A Brief History of the Etherverse

We delve into Ethereum’s most important use cases by quantifying gas consumption across major tokens, protocols, and transaction classes. Our analysis reveals the complex and evolving nature of the Ethereum ecosystem. 

It’s been two years since we last looked at the Ethereum ecosystem from a market perspective on gas — a long time in this volatile and fast-moving industry. Brand new use cases have since emerged, and for existing use cases, new protocols have emerged and gained market share. This follow-up post is long overdue and coincides with the release of a new set of Ethereum activity segmentation criteria by Glassnode Studio. We can’t wait to see what insights the community has to offer, and at the same time, we share our own.

newly published standard

This new set of Ethereum segmentation standards is now available at Glassnode Studio:

– Dashboard for exploring the Etherverse by default

– Transaction type breakdown (relative)

– Transaction type breakdown (absolute)

– Gas usage by transaction type (absolute)

– Gas usage by transaction type (relative)

Motivation and method

Ethereum is a permissionless platform, so there is no inherent purpose to enforce it. In any sense, a permissionless platform is usually defined by its purpose. Therefore, understanding Ethereum can start with a purely concrete task – observing its use.

In our opinion, the best measure of Ethereum usage is the relative amount of gas used by the type of activity. While it’s not as intuitive as the number of transactions, this approach is rooted in what Ethereum was designed for:

The throughput of the Ethereum platform is limited by the gas units available per block. As in the use case competing for scarce block space, winners depend on the ability to provide high enough fees, while losers are effectively excluded from the platform.

Because the gas market is highly competitive, gas spending reflects user demand and the economic value that users assign to a particular use case or protocol. Note that a decrease in gas share may also indicate an increase in fiat or ETH spending, and vice versa – for this you may need to refer to the corresponding absolute fee values ​​in Glassnode Studio. In this article, we only focus on gas share, as our goal is to compare the relative prevalence of use cases in the Ethereum ecosystem.

We prefer the gas share over the number of transactions metric, as it represents the real economic spending of the user and is therefore harder to manipulate. The number of transactions is more likely to be artificially raised, especially during periods of low network congestion.

There are two types of accounts on the Ethereum platform: external accounts (EOAs) controlled by private keys and contract accounts controlled by their contract code. We intentionally attribute all gas generated in the transaction to the initial contract invoked by EOA, as it represents user-driven demand. The share of insider transactions will paint a different but related picture.

Overview

tChKgfFtCP8v39QoD38sTlxg7J1QfQaKqqgLX3lF.png

We start with a comprehensive overview of the history of Ethereum. Figure 1 shows the relative gas consumption of all transactions recorded on the Ethereum blockchain, broken down into the top seven categories, which are representative of important use cases, two of which (Bridge, MEV robots) only last year. becomes important:

Vanilla: Pure ETH transfers between EOAs without calling contracts.

Stablecoins: The value of a homogenized token is tied to off-chain assets by the issuer or algorithmically. Most of them are pegged to the dollar. There are more than 150 stablecoins in this category, the most important of which are USDT, USDC, UST, BUSD, and DAI.

ERC20: For the scope of this article, we will include all ERC20 contracts that are not stablecoins in this category.

DeFi: On-chain financial instruments and protocols implemented as smart contracts, often without traditional intermediaries. The most popular right now is a decentralized exchange (DEX), a peer-to-peer platform for trading tokens. This category includes over 90 DeFi protocols such as Uniswap, Etherdelta, 1inch, Sushiswap, Aave, and 0x.

Bridges: Contracts that allow the transfer of tokens between different blockchains. This category includes over 50 Bridges such as Ronin, Polygon, Optimism and Arbitrum.

NFT: Unique identifying data owned and transferred on-chain. This category includes token contract standards (ERC721, ERC1155) as well as marketplaces for trading NFTs (OpenSea, LooksRare, Rarible, SuperRare).

MEV Bots : Miner Extractable Value (MEV) bots execute transactions for profit by reordering, inserting, and reviewing transactions within blocks.

Other: This category includes all transactions that are not in the categories above. Examples include multisig contracts on exchanges, centralized lending platforms, and gambling sites.

Qualitatively, the use case criteria are very different from two years ago, and the share of each of the above categories has changed dramatically. We believe this underscores the evolving nature of the platform and the dynamic research framework required to evaluate it – it is clearly misleading to think of Ethereum in 2022 as Ethereum in 2019. As the data suggests, there are no signs of stabilization either – we can fully expect Ethereum in 2024 to be very different from today. Below, we examine each of the seven categories in more detail.

