L2 continues to heat up, data reveals Mantle’s unique value and holding strategy

Introduction: Going Long on MNT Before EIP-4844

This article outlines the strategic opportunity to go long on Mantle (MNT) in the Ethereum Dencun (Cancun) upgrade and the introduction of EIP-4844 or Proto-Danksharding.

Despite not being as prominent as peers like Polygon or Arbitrum in terms of technical team, Mantle’s focus on user-centric solutions, coupled with innovative yield and airdrop strategies, positions MNT with potential appreciation in the first quarter of 2024.

Overview

Mantle is an Optimistic L2 rollup compatible with Ethereum. It handles consensus and settlement on the Ethereum mainnet (L1) while leveraging data availability services through its proprietary Mantle DA (powered by EigenDA technology).

Currently, Mantle is using EigenDA’s simplified solution developed in collaboration with the EigenLayer team, waiting for the release of a more comprehensive and standardized solution. The plan is to transition to EigenDA after its mainnet debut.

Catalyst

While the technology team may not be comparable to competitors like Polygon or Arbitrum, Mantle takes a user-centric approach. This strategy allows them to leverage technology solutions from top teams while focusing on delivering a superior end product. Ultimately, these initiatives are key to growing the on-chain economy and increasing adoption.

Ethereum Cancun Upgrade and EIP-4844

The introduction of Proto-Danksharding and EIP-4844 were the main catalysts for Ethereum L2. This upgrade is expected to significantly reduce rollup costs, benefiting L2 tokens like $MNT. The market may rebound in anticipation, providing a favorable time to take a position in L2 tokens, with more catalysts ahead. The core of EIP-4844 is the concept of “Blob”, which represents a binary large object. Essentially, a blob is a block of data associated with a transaction, unlike a normal transaction. These blob data blocks are stored exclusively on Beacon Chain and incur minimal gas fees. Blobs enable Ethereum blocks to add more data without increasing their size. Simply put, utilizing blobs allows the amount of data stored to be increased by almost 10 times compared to the average block size.

The reason for introducing blobs is to significantly reduce the data availability (DA) cost of rollup. Currently, publishing data to Ethereum constitutes more than 90% of the total cost of rollup.

EIP-4844 introduced a dynamic fee system that is different from the traditional fee model we see in L2 today. With the introduction of dynamic blob fees, operating costs on Ethereum will be affected by two different markets: the regular exchange market and the blob market.

This change means rollups will need to adapt to a fee environment in which one part of their operations is subject to a traditional fee structure, while another part is more fluid and adjusted based on the specific needs of blob capacity.

Specifically, decoupling the cost of publishing L2 data to Ethereum from standard gas prices means that L2 can achieve significant cost reductions when submitting its data to Ethereum, with potential cost reductions of up to 16x, or less than current gas fees. 90% lower.

Sustainable Income

Focused on long-term sustainability and real income opportunities, Mantle offers two unique real income opportunities and one additional speculative opportunity: First, $mETH offers double the staking yield for ETH deposits. This is possible because the additional subsidy comes from Mantle’s own treasury, which is staking their ETH holdings and passing on staking rewards to $mETH holders.

Second, $mUSD generates revenue from short-term U.S. Treasuries and bank demand deposits, allowing users to earn interest on their stablecoin positions. It is a repackaged version of USDY designed to maintain a peg to $1, with interest distributed through new token units issued by Ondo Finance.

Similar to $mETH, users can use yield strategies, the most popular of which are currency markets such as MYSO.

Third, Mantle has been a long-term partner of Eigenlayer. They are using EigenDA for data availability (DA) and that is also a trump card when it comes to future airdrop opportunities.

Additionally, we cannot underestimate the motivation for rollups following the Cancun upgrade, as increased Sequencer revenue may translate into additional motivation to drive real gains. Unlike Optimism and Arbitrum, Mantle has set a precedent for sharing revenue with token holders (by putting ETH into its vaults and sharing the revenue with ETH stakers).

Enhanced Token Utility

Mantle is one of the few rollups that has chosen not to use ETH for gas but to give more utility to the chain’s native token, MNT. Going forward, MNT’s utility will extend beyond its role as a gas token. It will be used for staking and may reward holders who choose to participate in such activities. Not only would this remove the token from circulation, it would also make holding MNT more attractive, which could lead to an increase in subsequent buying pressure.

Forces of Supply and Demand

On the supply side, the absence of token unlocking and inflation provides a stable and predictable supply situation for MNT, thereby reducing the risk of market dilution. This is different from other L2s in that MNT is generated from the token migration of BIT and over time most of the supply has been released.

On the demand side, it’s worth noting that the previous association between BitDAO (formerly Mantle) and Bybit may have prevented the token from being listed on other tier-1 exchanges such as Binance, Coinbase, Kraken or Upbit. Given the success of the rebrand and the L2 Rollup entering production, this could be seen as a potential opportunity. Potential future listings could act as a catalyst for price appreciation.

Failure Situation

We should not underestimate the fact that L2 competition is becoming increasingly fierce. Liquidity may flow into other networks such as zkSync, Starknet, Scroll or Linea for their respective airdrops. In this case, we may not see the increase in TVL and transaction volume that we expected to see on Mantle.

However, it’s worth noting that there’s an opportunity cost in doing so, as those funds are being used to generate benefits elsewhere, rather than on Mantle. While other chains have raised funds at high valuations and their airdrops may have been substantial, we don’t know when their tokens will actually be released and if a snapshot has been taken.

Therefore, given the opportunity cost of liquidity (like staking in Blast without being able to withdraw), we believe the risk-reward does not favor them in terms of taking advantage of the Cancun upgrade and a very specific L2 catalyst like EIP-4844.

