What happened?
Portions of the crypto market came alive on Wednesday as blockchain upgrades and increased activity propelled a number of tokens higher. ether‘s (ETH 3.13%) The Shanghai upgrade has been tentatively scheduled for March 2023, which could provide a boost to some staking and utility tokens.
in the last 24 hours, Lido DAO (I DO 14.01%) up 15.3% as of 12:45 p.m. ET, Ethereum classic (ETC 20.37%) has increased by 17.7%, and Solana (SOL -1.14%) increased by 5.2%.
so what
One of the impacts of the Shanghai upgrade will allow stakers and validators to withdraw their tokens locked since December 2020, providing more liquidity to a project like Lido DAO. One of the risks that many of these liquidity pools see is running out of liquidity for the staked token. Locked tokens have equivalents that trade at a discount to the underlying asset, but this gap should close significantly, helping Lido DAO.
Ironically, the upgrade of the Ethereum blockchain may result in regulators viewing Ethereum as more secure than before. As a result, traders are speculating that Ethereum Classic could become more attractive. And since it’s an easily traded token, it doesn’t take much bullishness for the cryptocurrency to move higher.
Solana continues to recover from its lows over the past month and is now up 34.9% over the past week. It sounds crazy, but the airdrop of a token called BONK has caused a rapid spike in network activity. Decentralized finance trading was just $6.4 million on Dec. 29 and has risen to $84.4 million in the last 24 hours.
One of the biggest criticisms of Solana recently has been that developers and traders have left the community, but that doesn’t appear to have been the case, and the blockchain performs 4,000 transactions per second, about 250 times more than Ethereum.
What now
For all three of these tokens, the market is trying to determine future activity and utility. This drives adoption and higher ratings.
It is currently unclear what impact further Ethereum upgrades will have on projects such as Lido and Ethereum Classic. The arbitrage trade might eventually close, which will put a cap on the uptrend. Additionally, network fees will come down with some of these upgrades, making staking less appealing to some investors.
I think the biggest positive outcome would be that liquidity risk is reduced over crypto. Over the last year we have seen the illiquidity of some tokens become a major concern for funds attempting to trade, including illiquid staking tokens. If protocols like Lido can liquidate assets as needed, it will reduce risk across the crypto ecosystem.
If upgrades slowly but surely take place in Ethereum throughout 2023, it could be another boost for crypto. Blockchain is key to many of the most popular tokens, and billions of dollars are being staked, so lower fees, faster speeds, and more transactions would be good for everyone.
Travis Hoium has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Ethereum, Lido DAO, and Solana. The Motley Fool has a disclosure policy.
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