28 February, testnets have economic value

Explore the article discussing the economic value of testnets, specifically focusing on the Goerli testnet and its token GETH.

Table of Contents

Layer zero created the first bridge between a Testnet and a Mainnet.

Instead of dealing with complex mechanisms to obtain Goerli eth, now users can just buy it quickly and easily from Uniswap.

As described by Layer zero, “The bridge enables the seamless transfer of assets between the Ethereum Mainnet and the Goerli Testnet. Users can easily swap tokens for native Goerli ETH and bridge them securely using LayerZero’s OFT technology. Goerli is now open to the world.”

In this market structure there are two ways to alter the price (of the token GETH):

  • Buy/Sell on Uniswap pools (roughly $200k liquidity in v2/v3)
  • Buy/Sell on testnet pools

The arbitrageurs will make sure the price will be balanced between the pools.

LayerZero initially welcomed the community to actively trade and achieve price discovery and equilibrium. 

Due to the innovative concept, the institutional involvement (Coinbase announced that will use Goerli for the testnet of their Layer 2) and the huge press coverage the token saw a very intense interest and volatility, reaching 1.60$ a piece and more than $10m in volume.

The Goerli testnet is ready to be placed among “meme-chains”, with the upcoming tracking of Dextools, NFT collections, as well as the first memecoins, and lot of activity both on testnet and mainnet.

However, Layer Zero probably didn’t consider the Goerli “founders” and whales (of a token that has been designed to have no economical value) when creating the bridge. 

These whales hold more than 50m Goerli testnet tokens.

From one day to another, these wallets have been magically worth millions, with no restrictions on what to do with the tokens.

Some whales held.

Some others started to sell, because a testnet with an economical value didn’t match their vision. 

 

Some ethical and moral questions might arise

 
  • Is it right from these people to sell their tokens – hence concretely stealing uninformed investors money?

  • Are these people entitled to the proceeds of the sale?

  • Shouldn’t layerzero have taken agreements with such whales, before letting the token be freely tradeable?

  • Who should the investors blame for this situation?

    • Themselves for bad decisions? 

    • Layerzero for launching the bridge without warning and stipulating agreements with whales? 

    • The whales for selling without caring of morals?

 In order to provide some fresh insights, we’ve done a quick analysis based on Dune data about testnet goerli top holders.

Here’s a short summary of the results. Smart contracts have been excluded.

Address Amount Actions
0xc48e23c5f6e1ea0baef6530734edc3968f79af2e 10.1m No trading
0xe0a2bd4258d2768837baa26a28fe71dc079f84c7 https://q9f.cc/ 7m No trading. Sent 1m to other wallet
0x64631b5d259ead889e8b06d12c8b74742804e5f1 5.9m Sent to 0x02BF3258D6024B2B34fD7D21F225Db6CDA939E76 to create BOB
Dumping on testnet (roughly 1m)
fordperfect.eth 5.9m No action
mariapaula.eth 5m Dumping on mainnet and testnet (roughly 1m)
0x462396e69dbfa455f405f4dd82f3014af8003b72 2.8m No action
0x46a341c63da91f49788972e2fea63181771669ce 1m No action
0xd3c53d11b7e341f19aab4e950cee12e664bbb37a 999k No action

As shown above, most of the top wallets aren’t touching GETH (so far).

But with a combined pool of just 1m GETH, the two wallets that are selling, are able to manipulate the price for a long, long time.

 

Comments from the author

  • It’s SO morally wrong that a couple of holders decide on the price of an asset held by thousands.

  • There’s unjust enrichment from these holders. It doesn’t matter if they create grants or volunteer with it. That’s degens’ money.

  • If they really want GETH to be decentralized and free, just refill the faucets and make it easy to get it.

  • The will of thousands of holders is more important than 2 whales.

  • Layer zero should do something in order to prevent loss of funds from additional investors, such as:

    • Restrict the usage of the bridge to a certain % of supply

    • Find an agreement with whales on token usage

    • Eventually discipline and centralize selling pressure, with precise rules

  • I expect all testnets in the future to be traded on mainnets.

As long as the behavior of these holders is not somewhat regulated, trading of $GETH is extremely risky and could potentially lead to big losses.

But no-one can deny that a new piece of history has been written. A new chain is born. And it’s here to stay. Testnets can have value. Testnets can moon.

 

Paolo Montemurro – Blockchain Army Founder and CTO, Dextools Ambassador

Any further questions? You can directly ask me (@montedev on Telegram) 

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