In the crypto world, four years is a very important cycle, defined by the halving of Bitcoin. Today, this cyclical effect is still an important MEME in which influences people’s decisions.
Today we’re talking about how ETH is changing over this four-year cycle from 2017 to 2021. ETH is undergoing a qualitative change.
From Sowing to Harvest
There was basically no real ecology of ETH in 2017, and what popular in 2017 was the Initial Coin Offering (ICO). At that time, most of the projects were just concepts, and people invested or speculated based on the concept. This kind of bubble comes and goes quickly, but it is also turbulent.
Of course, the 2017 bubble wasn’t for nothing. The bull market allowed many to see the potential of blockchain and Ethereum, and the opportunity for other blockchains besides bitcoin. At the same time, there were a number of projects that received funding during this period and persisted, laying the groundwork for the future prosperity of the Ethereum ecosystem. These projects include Chainlink, Aave, MakerDAO, Kyber, Loopring, and many others.
So, 2017 is the seeding phase of the Ethereum ecosystem. In the madness of the bubble, most of the projects evaporated into thin air, but there were some great teams that sowed seeds and started to take root in the ground of Ethereum.
Because there was no real value to support the Ethereum ecosystem at the time, after the crazy initial coin offering bubble receded, a massive decline ensued.
After several years of exploration, today’s ETH already has solid ecological support. The biggest support is the formation of DeFi ecosystem, which has a market value of more than $16 billion, and some protocols have a certain scale of users, transaction volume, and fee revenue. As for ETH itself, most DeFi protocols are locked to ETH of different sizes, and it has transformed from a medium of financing to an underlying asset of value.
Today, DeFi creates a strong demand for ETH：
6.6 million ETH locked in DeFi
6.6 million ETH are locked up in DeFi, which at a current value is over $3.4 billion. In addition to ETH, DeFi TVL is $12.8 billion.
DeFi is creating a growing demand for ETH. On Unswap, it is still the most liquid and the most traded token. Besides, the demand for ETH in DeFi will only increase as DeFi moves deeper, such as decentralized options.
Users of DeFi Ecology
At present, DeFi has close to 1 million users, including DEX, lending, derivatives, insurance, stablecoins, aggregators, etc. and these are the users who are really using the product.
DeFi-Powered Transaction Fees for Ethereum
Ethereum’s transaction fees, driven by DeFi, are gradually gaining ground over other protocols and projects. Currently, the annualized capture fees for Ethereum are as high as $760 million, second only to bitcoin’s $770 million. In addition, the top-priced protocols and projects are mostly in the DeFi space. As DeFi grows, this trend will only increase. And with the implementation of EIP-1559, ETH will have the opportunity to capture the cost benefits of Ethereum. It will reduce the rate of inflation in ETH and even bring about the possibility of deflation at a certain tipping point.
Ethereum is becoming a prime location for all kinds of assets.
Thanks to the booming DeFi on Ethereum, it has created a siphoning off of various other assets. This includes Bitcoin, the number one player in crypto. Today, there are more than 150,000 BTC in circulation on Ethereum, worth more than $2.6 billion, and that’s just the beginning.
In addition, there are over $16 billion of stablecoins circulating on Ethereum.
As the Ethereum-based DeFi protocol becomes more prolific, liquid, and secure, it will siphon off more bitcoins and stablecoins, and as Layer2 evolves, DeFi can accommodate larger asset sizes, creating greater demand for ETH and other assets.
When hundreds of billions of dollars of assets are locked up on DeFi in the future, ETH has to become a much larger asset to accommodate the flow of these assets and provide them with sufficient security.
DeFi creates substantial competition for CeFi
Today’s DeFi is increasingly becoming a serious competitor to CeFi, and it is showing up first in the trading space. Though DEX now has more than $89 billion in trading volume so far this year with more than $5 billion in the past week, there is still a long way from CEX, but the competitive trend is already showing up.
In cryptocurrency lending, Compound currently has $1.5 billion in locked assets and Aave has $1.35 billion, with 1.1 million and 392,000 ETH locked in, respectively. In addition, on the derivatives side, Synthetix, UMA are continuing, as well as Hegic’s decentralized options; Cover, Nsure, and NXM are growing in the insurance space; YFI is evolving rapidly in the aggregate mining space with a variety of DeFi products; and there is even a combination of NFT and DeFi such as MEME, etc.
The prosperity of the DeFi ecosystem, facilitating the evolution of ETH, which has gradually made ETH the most important underlying asset in the DeFi space. From this perspective, ETH has gradually evolved from a financing tool in 2017 to an underlying asset with substantial and sustainable demand.
From crypto commodities to productive assets
It is often said that BTC is digital gold and ETH is digital oil. However, back in 2017, ETH was not worthy of this name. But today, ETH is evolving into a crypto-asset with different characteristics from BTC. This may give it a chance to become the king of crypto public chains in the future.
As of now, BTC is unique in the world of crypto and its position is unassailable. This is because it has almost no competition in the field of value storage. Bitcoin has gradually become digital gold and is expanding its advantages in the field of the store of value due to its wide social consensus, PoW mechanism, non-incremental hardtop, security and many other characteristics. In the field of digital currency, BTC has almost no rival.
But the real rival comes from a different field. Ethereum, the smart contract platform, did not start out as a cryptocurrency (coin), but more of a token, serving the original dream of the world’s computers. Today, however, the settlement on Ethereum is not much different from bitcoin. By accident, Ethereum has become the world’s settlement layer as much as, and possibly more than, bitcoin in the future.
ETH in 2017 is a cryptocurrency generated via the PoW mechanism, just like BTC, but in 2021 a portion of ETH is generated via PoS. This means that ETH can become a productive asset, and itself can generate more ETH. This may seem like a simple change, but it has far-reaching implications.
ETH has evolved from a cryptographic commodity to a productive asset, and while solving the security of Ethernet public chains, the convergence between ETH and the protocol itself has increased dramatically, shifting from the externalization of PoW to the internalization of PoS. This means that ETH is no longer primarily an object for miners to sell for a cash profit, but rather a productive resource for miners to make more money.
This means that there will be a massive demand for ETH. At the current rate of return on ETH, reaching the level of DeFi-locked ETH in the short term is not a big problem, and it is estimated that there will be more than 5 million ETH in PoS staking in the near future. As wallets and exchanges launch ETH2.0 staking services, it is possible to lock in more than 20–30 million ETH. After a longer period of time, especially as various staking thresholds are lowered and liquidity issues are resolved, it is possible that the amount of ETH locked in PoS staking networks could reach around 20–30% or more, not including ETH locked in DeFi.
Article from Lanhu Note
Translated by Yang(Mengyan Finance)