Macro Policy Sparks Volatility, ETH On-Chain Recovers | Frontier Lab Weekly Report
Market Overview
Market Summary
This week, the cryptocurrency market experienced a period of fluctuation, with both Bitcoin (BTC) and altcoins trading within a broad range. The market sentiment index dropped from 88% last week to 73% this week. Despite the notable decline, it still remains in the bullish zone, indicating that while investor confidence has weakened slightly, it has not turned pessimistic.
Stablecoin Market Trends The stablecoin market showed diverging trends, with distinct regional capital flow characteristics:
- USDT: Market cap reached $150.7 billion, a week-over-week increase of 0.67%, adding over $1 billion in a single week and continuing its upward momentum.
- USDC: Market cap stood at $60.5 billion, down 0.65% week-over-week, marking its third consecutive week of decline.
This development is worth investors’ close attention. The sustained growth of USDT suggests that institutional capital — primarily from non-U.S. regions — is are increasingly entering the market. On the other hand, USDC’s continuous decline, although partially influenced by Coinbase’s restriction on USDC mining eligibility, likely reflects an outflow of capital from U.S. investors, a trend that warrants ongoing monitoring.
Macro Factors Analysis This week’s market volatility was primarily driven by the following macroeconomic factors:
- China–U.S. Trade Relations: On Monday, the announcement of a joint statement easing tariff tensions triggered a “sell the news” reaction from some investors.
- Inflation Data: U.S. April CPI (seasonally adjusted YoY) came in at 2.3%, marking the third consecutive month of underperformance relative to expectations. Core PCE remained at 2.8%, aligning with market forecasts.
- Fed Policy Stance: On Thursday, Fed Chair Jerome Powell delivered a hawkish speech, emphasizing: Short-term CPI fluctuations are insufficient to alter Fed interest rate decisions. The Fed remains committed to its 2% inflation target. A cautious approach toward near-term rate cuts. Strong employment or marginal price drops alone will not lead to a policy shift.
Risks and Outlook Investors are advised to remain cautious and closely monitor the following risk factors:
- Progress in U.S. trade negotiations with the EU, Japan, and South Korea.
- Final outcomes of China–U.S. tariff policy discussions.
- Continued hawkish stance from the Fed and its impact on market liquidity.
Amid multiple uncertainties, the cryptocurrency market may remain in a consolidation phase. It is recommended that investors await the final outcome of key policies and events before making decisions.
Next Week’s Bullish Pick: SOL
SOL: Dual Narrative of Execution-Driven DEXs and Internet Capital Markets Ushers in a New Era for Blockchain Assets The Solana ecosystem is witnessing the emergence of two new narratives — execution-driven DEXs and Internet Capital Markets (ICMs). These developments offer new directions for Solana’s growth, particularly with ICMs driving a new wave of Meme-related activity and laying the foundation for broader adoption and asset issuance.
The Rise of Execution-Driven DEXs Solana-based decentralized exchanges (DEXs) are transitioning from traditional open liquidity models to “execution-driven private liquidity DEXs.” These aim to improve trading efficiency and capital utilization, drawing more institutional capital into the ecosystem.
- New DEX Features: Platforms such as SolFi, Obric v2, and ZeroFi no longer rely on public-facing UIs or user deposits. Instead, they route trades through aggregators like Jupiter, using internal vaults and oracle pricing to eliminate slippage, impermanent loss, and arbitrage.
- Selective Quoting Strategy: Liquidity is only provided when inventory and market conditions are favorable, reducing adverse selection risk and improving execution efficiency.
- Market Share: These DEXs currently handle 40–60% of Jupiter’s routed trading volume, peaking above 65%, mainly processing high-liquidity pairs (e.g., USDC/USDT and SOL).
- Technical Edge: Solana’s high throughput and low latency make this model viable, further reinforcing its position as a high-performance trading platform.
Realizing the Vision of Internet Capital Markets (ICMs) Solana is building an open, permissionless global financial infrastructure through innovative asset issuance platforms like Believe, enabling wider participation in asset trading and strengthening network effects across the ecosystem.
