Editor's Note: This article comes fromCrypto Valley Live (ID: cryptovalley)Crypto Valley Live (ID: cryptovalley)

, Author: Karim Helmy, Original Research, translation: Li Hanbo, reprinted by Odaily with authorization.

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Ethereum and miners

The relationship between the Ethereum community and miners has been somewhat tense. The network’s proof-of-work algorithm, Ethash, is explicitly designed to be ASIC-resistant and thus resist the professionalization of miners. Since then, the network has begun to migrate to POS, with the ultimate goal of completely eliminating the role of miners in the network.

The network will continue to be supported by Proof of Work until the transition to Ethereum 2.0. But even before this transition, the economics of mining on the network will change. The big impact of this is that the block rewards received by miners will be reduced."It also manifests itself in the fact that miners are increasingly compensated in miner-extractable value (MEV), which is the extractable rent for ordering transactions. As the execution of on-chain arbitrage and liquidation transactions becomes more profitable, successful MEV execution starts to play a more important role in miner economics."follow traffic

supply

Building on the work in Parts 1 and 2 of this series, we used Network Data Pro version 4.9 data to analyze the activity of Ethereum miners. We found that Ethereum miner activity has increased significantly over the last year, likely as a result of increased MEV withdrawals, and that miners are primarily sold on Binance and Huobi.

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supply

Applying the same approach to Ethereum, we see miners controlling an increasing amount of Ethereum (ETH), while mining pools hold relatively little supply. Especially in 2020, the amount of Ethereum held by miners has increased significantly.

Due to the premise of Ethereum, most of the native token supply is not generated by miners. As a result, miners have been underrepresented in the total supply of ETH. As their raw value increases, the percentage of total network supply held by miners generally grows over time.

This is quite different from Bitcoin, where proof-of-work has been the main method of issuing coins, and as the network matures, miners' share of the native token supply generally declines.

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In addition to observing miner holdings, we can also analyze the flow in and out of mining pool addresses. While these flows are largely trivial, they are useful in context to the broader miner flows discussed in the next section. Just like Bitcoin, Ethereum pool addresses handle relatively small transaction volumes, and inflows and outflows are generally simultaneous.

The outflow of 0-hop funds fluctuates more than the inflow of funds, mainly composed of block rewards. Due to the changeable monetary policy of the network and the large fluctuations in fees, the income miners receive from block rewards is somewhat unpredictable.

While pool payouts are far from all-time highs in native units, pool payouts continue to soar in U.S. dollar terms. This reflects the rapid appreciation in the price of ETH.

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miner traffic

The rapid increase in inflows and outflows appears to be part of a broader trend over the past three years or so, with miner activity accounting for an increasing proportion of value transferred across the network. Mining pool traffic remains relatively insignificant, further underscoring the importance of taking a longer view when assessing miner activity.

There are several reasons for the broader growth, including a more mature network. The recent gains, though, may have something to do with MEV: Entities affiliated with mining pools may engage in on-chain arbitrage and liquidations to earn money outside of the protocol-mandated block reward. If these addresses have received at least one payment from the mining pool, they will be marked as 1-hop addresses by our heuristics, and their inflow and outflow will be classified as miner activity. Because of the wide range, it is highly likely that this activity is actually being carried out by traders and arbitrage bots who are not directly affiliated with the miners.

Like total value, 1-hop net traffic has grown substantially in size over the past year. This could also represent the growing role of MEV extraction in the miner economy.

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ETHASH and exchanges

In FOLLOWING FLOWS II: WHERE DO MINERS SELL?, the Coin Metrics team announced the release of a flow metric that measures interactions between miners and exchanges. These metrics iterate on our standard miner stream to provide a more granular view of miner activity.

Miners' deposits on exchanges can be used to measure the miner's sales volume and position. Like Bitcoin miners, Ethereum miners generally tend to deposit coins on Binance and Huobi. These large Asian markets are well connected with miners, and the two exchanges also operate mining pools.

Huobi and Poloniex have a huge market share among miners compared to their network-wide inflows, but Binance’s share is almost the sum of the two.

The miner withdrawal share graph of the exchange is similar to the miner deposit share graph, but fluctuates greatly. For some reason, Huobi's on-chain withdrawal share of many miners seems to have been surpassed by Kraken recently: the reasons are unclear, and the results are likely to be anomalous rather than indicative of a real change in the market.

The aggregate traffic of miners-exchanges is also a valuable source of information. As expected, miners are generally net depositors: this is intuitive since they can acquire coins outside of exchanges through mining.

Over a one-year time horizon, Ethereum price has a moderately low negative correlation of -0.42 with exchange pool deposits and a moderately low positive correlation of 0.40 with overall pool outflows. The positive correlation between price and miner deposits and overall miner outflows is also low, at 0.20 and 0.31, respectively.

in conclusion

If miners are responsible for the drop in price, we expect a consistent moderate or strong negative correlation between spending and price. Currently, there is little evidence that miners have caused a market correction.