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Bitcoin has attracted mainstream attention due to its new high price, and the explosion of Ethereum DeFi attracted a large number of users and caused network congestion.
Written by: Eddy Lazzarin, a16z Partner Translator: Lu Jiangfei
For the cryptocurrency industry, 2020 is a very important year. As the price of Bitcoin skyrocketed and reached a record high, this emerging industry finally began to receive mainstream attention. At the same time, the decentralized financial applications on Ethereum have also attracted many users to participate in transactions, borrowing, and lending crypto assets, thereby pushing the Ethereum network to its limit.
New projects—networks, applications, and scaling solutions—have tried many ways to achieve decentralization and autonomous governance, such as providing rewards for users and contributors, allowing project ownership to be owned by the community, and so on.
This article was written by Eddy Lazzarin, a partner of Andreessen Horowitz (a16z), a well-known investment institution. He showed five charts, which are designed to reflect some of the most important events and market dynamics in the cryptocurrency industry in 2020. Perhaps we can be more clear from these charts To understand exactly what happened in the industry in the past year.
Decentralized exchange: transaction volume
Source: Dune Analytics, data includes decentralized encryption including 0x, Balancer, Bancor Network, Curve, DDEX, dYdX, Gnosis Protocol, IDEX, Kyber, Loopring, Mooniswap, Oasis,, Sushiswap, Synthetix, and Uniswap Transaction volume information on currency exchanges. It should be noted that the chart information provided in this article is for reference only, and everyone should not rely on these charts when making any investment decisions, because past market performance does not predict future results
At the beginning of this year, the total transaction volume of decentralized exchanges (DEX) was actually not too high, but by the end of summer, the total transaction volume of exchanges had reached “can only be seen in centralized cryptocurrency exchanges” s level. If you push the time forward by a few years, no one will believe that the trading volume of decentralized exchanges can reach today’s level, at least technically it is impossible. Some people believe that there are many reasons why decentralized exchanges cannot compete with centralized exchanges in terms of trading volume, but now the data tells everything, and it is a strong proof that decentralized exchanges can fully adapt to the development of the cryptocurrency market.
It is worth mentioning that the surge in decentralized exchange transactions in 2020 is actually due to the “seeds” planted in 2018, which have blossomed due to the launch of a large number of new DeFi projects. Roughly speaking, it can be summarized as: DeFi protocols can be integrated with each other, profit farming, protocol decentralization, and the launch of new tokens. Suddenly, it seems that everyone wants to buy and use these new DeFi tokens. More importantly, the market infrastructure is now ready to meet market demand.
Decentralized exchanges are the best platform to promote new market activities. When the new DeFi protocol is launched, decentralized exchanges will be used because you need to deposit specific tokens on it. If you already hold some ETH tokens on the chain , Then it only takes a few transactions to obtain the relevant DeFi tokens, and then return to the agreement for deposit, withdrawal or other interactions. Using decentralized exchanges will not only make these operations easier, in many cases, decentralized exchanges may be the only channel that only requires these operations.
If you want to participate in the latest DeFi project, you need to operate from the source, the source is on the chain. For a long time in the past, most cryptocurrency transactions took place on centralized exchanges, but until recently, people found it easier to access and obtain new tokens on decentralized exchanges.
More broadly, without leaving the crypto ecosystem, as the financial infrastructure develops better and better, other cryptocurrency trading methods (such as decentralized transactions) are feasible. In fact, trading assets in a trustless, non-custodial manner has always been the core promise of encryption technology, and the era of decentralized exchanges has come.
Bitcoin and Ethereum fees
Source: Coin Metrics. The chart information provided in this article is for reference only. Everyone should not rely on these charts when making any investment decision, because past market performance does not predict future results
Bitcoin and Ethereum gas fees refer to the transaction costs that need to be paid when transferring assets, using applications, or adding new programs. At the beginning of 2020, Bitcoin and Ethereum gas fees will reach hundreds of thousands of dollars a week, sometimes even Will soar to millions of dollars. Now the market seems to have entered a new normal, especially after the DeFi boom in the summer, it has stabilized, but the weekly gas fee seems to have not returned to the low level in the past, basically maintaining at the level of tens of millions of dollars. .
If calculated according to the latest price, regardless of the transaction amount:
- The cost of token transfer on the Ethereum blockchain is about 4-8 US dollars;
- The token transaction cost of a decentralized exchange is approximately US$12-25;
- If you want to conduct a loan transaction in a decentralized currency market, the cost is about 20-40 US dollars.
