2020 was a challenging year for the world. However, for Ethereum, it was a year of significant growth and progress. The ecosystem flourished across multiple dimensions, and its overall market capitalization saw a substantial increase. This article analyzes key on-chain trends from the Ethereum blockchain, covering:
- The base layer
- Decentralized Finance (DeFi)
- Eth2 & Layer 2 solutions
- Bitcoin on Ethereum
- Non-Fungible Tokens (NFTs)
Key Base Layer Metrics
Price Performance
For many, price is the most critical metric. Ethereum's price experienced a rapid recovery in 2020. By the end of the year, the price of ETH rose from $129 to $753, marking a 4.8x increase. To put this into perspective, the cost to become an Ethereum 2.0 validator (32 ETH) was $4,128 in January 2020. By the end of December, that cost had surged to $24,064. Despite this impressive rally, ETH's price at the end of 2020 was still only 52% of its all-time high of $1,448.
ETH outperformed major assets like Bitcoin, gold, and the S&P 500. Its 483% gain surpassed Bitcoin's +303%, while gold and the S&P 500 saw more modest gains of +24% and +15%, respectively. It's worth noting that while cryptocurrencies are often considered non-correlated assets, all four of these assets showed high correlation during the market crash in March.
Transaction Volume
Transaction activity on Ethereum surged in 2020. The total number of transactions increased by 38%, rising from the previous all-time high of 250 million in 2018 to 345 million. The proportion of ERC-20 token transfers also grew significantly, increasing from 35% to 54% of all transactions. This indicates a broadening and deepening of the Ethereum economy.
A month-by-month analysis shows a near consistent upward trend throughout the year. The only exception was a dip in September, which coincided with the tail end of the "yield farming" craze.
An analysis of the top 20 most transferred ERC-20 tokens reveals:
- USDT led the pack, accounting for 28% of all transfers.
- Stablecoins collectively made up over 35% of transfers, with four stablecoins (USDT, USDC, DAI, PAX) appearing in the top 6.
- Six tokens in the top 20 lacked updated information, together accounting for 2.8% of transfers.
- DEX tokens were the next largest category after stablecoins, with four tokens (UNI, BNT, KNC, ZRX) in the top 20, representing 1.3% of total transfers.
Address Growth
The number of new addresses created grew significantly, increasing by 56% from 84 million in 2019 to 131 million in 2020. The number of active addresses also followed a generally upward trend throughout the year, correlating with the rising ETH price. Notable exceptions were the sharp drop in March during the broader market sell-off and a dip between August and September, mirroring the trend seen in transaction volume.
Gas Fees
High network usage led to consistently elevated gas prices throughout 2020. In June, the average daily gas price peaked at 710 Gwei as users rushed to claim UNI airdrops. However, in USD terms, transaction fees were even higher in September due to the doubled price of ETH. At that time, a standard ETH transfer cost around $4.80. As the yield farming frenzy subsided near the end of the year, gas prices hovered around 100 Gwei. Fees climbed again in early 2021 alongside a surging ETH price.
Smart Contract Deployment
A massive wave of new smart contracts was deployed in 2020. The total number of contracts created increased by 55%, from 6.9 million in 2019 to 10.7 million. The number of newly verified contracts on Etherscan was stable in the first half of the year. It then saw substantial growth in Q3 alongside the rise of DeFi and yield farming, peaking in November before decreasing as ETH and gas prices rose sharply at year's end.
The DeFi Ecosystem Boom
Total Value Locked (TVL)
2020 was a landmark year for Decentralized Finance. The Total Value Locked in DeFi dApps exploded from $600 million at the beginning of the year to $15 billion by the end—a 24x increase.
Market Capitalization
The top 100 DeFi tokens followed suit. Their combined market cap grew 11x, from $1.6 billion to $19.8 billion. At the peak of the yield farming boom, the total market cap of DeFi tokens reached 40% of ETH's market cap before gradually declining as ETH's price soared.
Decentralized Exchanges (DEXs)
The DEX market experienced unprecedented growth. In December 2019, the total monthly trading volume across all DEXs was $166 million. By December 2020, it had reached $19.2 billion, a 115x increase. The competitive landscape shifted dramatically. While Uniswap maintained its lead, other early leaders saw their rankings fall. Newcomers like Sushiswap, Curve, and Mooniswap, all launched in 2020, entered the top 10. The growth was so immense that Uniswap's daily volume surpassed that of Coinbase just eight months after the entire DEX market was doing $166 million in monthly volume.
Stablecoins
As mentioned, stablecoins accounted for 35% of all transfers on Ethereum. Their trading volume was even more staggering. The trading volume of USDT on Ethereum alone surpassed that of ETH. The total stablecoin transaction volume for 2020 exceeded $1.2 trillion, a 6x increase from $170 billion in 2019.
Yield Farming
In early August, Etherscan launched a list of yield farming projects to meet user demand. Nearly 500 tokens have been featured on this list. Transfers for these tokens peaked in September. Interestingly, overall network transactions and active addresses declined that same month, suggesting that only a subset of Ethereum users consistently participated in yield farming activities.
Eth2 & Layer 2 Scaling Solutions
Soaring gas fees in 2020 made the need for scalability solutions more urgent than ever. While a final solution is not yet in place, significant progress was made.