It is also worth noting that we have seen power law dynamics emerge in L2. While L2 numbers are expected to increase, activity is likely to be focused on one or two winners, such as Arbitrum or Base, and Mantle may not fall into that category.

Therefore, it is important to remember that the bet on Mantle is based on MNT diluting its holders less than its competitors, and there are more catalysts besides EIP-4844, such as MNT staking for airdrops, Real revenue opportunities, incentives, ecosystem grants, and more.

Tokenomics

Token price

October marked a local bottom, with MNT rising 60% in price over the past 90 days.

We also observed a similar trend when comparing MNT and ETH.

Take a look at the two charts below, with prices in USD on the left axis and in ETH on the right axis.

MNT is highly correlated with L2, except for OP, which performed well in December.

MNT also has a lower correlation with OP compared to ARB, which may indicate that the market has higher expectations for ARB and OP as the two main optimistic rollups. This further reinforces our view that the market may not be paying enough attention to developments in the Mantle ecosystem.

MATIC is not an optimistic rollup and the market will view it differently, especially when we consider its transition from PoS L1 to zkEVM and the gradual development of the Polygon 2.0 roadmap.

Market Capitalization and Fully Diluted Value

Mantle consistently ranks in the top 50 by market cap and has an mcap/FDV ratio of 0.50, indicating it is the least dilutive and inflationary L2 token over the coming year.

Market Capitalization / FDV

The following table is a comparison of the market capitalization/FDV of different L2 tokens. This is an indicator of future dilution.

We can also note that as prices increase, the FDV of OP and ARB deviates significantly. Unlike MNT, neither has yet experienced a relatively large supply unlock.

Arbitrum:

• On March 22, 673 million ARB tokens (valued at $1.084 billion) will be unlocked from Offchain Labs and advisors
• On March 22, 438 million ARB tokens (valued at $705.58 million) will be unlocked from investors

Optimism：

• On January 29, 17 million OP tokens (valued at $64.09 million) will be unlocked from the team
• On January 29, 15.21 million OP tokens (valued at $57.35 million) will be unlocked from investors

It is important to note that we do not expect the increased supply in ARB and OP to create significant selling pressure. Instead, our goal is to highlight the low volatility and expected variance of MNT’s FDV.

Total Value Locked (TVL)

TVL has increased, which can be attributed to sustainable initiatives that allow investors to earn real gains in ETH and USD, such as $mETH and $mUSD respectively. Therefore, we do not expect these deposits to leave the ecosystem anytime soon. We can also see from the chart that Eigenlayer’s cap increase in December did not cause significant disruption to the TVL, indicating that the community is confident that Mantle will deliver good enough returns for its staked ETH.

However, the market capitalization of stablecoins is still very low at just over $10 million.

Likewise, Mantle’s TVL is very small compared to the TVL of Arbitrum ($2.505 billion) and Optimism ($882.39 million). As TVL begins to grow, this will signal to the market that liquidity conditions are beginning to improve, potentially signaling more on-chain activity and an increase in network fees (which must be paid in MNT).

However, entering 2024, we are starting to see stablecoin inflows exceed outflows.

Mantle’s TVL/mcap ratio is still very low, but it is also worth noting that the chain went online in mid-2023, and new projects are still incubating and are expected to be launched in 2024. On-chain activity has also increased over the past few days, with the number of 30-day transactions surpassing Optimism.

mETH has also seen impressive growth over the past month since its soft launch in Q4 2022.

Token Holders

The number of MNT token holders continues to increase, and we don’t expect this growth to show any signs of slowing down. Our expected growth rate will accelerate.

Despite this, the number of token holders is still very small, approximately 100 times less than OP and 80 times less than ARB.

We expect this number to increase as more users begin participating in Mantle Journey and seek to profit from airdrop distributions of ecosystem projects.

The duration of the reward program will be determined based on user feedback and on-chain activity, but the reward program continues to incentivize new users to join through NFTs and newly launched exclusive whitelists. In addition, MJ Miles (Mantle Journey Miles) can be redeemed for rewards at the end of the season, with the current campaign’s reward amount being $20 million MNT.

Treasury

Mantle still has the largest cryptocurrency treasury outside of the Ethereum Foundation. Most notably, it holds over $100 million in stablecoins and over $250 million in BTC and ETH.

Excluding native tokens, the figure amounts to $635 million, more than six times the size of Lido and more than 11 times the size of Maker.

Furthermore, the presence of native tokens in its treasury is not necessarily a bad thing, as they can be used to incentivize further development of the ecosystem, and most of them will not hit the market in large quantities for a long time.

Ecosystem

In terms of ecosystems, some notable projects includeMerchant Moe(Trader Joe’s spin-off project),Eigenlayer、Athena、ok , and likeINIT Capital(currency market),Butter XYZ (Integrated exchange),Range Protocol (on-chain asset management),Tsunami X (spot and margin trading) or Mintle (NFT marketplace powered by Rarible) and other projects.

Just as importantly, an established team with a long track record like Byte Masons will also be launching two projects on Mantle: Cleopatraand Aurelius.

As a DEX, Agni Finance currently dominates with a TVL of $40 million, accounting for more than 30%, followed by Ondo ($30 million), FusionX, iZiSwap and Range Protocol.

Conclusion

Mantle (MNT) stands at a strategic crossroads to benefit from the upcoming Ethereum Cancun upgrade and the introduction of EIP-4844. Its unique approach to user experience, combined with attractive revenue offerings and a strong partner ecosystem, puts it well-positioned for potential growth.

The lack of token unlocking and inflation further strengthens its case as an investment. Therefore, we recommend holding Mantle (MNT) as a strategic investment for the long term until these key developments are expected to occur. Unlike its competitors, MNT has more catalysts besides EIP-4844, such as MNT staking, better growth prospects through incentives, and lower dilution rates.

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