From Vaneck

Matthew Sigel

Head of Digital Assets Research

Patrick Bush

Senior Investment Analyst, Digital Assets 

Nathan Frankovitz

Investment Analyst, Digital AssetsIn December, blockchain activity surged with record DEX volumes despite crypto price drops. We highlight Hyperliquid's rise and Ethereum's challenges in the data availability market.

Please note that VanEck may have a position(s) in the digital asset(s) described below.

After a spectacular November, most Smart Contract Platforms (SCPs) experienced significant price corrections in December. The Market Vectors Smart Contract Leaders Index (MVSCLE) declined by 12%, with ETH down 10% and SOL plunging 21%. Conversely, BTC demonstrated resilience, down only 4%, thanks to consistent buying from MicroStrategy and the exchange-traded products (ETPs). Notable token gainers in December included MNT (+38%), TRX (+23%), and SUI (+20%). Despite altcoins’ underperformance in the month, daily transactions across all chains reached a record high of 13.7M, surpassing November’s 13M.

Bitcoin (BTC) Outperformed Other Majors During December Pullback

Source: Market Vectors, Artemis as of 12/26/2024. MarketVector Smart Contract Leaders Index (MVSCLE) is designed to track the performance of the largest and most liquid smart contract assets, and is an investable subset of MarketVector Smart Contract Index. Index performance is not representative of fund performance. It is not possible to invest directly in an index. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein. 

The average daily revenues for SCPs reached $17M in December 2024, the highest since April. Ethereum reclaimed its revenue leadership, generating $7M daily compared to Solana’s $4M. Despite emerging competitors like Sui, Base, and Hyperliquid, the top-earning chains in 2024 were Ethereum, Solana, TRX, BTC, and BNB.

DEX trading volume reached an all-time high of $433B in December, exceeding November’s $380B. However, the gains were unevenly distributed. 18 of the 32 tracked chains recorded volume increases, led by Tron (+178%) and BNB (+54%). Notably, Solana’s DEX volume fell (-10%) while Ethereum’s was up (+27%) on the month. Chains such as Ton (-32%), Gnosis (-31%), and Scroll (-29%) saw the largest declines.

Monthly Decentralized Exchange (DEX) Volume – All Chains (In Billions)

Source: Defillama as of 12/31/2024. Past performance is no guarantee of future results.

Price Returns

Source: Bloomberg as of 12/31/2024. Index performance is not representative of fund performance. It is not possible to invest directly in an index. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

Top Blockchain Revenue Comparison

Ethereum once dominated revenue generation, averaging five times the revenue of its closest competitor in 2023. However, its strategy to scale through Layer-2 (L2) blockchains—transactions processed off Ethereum and settled back to it—has redistributed economic value while other chains have gained users.

Recall that Ethereum’s March 2024 upgrade created "blob space," significantly reducing costs for L2s while boosting transaction capacity by ~100x. This shift allowed Ethereum to process more transactions but reduced its direct revenue share. In January 2023, Ethereum controlled 66% of SCP revenues; by December 2024, this had fallen to 41%. Lower blockspace prices and competition from chains like Solana and emerging players such as Sui, Base, and Hyperliquid also contributed to this decline.

Despite these challenges, Ethereum remains a cornerstone of the blockchain ecosystem. It continues to adapt by addressing community concerns about its economic model and the risks posed by centralized L2 sequencers. These centralized systems capture 70-90% of transaction fees and are susceptible to single points of failure.

Top Revenue Generating Blockchains by Month

Source: VanEck Research, Artemis as of 12/26/2024. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein. 

Addressing Execution Layer Concerns

Ethereum’s developers are actively exploring solutions to strengthen its execution layer and improve scalability. A key proposal is increasing the gas limit by 20%, enabling Ethereum to process more transactions per block. Gas measures resource utilization: a transfer between accounts consumes minimal gas, while complex operations like DEX trades consume significantly more. Currently, Ethereum targets 15M gas per block with a cap of 30M. This allows for approximately 59 simple transactions per second or 7 Uniswap trades.

