Starting with Gas analysis, delve into the development history of Ethereum and DeFi protocols
Translated by: Lu Jiangfei
Translated by: Lu Jiangfei
In July 2015, Ethereum was officially launched. Over the past few years, the Ethereum-based decentralized application (dApps) ecosystem has seen amazing growth, such as:
0x’s first OTC market launched in 2017;
Uniswap was launched for the first time in November 2018 to complete the deployment;
Yearn Finance has carefully planned an airdrop event that has attracted much attention in the industry in 2020.
Decentralized finance (DeFi) has become an ongoing industry whose growth, in retrospect, seems inevitable.
Like other economies with competing products, many decentralized financial agreements have experienced ups and downs, some reached their peak in a short period of time, and others fell quickly. But in the process, the DeFi protocol has never given up on innovation, and it is precisely because of this that the DeFi market structure we see today has been formed. The history of DeFi may be subjective, but the Ethereum blockchain is not. In this research article, we will tell the story of Ethereum through data, while analyzing the development status of such protocols. The figure below shows the change trend of the total gas cost we have drawn on the Ethereum blockchain. The time range is from 2018 to the present, and it is summarized in four weeks as a time span. The data source is Metabase.
As can be seen from the graph above, the Ethereum blockchain activity was fairly quiet between 2018 and 2019, with the total gas spent barely exceeding 40,000 ETH per month. However, starting from 2020, the activity of the Ethereum blockchain began to rise, and the gas fee expenditure showed a parabolic growth. In September 2020, the total gas fee expenditure of Ethereum reached a peak of 650,000 ETH in 4 weeks, and the ETH price was only 400 ETH at that time. Dollars - time really flies!
By analyzing the proportion of gas fees spent by various DeFi protocol entities in total, perhaps we can have a closer understanding of the relevant data. In this article, we want to look at the proportion of the top thirty protocol entities by gas spend over time in the aggregated historical data.
Frankly speaking, the gas fee paid by DeFi protocol depends on many factors, such as:
How many users interact with the smart contract;
the computational intensity required to execute the function;
The overall price of gas on the Ethereum blockchain at that time.
Before we dive in, it is important to note that the Ethereum market landscape was very different in 2018-2019, many of the smart contracts that were very active at the time are no longer in use today, we can see the rankings for the 2018-2019 period in the chart below The top 30 gas consumption entities, the data source is Metabase.
In addition to entities, we also aggregate the total gas fees spent by token contracts, which account for roughly 10% of Ethereum activity. In 2018, many of the token contracts were Ponzi schemes and gambling games, a significant portion of which came from China. For example, LastWinner is a typical example. The protocol is based on a very simple mechanism: users deposit ETH into the contract until a certain ETH upper limit is reached. Once it is reached, the last person to deposit ETH will win all ETH. You can see Activity to this protocol on Ethereum peaked in mid-2018.
The following picture is more interesting, which shows the relative proportion of gas spent by the top 30 entities since 2018, and the data comes from Metabase.
The numbers tell an interesting story year after year, so let's start with 2018.
2018: The seeds of decentralization
0x removes the "middleman" role. Many people think that Uniswap is the first decentralized exchange. In fact, it is not. The history of trustless token exchange using smart contracts can be traced back farther. The earliest DEX model was born in 2017. They initially hoped to imitate the order book model of the centralized cryptocurrency exchange, but the result was that it could not be used in practice because of the large amount of calculation and slow speed. However, in July 2017, 0x deployed a solution based on on-chain transaction settlement - 0x OTC. When people trade in the OTC market, there are usually two problems:
Price discovery happens only between two parties;
No guaranteed offer negotiation takes place (one party can withdraw at any time, but in the open market, orders placed by one party can be accepted immediately).
Users can post orders on off-chain platforms such as Twitter and other social media, and then settle on the chain through 0x-in 2018, the average daily transaction volume of 0x has reached 4 million US dollars.
Next up is Bancor. In August 2018, Bancor mentioned the idea of building an automated market maker in a blog post, aiming to revolutionize order book-based style trading markets, they paired all tokens with BNT, and this practice continues to this day . In contrast, we can see various matching trading pairs on the Uniswap platform.
Additionally, Kyber has left its mark on the history of decentralized exchanges. In essence, Kyber hopes to enable all parties to obtain and contribute liquidity in a decentralized manner, but it is not a decentralized exchange itself, but focuses on aggregating liquidity from various sources of capital pools - including decentralized Centralized exchanges and centralized market makers. We can think of Kyber as a general-purpose Uniswap router, and liquidity from all parties can be utilized by entities such as payment networks, which was extremely groundbreaking at the time.
2019: The New Financial Economy
In 2019, Chainlink has grown into a key part of the DeFi field. In 2017, Chainlink debuted an oracle to securely connect external off-chain data to Ethereum smart contracts. People don’t realize the importance of oracles for synthetic assets and margin products – BZx uses Chainlink oracles for its margin trading platform, and Synthetix also integrates with Chainlink to provide price feeds for real-world assets. May 2019, Blockchain MediaDecryptIt even published a list of DeFi protocols that have integrated with Chainlink.
