Reflexivity Research: October in Review

Before diving in, be sure to check out some of our recently released research content:

• Crypto & AI Overview
• 0G Foundation Conducts Node Sale
• Exploring Gaming on SKALE
• Sonic Arcade and Boom
• Overview of the Stablecoin Landscape
• ETH L2 Scaling Debate

October 2024 brought forth many notable developments in the industry. There were significant inflows into Bitcoin and Ethereum ETFs, indicating increased institutional interest. Alongside these impressive ETF flows, technological advancements and strategic partnerships emerged across a variety of protocols. This report explores these events, including Bitcoin's role in global finance, Ethereum's ongoing infrastructural improvements, initiatives within the Solana ecosystem, and specific updates from projects like Ethena.

Bitcoin ETFs Overview

The net inflow of Bitcoin exchange-traded funds in October 2024 amounted to a remarkable $5.4 billion. The breakdown of these flows is as follows:

Daily Flow Analysis:

• Negative Flows: October commenced with a significant outflow on the 1st, recording $-242.6 million. Other notable outflows occurred on October 2nd (-$64.4 million), October 3rd (-$54.2 million), and a dip of $-81.1 million on October 10th.
• Positive Flows: Significant inflows were observed on October 7th ($235.2 million), October 11th ($253.6 million), and peaking at $893.3 million on October 30th.

BTC ETF Flows October vs September

Between September and October, Bitcoin ETF flows demonstrated substantial variance:

• Largest Increase: IBIT recorded an inflow increase of approximately 703%, from $577.9 million in September to $4.64 billion in October.
• Largest Decrease: ARKB experienced the steepest reduction, declining from $404.2 million to -$77.0 million.
• Aggregate Growth: Total Bitcoin ETF flows rose sharply, from $1.26 billion in September to $5.42 billion in October, an overall growth of around 328.8%.

Bitcoin Institutional Adoption Continues To Grow

In early October, Franklin Templeton submitted a proposal to the U.S. Securities and Exchange Commission to launch an ETF indexing both Bitcoin and Ethereum. This ETF aimed to provide investors with combined exposure to both cryptocurrencies within a single fund, a first in the industry. Managed by BNY Mellon and Coinbase Custody, the fund would not engage directly in staking or other income-generating activities. SEC approval would depend on implementing anti-fraud measures related to regulated futures markets.

Similarly, global asset manager VanEck introduced its inaugural venture capital fund, raising $30 million to invest in fintech, crypto, and artificial intelligence startups. Led by former Circle Ventures executives Wyatt Lonergan and Juan Lopez, the fund intends to support early-stage companies through pre-seed and seed funding rounds. VanEck Ventures plans 25–35 investments, each ranging from $500,000 to $1 million, as part of a long-term strategy for engaging with transformative opportunities in finance.

Continuing the trend of institutional adoption, Fidelity International tokenized a money market fund using JPMorgan's Onyx Digital Assets blockchain platform, aiming to enhance efficiency while reducing transaction costs and risks. This move allows fund shares to be used as collateral without cash conversion, potentially improving market stability.

Prominent investors also voiced increased confidence in cryptocurrencies. Billionaire hedge fund manager Paul Tudor Jones announced his long position on Bitcoin, viewing it as a hedge against inflation. In a recent interview, he cited concerns about inflation due to U.S. government debt, advocating for investments in Bitcoin, gold, and commodities while avoiding fixed-income assets. Jones considered these assets under-owned and saw them as smart investments in an inflationary environment.

In line with the growing interest in Bitcoin as an inflation hedge, Microsoft considered a proposal to add Bitcoin to its corporate treasury, with a shareholder vote scheduled for December 10, 2024. The proposal suggested investing even 1% of Microsoft’s assets in Bitcoin to mitigate inflation risks. However, the company's board recommended voting against it, citing concerns about Bitcoin's volatility and regulatory uncertainties. Even if shareholders vote in favor, the decision would be non-binding.

Meanwhile, MicroStrategy announced plans to raise $42 billion over the next three years to purchase Bitcoin. Known as the "21/21 plan," the strategy involves raising $21 billion from debt and $21 billion from equity offerings. This initiative aims to bolster MicroStrategy's position as a major Bitcoin holder, with current holdings valued at approximately $17.45 billion. Despite criticism, CEO Michael Saylor remains committed to promoting Bitcoin as a treasury reserve asset.