While increasing the gas limit could reduce fees by 10-30%, researchers like Dankrad Feist advocate for a more ambitious doubling of the gas limit to 60M. This would not match Solana’s throughput but would demonstrate Ethereum’s commitment to scaling its L1 capabilities to accommodate mass adoption of decentralized applications (dApps).

Ethereum’s governance model plays a crucial role in implementing changes. Unlike token-holder voting, changes to Ethereum are enacted by validators updating their software. As of December 2024, over 20% of validators signaled support for increasing the gas limit, and this proportion continues to grow. If more than 50% of the users adopt the software update, the change will be implemented network-wide.

We think Ethereum’s evolution underscores its ability to adapt to the demands of a growing blockchain ecosystem. By addressing scalability and centralization challenges while maintaining its role as the backbone of decentralized finance and applications, Ethereum aims to solidify its leadership in an increasingly competitive environment.

The Percentage of Ethereum Validators Raising Gas Limit is Increasing

Source: Dune @erigon as of 12/27/2024.

December’s Notable Performer – Hyperliquid’s (HYPE) +234%

Hyperliquid Surges from 10% Market Share to 70% in One Year

Source: Artemis as of 12/27/2024. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

One of the themes of December was the radical success of the Hyperliquid project and its token, $HYPE, which returned (+234%) in December alone. On November 29, 2024, Hyperliquid launched its token and airdropped 27.5% of its total supply of $HYPE token to 94K users. Initially worth $1B, the value of this airdrop surged to $7.5B in value at the time of writing, making the $HYPE airdrop the largest in the history of crypto. In just one month of trading, Hyperliquid ranks as the 13th most valuable project in crypto at around $28B in fully diluted value.

Hyperliquid Deep Dive

Hyperliquid is a blockchain originally designed to optimize one application – a decentralized perpetual futures exchange (Perp DEX). It is technically a “Hybrid Blockchain” that should be considered in both the Layer-1 (L1) and Layer-3 (L3) categories. Hyperliquid operates in its own set of validators that form consensus, which technically makes it an L1. However, Hyperliquid also posts proof of its activity to Arbitrum (an L2), which makes it an L3. This framework was chosen because as an L1, Hyperliquid can create the architecture to greatly scale trading activity. At the same time, because it is an L3, it can access Ethereum’s immense base of users and assets.

Hyperliquid is successful because it created a better product, harnessed itself to a strong distribution mechanism, and cultivated a loyal community. In just under a year, Hyperliquid has not only attained status as the top Perpetual (Perp) Futures Decentralized Exchange (DEX) in crypto but also currently hosts 5x the trading volume of its nearest competitor. In December, Hyperliquid’s exchange hosted $156B in trading volume and $10.5M in trading revenues.

Hyperliquid’s liquid success story begins with its product. It offers a better trading experience than most other DEXes because it is hosted on a purpose-built blockchain and optimized for high throughput. Hyperliquid can process 100K orders per second, whereas most competitors like GMX and Vertex can process several magnitudes less. Even dYdX, which has its own bespoke trading blockchain, can only process 2K orders per second. Additionally, Hyperliquid offers a cheaper product with a lower fee structure than its rivals. For example, in December 2024, Hyperliquid charged an average of 0.68 basis points (bps) per $ of trading volume vs. dYdX, who charged 2 bps per $. Hyperliquid also gives open trading rebates to anyone with enough liquidity on its platform. This open rebate system contrasts with most other perpetual futures exchanges, which only offer rebates through non-public side deals.

Hyperliquid combines a better product and cheaper pricing with its ability to quickly onboard high-value users due to its close proximity to Ethereum. As a result of its L3 architecture, it can offer Ethereum users a relatively safer bridge and thus access $75B in application tokens, $111B in stablecoins, and $400B in ETH, all housed on Ethereum. dYdX, who created its own chain in the Cosmos, is unable to offer a comparably safe and simple asset bridging experience. Since launching its own chain in Fall 2023, dYdX has not exceeded $600M in TVL in its 15-month history, whereas Hyperliquid currently holds $2.2B in TVL.

