On-chain activity increases, deflationary trend strengthens
After the completion of Ethereum's merge, ETH exhibits deflationary characteristics during periods of high network usage. Since the merge in September 2022, the supply of ETH has decreased by 369,814, accounting for 0.21% of the total supply; Ethereum stakers have received rewards of over 1.06 million ETH, but the burn mechanism has permanently destroyed over 1.43 million ETH during the same period.
Recently, benefiting from the bullish sentiment in the cryptocurrency market, decentralized exchanges (DEX) saw an increase in trading volume, NFT sales have risen, and L2 network activities have become more active. Over the past two weeks, more than 21,000 ETH worth $62.8 million has been burned.
According to DeFi Llama data, DEX trading volume surpassed $5 billion on February 19, a 134% increase compared to February 4. Dune Analytics data shows that NFT sales on February 19 reached $33 million, a 114% increase compared to February 2. L2 BEAT data shows that on February 18, the average number of transactions processed per second on all L2 blockchains exceeded 92.4, marking the second-highest record in history.
It is worth noting that in early February, ERC-404 tokenThe introduction of the currency standard is also one of the reasons for the increase in gas fees. ERC-404 allows multiple wallets to simultaneously own the ownership of a single NFT, fragmenting the ownership of NFTs. ERC-404 uses ERC-20 and ERC-721 tokens, facilitating the fragmentation of NFTs, resulting in gas-intensive transactions. With the active crypto market and the increasing on-chain activity, the deflationary trend of Ethereum is expected to further strengthen in the coming months.
Ethereum Network to Undergo Major Upgrade
The next important update for the Ethereum network (EIP-4844) is scheduled to be implemented in March this year, aiming to improve the efficiency, scalability, and security of the Ethereum blockchain. This update will reduce the cost of the L2 ecosystem built around Ethereum by 10 times, significantly increasing the adoption of Ethereum and L2.
The Dencun upgrade marks the beginning of the "the Surge" era in Ethereum's roadmap, serving as a major turning point in this cycle. Ethereum needs to scale with the help of L2, and L2's subchains and specialized business development teams are also driving rapid growth of L2. In addition, the integration of Verkle trees on the Ethereum blockchain is highly anticipated, and it is expected to reduce disk space requirements, enhance the functionality of staking nodes, and improve overall user experience.
Approval Expected for Ethereum Spot ETFs
On February 17th, VanEck filed a revised S-1A document for its Ethereum spot ETF, while ARK/21 Shares submitted a new 19b-4 document and a series of new analytical disclosures for its Ethereum spot ETF. Previously, BlackRGrayscale, Fidelity, Grayscale, Invesco, Galaxy, and Hashdex have all submitted relevant applications. Dave LaValle, the head of Grayscale ETF, said that there is a 50% chance that the SEC will approve the conversion of its Ethereum Trust into a spot ETF in May this year. In a research report on February 19, US investment bank Bernstein discussed Ethereum's prospects in the coming months, including staking rewards, potential institutional fund inflows, and the approval of spot ETFs. The report believes that Ethereum is prepared to be adopted by mainstream institutions thanks to its staking incentives, environmentally friendly design, and the institutional usability of establishing new financial markets. According to the report, Ethereum may become the cryptocurrency that gets approved for a spot ETF after Bitcoin. There is a 50% probability that Ethereum spot ETF will be approved in May this year, and by the end of this year, this probability can reach nearly 100%. Web3 project development enters a new stage Unlike Bitcoin, Ethereum is not just an asset; its intrinsic value is highly correlated with the functionality of its blockchain. Ethereum is more in line with the goal of a shared and programmable database or DApp development platform. Therefore, in order for the Ethereum network to have value, there must be valuable applications on its network. Currently, some programs have emerged from the development of Web3, but the majority of applications come from traditional companies adjusting their systems and integrating them with blockchain. Looking at the existing non-native mainstream Web3 killer applications on the chain, there are few project parties that seriously maintain their on-chain applications after the previous bull market cycle. In the previous cycle, due to the extensive and unknown nature of blockchain, most participants in the blockchain, even the blockchain teams themselves or other Web3 company business development teams,There is a lack of sufficient guidance and there is also competition for development space with meme tokens and NFT speculation, making certain technical operations impractical. The team's business development is usually segmented by region, resulting in these teams having to cater to dozens of different fields, each with different needs and complex applications. The end result is a lack of focus, making most projects unable to succeed. However, in 2024, the game rules will change. When it comes to how to build on-chain, the blockchain ecosystem is entering a specialization period. The largest L2 blockchain currently is segmenting specific configurations, teams, and structures. Blockchain development kit Taking Polygon as an example, it does not configure a general-purpose blockchain and a regional business development team for all applications, but instead uses multiple subchains suitable for specific scenarios. Polygon is providing a blockchain development kit (CDK) for building subchains on top of it, with all liquidity connected through an aggregation layer. Currently, the subchains announced by Polygon include: B2 (focusing on building a CDK blockchain for Bitcoin rollups); OEV Network (aiming to capture the extractable value of oracles on a CDK blockchain); And more.ue">Hypr (a CDK blockchain focused on gaming);
Libre (a CDK blockchain dedicated to tokenizing assets for institutions);
FireDrops (a CDK blockchain designed for loyalty behavior in India's largest e-commerce platform, Flipkart).
In addition, other mainstream L2 blockchains are following the same path. For example, there is "OP-Stack" by Optimism, which is similar to CDK in Polygon. A paradigm shift is underway, and many professional subchains and business development teams of almost all mainstream L2 blockchains will compete in the same field.
Thanks to Ethereum's L2 plans, building a secure chain has become very simple. Therefore, 2024 may be the year when Web 2 killer applications appear in Web 3, as many companies and users will try to integrate blockchain into their daily lives.
Summary
2024 will be a critical period in the development history of the Ethereum blockchain, marking a new development cycle since the merger in 2022. The increase in on-chain activity will drive the deflationary trend of Ethereum. The DenCun upgrade will improve the efficiency, scalability, and security of the Ethereum blockchain. The expected approval of Ethereum spot ETF will continue to drive institutional adoption. The Blockchain Development Kit (CDK) is creating more possibilities for developers on the Ethereum network, and more valuable applications will in turn continue to drive the Ethereum network.The prosperity of the Internet.