Together, these developments underscore Bitcoin’s expanding role in the global financial landscape.

Ethereum ETFs Overview

Ethereum spot ETFs also saw increased flows in October 2024, with net inflows amounting to $84.8 million. Here’s a breakdown of notable daily flows:

Daily Flow Analysis:

• Negative Flows: October began with a moderate outflow on the 1st, recording -$48.6 million. Additional negative flows included October 3rd (-$3.2 million) and October 4th (-$8.2 million).
• Positive Flows: Notable inflows occurred on October 2nd, adding $19.8 million, and on October 4th with an inflow of $7.4 million.

A comparative analysis of Ethereum ETF flows between September and October revealed moderate gains and some declines:

• ETHA showed a modest increase of 10.41%, while FETH and ETHW saw declines.
• CETH and ETHV marked substantial growth, with gains of 182.76% and 225%.
• ETHE partially recovered, moving from an outflow of -$346.6 million in September to -$160 million in October, a 53.84% improvement.
• Net flows shifted from -$46 million in September to $42.4 million in October, an improvement of 192.2%.

Ethereum Institutional Adoption Continues

Visa introduced the Visa Tokenized Asset Platform (VTAP) on the Ethereum blockchain, enabling banks to issue and manage tokens backed by fiat currencies. Through VTAP, financial institutions can create, transfer, and redeem tokens tied to currencies like the euro and the dollar, bridging blockchain technology with conventional banking systems. BBVA is among the first banks piloting the platform, with live tests anticipated in 2025. Beyond fiat-backed tokens, VTAP also supports stablecoins and tokenized deposits, providing a programmable and interoperable solution for banks.

Efforts also continue to enhance Ethereum's network efficiency, which underpins numerous blockchain applications, including VTAP. Ethereum Improvement Proposal 7781 (EIP-7781) proposes reducing the network's slot time from 12 seconds to 8 seconds, potentially boosting throughput by approximately 33%. This adjustment, supported by Ethereum Foundation researcher Justin Drake, could improve rollup latency and throughput, though careful evaluation is needed regarding validators' hardware requirements and potential state growth issues.

Grayscale Investments launched the Grayscale Aave Trust, a new investment vehicle providing exposure to AAVE, the governance token of the Aave platform. This trust allows accredited investors to invest in DeFi via Aave, enabling borrowing and lending through smart contracts without traditional intermediaries.

These developments underscore Ethereum's role in bridging traditional finance with blockchain technology, enhancing network efficiency, and expanding DeFi investment opportunities.

Ethena’s Continued Progress

During October, Ethena's TVL rose from approximately $2.53 billion to $2.72 billion, marking a growth of about $188.5 million or a 7.44% increase since October first.

Ethena also introduced two new proposals in October. The first of which being the prospective integration of Solana's native token, SOL, as a backing asset for its synthetic stablecoin, USDe. This proposal also included liquid staking options like Binance Liquid Staked SOL (BNSOL) and Bybit Liquid Staked SOL (bbSOL). The integration aimed to diversify USDe's collateral pool, which at that time included only Bitcoin and Ethereum, and had the potential to enhance Ethena's market presence. If approved by the Risk Committee, SOL would initially target an allocation of $100 to $200 million, representing 5% to 10% of SOL's open interest.

Building on its expansion efforts, the Ethena Foundation also proposed integrating Hyperliquid L1 as a venue for part of its hedging flow, pending technical and legal due diligence. This integration intended to leverage Hyperliquid's substantial user base and significant daily trading volumes, which range from $1 to $4 billion. The proposal included adding USDe to Hyperliquid's platform, aiming to enhance Ethena's on-chain hedging capabilities while reducing counterparty risk. If approved, the integration would be implemented gradually under the guidance of Ethena's Risk Committee.

Later on in the month, as a response to community inquiries on Discord and X about whether investors or the Ethena team were earning Ethereal rewards via sENA using locked tokens, Ethena issued a clarifying statement. They categorically confirmed that no locked team or investor tokens were staked as sENA earning any rewards, including Ethereal. This was publicly confirmed in Discord the previous week. Any ENA tokens sent out of the questioned wallets were unlocked following the exact vesting schedule outlined in the original token distribution blog post.

