Cryptocurrency Annual Report 2020: Ethereum Dominance Surpasses Bitcoin, DeFi Tokens Return 3,000%
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founder note
DeFi analysis Bitcoin analysis DeFi analysis exchange
Founder's note:
"2020 is an exciting year for all of us working in the crypto industry."
Either ten years a day, or a thousand miles a day. 2020 is full of decisive events that change the course of the world. With the COVID-19 pandemic forcing many people to adapt digitally, we believe that the vision of global tokenization will come true sooner or later.
2020 is an exciting year for all of us working in the crypto industry. From Black Thursday in March to the hotness of DeFi, and finally to the strong bull market at the end of the year, we have seen too many price reactions. 2021 promises to continue to be an exciting year as Bitcoin has breached its all-time high from three years ago.
In 2020, DeFi has become the biggest winner in the encryption field. The market has witnessed a series of financial innovations brought about by the blockchain, which have spawned a variety of primitives, such as flash loans, automated market makers, liquidity mining, and algorithmic stablecoins. Financial experimentation has never been carried out with such flexibility, and it is exhilarating to be at the forefront of such groundbreaking innovation.
We've also seen an inflow of institutional money. Microstrategy and Square holding bitcoin as part of their corporate funds may well be the start of a larger trend of big corporations (and hopefully governments) buying bitcoin. With the help of easier monetary policy and increased availability of crypto assets, we are optimistic that there will be more developments in the crypto market.
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Market structure
2020 has been a huge turning point for the cryptocurrency market, with the market capitalization of the top 30 cryptocurrencies increasing by 308% ($552 billion), outpacing 2019’s 62% ($68 billion) growth. In terms of spot trading volumes, growth in 2020 has slowed compared to 2019 (126% vs. 627%).
The backing of prominent investors Paul Tudor Jones and Stanley Druckenmiller and the participation in Bitcoin of large public companies MicroStrategy and Square have boosted confidence in the crypto market , and pushed the market capitalization to an all-time high of $732 billion.
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**Polkadot (DOT) will only start trading on August 19, 2020
ETH has performed well this year, growing 472% (2019 growth -2%), outperforming the other top five cryptocurrencies in 2020. It was followed by Bitcoin, which gained 303% (up 95% in 2019), breaking its December 2020 all-time high. Launched in August 2020, DOT quickly became one of the top five cryptocurrencies with a growth rate of 219%. Secondly, LTC will increase by 214% in 2020 (38% in 2019), and Ripple will increase by 14% in 2020 (-45% in 2019).
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*Others (8-30) refer to the 8th-30th cryptocurrencies with the highest market value on CoinGecko as of January 1, 2021
Despite Bitcoin's late 2020 rally, its dominance only edged up by 0.9% to 73.7%. Ethereum is the real star of 2020, with its market dominance climbing between 3.6% and 11.5%. XRP was the biggest loser, falling between 3.3% and 1.4%, mainly because the SEC accused Ripple of conducting an unregistered securities offering. This led to many exchanges delisting XRP such as Coinbase and Bitstamp.
4. Top 5 stablecoins in 2020: Circulation increased by 439% to $27 billion
Steady growth in 2020. USDT is still the dominant stablecoin market with a market share of over 76%. Due to the boom of DeFi in 2020, DAI hit the highest growth rate with a growth rate of 2698%. The growth of stablecoins in 2020 exceeded the growth of the previous year (439% vs. 107%) due to strong demand from market makers to adopt stablecoins for transactions and cross-border trade settlements.
5. Major events outside of DeFi in 2020: There is never a dull moment in the crypto market
2020 has been an eventful year, as a pandemic earlier this year caused crypto prices to plummet during a liquidity crunch in March. On March 12, 2020, Bitcoin fell by nearly 50% in one day.
Bitcoin experienced its third halving in May 2020, and the halving event prompted a recovery in Bitcoin prices throughout the year. On August 18, Polkadot tokens were launched; on November 30, Bitcoin surpassed its 2017 all-time high. On December 1, ETH 2.0 released phase 0; on December 22, XRP was sued by the SEC.
With the arrest of BitMEX co-founder Samuel Reed, U.S. authorities have also begun to focus on regulating the crypto industry, with the U.S. Securities and Exchange Commission (SEC) taking action against Ripple.
Bitcoin analysis
Bitcoin analysis
Nearly 3 years later, Bitcoin has finally surpassed its 2017 all-time high and set new records almost every day towards the end of 2020. Bitcoin closed the year at $29,022, 48 percent higher than the same period in 2017.
2020 got off to a rough start, with Bitcoin falling nearly 50% intraday on March 12 under the impact of COVID-19. However, the pandemic has also created economic uncertainty that could prompt investors to diversify. Bitcoin is widely regarded as one of the assets that can hedge against dollar depreciation and inflation. Institutional adoption of Bitcoin has boosted market sentiment, resulting in Bitcoin’s year-end return of 303%.
