Bitcoin ecosystem VS Ethereum ecosystem, who will be the next leader?

Written by: Joyce
 
Ethereum has risen very strongly in the recent period. After breaking through 3500U in the past few days and setting a new high since May 2022, it has exceeded 4000U in the past two days. And judging from the increase in the past 30 days, Ethereum has increased by 62%. Bitcoin is indeed a surprise to many people.
 
However, taking a closer look at the ecological development of Ethereum, from the growing deflation data, to the smooth testing of the Cancun upgrade that is about to be launched on the main network, to the current increase in the amount of pledged and re- pledged ETH, and the ETH spot ETF in May. As expected, there are indeed multiple benefits stacked up, and it is reasonable for the price of ETH to soar all the way.
 
So, will these benefits really be realized one by one in the future? What is the current ecological development of Ethereum? Let’s look at the data.
 
Ethereum deflation situation
 
Bitcoin and Ethereum inflation/deflation data trend chart over the past 532 days, source: ultrasound.money
 
Ethereum has officially entered the deflation stage starting from January 16, 2023, that is, the number of new ETH generated every day is less than the amount of ETH burned. Specifically, ETH’s current annual deflation rate is 0.239%.
 
Compared with the industry leader Bitcoin, the annual inflation rate is 1.716%. Although the total amount is limited, new Bitcoins are continuously produced every day. Therefore, when we say "the total amount of Bitcoin is limited, so every Bitcoin is very precious", it can better highlight the value of ETH in the current deflationary state.
 
With the vigorous development of the Ethereum ecosystem, the total amount of Ethereum burned continues to increase, which increases the deflation rate of Ethereum, resulting in less and less Ethereum circulating in the market.
 
The re-staking track is developing rapidly
 
Not only is the increase in the deflation rate of Ethereum causing less and less Ethereum in circulation, but with the development of liquidity staking and re-staking on Ethereum, a large amount of Ethereum is locked on the chain, resulting in the loss of Ethereum in circulation. The number of workshops further decreased sharply.
 
Data related to the OKLink Ethereum pledge contract shows that the total pledged amount of Ethereum currently exceeds 40 million, accounting for more than 34% of the circulating market value of Ethereum, and the total number of validators exceeds 1.26 million, although most validators are running for Ethereum. It comes from the appreciation and staking yield, but no matter what, it is a great benefit to the security of the entire Ethereum network.
 
Number of Ethereum pledge contracts, data source: OKLink
 
Moreover, according to Stakingrewards related data, as the public chain with the largest amount of pledges, Ethereum’s pledge traffic has been a net inflow in the past seven days. The contrast with the lower-ranked public chains is obvious. At this stage, Ethereum’s pledge balance The appeal to investors is clear.
 
List of the top five public chains by staking market value, data source: stakingrewards
 
Of course, the recent surge in the amount of Ethereum pledged is inseparable from the development of the restaking track.
 
Re-pledge was first proposed by the founder of Eigenlayer. Its core is to allow ETH that has been pledged on the Ethereum main chain to be pledged again on other protocols, so that other protocols can share the security of Ethereum, thereby reducing the security of its chain. own security costs. Investors who participate in re-pledge can not only obtain the income from staking Ethereum, but also the income from re-pledging.
 
Therefore, re-staking creates a win-win result for all three parties:
 
For protocols that use re-pledge, they enjoy almost the same level of security as Ethereum while reducing security costs. Moreover, they attract a large number of ETH holders to enter the ecosystem and participate in its ecological development;
For ETH stakers, not only can they enjoy the benefits of staking and re-staking of Ethereum at the same time, but they also expect a large number of Airdrops;
In addition, for the Ethereum main chain, the re-pledge mechanism allows its own assets to have more enabling scenarios, and stimulates holders to lock ETH to bring greater room for appreciation.
 
Therefore, the re-pledge track led by Eigenlayer has developed rapidly in the past few months, and it has also attracted more and more institutional capital. Taking Eigenlayer as an example, in less than two years from May 2022 to now, four rounds of financing have been completed. The latest round of financing was injected by a16z, with a single financing reaching US$100 million. The current four rounds of cumulative financing have reached US$160 million. As mentioned above, as an emerging track, re-staking has indeed come to the fore.
 
Currently, Eigenlayer’s total TVL has exceeded $11 billion, ranking third among all DeFi projects in TVL after Lido and AAVE. TVL, a related project on the liquidity re-hypothecation track, has grown significantly, with an increase of more than 10% in the past seven days.
 
