"If Anyone Were to Question the Utility of Ethereum – Simply Point Them to This Chart"
The Flippening Series Part 2 shows complex ETH transactions growing faster than simple transfers. Also, MakerDAO hands over MKR control to community, Balancer Labs raises $3m in seed round, and mor
Hello Defiers! Lots going on in decentralized finance today:
The Flippening Series Part 2, with Ganesh Swami of Covalent: Complex Ethereum transactions on track to overtake simple transfers
MakerDAO makes radical governance move
Uma’s “priceless” token
Balancer Labs’ $3 million seed round
DeFi Saver’s MakerDAO auctions dashboard
Coinbase Wallet integrates DeFi to mobile app
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The Flippening Series Part 2
Complex Ethereum Transactions on Track to Overtake Simple Transfers
By Ganesh Swami, Co-founder of Covalent.
Exclusive for The Defiant
In my previous op-ed, I wrote about how “The Flippening” in crypto usually refers to the staged rivalry between Bitcoin and Ethereum. Specifically, the switch between market capitalizations of Bitcoin and Ethereum.
And I also wrote about why believers like myself don’t care for this narrative. We are here for Ethereum —and Ethereum is different from Bitcoin.
In this post, we will use data analysis to study the flippening that matters – how fast is Ethereum diverging from Bitcoin from a use-case and traction perspective.
If the first generation of blockchains like Bitcoin support the payments use-case (simple token transfers), second generation blockchains like Ethereum are about smart contracts.
To frame the question for our analysis: how fast are the transactions with smart contract executions growing relative to transactions with simple token transfers? We will further split transfers into ETH transfers versus ERC20 transfers because that closely resembles a multi-asset blockchain like Ethereum versus a single-asset blockchain like Bitcoin. It’s helpful to have that additional layer of insight.
A good proxy for identifying smart contract executions is the gas consumed per-transaction. Complicated transactions that we see in DeFi consume more gas compared to simple ETH or ERC20 transfers.
In summary, our analysis action-plan is to break down this analysis into three sub-questions over time:
Gas costs of ETH transfer transactions
Gas costs of purely ERC20 transfer transactions
Gas costs of all other transactions that are more complicated
As you can see each question progressively uncovers the traction of Ethereum towards the universal smart contract platform.
We used Covalent’s data to sum up the gas consumed for each transaction type aggregated monthly for all transactions on Ethereum from the Genesis block to March 25, or roughly 665 million transactions.
A few notable observations:
Purely ETH transfers dominate this chart. Perhaps ETH is money after all?
You can clearly see the ICO pump, wherein most funding events happened as ERC20 token transfer transactions. This is towards the latter half of 2017.
There seems to be a natural ceiling to the total gas consumed across all types of transactions which points to the intense demand for block space on Ethereum and a lack of scalability. In an ideal scalable world, all types of transactions have room to grow. But on Ethereum today, for one kind of transaction to grow, it has to cannibalize the others.
Our second chart converts the above data into a proportional area chart, which highlights each transaction type’s contribution to the whole.
Our focus is on complex transactions beyond simple ETH and ERC20 transfers.
The answer is clear – there’s a continually increasing number of transactions that are of the more complex kind (green area). If anyone were to question the utility of Ethereum – simply point them to this chart.
Where’s this utility coming from? In 2019, it was clearly DeFi. In 2020, I think it’ll come from DAOs, games (broadly NFT use-cases) and perhaps security tokens.
This is the flippening that matters.
Can’t wait for the green area to consume the majority of the transactions on this chart.
In part 3, we take a look at another kind of flippening that matters. Stay tuned.
MakerDAO’s Latest Move is Unthinkable in Traditional Finance and Rarely Seen in DeFi
MakerDAO’s Maker Foundation has transferred control of the MKR token to token holders as it seeks to increasingly cede decision-making to the broader community and become a fully self-sustaining decentralized, autonomous organization (DAO).
Uma Designs Priceless Tokens to Minimize Oracle Risk
Uma, a synthetic assets platform, designed a token which doesn’t require price feeds to minimize oracle attack risk.
Balancer Labs Raises $3 Million to Launch Programmable Liquidity Platform
Balancer Labs closed a $3 million seed round with venture funds Accomplice and Placeholder leading and with participation from CoinFund and Inflection.
Balancer is building a “flexible and trustless platform for programmable liquidity,” the project’s post said. “Anyone can now create their own self-balancing index fund, or invest in someone else’s.”
Balancer allows any token holder to provide liquidity by turning their whole portfolio into a Balancer pool or adding it to existing pools. Balancer allows pools with up to 8 tokens, with any custom %-distribution of value for each of them.
DeFi Saver Launches Platform for Anyone to Become a MakerDAO Liquidator
DeFi Saver released a MakerDAO collateral auctions dashboard with the goal of making it easier to liquidate underwater loans in the system.
Image source: DeFi Saver
The lack of competition among liquidators in MakerDAO’s auctions as the ether price was crashing recently led to one trader being able to get more than $5 million of ETH collateral for free, leaving the system under-capitalized. The only way to participate in the auction was by setting up a Keeper bot, a complicated process not suitable for non-technical traders.
“Today we’re introducing a new way to join collateral auctions that is accessible to anyone, just by loading a page and connecting your wallet,” DeFi Saver’s post said.
Coinbase Putting DeFi Interets on Your Cel Phone
Coinbase Wallet is integrating DeFi lending platforms with its mobile application, making it easier for users to start gaining up to 6% on their deposits. Coinbase users could previously access DeFi apps including Compound and dYdX through the wallet’s desktop-based dapp browser.
“You can now compare different rates from providers, easily deposit your crypto without opening a web browser, and view your balances on a simple, unified dashboard,” Coinbase’s post said.
Multicoin Capital’s Ton Sheng and Ben Sparagno compare centralized and decentralized crypto applications based on five properties that define the level of overall trust users have to have on the platforms — 1. custody, 2. immutability, 3. verifiable security, 4. legal and regulatory protections, 5. insurance. While DeFi scored higher on the firs three, CeFi was stronger on 4 and 5.
University of Basel professor Fabian Schar wrote an academic paper exploring decentralized finance. “We conclude that DeFi still is a niche market with certain risks, but also has interesting properties in terms of efficiency, transparency, accessibility and interoperability. As such, it may potentially contribute to a more robust and transparent financial infrastructure,” the abstract says.
Schar proposed a useful framework to understand DeFi architecture:
There’s increasing outrage over how the U.S. is handling the coronavirus crisis, with the Fed approving trillions in economic stimulus even as its effectiveness in boosting the economy is highly uncertain, while the government bails out big corporations. Meanwhile, most individuals are unlikely to benefit from those measures as jobless claims surge.
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About the author: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. (Pre-order The Infinite Machine here). I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.