A weekly recap of the most insightful news, analysis, and capital flows in the wild west we call crypto.

Hello and welcome back to the Web3 Rewind! Per usual in this industry, lots has happened this past week. Here's what we have in store for you:

• A look back at 2023

• Solana wealth effect

• Tether complies with OFAC

• Kucoin settles with New York’s Attorney General

• IRS hunts FTX for unpaid taxes

• Data availability in crypto

The Latest

A 2023 Decential review

Wealth effect dept.

The Solana catalyst

Last week, we briefly touched on Jito’s airdrop. For those who need a refresher, Jito is a liquid staking protocol on Solana that has also built an MEV-optimized validator client. This makes them the Flashbots + Lido of Solana. The token became claimable on December 7 and quickly began to be traded on various DEXs and CEXs. At its peak, the token traded at $4.34 on December 9th. Taking the total number of tokens that were airdropped and immediately sellable of 90M, Solana degens just casually became nearly $400M richer. Sure, you could argue that not everyone could sell at that price, especially considering the token now trades at $2.84. But that is still a staggering amount of money that was just given away for free to less than 10,000 users.

When people in crypto talk about a wealth effect, they mean that a large airdrop in the ecosystem results in much higher token prices and user activity. This plays out because users sell their airdrop to buy other tokens, use those other tokens across various protocols, and new users come into the ecosystem wanting to land a similar-sized airdrop. This is exactly what happened, as Solana’s premier memecoin, BONK, proceeded to go up over 30%. Similarly, blue-chip Solana NFT collections such as Madlads and Tensorians all pumped following the airdrop.

There have been two large airdrops in the Solana ecosystem in the past few weeks, Pyth and Jito. And there are many more to come, including Jupiter’s confirmed airdrop and what many are speculating to be a potential airdrop from Wormhole, considering their $225M raise at a $2.5B valuation. Traditionally, airdrop farmers were limited to Ethereum and EVM-compatible chains, as hundreds of thousands of wallet addresses compete for a tiny slice of the pie. On Solana, the story is slightly different, as the ecosystem has been relentlessly beaten down after the FTX collapse. However, loyal users were handsomely rewarded, especially those 10,000 Jito depositors. It is extremely rare to see an airdrop of such magnitude with only 10,000 recipients.

But with Jito, those airdrop farming dynamics are long gone. Most Solana protocols saw a 100% increase in daily active users after Jito was released. Notable protocols that saw a relatively larger increase in DAUs include Drift, Zeta, MarginFi, Parcl, and Tensor, all of which happen to be protocols touted by users on crypto Twitter. As a result of the increased user activity, Solana’s priority fees, an extra charge that users pay for faster transaction inclusion, has hit a daily all time high. That could bode well for the network, considering one of its main criticisms is that it is far from profitable. — Joseph Cooper, Decential Media

Quick Bits

Tether OFAC compliance

• Tether has always been Circle’s less compliant little brother. However, they have finally decided to bend the knee, this time to the US Office of Foreign Assets Control. Previously, Tether had publicly stated that it would not be freezing Tornado Cash addresses.

• As a result, Tether has decided to freeze 161 wallet addresses, including some that are linked to OFAC-sanctioned Tornado Cash. Perhaps this will help Tether’s “constrained” rating from S&P Global Ratings.

Kucoin settles with NY’s AG

• Kucoin has settled with the New York Attorney General’s Office for $22M. Another CEX operating in NY bites the dust. It seems like New York is one of the US states with much stricter crypto regulations.

• Granted, Kucoin isn’t exactly the steward of compliant centralized exchanges. For a long time, the CEX did not have mandatory KYC, and this resulted in users flocking to the platform.

IRS FTX Claim

• The tax man comes for all, including FTX creditors. The IRS recently revised the amount of taxes that FTX owes from $44B to $24B. The new figure is still equally staggering considering the total assets that the FTX estate has is likely just shy of $10B.

• The IRS continuing to push for this tax claim will undoubtedly remove any chance of creditors getting a reasonable amount of assets back, and only further delay the bankruptcy proceedings.

And last but not least

Data availability in crypto

Celestia is a data availability layer. If you have no clue what a data availability layer is, we can help break it down. Blockchain networks store a ledger's state, essentially saying at each point of time (block), what the state of each address/contract is. In very simplified terms, a blockchain saves how much of each token you have for every address. From there, in order to move to the next state, transactions get executed. These transactions, such as Tim wanting to send Bob 100 ETH, have inputs. These inputs are called transaction call data, and sometimes state diffs, and these help the blockchain know how to change the state of the network. Anyways, if you are a rollup on Ethereum today, such as Optimism and Arbitrum, it costs a lot to post that data onto Ethereum. In fact, at its peak in May 2023, it cost Arbitrum $9M to post that transaction data. That’s a pretty hefty cost of goods sold, significantly reducing gross margins. Why is it so expensive? Cause using Ethereum is expensive. That’s a whole other discussion.

Why is data availability important? The best way to explain is to use a real-world example. Everyone has a bank account. Chances are, if you log in to your bank’s website, you can see your current checking account balance. But how do you verify that it’s accurate (assuming you’re hardworking enough to bother)? You take your balance at the end of the last month, download all your checking account and credit card statements, and then reconcile everything to ensure the numbers add up. Those bank statements are the equivalent of data availability for blockchain networks. Without data availability, blockchain networks become a little problematic as you can never verify whether the current state of the blockchain and your balances are correct.

That’s why alternative data availability layers such as Celestia have popped up. These data availability layers allow blockchains to post data at a fraction of the cost. Using Celestia, Arbitrum would have likely only needed to pay a few hundred dollars in fees for that month where they paid $9M to Ethereum. So does that justify a nearly $13B valuation for Celestia right now? Probably not, considering they would be a 99.99% less profitable business simply because they are underpricing data availability by so much. However, that hasn’t stopped crypto from bidding the token up, as no one really looks at fundamental valuations anyway. Another widely anticipated data availability layer, EigenDA, will be launching soon. Will data availability eventually become a commodity? And will that lead to Ethereum generating much less revenue considering the bulk of crypto activity is moving to rollups? Find out in 2024. — JC

Have you read the definitive history of Ethereum? No? Well then get your copy of Out of the Ether while you can.