Vanilla 

tOXufwro0utdnzryvNoyfVo0tn31Qu2ZG5fo77dG.png

Conceptually, Vanilla transfers represent ETH as currency. From a gas consumption perspective, this use case has dropped from an earlier dominant norm (80% of gas in 2015) to around 10% in the last two years. In other words: ETH transfers between users on the Ethereum platform are actually not primary, or even important.

PJvOXhx2Ev037DHAgNmE9R2mOIWeR0JkRzMyOTXn.png

However, the notion that there are fewer ETH transactions in the Ethereum blockchain record now than in 2016 is wrong. The reason is that the gas limit has been raised many times in the past. When Ethereum was first launched in 2015, the gas limit used to be 5000 per block. Since then, it has gradually grown to a target block gas limit of 15 million – and since the London upgrade can reach twice as high during periods of network congestion. So while the relative importance of ETH transfers has declined over time, absolute throughput has risen by many orders of magnitude.

stablecoin

a86VsEKuYPCiT7tVVFy0AzWFPjOJnH3sl4Dc4Ngi.png

Stablecoins were not born in Ethereum, but Ethereum is where they started to flourish. After USDT pioneered the move from Bitcoin to Ethereum in search of lower fees and faster confirmation times, stablecoins quickly became a powerful pillar of gas consumption. For most of the past three years, Ethereum has been used as a payment platform for USD, not ETH, and since the end of 2019, monthly transfers of stablecoins have been higher than those of ETH.

In addition to USDT, in the burgeoning stablecoin space there is increasing competition between centralized (USDT and USDC) and algorithmic (maintained via incentive structures, such as DAI and UST) stablecoins. However, the dynamics of this competition cannot be inferred from the foregoing.

Stablecoins expanded to other blockchains as high fiat-denominated payment fees on Ethereum became an issue. There are currently more USDT issued on the Tron platform than on Ethereum. USDC supports 8 different blockchains and UST supports 10. To a certain extent, if Ethereum is used as a decentralized general-purpose computer, it may continue to lose market share to competing platforms that are cheaper, or faster, or both.

Pay attention to this many-to-many relationship between platforms and protocols in the multi-chain era. Not only is the Ethereum platform used by many protocols – many of them also work on multiple platforms. You can’t fully understand the Ethereum ecosystem without considering stablecoins—and you can’t fully understand the stablecoin ecosystem without figuring out other chains.

ERC-20

Kbuyif8kqITsbDGNKkARONAFHGlONYvdnfYA5s7K.png

The 40% gas market share in 2018 was an all-time high for a mostly homogeneous token implemented with ERC-20 contracts. The days of the IC0 craze seem to be over, with this use case taking only 5-10% of the gas market over the past few years. You may have noticed the advantages of other ERC-20 token subcategories above. Throughout history many projects have enjoyed 15 minutes of fame, and generally in no case have they been a mainstream token for more than a few months.

EPJ9fMqDvdiIgNKUBH3ZRZ3SqLAmQryk9lxMUtCC.png

We took a closer look and found that even the most popular coins in history don’t last more than a year.

An important sub-category of homogenized tokens is wrapped assets, of which WETH and WBTC are the most famous, providing token interfaces for native tokens and decentralized finance use cases of corresponding chains. This means that even transaction volume paid in ETH exists on Ethereum in two forms – as native ETH coins and as wrapped assets.

DeFi 

1eVGrM0wnvddNjevgzJPVRoVagno1rM6CUuDi3GH.png

Many applications envision Decentralized Finance (DeFi) – lending, lending, spot and derivatives trading, interest generation, insurance, and more. The most impactful we’ve seen so far come from one: decentralized asset exchanges. In the past two years, liquidity providers and liquidity mining have also become quite popular applications, and further segmentation of the DeFi space in the future may be reasonable.

Decentralized exchanges (DEXs) first gained popularity with the advent of EtherDelta in 2017 and have been the main driver of gas consumption ever since. Liquidity is both provided by traders and in turn attracting them, there is a natural centralization force at work – only one or two platforms dominate the category most of the time, Uniswap is currently far ahead (peaked at DeFi 88% of gas consumption, currently around 60%). Also pay attention to the Metamask (marked in orange at the top) that appears at this time, it is not a direct DEX, but an aggregator that uses the “best trading price” from trading pairs provided by other DEXs to extract users from the DEX . This is another trend we are more expecting to see – as the industry matures, some functions may become implicit rather than explicit, by separating out all the details of on-chain and cross-chain interactions, for users on the platform Interaction provides maximum convenience.