- ICM’s Core Vision: To create a decentralized funding and trading ecosystem accessible to global internet users, breaking down geographic and regulatory barriers of traditional finance.
- Innovative Platform Model: Believe enables token creation through simple social actions (e.g., replying with @launch + token name on X), fueling explosive growth. Its native token, LaunchCoin, surpassed a $237 million market cap within days and reached $7.62 million in 24-hour revenue.
- Product-Backed Tokens: Unlike pure speculation plays, many tokens launched via Believe are backed by real product prototypes or concepts (e.g., DUPE and SuperFriend), providing direct monetization paths for creators and attracting more developers and users to the ecosystem.
From Narrative-Driven Speculation to Real Asset Capture Solana is shifting from a meme coin–driven speculative narrative to a model focused on asset tokenization tied to real value. This approach supports sustainable growth by enabling capital formation around actual projects.
- Current Problem: On-chain token markets are saturated with meme coins and empty shell projects lacking intrinsic value.
- Solana’s Solution: Leveraging its technical strengths and new asset issuance platforms like Believe, Solana is integrating tokens with real products or ideas to support genuine value creation.
- Tech Suitability: Solana’s high throughput and low latency are well-suited to the diverse needs of issuing and trading assets such as meme coins, NFTs, and startup tokens.
- Long-Term Value Growth: Anchored in practical applications and real-world value, Solana’s ecosystem is transitioning from speculative hype to value capture, laying a foundation for sustained long-term growth.
On-chain Data of Solana
DEX Trading Volume
From the chart, we can observe that as a transaction-heavy blockchain, the trading volume on the Solana network directly determines its development trajectory and the strength of the SOL token price.
This week, the DEX trading volume on Solana experienced a significant increase, with the daily peak reaching as high as $4.564 billion.
We can therefore conclude that the recent resurgence of meme coins on the Solana network has simultaneously boosted overall on-chain trading activity.
On-chain Fees
The chart shows that Solana’s on-chain fees have experienced a sharp increase recently, peaking at $3.24 million in a single day. This indicates that the recent revival of Meme tokens has driven a resurgence in activity across the Solana ecosystem.
Bearish Targets: PIXEL, PYTH
PIXEL: Metaverse Farming Game Faces Unlocking Pressure — 89.36 Million Tokens Set for Release, Combined with 45% Price Surge May Trigger Pullback Risk
Pixels is a metaverse farming game launched in 2021, combining elements of GameFi and NFTs. Both GameFi and NFT sectors have underperformed in the current cycle, lacking wealth-creation narratives and thus losing market attention and new player inflow, which has led to continued weak performance of GameFi projects in recent years. On May 19, 89.36 million PIXEL tokens will be unlocked, accounting for 1.79% of the total locked supply. According to the linear unlock chart in its whitepaper, this round of unlocking is primarily allocated to institutional investors and the project team. Moreover, PIXEL’s current market capitalization is relatively low at just $4,198, and its price surged significantly this week along with the broader market, rising by 45.31%. This sharp rise suggests a short-term pullback may be due. As a result, the substantial token unlock could lead to heavy selling pressure, potentially impacting the price of the PIXEL token.
PYTH: Largest Token Unlock in History Approaches — 2.833 Billion Tokens to Be Released, Circulating Supply to Surge 65%, Drawing Market Attention
Pyth Network is an oracle project designed to deliver real-time and accurate financial market data to enhance the functionality and reliability of decentralized finance (DeFi) applications. Pyth Network has performed relatively well recently, but on May 19, 2.833 billion PYTH tokens will be unlocked, representing 28.33% of the total locked supply — marking the project’s largest unlock to date. Currently, the circulating supply is only 43.33%, so this unlock would increase the circulating token volume by 65%. According to the linear unlock chart in the whitepaper, this round of unlocking is primarily allocated to institutional investors and the project team. Furthermore, with Pyth Network’s recent daily trading volume at only around $10 million, market liquidity is relatively low. As such, the newly unlocked PYTH tokens will likely far exceed current market buying power, potentially exerting downward pressure on the price of the PYTH token.
