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Editor: Remember to follow
Source: Bankless
Original title: State of Ethereum Report — Q3 2022
Ethereum is a world-leading smart contract network, and it is also a public product.
As no one is officially responsible for creating status reports, Bankless attempted to release a third-quarter Ethereum status report that covers important baseline metrics for its protocol and L2 tiers as well as the DeFi and NFT ecosystems.
How has the network usage been in the past 3 months? How many people are still buying NFT? Did Layer 2 successfully expand Ethereum?
You can find answers to all the above questions in an easy-to-understand report provided in this article.
Ethereum Status Report -
Graphics and texts: Logan Craig
This article was originally inspired by James Wang's " Ethereum announced the first quarter of 2021 performance ".
The report looks at the main metrics of the Ethereum protocol and ecosystem in the third quarter of 2022, and divides it into four categories: protocol, DeFi, NFT and Layer 2 (Layer 2). This article will then continue to discuss the highlights and prospects of the Ethereum ecosystem.
Key results
These numbers compare the performance of Ethereum in the third quarter of 2021 and the third quarter of 2022.
🌐 Protocol
Data: Network revenue fell 86.0%, from US$1.96 billion to US$274.12 million.
Ethereum network revenue, source: Token Terminal
This data measures the US dollar value of the total transaction fee paid by users in a quarter. The decline in net income of
can be attributed to the decline in on-chain activity due to general market weakness. Against the macro backdrop of the sluggish quarter, the demand for trading speculation and increasing leverage has significantly decreased.
of which US$200.15 million (73%) were burned through the cost combustion mechanism introduced in EIP-1559.
data: ETH inflation rose from 0.79% to 0.85%, an increase of 7.7%.
ETH Supply growth, source: Etherscan
This indicator measures the growth of Ethereum supply in the quarter.
Inflation in may be due to a decrease in demand for block space. As the user's transaction volume decreases, the ETH burned through EIP-1559 (removed permanently from the recurrent supply) also decreases.
data: The average daily active addresses (DAA) increased from 491,271 to 506,384, an increase of 3.08%.
Ethereum Daily Active Address, Source: Etherscan
This measures the average number of unique wallet addresses interacting with the Ethereum network every day in the quarter.
Although overall speculative activity has declined, this surge in the Daily Active Address (DAA) is likely to be attributed to the reduction in gas costs. As transaction costs fall in sync with block space demand, this increases the ability of new individuals, contracts and/or bots to trade on Ethereum.
data: The number of pledged ETH increased from 7.81 million to 14.08 million, an increase of 80.2%.
ETH staking, source: Nansen
This data is the number of ETH staking on the Beacon Chain. The growth of
staking is due to expectations of mergers, as well as the adoption of liquid staking services, which enables users to receive staking rewards while the ETH they hold remains liquid. The share of these protocols in total beacon chain deposits increased from 35.3% year-on-year to 46.3%.
🏦 DeFi ecosystem
Data: DeFi TVL shrank by 58.6% from US$76.27 billion to US$31.55 billion.
Ethereum DeFi TVL, source: DeFi Llamah
This data measures the value of tokens deposited into the Ethereum-based DeFi protocol.
This decline can be attributed to market conditions in bear markets, as most of the value of DeFi TVL is composed of volatile assets with falling prices, such as ETH and wBTC. This decline may also be due to liquidity outflows caused by a decrease in on-chain yields, which makes deployed capital less attractive.
data: Spot DEX trading volume fell from US$281.68 billion to US$192.73 billion, a decrease of 31.6%.
Ethereum Spot DEX trading volume, source: Dune Analytics
This will track the total trading volume of deployed on Ethereum. This decline in
may be attributed to the decline in market conditions. As mentioned above, the situation in the bear market reduces speculative demand, which leads to a decline in trading volume given that trading activity is positively correlated with price behavior.
data: The supply of stablecoin circulation increased from US$87.82 billion to US$106.20 billion, an increase of 20.9%.
