The use of the Ethereum (ETH) blockchain seems to evolve according to the trends of new technologies, favoring or limiting the risk according to the cycles of the price of ETH. Currently, users are moving away from DeFi and NFT-related transactions in favor of stablecoins. On-chain analysis of the situation.
2021 – 2022: The cycle of evolution for Ethereum
Since the success of The Merge and Ethereum’s transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) on September 15, 2022, the price of Ether (ETH) has fallen by $1,633 at $1,214, showing a decline of -24.3% since The Merge and -74.6% since the November 2021 ATH.
Figure 1: Daily price of ETH
Beyond fluctuations in the price of the ETH token and a purely financial aspect, the properties and uses of the Ethereum blockchain have varied greatly latelywith notable technological advances and the growth of many business sectors.
Today, we will observe in detail the evolution of on-chain activity on the Ethereum network as well as its different usage trends over the past two years.
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Ethereum activity in the bear market
In order to measure the commitment of the participants of the Ethereum network and their propensity to solicit it, the variation over seven days of the active addresses provides a relevant signal.
The following chart shows how Ethereum blockchain activity has evolved over the past two years. In addition to the short-lived peaks in activity marked in blue, this measure shows a long-term downward trend, a sign of a period of economic downturn caused by down cycles.
Figure 2: Active Ethereum addresses
A drop in address activity is visible from May 2021 and has continued since November 2021with the recording of a multi-year low of almost 400,000 active addresses in November 2022.
Overall, network activity as measured by this metric nearly halved during the bearish cycle, indicating a loss of interest from investors and users of the Ethereum network.
In addition, we can measure the number of transactions made daily in order to obtain an alternative view of participants’ activity and their propensity to use the network.
Similar to the number of active entities metric, the following chart shows a sharp drop in blockchain usage after the May 2021 price capitulation.
Figure 3: Number of daily Ethereum transactions
However, after weakening activity from November 2021 to July 2022, the number of transactions seems to have stabilized since August 2022 in a range between 800,000 and 1,000,000 transactions per day.
This could signal a return to a reduced activity regime, symbolizing the regular and loyal users of the Ethereum network, which is the basic block space demand of the blockchain.
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The evolution of Ethereum uses
After quantifying the evolution of Ethereum’s on-chain activity, let’s now focus on its qualification and more specifically on the categories of Ethereum transactions carried out over the past two years.
The following chart shows the relative proportion of daily transactions related to the decentralized finance (DeFi) sector.
Figure 4: Relative weight of daily Ethereum transactions (DeFi)
There is a sharp decrease in decentralized finance (DeFi) activity following the May 2021 capitulationfalling by a factor of 2.59 until a slight recovery between July and October 2022.
Overall, the fall in prices, the various setbacks of DeFi protocols and firms with an important link to this sector (hack of Anchor, collapse of Terra/LUNA, bankruptcy of 3AC, then of FTX) and the quest of risk protection have caused a significant flight of capital, which is reflected in a palpable drop in activity.
The case of NFT transactions is particular, because the activity of this sector progressed strongly despite the difficulties of the bear market.
A dramatic expansion in the percentage of transactions representing transfers of NFTs took place between May 2021 and June 2022rising from 0.5% to almost 37%, signaling a generalized interest among participants in this sector.
Figure 5: Relative weight of daily Ethereum transactions (NFTs)
It was during this period that many NFT projects, including Yuga Labs’ Bored Ape, Sorare collectible cards and the Play-to-Earn movement took off.
Activity then halved to 15.7%, demonstrating acontraction in NFT-related activity and rapid disinterest during the late phase of the current down cycle.
Regarding stablecoin transactions, we can observe a variable use of these tokens depending on the progress of the bear market:
- Over the course of 2021, and during the price rally to the November ATH, stablecoin trading activity has fallen by nearly halfsignaling that most participants favored BTC, ETH, or other vectors for value growth;
- After a stabilization period, the use of stablecoins is preferred since October 2022meaning that participants shaken by the vagaries of the bear cycle limit their risk and protect their capital via USDT, USDC or other tokens with similar properties.
Figure 6: Relative weight of daily Ethereum transactions (Stablecoins)
Furthermore, notable spikes in stablecoin usage (in red) are visible during high downside volatility events such as those of May, June and November 2022, signaling the passage into cash of participants shaken by the fall in the price of ETH.
Finally, by observing the use of the Ethereum network for peer-to-peer monetary settlement, via so-called “vanilla” transactions, we can hypothesize that the ETH token is not ultimately intended to become a hard currency like bitcoin (BTC).
Figure 7: Relative weight of daily Ethereum transactions (Vanilla)
At least, usage proves that ETH holders are using their token less to transfer monetary value across the networkas indicated by the overall downward trend in the chart below over the past two years.
So it seems that users of the Ethereum network are using it to make various types of transactions based on trends (DeFi, NFTs, stablecoins), bringing this technology closer to the decentralized world computer than to uncensorable electronic money.
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Finally, the on-chain data presented this week indicates Ethereum network on-chain activity is still in a bear marketwith a declining number of active addresses and a very low number of transactions.
Furthermore, it seems that Ethereum users have shifted away from DeFi and NFT-related transactions in favor of stablecoinsgiven the advanced depreciation of the ETH market.
The use of the Ethereum network therefore seems to evolve according to the trends of new technologies.promoting or limiting risk depending on the cycles of the price of ETH, without the chain being used for peer-to-peer monetary settlement.
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Sources – Figures 1 to 6: Glassnode
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On-chain analyst, fervent fighter of informational asymmetry.
My goal is to inform everyone about the state of Bitcoin (as an asset and a distributed network) through the prism of on-chain analysis.
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