CoinMarketCap Alexandria takes a visual look at some key Ethereum metrics as the year comes to a close.
Ethereum investors won’t be happy if they look at the ETH/USD chart — Ethereum has lost a good two-thirds of its USD value year-to-date. But dig a bit deeper and things don’t look that bleak anymore. Let’s have a look at some charts illustrating Ethereum’s fundamentals.
(in red) chart sure does not paint a pretty picture. But the ETH/BTC
(in orange) chart tells another story: ETH is down only a good 15% against BTC year-to-date. Over the summer, Ethereum
even significantly outperformed Bitcoin
in anticipation of a successful switch to proof-of-stake
and heading towards deflationary ETH supply. The excitement slightly faded after the successful Merge. But the market seems to see only marginally more downside risk in Ethereum compared to Bitcoin.
Source: Token Terminal
Ethereum makes money? You bet it does! Gas fees are the protocol’s source of revenue, so the higher the gas fees, the more revenue Ethereum makes. When gas fees > issuance of new ETH (as incentives to validators), Ethereum becomes profitable — this is the famous deflationary dynamic in ETH. Ethereum has become deflationary, and thus profitable, for the first time since the Merge. However, this is likely due to the volatility resulting from the FTX fallout
A profitable Ethereum was not possible with high emissions of new ETH. The Merge
— which saw the Ethereum network transition from proof-of-work
(PoW) to proof-of-stake
(PoS) — decreased the issuance of new ETH by 90%+.
As part of the EIP-1559
upgrade, a part of gas fees are burned
. When ETH burned > issuance of ETH, the supply of ETH becomes deflationary, or as the meme puts it: ultra sound money. For now, there has been no short-term effect on the price, but deflationary ETH (at the time of writing) implies the protocol operates in profit — a massive fundamental change.
Even though the price has been sliding, the number of ETH addresses with a non-zero balance has increased by over 25%. All these addresses are potential or already active protocol users. One address may not necessarily correspond to one user, but this growth is still a testament to greater fundamental interest in Ethereum.
(L2) users could be called ‘Ethereum power users’ since many will be onboarded from the L1 to an L2. But thanks to lower transaction fees and continued development of DApps
, interest in L2s like Arbitrum is growing parabolically: the number Arbitrum addresses
has grown by a factor of four this year. This far exceeds growth on the first layer and is even more impressive considering Arbitrum
launched in September 2021!
It’s an almost identical picture for Optimism
: the amount of active addresses on the L2 has more than 10X’d since the start of the year. The much-hyped launch of the OP token
with an accompanying airdrop
sure helped. Compared to Arbitrum, the two blockchains are almost neck and neck in user interest.
Coinciding with the spike in unique wallets, the amount of L2 transactions has been picking up markedly in Q4 and has roughly doubled over the last few weeks. Some of that growth came by cannibalizing Ethereum Mainnet transactions — L2 transactions now exceed L1 transactions. But aggregating both counts, the amount of transactions has grown roughly 25% in the last three months.
Still, when it comes to total value locked (TVL
), the Ethereum Mainnet reigns supreme. Roughly 80% of combined L1+L2 total value locked is on the Mainnet. It seems that for now, interest in L2 products is growing quickly but the big money remains on the L1.
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