--- title: “That’s Our Two Satoshis” - The Blockspace Cycle Turns description: We discuss how blockspace, defined as the part of blockchain used to run code or post data, has changed with the environment and where we sit compared to October 2022. image: https://www.ar.ca/hubfs/Copy%20of%20TO2S%20375x175%20%282845%20%C3%97%201600%20px%29%20%282%29.png --- [![email-sig-logowhite](https://www.ar.ca/hs-fs/hubfs/email-sig-logowhite.png?width=102&height=96&name=email-sig-logowhite.png "email-sig-logowhite")](https://www.ar.ca/) [![Get in Touch](https://no-cache.hubspot.com/cta/default/4536350/28ac2c2f-186c-436f-9682-1169cf946ad3.png)](https://cta-redirect.hubspot.com/cta/redirect/4536350/28ac2c2f-186c-436f-9682-1169cf946ad3) ** ** ** [![Arca](https://www.ar.ca/hs-fs/hubfs/arca_square_576x576.png?width=60&height=30&name=arca_square_576x576.png "Arca")](https://www.ar.ca/) [![Get in Touch](https://no-cache.hubspot.com/cta/default/4536350/28ac2c2f-186c-436f-9682-1169cf946ad3.png)](https://cta-redirect.hubspot.com/cta/redirect/4536350/28ac2c2f-186c-436f-9682-1169cf946ad3) ** ** ** Search **Menu** ** ** [![Data Room](https://no-cache.hubspot.com/cta/default/4536350/72e2934a-0f70-4634-897e-b99fd4807a9b.png)](https://cta-redirect.hubspot.com/cta/redirect/4536350/72e2934a-0f70-4634-897e-b99fd4807a9b) [![Get in Touch](https://no-cache.hubspot.com/cta/default/4536350/28ac2c2f-186c-436f-9682-1169cf946ad3.png)](https://cta-redirect.hubspot.com/cta/redirect/4536350/28ac2c2f-186c-436f-9682-1169cf946ad3) ![](https://www.ar.ca/hubfs/Blog/Thats%20Our%202%20Satoshis/Branding/2-Sats-Header.png) [Market Recap](https://www.ar.ca/blog/tag/market-recap) | # “That’s Our Two Satoshis” - The Blockspace Cycle Turns [![Jeff Dorman, CFA](https://www.ar.ca/hubfs/Jeff%20Dorman.png)](https://www.ar.ca/blog/author/jeff-dorman-cfa) Written by [Jeff Dorman, CFA](https://www.ar.ca/blog/author/jeff-dorman-cfa) Sep 11, 2023 ******![Thats Our 2 Satoshis Logo](https://www.ar.ca/hs-fs/hubfs/Thats%20Our%202%20Satoshis%20Logo.png?width=300&name=Thats%20Our%202%20Satoshis%20Logo.png)****** **Special Edition Written by Nick Hotz, CFA - Analyst at Arca**   **Reintroducing the Blockspace Cycle** In October 2022, we hypothesized[the Blockspace Cycle](https://www.ar.ca/blog/the-predictable-pattern-of-the-blockspace-cycle), where valuations, narratives, and relative performance of digital assets tend to move in waves that are driven by the inherent cyclical supply/demand nature of our most important commodity, blockspace. Blockspace can be defined as the space on a blockchain that is used to run code or post data and serves as the resource that fuels the blockchain economy. Users of applications consume blockspace, but it’s important to note that not all blockspace is created equal - users need to trust a blockchain’s security - and be willing to pay for it.   When we last mused about the cycle in early October 2022, it was clear the blockchain economy was ice cold. We saw ourselves in the later stages of a cyclical winter consisting of decreasing demand and prices. At the time, we had clearly been through some tough times in the digital assets space, though the collapse of FTX (November 2022) was still ahead of us, which really put us at the bottom, in terms of sentiment.   ![](https://lh4.googleusercontent.com/Kr9lsZmYv-oxwfBXdHOhkgfEGtjPuNObXL-_1Vb9DKhA7hxDnpOu-OKl4X0LzC09zvUBHR0wMM4CR1vcO5yeLl_EKBNL-zGd4-E5l9ohlrAdjQNLlGcdzDqKUPgBs_RspsQ4MgePyt_dQ_Ckwn4HQVA) Source: Arca Internal Research (10/3/2023)   While we were roughly accurate on the timing of transitioning out of the feared bottom-right blockspace quadrant, our prediction that applications will appear attractive compared to the infrastructure, looks, if anything, too early. In the time since our last post, we’ve seen even greater attention to building infrastructure and less focus on what to do with said infrastructure. Layer-2 blockchains, wallets, blockchain