Ethereum On-Chain Metrics Improving After a Massive Month for DeFi

Cryptocurrency markets are back in the red as we begin another week but the same cannot be said for DeFi protocols which continue to hit new highs in terms of the total value of crypto collateral locked up (TVL). Another new day brings another new all-time high for DeFi TVL, which has now reached $1.86 billion according to DeFi Pulse. Over the past 30 days, the amount of digital collateral that has entered markets has surged by 85%. This has largely been driven by token distribution incentives from Compound Finance and Balancer. Other DeFi platforms such as bZx have scrambled to jump on this liquidity farming bandwagon with planned upgrades themselves. Kyber Network’s KNC token has surged to a two-year high just below $2 over the weekend as a highly anticipated governance upgrade called Katalyst is due to be rolled out this week. DEX protocol 0x has also been performing well following the launch of its own exchanged dubbed Matcha. Industry observers have noted that the TVL reported by metrics websites like DeFi Pulse don’t include some of the other big players such as Curve and Uniswap V2,

While DeFiPulse is now tracking more projects than last month. It is still missing Curve (50M), Uniswap V2 (43K), etc. We are certainly already $2B if not more

With these two platforms included, TVL would already be at $2 billion which is double what it was this time last month.

Impact on Ethereum

All of this additional activity has had a big impact on the Ethereum network, upon which DeFi is predominantly based. In its latest monthly report, blockchain solutions firm ConsenSys has taken a deep dive into Ethereum by numbers. In terms of the physical network, there are 8,035 live mainnet nodes across the globe which is an increase of 584 from the previous month. The number of total unique ETH addresses has topped 100 million, climbing 4% from the same figure in May. Total Ethereum supply has increased by around 400k and is now currently at 111.5 million ETH. The percentage of this total locked into DeFi smart contracts is currently around 2.8% (roughly 3.1 million ETH). The number of mining pools that produced over 90% of all blocks on Ethereum currently stands at 56. The number of daily transactions on the network hit its highest level since January 2018 late last month at 1,111,318. This is not far off the all-time high of 1,349,890 during the ICO boom in 2017/2018. The recently launched SKALE network can support around 2,000 transactions per second per chain which may alleviate some of those scalability issues which have long plagued the blockchain. SKALE is being rolled out in three phases. The first of these phases launched on June 30 and contained a restricted mainnet that does not have staking or transfers enabled. A proof-of-use mainnet with staking and bounty enabled is due in Q3 with the launch of the SKL token and the ConsenSys Activate platform. 90 days after this, the restrictions will be removed which comprises the third stage of the launch. The report moved on to dApp usage on Ethereum which has also grown in June. In total there were 2,883 dApps on the network. There were also over 50,000 daily dApp users in June, an increase of over 50% from the previous month. DeFi is likely to be largely responsible for this increase. The amount of ETH locked in DeFi increased by over 18% in the month of June. Daily active users on MakerDAO almost doubled last month to 4,453, while figures regarding the developer community had also increased in terms of software kit downloads and Github repos.

Ethereum Price Still Bearish

These rosy figures are all very bullish for the network and Ethereum fundamentals but from a price standpoint, ETH is still very much in bear territory. Ethereum prices have broken down over the month of June, falling from a monthly high of around $250 to current levels just above $225. ETH dipped as low as $215 a couple of times but support has generally held, it is fallen below the 50-day moving average, however.

The 10% slide for the month has been in line with a general crypto market decline led by Bitcoin which has failed to make it back into the five-figure territory. Analysts are predicting further losses for Ethereum if the $220 support level breaks, a plunge back to around $175 could be in the cards. The major problem Ethereum has suffered during the DeFi boom has been a surge in network fees. Gas usage has soared to all-time highs according to Etherscan.io, and with it has come an increase in costs to use the network. The median transaction fee has risen from around $0.05 to roughly $0.30 over the past couple of months according to Bitinfocharts.com. This is felt the most by those doing DeFi with smaller sums since each action on the network uses some amount of gas. These costs can be paid for swapping tokens, connecting Metamask, or claiming rewards from liquidity farming. The whales are unlikely to be bothered by minor annoyances such as network fees. The crypto community has aired its views on the increasing cost of using the Ethereum network which has become painfully evident recently. This is the primary problem that ETH 2.0 hopes to fix when the protocol finally sees the light of day, which may not be for several months yet. Ethereum on-chain metrics have improved, as evidenced by the ConsenSys report, but prices may not recover until the network can be scaled to cope with the increased demand that DeFi has put on it recently. Until then, Ethereum prices could well slide further south regardless of what happens in the budding world of decentralized finance.