Despite these advantages, Hyperliquid is a DEX, and these types of businesses tend to lack long-term competitive moats. This is because most DEXes are based on open-source code and offer features that are easy to copy. Because of this dynamic, each DEX has to find a way to glue users to its trading ecosystem. The solution that many choose is to introduce a token that can be used for the “governance” of the DEX. This token is often airdropped to users of the DEX as a reward for their activity. Many assume these tokens will eventually earn revenue from DEX usage and thus grant holders a stream of dividend-like rewards. As such, the effect of these airdrops is to give DEX users ownership shares in the DEX’s success.

Decentralized Exchange (DEX) Airdrop Token Performance After Airdrop

Source: Artemis as of 12/27/2024. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

The airdrop “games” for DEXes arguably kicked off in mid-September 2020, with Sushiswap launching its SUSHI tokens in an attempt to steal Uniswap’s user base. Within five days of SUSHI’s airdrop, Uniswap created the UNI token and handed it out to its own users. The value of this UNI airdrop was $350M in 2020, and these same tokens are now worth around $1.4B. Thereafter, DEXes have competed for users by giving them valuable tokens. dYdX also launched a very successful airdrop in September 2021 when it gave its userbase 75M token worth $1B. We consider Uniswap’s and dYdX’s airdrops successful because they catalyzed long-term business dominance in a sector of crypto without much competitive edge. Uniswap was the top DEX by volume every single month between July 2020 and October 2024, while dYdX held a similar crown amongst Perp DEXes between February 2021 and May 2024.

While many other DEXes have launched airdrops, very few have been able to translate their token airdrops into success for their platforms’ businesses. These failures partly reflect the difficulty of building a community of DEX users because most traders are “mercenaries” who lack loyalty to an application. Often, traders who expect an airdrop will inflate their activity to satisfy the airdrop’s criteria; typically, tokens are allocated pro-rata based on trading volume to receive the highest number of tokens. This creates a feedback loop for many airdrop recipients creating fake activity, making a DEX appear more successful than reality, selling their tokens, and moving on to a fresh airdrop campaign. Thereafter, DEXes see volumes dry up, and their token prices decline as the inorganic activity that drove false usership statistics leaves. DEXes such as Gains, GMX, Vertex, RabbitX, and many others once commanded significant market shares of DEX Perp trading volumes, but each has declined into obscurity.

Hyperliquid’s Market Cap Exceeds All Peer Market Caps Combined

Source: Artemis as of 12/27/2024. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

Though it is early, Hyperliquid has avoided the fate of most crypto DEXes and has reached valuations not seen by previous DEX projects. This is because Hyperliquid has built a growth story founded upon becoming a general-purpose blockchain that will accommodate other applications besides its “hyper” successful Perp DEX. This is interesting because it bucks the trend of most other blockchains that start from the beginning as general-purpose blockchains that hope to land a “killer application.” Hyperliquid’s spot asset DEX already processed enough trading volume, $260M per day, to rank 8th among all DEXes. Because Hyperliquid is based upon EVM, it can attract developers from Ethereum who are seeking a chain that can better accommodate their applications’ use cases. Hyperliquid’s valuation, which stands around $28B, is more valuable than most blockchains and has yet to attract much of a developer community. If Hyperliquid is unable to meet the growth expectations of its community, the prisoner’s dilemma facing many newly rich $HYPE holders may quickly unravel. Once again, we can see another Icarian tale about crypto hubris.

December’s Notable Performer – Mantle (MNT) +35%

Total Value Locked Among Top Alt-DA Ethereum L2s

Source: L2Beat as of 12/28/2024. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

Introduction to Mantle

Mantle had a standout performance in December as it reached a series of technical milestones that further solidified its position as a leading ‘Alt-DA’ Ethereum L2. The market has responded enthusiastically as Mantle’s TVL surpassed $2B, and MNT’s price approached its all-time high set in April 2024. Mantle’s decentralized exchange (DEX) volumes indicated sustained user activity, measuring $1.4B in December after reaching back-to-back all-time highs of $1.6B and $2.3B in October and November. Total transactions increased to 12.1M in December, up from 9.9M and 10.0M in October and November, respectively.

