Foreword: In 2020, in addition to prices, almost all Ethereum indicators have reached new highs. Will the price of ETH also reach new highs? Perhaps the answer will not be revealed until 2021.
As far as the public’s perception is concerned, BTC has been attracting attention in 2020.
BTC has the reputation of “digital gold” and is also the “best tool” for hedging inflation, and has gradually gained recognition in the investor field. Therefore, many institutions have also developed new interest in BTC, pushing its price to record highs.
Legendary fund managers such as Paul Tudor Jones and Stan Drunkenmiller bought large amounts of BTC and became BTC advocates. At the same time, Square, Mass Mutual and MicroStrategy became the first companies to hold BTC on their balance sheets. Some companies hold more than others.
In the summer of 2020, the Ethereum community experienced the DeFi wave, which attracted a lot of attention and a large amount of funds, and introduced a new distribution mechanism for the ownership economy. Nevertheless, most of the influence of the DeFi wave remained in the community.
At the same time, the price of ETH has been at a level that has fallen by more than 50% from the historical high.
However, the Ethereum economy still has a glorious year, which is very worthy of attention. From the launch of Ethereum 2.0 to the DeFi liquidity mining (yield-farming) boom, the entire ecosystem has experienced exponential growth. Dozens of Ethereum indicators reached new highs during the year.
Ethereum network usage reaches a new high
The network usage rate can be said to be one of the most basic indicators to measure the operating status of any public blockchain. In short, it can also be seen as a demand for block space, which means that people are actually willing to use (and pay for) the ledger in the blockchain as a settlement layer.
The demand for Ethereum block space has reached its limit. Ethereum’s usage demand has always been very large, and the network usage rate has been high, which really cannot meet more needs.
Whether it is borrowing capital on Aave or Compound, exchanging tokens on Uniswap, trading derivatives on syntix, launching DAO, or sending encrypted dollars to anyone in the world, Ethereum as the settlement layer of a decentralized economy has great demand.
Now, Ethereum needs to expand. Despite the layer2 solutions (prospective rollups, upcoming Eth2 upgrades), the demand for block space in the network is too large, and capacity needs to be increased to maximize its effectiveness.
Ethereum hash rate hits a new high
Despite the imminent transition to PoS, the Ethereum hash rate has climbed to a new high. In other words, the network is more secure than ever. According to The Block’s data, the Ethereum hash rate is higher than 271 TH/s, exceeding the historical record of approximately 240 TH/s during the bear market in September 2018.
July 2021 is the launch date of the difficulty bomb, and miners are rushing to dig the remaining ETH as quickly as possible before their equipment is “bricked”. But for the Ethereum community, whether it is necessary to delay the launch of the difficulty bomb again is another question.
Although all Eth2 phases are carried out at the same time, it should be faster than Phase 0’s start-up, but if you think that the Ethereum network can be transferred to PoS within 6 months, it is a bit overconfident.
ETH options open interest reaches new high
The open interest of an option is the total unrealized value of the outstanding option. The open interest of Ethereum options is close to $1 billion. Although this number is still relatively small in the entire Ethereum network, it does give us some key information about the network. Nic described this aspect elegantly in his article:
Derivatives initially provide farmers with risk exposure to hedge crops and lock in specific prices for harvests (providing liquidity for future crops, with the goal of being able to buy seeds and fertilizers now). Similarly, options are also very useful for BTC producers (miners) . Based on a reasonable inference of the hash rate, miners can probably determine how much BTC can be mined with their own equipment. If they want to get “advance payment” to mine BTC, they can sell call options. This means delivering BTC at a specific price on a specific date promised, but they will now be paid. With this advance payment, they can more effectively fund mining.
According to this table, I know that BTC miners can now use more complex financial products to hedge risks. In theory, this should mean that the BTC mining industry is more stable and less affected by booms and depressions. It allows miners to focus on efficient operations without worrying about unhedged risks for their equipment.
Similarly, the number of Ethereum options is increasing, which makes more efficient mining possible, because options can hedge against volatility risks, and selling call options can finance mining.
In addition, the options market allows traders to perform more operations, show their views on the market, and provide market participants with more tools to support more capital inflows.
All in all, the $1 billion in open interest is a positive signal to the Ethereum network, implying that market participants can use more financial instruments.
The number of DeFi users hit a record high
At the beginning of this year, the number of DeFi users was less than 100,000, but after that, this number showed a parabolic trend, with the number of users of all agreements exceeding 1 million. It should be noted that in this case, “DeFi users” are actually just the number of different addresses, which may exceed the actual number.
In any case, the picture above says it all. The number of wallets participating in DeFi has risen completely vertically, and the public is well aware of the reasons behind it.
