Are layer two tokens cucked forever?

Are we looking for a thoroughbred in a race full of nags? The market will have to show its hand sooner or later, but the booth is still open and accepting wagers. Mantle has been pumping the gas on its new staking program, and the distribution of 2.5 billion Ethena shards has been a clutch move. Is the best $ETH beta simply leveraged $ETH or can a case be made for Mantle enjoying some love this cycle? Pango is here with a short and spicy bull case for $MNT. But before we straight up just whip it out, while writing this piece, let us appreciate that Mantle put in a stonking pump. How much juice is left to squeeze?

Scene Setting

The two winning trades this cycle have been Bitcoin - thank you tardfi for the exogenous inflows - and Solana - welcome cheap fees and shitcoining like you could not believe it. Naturally, the best performers have been adjacent sectors, aka Stacks and Ordinals or dApps (Jupiter/Pyth/Jito/Shadow/Crown) and memecoins. We have seen the AI rotation, the alternative layer one rotation, and the RWA rotation. Why is the $ETH beta trade forever cursed?

While Ethereum was the consensus play in the bear market, lackluster performance has seen funds running away from Le Big Blue. But pendulums swing, and time is a flat circle. The EIP-4844 upgrade was smooth as hell, and from a boots-on-the-ground perspective, it was a solid upgrade - unironically gud tech. An ETF is potentially coming in May. A total clusterfuck to predict with things like Fidelity’s staking amendment - Gensler does not like staking.

But your boy is a bulltard, and looking at BlackRock deploying its BlackRock USD Institutional Digital Liquidity Fund (BUIDL) on Ethereum, slapping 100 milly on-chain like it ain’t shit. And Fink’s laissez-faire attitude on talk shows bodes well.  

I lean towards May approvals, and the last fighter in the Ethereum camp, ‘The Global Settlement Layer’ meme, is entirely in play.

EigenLayer is the talk of the town with massive hopes riding on Actively Validated Services (AVSs)- projects leveraging Ethereum’s security and paying for the privilege. Ethereum is stepping into the ring with the big boys.

The rush is on for liquid restaking tokens (LRTs), which let you earn additional yield by supporting AVSs. This whole rehypothecation of security smells like TradFi, which is excellent news for anybody holding $ETH. Basically, Ethereum is a God and stands from up high, casting out its securing to the peons, peasants, and networks, nursing the world from Vitalik’s heavenly bosom. I hate to say it. But $10,000 is programmed Inshallah.

We are operating under the thesis that if Ethereum catches a bid, the natural long tail is layer two tokens, and Mantle looks saucing.

On March 7th, Optimism announced a private sale of roughly 19.5 million $OP tokens with a two-year lock-up to an undisclosed buyer. On March 16th, Arbitrum practically doubled its market cap overnight with a thick round of unlocks. And as the competition shoots itself in the foot, Mantle has a real chance to gain some ground.

Mantle: Look at the stack

Mantle hit a classic one-two combo with the EIP-4844 upgrade and its own in-house Tectonic v2 upgrade. All we need to know about EIP-4844 is that it introduces blobs, a new data availability (DA) transaction type, making transactions on layer twos cheaper for end users. Mantle’s Tectonic v2 is a beauty. It increases alignment and future composability with other OP Stack chains by upgrading the network to a version based on Bedrock but with a few deviations. Let’s hit a whistlestop tour of all the nerd shit:

- EIP-1559 Support (price fee auctions)

- Removal of Redundant Components (streamlining)

- Stable Block time (now fixed time for block generation - more stable network operation)

- Block State Tagging (mimics the way OP Stack-based chains tag blocks)

- Native Mantle (no more ERC-20 standard baby/ team turning $MNT into $ETH)

- Fee Optimization Strategy (UX upgrade providing more accurate transaction total)

- Meta Transactions (third-party pays gas fees)

Look at the numbers lads. Pretty gud shit. Mantle has always distinguished itself with Mantle DA (forked from an early version of EigenDA), and you know that these boys are ready to flip the switch hard when EigenDA hits mainnet. Additionally, this acts as a hidden token sink in the ecosystem: permissioned nodes providing DA services to the Mantle network have to stake their $MNT. And if it is staked, it cannot be sold. All of these upgrades are fiddly under-the-hood mechanisms.

The central takeaway for us plebs is that the team is making the user experience better.

Catalysts: Shard me up baby

Everybody wants to own shards, and Mantle has released a campaign distributing 2.5 billion of the buggers. This is driving short-term buy pressure. In this campaign, users can stake and unstake at will. Mantle is a master of the “spend money to make money” play, as seen with its hyper-aggressive $mETH campaign (doubling staking rewards for LST holders.) Technically untrue.

