Ethereum's market value surpasses Walmart and ranks 17th in the world. How can it develop an independent trend?

Science and Technology Innovation Board Daily reporter Wu Fan, intern reporter Zhang Yangyang

"Science and Technology Innovation Board Daily" (Shanghai, reporter Wu Fan, intern reporter Zhang Yangyang) reported that amid the ups and downs of Bitcoin prices, Ethereum (ETH), which has always ranked second in the cryptocurrency market, is recently welcoming its own "sea of ​​stars".

In the early morning of May 7, the price of Ethereum broke through the $3,600 mark, and its market value exceeded $400 billion, setting a new record high. Data shows that Ethereum's current market value ranking has risen to 17th in the world, surpassing Walmart (US$395 billion) and second only to Johnson & Johnson (US$439.9 billion) and Samsung (US$434.9 billion).

As the leader of cryptocurrencies, the fluctuation of Bitcoin's market has always been regarded as a bellwether of the crypto market. Previously, when Bitcoin first reached the $600 million mark, Ethereum also broke through $2,000. Then the market ushered in a round of correction, and Ethereum also fell back from above $2,000.

However, affected by multiple factors such as regulation, the price of Bitcoin has continued to fluctuate recently, and Ethereum, which has risen and fallen many times before, seems to have "its own ideas" recently.

Market data shows that while Bitcoin has fallen 3.49% in the past month, Ethereum has risen 61.6%. So far this year, Ethereum has risen 360%.

Why has Ethereum been able to develop such an independent trend recently?

In this regard, Zhang Ming, a researcher at Binance China Blockchain Research Institute, told the reporter of Science and Technology Innovation Board Daily that the prosperity of Ethereum's own ecology is one of the main factors driving its price increase. Bitinfocharts data shows that in the past year, the average daily active addresses of Ethereum have increased from 500,000 to about 900,000.

Unlike the "currency attributes" of Bitcoin on-chain transactions, Ethereum focuses more on "platform attributes." Just like running various programs on Windows systems, based on Ethereum, users can create various decentralized applications, publish smart contracts, and issue their own cryptocurrencies.

The rich blockchain application ecosystem has also allowed Ethereum to release sufficient market vitality. Among them, the most eye-catching projects are the dark horse application DeFi in 2020 and the NFT that exploded this year.

DeFi, or decentralized finance, is an application that provides financial services without relying on traditional centralized financial institutions. Currently, the vast majority of DeFi applications are built on the Ethereum mainnet.

Data shows that as of May 6, the net locked value (NVL) of DeFi projects on Ethereum has increased from $14.4 billion at the beginning of the year to $87 billion. In the traditional financial market, this volume is second only to the fifth largest bank in the United States, U.S. Bancorp (US$90.9 billion), and higher than CME Group (US$73 billion).

These “collateralized assets” locked in DeFi are used in a variety of protocols, from simple loans to complex derivatives, allowing users to make various bets in the crypto market. These operations have undoubtedly greatly increased the market demand for Ethereum.

This year's popular project NFT (non-fungible token) is another endogenous driving force for the prosperity of the Ethereum ecosystem. From a technical perspective, NFT is based on Ethereum's protocols ERC721 and ERC1155 (reporter's note: two Ethereum network technology standards). Almost all NFT works and their transactions rely on the Ethereum mainnet.

Market data shows that the transaction volume of the NFT market in the first quarter of this year has exceeded 2 billion US dollars. Artists who complete their works on the mainnet chain and players who want to buy NFT works need to use Ethereum. The NFT painting by American digital artist Beeple, which was sold at a sky-high price of 69.34 million US dollars and attracted worldwide attention, was auctioned and paid for in Ethereum. It can be said that NFTs born from Ethereum have in turn fed back to the former.

In addition to the prosperity of Ethereum's own ecosystem, external forces are also supporting its price trend.

Last week, there was market news that the European Investment Bank (EIB) is planning to use the Ethereum network to issue digital bonds worth 100 million euros (121 million U.S. dollars). Although it has not been officially confirmed, it also shows to a certain extent that the traditional financial world is becoming more accepting of Ethereum, which is undoubtedly a good thing for Ethereum.

In addition, the controversial "EIP-1559" proposal has been implemented recently, which has also significantly supported the price of Ethereum. Zhang Ming analyzed to the reporter of "Science and Technology Innovation Board Daily" that in the past, Ethereum transaction fees were paid to miners, and Ethereum itself did not capture the ecological value. After the implementation of EIP-1559, the basic transaction fees paid by users will be destroyed, which significantly improves the value capture of Ethereum.

Similar to all investment logic, the rising price of Ethereum has also attracted the attention of a number of institutions. Meitu has previously bought a total of 31,000 units of Ethereum twice, currently worth about $110 million. Last month, when the US SEC was still wavering on Bitcoin ETFs (Exchange Traded Funds), Canada had already taken the lead in launching three Ethereum ETFs.

As Ethereum continues to hit new all-time highs, Bitcoin’s dominance over the total market value of cryptocurrencies is declining, falling below 50% for the first time since August 2018, currently at 42.9%. Ethereum has been rising steadily over the same period, currently accounting for 16.3% of the market value.

But the other side of the "highlight story" is that the prosperity of the endogenous ecosystem has also caused a surge in activity on the Ethereum network, network congestion, and a surge in GAS fees (similar to transaction fees).

Although the Ethereum mainnet recently underwent a hard fork upgrade called "Berlin", Zhang Ming said that the implementation of relevant upgrade plans will take a long time. For example, the full implementation of EIP-1559 is expected to be realized by the end of 2021, and the second-layer solution based on Rollup is expected to be gradually implemented from the second half of this year. The migration of the ecosystem will take a long time.