Ethereum is the dominant ecosystem in the Crypto market and also the most active blockchain in the current bear market. After The Merge, Ethereum officially switched from PoW (Proof-of-Work) to PoS (Proof-of-Stake) consensus mechanism, marking a new era for this market-leading blockchain.
In 2022, the Ethereum ecosystem has more than 400 projects operating in various fields. Let’s dive into the current state of Ethereum and all the segments in the Ethereum ecosystem.
After a long wait and many delays, the most important event in the development history of Ethereum and also the most anticipated event in the second half of 2022 – The Merge has taken place successfully on September 15, 2022. Accordingly, when the TTD (Terminal Total Difficulty) of blocks on Ethereum reached the threshold of 58750000000000000000000, the two blockchains, Ethereum Mainnet with PoW consensus mechanism and Beacon Chain with PoS consensus mechanism merged together, marking the main event to remove the PoW mechanism and completely switch to PoS. The first block on Ethereum PoS is validated and processed by the wallet address: : 0xeee27662c2b8eba3cd936a23f039f3189633e4c8 (height: 15537394)
After The Merge, the mining and validation of new blocks on the network will be done by validators instead of miners like in PoW, so Ethereum will reduce up to 99.95% of electricity consumption, contributing to reducing 0.2% of the world’s energy consumption (According to Vitalik Buterin). Besides, not having to pay too much for validators like miners, combined with the EIP-1559 coin burn mechanism promises to have a huge impact on the value of ETH in the future when it can cause supply becomes deflationary.
Inflows into Beacon Chain in the two-month period leading up to The Merge also slowed significantly, growing only 4% compared to 17% in Q2. The main reason comes from Lido Finance’s stETH, the largest ETH 2.0 staking platform in the market at the moment, depegged from ETH. And as long as this continues, users will be more inclined to buy stETH on the market to take advantage of the difference when the price of stETH recovers rather than staking ETH directly on the Beacon Chain. Besides, the amount of ETH staked on Binance and Coinbase also increased by about 4% despite the fact that their 2 staking derivatives assets cbETH and BETH are also depegged compared to ETH. Among derivatives platforms, Lido is up 1% to 4.2 million ETH while Rocket Pool is up 11% to around 218,000 ETH staked.
After The Merge, in the Ethereum roadmap, Vitalik Buterin has repeatedly emphasized: “Sharding needs to happen soon” and the time is expected to be 2023-2024.
- Sharding is a multi-stage upgrade to improve Ethereum’s scalability and capacity.
- Sharding provides secure distribution of data storage requirements, allows for even cheaper “rollups” and makes it easier for nodes to operate.
- They allow Layer 2 solutions to offer low transaction fees while leveraging the security of Ethereum.
DeFi is the most innovative and developed segment on Ethereum. DeFi has successfully created a real use case for Ethereum in particular and blockchain platforms in general.
As a first mover, Ethereum has the largest developer community, as well as the largest user pool. With several hundred DeFi protocols in development and billions of dollars locked in DeFi protocols.
The first sector to attract cash flow and the first important source of liquidity of the ecosystem is the AMM/ DEX. For financial applications to work, there is a need for liquidity, and AMM provides them with such things.
The most prominent AMM on Ethereum is Uniswap. It is also the first AMM to succeed on Ethereum and crypto in general. Uniswap has a large market capitalization, and the largest trading volume and revenue compared to Dex exchanges at the moment.
Closely following Uniswap’s TVL is Curve Finance. Curve Finance is an AMM specifically created for assets of the same price range, such as stablecoins.
In addition to the two projects mentioned above, there are still many first-generation DeFi AMMs, which are SushiSwap, Balancer, Bancor, Kyber, etc.
Overall, the AMM sector on Ethereum has become pretty clear: Much of the value is concentrated in a few leading names. With a long history of development and growth, it can be said that it is difficult for any new project to surpass these projects at the present time. In addition, leading AMM projects are also constantly developing new updates to improve user experience, such as Uniswap up to V3.
This is also a prominent segment on Ethereum and attracts quite a few users. The TVL of this platform is also quite high.
