Treasury Yields, Transaction Volumes, Flows at Year-Highs: What happened in crypto this week?

In this report, we walk you through the U.S. inflation data that came out last week and what they mean for crypto. We also explain the positive sentiments around Cardano and Polygon, who both have radical upgrades lined up.

Inflation Comes in Hot; Bitcoin Holds Steady at $52K

Consumer prices came in higher than expected and rose by 3.1% in the year through January. Stock prices plunged following the release. Over the past week, the S&P 500 and Nasdaq Composite declined by 0.42% and 1.28%, respectively. Often used to gauge future consumer prices, industrial indicators have also disappointed expectations. The Empire State Manufacturing Survey, conducted monthly by the Federal Reserve to give an outlook on general business conditions within the state, found that manufacturing activity in the state of New York shrank further to -2.4%; although shooting up by 41 points, the figure still indicates worsening conditions for manufacturers which often gets passed on to consumers. Measuring demand for goods and cost of services, the Producer Prices Index rose to 0.9% year-over-year, further dimming hopes for a rate cut in March.

In turn, the yields for two- and five-year treasury bills rose to year-to-date highs, indicating falling demand due to investors hedging their positions ahead of the upcoming FOMC meeting, whose minutes come out on Wednesday. Treasury yields are often used as a proxy for sentiment around alternative, risk-on investments, like crypto, which has been enjoying institutional flows thanks to the one-month-old spot Bitcoin ETFs trading in the U.S. Bitcoin moved tightly around the $52K over the weekend, while peaking in inflows to almost 18K BTC on February 14, as shown in Figure 1.

Figure 1: US Spot Bitcoin ETF Flows

Source: Glassnode

Cardano Aims at Further Decentralization and Higher Smart-Contract Functionality

After working on decentralization, smart contracts, and scaling, Cardano is finally preparing for its “Voltaire Era,” which focuses on governance. Landmarked by its Chang hard fork, Cardano’s Voltaire Era aims to fuel its further decentralization with new governance and treasury systems. Scheduled between Q1 and Q2 of 2024, the Chang hard fork will introduce the concept of minimum-viable community-run governance to the Cardano blockchain by instituting the capabilities for on-chain community consensus, governed by a constitution that is yet to be written and voted on by the end of this year.

In its current form, Cardano has a standard governance system where token holders simply have the right to vote on improvement proposals presented by the network’s management. However, with the Chang hard fork applied, token holders (now network participants) will also have the right to present improvement proposals – that’s the first feature. The second feature is full decentralization: the network participants will replace the management of Input Output HK (IOHK, the engineering company behind Cardano). To fund this evolution, a treasury system will extract a fraction of all transaction fees to provide funds for development activities undertaken following the voting process.

On the tech side, Cardano is currently trialing a third version of its programming language, Plutus, which is expected to boost smart contract functionality to facilitate governance controls, privacy-focused applications, and scaling solutions built on Cardano. That said, Plutus V3 is designed to make Cardano seamlessly interact with Ethereum and other blockchains as well as absorb an increasing volume of transactions, making the Cardano blockchain an even more attractive platform for developers. Excitement took Cardano by storm; ADA, Cardano’s native currency, jumped by 12.67% week-over-week. Transaction volume on Cardano has also almost reached its highest level this year, as shown in Figure 2.

Figure 2: Cardano’s Transaction Volume

Source: Messari, CoinMetrics

Polygon’s “AggLayer” Spurs Excitement, Rooting for Blockchain Interoperability

Similar to how the Internet Protocol, or TCP/IP, connects computer systems in a network, Polygon’s aggregation layer, or AggLayer, is an additional liquidity-focused layer that aims to unite a divided blockchain landscape of Zero-Knowledge-powered networks, providing a cohesive experience akin to a single chain, as illustrated in Figure 3. In theory, this move would ultimately improve interoperability between the chains connected to Polygon without taking a toll on each chain’s sovereignty.

Going live on mainnet on February 23, the AggLayer would set Polygon apart from other scaling solutions that have frameworks similar to Polygon’s Chain Development Kit (CDK), such as Optimism’s OP Stack and Arbitrum’s Orbit, which streamline building customizable networks connected to Ethereum. Chains plugged into Polygon’s AggLayer would be at an advantage due to the unified liquidity it brings, as opposed to the fragmented status quo. The AggLayer’s core objective is to combine the liquidity of various connected blockchains into an aggregated interface to improve capital efficiency and user experience with a more intuitive design, as well as boost network effects.

Figure 3: Diagram showing how the AggLayer unifies liquidity

Source: Polygon

The AggLayer’s interoperability mechanism can be broken down into two functions: aggregating Zero-Knowledge proofs of liquidity transfers from all connected chains while ensuring safety for near-instant, atomic cross-chain transactions. As shown in Figure 4, Polygon’s unique active addresses reached an all-time high on February 18 as its native currency, MATIC, surged by 12.88% week-over-week.

Although this new primitive has already generated excitement around Polygon before even launching, the technology’s success is yet to be battle-tested in the coming months.

Figure 4: Polygon’s Unique Active Addresses Reached an All-Time High

Source: Polygonscan

This Week’s Calendar

Source: Forex Factory

Research Newsletter

Each week the 21Shares Research team will publish our data-driven insights into the crypto asset world through this newsletter. Please direct any comments, questions, and words of feedback to


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