The so-called Ethereum killers never arrived. The network thrives as ERC-20 tokens approach Ethereum’s capitalization. Other smart contract platforms are not even close to Ethereum in terms of relative activity.
Coin Metrics employed an analysis developed by Chris Burniske of Placeholder, a New York-based venture capital partnership, to measure the health of the Ethereum network. The metric compares the market capitalization of Ether to that of all the tokens launched on the network. This network value to the token value ratio evaluates the health of Ethereum’s token ecosystem.
A value of one indicates that Ether’s market cap and the aggregated market capitalization of the tokens it hosts are equivalent. That implies a healthy, possibly undervalued smart contract platform. Coin Metrics found that the ratio has declined significantly since Q2 2017 from just under 35 to 1.9.
What Caused the Fall?
ERC-20 tokens blossomed during the ICO frenzy of 2017. Most of those were utility tokens that enjoyed explosive initial price growth before rapidly descending — though Ether followed a similar trajectory. ICOs generally accepted ETH or BTC in return for their tokens, placing demand pressure on the platform’s native token.
Ether went through the same crypto winter endured by the whole market — perhaps exacerbated by ICO projects selling out of Ether into fiat to fund their activities.
According to Coin Metrics, stablecoins were responsible for the majority of the growth in non-native token value since mid-2018. Their capitalization rose from $109 million to more than $2.8 billion in that year-and-a-half period — going from one to 28 percent of the entire ERC-20 ecosystem.
In contrast, utility tokens fell by almost $2 billion, from 70 to less than 50 percent of the ERC-20 market capitalization. Exchange tokens remained fairly steady, representing about a quarter of the value of ERC-20 tokens.
Meanwhile, ETH Hasn’t Fared so Well
The growing health of Ethereum-hosted tokens only paints half the picture. Since mid-2018, stablecoin growth and a dwindling ETH price have combined to lower the relative value ratio to where it currently stands. On Jul. 1, 2018, Ether’s capitalization was just under $50 billion. Now it is around $20 billion.
The ERC-20 market essentially remained stable. Its makeup swayed with the growing relative importance of stablecoins, but its total value of approximately $10 billion increased only slightly over the period.
According to Coinmarketcap, Tether remains the dominant stablecoin at a market capitalization of over $4 billion. That is ten times the market cap of the second-largest ERC-20 stablecoin, USDC.
Tether could propel an even lower network value to the token value ratio. Tether is built on a number of protocols. The most important are Omni and Ethereum. As Coin Metrics noted, “Over the last several months, usage has been shifting from the Omni-based version to the Ethereum-based version of Tether.” If that trend continues, Tether will play an increasingly significant role in the aggregate value of the tokens hosted by the Ethereum platform.
How Are the Ethereum Killers Faring?
Burniske compared the network-to-token value ratios of ETH, EOS, XLM, WAVES, and NEO.
He found that activity on the Ethereum, WAVES, and NEO platforms was quite healthy with ratios under 10. On the other hand, EOS has a ratio of more than 200 — far higher than Ethereum. Burniske suggested that at least one of the assets is priced inadequately compared to its token hosting utility:
5/ As with PE or PS ratios in stocks, the higher the value of the #NVTVratio, the more richly (speculatively) the market is pricing the asset.
Or, $EOS+friends = massively overvalued
— Chris Burniske (@cburniske) July 24, 2019
The graph illustrates that despite its own ups and downs, the Ethereum network remains a healthy platform for token activity. Crypto investors would be wise to stay alert to this metric. At current prices, Ether could be significantly undervalued.
Ethereum DeFi Breaks Records in June, However, Other Categories Are Suffering
Results for the second quarter of 2020 show tremendous growth for decentralized applications across all ecosystems, primarily spearheaded by Ethereum (ETH) decentralized finance, or DeFi. Decentralized exchanges were at the frontlines of the rise as Compound token mining activity trickled down to on-chain swapping solutions. According to Our Network, Curve was one of the biggest beneficiaries of yield farming as it helped users switch between different stablecoins to maximize yield.