A more honest statement is that Mantle leverages its absolutely STACKED treasury to earn yield and then forgoes this profit to leverage them as ecosystem incentives to attract new users. In plain English: a hyper-aggressive growth strategy.

Mantle has been spending, but look at the numbers. Rack City baby. But why do people care about Ethena shards? Ethena shards are points and points lead to airdrops. The release has been set, and $ENA will be claimable on April 2nd. No messing about. One of the shortest points campaigns in crypto, lasting only six weeks. The largest wallets are subject to ‘50% linear pro-rata vesting over 6 months,’ and VCs are absolutely horny for Ethena.

The product is $USDe. A synthetic asset 1:1 collateralized by delta neutral exposure to staked $ETH). It has already achieved a $1.3 billy TVL (bruv what) and VCs are frothing. USDe pays out yield by taking advantage of funding fees and basis spreads on derivatives while enjoying spot long exposure to $ETH staking yield. I am hesitant to call it a stablecoin but rather a tokenized carry trade.

But who cares? VCs are horny, everyone wants shards, and secondary markets are going absolutely nuts. Mantle has seen an opportunity and beelined into the thick of it. Saucy.

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Anybody on the other side of this trade supplying their $USDe or $sUSDe is earning crazy fixed rates for forgoing their points (poor trade). We can leave it to somebody better with numbers to work out discrepancies and opportunities on secondary markets. All that matters is that this demand for Ethena exposure makes investors click the green button to buy $MNT so they can stake it. I have a bet that Mantle is going to roll out a similar play with LRTs.  

This type of initiative is becoming Mantle’s calling card. Everybody goes wild for LSTs; it drops $mETH doubling the yield. Everybody wants exposure to Ethena; it drops a staking program with shards. Look at the team.

• DeFi Maestro is different gravy (popularized the portfolio challenge last year) and has been vocal about his position longing shards. He’s heading up DeFi strategy.
• Derek Lim, or 0xavarek, has grinded his way up to Head of Ecosystem Research at Mantle. Broski left a teaching profession, became a tech content writer, ripped into Bybit as an analyst, busted some skulls, made some dough, became Head of Research at Spartan Labs (bullish), and then joined Mantle. Bruv, he studied Sociology (the study of human social behavior) and became a DeFi wizard. This is the kind of shit you want to bet on.
• Cannot forget the Alchemist himself, Jordi Alexander, a literal avatar-level game theorist. Man’s got a brain full of dollars.  

Baby baby: Shard me up V2

Hold onto your cocks lads. Shit just got even more exciting. Ethena launched the second leg of its program, replacing shards with sats as it integrates $BTC as a backing asset: same trade again, but this time leveraging Bitcoin’s funding rates. Let’s shoehorn in DeFiMaestro to save me explaining the litany of pathways to juice your yield on Mantle.

This is beautiful news. Ethena has mindshare, and latching onto mindshare is the easiest way to get capital moving and groovin'. The largest net bull takeaway is the deployment of Pendle on Mantle. Pendle is single-handedly saving altcoin investors who believe in fundamentals from the relentless onslaught of memecoin dominance. Well played Mantle - pure chef’s kiss move.  

$MNT Tokenomics

Current circulating supply: 3,233,737,802¹

^‍Max supply: 6,219,316,794²

^‍The Treasury holds roughly 48% of all existing $MNT tokens. Sick news for holders. These tokens are, for all intents and purposes, illiquid and only get drip-fed into the ecosystem by incentives. On the other hand, we already know that Mantle has no problem spending money to get where it wants to go.

$MNT is the governance token (cucked) and is used to pay gas fees on the network (gud). Time to outline what could be Mantle’s greatest bull or bear case, depending on how you see things. Remember, Mantle created a native asset standard, and the role of $MNT is parallel to $ETH in this ecosystem. I firmly believe that a bet on $MNT is more akin to the layer one trade than an $ETH beta.

But Mantle is greedy and gets the best of both worlds, enjoying the surging value of $ETH thanks to its $mETH token. (When $ETH goes up, Mantle’s TVL shoots up, and ideally, in our case, this wealth filters throughout the ecosystem.) Here’s the double whammy. Demand to transact on Mantle is the primary driver of buy pressure (layer one), while in an investor’s mind, it is also an $ETH beta play.

Whistlestop tour of the Mantle ecosystem

There are some hella nice primitives on the network - notably, $mETH and $mUSD.

