Analysis: The growth of the Ethereum network is mainly driven by stablecoins, and the market value of stablecoins may exceed Ethereum
Editor's Note: This article comes fromBabbitt Information (ID: bitcoin8btc)Editor's Note: This article comes from
Babbitt Information (ID: bitcoin8btc)
Babbitt Information (ID: bitcoin8btc)
Since March’s Black Thursday crash, the cryptocurrency’s price has been trading sideways lately despite a recovery in the market that has little to do with Ethereum 2.0 getting closer. While the community has speculated on many reasons, researcher Joel John recently highlighted the "Fat protocol thesis" surrounding ETH, the world's second-largest cryptocurrency, to understand the benefits of using Tether and DeFi. The impact of the application layer on its price.
Fat protocol theory holds that in the Internet technology stack, protocols can create enormous value, but almost all of this value can be captured by web applications based on it. However, for the blockchain, these agreements not only create value, but also capture most of the value, so they are called "fat". The common perception of ecosystems is that investing in layer technologies will create more value than investing in applications. However, according to an excerpt from Joel Monegro's blog about fat protocols,
“As success at the application layer drives further growth at the protocol layer, the protocol’s market capitalization always grows faster than the combined value based on top-layer applications.”
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In July 2019, the issuance of the stablecoin Tether (USDT) transitioned from the Bitcoin network to the Ethereum network, causing the price of Ethereum to rise instantly.
Not really, as there are multiple factors that affect the price of Ethereum. However, there is evidence that stablecoin dominance growth has contributed more to Ethereum than its own cryptocurrency, ETH.
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Source: Santiment Insights
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Tether’s issuance has surged over the past few months, which has also helped close the gap between the stablecoin’s total market capitalization and Ethereum’s. The heavy use of Tether on Ethereum may drive up the price due to the logic of token issuance in line with consumer demand, which in turn means more transactions and thus increases the demand for gas. Tether already accounts for the highest amount of gas burned on ethereum, but that hasn't translated into higher prices, with researchers suggesting that ETH's price may not be able to keep up with the newfound demand.
Also, even though DeFI has been established as a new segment, the price volatility is not exciting enough, or the market has not yet realized the impact.
Second, the monetary factors of Ethereum have changed since Tether was issued on the Ethereum blockchain. According to his research, users mainly hold and release large amounts of stablecoins, rather than ETH, and this shift occurred after Ethereum became the main issuance platform for Tether.
Source: Santiment Insights
ETH has been used as an enabler for stablecoin transactions and settlements, so retail users have switched to the base layer asset ETH. However, the appeal in terms of applications remains strong for now.
If we consider the number of active addresses, stablecoins will grow from just 10% to 40% of the total number of active Ethereum addresses. This shows that the growth of Ethereum is mainly driven by stablecoins. If other utility networks do not enter the market anytime soon, DeFi applications may only increase ETH usage, according to the researchers.
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