At the top is MakerDao with a TVL of 7.47 billion, accounting for 16.55% of the entire ecosystem. MakerDAO with DAI was one of the first DeFi protocols. With the advantage of being the first mover, MakerDAO is far ahead of other competitors such as Aave (Ethereum), Compound (Ethereum)…
MakerDAO supports DAI minting by over-collateralizing assets with 150% of the value of the minted DAI. Therefore, DAI will always be guaranteed to be backed by a larger asset value, which ensures the price of DAI is pegged at $1.
Among MakerDAO, Aave and Compound, Aave is the last one to enter the Lending market. However, Aave succeeded in overtaking Compound, a pioneer in the liquidity mining program, by launching a unique feature called Flash Loans, where users can borrow assets without a mortgage and then refund within just 1 transaction.
Currently, Aave has $3.86 billion in TVL on Ethereum, while Compound has $2.51 billion.
In 2022, both Aave & Compound have upgraded their platforms. Aave has Aave V3 while Compound has Compound Chain.
With the direction of leveraging Cross Chain Bridge infrastructures to achieve cross-chain interoperability to optimize capital efficiency, Aave V3 announced 3 main features used as follows:
- Portal: Allows users to lend & borrow across the chain.
- Emode: Allows users to borrow the most capital with their collateral.
- Isolation Mode: To create different money markets with new assets. At the same time limit part of the risk of these assets.
Different from Aave V3, to achieve cross-chain compatibility, Compound chain built Starport. Besides, Compound Finance also built an App Chain on Polkadot. However, Compound Finance also received many difficulties and limitations when implementing this plan.
These are the three protocols that currently dominate the field on Ethereum, and although there are new lending markets emerging like Abracadabra, Iron Bank (by Yearn Finance), … it will take a lot of effort and time to get to a place comparable to these leading projects.
Yield aggregator is one of the most important areas in DeFi that helps users gain a large amount of profit. This is one of the main reasons why anyone would want to get into DeFi in the first place.
The innovative and pioneering project in this platform is Yearn Finance. Yearn Finance is also one of the main catalysts for DeFi Summer in 2020. Yearn Finance has been largely successful for its model.
Yearn Finance optimizes returns by directing users’ assets to where they have the best returns and compounding those returns with complementary strategies. By using Yearn Finance, users can earn 2-3 times more than the initial APR.
Currently, according to statistics from Defilama, Yearn Finance is locking $495.67 million and is at the top of the Yield aggregator platform.
The problem that needs to be solved when there are many AMMs, resulting in liquidity will also be split between protocols instead of just the original protocol. Users who want to optimize profits also need to go through all the AMMs to see which APRs are in their favor. So DEX Aggregators was born to solve the problem by calculating all transactions on AMMs and making the best choice.
According to statistics, 1inch is dominating this field on Ethereum, many competitors have appeared in an attempt to take the number one position of 1inch.
The remaining market share is currently mainly shared by Matcha, Metamask, Cowswap and Zapper, of which Matcha holds the highest market share.
The fact that users are active on platforms that have not yet issued tokens is understandable given that previous DEX Aggregators on Ethereum were extremely generous like 1inch ($400) or Paraswap ($20,000). As a result, users also tend to hunt for airdrops from these DEX aggregators through trading activity on the protocol.
Stablecoins are one of the most important factors in DeFi. Without stablecoins, it would be difficult for liquidity to circulate in the crypto market and participate in DeFi activities.
Ethereum has the most fertile stablecoin sector with a multitude of stablecoins of various types. First of all, Ethereum has the highest supply of USDT and USDC – the two most popular fiat-backed stablecoins at the moment.
Following that, the leading decentralized stablecoins were born: DAI (MakerDAO), MIM (Abracadabra), FEI (Fei Protocol)… While most crypto participants only use USDT and USDC, Ethereum has proven that decentralized stablecoins can indeed work in DeFi.
While decentralized stablecoins have their own risk of losing their pegs (which is a big deal in a volatile market like crypto), they offer farming/staking much higher yields than regular USDT/USDC deposits (30 – 40% APY vs ~6 – 10%).
Launchpad is a way to attract more projects, investors and builders into one ecosystem. By rewarding investors with high returns with low risk, Launchpad is often the best place for any type of investor, from beginners to veterans.