Mantle is an Ethereum L2 that hosts transactions on its own blockchain, posts proofs of that activity on Ethereum, and the full breadth of the data for that activity on a separate special-purpose network called ‘Mantle DA’ for data availability. This procedure contrasts with most Ethereum “roll-ups” like Arbitrum and Optimism, which post both the data and settlements on Ethereum. Technically, this classifies Mantle as a “validium” rather than a true L2 roll-up.

As an 'Alt-DA' L2, Mantle DA uses a custom version of EigenLayer’s EigenDA technology to ensure the raw transaction data needed to verify commitments remains publicly accessible. Instead of posting transaction data directly to Ethereum blobs, Mantle posts only state commitments—referred to as 'settlements'—to Ethereum for validation. These settlements are cryptographic proofs summarizing the current L2 state, such as account balances.

Mantle’s modular design enhances scalability and cost efficiency compared to rollups but introduces additional risk by relying on a system external to Ethereum. Thus far, these systems have been less popular than roll-ups because they have not assembled active ecosystems. By total value locked (TVL), Mantle leads alt-DAs at $2.08B in TVL but lags rollups Arbitrum One ($18.7B), Base ($14.0B), and OP Mainnet ($7.40B). Mantle’s $1.6B of DEX volumes rank similarly, lagging Arbitrum’s ($33.7B), Base’s ($52.2B), and OP Mainnet’s ($5.3B). However, Mantle claims 90% reduced costs compared to traditional Ethereum L2 rollups. If alt-DA L2s can securely sustain these cost savings, they may eventually surpass rollups in TVL.

Mantle’s Key Developments

Mantle achieved several significant milestones in December, reinforcing its position as a leading Alt-DA Ethereum Layer 2.

First, Mantle announced a key partnership with Chainlink, adopting Chainlink’s Cross-Chain Interoperability Protocol (CCIP). CCIP enables developers to create applications that seamlessly transfer tokens and communicate across multiple blockchains, making Mantle more attractive to projects requiring cross-chain functionality. Leveraging Chainlink’s reputation for secure, battle-tested code, this partnership highlights Mantle’s strategic focus on building brand network effects, onboarding liquidity, and attracting developers to its ecosystem.

Mantle also announced integration with Succinct’s ‘SP1’ zero-knowledge virtual machine (zkVM), marking a critical step in the L2’s roadmap transitioning from an optimistic to a zero-knowledge (ZK) validity rollup. This is important because it reduces Mantle’s transaction finality times from seven days to one hour. Finality is important because it lets traders know that their trades are settled so they can redeploy capital elsewhere. This boosts capital efficiency by enabling tighter trading spreads, lower borrowing rates in DeFi markets, and improved access to assets for traders and lenders. Further, by aligning with Ethereum’s interoperability standards, this upgrade helps Mantle benefit from the growth of Ethereum’s broader L2 ecosystem. This can be considered devices adopting the USB standard; it allows Mantle to seamlessly “plug in” to a network of compatible blockchains, including rollups like Arbitrum and Optimism.

Mantle’s interoperability advancements culminated in December with the integration of Compound III, a significant milestone highlighting the network’s growing liquidity and cross-chain capabilities. This upgrade introduced Ethena’s USDe stablecoin, Ignition’s wrapped Bitcoin FBTC, Mantle’s liquid staking token mETH, and wETH as new collateral options, further boosting Mantle’s DeFi ecosystem and network effects. To incentivize adoption, Mantle committed $10M in supply-side treasury liquidity on USDe markets and $1M in MNT rewards to incentivize users to interact with the protocol. However, at the time of writing, Mantle’s USDe market activity is relatively modest, with a 21% utilization rate, possibly reflecting cautious early adoption or a lack of immediate demand for borrowing.

December’s Notable Laggard – Celestia (TIA) -41%

Eclipse Accounted for ~95% of Celestia Blob Data in Late December

Source: Artemis as of 12/29/2024. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

Celestia’s Key Developments

Down (-41%), Celestia was one of December’s worst performers, despite recent traction in its core service: providing data availability services to other blockchains.

