ETH in 2017 and ETH in 2021

In the crypto world, four years is a very important cycle, which is defined by the halving of Bitcoin. Today, this cycle effect is still an important MEME in the crypto field and still affects people's decision-making. For this aspect, you can refer to the previous articles of Blue Fox Notes, "Crypto Cycle and Value Flow", "How to Understand the Market Cyclicity of Cryptocurrency", and "Bitcoin Halving Effect and ETH2.0 Staking Effect".

Today we are talking about the changes of ETH in this four-year cycle. ETH is the native token of Ethereum, and the ETH in 2017 and the ETH in 2021 are undergoing qualitative changes.

From sowing to harvesting

In 2017, Ethereum had basically no real ecosystem. What was popular in 2017 was the initial coin offering. At that time, the main use case of Ethereum was the financing of the initial coin offering. At that time, almost most of the projects were just concepts, and people invested or speculated based on the concepts. This bubble came quickly, but it also went away violently.

Of course, the bubble in 2017 was not entirely without merit. The bull market in 2017 made many people see the potential of blockchain and Ethereum, and saw that there were opportunities for other blockchains besides Bitcoin. At the same time, during this period, some projects received financing and persisted, laying the foundation for the future prosperity of the Ethereum ecosystem. Many projects such as Chainlink, Aave, MakerDAO, Kyber, Loopring, etc. received development funds during that period.

Therefore, the seeding stage of the Ethereum ecosystem was around 2017. In the crazy bubble, most projects disappeared, but some excellent teams planted seeds in the land of Ethereum and began to take root and sprout.

Because the Ethereum ecosystem had no actual value support at the time, after the crazy initial coin offering bubble subsided, a massive decline followed.

After several years of exploration, ETH now has a solid ecological support. The biggest support is the formation of the DeFi ecosystem. The overall DeFi market value currently exceeds more than 16 billion US dollars, and some protocols have a certain scale of users, transaction volume and fee income. As for ETH itself, most DeFi protocols have locked up ETH of different sizes, and ETH has transformed from a financing medium to an underlying value asset.

Today, DeFi has a strong demand for ETH:

*The total amount of ETH locked in DeFi reaches 6.6 million

A large amount of ETH is locked in DeFi, reaching 6.6 million, which is worth more than $3.4 billion at current value. In addition to Ethereum, the total amount of assets locked in DeFi is $12.8 billion.

DeFi is creating an increasing demand for ETH. On Unswap, ETH (WETH) has the best liquidity and the largest trading volume. As DeFi develops in depth, such as decentralized options, the demand for ETH in DeFi will only increase.

*Users of the DeFi ecosystem

Currently, there are nearly 1 million DeFi users, including DEX, lending, derivatives, insurance, stablecoins, aggregators, etc. These are all users who are actually using the products.

(DeFi users are about to exceed one million, DuneAnalytics)

* Ethereum transaction fees driven by DeFi

Driven by DeFi, Ethereum's transaction fees are gradually crushing other protocols and projects. Currently, Ethereum's annualized captured fees are as high as $760 million, second only to Bitcoin's $770 million. In addition, the protocols and projects with the highest fees are basically in the DeFi field. With the development of DeFi, this trend will only increase. And with the implementation of the EIP-1559 proposal, it means that ETH will have the opportunity to capture Ethereum's fee income. It will reduce ETH's inflation rate and even bring the possibility of deflation at a certain critical point.

(Ethereum’s annualized capture fee is as high as $760 million, Tokenterminal)

*Ethereum gradually becomes the primary platform for carrying various assets

Due to the booming DeFi on Ethereum, it has formed a siphoning of various other assets. This includes Bitcoin, the number one player in the encryption field. Today, there are more than 150,000 BTC circulating on Ethereum, with a value of more than 2.6 billion US dollars, and this is just the beginning.

(There are more than 150,000 BTC in circulation on Ethereum, BTCONETHEREUM)

In addition, there are more than $16 billion in stablecoins circulating on Ethereum.

