Starting with Gas analysis, we will delve into the history of Ethereum and DeFi protocols

Ethereum was officially launched in July 2015. Over the past few years, the decentralized application (dApps) ecosystem based on Ethereum has achieved amazing development, such as:

1. 0x’s first OTC market launched in 2017;

2. Uniswap was first launched and deployed in November 2018;

3. Yearn Finance carefully planned an airdrop event in 2020 that attracted much attention in the industry.

Decentralized finance (DeFi) has become an industry that continues to grow, and in retrospect, its growth seems inevitable.

Like any other economy with competing products, many decentralized finance protocols have experienced ups and downs, with some protocols reaching the top in a short period of time, while others have fallen quickly. However, in the process, the DeFi protocol has never given up on innovation, and it is precisely because of this that the DeFi market structure we see today has been formed. The history of DeFi may be subjective, but the Ethereum blockchain is not. In this research article, we will tell the story of Ethereum through data and analyze the development status of such protocols. The figure below is a trend of total gas fees spent on the Ethereum blockchain that we have drawn, with a time range of four weeks from 2018 to the present. The data source is Metabase.

As can be seen from the above chart, Ethereum blockchain activity was quite quiet from 2018 to 2019, with total gas spent barely exceeding 40,000 ETH per month. However, starting in 2020, Ethereum blockchain activity began to rise, and gas fee expenditures grew parabolically. In September 2020, Ethereum's total gas fee expenditures peaked at 650,000 ETH in 4 weeks, when the ETH price was only $400 per month - time really flies!

By analyzing the proportion of gas fees spent by various DeFi protocol entities in total, perhaps we can get a closer look at the relevant data. In this article, we want to look at the proportion of the top 30 protocol entities in gas fee spending in the aggregated historical data over time.

Frankly speaking, the gas fees spent by DeFi protocols depend on many factors, such as:

1. How many users interact with the smart contract;

2. The computational intensity required to execute the function;

3. The overall price of gas on the Ethereum blockchain at the time.

Before we dive in, it’s important to note that the Ethereum market landscape was very different in 2018-2019, and many of the very active smart contracts back then are no longer in use today. Below is a chart of the top 30 gas consuming entities from 2018-2019, courtesy of Metabase.

In addition to entities, we also aggregate the total gas fees spent by token contracts, which account for about 10% of Ethereum activity. In 2018, many token contracts were Ponzi schemes and gambling games, and a considerable number of them came from China. For example, LastWinner is a typical example. The protocol is based on a very simple mechanism: users deposit ETH into the contract until a certain ETH cap is reached. Once it is reached, the last person to deposit ETH will win all ETH. You can see that the activity of this protocol on Ethereum peaked in mid-2018.

The following chart is more interesting, showing the relative proportion of gas spent by the top 30 entities since 2018. The data comes from Metabase.

These numbers tell an interesting story year after year, so let’s start with 2018.

2018: The Seed of Decentralization

0x eliminates the role of "middleman". Many people think that Uniswap is the first decentralized exchange, but it is not. The history of trustless token exchange using smart contracts can be traced back to a much earlier period. The earliest DEX model was born in 2017. They initially wanted to imitate the order book model of centralized cryptocurrency exchanges, but the result was that the computational effort was too large and the speed was too slow, making it impossible to use it in practice. However, in July 2017, 0x deployed a solution based on on-chain transaction settlement - 0x OTC. When people trade in the OTC market, there are usually two problems:

1. Price discovery only occurs between two parties;

2. No guaranteed offer negotiation occurs (a party can withdraw at any time, whereas in the open market an order placed by a party can be accepted immediately).

Users can post orders on off-chain platforms such as social media such as Twitter, and then settle them on the chain through 0x - in 2018, 0x's average daily trading volume reached US$4 million.

Next is Bancor. In August 2018, Bancor mentioned the idea of ​​building an automated market maker in a blog post, aiming to completely disrupt the order book-based trading market. They paired all tokens with BNT, which continues to this day. In contrast, we can see a variety of matching trading pairs on the Uniswap platform.

In addition, Kyber has also left its mark in the history of decentralized exchanges. In essence, Kyber hopes to promote the acquisition and contribution of liquidity by all parties in a decentralized manner, but it is not a decentralized exchange itself, but focuses on aggregating liquidity from various sources of funds - including decentralized exchanges and centralized market makers. We can think of Kyber as a universal Uniswap router, where liquidity from all parties can be utilized by entities such as payment networks, which was extremely groundbreaking at the time.

2019: A new financial economy

In 2019, Chainlink has grown into a key part of the DeFi space. In 2017, Chainlink first launched an oracle to securely connect external off-chain data to Ethereum smart contracts. People don’t realize how important oracles are for synthetic assets and margin products—BZx uses Chainlink oracles for its margin trading platform, and Synthetix has also integrated with Chainlink to provide price feeds for real-world assets. In May 2019, blockchain media Decrypt even published a list of DeFi protocols that have completed integration with Chainlink.