Furthermore, while the wallets in question contained unlocked foundation tokens eligible under the criteria, the foundation confirmed that these tokens would not receive any airdrops or related rewards from Ethereal. To enhance transparency, Ethena planned to add a section to the user interface within the week to clarify the total sENA eligible for future airdrops, excluding the undistributed sENA sitting in Liquifi contracts, making this information clearer to users.

These developments in October highlighted Ethena's efforts to diversify its collateral assets, expand its hedging capabilities, and maintain transparency with its community

Celestia Receives Its First Major Upgrade

Celestia underwent its largest investor unlock to date and saw the first upgrade to its Mainnet Beta. This update introduced new features aimed at enhancing the consensus network. The data availability (DA) network received its first major update, called Shwap, now active on the Arabica and Mocha testnets with the release of celestia-node v0.18.2. Shwap improves DA sampling speeds by 12x and reduces storage requirements by 16.5x, enabling larger block sizes and smaller nodes.

Shwap introduces a new messaging framework and storage system designed to enhance data sampling efficiency. Key improvements include:

• New data square storage subsystem: Eliminates the need to store historical Merkle proofs and global indices, yielding a 16.5x improvement in storage efficiency.
• Composable networking framework: Standardizes messaging for share exchanges without enforcing specific transport protocols.
• O(1) data availability sampling (DAS): Accelerates DAS, reducing round-trips for light nodes from 7 to 1.

Shwap represents a critical step toward Celestia’s vision of achieving 1GB block sizes. Although Shwap has laid the foundation for this scaling, additional optimisations will be necessary to reach this goal. With this infrastructure in place, the DA network is set to focus on maintenance, security improvements, and performance optimisations to bring Celestia closer to its ultimate objectives.

Aptos Celebrates Its Two-Year Mainnet Anniversary

Network Performance

In Q3 2024, Aptos set a Layer-1 benchmark by processing 326 million transactions in a single day, sustaining 13,36 TPS on its mainnet without disruptions or increased fees. Aptos now holds records for daily transactions among blockchains. Its preview network demonstrated even higher capacity, processing 2.1 billion peer-to-peer transactions within a 24-hour period.

Ecosystem Growth

Aptos has seen nearly a fivefold increase in TVL this year. The network now supports over 250 projects, and the Aptos Foundation has allocated more than $150 million to back over 165 projects, fostering a rapidly expanding developer ecosystem.

Technology Development

Utilizing the Move programming language, Aptos’ technology stack has been upgraded with Move 2, designed to streamline DeFi application development. Aptos Labs also introduced Raptr, an advanced consensus protocol, and Block-STM v2, a parallel execution engine designed for efficient scaling, low latency, and minimal gas fees. These developments support Aptos as a platform for DeFi, gaming, and payments.

Year 3 Outlook: Expanding Digital Finance Infrastructure

Looking ahead, Aptos aims to create infrastructure that can support a broader digital economy, enabling efficient global transactions. Integrating stablecoins such as Tether and USDY will allow for secure, low-fee cross-border transactions within the Aptos network. The network plans to expand applications in payments, advertising, loyalty programmes, and DeFi, with a goal to bring digital financial services to more users worldwide.

Uniswap Labs Introduces Unichain

In October, Uniswap Labs launched Unichain, a Layer-2 network on the Optimism Superchain, designed to improve transaction speed and reduce costs. The decision was controversial, as it bypassed governance input from UNI token holders. Critics, including a major UNI delegate, questioned Uniswap's decentralization and suspected undisclosed interests with Optimism. Despite these concerns, Unichain aims to address liquidity fragmentation and enhance interoperability across chains.

In addition to Unichain, Uniswap unveiled a permissionless cross-chain bridging feature enabling users to transfer assets across nine networks: Ethereum, Base, Arbitrum, Polygon, OP Mainnet, Zora, Blast, World Chain, and ZKsync. Powered by the Across Protocol, this feature supports both native assets and stablecoins, allowing transactions directly through the Uniswap Interface and Wallet. The bridging process is designed to be fast and secure, leveraging a decentralized network of liquidity pools and relayers to simplify cross-chain transactions and improve the user experience in decentralized finance.

Solana Pursues Restaking Initiatives, Institutional Staking, and Innovative Trading Platforms

The Jito Foundation launched Phase 1 of its restaking initiative for Solana on October 30, 2024, enabling users to increase their staking rewards while bolstering the network's economic security. This initial phase included a deposit cap of $25 million, which was quickly met, marking Jito's entry into the restaking market and capturing 8.3% of market share. Phase 2 is anticipated in the coming weeks, with plans to increase the global deposit cap.

