In-depth analysis of seven major use cases of Ethereum from the perspective of gas fees

The best tool to understand the current state of the Ethereum economy is the type of activity that consumes gas fees. Although it is not as intuitive as the number of transactions, this method is more in line with the design of Ethereum. It represents the true economic cost to users and is more difficult to manipulate (especially during periods of high network traffic).

This article quantifies gas consumption across major tokens, protocols, and transactions, and delves into Ethereum’s most prominent use case scenarios, revealing the complexity and evolving nature of the Ethereum ecosystem.

Figure 1: Relative gas usage by category

Let’s first use a diagram to outline the history of Ethereum. Figure 1 shows the relative gas usage of all transactions recorded on the Ethereum blockchain, broken down into 7 main categories, 2 of which (cross-chain bridges and MEV on-chain arbitrage robots) have only emerged in the past year.

Vanilla transfer

Figure 2: Percentage of gas used by vanilla transfers

Vanilla transfers (pure ETH transferred between externally owned accounts controlled by private keys, without calling contracts) represent Ethereum being used as a currency. From a gas consumption perspective, this use case has dropped from 80% in the early days (2015) to 10% in the last two years.

Figure 3: Amount of gas used by vanilla transfer

Due to multiple increases in gas limits, some believe that the Ethereum blockchain is recording fewer ETH transactions than it did in 2016. When Ethereum was first launched in 2015, the gas limit per block used to be 5,000 units. Since then, it has gradually grown to a target limit of 15 million blocks. In times of network congestion after the London upgrade, it may double. So while Ethereum's importance as a value transfer network has decreased, throughput (performance) has increased by many orders of magnitude.

Stablecoins

Figure 4: Percentage of gas used by stablecoin transactions

Stablecoins were not born on Ethereum, but Ethereum is the underlying chain where stablecoins initially flourished. As USDT turned to pursue lower fees and faster transaction confirmation times, stablecoins quickly became the main source of gas consumption. For most of the past three years, Ethereum was more of a payment platform for USD stablecoins than ETH.

As Ethereum gas fees become an issue, stablecoins expand to other chains. Currently more USDT is issued on the Tron platform than on Ethereum. USDC supports 8 different chains. UST supports 10. Ethereum will continue to lose market share to cheaper or faster competitors.

It’s important to pay attention to the competitive and cooperative relationships between platforms and protocols in the multi-chain era. Not only are many protocols based on Ethereum, but many of them also run on multiple chains. You can’t fully understand the Ethereum ecosystem without considering stablecoins. You can’t fully understand the stablecoin ecosystem without investigating other chains.

ERC-20 Tokens

Figure 5: Percentage of gas used by fungible tokens

Most of the homogeneous tokens use the ERC-20 protocol. In 2018, its 40% gas consumption market share hit an all-time high. The ICO boom has passed, and in the past few years, ICO's share of the gas market has only been 5-10%.

The history of blockchain is littered with projects that have enjoyed their “15 minutes of fame,” dominated by a few tokens that exploded in popularity but were ephemeral.

Figure 6: Percentage of gas used by the most popular tokens

Even if we look at the most popular ERC-20 tokens in history, none of them lasted more than a year.

A notable subcategory of fungible tokens is wrapped assets, represented by wETH and wBTC. This means that even Ethereum-denominated trading volume exists in two forms - native ETH and wrapped tokens.

DeFi

Figure 7: DeFi gas usage percentage

DeFi has many applications - lending, spot and derivatives trading, storage, insurance, etc. So far, most of the impact we have seen has come from decentralized asset trading. In the past two years, providing liquidity and yield farming have also become quite popular applications, and the DeFi field may need to be further subdivided in the future.

DEXs first gained popularity in 2017 with the emergence of the decentralized exchange EtherDelta, and have since been the main consumer of gas (in DeFi).

Uniswap is currently in the lead (gas peaked at 88% of DeFi gas consumption, currently around 60%). Also note the presence of MetaMask in this space (orange band at top of Figure 7), which is a wallet-cum-DEX aggregator. As the industry matures, some features may become “invisible”. Users interact with platforms that abstract away on-chain and cross-chain interactions for convenience.