The Data Availability Market

As a modular data availability (DA) blockchain, Celestia focuses on securing transaction data while leaving execution to other layers. Data availability ensures that transaction data remains accessible for public validation without requiring all participants to store it entirely, a critical component for scaling high-throughput applications like gaming, logistics tracking, and real-time financial settlements. This approach to data availability can be thought of like a library where everyone can access the same book without needing to store their own copy, ensuring efficient access without overwhelming storage resources. Through these efficiency gains, DA layers like Celestia aim to enable the mass adoption of modular blockchain architectures, gaining traction through Ethereum’s scaling roadmap.

So far, Celestia’s primary competitor in the data availability (DA) market has been Ethereum, though new entrants like EigenLayer DA, Avail, NEAR, and Sui are adding to the competition. Since the start of Q3, Ethereum has consistently received twice as much average weekly blob data as Celestia—that is, until the week of December 23rd. That week, Eclipse, a modular Ethereum L2 launched in early December using Celestia for data availability, saw a 4,300% surge in transactions, causing Celestia to process ~3.4x more blob data than Ethereum. This spike in demand was driven by Eclipse’s blockchain design, which generates significant data volume as part of its high-throughput operations. By year’s end, Eclipse accounted for ~95% of Celestia’s total blobs. Despite this influx, Eclipse remains a nascent ecosystem, with only ~$36M in bridge deposits and most of its transactions being unrelated to user activity. While this demonstrates Celestia’s ability to handle substantial data loads, its blob fees remain far lower than Ethereum’s, earning just ~$6K per week compared to Ethereum’s $921K. Year-to-date, Celestia has generated ~$72K in blob fees versus Ethereum’s ~$8.4M, highlighting Ethereum’s dominance in the data availability (DA) market.

TIA, ETH, and the Data Availability Market

Celestia’s Blob Fees Stagnated as Ethereum’s Grew Steadily in Q4

Source: Artemis as of 12/29/2024. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

Celestia vs. Ethereum as Data Availability (DA) Products

Celestia’s potential advantage as a data availability (DA) layer lies in its lower costs and innovative data availability sampling (DAS) architecture, which enables scalable and cost-efficient solutions for high-throughput applications. Referring back to our library analogy, data availability sampling is like each member of the library having a random assortment of pages of all the library’s books; this prevents each member from having to store each of the library’s books but ensures that each book can be reassembled if called upon. In the second half of 2024, Celestia’s blobs earned $50.9K in fees at an average cost of $0.19 per MB, ~1/60th the average cost of Ethereum’s blobs, which earned $4.90M at an average cost of $11.14 per MB. This affordability positions Celestia as a compelling option for lower-stakes applications, such as gaming or supply chain solutions.

Despite Celestia’s affordability and efficiency, many projects continue to prioritize Ethereum’s blobspace due to its superior decentralization, security, and reliability. Combined with its robust Layer 2 ecosystem, Ethereum remains the preferred choice for mission-critical applications. Ethereum’s network effects are further amplified by ongoing innovation among its L2s, which are actively reducing the number of blobs they consume. If Ethereum successfully scales its blobspace through DAS or other methods while maintaining its superior security, it may limit opportunities for low-cost upstarts like Celestia to gain significant market share.

TIA vs. ETH as Data Availability (DA) Investments

As investments, the differing value accrual mechanisms of Celestia’s TIA and Ethereum’s ETH are also important factors to consider. In Ethereum’s DA model, blob fees are paid in ETH and burned, creating a deflationary effect on ETH’s supply. Ethereum’s recent blob fee growth may, therefore, be contributing to a potential bottom in the ETH/BTC ratio, which has been forming since mid-November. This deflationary mechanism, combined with ETH’s extensive adoption across on-chain markets, games, and Layer 2 blockchains, strengthens its position as “internet money.”