At the same time, asset management firm VanEck partnered with Kiln to offer institutional staking services for Solana. This collaboration allows VanEck’s institutional investors to participate in Solana staking without managing SOL tokens directly. Kiln, a digital asset rewards platform overseeing over 2.5% of the Solana network, provides enterprise-level staking solutions. The partnership aims to deliver regulated Solana staking rewards, expanding institutional access to cryptocurrency markets, particularly in Europe.

Adding to these developments, Solana introduced RekTech, a high-risk trading simulator that mimics the volatile nature of meme coin investments. Promoted by Solana, the game offers an immersive "degen" trading experience without financial risk. Players start with a virtual $1,000 to trade in a simulated market, competing for a share of a $25,000 prize pool distributed through airdrops. RekTech aims to combine entertainment with education, offering insights into risky trading strategies while providing rewards for top performers.

Together, these initiatives underscore Solana's commitment to enhancing its infrastructure, attracting institutional investment, and engaging users through innovative platforms.

Reflexivity Research hosted Crypto Investor Day:

The Reflexivity Research Crypto Investor Day Conference on October 25 brought together industry leaders and experts for a full day of cryptocurrency market discussions.

The event began with attendees networking and connecting with one another, setting the stage for a collaborative atmosphere. Anthony Pompliano opened the conference with an inspiring keynote speech.

A panel discussion on the state of the crypto market followed, featuring insights from David Duong of Coinbase, Chris Kuiper of Fidelity Digital Assets, and Zach Pandl of Grayscale. Their conversation provided a comprehensive overview of current market dynamics and future projections.

Paolo Ardoino from Tether delivered a virtual presentation on stablecoins and the evolving payment landscape, shedding light on how digital assets are transforming financial transactions. Michael Roberts of Copper and Sebastien Badault of Ledger then discussed the importance of understanding institutional infrastructure in crypto, emphasizing how robust systems support market growth.

Betty Sharples spoke about how real-time inflation will change the world, offering a thought-provoking perspective on economic indicators and their impact on society. Tarek Monsour explored the future of prediction markets, discussing their potential to revolutionize decision-making processes.

After a lunch break, the afternoon sessions resumed with a fireside chat featuring Brad Garlinghouse of Ripple. He provided valuable insights into Ripple's direction and broader industry developments in addition to his personal experiences with the SEC cases. Austin Federa of Solana and Keone Hon of Monad discussed building a Layer 1 blockchain for the next million crypto users, highlighting challenges and opportunities in scaling blockchain technology.

Tony Saliba of Liquid Mercury and Pascal St-Jean of 3iQ Corp addressed the evolution of capital allocation in crypto and crypto derivatives, offering strategies for navigating this complex landscape. The state of the crypto regulatory environment was examined by Ladan Stewart of White & Case and Richard Levin of Nelson Mullins, providing legal perspectives on current and future regulatory challenges.

Cactus Raazi of B2C2 and Josh Neuroth of Quicknode discussed the tools institutions need to successfully navigate the crypto market, emphasizing the importance of robust infrastructure and technological support. Danny Condon of Blockware and Asher Genoot of Hut8 delved into the current state of the mining landscape, shedding light on operational and strategic aspects of cryptocurrency mining.

The evolution of the Layer 1 blockchain landscape was explored by Jay Jog of Sei Labs and Chris Donovan of the NEAR Foundation, who discussed innovations and developments in foundational blockchain technology. Quinn Thompson of Lekker Capital, accompanied by Will Clemente and Jeff Park provided insights on how capital allocators can effectively navigate the crypto market, offering strategies and considerations for investors.

The event concluded with closing remarks, followed by networking drinks sponsored by Avalanche. The conference offered a comprehensive overview of current trends, challenges, and opportunities in the industry.

Conclusion

The developments of October 2024 reflect the continuing evolution of the industry. The substantial ETF inflows for Bitcoin and Ethereum suggest a growing acceptance of digital assets in institutional finance. Technological innovations, such as Celestia's network upgrade and Uniswap's launch of Unichain, highlight efforts to improve scalability and efficiency. Solana's initiatives to enhance staking and introduce platforms like RekTech demonstrate a commitment to expanding access and user engagement. November is setting up to be an eventful month, with Bitcoin hovering near its previous all-time highs and the upcoming presidential election scheduled for November 5th.