Bridge

rm3B8E76nSgf7yPMuTThilc8o67FRmPca1IO7OpR.png

When it comes to cross-chain, Bridge is one of the most famous gas consumptions recently. As fiat-denominated transactions on Ethereum become quite expensive, and competing chains mature in terms of stability and functionality, we are seeing the emergence of cross-chain capital flows. Aside from the popularity of the Ronin Bridge at the peak of Axie Infinity’s popularity (peaking around 8% gas consumption in a few days), Bridge’s gas consumption has doubled over the last year (from 1% to 2%), including Linking Ethereum to L2 scaling solutions (Polygon, Arbitrum, Optimism) and competing public chain ecosystems (Avalanche, Polkadot) within the Ethereum ecosystem. We are increasingly aware that any meaningful insights into money flows may require multi-chain thinking and tools.

Not even Bitcoin is immune – more than 1% of its total supply is currently connected to the Ethereum platform in the form of WBTC, a centralized bridge.

NFT

VSF2E4XpBPQIMhEYbEZCWHFSQ0H3S9lGAHWuB9YZ.png

Few people remember Cryptokitties today, but back in 2017, it was the first popular NFT project, contributing roughly one-third of the network’s throughput at the time, albeit for a short duration but clearly driving network fees. That same year, the OpenSea beta was released. However, it will not be until the second half of 2021 that NFTs will dominate the gas market again. Since it’s become a force to be reckoned with – as of now, a third of gas consumption on Ethereum is for NFT activity. Now, high gas consumption per transaction and adversarial price conditions don’t seem to affect this. In this category, OpenSea leads the market, consuming more than 60% of all NFT-related gas, leaving several other platforms far behind.

The introduction of the ERC-1155 token standard has brought some efficiency gains, especially the use of the standard by the OpenSea Wyvern exchange – another trend to watch right now.

MEV Bots

RIHGIvlqqhbAKg0PGT253yAQzUD01mr3Qq4DPvIc.png

The general consensus is that Miner Extractable Value (MEV) is an inherent product of Ethereum’s design, that is, eliminating price differences between decentralized exchanges through arbitrage plays an important role in improving the efficiency of the DeFi ecosystem, and arbitrage accounts for Over 95% of MEV activity.

Despite what the name suggests, the main beneficiaries of MEVs are usually not miners, but hunters and extractors in the community who leverage automated tools to create MEV transactions. However, miners enjoy high fees associated with the emergent nature of arbitrage trades, which are often winner-take-all opportunities, and pay gas prices well above market prices.

Given that MEV extractors generally do not advertise themselves, and that MEV transactions are poorly categorized, we may be underestimating the true numbers – according to the Flashbots team, MEV transactions consume at least 4% of gas.

At the very least, if competing chains can reduce the impact of MEV, it can incentivize users to migrate from Ethereum.

other

f6GXyU7J52Oj4iCenJHGCOS9vw1teSw0ipfMMHdV.png

Ethereum, designed as a permissionless platform, has spawned many other use cases beyond those listed above, from on-chain games and multi-signature protocols to Ponzi schemes. At their peak, Ponzi schemes like MMM (10% gas usage) and FairWin (40% for a short time) were the most common use cases for Ethereum. But those days seem to be over. Also included here are exchange contracts, especially multi-signature contracts for money management. Undiscovered MEV withdrawals, obscure DeFi protocols, and non-standard tokens may also be included in this category.

Sorting through all the Ethereum activity is a never-ending job. We will refine the coverage of all of the above categories and add new use cases if they reach a sufficient level of impact.

in conclusion

As far as the purpose of Ethereum is concerned, it is often defined in terms of usage, and Ethereum achieves many things. From early native asset payment networks, to 2018’s homogenized tokens, to more recently non-fungible tokens, many use cases have become the platform’s largest fee payer. Very much in line with the original Ethereum vision, we have to admit that Ethereum appears to be a general purpose decentralized computer with little idea of ​​what computation it performs.

Understanding the resulting dynamic ecosystem is not easy. Value flows through the network in countless different forms through many different channels. Even more difficult, Ethereum is increasingly interconnected with a large number of other L1 and L2 chains. More and more assets, projects, protocols and entities exist on multiple chains simultaneously and migrate freely between platforms.

It would be unrealistic to look at Ethereum today with the same mentality as Bitcoin, or even Ethereum in 2019. Relying on single-asset, single-chain metrics creates incomplete and superficial understanding — understanding the current state of the network requires a vigilant awareness of new developments, broad areas of expertise, and nuanced judgments.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/a-brief-history-of-the-etherverse/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

Like (1)
Donate Buy me a coffee Buy me a coffee
Previous 2022-05-30 23:25
Next 2022-05-30 23:26

Related articles