Five charts to understand the major events and trends of cryptocurrency in 2020

2020 has been a very important year for the cryptocurrency industry. As the price of Bitcoin skyrocketed and reached an all-time high, this emerging industry finally began to gain mainstream attention. At the same time, decentralized financial applications on Ethereum also attracted many users to participate in trading, borrowing, and lending crypto assets, pushing the Ethereum network to its limits.

New projects — networks, applications, and scaling solutions — are experimenting with many approaches to achieving decentralization and self-governance, such as offering rewards to users and contributors, making project ownership community-owned, and more.

This article was written by Eddy Lazzarin, a partner at the well-known investment institution Andreessen Horowitz (a16z). He presented five charts that aim to reflect some of the most important events and market dynamics in the cryptocurrency industry in 2020. Perhaps we can understand more clearly from these charts what has happened in the entire industry over the past year.

Decentralized Exchanges: Trading Volume

Source: Dune Analytics, data includes transaction information of decentralized cryptocurrency exchanges including 0x, Balancer, Bancor Network, Curve, DDEX, dYdX, Gnosis Protocol, IDEX, Kyber, Loopring, Mooniswap, Oasis, Sushiswap, Synthetix, and Uniswap. It should be noted that the charts and information provided in this article are for reference only. Everyone should not rely on these charts when making any investment decisions, because past market performance cannot predict future results.

At the beginning of this year, the total transaction volume of decentralized exchanges (DEX) was not very high, but by the end of summer, the total transaction volume of exchanges had reached a level that can only be seen in centralized cryptocurrency exchanges. If we move forward a few years, no one would have believed that the transaction volume of decentralized exchanges could reach today's level, at least it is technically impossible. Some people believe that there are many reasons why the transaction volume of decentralized exchanges cannot compete with centralized exchanges, but now the data speaks for itself, proving that decentralized exchanges can fully adapt to the development of the cryptocurrency market.

It is worth mentioning that the surge in decentralized exchange transactions in 2020 is actually due to the "seeds" sown in 2018, which have blossomed and borne fruit due to the launch of a large number of new DeFi projects. Generally speaking, it can be summarized as: DeFi protocols can be integrated with each other, yield farming, protocol decentralization, and the launch of new tokens. Suddenly, it seems that everyone wants to buy and use these new DeFi tokens, and more importantly, the market infrastructure is now ready to meet market demand.

Decentralized exchanges are the best platform to promote new activities in the market. Decentralized exchanges are used when new DeFi protocols are launched because you need to deposit specific tokens on them. If you already hold some on-chain ETH tokens, you can get the relevant DeFi tokens in just a few transactions and then turn back to the protocol to deposit, withdraw or otherwise interact. Using a decentralized exchange will not only make these operations easier, but in many cases, decentralized exchanges may be the only channel for these operations.

If you want to participate in the latest DeFi projects, you need to do it from the source, which is on the chain. For a long time, most cryptocurrency transactions took place on centralized exchanges, but until recently, people found it easier to access and acquire new tokens on decentralized exchanges.

More broadly, without leaving the crypto ecosystem, other ways of trading cryptocurrencies, such as decentralized exchanges, are possible as financial infrastructure gets better and better. In fact, trading assets in a trustless, non-custodial way has always been the core promise of crypto technology, and the time for decentralized exchanges has arrived.

Bitcoin and Ethereum Fees

Source: Coin Metrics. The charts and information provided in this article are for reference only. You should not rely on these charts when making any investment decisions, because past market performance does not predict future results.

Bitcoin and Ethereum gas fees refer to the transaction costs that need to be paid when transferring assets, using applications, or adding new programs. In early 2020, Bitcoin and Ethereum gas fees reached hundreds of thousands of dollars per week, and sometimes even soared to millions of dollars. Now the market seems to have entered a new normal, especially after the summer DeFi craze, but weekly gas fees seem to have not returned to the low water level of the past, and basically remain at the level of tens of millions of dollars.

If calculated based on the latest price, regardless of the transaction amount:

• The cost of transferring tokens on the Ethereum blockchain is approximately in the range of $4-8;

• The cost of trading tokens on decentralized exchanges is about $12-25;

• If you want to conduct a lending transaction on the decentralized currency market, the cost is about $20-40.

Due to the DeFi boom, Ethereum transaction fees have soared this summer, while Bitcoin network transaction fees have not fluctuated significantly. Nevertheless, although the throughput of Bitcoin chain is still limited, the fees are actually climbing. Judging from the transaction volume, people seem to be willing to spend money to trade Bitcoin. Although they may not transfer dozens of transactions on the Bitcoin chain every day like in traditional financial institutions, many people are still willing to spend more money to complete Bitcoin transfers as quickly as possible.