Mantle has deployed Ondo’s $USDY token natively on-chain, and anyone holding stablecoins can now access dollar-denominated yield without having to onboard with Ondo. Mantle has ticked two big boxes. Staked $ETH yield and inbuilt stablecoin yield (not sure why you would want to be holding stablecoins at this point, but even pussies have access to gold-standard yield.) You should be taking note of how efficient the Mantle team is at getting shit done- leagues ahead of its competitors.

Pair is highly liquid, and if you are holding stablecoin, you may as well let Nathan and the Ondo boys top you up with payments straight from Uncle Sam.

DEX plays

Merchant Moe

The Mantle fork of TraderJoe. We will see more Mantle forks of popular dApps, adding water to our distinct chain thesis. Plus, shout out to whoever is making these deals happen and getting established protocols to rebrand when they launch on Mantle - certified lethal head. MerchantMoe is what it looks like, TraderJoe, but on Mantle. It has the Liquidity Book, which I would argue is the most effective, lucrative, and efficient liquidity model.

$MOE is the same play as $JOE and when Merchant Moe finally pushes staking rewards, the thing is going to take off. Currently, all $MOE stakers get veMOE points, and you can use these to vote on your favorite pools and earn more $MOE. No locking required, everything is loose and fungible, and you are eeking all the yield of your existing assets - nice.

‍Rating: $MOE is free money waiting for takeoff

MancakeSwap

I am going to come out and say it. The name is not the one. Big Fumble. The governance proposal is already live, and we are looking at deployment at the end of April. The token will come sometime in Q2 - same playbook as PancakeSwap V2.

Important note that MancakeSwap is part of PancakeSwap’s affiliate program. To drive multi-chain expansion, they allow third-party teams to deploy the core contracts on new chains under their own brand name and token. The new tokenomics model involves a bunch of locking business and a massive reduction in emissions - net bullish. I am, however, following the wise words of Gordon Gekko, ‘Liquid.’ You will not catch me locking anything, and I am currently in the process of unlocking anything in my personal port.

‍Rating: Run it back $CAKE style

Lending plays

Lendle

I like Lendle. Super clean UX and stablecoin borrows are cheap (compared to the rest of DeFi currently). Liquidity incentives are paying you to take loans (vesting period 3 months - but you earn revenue share during unlock period underappreciated touch), and it has a super simple revenue share model.

Breakdown

- 50% distributed as supply APY to supply side

- 40% distributed to $LEND stakers (vesters, flexible stakers, and locked stakers)

- 10% is protocol revenue (5% goes to dev wallet, which is a little hmmmmmm - the buggers already got 20% of the total supply - but the other 5% goes to the reserve).

Revenue comes from borrowing fees, and $LEND lockers get 50% of the liquidation penalty fee. It is plug-and-play lads. It has a bunch of built-in yield strategies, makes it easy as fuck to deposit tokens from other chains via its ‘Cross-Chain Supply’ tab, and you can stake with no lock up and earn fees.

It is button-clicking paradise. Never forget how much investors love the allure of passive income. Lending clipped DEX TVL throughout the bear market - thank god people are waking up to the liquidity provision scam, and lending protocols are hot. Lendle has $30 milly plus in TVL and a market cap of $4 milly. Pango smells money.

Do you want to nab an extra 20% APY for a 3-month lockup? Your decision. But I am following Gekko’s advice with my personal $LEND bag.

Rating: Zinger

INIT Capital

Init Capital is the largest lending platform on Mantle and is running a points program. You already know what that means. Its best feature is its Hook program that allows you to automatically loop up $mETH exposure. (deposit $ETH / $mETH, borrow $ETH, swap into $mETH, and deposit before doing the whole thing again.) Double staking rewards combined with leverage sounds like a yield farmer’s dream, but look at the borrowing rates for $ETH.

Don’t do it to yourself. Happy to be wrong on this one, but I am a big Lendle bull over Init Capital. (Please take into account personal bag bias, and I also dislike anything launched on Blast, which has proven to be a dogshit pile of misery.) Why piss around on Init when you can play the game on Lendle? Watch this blow up in my face following USDe looping. Still ain’t buying the Init narrative.

Rating: Tokenless with legs but personally fading

Yield / CDP plays

Circuit

Typical non-custodial auto-compounding protocol that enables you to juice your yields to the nth degree. Tokenless (hehehe) and follows the classic set-and-forget recipe. Worth paying attention to because when ecosystems start to fly, yield agg protocols are the long-tail benefit recipients.