architectures, and re-staking have surpassed DeFi, NFTs, and especially DAOs as preferred topics of conversation in digital assets investor circles. As we mentioned nearly a year ago, an absolute onslaught of new infrastructure will hit the market this year (or in some cases, already has), with innovations making it easier than ever to access cheap and secure blockspace. Ethereum’s EIP-4844 promises to slash costs on Layer-2 rollups, bringing transaction fees down to pennies, and Optimism’s OP Stack has recruited more than a dozen projects to build blockchains, including heavy hitters like Coinbase and Worldcoin. A slew of new general-purpose L1s and L2s including StarkNet, Polygon zkEVM, zkSync Era, Aptos, Sui, Sei, Linea, Mantle, and others, have all launched to generally underwhelming excitement. We are at the opposite end of the mid-2021 cycle when“sky high” Ethereum gas fees had users salivating for more reasonable options, and but we’re now at a point where even[paying users](https://www.notion.so/Sunday-Weekly-Trading-Note-4-2-2023-f68c80cd2963405899f04ec998d8a481?pvs=21) to check out your new blockchain isn’t working all that well.   ![](https://lh3.googleusercontent.com/yNcj9phGfsRgK5gpZ1m5auel01iIj4bl-1nJqKIyCrcmekbWlggb7Eu4H6Ixv5LoCA7WLIsJGD8LaozPHG5r35dht-OESbJcgMzCvh46X8bTNDDfVo2J5MFO2WpbWsWuNtxiZdIB1fqoPz8dUElQDsw)   Looking at market valuations, there are zero non-pegged asset applications sitting in the top 20 tokens by market cap. Even when expanding our scope to the top 40 tokens, only three make the cut (UNI, OKB, LDO). Compared to March 2021 when UNI sat at #8 in terms of market valuation, AAVE sat in the top 20, and 4 additional asset applications sat in the top 40. Judging by market cap alone, it’s clear that the market is just not putting any sort of premium on applications right now.   ![](https://lh4.googleusercontent.com/YJfMxPnWVY-DNMe9000FPswp2LyIncwnqrf1XvMZMGElhen9Pfeh7Jl4BQuRWRuRhweF-EVQish2KIADWurieuylOhobma7bIO9WFJ-cstxroymNMgGUjbFgjjhE5jmrL39jJmdtiN0MBvS3lmADflI) Source: CoinMarketCap, Arca Internal Research   **The Blockspace Cycle Turns** Despite the negative sentiment and valuations for crypto applications currently, there are “green shoots” that could represent the early instances of products capable of attracting mass adoption. These projects have only started cropping up in the past few months as builders increasingly move on from iterating on old themes (a 2022/  early-2023 favorite) in order to experiment with new ones. Recently, Crypto Twitter flocked to an app called[friend.tech](http://friend.tech/), which allows users to buy tokens (called “keys”) that represent Twitter influencers in order to provide access to private chat rooms. Despite a shoddy user experience,[privacy red flags](https://www.coindesk.com/web3/2023/08/11/is-friendtech-a-friend-or-foe-a-dive-into-the-new-social-app-driving-millions-in-trading-volume/), and referral code gating, the app facilitated over[1.5m transactions and $60m of transaction volume](https://dune.com/msilb7/friendtech-on-base-activity) in just under two weeks. We’ve since seen a wave of building on top of the app with[FriendMex](https://friendmex.com/?address=0x4e5f7e4a774bd30b9bdca7eb84ce3681a71676e1) providing a trading interface and[wrapped friend keys](https://twitter.com/0xfoobar/status/1692988899809796472?s=20) enabling further composability. In the past few days, we saw traction among non-crypto figures, including the esports influencer FaZe Banks and Grayson Allen of the Milwaukee Bucks. Similar applications, like[Bitclout](https://twitter.com/BitClout_), have seen mixed success, gaining initial traction but quickly fading as influencers lose interest. However, friend.tech’s launch on Coinbase’s Base L2 means that transaction fees are unlikely to be a limiting factor and its app-like mobile onboarding experience is far superior to what we’re used to in digital assets. While