Ethereum

<p><a href="https://twitter.com/MessariCrypto" rel="noopener noreferrer nofollow">Messari</a> recently published a comprehensive report on the State of Ethereum in Q3 2022. We read the whole report so that you don&#39;t have to! Here&#39;s a comprehensive summary:</p><p>--</p><p><em>Before we get started…get the latest news and research from M6 Labs directly in your inbox before Crypto Twitter!</em></p><p><em><a href="https://thecryptoilluminati.substack.com/" rel="noopener noreferrer nofollow">Subscribe to our Substack</a> for institutional quality content curated by a community of degens. Done? Now let’s dive in!</em></p><p><em>--</em></p><h2 id="header-0">A Primer on <a href="https://twitter.com/ethereum" rel="noopener noreferrer nofollow">Ethereum</a></h2><p>The Ethereum network is a decentralized data storage and transaction validation platform. The protocol gained broad recognition after the groundbreaking introduction of smart contracts.</p><p>As a result, there are thousands of individual tokens and applications built on top of the <a href="https://twitter.com/search?q&#61;%23Ethereum" rel="noopener noreferrer nofollow">#Ethereum</a> blockchain. Ethereum has become the world&#39;s second-largest cryptocurrency by market capitalization.</p><h2 id="header-1">NETWORK PERFORMANCE</h2><h3 id="protocol-39-s-revenue">Protocol&#39;s revenue:</h3><p>The protocol&#39;s revenue has plummeted to near-all-time lows. This might be due to the following factors:</p><ul><li>Crypto bear market</li><li>Increased volume on L2s</li><li>The upgrades in protocol contracts for gas efficiency</li></ul><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/a72b3fc9db5d484ba49f409890673341.png" /></p><p>Total fees also fell off a cliff in Q3, dropping to their lowest levels since 2020. Now that Ethereum has switched to POS, the decline in &#39;total fees&#39; will impact the staking yields of the ETH2 network.</p><h3 id="average-daily-transactions">Average Daily Transactions</h3><p>The average daily transactions were 1.2 million, up 6% from the previous quarter. Average daily transactions of:</p><ul><li><a href="https://twitter.com/search?q&#61;%24ETH" rel="noopener noreferrer nofollow">$ETH</a> transfers grew by 7%</li><li>DeFi transactions grew by 14%</li><li>NFT transactions fell 17%</li><li>Bridge transactions fell by 41%</li></ul><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/ba44bf173878441e92b014db164c5e8d.png" /></p><h3 id="average-daily-active-addresses">Average Daily Active Addresses</h3><p>Active addresses have a similar pattern to transactions. Average daily active addresses grew by 5% from the previous quarter to ~550,000. However, the growth was primarily due to a spike in active addresses on July 27, 2022.</p><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/a85ca4fb6fdd4dd8b48ffbedc08fd330.png" /></p><p>The spike was caused by <a href="https://twitter.com/ChandlerGuo" rel="noopener noreferrer nofollow">&#64;ChandlerGuo</a> announcing plans for an ETHPOW fork, along with some wallet “maintenance activity” from <a href="https://twitter.com/binance" rel="noopener noreferrer nofollow">&#64;binance</a>. This indicates that the rise in active addresses wasn&#39;t brought on by a surge in new users or a novel application.</p><h3 id="eth-supply-in-smart-contracts">ETH Supply in Smart Contracts</h3><p>Over the period, Ethereum supply grew by 0.7%. The annualized supply came in at 4.2%. All of the inflation came from PoW rewards since the burn from transaction fees (EIP-1559) was higher than the inflation from Beacon Chain rewards.</p><p>ETH in smart contracts has trended upwards since 2020 since it was increasingly used within the <a href="https://twitter.com/search?q&#61;%23DeFi" rel="noopener noreferrer nofollow">#DeFi</a> ecosystem. This resulted in a multi-year decrease in <a href="https://twitter.com/search?q&#61;%24ETH" rel="noopener noreferrer nofollow">$ETH</a> held on centralized exchanges. However, the collapse of Terra seemed to have eroded trust in smart contracts.