Cross-chain bridge

Figure 8: Percentage of gas consumed by cross-chain bridges

Cross-chain bridges are one of the newest areas of high gas consumption. As transactions on Ethereum have become quite expensive, and competing chains have matured in terms of stability and functionality, we have seen frequent cross-chain capital flows. Aside from a brief gas spike on the Ronin cross-chain bridge when Axie Infinity was most popular (peaking at 8% gas consumption for a few days), cross-chain bridge gas consumption has doubled in the last year (from 1% to 2%) and connects Ethereum to L2 solutions (Polygon, Arbitrum, Optimism), as well as competing chains (Avalanche, Polkadot). In the future, multi-chain thinking and tools will be needed to gain insight into where funds are flowing.

Bitcoin is also served by the cross-chain bridge. Currently, more than 1% of the total supply of Bitcoin is bridged to Ethereum in the form of wBTC.

NFT

Figure 9: Percentage of gas used by non-fungible token activity

As early as 2017, the first mainstream NFT application Cryptokitties briefly contributed about one-third of the network throughput, driving network fees up sharply. In the same year, OpenSea released a beta version. However, it was not until the second half of 2021 that the NFT field once again became the main force in the gas market. Since then, NFT has become a force to be reckoned with. As of now, about one-third of all gas consumed by Ethereum is used for NFT-related activities. In this regard, OpenSea is in a leading position in the market, consuming more than 60% of NFT-related gas fees, followed by several other platforms.

The introduction of the ERC-1155 standard has brought some efficiency improvements, which is another trend to watch.

MEV on-chain arbitrage robot

Figure 10: Gas percentage used by MEV on-chain arbitrage bots

Miner Extractable Value (MEV) is a native product designed by Ethereum and plays an important role in improving the efficiency of the DeFi ecosystem by eliminating price differences between decentralized exchanges through arbitrage, which accounts for more than 95% of MEV activity.

The main beneficiaries of MEV are usually not miners, but a community of searchers and extractors who use automated tools to create MEV transactions. However, miners enjoy high fees due to the urgency of arbitrage transactions. Such transactions are often "winner-take-all" opportunities and the gas prices paid are far higher than the market price.

Considering that MEV players usually don't promote, we may underestimate the real number. According to the Flashbots team, at least 4% of gas is consumed by MEV transactions. If the competing chain can reduce the impact of MEV, it will incentivize users to migrate from Ethereum to the competing chain.

Other gas usage categories

Figure 11: Gas usage for all other transactions

The permissionless design of the Ethereum platform has generated a large number of use cases beyond those we listed above, from on-chain games and multi-signature protocols to Ponzi schemes. In its heyday, Ponzi schemes like the Russian Ponzi scheme MMM (with a maximum gas usage of 10% of total gas usage) and the Ethereum contract FairWin (gambling game) (gas briefly reached 40%) were the most popular use cases for Ethereum.

But such a heyday seems to have passed. Other gas usage categories include transaction contracts, especially multi-signature contracts for fund management. Undetected MEV extraction value, ambiguous DeFi protocols, and non-standard tokens may also be included in this category.

Summarize

Ethereum is still a platform primarily used to transfer value, but the scope of value and the way it is transferred are constantly changing. Unlike Bitcoin, Ethereum practitioners need the following tools and mindsets:

• Be sensitive to use cases and adapt to new development directions;

• Diversified assets, broad definition of value, including fungible and non-fungible tokens;

• Multi-protocol and multi-chain, broad transaction definitions, including decentralized finance protocols and cross-chain bridges.

Ethereum has many uses. From its early native asset payment network, to homogenous tokens in 2018, to non-homogeneous tokens NFTs, many use cases have become the platform's largest "payers". We have to admit that Ethereum is very consistent with the original Ethereum vision. Understanding the resulting dynamic ecosystem is not a simple task. Value flows through the network in countless different forms through many different channels. Further complicating matters is the increasing interconnectivity of Ethereum with a large number of other L1 and L2 chains. More and more assets, projects, protocols, and entities exist on multiple chains at the same time and migrate freely between platforms.

Looking at Ethereum today from the perspective of Bitcoin or even Ethereum in 2019 is an outdated view.

This article is from Glassnode, the original author is Niko Kudriastev & Antonio Manrique de Lara Martín, and translated by Odaily Planet Daily translator Katie Gu.