Another oracle service worth noting is Tellor, which saw a brief surge in usage in October 2019.

Until 2021, Chainlink's share of Ethereum gas fees remained above 4%, making it a real big winner.

After the oracle, some DeFi advanced trading functions began to take root. For example, the custodial lending trading platform Dydx launched the margin trading function in 2019. This function has a stylish user interface and can achieve up to 4 times leverage, which can almost achieve a similar user experience to CEX.

In addition, Synthetix also found its own niche in 2019. Today, few people know that Synthetix was originally called Havven. In fact, this synthetic asset protocol was originally designed as a stablecoin protocol similar to Maker. From the gas consumption trend chart, we can see that Maker has been dominant for many years. Synthetix is ​​committed to creating a market for synthetic encryption and inverse value assets. In July 2019, Synthetix's transaction volume has reached 60 million US dollars.

The market’s interest in Compound also began to grow — in May 2019, Compound V2 was launched with a brand new look. Over the years, Compound’s money market has barely changed, but its stable gas fee throughput (1.5-5%) has proven that Compound’s design is very successful. Not surprisingly, for many years, the gas fees generated by lending DeFi protocols have always been lower than those of DEX.

2020: More Champions Emerge

In 2020, Uniswap began to dominate the automated market maker (AMM) market. Uniswap was actually launched as early as November 2018, but it was not until February 2019 that its trading volume officially surpassed Bancor. Although both DEXs are based on a 50/50 reserve model, Uniswap's design is more efficient and user-friendly. Not only that, Uniswap's design also supports permissionless crypto asset listings, making it a huge composability with the larger DeFi ecosystem. In 2019, a widely circulated blog post in the industry analyzed Uniswap like this:

Our token was listed on Bancor for a few months before we switched to Uniswap. The process of listing a token on Bancor required us to contact and work with the Bancor team, and then we had to transfer ETH and an equivalent amount of tokens to an address provided by the Bancor team. The Bancor team also required us to transfer no less than $60,000 worth of ETH to provide liquidity during the setup process. From the time we decided to list to the time our token appeared on the Bancor website, the entire process took a day or two, and required a lot of communication with the Bancor team. In contrast, the process of creating a Uniswap contract is like filling out a short form that you can easily do with the click of a button. The process of adding liquidity to a contract on Uniswap is just as simple, the process only takes a minute or two, and we don’t need to contact the Uniswap team at all, and they don’t require us to add any liquidity to the contract.

In 2020, 1inch's entry into the decentralized market felt like a bolt from the blue. It may have been the fastest-growing DeFi protocol last year, but it did not complete its early seed round of financing until August 2020, and then it took only three months to occupy 6% of the gas market. 1inch mainly provides decentralized exchange aggregation services, analyzing various liquidity pools to split and route orders to find the most cost-effective transactions. 1inch airdropped to users at the end of 2020 and accounted for 10% of gas fees in December.

Last year, Forsage activity surged and quickly became popular. This is a strange phenomenon because in order to use Forsage, users must pay ETH to the platform. In addition, if users recommend the Forsage platform to others, they can get ETH token incentives. From this perspective, the project seems a bit like a pyramid scheme scam, but they are still running to this day.

In 2020, there is hardly a DeFi user who has not heard of Yearn. The history of Ethereum would not be complete without the YFI airdrop of Yearn Finance, which saw the price of this “worthless governance token” increase 35 times in just seven days. Since 2020, Yearn has been at the forefront of DeFi, and the structure and form of its growth have also pointed the way forward for other newly created DeFi protocols today.

2021 and beyond

Tether and Center account for a large portion of the activity on the Ethereum blockchain - they account for almost 12% of the total gas fees currently. Tether and Center are like the best "proxies" that can be used to transfer the amount of assets in and out of Ethereum, because gas is used to mint and destroy USDT and USDC stablecoins.

On the other hand, Wrapped Ether contracts are still widely used and have gradually become the backbone of Ethereum DeFi. For now, WETH is a very revolutionary idea. This tokenized ETH can be used as collateral, a means of exchange, and a pricing benchmark for other tokens. WETH is a typical strength of DeFi Lego blocks. It meets the needs of the market, is widely used, and has a fairly stable price. No, they are not governance tokens!

In fact, a living ecosystem of Ethereum products has emerged: on the Ethereum blockchain, a range of token exchange protocols now have their fair share - although Uniswap still dominates. Today, Nansen alone tracks at least 94 DEX protocols - each with its own "quirks" and value propositions. Since the beginning of 2021, these protocols have deployed more than 2.8 million contracts. In addition, in terms of ERC-2 contracts, approximately 198,000 have been deployed to date.

Each of us is "contributing" to Ethereum. Every token exchange, pledge, deposit, withdrawal, and minting you make is recorded on the Ethereum blockchain. Each of us is a participant in the Ethereum forest, helping this forest to continue to survive, grow, adapt, and prosper. So, where do you think Ethereum should go next? (Chain News)