Stablecoins circulating, source: Dune Analytics
This measures the value of USD-linked stablecoins issued and/or circulated on Ethereum. The growth of
is driven by the demand for holding stablecoins as a cash position, as well as a total increase in supply of USDC, BUSD, DAI and MIM on the network by $21.8 billion. This offset the $3.6 billion in circulation supply dropped by USDT and “other” stablecoins.
data: The average outstanding debt in the money market fell from US$14.68 billion to US$4.48 billion, a decrease of 67.0%.
Average outstanding debt in the money market, source: Token Terminal
This data tracks the average outstanding debt in the Ethereum-based money market this quarter. This decline in
can be attributed to the reduction in leverage demand caused by market conditions. In addition, despite the rise in ETH prices, the willingness to borrow may still be suppressed due to the consequences of deleveraging in June after the collapse of hedge fund Three Arrows Capital.
🎨 NFT ecosystem
Data: NFT market transaction volume fell from US$8.32 billion to US$2.08 billion, a decrease of 75%.
NFT market trading volume, source: Dune Analytics
This data measures the trading volume of NFT markets such as OpenSea, LooksRare. The decline in
NFT trading activity can be attributed to weakness in the cryptocurrency market and the decrease in speculative activity due to the plunge in NFT prices. Like ERC-20, NFT trading volume is positively correlated with price behavior.
data: The average daily number of traders in NFT increased from 13,861 to 23,254, an increase of 67.8%.
This data measures the average number of users who trade NFTs per day in the quarter. The growth of
may be due to the wider understanding of the ecosystem by retail users and the increasingly mature NFT market structure.
Nansen Blue Chip-10 index, source: Nansen
Calculated in ETH, the Nansen Blue Chip-10 index fell 15.5%.
note, Blue Chip-10 is an market value weighted index , used to track the top ten NFT collections. This decline in
may be attributed to the rise in ETH prices, which rose 24.43% in the quarter. Almost all NFT trades are conducted in ETH, and historically, when Ethereum prices rise, NFT trades will perform poorly because traders are less inclined to give up on appreciation assets.
🔗 Layer 2 Ecosystem
Data: L2 TVL increased from US$2.4 billion to US$4.73 billion, an increase of 97.1%.
L2 TVL, Source: L2Beat
This data measures the value of transfer (through local or third-party cross-chain bridges) to optical rollups, zero-knowledge rollups, and validiums (weak trust expansion) for Ethereum. This increase in
TVL is largely related to liquidity flowing into common rollups, such as Arbitrum and Optimism. The two hold approximately $3.9 billion in total, accounting for 81.5% of the value of these networks.
data: Arbitrum's average monthly active address (MAA) grew from 59,773 to 339,793, an increase of 468.5%. The average MAA for Optimism is 175,700.
Arbitrum MAA, Source: Token Terminal
This measures the average number of wallets that are trading on Arbitrum and Optimism each month this quarter. The growth of
Arbitrum can be largely attributed to the popularity of protocols such as perpetual exchange GMX, whose deployment on the network attracted $397.2 million in TVL while also promoting $18.9 billion in transaction volume.
data: Arbitrum's network revenue fell 82.5% from $2.54 million to $443,000. Optimism's online revenue is $382,000.
Arbitrum's network revenue, source: Token Terminal
This measures the transaction fee income earned by the sequencer on Arbitrum and Optimism, respectively. The decline in revenue of
Arbitrum can be attributed to the reduced demand for block space. Like Ethereum, this is due to a sharp decline in market conditions and speculative activity in bear markets.
Note: Due to limited publicly available historical data for Optimism, we cannot make a Y/Y comparison of average monthly active addresses and network revenue.
🌐 Ecosystem highlights
merger (The Marge) completed
After years of development and expectations, Etheruem successfully merged from Proof of Work (PoW) into Proof of Stake (PoS). Although the dust after the merger has not yet been settled, we have begun to see the impact of the most important upgrade in the history of the network.
First, Ethereum's energy consumption plummeted almost overnight, down 99.98% from 77.77 TWH to 0.01 TWH. This not only reduces the environmental impact of the Ethereum network, but should also help increase the appeal of ETH among ESG-licensed institutions TradFi investors.