In contrast, TIA’s DA service fees, which are paid in TIA, are distributed to validators as staking rewards. This model creates sell pressure on TIA markets, as validators must sell earned tokens to realize rewards, whereas Ethereum’s success as a DA layer creates a deflationary effect that benefits all ETH holders. Further, demand for TIA depends on Celestia’s ability to attract rollups and modular blockchains as customers. While this effectively positions TIA as an investment tied to Celestia’s adoption, its use cases are narrower compared to ETH, which benefits from broader retail money-like adoption and deflationary dynamics. As the DA market becomes increasingly commodified by other new entrants, TIA will need to establish a technical moat to lock in DA fees or develop its own value-accruing narrative like ETH’s money utility to remain competitive.

The Broader Data Availability (DA) Market

Ethereum’s Economic Security Provides a Moat Attracting Total Value Secured (TVS)

Source: L2Beat as of 12/31/2024.

The public DA layer market has grown increasingly competitive as other players like Avail, EigenDA, NEAR DA, and others continue to push for new partnerships and announcements. However, the real, sustainable differentiation these services offer remains to be proven.

EigenDA, which launched in April 2024, leverages Ethereum’s validator set to provide a decentralized data availability solution. By reusing Ethereum’s security via “restaking,” EigenLayer positions itself as a cost-efficient alternative for rollups seeking reliable DA services without building separate consensus mechanisms. EigenDA has secured significant partnerships including Mantle and Celo. However, Mantle uses a custom (non-public) DA layer forked from EigenDA with significant modifications, most notably the removal of slashing conditions, and Celo’s transition from an L1 to an Ethereum L2 is in testnet, so its TVL is not yet reflected in EigenDA’s public DA layer’s total value secured (TVS). Avail, which went live in July 2024, similarly offers modular DA capabilities optimized for zero-knowledge rollups, targeting high-throughput applications like entertainment and social networks, illustrated by its partnerships with Lens and Sophon. NEAR DA has partnered with RSS3, a decentralized network that supports open AI and the Open Web, affording it the second-highest TVS despite earning de minimis fees relative to Ethereum and Celestia. Mysten Labs, the developers behind Sui, is the latest to join the trend, announcing the whitepaper for a decentralized storage and DA protocol called Walrus in September.

Despite this diversity, many DA solutions offer comparable performance and cost structures, limiting their ability to stand out. Thus, Ethereum continues to dominate the DA market due to its superior network effects. User adoption and trust remain key strengths, with Ethereum’s blobspace benefiting from the security and decentralization of its mature validator set. Ethereum’s dominant developer ecosystem also reinforces its position with extensive tooling, SDKs, and compatibility with zk-rollups and optimistic rollups, locking in projects to its infrastructure. Additionally, Ethereum promotes interoperability and composability. A widely adopted DA layer promotes interoperability across various blockchains and rollups, fostering a broader ecosystem of composable applications. Ethereum’s DA solutions are also associated with economies of scale, as a larger user base can distribute costs (e.g., for storage or validation) and theoretically coordinate governance more effectively, reducing fees and improving technical upgrades for everyone.

Understanding Slashable Stake and Total Value Secured (TVS)

Lastly, it is important to understand the role of ‘economic security’ as it pertains to the data availability market, as it is this feature of Ethereum that arguably creates its biggest moat.

In the data availability market, ‘economic security,’ quantified by ‘slashable stake,’ is the total value of staked assets at risk of being slashed (penalized) if validators act maliciously. This ensures validators are incentivized to maintain honest behavior, as they have significant financial stakes in the network’s security. Malicious behaviors include withholding critical data required for rollups or modular blockchains to verify their state, proposing blocks with incomplete or corrupted data, or colluding with other validators to make data unavailable. These actions could undermine the security and functionality of the network, disrupting applications and potentially leading to financial losses for users.

While Total Value Locked (TVL) measures the value of assets directly held within a single blockchain or Layer 2, Total Value Secured (TVS) represents the cumulative value of all blockchains that rely on a DA layer for security and scalability. For example, Ethereum’s $46.9B in TVS reflects the value of its extensive and high-value rollup ecosystem, significantly higher than other public DA layers such as NEAR DA’s $1.87B and Celestia’s $0.95B in TVS.

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