Parts of the crypto market sprung to life on Wednesday as blockchain upgrades and increased activity have pushed a number of tokens higher. Ethereum‘s (ETH 3.14%) Shanghai upgrade was tentatively set for March 2023, which could give a boost to some staking and utility tokens.
In the last 24 hours, Lido DAO (LDO 12.94%) jumped 15.3% as of 12:45 p.m. ET, Ethereum Classic (ETC 20.64%) is up 17.7%, and Solana (SOL -0.21%) is up 5.2%.
One of the impacts of the Shanghai upgrade will be to allow stakers and validators to withdraw their tokens that have been locked since December 2020, providing more liquidity to a project like Lido DAO. One of the risks seen by many of these liquidity pools is running low on liquidity for the staked token. Locked tokens have equivalents that trade at a discount to the underlying asset, but that gap should close significantly, helping Lido DAO.
Ironically, upgrading the Ethereum blockchain may make regulators view Ethereum as more of a security than it was previously. As a result, traders are speculating that Ethereum Classic may become more attractive. And since this is a lightly traded token, it doesn’t take a lot of bullishness for the cryptocurrency to move higher.
Solana continues to recover from its lows over the past month and is now up 34.9% in the past week. It sounds crazy, but the airdrop of a token called BONK has led to a rapid increase in network activity. Decentralized finance trading was just $6.4 million on Dec. 29, and has increased to $84.4 million in the last 24 hours.
One of the biggest criticisms of Solana recently has been developers and traders leaving the community, but that doesn’t seem to have been the case, and the blockchain is completing 4,000 transactions per second, about 250 times more than Ethereum.
For all three of these tokens, the market is trying to determine future activity and utility. That’s what drives adoption and higher valuations.
What’s not clear right now is the impact further Ethereum upgrades will have on projects like Lido and Ethereum Classic. The arbitrage trade may eventually close, which will put a limit on the upside. In addition, network fees are going to be declining with some of these upgrades, making staking less attractive for some investors.
I think the biggest positive to come out of this would be liquidity risk being reduced across crypto. Over the last year, we have seen the illiquidity of some tokens become a major problem for funds trying to trade, including illiquid staking tokens. If protocols like Lido can liquidate assets as they need to, it will reduce risk throughout the crypto ecosystem.
If upgrades take place slowly but surely throughout 2023 in Ethereum, that could be another boost to crypto. The blockchain is key to many of the most popular tokens, and billions of dollars are 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.