Ethereum Q4 Report: Metaverse Explosion, DeFi 2.0 Rise

Note: The author of the original text is Ben Giove, and the following is the full text compilation.

Ethereum Q4 Report: Metaverse Explosion, DeFi 2.0 Rise

This article was originally inspired by “Ethereum Announces Q1 2021 Results” by James Wang

One of the key documents in assessing the health of a company is the quarterly earnings report. These reports include cash flow, income statement and key growth indicators.

Ethereum is not a company…it cannot publish its own quarterly reports. So we’re going to replace it.

The data below shows the massive year-over-year growth of the Ethereum protocol and the Ethereum ecosystem between Q4’20 and Q4’21. All of this can be found on-chain for anyone to audit.

This is the economic data of an emerging digital country. An economy that has grown by leaps and bounds over the past 12 months.

The state of Ethereum is strong.

Protocol Overview

  • Network revenue‌ increased 1,777% from $231.41 million to $4.34 billion. Network revenue refers to the fees users pay in ETH for transacting on the network. Of this, $3.78 billion (87%) worth of ETH was “burned” and removed from the circulating supply via EIP-1559.
  • Average daily active addresses‌ increased by 35% from 425,636 to 572,700. This measures the average number of individual wallet addresses interacting with the network on a daily basis during the quarter.
  • ETH inflation‌ dropped from 1.13% to 0.46%, a drop of 64%. This tracks the increase in ETH supply, minus burn fees, due to block rewards issued to miners as compensation for confirmed transactions.
  • ETH staking increased by 471%, from 1,545,486 to 8,818,933. This measures the amount of staked ETH on the “beacon chain”, which will eventually merge with the current Ethereum network when it switches from proof-of-work (PoW) to proof-of-work (PoS). Currently, about 7.40% of the total ETH supply is pledged.
  • Average transaction fees rose 557% from $4.09 to $26.89. This represents the average price users pay per transaction on the network.

Ecosystem Overview

  • DeFi TVL grew 770% from $17.73 billion to $154.20 billion. This measures the value of assets deposited into Ethereum-based DeFi applications.
  • DEX volume increased by 495% from $48.97 billion to $291.53 billion. This tracks trading volume on Ethereum’s largest decentralized exchanges, such as Uniswap, SushiSwap, and Curve.
  • BTC on Ethereum increased by 133%, from 138,190 to 321,730. This represents Bitcoin tokenized in various forms, such as wBTC, renBTC, and tBTC, with approximately 1.69% of the BTC supply now on Ethereum.
  • OpenSea sales rose 50,078% from $71.57 million to $35.91 billion. This tracks sales in the network’s largest NFT marketplace.
  • Tier 2 TVL increased from $5.01 million to $5.55 billion, an increase of 11,002%. This measures the amount of value bridging from Etheruem to L2 scaling solutions such as Optimistic and ZK Rollups.

Ecosystem Highlights

Metaverse explosion

Part of the definition of the fourth quarter is the explosion of consciousness and speculation surrounding the Metaverse.

Metaverse-related asset prices saw a parabolic rise in the fourth quarter, catalyzed by Facebook’s announcement to rebrand itself as “Meta” in October 2021. This includes tokens used to manage virtual worlds and exchanges, such as Decentraland (MANA) and The Sandbox (SAND), whose tokens appreciated by 337% and 635%, respectively, in the fourth quarter. In addition, the two projects experienced record-breaking land sales in their world, including $2.43 million for the former and $4.3 million for the latter.

MVI, a basket of Metaverse tokens created by Index Coop, ended the quarter up 88% from Oct. 1 to Dec. 31, 2021, before peaking at 197% at the end of November.

Ethereum Q4 Report: Metaverse Explosion, DeFi 2.0 Rise

The frenzy surrounding crypto-native projects has overshadowed the news that legacy companies like Microsoft are planning to venture into the Metaverse. This sets the stage for a final showdown between Web2’s Metaverse and Web3’s open, user-owned Metaverse.

The rise of DeFi 2.0

Another major theme in Q4 was the rise of “DeFi 2.0.”

This is a term used broadly to describe next-generation protocols and primitives, many of which emphasize improving capital efficiency, liquidity, and treasury management, and pursue aggressive growth strategies by deploying to multiple chains and second layers. Along with their increasingly innovative designs, many of these protocols are completely grassroots, raising no funds from traditional venture capitalists in the space. These projects drive the development of token designs to reduce releases and drive demand for their native assets.

During the fourth quarter, several notable examples of DeFi 2.0 grabbed the spotlight. This includes the rise of Frog Nation, whose protocol ecosystem has amassed over $7 billion in TVL; the Olympus DAO, whose treasury has over $203 million in risk-free value, and launched many forks during the “OHM Fork SZN”, And Fei Protocol and Rari Capital merged into TribeDAO.

future outlook

Fiscal 2022 will be a pivotal year for Ethereum.

At the protocol level, Ethereum is expected to undergo the most significant network upgrade in its history in the form of a “merger,” which is expected to be completed in Q2/Q3. This will include Ethereum replacing its Proof-Of-Work (PoW) consensus mechanism with Proof-Of-Stake (PoS), which will allow the network to drastically reduce its energy consumption, as well as the issuance of ETH needed to secure the network. Additionally, the merger will also pave the way for sharding, which will make it easier for Ethereum to scale and achieve its ambitions to be a modular blockchain.

Despite the merger, Ethereum will face some significant headwinds this year. This mostly comes in the form of scaling, as gas fees have squeezed all but the wealthiest users out of the market, in addition to stiff competition from other ecosystems such as Solana, Terra, Cosmos, Avalanche, and Fantom. If Ethereum wants to maintain and expand its market share in the future, it desperately needs a solution of its own. Thankfully, help in the form of L2 such as Optimism, Arbitrum, zkSync, and StarkNet may be on the way.

With each of these scaling solutions potentially launching tokens and incentive programs, there is a good chance that Ethereum will be able to capitalize on this momentum and leverage this newfound ability to drive growth.


Ethereum Q4 Report: Metaverse Explosion, DeFi 2.0 Rise

Ethereum Q4 Report: Metaverse Explosion, DeFi 2.0 Rise

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