2. Bitcoin price cycle: Will the 2020-2021 cycle mimic the trajectory of 2016-2017?
From 2016 to 2017, the price of Bitcoin exploded, with the highest return rate of 4527%. And in 2020-2021, Bitcoin more than doubled in the first year compared to the previous cycle (303% vs. 130%). What will happen this cycle?
Bitcoin is currently on an upward trajectory, and there are three underlying drivers:
1) Ease of Access — With Buying and Selling Cryptocurrency Easier Now PayPal and Revolution offer cryptocurrency services.
2) Stimulus and inflation - Due to the COVID19 pandemic, most central banks have adopted loose monetary policies, raising concerns about future inflation.
3) Institutional Adoption - Large public companies such as MicroStrategy and Square have started using Bitcoin as part of their corporate funding.
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*The 2020 bottom yield refers to the price yield from the lowest price in 2020 to the closing price on December 31, 2020
BTC has achieved triple-digit yields (303%) and substantially outperformed all major asset classes in 2020. During the liquidity crunch in March, BTC saw the second-highest decline (-35%). However, Bitcoin has returned 473% from its nadir this year, thanks to institutional adoption and the Federal Reserve’s aggressive stimulus strategy.
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*Data sources are from finance.yahoo.com and CoinGecko
Bitcoin and gold have shown a positive correlation throughout 2020, indicating their status as safe-haven assets in a volatile market in 2020.
There is a negative correlation between Bitcoin and U.S. stocks, suggesting that they are decoupling throughout 2020. Increased demand from new Bitcoin institutional investors could contribute to the divergence of Bitcoin price action from the stock market.
Given that BTC has a negative correlation with the U.S. dollar index over a 12-month period, BTC can be used as part of a portfolio that hedges against a fall in the value of the U.S. dollar and inflation.
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DeFi analysishttps://www.investopedia.com/top-10-s-and-p-500-stocks-by-index-weight-4843111
DeFi analysis
*Data from January 1, 2021, Coingecko.com
In 2020, the crypto industry has witnessed the rapid rise of the DeFi field, especially during the "DeFi summer" (June-August), when DeFi's dominance (the ratio of DeFi market capitalization/global market capitalization) rose rapidly from 0.9% to 4.6% . The market value of DeFi doubled 12 times during the peak period, reaching 19.6 billion US dollars. If Bitcoin’s dominance declines, a new DeFi boom may be just around the corner.
2. 2020 DeFi price return: The positive return rate of DeFi tokens is as high as nearly 3000%
Overall, DeFi tokens will achieve positive returns throughout 2020, with the average price return of DeFi tokens reaching 718%, with YFI and UMA leading the way with growth rates of 2788% and 2422%, respectively. It is worth noting that 6 of the top 10 DeFi tokens in 2020 are new entrants (YFI, UMA, COMP, AAVE, UNI, and SUSHI). Most DeFi tokens saw their biggest daily drop average 37%, while MKR had the worst biggest daily drop in 2020 at nearly 60%.
3. Brief description of the DeFi ecosystem: Facts have proved that data services are more valuable than exchanges and lending
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**The chart above shows the 3 category leaders by market capitalization for each industry - there may be more than 3 in each industry.
The heavyweights are the infrastructure-related protocols that power the flow of data in the ecosystem. They are followed by money market-related services such as decentralized exchanges and lending platforms. Notably, with the advent of the liquidity mining model, decentralized exchanges (DEXs) have seen rapid adoption.
Note from OKEx Intelligence Bureau: FDV, short for Fully-Diluted Value, refers to the market value of all tokens in the total supply of digital assets after they are issued.
4. Brief description of the DeFi ecosystem: complex DeFi protocols are struggling to be adopted
Across the ecosystem, derivatives platforms remain underutilized by the wider community. Yield mining providers have gained popularity, but have struggled to capture significant market share after the boom, likely due to unsustainably high yields and over-mining. Another notable new entrant is algorithmic stablecoins, emerging as a new DeFi element, though its sustainability has yet to be proven.
5. Brief description of the DeFi ecosystem: Compared with traditional finance, the risk mitigation of DeFi is still in its infancy
As risk management tools, insurance, fixed interest rates, and ETFs are huge in traditional finance but have yet to gain any significant traction in DeFi. This shows that DeFi users either have a very high risk appetite, or these risk management tools are not yet mature.
Note from the OKEx Intelligence Bureau: Risk Mitigation, or risk mitigation, refers to reducing the frequency or impact of risks through risk control measures.
6. Major DeFi events in 2020: DeFi Summer has successfully occupied an important share in the encryption field
DeFi as an industry boomed in the summer of 2020, giving birth to multi-billion dollar protocols such as Uniswap, Curve, Compound, Aave, Synthetix, and deargen Finance. This further strengthens Ethereum’s position as the leading smart contract platform. Following Chainlink, Graph Protocol took advantage of the DeFi season to make its debut as one of the core infrastructures for DeFi applications.