Due to the DeFi boom, Ethereum transaction fees soared this summer, compared to the Bitcoin network transaction fees did not fluctuate significantly. Despite this, although the throughput on the Bitcoin chain is still limited, the fees are actually rising. From the perspective of transaction volume, people seem to be willing to spend money on Bitcoin transactions, although they may not be like traditional financial institutions. Dozens of transactions are transferred on the Bitcoin chain, but many people are still willing to spend more money to complete the Bitcoin transfer as soon as possible.
There has been controversy in the cryptocurrency industry as to whether higher gas fees are good or bad. On the one hand, the high gas cost always has a slight negative impact, because people generally believe that the cost of network usage should not be too high, otherwise it is easy to shut out most people, leading to many valuable use cases at the “economic level” Becoming infeasible, it also violates the inclusive promise of the original cryptocurrency.
On the other hand, the higher the gas cost, the greater the demand for the network-even if the network may not be able to meet user needs while maintaining an acceptable price for a certain period of time. If infrastructure upgrades (including the ongoing ETH 2.0 project and other two-tier expansion solutions) can reduce transaction costs, it will be possible to carry out more activities.
Bitcoin and Ethereum addresses
Source: Glassnode, the chart information provided in this article is for reference only. Everyone should not rely on these charts when making any investment decisions, because past market performance does not predict future results
As far as Bitcoin and Ethereum users are concerned, it seems that more and more people are willing to pay for transactions. Despite the high prices, network participation and activity are still high. As shown in the figure above, the number of daily active ETH addresses this year has doubled from 200,000 to 400,000, and the number of active Bitcoin addresses has also increased from about 700,000 to nearly 1 million.
Many people are not satisfied with the services provided by traditional financial systems. They usually hope to obtain higher returns, so they will actively look for innovative financial systems that can achieve this goal. Indeed, people urgently need more financial freedom and new trading methods, and the cryptocurrency network can meet this need.
DeFi market value
Source: CoinGecko. The above chart compares the top 1,000 crypto assets listed on CoinGecko by market capitalization as of December 15, 2020 with the top 100 DeFi assets (excluding stablecoins) listed on the same day. The chart information provided in this article is for reference only. Everyone should not rely on these charts when making any investment decision, because past market performance does not predict future results
Decentralized finance is the “darling” of today’s cryptocurrency industry and developers, and many high-value projects launched in 2020 come from this emerging field. However, although the DeFi market is very hot, the overall scale is still small-only about 2% of the total market value of cryptocurrencies-but we think this is actually a good thing for the DeFi industry.
Judging from the current overall market value of decentralized finance, it seems unlikely to arouse the interest of the crypto community, but in fact, the community has quite a heated discussion on DeFi. Undoubtedly, attracting public attention is a positive sign of future development, because it shows that many technicians are excited about the growing potential of the DeFi industry.
Decentralized Autonomous Organization (DAO)
Source: CoinGecko, using the top 150 tokens by market capitalization as the starting list to estimate the total diluted market value of all DAO projects that are fully launched in 2020. The chart information provided in this article is for reference only. Everyone should not rely on these charts when making any investment decision, because past market performance does not predict future results
The concept of “decentralized autonomous organization” has been around for some time, but 2020 should be the first year that this concept has flourished. From the data point of view, the total diluted market value of the top 12 new decentralized autonomous organizations this year is approximately US$14 billion.
DAOs are really interesting, not only because they are now getting bigger and bigger, but more importantly, decentralized autonomous organizations have become a new type of institution. People need to gather together online (while hoping to remain anonymous) to discuss and vote to make changes to the software. In the past, this kind of thing could only be solved by offline voting, but now the situation is different. People can update the agreement and change Parameters, because they are all part of a decentralized autonomous organization. Some people pay to join the organization, and some people get shares through other contributions.
These new DAOs are fee-based (or provide fee options for members), and they have a clear profit plan. In 2018 and 2019, the most talked about thing is that crypto assets are not backed by fundamentals, so they are difficult to price. But now, if you pay attention to some top decentralized autonomous organizations, you will find that they all have strong fundamental support. On the other hand, based on the fully diluted market value, what are the potential or actual agreement fees that DAO can obtain? For this problem, you can use pure chain data for calculations. But it should be noted that DAO is not a company, let alone a “company” way to view and evaluate DAO-for these entities, “code is law”, anyone in the world can join or become one of them For one thing, DAO has no employees or offices, only communities, contributors, and software.
DAO is an agreement, it is true, but at the same time DAO is not just an agreement, because DAO has been democratized and is dominated by its own community. Everyone in the community has expectations of DAO. They have voting rights and own DAO. Most of the community members have never seen it before, but they can cooperate well and develop systems together. These systems hold and transfer The value of the token may be as high as billions of dollars.
In the past, people always wanted to give a name to the software owned and operated by the community. Well, the name is DAO. DAO can fully express this meaning and is also a new organizational structure that currently exists.
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