Rating: Worth tagging ecosystem activity here

Mantle bull case

Mantle has shown a wild ability to roll their sleeves up and get shit cracking. Shipping rate way beyond their competitors. Does anyone remember the Arbitrum staking proposal? Literally crickets for months bruv. The Mantle team has consistently outlined a greater scope for $MNT staking, and the booming success of the Ethena shards program will reinforce their dedication to this vision. The utility as a gas token makes it the only layer two token that is not ultimately cucked, and Mantle leads the way with work rate, tech stack, and cultural understanding.

Fortune launched a hit piece that practically confirmed the bottom was in and the CFTC stated that $ETH was a commodity in the KuCoin case - net bullish for ETF approvals. As soon as EigenLayer goes to mainnet, fees on Mantle will rapidly approach essentially zero. BlackRock slapped $100 milly on the Ethereum chain, and all good news for the parent chain is fuel for the fire. Under the framework that ETF approvals go through, it will be a rocket ride for the ecosystem as the wealth effect washes over altcoins.

‍Pango’s Trifecta Exposure Port: $MNT, $MOE, $LEND.

‍The Mantle pump is excellent news for alts in the ecosystem. You can throw in $PUFF as a beta play (Mantle’s leading memecoin), but I stick with the thesis that risk-adjusted you ain’t outshining shitters on Solana.

$MNT is obvious for broader ecosystem exposure. $MOE gives you exposure to the premier trading hub, and $LEND is exposure to what I believe will become Mantle’s leading money house. Don’t complicate it.

Mantle bulls are fucked (bear case)

Layer two tokens are fundamentally broken. All liquidity is siloed, and the layer two UX is absolute dogshit. The whole idea of scaling Ethereum is a straight-up scam, and it is the same as using a layer one but without any decentralization and at the whim of a centralized sequencer. Think about it, G. How do you want to play the game? You got options for $ETH exposure:

- Vanilla $ETH (NGMI)

- Staked $ETH (boomer)

- Leveraged staked $ETH (noice)

- $ETH beta plays (layer two tokens)

- Beta betas (layer two ecosystem tokens)

- EigenLayer exposure / LRT Game (heavily predicated on future demand)

- Memecoins ($PEPE / $MOG)

Does Pango think that Mantle is the winner in the beta play race? Yes. This hinges on two premises. Base does not release a token (Brian already has $COIN, regulatory overhang, and Base fees are printing; no real reason). Optimism does not turn on a fee switch ($OP being the obvious foundational tech stack play). It is all probability, bucko, and the odds are in my favor.

But a better question: Are you betting on the right race?

Beta plays have proven time and time again to be cursed. Unironically, the best $ETH beta play is leveraged $ETH. Not to mention the market is spoiling you. Take some $ETH on Arbitrum (you don’t even have to pay layer one taxes), throw it in Pendle’s earn page, and earn 60% real yield. The other side of this trade is where market dynamism exists, and in the attention economy, trading attention is better than fundamentals.

People are foaming, and I mean gushing, for points and exposure to EigenLayer. There are too many LRT plays to name, and brutally put, why bother playing in the sandpit with layer two tokens when you can unlock exposure to the potentially trillion-dollar web of AVSs? EigenLayer will lead a paradigm shift, parceling up Ethereum’s security and selling it to any willing buyers. It turns the settlement layer meme into a ruthless capital force, and you want to fade this in favor of a layer two token. RIP. EigenLayer is a black hole that cannot be fought (full ecosystem report here).

Which way will you go?

The measure is outperforming the market. This cycle’s emergent trend is pockets of extreme overperformance - you have to get better at allocating capital. I personally believe that altcoins in the Mantle ecosystem have legs, especially post-pumperooni. $10,000 for Le Big Blue is programmed, preordained even. But where can you squeeze the most juice? Gun to my head, pick a winner in the layer two race. I am betting on Mantle and its ecosystem, no question. Disgustingly bullish under these constraints and weighting heavily toward $MOE & $LEND. Mantle is, without a doubt, the fastest horse in the layer two race, and it ain’t even a competition at this point.

But again, ask yourself: Am I betting on the right race? EigenLayer looks like the infra-play of the century, and while I believe leveraging up LRTs will be partially responsible for the next big unwinding - make hay while the sun shines baby.

Pango’s final word. Mantle is the absolute best of a bad bunch. However, those leveraging up staked $ETH will capture the bulk of the move with the least headache. Lesson in there.  

1. https://api.mantle.xyz/api/v1/token-data

2. https://api.mantle.xyz/api/v1/token-data

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DISCLOSURE: The author of this report, PangolinK, has exposure to the following tokens mentioned in this report: $MNT, $LEND, $MOE. Please keep this bias in mind while reviewing this report.