As a seasoned crypto investor with a keen eye for market trends and a knack for spotting opportunities, I find myself intrigued by the ongoing memecoin trading frenzy that mirrors the California Gold Rush of yesteryears. The dizzying highs and lows are reminiscent of my early days in the stock market, where I learned to navigate the volatile waters with a steady hand and a level head.
In the heat of the current cryptocurrency surge, I find myself immersed in a memecoin trading mania that offers both exhilarating highs and nerve-wracking lows. However, it seems that those truly reaping the rewards are not the traders, but rather the suppliers of the necessary tools – the pick-and-shovel sellers, if you will, who provide the crypto infrastructure.
The surge in popularity of meme coins has led to an unprecedented increase in income for Solana-based decentralized applications (DApps), particularly the automated market maker Raydium, which recently collected a staggering $11 million in transaction fees over a 24-hour period.
In the last several weeks, there’s been a significant increase in on-chain activity for Solana. This surge has led to a dramatic rise in the daily trading volume for decentralized exchanges (DEX), which climbed from approximately $1.6 billion to a peak of around $10 billion, based on data provided by Blockworks.
Just like past crypto market booms, such as the current one, are frequently likened to the California Gold Rush (1848-1855), an event that started when gold was found during construction, leading to a massive influx of people as miners rushed to the region in search of their fortune.
By 1853, approximately 250,000 gold rush settlers had flocked to this region, and gold production surged dramatically. However, it’s commonly understood that the majority of the wealth wasn’t pocketed by these miners but rather by the businessmen who supplied them with necessities.
Essentially, it’s the ones providing the tools (picks and shovels) that strike it rich, rather than the miners who are searching for the gold.
In the realm of cryptocurrencies, vendors offering mining equipment or essential services can be likened to providers of infrastructure. These infrastructure providers encompass a variety of entities such as trading platforms, blockchain networks, digital wallet providers, payment systems, and various decentralized applications.
In conversation with CryptoMoon, Gracy Chen, the CEO of Bitget crypto exchange, affirmed that the “tools and supplies” comparison stays applicable within the realm of cryptocurrencies since it symbolizes the vital foundation needed for cryptocurrencies and the entire ecosystem to operate efficiently.
In a similar vein to how the California Gold Rush saw many prospectors becoming rich while others suffered financial loss, Chen referred to the surge of Initial Coin Offerings (ICOs) from 2017-18. This period ended up leaving numerous investors with losses, whereas founders of these ICOs enjoyed substantial profits—often spending their gains on high-end items like Lamborghinis and opulent villas.
A Binance representative shared with CryptoMoon that while the “picks and shovels” analogy isn’t entirely accurate for the complex dynamics of cryptocurrency markets, it does effectively describe entities offering vital infrastructure and services. Examples include stablecoin issuers, blockchain networks, mining companies, ETF providers, as well as others in this category.
Benefitting from the crypto gold rush
From the graph presented, it’s evident that Decentralized Exchanges operating on the Solana network are experiencing significant advantages. This is due to an increase in trading volumes, which in turn leads to a surge in collected fees, largely driven by the intense interest in memecoin trading.
David Gogel, who holds the position of Strategy Vice President at the dYdX Foundation, shared with CryptoMoon that in the past, exchanges have typically gained significantly during market upswings (bull runs), as soaring trading activity leads to increased fee earnings due to the surge in transaction volumes.
Gogel pointed out that these new trends persist, especially within the present market phase. Notably, innovative non-custodial wallets such as Phantom are gaining substantial traction through their mobile applications. This success stems from their ability to effortlessly blend into the active trading environment.
Vijay Chetty, head of Eclipse – a groundbreaking layer-2 network that links Ethereum and Solana – stated that entities such as Circle and Tether, who operate in the crypto sector with services like stablecoin gateways and asset issuance, gain advantages from the expansion of stablecoin supply and serve as access points for users.
Token and meme coin launch platforms like Pump.fun are performing favorably, Chetty mentioned. Additionally, services like Jupiter, which streamlines swapping activities, and Solana MEV (Maximum Extractable Value) along with liquid staking platforms such as Jito are also collecting a “substantial amount of transaction fees,” according to him.
It’s clear that according to Dune Analytics data, daily transaction volumes on Pump.fun, a well-known token launch platform, have significantly increased in recent weeks. This surge in popularity has even led to the temporary disabling of its live-streaming feature due to criticism over the explicit content it was hosting.
Illia Otychenko, who is a leading analyst at the cryptocurrency exchange CEX.IO, mentioned in an interview with CryptoMoon that companies providing infrastructure, such as oracles and software development kits, have excellent potential to flourish. However, he also pointed out that each market cycle brings about a new form of “valuable commodity,” similar to gold.
As reported by Otychenko in 2021, approximately 71% of the overall value tied up in decentralized finance was primarily found within decentralized exchanges and lending platforms. However, in the current phase, this distribution has changed significantly, with “liquid staking and restaking” becoming significant contributors to the total value.
Yet, Binance’s representative noted that crypto market participants might reap advantages too, given its “distinctive market dynamics.” They further explained:
“In the Gold Rush, miners pursued gold with limited predictability and strategic foresight. In crypto markets, participants — including traders, speculators and investors — have access to sophisticated tools, data, and strategies, allowing for more informed and calculated decisions.”
Consequently, they pointed out that although infrastructure providers are essential for the ecosystem’s expansion, it could be these groups – traders, speculators, and venture capitalists – who emerge victorious in the crypto market.
As a researcher delving into the intricacies of digital assets, I wholeheartedly agree that proficiency in advanced technologies opens up profitable opportunities within this realm. It’s not only limited to the developers or providers of these technologies, but also extends to those who skillfully harness them.
Is the current crypto bull run sustainable?
In simpler terms, the recent surge in the cryptocurrency market could bring advantages to both traders and service suppliers, but it’s unclear how long this upward trend (bull run) will continue according to experts.
According to CEX.IO’s Otychenko, the recent surge doesn’t seem likely to be long-lasting, but it might set a new standard for Solana transaction fees. He pointed out that in March 2024, Solana’s daily fees shot up from $200,000-$400,000 to $2 million-$3 million before leveling off between $1 million and $2 million.
A representative from Binance stated that the excitement suggests increased user interaction and action, but whether this momentum is sustainable is yet to be seen. Frequent increases in fees tend to occur periodically, often linked to broader market trends and distinct events.
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The long-term outlook will depend on “how market narratives and user behavior evolve.” They added:
“For such fee levels — and the underlying demand — to remain sustainable, Solana may need to reduce its reliance on concentrated DApp activity by diversifying use cases and cultivating consistent user engagement across a broader range of crypto subsectors.”
They determined that this might involve venturing into gaming, decentralized finance, and other rapidly growing sectors that could promote long-term usefulness and involvement. As the market evolves, business models may undergo changes, potentially introducing flexible fee structures if fees become excessively high.
As a researcher, I’m observing a significant strain on the current blockchain infrastructure, a situation that reminds me of a rigorous stress test. The pressing need to mitigate escalating transaction fees and enhance throughput has once again moved into sharp focus.
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2024-12-05 20:11