Another oracle service to watch is Tellor, which briefly saw a spike in usage in October 2019.
Chainlink's share of Ethereum gas fees has remained above 4% until 2021, making it a real big winner.
After the oracle, some advanced DeFi trading functions began to take root. For example, Dydx, a managed lending trading platform, launched a margin trading function in 2019. This function has a stylish user interface and can achieve leverage up to 4 times. It can almost achieve the same level as CEX Similar user experience.
In addition, Synthetix also found its own niche market in 2019. Today, few people know that Synthetix was originally called Havven. In fact, this synthetic asset protocol was originally designed as a stable currency protocol similar to Maker. From the gas consumption chart, we can see that Maker has been in a dominant position for many years. Synthetix is committed to creating a market for synthetic encryption and inverse value assets. In July 2019, Synthetix's transaction volume has reached 60 million US dollars.
Market interest in Compound also started to increase - in May 2019, Compound V2 was launched with a new look. Over the years, Compound's currency market has changed little, but its stable gas fee throughput (1.5-5%) has proved that Compound's design is very successful. Not surprisingly, the gas fees incurred by lending and borrowing DeFi protocols have been lower than those of DEXs for many years
2020: More "champions" emerge
In 2020, Uniswap began to dominate the automated market maker (AMM) market. Uniswap was actually launched as early as November 2018, but it was not until February 2019 that its transaction volume officially surpassed Bancor. While both DEXs are based on a 50/50 reserve model, Uniswap is designed to be more efficient and user-friendly. Not only that, but Uniswap's design also supports permission-free cryptographic asset listings, enabling it to build huge composability with the larger DeFi ecosystem. In 2019, a blog post widely circulated in the industry analyzed Uniswap in this way——
Our tokens had been listed on Bancor for several months before we switched to Uniswap. The process of listing tokens on Bancor requires us to contact and work with the Bancor team, then ETH and an equivalent amount of tokens must be transferred to an address provided by the Bancor team. The Bancor team also asked us to transfer no less than $60,000 worth of ETH to provide liquidity during the setup process. From when we decided to list to when our token appeared on the Bancor website, the whole process took a day or two, with back and forth communication with the Bancor team. In contrast, the process of creating a Uniswap contract is like filling out a short form, and you can easily do it with the click of a button. The process of adding liquidity to a contract on Uniswap is equally simple. The process only takes a minute or two. We don't need to contact the Uniswap team at all, and they don't ask to add any liquidity to the contract.
In 2020, 1inch's entry into the decentralized market feels like a thunderbolt, it may have been the fastest growing DeFi protocol last year, but it didn't complete an early seed round until August 2020, and it took only a short time It took 6% of the gas market in 3 months. 1inch mainly provides decentralized exchange aggregation services, by analyzing various liquidity pools to split and route orders to find the most cost-effective transactions. 1inch airdropped to users at the end of 2020, and accounted for 10% of gas fees in December.
Over the last year, Forsage activity has exploded and exploded in popularity. This is really a strange phenomenon, because in order to use Forsage, users must pay ETH to the platform. In addition, if users recommend the Forsage platform to others, they can get ETH token incentives. From this perspective, the project may seem like a pyramid scheme scam, but they still operate to this day.
In 2020, there will be almost no DeFi user who has not heard of Yearn. The history of Ethereum wouldn’t be complete without the highlight of Yearn Finance’s YFI airdrop — the “worthless governance token” whose price increased 35x in just seven days. Since 2020, Yearn has been at the forefront of DeFi, and the structure and shape of its growth has also pointed the way for other newly created DeFi protocols today.
2021 and beyond
Tether and Center account for a large percentage of activity on the Ethereum blockchain — they account for almost 12% of total gas fees today. Tether and Center are like the best "proxy" that can be used to transfer the amount of assets in and out of Ethereum, because the gas is used to mint and destroy the USDT and USDC stablecoins.
On the other hand, Wrapped Ether contracts are still widely used and have gradually become the backbone of Ethereum DeFi. For now, WETH is a very revolutionary idea, this tokenized ETH can be used as collateral, means of exchange, and a pricing benchmark for other tokens. WETH is a typical strength of DeFi Lego building blocks. It meets the needs of the broad market and has been widely used at present, and its price is quite stable. No, they are not governance tokens!
In fact, a living ecosystem of ethereum products has formed: a series of token swap protocols now have their fair share on the ethereum blockchain — although Uniswap still dominates. Today, Nansen alone tracks at least 94 DEX protocols — each with its own “quirks” and value propositions. These protocols have deployed more than 2.8 million contracts since the beginning of 2021. Also, as far as ERC-2 contracts are concerned, about 198,000 have been deployed to date.
Each of us is "contributing" to Ethereum, and every token exchange, pledge, deposit, withdrawal, and minting you make is recorded on the Ethereum blockchain. Each of us is a participant in the Ethereum forest, helping this forest continue to survive, grow, adapt and prosper. So, where do you think Ethereum should go next?