On Ethereum, DAOMaker and Polkastarter are the two most prominent projects in this niche. These 2 launchpads have launched the most number of IDOs compared to launchpads on any other ecosystem, with a total of 104 projects (Polkastarter) and 101 (DAOMaker). At the same time, DAOMaker currently has the highest average ROI (Return on Investment) at 413%.
Attractive profits is the reason why Ethereum launchpads can attract a lot of attention and users to the Ethereum ecosystem. Although many launchpads on other ecosystems have been released, their quality cannot exceed these two.
If with the traditional financial market, Derivatives is a large and developed market, in the decentralized financial market, projects in this field are still quite young and limited in quantity.
With the highest liquidity in the market, the Ethereum ecosystem is also home to the first derivative protocols on both L1 and L2 such as Perpetual or dYdX.
In mid-July 2021, the NFT trend started to explode and many NFTs were valued at millions of dollars. All of this originated on the Ethereum ecosystem with NFT collections such as CryptoPunks, Bored Ape Yacht Club… or recently, the most sought-after collection in the midst of the red market is MoonBird.
The total value of Moonbirds bought and sold is over $287 million, surpassing the combined volume of top names like Bored Ape Yacht Club, Mutant Ape Yacht Club, Azuki, Beanz, Punks, Doodles, and CloneX to claim the spot. This NFT collection has the highest transaction volume. The floor price when released was 2.5 ETH, then it was also raised many times and peaked at 21.61ETH (when the price of ETH was at ~$3000/ETH)
Ethereum is a pioneer in the NFT space so it is easy to see that Ethereum aggregates most of the NFT activities.
Compared to other blockchain platforms, Ethereum far exceeds others in terms of NFT transaction volume, even with NFT-specific blockchains like the Flow ecosystem.
OpenSea used to be the largest NFT Marketplace on Ethereum. However, LookingRare offers incentives for NFT traders on the platform to get valuable rewards, so there were times when LookingRare surpassed OpenSea on transaction volume.
In short, marketplaces on Ethereum are still the leading NFT trading platforms, far ahead of their counterparts on other ecosystems like Magic Eden or Solanart (Solana).
There are some who argue that most NFTs traded on the Ethereum market are collectibles rather than interactive, meaning that these NFTs have no use case. To some extent, this limits the potential growth of existing NFTs. However, NFT has some advantages to becoming an asset to help people express themselves. When you own an NFT, you can easily prove yourself as its owner. Looking at the NFT value also assesses the wealth of its owner.
In addition, NFT is the only asset that is unique and can not be duplicated by anyone. So even though there is concern about NFT being a new gamble, there are still million-dollar NFT record deals. Moreover, NFT also brings quite a large amount of revenue thanks to high transaction volume, thus gas fee profit for the Ethereum ecosystem.
Emerging as an NFT use case, GameFi (Game + Finance) is a relatively new market that has exploded in popularity recently. This highly promising market is bigger than art and collectibles, although it was born later.
It all started with CryptoKitties in 2017 – the first on-chain gaming app. CryptoKitties is a casual game that allows players to buy, breed, and trade virtual cats of varying traits and rarity. It didn’t take long for CryptoKitties to capture the attention of users in the crypto market.
Immediately after the product launch, the game caused a huge increase in transaction volume on Ethereum, and at one point accounted for about 25% of the total network traffic on Ethereum. This has caused Ethereum to become congested and has increased the network’s gas fees, which may explain why the project’s success is not really significant and cannot last.
However, this is again the catalyst for the GameFi boom in 2021, starting with Axie Infinity. Axie Infinity started attracting loads of non-crypto players with the new term P2E (Play to Earn). Many users got into the game and made a profit just by playing it.
However, although GameFi has become more popular, there are still many flaws in both the gameplay and the Play-to-Earn business model that is prone to token inflation, which requires more innovations.
The GameFi landscape on Ethereum has been developing quickly: There are big games trying to innovate the space.
These can be mentioned as Decentraland, Sandbox,… or games in development like Illuvium, Ember Sword, … these games focus mainly on the two most important elements of a successful on-chain game, that is gameplay and tokennomics.
To sum up, GameFi is becoming increasingly saturated and unsustainable, so innovations are needed and most of the biggest GameFi projects are currently on Ethereum. If GameFi continues to grow and develop on Ethereum, it is likely that the GameFi array will once again be renewed and explode in the next season.
