ETF Investors Unconvinced Despite Market Reversal

Did the Market Reversal Convince ETF Investors?

On Wednesday, the market rallied strongly as the Federal Reserve left interest rates unchanged at 5.25%-5.50%. However, ETF investors remained skeptical, with net outflows reaching $261 million, marking the third consecutive day of outflows. BlackRock's IBIT, despite maintaining its unblemished inflow streak, experienced its second-lowest daily inflow of $49.2 million. Nonetheless, the market's performance suggests that it can thrive independently of ETF flows.

Ethereum's Dencun Upgrade: A Boost for Base?

Last week's Ethereum Dencun upgrade significantly reduced transaction costs on Ethereum's Layer 2s, including Arbitrum, Optimism, and Base. Amidst the market correction, Base emerged as a standout performer, with volumes and total value locked (TVL) reaching record highs. According to DeFiLlama, Base and Solana were the only two chains among the top 11 TVL chains to post positive growth over the past week, both exceeding 9%. Base's TVL reached a new high of $770 million, while its daily volume surged to a record $370 million, ranking sixth among all chains.

Base: A Contender to Solana?

While Base trails Solana in terms of TVL and volume, it may have a hidden advantage. Coinbase's upcoming "Smart Wallet" will be accessible to all decentralized applications (dApps) that integrate it. This will enable Coinbase's 100 million registered users to engage in on-chain activities without the burden of seed phrases. Passkeys will allow users to connect to dApps and use their Coinbase account balances for on-chain transactions. This could attract a new wave of users to Coinbase and potentially drive them to Base as their initial destination. However, Base needs to expand its dApp ecosystem to support this growth.

Scaling Challenges: A Roadblock for Base?

The recent surge in volume on Base and Solana has exposed their scalability limitations. Both chains have experienced congestion, leading to transaction failures and elevated gas fees. Coinbase and Coinbase Wallet also faced transaction failures due to the increased usage on Base. If Coinbase aims to position Base as a rival to Solana, it will need to implement scaling solutions to prevent further issues. While onboarding new users may be easier with the "Smart Wallet," transaction failures can be a significant deterrent for the 100 million potential users. However, if any company can overcome these challenges, it is likely Coinbase, given its proven track record.