In addition, ETH circulation has also seen a similar sharp decline, down 95.7% to 0.17% from 3.76%. Despite the low on-chain activity mentioned above, we have even seen Ultrasound Ethereum that lasts for several days.
orange period represents supersonic currency pattern! Daily time range. The
merger has also begun to reshape the block space economy. The transition to PoS has changed the dynamics of the MEV industry, introducing proposers and builders to separate block construction from block production through MEV Boost (a software developed by Flashbots that can separate block construction from block production). As of this writing, about 47% of block production is using MEV Boost.
On the other hand, mergers have also begun to affect the staking field. Since the incident, the yield on pledge has risen from about 3.5% to 5-6%, as the issuance is now supplemented by transaction fees and MEV revenue, while deposits in the liquid pledge agreement have increased by 1.27%.
After the Shanghai network upgrade, the products of these protocols may grow further, which will enable withdrawals from staking ETH, which is expected to be available within 6-12 months.
L2 Summer
In this regard, Bankless may be a year late, but we finally made the first iteration of Layer 2 summer in Q3, as Optimism and Arbitrum, two largest optical rollups, have significantly increased liquidity and community awareness in the quarter.
Optimism's DeFi TVL grew 234% from $274.46 million to $916.97 million in the third quarter, driven by rising OP prices and incentives from governance funds. This jump occurs as many other networks see their liquidity shrinkage, with its market share in all L1 and L2 growing from 0.51% to 1.56% in the quarter.
Arbitrum's share of DeFi TVL total also increased in the quarter, from 1.33% to 1.78%. This growth is driven by the rise of new protocols, such as the perpetual exchange GMX, which helps drive the outstanding performance of the Arbitrum ecosystem token. L2 also launched a Nitro network upgrade in August, which increased transaction throughput and reduced end-user costs. It is worth noting that Arbitrum's growth is entirely organic, as liquidity is generated spontaneously without a clear token incentive.
However, Optimistic Rollups is not the only L2s type in the third quarter, as zkSync, Polygon and Scroll have all announced their plans to launch their zkEVMs on testnet or mainnet by the end of 2022.
zkEVM is considered the holy grail of extension because it combines the network effects of EVM with developer tools and the increased transaction processing power of zkRollups. While it’s unclear how they perform in production, the upcoming zkEVM could shake up the increasingly competitive L2 landscape.
📅 Looking ahead
There are many exciting developments in the Ethereum ecosystem that are expected to support the long-term growth prospects of the network.
At the protocol level, an exciting recent upgrade is EIP-4844, which will introduce Proto-danksharding, the predecessor of danksharding (note, Proto-danksharding is used to implement most of the logical and basic rules that constitute the complete Danksharding specification, such as transaction formats, verification rules, etc.). EIP-4844 may be implemented in the Shanghai upgrade mentioned above, which will introduce blob transactions, a new standard that will increase Ethereum's capabilities as a data availability layer by significantly reducing the cost of storing call data on chains. The biggest beneficiary of the
upgrade is L2, because the storage of call data is undoubtedly the largest contributor in their cost structure. Once successfully implemented, by reducing the cost of storing data on chains, EIP-4844 will reduce the gas costs of these networks by orders of magnitude and increase the ability to use and migrate liquidity for L2s.
Another large infrastructure catalyst is the expected launch of the Arbitrum token. The distribution of tokens will likely be announced after Arbitrum Odyssey, an event designed to allow users to interact with protocols on the network and is expected to resume soon as Nitro upgrades are completed. Arbitrum’s tokens may be used in part for incentive programs for various protocols and should help catalyze large amounts of capital flows into the ecosystem.
Despite these positive catalysts, there are several dark clouds that surround the ecosystem, the most urgent of which is regulation.
Regulatory noose around Ethereum is tightening after the U.S. Treasury Office of Overseas Assets Control (OFACh) recently decided to sanction the mixer Tornado Cash. This has resulted in various entities either freezing funds, blocking users, or reviewing transactions to comply with regulations. How this, and other developments such as CFTCh suing Ooki DAO token holders involved in governance, will affect the decentralization and credible neutrality of Ethereum.
result table
protocol
DeFi ecosystem
NFT ecosystem
L2 ecosystem
Editor: Lynn
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