After the introduction of liquid mining, there was a brief boom in the Ethereum ecosystem, which quickly swept the entire system. In the peak period, new DeFi protocols are born every day, generating countless liquidity mining, wave after wave into the original token mining pool, within a few hours, some bad projects will withdraw from the trading pool fluidity. This is very similar to the ICO boom in 2017, when new tokens were released every day and billions of users poured into the cryptocurrency circle.
The DeFi boom can still bring benefits. The cryptocurrency industry has introduced a new distribution mechanism, which is very important because it can have a significant impact on future equity distribution. What is the focus of the mechanism? Give ownership to the person who provides and creates the most value: the user.
Platforms such as Facebook, Youtube, Twitter, Uber and Airbnb do not really rely on themselves to create value. They depend on personal and network effects. Every platform user makes it more and more valuable. Some of these platforms produce video content for the global public, and some allow strangers to carpool and travel, relying entirely on personal creation of value. People will not simply go to Facebook to read Facebook content, nor will they just live in Airbnb houses.
It’s all individuals at play.
So why not let them also have platform ownership? This is DeFi’s experiment in liquid mining. Individuals provide valuable services to the network (such as providing capital for Compound), thereby gaining ownership in the agreement.
For example, Uber drivers get a small share of equity every time they provide a service; each time Airbnb receives a guest, they get a small share of equity. Such a future is not difficult to imagine.
Total lock-up value hit a new high
Wallet addresses continue to increase, and the total lock-up value has risen sharply, partly because of the liquidity mining boom.
At the beginning of the year, the total lock value of all DeFi agreements was $600 million. But only in February, the valuation of this field reached the level of unicorn companies. By the end of this year, the lock-up value far exceeded US$15 billion, which has easily increased by 25 times. As mentioned above, the main reason for the increase in the value of DeFi lock-up is the liquidity mining boom from June to September.
Driven by Compound’s COMP token, a large amount of capital has poured into the new DeFi protocol (some of which have not been audited), because investors can get huge passive income.
DEX transaction volume hit a new high
One of the most noticeable trends this year is the rise of DEX. Although DEX has always been the most popular usage scenario for Ethereum, their performance in the past has been below expectations. The first batch of Ethereum DEXs had many problems, such as a crude interface and slow transaction speed. If you have ever been exposed to DEX, you may remember the situation of trading tokens on EtherDelta (the prototype of Uniswap).
The development of DeFi has overcome various problems, and the situation has also undergone major changes.
Under the influence of the summer DeFi boom, DEX trading volume has soared in 2020, reaching a peak of $25 billion in September alone. Even better, the influence of these crypto-native exchanges in CEXs has increased significantly, and the market share of DEX trading volume has reached its peak, accounting for 15% of CEX, achieving huge growth. In 2019, its share was less than 1%. Uniswap, Curve and Balancer are all important driving forces for the development of this field.
But Uniswap has a major share. Constant product AMM accounts for nearly 60% of all DEX trading volume, while other products support low trading volumes of 10-digit dollars. DEX has made significant progress in the past few years, showing that they have the hope of competing with CEX.
The nature of the Ethereum financial agreement does not require permission and global free flow, but it is very difficult to comply with this nature. Uniswap supports the long-tail assets of Ethereum, and it is also difficult to meet this nature. In Ethereum, any ERC20 token can be launched immediately, there are no cumbersome procedures, and no currency fees, fair competition, and everyone must follow the same rules. After the initial liquidity is pledged, the tokens can be opened to global users, who can trade or use tokens to provide liquidity.
As a result, the listing speed of CEX giants such as Coinbase and Binance has been accelerating because DEX is invading their market. This obvious situation happened on the day that Sushiswap’s SUSHI token was launched on Binance. Recently, Graph’s GRT token was listed on Coinbase. At that time, the same situation happened.
In the future, we may be able to see CEX begin to use the liquidity protocol for token transactions instead of building infrastructure. Do you want to understand how the DeFi protocol became the foundation of everything?
Ethereum BTC transaction volume hits record high
Today, the BTC circulation in the Ethereum economic system is worth $3.3 billion, accounting for 0.675% of the current BTC value.
After liquidity mining became an upsurge, BTC circulation rose parabolicly, and the same situation happened to everything in DeFi. BTC holders are no longer indifferent. On the contrary, they put BTC in the DeFi protocol and want the opportunity to obtain high passive income. Such considerable gains are irresistible.
Whether it is to become a liquidity provider on Curve or Uniswap, or to store tokens on platforms such as Compound and Aave, for BTC holders, the decentralized economy of Ethereum provides multiple ways to obtain it in a non-custodial manner Passive income, which is consistent with the core cypherpunk philosophy. This is in sharp contrast to other options of BTC holders. In order to earn income, holders need to pledge BTC on centralized lending platforms such as BlockFi or Celsius.