Curve is an automated money market that only supports swaps between different types of stablecoins and wrapped tokens. This limitation allows Curve to provide competitive slippage and fees for exchanging assets. Deposits on Curve rose almost three-fold in June, while daily volume reached peaks of $60 million — 30 times more than its previous average. Demand for USDT pairs was the highest, capturing more than 58.5% of the total volume. This is due to USDT having one of the most significant COMP yields for an extended period of time. Uniswap also benefited from the COMP craze, with monthly volume doubling in June. Kyber and 0x had more modest performances: despite posting fresh monthly highs, the project’s growth was in line with the rest of the year.
According to DappRadar’s Q2 report, the dominance of DeFi indirectly led to the decline of gaming activity. Over $8 billion was transacted on DeFi platforms in Q2, which led to gas prices soaring exponentially. Ethereum’s vibrant gaming DApp ecosystem suffered as fees came to represent a significant portion of each transaction. DappRadar reported a staggering 79% decline of gaming-related activity on-chain over the previous quarter.
EOS appears to be the main recipient of Ethereum’s loss as its gaming transaction volume rose by about 80% since the previous quarter. While this is positive news for the platform, it still hasn’t fully recovered from the damage caused by the EIDOS airdrop in late 2019. Volumes remain well below the highs of Q2 2019. Finally, Tron (TRX) saw growth in its DeFi ecosystem after porting several Ethereum projects on its chain. In addition to the previously-launched clone of Single Collateral Dai, a platform named Oikos.cash recreated both Synthetix and Uniswap on Tron. Nevertheless, total volume for all Q2 is just $15 million. The majority of Tron’s activity remains in the gambling and “high-risk” categories.
South Korean Pyramid Scheme Defrauds Investors
South Korean authorities are investigating a complaint filed by 950 investors who claim to be victims of a crypto-related ponzi scheme. According to TV Chosun, police are looking into reports that over 160 individuals are believed to have operated the alleged scam, known as Futurenet. The Futurenet team is also suspected of stealing almost 20 billion won ($16.66 million) from investors and transferring the money via cryptocurrency.
Victims state that they were tricked by buying an “advertising pack” initially using crypto. No ads were ever acquired as a result of the purchase. A police officer from the Seoul Seocho Police Station says that the investigation “is still in the early stages,” so no further details are known about the structure or the cryptocurrencies involved. No arrests have been conducted as of press time. In recent weeks, the Seoul Metropolitan Police Agency launched a criminal investigation on June 12 that led to the search and seizure of two unnamed cryptocurrency exchanges. These efforts were enacted with the hope of dismantling an Ethereum (ETH) crime ring worth $41.5M.
Billionaire Chimes In On What A BTC Price Increase Would Mean
Chamath Palihapitiya, the billionaire CEO of Social Capital and Virgin Galactic Chairman, has called Bitcoin a type of disaster insurance against governments making bad financial decisions. In an interview with Unchained Podcast on June 23, Palihapitiya said hard-working people need something like Bitcoin as insurance, as the cryptocurrency is “really fundamentally uncorrelated” to the consequences of legislators behaving badly.
However, the CEO pointed out that for the Bitcoin price to skyrocket at this point, things would have to go terribly wrong in the financial system, with disastrous impacts on your friends and family. “If your Bitcoin bet pays off,” Palihapitiya said, “it will be cataclysmically destructive for the world. And that’ll have enormous consequences to many people we all know and care about who weren’t hedged in Bitcoin. And so you almost don’t want it to happen.”
Palihapitiya himself invested in 2010, by buying one million Bitcoin for $80, whose value reached the billions when the token had its all-time high in December 2017. No wonder the billionaire claims that Bitcoin (BTC), unlike “second- and third-tier” cryptocurrencies like Ethereum (ETH), is one of the few ways to get a “massive asymmetric payoff” from such a small investment. “You want to be sure that a small amount of insurance can basically make you whole,” Palihapitiya said, citing a $1,000 payoff for a $1 investment as a good example. “That’s why I just think that, you know, you should take 1% of your portfolio, put it in Bitcoin.”
“At the end of the day, any other asset class — equities, debt, real estate, commodities — they’re all tightly, tightly coupled to a legislative framework and an interconnectedness in the financial markets that brings together many of the governments that are sort of behaving this way.”
The billionaire has also speculated the value of Bitcoin in the future could reach millions of dollars, or drop to zero.
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