DAOs are Decentralized Autonomous Organizations. These groups leverage Ethereum technology to facilitate organization and collaboration. For example, to control membership, vote on proposals, or manage aggregated assets.
The primary use case of a DAO on Ethereum is voting power in the protocol over the number of tokens or NFTs a person holds. Prominent DAO protocols in the Ethereum ecosystem are MakerDAO, BadgerDAO, BitDAO, The LAO, etc.
However, the creator of Ethereum himself – Vitalin Buterin also criticized the current DAO, saying that this is just a new version of civil rights, a process where wealthy venture capitalists can make self-interested decisions without opposition. Even so, DAO is still a new concept and will be needed to grow the Web3 space and decentralized networks.
Web3’s Creator Economy
This part can be under the NFT, but we want to separate it so that it’s easier for you to visualize. According to a recent report published by analysts at Andreessen Horowitz Capital Management (a16z), the future of art may lie in the Web3 digital asset.
Analysts Daren Matsuoka, Eddy Lazzarin, Chris Dixon, and Robert Hackett have published an industry report titled “ Introducing the State of Cryptocurrency Report 2022,” which shows that Web3 creators make more money than their Web2 peers by 2021.
The report narrows down to five key areas of the industry, including Web3’s impact on the world, as well as why it’s become such an important tool for creators. Although Ethereum continues to face significant competition from Layer 1 blockchains such as Avalanche and Solana, it is by far the most popular blockchain for developer applications. Besides that, the most compelling finding all creators will be drawn to is the difference between the income per capita Web3 creators earn versus what their counterparts earn on Web2 platforms. Specifically, NFTs generated $3.9 billion for 22,400 Web3 creators in 2021, resulting in an average income per creator of $174,000.
Meanwhile, Spotify paid out $7 billion for 11 million artists, resulting in a per capita income of $636. The world’s most popular video publishing platform YouTube paid $15 billion for 37 million channels, which equates to an average income of $405 per channel. Elsewhere, Meta Platforms, formerly Facebook, has split $300 million among more than 2.9 billion users, so that’s just $0.10 per user on average.
This shows that NFT is becoming a much better way to make money for artists than more established intellectual property income-generating channels. The report took into account Ethereum-based NFT sales (ERC-721 and ERC-1155) and royalties paid to creators from secondary sales on platforms like OpenSea. $3.9 billion is almost four times the expected payout of Meta Platform to creators of $1 billion for 2022.
In short, Web3’s Creator Economy will become a new industry, a playground for artists, celebrities, and content creators that will likely mark a new revolution for the crypto market. At the same time, it will attract more people who know about cryptocurrencies – whereas previously only investors, developers or people working on crypto projects know and care.
Infrastructures play a crucial role in an ecosystem. Ethereum is again a pioneer with leading infrastructure projects built on top of it.
With a basic structure of a DApp (as shown), you can see data storage components such as Filecoin, Arweave… Exchange information between blockchains such as Chainlink, API3, Band Protocol, or protocols for Indexing and accessing data quickly such as The Graph, Covalent … are important and quite necessary. Most of these projects build tokens on top of the Ethereum network with the ERC20 token standard, then expand and integrate to other ecosystems such as BNB, Polygon…
Therefore, this is also one of the reasons Ethereum easily attracts developers to the ecosystem. From there, developers only need to focus on the business model, the idea of the project, the implementation of their main business without much care about the storage infrastructure, the readiness of the data, etc.
In addition, Layer 2 is also one of the interesting potential pieces of Ethereum to increase competition with other ecosystems.
Ethereum is the leading ecosystem in the DeFi space with countless innovations such as AMM, decentralized lending, P2E games, etc. Most of the leading Blockchain projects are developed, built and tested on Ethereum before expanding to other chains.
The Ethereum network still has many problems, especially in terms of transaction speed, scalability and gas fees. With a large ecosystem of over 3000 active DApps, speed constraints will still likely be a major challenge for any Layer 1 blockchains, especially when the ecosystem has as many development projects as on Ethereum.
Considering its leading position in the crypto market, Ethereum will still be the place where many blue-chips and new trends in the crypto market will happen first. However, Ethereum needs to evolve quickly to fix the network problems before their users leave and find better opportunities in new blockchains.