</p><p>The percentage of <a href="https://twitter.com/search?q&#61;%24ETH" rel="noopener noreferrer nofollow">$ETH</a> in smart contracts peaked at 30% on May 9, 2022 (the same day as Terra’s collapse). Since then, <a href="https://twitter.com/search?q&#61;%24ETH" rel="noopener noreferrer nofollow">$ETH</a> supply in smart contracts has trended downwards. At the end of August, it stood at 27%, falling 2% from the end of June.</p><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/41cef88013d1437eabaa3a4a4c656c51.png" /></p><h2 id="header-2">LAYER 2 ANALYSIS</h2><p>Ethereum’s scaling solution with the help of rollups has gained a lot of traction. Average transactions from January 2022 to August 2022:</p><ul><li><a href="https://twitter.com/arbitrum" rel="noopener noreferrer nofollow">&#64;arbitrum</a> grew from 39,000 to 115,000 (~3x)</li><li><a href="https://twitter.com/optimismFND" rel="noopener noreferrer nofollow">&#64;optimismFND</a> grew from 41,000 to 142,000 (~3.5x)</li></ul><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/4d286b3dceb442a9945f695251d7f06b.png" /></p><p>The primary growth for these L2s is from the underlying protocols (especially GMX and Synthetix). However, some of this growth may be attributed to mercenary capital rather than organic users, as OP incentives went live and an Arbitrum airdrop is anticipated.</p><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/059e3370d02c455fbd59219a1ab1b277.png" /></p><p>Catalysts for L2 growth and adoption:</p><ul><li>Arbitrum’s Nitro upgrade (higher throughput and lower fees)</li><li>zkEVM announcements: <a href="https://twitter.com/0xPolygon" rel="noopener noreferrer nofollow">&#64;0xPolygon</a>, zkSync, and Scroll</li><li><a href="https://twitter.com/StarkWareLtd" rel="noopener noreferrer nofollow">&#64;StarkWareLtd</a>&#39;s plans to decentralize StarkNet and launch its own token</li></ul><p><strong>Note:</strong></p><p>These token launches with &#39;airdrops&#39; are important events for the ecosystem. They help in creating a community. However, they may be an unsustainable approach to adoption. These ecosystems may need to create organic user adoption to thrive long term</p><h2 id="header-3">SECTOR ANALYSIS</h2><h3 id="dexs">DEXs</h3><p>The daily transaction volume of DEXs dropped from $2.7B in Q2 to $1.83B in Q3. Uniswap had ~75% of DEX market share throughout Q3. Curve’s volume share fell from 16% to 8% despite continuing to issue higher incentives than the competition.</p><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/f38bbeb94e6f417698c02438903f621e.png" /></p><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/b53ae92e4f404bde8884c34577bf8e0b.png" /></p><h3 id="borrowing-and-lending">Borrowing and Lending</h3><p>The daily average lending volume fell from $280B in Q2 to $116B in Q3. However, the volume picked up slightly in August. This could be due to the demand from spot <a href="https://twitter.com/search?q&#61;%24ETH" rel="noopener noreferrer nofollow">$ETH</a> for individuals looking to farm the <a href="https://twitter.com/search?q&#61;%24ETH" rel="noopener noreferrer nofollow">$ETH</a> POW airdrop.</p><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/be8a568492f042aab034dbd75158cfae.png" /></p><h3 id="nfts">NFTs</h3><p>The NFT daily trading volumes dropped dramatically. However, the average number of daily traders witnessed a much smaller decline. This might indicate a sticky user base of 40,000 users per day.</p><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/0ef2c081bbe04284816f31422a175830.png" /></p><p>NFT sale volumes (in dollar terms) fell 90% from January 2022. NFT sales have averaged less than $1B per month in Q3 compared to $4.6 billion in Q2. This decline might be due to:</p><ul><li>Slowing market for NFTs</li><li>Drop in <a href="https://twitter.com/search?q&#61;%24ETH" rel="noopener noreferrer nofollow">$ETH</a> price</li></ul><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/0b2aea402fd0438095dc917ae05911ce.png" /></p><h2 id="header-4">THE MERGE AND TRANSITION TO POS</h2><p>The Merge occurred successfully on September 15, 2022. Miners created an ongoing POW fork called <a href="https://twitter.com/search?q&#61;%24ETHW" rel="noopener noreferrer nofollow">$ETHW</a>. The chain has seen no support from users and limited support from infrastructure providers.