How will the four DeFi token projects of YFI, YAM, SUSHI and UNI affect Ethereum?
Original title: “Science | How DeFi Boosts the Development of Ethereum from Data”
Written by: Coin Metrics
Translation & Proofreading: Min Min & A Jian
In the past few months, dozens of projects have been released and a large amount of funds have poured in, and the DeFi field has reached new heights. The vast majority of DeFi applications are built on Ethereum, and the explosive growth of DeFi has affected the entire Ethereum network. DeFi not only pushes Ethereum to the limit, it also accelerates the pace of innovation and experimentation. In this article, we have studied how four DeFi token projects affect Ethereum and drive its evolution.
The rise of decentralized exchanges
The rise of DeFi has set off a wave of new tokens, including some breakthroughs. ETH’s bull market in the summer coincided with the issuance of governance token YFI by year.finance. However, there were some tragedies during this period, for example, YAM tokens went back to zero after a skyrocketing increase. The figure below shows the price trend of ETH after the launch of 4 large-scale DeFi token projects so far: YFI, YAM, SUSHI and UNI.
Source: Coin Metrics Reference Price
Uniswap is the largest decentralized exchange on Ethereum and has become a DeFi token trading engine. From early June to early September, Uniswap’s trading volume has increased from US$1 million per day to US$1 billion per day. Unlike centralized exchanges such as Coinbase and Binance, Uniswap transactions are performed entirely on the chain. This means that every transaction on Uniswap must be sent to and settled on Ethereum. On-chain transactions have quickly become one of the largest use cases on Ethereum.
Source: Uniswap.info
With the rise of Uniswap and other applications, the number of calls to Ethereum smart contracts reached a record high this summer. The tokens circulating in the ecosystem are increasingly controlled by the code, which raises the efficiency and opportunities of automation to a new level. However, this also brings more complexity, because DeFi smart contracts can interact with each other and automatically transfer tokens through multiple platforms.
Source: Coin Metrics Network Data Pro
Another manifestation of the rise of decentralized exchanges is the increase in the number of WETH (Wrapped ETH). Fundamentally speaking, WETH is a way to package ETH into ERC-20 tokens. DeFi tokens are built on a set of standards (ERC-20) that can make token transactions easier. However, the ERC-20 token standard was introduced after the issuance of Ether, which means that Ether itself does not comply with these standards. In order to create WETH, users must first lock Ether in a smart contract before they can be exchanged for WETH tokens.
After YFI tokens went online, the supply of WETH tokens hit a record high.
With the development of DeFi, the supply of WBTC (Wrapped BTC) is also increasing. WBTC is similar to WETH, the only difference is that Bitcoin is locked instead of Ethereum. WBTC can be used in DeFi applications such as Uniswap and Curve Finance. With the development of WBTC, hundreds of millions of dollars worth of Bitcoin have been transferred to the Ethereum ecosystem, at least for now.
Giant whale infestation
As high gas prices become the new normal, Ethereum transaction fees have also changed dramatically.
With the launch of YFI, YAM, SUSHI and UNI tokens, the median Ethereum transaction fee has skyrocketed. Whenever a new token comes online, people will scramble for these tokens and trade them on exchanges such as Uniswap. Since Uniswap transactions are carried out on the chain, transaction fees must be paid for each transaction. The higher the fee paid by the user (that is, the higher the gas price), the higher the possibility that the miner will pack the transaction first, and the faster the transaction confirmation time will be. In order to conclude the transaction as soon as possible, a transaction price war has started between users.
With the launch of SUSHI, the median transaction fee of Ethereum hit a record high on September 2nd, that is, $8.25.
Source: Coin Metrics Network Data Pro
Blockchain transaction fees are a double-edged sword. These transaction fees will eventually be paid to miners, so the higher the transaction fee, the more people will be incentivized to protect the Ethereum blockchain. Due to the increase in transaction fees, the income of Ethereum miners hit a new high in the summer, pushing the computing power of Ethereum to a new high. For Ethereum, this is a good sign, because network security is essential to the long-term healthy development and success of the blockchain.
Source: Coin Metrics Network Data Pro
However, the high cost will also discourage some users. The transaction fee is not proportional to the value transferred from the exchange-a transaction worth $100 or $100,000 may pay the same transaction fee. Therefore, high transaction fees are more conducive to giant whales and users with higher transaction volume, and it is difficult for users to profit from small investments.
Since the rise of DeFi, the median transaction value of Ethereum has increased to hundreds of dollars, which shows that the Ethereum network is shifting to large participants.
Source: Coin Metrics Network Data Pro
Two-tier expansion plan
However, the Ethereum fee market will soon return to fairness. The rapid rise of DeFi is also triggering a new wave of innovation. Since the summer, the entire Ethereum ecosystem has been working hard to solve some scalability issues that caused excessive transaction fees.
Last Friday, Ethereum achieved a major milestone in its pursuit of scalability: the Optimistic Ethereum testnet went live. Optimistic Ethereum is a two-tier project that aims to achieve near-instant Ethereum transactions at a lower cost. The project is compatible with Ethereum infrastructure and smart contracts, and is easier to adopt than many other expansion solutions. The popular DeFi application Synthetix is providing incentives for testnet users and plans to move to Optimistic Ethereum. Uniswap and Chainlink have also signed up with Optimistic Ethereum as early adopters.
With the release of new deneutralized applications and tokens, DeFi will undoubtedly continue to push the limits of Ethereum. However, Ethereum is also changing, and the second-layer scalability will also open new doors for the future of DeFi and Ethereum.
Source link: coinmetrics.io