On January 3rd, Curve was released; on January 8th, Aave changed its name from ETHLend; on March 23rd, Uni V2 was released; on June 15th, Compound launched liquidity mining, which opened the summer of DeFi; on June 23rd, Ampleforth Started liquidity mining. As the first token to reprice, its market capitalization peaked at $688 million. On July 17, Yearn Finance was successfully launched; on August 13, CRV tokens were issued; on August 16, Sushiswp was launched, drawing liquidity from Uniswap; on September 1, the Empty Set Dollar (ESD) project was launched, Ignite the excitement of the algorithmic stable currency; on the 16th, the UNI token airdrop became the largest user retroactive reward. On October 7th, the first tokenized DeFi index DPI (DeFi Pulse Index) was launched; on December 3rd, Aave V2 was released; on December 22nd, Graph Protocol was launched; on December 25th, 1inch airdrop.
7. DeFi protocol development in 2020: The DeFi ecosystem lost a total of $121 million to hackers
In 2020, losses totaled $121 million in some major DeFi hacks. The largest DeFi hack occurred on Harvest Finance, losing $34 million. Meanwhile, bZx suffered 3 hacks in 2020 alone, with losses totaling $9 million. The immutability of smart contracts is a double-edged sword with little recourse. It is best for users to understand the risks when interacting with DeFi protocols and purchase insurance where possible.
8. Fixed Interest Rate Agreement (FIRP): To meet the demand for stable and reliable interest rates
With the popularity of liquidity mining and the increase in borrowing volume, the demand for stable and reliable interest rates is also growing. In Q4 2020, the market gap led to a boom in a new class of agreements called Fixed Interest Rate Protocols (FIRPs).
Compared to the fixed rates that come in the form of term deposits (or bonds) in traditional finance, FIRPs take full advantage of their underlying monetary structure and offer different incentives to maintain rates. Coupled with the application of smart contract technology, FIRP is able to efficiently transfer capital and deploy assets, which translates into variable (albeit higher) returns. This means that some FIRPs either offer a "fixed rate" or a "fixed interest yield". In addition, there are FIRPS that do not offer fixed rates at all, but instead create an environment that favors fixed rates.
FIRPs use a variety of different methods to provide "fixed interest rates": such as 88mph, YIELD, Notional, etc. are based on bonds, issuing bonds to finance debt; Horizon is based on game theory, and users compete to bid to maximize returns; Saffron Finance, BarnBridge are based on different Share, the user's income is based on his risk preference.
9. Algorithmic stablecoins: DeFi’s innovative form of non-collateralized stablecoins
The innovation of stablecoins has led to more and more types of stablecoins. The current stablecoins in the DeFi field are mainly divided into legally mortgaged stablecoins, over-collateralized stablecoins, and algorithmic stablecoins.
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exchange
1. Top 9 cryptocurrency exchanges: CEX and DEX trading volume increased by $403 billion in 2020
In 2020, the trading volume of the top 9 centralized and decentralized exchanges increased by $403 billion to $534 billion, an increase of 307%. This explosive growth was largely driven by centralized exchanges, which accounted for 93% of the annual growth.
However, DEXs have grown exponentially over the year by 17,989%, from $163 million in January to $29 billion in December. Despite this, decentralized exchanges still lag behind centralized exchanges. In 2020, the top nine DEX-CEX ratios rose steadily from 0.12% in January to 10.74% in September, before dropping to 5.53% in December.
2. Top 9 DEXs: Uniswap maintains its leading position, Kyber and dYdX’s market share is eroded by new entrants
In 2020, DEX trading volume increased at an astonishing 180 times from $163 million to $29 billion in December. Uniswap maintained its lead throughout 2020, becoming the largest contributor to trading volume in December with $16 billion (55% dominance). However, the shares of Kyber and dYdX dropped significantly (-42% and -15%). Overall, the DEX market is now more competitive thanks to new entrants such as Curve, Sushiswap, 0x, and Balancer.
3. Derivatives exchanges: Bitcoin perpetual swap volume hits a staggering $3.5 trillion in 2020
Bitcoin perpetual swap volume on the top 9 derivatives exchanges grew from $140 billion in January to $744 billion in December, a 531% increase in 2020. In November and December 2020, Bitcoin trading volume surged, at the same time that Bitcoin just broke its all-time high (ATH) for the first time in 3 years.
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*Data source: CoinGecko. Open Interest Measured Against Bitcoin Perpetual Swaps on Top 9 Exchanges
On March 12, 2020, when Bitcoin fell from $8,000 to $5,000 in one day, more than 50% of open interest was wiped out, suggesting that market participants may be overextended on long positions.
In 2020, the market sentiment is generally optimistic-open interest usually does not fall sharply after the consecutive rise in Bitcoin price in July, which indicates that market participants generally hold long positions.
Bitcoin price drops in early September and late November appeared to repeatedly wipe out over-leveraged long positions, reducing open interest by 10%–30%.
