience and poor timing for American audiences, face an uphill battle.
What if the IOC sold tokens to athletes’ fans, giving them a cut of future sponsorship rights? Or gave token holders 100% of TV revenue? Surely someone is thinking about linking fan engagement to profits—just as Chiliz/Socios currently does globally with “fan tokens.”
#11 Coinbase’s Q2 Profits Surge—And Wall Street Just Doesn’t Get It
Arca was more optimistic than nearly every sell-side analyst on Coinbase’s Q2 financials. Last week’s results blew past all expectations—including our own.
The company reported $2 billion in revenue and over 50% EBITDA margins. These numbers utterly dwarf those of traditional “exchanges” like NYSE/Intercontinental Exchange, CME Group, Nasdaq, and CBOE—yet the stock barely moved (or rose 10%, then quickly reversed).
For some reason, consensus estimates for the rest of the year still project a 10% year-over-year revenue decline. For a company growing this fast, such conclusions from sell-side analysts are outright insane. Frankly, we can’t figure out what variables Wall Street is adjusting to reach this view. Nearly every digital asset investor we speak with strongly disagrees with Wall Street’s assessment. How does this happen?
First, Wall Street can’t decide which sector or coverage group should handle digital assets—is it banks/brokerage, fintech, or an entirely new team?
Second, Wall Street continues to overlook, ignore, or remain ignorant of growth beyond Bitcoin and Ethereum.
Third, incumbents remain skeptical—likely because they stand to be displaced by this new industry.
In our view, Coinbase resembles Facebook in 2011. FB’s stock dropped after IPO, Wall Street didn’t understand how to value social media, and distrusted management. Due to continued misreading of growth trajectory—including drivers of success and sustainability of revenue—it took 3–6 months for FB to recover. But over the next decade, with uninterrupted revenue growth, FB’s performance soared.
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