Market Sentiment Index Analysis
The market sentiment index declined from 80% last week to 73%, though it still remains within the bullish zone.
Trending Sector
ETH Breaks Through $2,700 and Pectra Upgrade: A Dual Signal of Technical Progress and On-Chain Momentum
ETH outperformed the broader market this week, decisively breaking through the upper boundary of its previous consolidation range at $2,000 and reaching a high above $2,700 per token. Its performance was notably stronger than other altcoins, helping to lift the overall altcoin market. With ETH’s recent strength, it has once again become a major topic of discussion. The previously overlooked Pectra upgrade has also come back into focus amid the latest rally.
Pectra Upgrade
Ethereum’s Pectra upgrade, completed on May 7, 2025, focuses on three key areas: staking mechanism optimization, Layer 2 (L2) scaling, and account abstraction. These improvements lay a solid technical foundation for Ethereum’s future development, enhancing network performance, lowering user entry barriers, and fostering long-term ecosystem health.
Staking Mechanism Optimization
Through EIP-7251, Pectra raised the maximum stake per validator from 32 ETH to 2048 ETH, improving capital efficiency and preparing for potential future network congestion. It also creates room for Layer 1 (L1) scalability enhancements. Furthermore, EIP-6110 and EIP-7002 provide underlying support for Liquid Staking Token (LST) protocols, enabling greater decentralization and automation in processes that previously relied on centralized components. Although some controversy remains, the upgrade clearly expands the growth potential of the LST ecosystem.
L2 Optimization and Scaling
Pectra introduced EIP-7742 and EIP-7691, doubling the blob capacity and allowing dynamic adjustment. As the core area for L2 data storage and backup, this change significantly reduces L2 cost structures — pushing transaction fees from “very cheap” to “ultra-cheap.” While it may slow the ETH burn rate, from a long-term perspective, enhanced L2 activity and reduced costs offer more strategic value to the ecosystem.
Account Abstraction Progress
The introduction of EIP-7702 marks a new chapter for Ethereum’s account abstraction. By enabling batch transactions, gas payments using any token, and social recovery mechanisms, it greatly improves wallet flexibility and user experience. Wallets built on this technology will be smarter and more user-friendly, potentially allowing new users to register using just a phone number — eliminating the need to manage addresses or pre-load gas, thereby simplifying onboarding.
In summary, the Pectra upgrade signals Ethereum’s ongoing efforts to resolve long-standing challenges such as network congestion, high costs, and steep user onboarding thresholds. It paves the way for broader adoption and future growth.
BlackRock Submits Application to Modify Ethereum ETF Redemption Mechanism
On Monday, BlackRock submitted an amended S-1 filing for its spot Ethereum ETF,$ETHA, The key update is the inclusion of language allowing in-kind creation/redemption upon SEC approval.
The proposed in-kind creation/redemption mechanism for the Ethereum ETF ($ETHA) would allow authorized participants to create or redeem ETF shares directly using ETH, rather than through cash transactions. This enables the ETF’s price to more accurately reflect Ethereum’s market value. Such direct access improves market efficiency, reduces price deviations, and lowers transaction costs — offering a better experience for investors. For institutional investors, the in-kind model facilitates smoother large-scale transactions and lowers tracking error, which could significantly boost their willingness to allocate to ETH.
From a supply-demand perspective, creating ETF shares requires actual ETH purchases, directly increasing market demand. Meanwhile, a more efficient price discovery mechanism helps reduce short-term volatility and fosters a more stable environment for ETH’s growth. Given the SEC’s increasingly favorable stance on the crypto industry, the market broadly anticipates that the mechanism will be approved at some point this year.
On-Chain Data
TVL
As shown in the chart, Ethereum’s on-chain TVL has reached $61.291 billion, reflecting a year-over-year increase of 21.15%. This indicates a rapid upward trend in Ethereum’s TVL. Although the current ETH price still lags behind the levels seen in November–December 2024, the on-chain TVL is already approaching the $72 billion mark recorded during that period, suggesting that Ethereum’s on-chain activity is now more robust than it was in late 2024.