(The amount of stablecoins in circulation on Ethereum is as high as $16 billion, Coinmetrics)

As Ethereum DeFi protocols become more and more numerous, liquidity becomes better and security becomes stronger, it will also siphon more Bitcoin and stablecoins. As Layer2 develops, DeFi can accommodate larger asset sizes, which will create greater demand for ETH and other assets.

Currently, more than 13 billion US dollars of assets are locked in DeFi, and ETH is worth more than 60 billion US dollars. When hundreds of billions of US dollars of assets are locked in DeFi in the future, ETH can only become a larger-scale asset to accommodate the circulation of these assets and provide sufficient security for them.

*DeFi poses substantial competition to CeFi

Today, DeFi is increasingly becoming a real rival to CeFi, which is first reflected in the trading field. The total transaction volume of DEX since the beginning of this year has reached 89 billion US dollars, and the transaction volume in the past week exceeded 5 billion US dollars. Although it is still far from CEX, this trend of competition has already emerged.

(DEX transaction volume so far this year is close to $90 billion, DuneAnalytics)

(The more eth locked in DeFi, the less eth on CEX, the more it increases while the other decreases, glassnode)

In terms of crypto lending, Compound currently has locked assets of up to $1.5 billion, and Aave has locked up to $1.35 billion, of which 1.1 million and 392,000 ETH are locked up respectively. In addition, in terms of derivatives, Synthetix and UMA are continuing, as well as Hegic's decentralized options; Cover, Nsure and NXM in the insurance field are developing; YFI in the aggregated mining field is evolving rapidly, and various DeFi products are constantly being launched; there is even a combination of NFT and DeFi, such as MEME.

The prosperity of the DeFi ecosystem has promoted the evolution of Ethereum, making ETH gradually become the most important underlying asset in the DeFi field. From this perspective, ETH has gradually evolved from a financing tool in 2017 to an underlying asset with substantial sustainable demand.

(ETH's liquidity and trading volume on Uniswap are both ranked first, Uniswap)

From Crypto Commodities to Productive Assets

People often say that BTC is digital gold and ETH is digital oil. If we go back to 2017, ETH was not worthy of the name. But now, ETH has gradually evolved into a crypto asset with different characteristics from BTC. This may give it a chance to become the king of crypto public chains in the future.

At present, BTC is unique in the crypto world and its position is unshakable. Because it has almost no competitors in the field of value storage. Due to its broad social consensus, PoW mechanism, non-increased hard cap, security and many other characteristics, Bitcoin has gradually become digital gold and gradually expanded its advantages in the field of value storage. In the field of digital currency, BTC can hardly find any rivals.

But the real opponents come from different fields. Ethereum is a smart contract platform. It did not intend to become a cryptocurrency (coin) at the beginning, but more of a token, serving the original dream of the world computer. But now the settlement on Ethereum is almost the same as Bitcoin. Ethereum accidentally became a world settlement layer that is no less than Bitcoin and may even surpass it in the future.

In 2017, ETH, like BTC, was a cryptocurrency generated through the PoW mechanism, but in 2021, a portion of ETH was generated through PoS. This means that ETH can become a productive asset, and ETH itself can generate more ETH. This may seem like a simple change, but it has far-reaching consequences. For more information, please refer to Blue Fox Notes' "ETH2.0: PoS Staking Has a Far-Reaching Impact on ETH".

ETH has evolved from a crypto commodity into a productive asset. While solving the security of the Ethereum public chain, the integration of ETH with the protocol itself has been greatly improved, from the externalization of PoW to the internalization of PoS. This means that ETH is no longer mainly an object for miners to sell and cash in profits, but a productive material for miners to obtain more profits.

This means that there will be a large-scale demand for ETH. According to the current ETH return rate, it is not a big problem to reach the level of DeFi locked ETH in the short term. In a short time, the ETH in PoS staking is estimated to exceed 5 million. As wallets and exchanges launch ETH2.0 staking services, it is possible that more than 20-30 million ETH will be locked, while the current total amount of ETH is about 113 million. After a long period of time, especially after the reduction of various staking thresholds and the solution of liquidity problems, the amount of ETH locked in the PoS staking network may reach about 20-30%, or even higher, and this does not include the ETH locked in DeFi.