Today we are talking about the changes of ETH under this four-year cycle. ETH is the native token of Ethereum. The ETH in 2017 and the ETH in 2021 are undergoing qualitative changes.
From sowing to harvest
In 2017, Ethereum basically had no real ecology. In 2017, Ethereum was the first token issuance. The main use case of Ethereum at the time was the financing of initial coin offerings. At that time, almost most projects were just concepts, and people invested or speculated based on concepts. And this kind of bubble is coming fast and violently, but it goes turbulent.
Of course, the 2017 bubble was not useless. The bull market in 2017 allowed many people to see the potential of blockchain and Ethereum, and to see opportunities for other blockchains besides Bitcoin. At the same time, during this period, some projects received financing and persisted in order to lay the foundation for the future prosperity of the Ethereum ecosystem. Many projects, such as Chainlink, Aave, MakerDAO, Kyber, Loopring, etc., received development funds during that period.
Therefore, around 2017 is the seeding stage of the Ethereum ecology. In the frenzied bubble, most of the projects disappeared in smoke, but there were some excellent teams that planted seeds on the ground of Ethereum and began to take root.
Because the Ethereum ecosystem did not have actual value support at the time, after the crazy ICO bubble subsided, a large-scale decline followed.
After several years of exploration, ETH now has a solid ecological support. The biggest support is the formation of the DeFi ecosystem. The current overall DeFi market value is more than 16 billion U.S. dollars. Some agreements have a certain scale of users, transaction volume, and fee income. As for ETH itself, most DeFi protocols lock ETH of different sizes, and ETH has evolved from a financing medium to an underlying value asset.
Now DeFi has a strong demand for ETH:
*The total amount of ETH locked in DeFi reaches 6.6 million
A large amount of ETH has been locked in DeFi, reaching 6.6 million, which is currently worth more than $3.4 billion.
In addition to Ethereum, DeFi’s overall locked assets are $12.8 billion. DeFi is forming an increasing demand for ETH. On Unswap, ETH (WETH) is the most liquid, and the most transaction volume is still ETH. As DeFi develops in depth, such as decentralized options, the demand for ETH in DeFi will only increase.
*DeFi users
There are currently close to 1 million DeFi users, including DEX, lending, derivatives, insurance, stablecoins, aggregators, etc. These are all users who are actually using the product.
*Ethereum transaction fees driven by DeFi
Ethereum’s transaction fees are being promoted by DeFi, gradually forming a tendency to crush other agreements and projects. At present, the annualized capture cost of Ethereum is as high as 760 million U.S. dollars, second only to Bitcoin’s 770 million U.S. dollars. In addition, the most expensive agreements and projects are basically in the DeFi field. With the development of DeFi, this trend will only increase. With the implementation of the EIP-1559 proposal, this means that ETH will have the opportunity to capture Ethereum’s fee income. It will reduce the inflation rate of ETH and even bring the possibility of deflation at a certain critical point.
*Ethereum has gradually become the primary position for carrying various assets
Due to the booming DeFi on Ethereum, it has formed a siphon of various other assets. Including Bitcoin, the number one player in the encryption field. Today, there are more than 150,000 BTC circulating on Ethereum, worth more than $2.6 billion, and this is just the beginning.
In addition, the stablecoin circulating on Ethereum has exceeded 16 billion U.S. dollars.
With more and more Ethereum DeFi protocols, better liquidity, and stronger security, it will also siphon more bitcoins and stable coins, and with the development of Layer 2, DeFi can accommodate a larger amount The scale of assets, which will create greater demand for ETH and other assets.
At present, more than 13 billion U.S. dollars of assets are locked on DeFi, and ETH is worth more than 60 billion U.S. dollars. When hundreds of billions of dollars of assets are locked on DeFi in the future, ETH can only accommodate the circulation of these assets and provide them with Enough security.
*DeFi and CeFi form substantial competition
Today’s DeFi is becoming a substantial opponent of CeFi, which is the first to show in the trading field. Today, the total transaction volume of DEX since this year is as high as 89 billion U.S. dollars, and the transaction volume in the past week has exceeded 5 billion U.S. dollars. Although there is still a long way to go compared with CEX, this trend of competition has emerged.
In terms of crypto lending, Compound currently locks up to 1.5 billion U.S. dollars in assets and Aave up to 1.35 billion U.S. dollars, of which 1.1 million and 392,000 ETH are locked respectively. In addition, in terms of derivatives, Synthetix, UMA continue, and Hegic’s decentralized options; Cover, Nsure, and NXM in the insurance field are developing; YFI in the field of aggregate mining is evolving rapidly, and various DeFi products are continuously launched; even There is also the combination of NFT and DeFi, such as MEME.
The prosperity of the DeFi ecosystem has promoted the evolution of Ethereum, making ETH gradually become the most important underlying asset in the DeFi field. From this perspective, ETH has gradually evolved from a financing tool in 2017 to an underlying asset with substantial sustainable demand.
From crypto commodities to productive assets
It is often said that BTC is digital gold and ETH is digital oil. If you go back to 2017, ETH is a misnomer. But now, ETH has gradually evolved the characteristics of encrypted assets that are different from BTC. This may give it a chance to become the king of encrypted public chains in the future.
For now, BTC is the only one in the crypto world, and its status cannot be shaken. Because it has almost no competitors in the field of value storage. Bitcoin has gradually become a digital gold due to its extensive social consensus, PoW mechanism, non-issuance hard cap, security and many other features, and it has gradually expanded its advantages in the field of value storage. In the field of digital currency, BTC can hardly find any rivals.
But the real opponents come from different fields. Ethereum is a smart contract platform. It did not intend to become a cryptocurrency (coin) at the beginning, but is more of a token serving the original dream of the world’s computers. But the settlement that occurs on Ethereum today is almost the same as that of Bitcoin. Ethereum accidentally became the world’s settlement layer no less than or even possibly surpassing Bitcoin in the future.
Like BTC in 2017, ETH is a cryptocurrency generated through the PoW mechanism, but in 2021, some ETH is generated through PoS. This means that ETH can become a productive asset, and ETH itself can generate more ETH. This may seem like a simple change, but it has a profound impact. For more information, please refer to “ETH2.0: PoS Staking Brings Profound Impact on ETH” by Blue Fox Notes.
ETH has evolved from an encrypted commodity to a productive asset. While solving the security of the Ethereum public chain, the degree of integration between ETH and the protocol itself has been greatly improved. The externalization of PoW has shifted to the internalization of PoS. It is mainly the object for the miners to sell for cash profits, but also the productive materials for the miners to obtain more profits.
This means that there will be a large-scale demand for ETH. According to the current return rate of ETH, it is not a big problem to reach the level of DeFi locking ETH in the short term. It is estimated that the ETH in PoS pledge will exceed 5 million in a short time. With the launch of ETH2.0 pledge services by wallets and exchanges, it is possible that more than 20-30 million ETH will be locked, and the current total ETH is about 113 million. After a long period of time, especially after various pledge thresholds are lowered and liquidity problems are solved, the amount of ETH locked in the PoS pledge network may reach about 20-30%, or even higher, and this does not include the lock in DeFi ETH.