DEX and Perp DEX Trading Volume
As shown in the charts, Ethereum’s on-chain DEX trading volume has been on a continuous upward trend since early May, reaching a recent high of $10.598 billion this week. Meanwhile, the growth in Perp DEX trading volume is even more pronounced, hitting $7.384 billion this week — the highest level in the past six months. This suggests that as Ethereum’s price recovers, its ecosystem is also experiencing a resurgence, with on-chain trading volume clearly increasing.
On-Chain Address Count / Active Address Count
As shown in the charts, Ethereum’s on-chain address count has exhibited a clear upward trend this week, reaching 466,800 — one of the higher levels in the past three months. Additionally, the number of active addresses on Ethereum has also seen a noticeable increase, reflecting a rise in user participation on-chain in response to the recent market rebound. This further indicates a recovery in Ethereum’s on-chain ecosystem.
On-Chain Stablecoin Supply
It can be observed that, although the total stablecoin supply on Ethereum has slightly declined from the recent peak of $124.9 billion to $122.6 billion — a decrease of 1.84% — the overall level remains stable and is still considered historically high.
Ethereum On-Chain Fund Flows
We can observe that despite the recent surge in activity on the Ethereum network, on-chain funds are still experiencing net outflows.
On-Chain ETH Transaction Volume
The chart shows a clear increase in demand for ETH on the Ethereum network. This indirectly confirms a significant rise in on-chain activity, which in turn drives up demand for ETH.
Conclusion
Ethereum’s price broke above $2,700 this week, outperforming the broader market. The Pectra upgrade introduced technical improvements in staking mechanisms, Layer 2 scalability, and account abstraction. Additionally, BlackRock’s submission to enable physical creation/redemption for the ETH ETF is helping to boost investor sentiment.
However, on-chain data presents a more complex picture: while signs of recovery are evident — such as TVL reaching $61.29 billion, DEX trading volume rising to $10.598 billion, and an increase in active addresses — the most critical indicator of ecosystem health, fund flows, still shows net outflows. Therefore, we should remain cautious when evaluating whether the Ethereum ecosystem is truly recovering, and continue to monitor its on-chain metrics closely.
Overall Market Sector Performance
Weekly Return Analysis shows that the Meme sector performed the best, while the SocialFi sector performed the worst.
- Meme Sector: Within the Meme sector, DOGE, SHIB, PEPE, and TRUMP have a large share, collectively accounting for 89.64%. Their respective weekly price changes were 18.96%, 7.81%, 36.83%, and 3.79%. It can be seen that the main projects in the Meme sector all experienced upward trends this week, with most tokens posting significant gains, making the Meme sector the best performer.
- SocialFi Sector: In the SocialFi sector, TON and CHZ hold the majority, accounting for 94.74% in total. Their weekly price changes were -2.38% and 7.51%, respectively. Since TON represents a large portion of the SocialFi sector at 89.66% and showed a downward trend this week, this caused the SocialFi sector to perform the worst.
Next Week’s Major Crypto Events Preview
- Thursday (May 22): U.S. Weekly Initial Jobless Claims
- Friday (May 23): Solana hosts Accelerate 2025 Crypto Summit in New York
Summary
This week, the crypto market showed a fluctuating trend amid a complex macro environment. The market sentiment index fell from 80% to 73%, yet it remains in the bullish range. The “Sell the news” effect brought by eased tariffs between China and the U.S. hedges against the U.S. CPI missing expectations for three consecutive months, while Fed Chair Powell’s hawkish remarks have further increased market uncertainty. The stablecoin market shows divergence: USDT grew by over $1 billion, indicating continued inflow of non-U.S. funds, whereas USDC has declined for three consecutive weeks, raising concerns over potential exits by U.S. investors.
Looking ahead to next week, investors should closely watch key events related to tariff developments in the U.S., EU, and other countries. Although Ethereum’s on-chain data shows increased activity, capital outflows persist, making the sustainability of its recovery uncertain and preventing confirmation of a true turnaround in the on-chain ecosystem. Given that U.S. Tariff policies are yet to be finalized and the Fed maintains a hawkish stance, market participants are advised to remain cautious and await the final outcomes of policies and events.