it’s unlikely friend.tech will reach mass adoption, it does demonstrate how blockchain-enabled composability, a superior onboarding experience, and playing into digital asset financialization can quickly start a trend. ![](https://lh3.googleusercontent.com/LxRukm76zix0lqjiKyv0-spQMnIdGH46fboS9-JwUMCM7Xez2Ihwr7Dc4_wJmfDxwBgUvtnN6gWUvOD-Pf7MO8_Xn6D0dE-7Cv-LWPHHxsZGxixW6ZbbDyELCvBTJXVOdb0P1J2EA3z_1jtpQT5jbw0)Source: @msilb7 on Dune   While many projects in 2021 attempted sustainability through new NFT mints and other circular crypto-ecosystem games, projects like DeGods, Pudgy Penguins, and Kanpai Pandas are instead offering real-world experiences and products that bring utility and financial value to their holders. These projects are creating real intellectual property businesses while looping holders into the economic equation, and in turn, creating an army of well-capitalized evangelists, and possibly unlocking a real business model for future NFT projects.   Over on the Solana blockchain, the advent of compression technology reduced the cost to mint NFTs by orders of magnitude helping unlock use cases completely unfeasible on Ethereum. With the ability to create 1 million NFTs for around $100, applications are starting to experiment with new models on top of the technology.   - Helium[minted its nearly 1M user accounts as NFTs](https://decrypt.co/137257/helium-completes-solana-migration-minting-nearly-1m-nfts-in-the-process/) in its transition to Solana, sharply improving the ease, cost, and minting NFTs made the migration to a new chain more secure - [DRiP Haus](https://blockworks.co/news/drip-haus-mass-adoption-strategy) allows creators to mass airdrop thousands of NFTs to their fans thus improving the ability to distribute and collect desirable content - [Dialect](https://www.dialect.to/) is a messaging platform built entirely on Solana that allows built-in payments and NFT sticker collecting ![](https://lh4.googleusercontent.com/sUeBSu4v4axdK6A-F5JH7l-VlgJYfvAPwNIqlaEMeIjLDcn0AcXgVVqBUJNNmjJz_E0QiJQTaPIay1ohPQc5iGoPiv8UhZzUrqxUaOCJ_PA6betzoFcu8ObS6smnFIjglGNaTHfjTOhaBvJxSlhgh-4)Source: Delphi Digital   Digital assets facilitated infrastructure networks[(DePIN)](https://twitter.com/MessariCrypto/status/1616082866622074883) offer another interesting use case of bringing blockchain utility into the real world. This was seen on display recently with Helium rolling out its 5G mobile service in partnership with T-Mobile, offering plans for $5/month - an 80-90% discount to comparable providers. Akash Network’s AKT token soared in recent weeks as it prepares to launch a network linking GPU providers with those needing compute power, which is especially useful for the AI industry[ as it desperately hunts](https://www.nytimes.com/2023/08/16/technology/ai-gpu-chips-shortage.html) for chips. And Bittensor’s decentralized machine learning network has nearly[1,000 different](https://taostats.io/) AI models working together to give responses that are better than the sum of the parts.   Speaking of AI, one of the more out-there use cases gaining steam recently is how blockchains might be the best rails to host AI bots (called “agents”). While still in the proof-of-concept phase, the combination of blockchain infrastructure plus generative AI models allows for the creation of [ trading bot](https://twitter.com/koeppelmann/status/1691429114224263169?s=20)s that can evaluate prediction markets (maybe something like[Polymarket](https://polymarket.com/) in the future) and look up recent information about the topic to make a prediction about the market, and then automatically trades based on that prediction - all in less than 15 minutes. WILD.   ![](https://lh5.googleusercontent.com/xGRMOvVPDd7jXcYrueTL6C0swT7P-5n2B7Jfqu-SlIWfbjOLZ_Ic_H1l2W4aciPQvWTuNFcoJbOxDDy5UWgWWhl893gAoZWN3XHbPA4MMzv4KTSGfVj32DtxVDZjTc_ROzr09VrYb1HBjgaWWqrLK_I)Source: X **Springtime In Digital Assets** To be sure, most of these applications aren’t ready for prime time yet. But in contrast to where the industry was  nearly a year ago, we now have strong examples of applications that can eventually make a big impact along with ones that are solving new problems, not just rehashing old ones. While not all prices are moving in the right direction, new experiments are being run and new ideas are being born. We truly believe in blockchain’s ability to enable permissionless applications that improve society’s ability to coordinate at a grand scale. And while it may not be obvious yet, some part of the building we’re seeing right now will get us closer to that vision. So take off your winter coat, and shake the snow of out your hair.   The blockspace cycle rolls on.   ![](https://lh6.googleusercontent.com/7oiSsi30Lm_E6ZAXd15jOHE6jt5snCwBAnMqVOImX_8HlmFhdjHOX-LHCBkybDclFz_M3LbqT_Nd7vhOBn-J4ycgtyzk4hZTyrmf0HxECPiDlcoKKeEET9aSxMklQwlWtuFUM0wps_XRu__dD_GOoBc)Source: Arca Internal Research       ***And That’s Our Two Satoshis! ****Thanks for reading everyone! Questions or comments, just let us know.*   **The Arca Portfolio Management Team** *Jeff Dorman, CFA - Chief Investment Officer* *Michael Dershewitz - Chief Operating Officer* *Katie Talati - Director of Research* *Sasha Fleyshman - Portfolio Manager* *David Nage - Portfolio Manager* *Wes Hansen - Director of Trading and Operations* *Michal Benedykcinski - Senior Vice President, Research* *Nick Hotz, CFA - Vice President, Research* *Kyle Doane - Vice President, Trading* *Alex Woodard - Associate, Research* *Christopher Macpherson - Research Analyst* *Andrew Masotti - Associate, Trading and Operations*     **To learn more or talk to us about investing in digital assets and cryptocurrency** **call us now at [(424) 289-8068](tel:+14242898068).** ### Subscribe For the Latest Blockchain News & Analysis     Disclaimer: This commentary is provided as general information only and is in no way intended as investment advice, investment research, legal advice, tax advice, a research report, or a recommendation. Any decision to invest or take any other action with respect to any investments discussed in this commentary may involve risks not discussed, and therefore, such decisions should not be based solely on the information contained in this document. Please consult your own financial/legal/tax professional. Statements in this communication may include forward-looking information and/or may be based on various assumptions. The forward-looking statements and other views or opinions expressed are those of the author, and are made as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated and there is no guarantee that any particular outcome will come to pass. The statements made herein are subject to change at any time. Arca disclaims any obligation to update or revise any statements or views expressed herein. Past performance is not a guarantee of future results and there can be no assurance that any future results will be realized. Some or all of the information provided herein may be or be based on statements of opinion. In addition, certain information provided herein may be based on third-party sources, which is believed to be accurate, but has not been independently verified. Arca and/or certain of its affiliates and/or clients may now, or in the future, hold a financial interest in investments that are the same as or substantially similar to the investments discussed in this commentary. No claims are made as to the profitability of such financial interests, now, in the past or in the future and Arca and/or its clients may sell such financial interests at any time. The information provided herein is not intended to be, nor should it be construed as an offer to sell or a solicitation of any offer to buy any securities, or a solicitation to provide investment advisory services. 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