What is more beneficial to them is that the number of Ethereum wBTC is more than before. Although wBTC previously dominated the asset class, today the Ethereum ecosystem has produced other similar tokens such as renBTC, tBTC and sBTC.
I doubt whether this trend will end soon. In the future, Ethereum will only provide more ways to use funds. For BTC holders, they will only have more tokens like wBTC to choose from.
Having said that, the value of BTC in circulation on Ethereum will sooner or later exceed the value of existing BTC by 1% or more.
The number of ETH held by Grayscale hit a record high
Grayscale is becoming a black hole, constantly buying various cryptocurrency assets. The company not only holds 2.5% of the total BTC, but also increases ETH holdings through its investment product EETH, which accounts for 2.3% of this year’s ETH supply (approximately $1.7 billion). The daily trading volume of this investment product also hit a record high. The average daily trading volume in November exceeded US$24.6 million, far higher than the record of US$15.6 million set in August 2020.
But investors need to pay attention. Although the growth of gray ETH products shows signs of good market, institutional investors (those who buy EETH) are likely to take advantage of the high premium of EETH to profit, and will not regard it as a long-term Holds meaningful investment positions.
For reference, the current EETH premium is 132%, which is a good return for ETH lock-up for 6-12 months. In any case, the rise of EETH does provide institutional investors and qualified investors with opportunities to get involved in Ethereum.
They have 6 months to wait for the appreciation of EETH to earn a premium, so we can only imagine that at least some of these investors will eventually become interested and begin to study this investment product and understand what Ethereum is.
Perhaps many of them will continue to invest in this area.
Ethereum stablecoin transaction volume hits record high
In the early days of the DeFi explosion, the reason behind it is likely to be the growth of the Ethereum stablecoin. Stablecoins are the “dollars” of cryptocurrencies. Their value is anchored to the U.S. dollar. They have flourished in Ethereum in the past two years and are now worth about 2 billion U.S. dollars.
But in 2018, USDT (TEdacoin) is almost the only stable currency. Nowadays, various stable currencies have emerged one after another, some are supported by legal currency reserves, and some are supported by algorithms. This development trend shows no signs of slowing down.
Anyone can purchase these stablecoins as long as they have a network connection. Therefore, Ethereum can further expand the global users of stablecoins. The recent situation in Venezuela is an excellent case. Circle (the organization behind USDC) cooperates with the Bolivarian Republic of Venezuela and Airtm to provide assistance to Venezuelan frontline medical workers through USDC.
Venezuela’s domestic financial system is controlled by President Maduro’s capital. Through multi-party cooperation (including the U.S. government), they successfully circumvented the control so that medical staff who fight for the lives and health of the Venezuelan people can receive millions of dollars. Remittance.
This case demonstrates the role of application public chains. For the United States and other countries, even if they are subject to foreign control, by using rather than attacking these permissionless platforms, they can bypass control and expand their capabilities and influence.
But will these countries really do this? We will wait and see.
The number of pledged ETH contracts hit a new high
The last chart is a bit deceptive, because the price of ETH can only rise now. Nevertheless, ETH became the first online bond to achieve unicorn status soon after launching the Eth2 deposit contract. The amount of pledge in the contract currently accounts for more than 1.5% of the total ETH supply and is valued at more than 1.1 billion US dollars, ensuring the security of the final public chain of Ethereum.
Although it is still early to make a conclusion, the influx of capital into the pledge contract shows the collective support of the Ethereum community to promote the expansion of the blockchain and move towards a decentralized future.
Outlook
When the price of Bitcoin hit a new high, Ethereum also had a lot to celebrate. From the fundamentals to the introduction of various articles, there are a series of indicators showing that Ethereum has been adopted as the settlement layer of the Global Value Internet.
The decentralized economy is being established day and night, and there are many developments to prove this. Recall that two years ago, the DeFi industry hardly existed. Now, more than 15 billion US dollars of funds are used to support powerful financial applications, and 20 billion US dollars are used to support stable coins-as long as there is an Internet connection, anyone can obtain stable coins.
Although I only focused on these 10 new high indicators, there are many other indicators that have reached new highs in the Ethereum economy. The transaction volume of non-homogeneous tokens (NFT) and electronic art has reached 7 digits, and the transaction volume of the original financial primitives of encrypted currencies such as lightning loans has also soared to billions of dollars.
These countless examples prove one point: Ethereum is developing.
Behind the development, there are also many news to promote the basic development: ETH 2.0 is progressing smoothly. Recently, the Chicago Mercantile Exchange announced that it will support ETH futures in 2021, and Jerome, the chairman of the US Federal Reserve Board, is preparing to implement a new round of stimulus policies.
So when will ETH reach a new high next time?