Eth2 Staking Participation
The Eth2 beacon chain launched successfully. On December 1, 2020, 905,000 ETH was staked on Eth2, representing 0.76% of the total supply and worth approximately $554 million. By January 1, 2021, this figure had grown to 2.17 million ETH (1.9% of supply, ~$1.6 billion). This number was expected to grow further in the coming months.
A key goal for Eth2 is validator decentralization. Early analysis suggested that 51% of the total staked ETH was controlled by just 20 entities. Monitoring this ratio is crucial for the health of the network, and the community continues to encourage more individual validators to participate.
Eth2 Validators and Participation Rate
Following the beacon chain launch, the number of validators grew rapidly from 27,500 to 67,000 within a month—four times the minimum number required for launch. Crucially, the participation rate for these validators consistently remained above 96%, alleviating concerns about "inactivity leaks" that had plagued testnets.
Layer 2 Progress
Layer 2 scaling solutions were primarily in testing phases throughout 2020. Some projects released beta versions, while others went through multiple iterations. Among the live projects, Loopring and Tornado Cash held the most value locked in their systems. L2 development is still in its early stages, and 2021 is expected to see intense competition and growth in this area for blockchains, rollups, dApps, and users. To explore more strategies for navigating this evolving landscape, staying informed is key.
Bitcoin on Ethereum
Tokenized Bitcoin Growth
Another major trend of 2020 was the tokenization of Bitcoin on the Ethereum blockchain. Over the last six months of the year, the amount of tokenized BTC grew 27x, reaching 140,000 BTC.
Trading Volume and Analysis
wBTC emerged as the dominant ERC-20 representation of Bitcoin, facilitating the vast majority of Ethereum-based BTC transactions and far outpacing competitors like renBTC. Trading volume peaked at 14 million BTC in September. As of December 31, 2020, wBTC accounted for 81% of all tokenized BTC on Ethereum and had around 20,000 holders, vastly more than its rivals. The fourth quarter saw the rise of tokenized BTC yield farming with projects like oBTC, vBTC, and anyBTC, though their combined value remained a small fraction of the total.
The Rise of Non-Fungible Tokens (NFTs)
The NFT space also made significant strides in 2020. Nearly 5 million ERC-721 token transactions occurred on the Ethereum mainnet. The top 10 ERC-721 tokens accounted for 71% of this volume, primarily comprised of gaming tokens (like Cryptokitties, Gods Unchained, Axie Infinity ~42%) and domains (ENS, Unstoppable Domains ~19%). Collectibles and yield farming-related NFTs were also near the top.
Digital art, while not top by volume, gained tremendous popularity. For example, artist Beeple raised $3.5 million through an NFT artwork auction. Some projects also began merging NFTs with DeFi, such as Rarible introducing yield farming and its governance token, RARI.
Other Notable Trends
Several other trends shaped Ethereum in 2020:
- Governance/DAOs: Governance tokens and DAOs regained popularity, driven by the DeFi boom. Projects like Maker, Yearn, and Compound were at the forefront.
- Grants: Public goods funding advanced significantly, largely due to Gitcoin's quadratic funding rounds, alongside efforts from the Ethereum Foundation and others.
- Private Transactions/MEV: The discussion around Miner Extractable Value (MEV) and front-running became mainstream, leading to projects offering private transaction services.
- Prediction Markets: These dApps gained many new users, especially leading up to the US presidential election.
- Algorithmic Stablecoins: This sector saw several iterations and experiments, leveraging the extra liquidity from yield farming.
- Virtual Conferences: Due to the COVID-19 pandemic, the community shifted to online events, with over 200 recorded on Etherscan.
- Adoption: Institutional and corporate adoption of Ethereum continued to grow globally across various industries.
Frequently Asked Questions
What was the main driver of Ethereum's growth in 2020?
The growth was primarily driven by the explosive expansion of the DeFi ecosystem, which led to increased transactions, higher gas fees, and greater adoption of ETH and related tokens. The rise of yield farming and new financial primitives created unprecedented network activity.
How did Ethereum's performance compare to Bitcoin's?
Ethereum significantly outperformed Bitcoin in terms of price appreciation in 2020. ETH posted a gain of 483%, compared to Bitcoin's gain of 303%. This was largely due to the utility and demand generated by the DeFi ecosystem built on Ethereum.
What are the biggest challenges Ethereum faced?
The primary challenge was network congestion leading to extremely high transaction fees (gas costs). This highlighted the critical need for scaling solutions like Eth2 and Layer 2 rollups, which became a major focus for development throughout the year.
What is tokenized Bitcoin on Ethereum?
Tokenized Bitcoin refers to representations of BTC (like wBTC or renBTC) that exist as ERC-20 tokens on the Ethereum blockchain. This allows Bitcoin to be used within Ethereum's DeFi ecosystem for lending, trading, and yield farming.
What is the significance of Eth2?
Eth2, or Ethereum 2.0, is a multi-phase upgrade to the Ethereum network intended to drastically improve its scalability, security, and sustainability by transitioning from a Proof-of-Work consensus mechanism to Proof-of-Stake.
Will high gas fees on Ethereum continue?
High fees are a symptom of high demand and limited scalability on the base layer. The ongoing development and adoption of Layer 2 scaling solutions and the full rollout of Eth2 are expected to eventually alleviate this persistent issue. You can view real-time tools for monitoring network conditions.