TVL growth rate of projects related to the liquidity re-pledge track, data source: defillama
 
The rapid development of the re-pledge protocol and the expectation of ecological Airdrop have stimulated more ETH holders to participate in the pledge and re-pledge of ETH, which can be seen from the rapid growth of the ETH pledge ratio and the TVL of the re-pledge protocol. These have further reduced the amount of ETH in circulation, giving ETH new room for growth.
 
Cancun upgrade
 
Of course, the Cancun upgrade is naturally a huge positive factor for Ethereum.
 
Many articles have been written about the Cancun upgrade before. Friends who are interested in exploring in detail can read our historical article "What substantial benefits will the legendary Cancun upgrade of Ethereum bring?" 》. For the Ethereum mainnet, the Cancun upgrade is an important hardware upgrade, which mainly improves the scalability, security and availability of the Ethereum mainnet.
 
Of course, the biggest perception for users is that after the Cancun upgrade of Ethereum, its Layer 2 fees will be reduced a lot. On the current basis, the reduction may reach more than 14 times, which is roughly equivalent to that of public chains such as Solana. Gas consumption level will be reduced, and the throughput of Layer 2 will also be greatly improved. This is mainly because EIP-4844 in the Cancun upgrade has greatly reduced the cost of the ETH main chain for data in the Layer 2 protocol, and promoted the progress of the Ethereum sharding plan.
 
Overview of TVL growth of various Layer2 projects on the Ethereum chain, data source: L2BEAT
 
In addition, another important upgrade in this Cancun upgrade is EIP-4788, which optimizes the information exchange problem between the Ethereum consensus layer and the execution layer. This improvement is very beneficial to the liquidity staking and re-staking track. and cross-chain bridge related projects, improving their security and operational efficiency.
 
Therefore, in general, the Cancun upgrade not only greatly reduces the rate of Layer 2, increases throughput, benefits the development of Layer 2 on Ethereum, and facilitates the absorption of a large amount of new funds into Layer 2 to participate in ecological construction, but also for liquidity staking, The re-staking track is also a big plus. The success of the Cancun upgrade will bring another breakthrough in the Ethereum ecosystem.
 
At present, the Cancun upgrade has been successfully deployed on all testnets of Ethereum (including Georli, Sepolia and Holesky). It is planned to go online on the mainnet on March 13 this year. The launch date is close at hand. The prices of Ethereum and ecological related projects It also reflects the expectations of Cancun’s upgrade to a certain extent.
 
Probability of Ethereum Spot ETF Passing
 
Since the SEC approved 10 Bitcoin spot ETFs on January 10 this year, people have begun to turn their attention to Ethereum spot ETFs.
 
After all, the passage of the Bitcoin spot ETF is a great benefit to Bitcoin and the Bitcoin ecosystem. The short-term rise of Bitcoin is the best proof.
 
But will the Ethereum ETF go through as planned?
 
Currently, 7 institutions, including BlackRock, Hashdex, ARK 21Shares, VanEck, etc., have applied for Ethereum spot ETFs. After the SEC has delayed approval several times, it will decide whether to approve it by May this year at the latest. Ethereum spot ETF application from relevant institutions (see picture below).
 
Ethereum spot/futures ETF application status tracking chart, source: blockworks
 
Of course, the key to whether the Ethereum spot ETF passes lies in whether the SEC considers Ethereum to be a commodity or a security. The current disagreement is that the entire mechanism of Ethereum is very different from Bitcoin. Ethereum does not have a fixed total amount, and holders of Ethereum can stake it in exchange for income.
 
This has led many people to believe that Ethereum is at risk of being recognized as a security.
 
However, in the SEC’s case against Ripple last June, the SEC listed 67 tokens that were securities, and ETH was not among them. Moreover, the SEC has sued several CEXs because they listed some tokens that the SEC recognized as securities, and ETH was not included among them. In other words, the SEC has not publicly and clearly stated that ETH is a security.
 
More importantly, the U.S. securities regulator has approved an Ethereum futures ETF last year. This approval implies that ETH is a commodity rather than a security, so the approval of an ETH spot ETF is likely to be a matter of time.
 
The approval of the ETH spot ETF in the future will surely bring a large amount of funds and resources to Ethereum and the Ethereum ecosystem, just like the Bitcoin spot ETF, and open up the development pattern and ceiling of the entire ecosystem.
 
summary
 
If last year was the year when Bitcoin and the Bitcoin ecosystem occupied the spotlight of the entire crypto industry, then the Ethereum ecosystem in 2024 will definitely be better off due to the multiple benefits of the Cancun upgrade, spot ETF expectations, continued deflation, and soaring pledge numbers. I will also write a rich and colorful stroke.
 
Is the protagonist of this bull market the inscription and infrastructure of the Bitcoin ecosystem, or the staking and re-staking track of the Ethereum ecosystem? We'll see.