</p><p>The <a href="https://twitter.com/search?q&#61;%23Merge" rel="noopener noreferrer nofollow">#Merge</a> resulted in a decrease of 90% in block rewards. This significantly reduces the network’s inflation and reduces its annual security expense. The transition to PoS also allowed <a href="https://twitter.com/search?q&#61;%24ETH" rel="noopener noreferrer nofollow">$ETH</a> to significantly lower energy consumption, down by 99.95%.</p><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/ce2be32520b7438dbd31542918afbdd0.png" /></p><p><a href="https://twitter.com/search?q&#61;%24ETH" rel="noopener noreferrer nofollow">$ETH</a> deposits into the Beacon Chain have slowed down significantly. It grew by only 4% compared to 17% for Q2. The primary reason for this low growth is that stETH currently trades at a discount to spot <a href="https://twitter.com/search?q&#61;%24ETH" rel="noopener noreferrer nofollow">$ETH</a>.</p><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/d7f4a8b564df4bfdb1805e10a759b19b.png" /></p><h2 id="header-5">COMPETITIVE ANALYSIS</h2><p>62% of Crypto&#39;s TVL is on ETH and its L2 ecosystem. <a href="https://twitter.com/search?q&#61;%24ETH" rel="noopener noreferrer nofollow">$ETH</a> contributes the lion’s share of the TVL with $34B, however, its TVL has grown by just 8% since the end of Q2.</p><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/5839f95a9ab14c9b88f647db2868f5fc.png" /></p><p>The Ethereum ecosystem has an advantage with the number of active developers on the network. The developer activity on Ethereum has stood up better than on other ecosystems in the bear market. Its developer activity share has increased by 10% compared to last year.</p><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/5058037a747246d38308b500006499a2.png" /></p><h2 id="header-6">NEXT STEPS ON THE ROADMAP</h2><ul><li>Developers are now looking to the Shanghai upgrade which will enable withdrawals for stakers.</li><li>EIP-4844 proposal which might be included in the Shanghai upgrade will make it cheaper for L2s to post their transactions to Ethereum L1.</li><li>The EIP-4444 proposal would enable nodes to prune the transaction history after one year. This means that the nodes don&#39;t need to download this set of history. As a result, this will drastically reduce node resource requirements and further decentralize the network.</li><li>Ethereum is expected to further scale with danksharding towards the end of 2023. With the increased volume of L2 solutions, EIP-4844, and danksharding, Ethereum will likely be fast and cheap enough for 99% of users in the next 12–18 months.</li></ul><h2 id="header-7">CLOSING REMARKS</h2><p>Ethereum remains the most vibrant ecosystem in all of crypto, with the majority of the developer, user, and application activity. However, with new L1s like Aptos, Sui, and Celestia, it will have to continue to build its moat to remain the top dog!</p><p>--</p><p><a href="https://thecryptoilluminati.substack.com/" rel="noopener noreferrer nofollow">Subscribe</a> to receive our weekly newsletter and in-house research content!</p><p>Please Share, Leave Feedback, and Follow Us on <a href="https://twitter.com/0x_illuminati" rel="noopener noreferrer nofollow">Twitter</a>, <a href="https://t.me/illuminatiDaily" rel="noopener noreferrer nofollow">Telegram</a>, and <a href="https://www.linkedin.com/company/0x-illuminati" rel="noopener noreferrer nofollow">LinkedIn</a> to stay connected with us.</p>

The Crypto Illuminati: State of Ethereum in Q3 2022

Table of Contents

M6 Labs 🔬

Other articles published on Nov 1, 2022

Ripple to Get Relisted on Coinbase? U.S. Crypto Exchange Supports It in SEC Lawsuit

Adding the donation feature in iMe app.

How Does SKALE Offer Zero Gas Fees?

1inch Declares to Optimize rETH Swaps

Fancy Birds is launching on “Steam” for Web3!

Top 3 Businesses You can Start with Little or No Money

Join our free newsletter for daily crypto updates!