There has always been controversy in the cryptocurrency industry about whether higher gas fees are good or bad. On the one hand, high gas fees always carry a hint of negativity, as it is generally believed that the cost of using the network should not be too high, otherwise it is easy to exclude most people, causing many valuable use cases to become "economically" unfeasible, and also violates the original promise of inclusiveness proposed by cryptocurrency.

On the other hand, higher gas fees indicate greater demand for the network — even if the network may not be able to meet user demand at an acceptable price for a certain period of time. If transaction fees can be reduced through infrastructure upgrades (including the ongoing ETH 2.0 project and other second-layer scaling solutions), then more activity will be possible.

Bitcoin and Ethereum Addresses

Source: Glassnode. The charts and information provided in this article are for reference only. You should not rely on these charts when making any investment decisions, because past market performance does not predict future results.

As for current Bitcoin and Ethereum users, more and more people seem to be willing to pay for transactions. Despite the high prices, network participation and activity remain high. As shown in the figure above, the average daily number of active ETH addresses has doubled from 200,000 to 400,000 this year, and the number of active Bitcoin addresses has also increased from about 700,000 to nearly 1 million.

Many people are not satisfied with the services provided by the traditional financial system, and they usually want to get higher returns, so they actively look for innovative financial systems that can achieve this goal. Indeed, people are in urgent need of more financial freedom and new ways of trading, and cryptocurrency networks can meet this need.

DeFi Market Cap

Source: Coingecko. The above chart compares the top 1,000 crypto assets by market capitalization listed on Coingecko as of December 15, 2020 with the top 100 DeFi assets (excluding stablecoins) listed on the same day. The charts and information provided in this article are for reference only and should not be relied upon by anyone when making any investment decisions, as past market performance is not indicative of future results.

Decentralized finance is the "darling" of the cryptocurrency industry and developers today, and many high-value projects launched in 2020 come from this emerging field. However, although the DeFi market is very hot, the overall scale is still small-accounting for only about 2% of the total market value of cryptocurrencies-but we think this is actually a good thing for the DeFi industry.

If we look at the current market value of decentralized finance, it seems unlikely to attract the interest of the crypto community, but in fact, the community is discussing DeFi quite enthusiastically. Undoubtedly, attracting public attention is a positive sign for future development, as it shows that many technicians are excited about the potential of the growing DeFi industry.

Decentralized Autonomous Organization (DAO)

Source: Coingecko, using the top 150 tokens by market cap as a starting list to estimate the total diluted market cap of all DAO projects fully launched in 2020. The charts and information provided in this article are for reference only and should not be relied upon by anyone when making any investment decisions, as past market performance is not indicative of future results.

The concept of "decentralized autonomous organizations" has been around for a while, but 2020 should be the first year that the concept has flourished. According to the data, the total diluted market value of the top 12 new decentralized autonomous organizations this year is about $14 billion.

DAOs are really interesting, not only because they are now getting bigger and bigger in market capitalization, but more importantly, decentralized autonomous organizations have become a new type of institution. People need to come together online (while hopefully remaining anonymous) to discuss and vote on changes to the software, which used to be something that could only be resolved through offline voting, but now it is different. People can update the protocol and change parameters because they are all part of a decentralized autonomous organization, some of whom pay to join the organization, and some of whom get shares through other contributions.

These new DAOs are fee-based (or offer fee options to members) and have clear profit plans. In 2018 and 2019, the most talked-about thing was that crypto assets were not supported by fundamentals and were therefore difficult to price. But now, if you look at some of the top decentralized autonomous organizations, you will find that they all have strong fundamental support. On the other hand, based on the fully diluted market value, how much potential or actual protocol fees can DAOs obtain? For this question, you can use pure on-chain data to calculate. But it should be noted that DAOs are not companies, and DAOs cannot be viewed and evaluated in the same way as "companies" - for these entities, "code is law", anyone in the world can join or become part of it, and DAOs have no employees or offices, only communities, contributors, and software.

The DAO is a protocol, yes, but at the same time it is more than a protocol because it is democratized and governed by its own community. Everyone in the community has expectations of the DAO, they have voting rights and own the DAO, and most of the community members have never seen it, but they can work well together and jointly develop systems where the value of tokens held and transferred in these systems may be as high as billions of dollars.

In the past, people always wanted to give a name to the software owned and operated by the community. Well, this name is DAO. DAO can fully express this meaning and is also a new organizational structure that currently exists. (Chain News)