"If Anyone Were to Question the Utility of Ethereum – Simply Point Them to This Chart"
Hello Defiers! Lots going on in decentralized finance today:
- The Flippening Series Part 2, with Ganesh Swami of Covalent: Complex Ethereum transactions on track to overtake simple transfers
- MakerDAO makes radical governance move
- Uma’s “priceless” token
- Balancer Labs’ $3 million seed round
- DeFi Saver’s MakerDAO auctions dashboard
- Coinbase Wallet integrates DeFi to mobile app
and more.
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The Flippening Series Part 2
Complex Ethereum Transactions on Track to Overtake Simple Transfers
By Ganesh Swami, Co-founder of Covalent.
Exclusive for The Defiant
Recap
In my previous op-ed, I wrote about how “The Flippening” in crypto usually refers to the staged rivalry between Bitcoin and Ethereum. Specifically, the switch between market capitalizations of Bitcoin and Ethereum.
And I also wrote about why believers like myself don’t care for this narrative. We are here for Ethereum —and Ethereum is different from Bitcoin.
In this post, we will use data analysis to study the flippening that matters – how fast is Ethereum diverging from Bitcoin from a use-case and traction perspective.
Methodology
If the first generation of blockchains like Bitcoin support the payments use-case (simple token transfers), second generation blockchains like Ethereum are about smart contracts.
To frame the question for our analysis: how fast are the transactions with smart contract executions growing relative to transactions with simple token transfers? We will further split transfers into ETH transfers versus ERC20 transfers because that closely resembles a multi-asset blockchain like Ethereum versus a single-asset blockchain like Bitcoin. It’s helpful to have that additional layer of insight.
A good proxy for identifying smart contract executions is the gas consumed per-transaction. Complicated transactions that we see in DeFi consume more gas compared to simple ETH or ERC20 transfers.
In summary, our analysis action-plan is to break down this analysis into three sub-questions over time:
- Gas costs of ETH transfer transactions
- Gas costs of purely ERC20 transfer transactions
- Gas costs of all other transactions that are more complicated
As you can see each question progressively uncovers the traction of Ethereum towards the universal smart contract platform.
Analysis
We used Covalent’s data to sum up the gas consumed for each transaction type aggregated monthly for all transactions on Ethereum from the Genesis block to March 25, or roughly 665 million transactions.
A few notable observations:
- Purely ETH transfers dominate this chart. Perhaps ETH is money after all?
- You can clearly see the ICO pump, wherein most funding events happened as ERC20 token transfer transactions. This is towards the latter half of 2017.
- There seems to be a natural ceiling to the total gas consumed across all types of transactions which points to the intense demand for block space on Ethereum and a lack of scalability. In an ideal scalable world, all types of transactions have room to grow. But on Ethereum today, for one kind of transaction to grow, it has to cannibalize the others.
Our second chart converts the above data into a proportional area chart, which highlights each transaction type’s contribution to the whole.
Our focus is on complex transactions beyond simple ETH and ERC20 transfers.
The answer is clear – there’s a continually increasing number of transactions that are of the more complex kind (green area). If anyone were to question the utility of Ethereum – simply point them to this chart.
Where’s this utility coming from? In 2019, it was clearly DeFi. In 2020, I think it’ll come from DAOs, games (broadly NFT use-cases) and perhaps security tokens.
This is the flippening that matters.
Can’t wait for the green area to consume the majority of the transactions on this chart.
In part 3, we take a look at another kind of flippening that matters. Stay tuned.
MakerDAO’s Latest Move is Unthinkable in Traditional Finance and Rarely Seen in DeFi
MakerDAO’s Maker Foundation has transferred control of the MKR token to token holders as it seeks to increasingly cede decision-making to the broader community and become a fully self-sustaining decentralized, autonomous organization (DAO).
Token holders are now the only ones able to change MKR token authorizations via the system’s governance process where one token equals one vote, and holders of any amount of MKR, no matter how small, can participate. Maker voters had shared control of MKR with the Foundation since December, as the system transitioned into the community taking full ownership.
This would be almost unthinkable in traditional finance: no management team would voluntarily hand over control of a key part of its organization to shareholders. It’s even uncommon within decentralized finance itself, as most projects’ operators still retain control over most aspects of their systems, even if it’s part of most teams’ goals to eventually become self-sustaining organisms controlled by their communities. With this step, Maker is now closer to farthest end of the decentralization spectrum.
Full Permission
The community now has full permissions over a smart contract which allows them to create MKR at the end of a debt auction, destroy MKR at the end of a surplus auction, destroy MKR used to pay stability fees for SCD, and control future permission changes to the MKR contract.
The move requires an active community, which shows up to governance calls and votes. Voter apathy means the platform could become largely controlled by a handful of token whales who are the most incentivized to participate.
“I’m confident that a community known for its passionate engagement will embrace its new authority and help to educate new MKR holders on the governance process,” said Maker Foundation CEO Rune Christensen. “Working together is critical to the success of decentralized governance and the future of the Maker project."
Uma Designs Priceless Tokens to Minimize Oracle Risk
Uma, a synthetic assets platform,designed a token which doesn’t require price feeds to minimize oracle attack risk.
“We believe DeFi can be made safer and more secure by minimizing oracle usage,” the post said. “We call this ‘priceless’ contract design.”
The move comes after a slew of oracle-based exploits on decentralized finance including the bZx flash loan attack, Synthetix’s SNX oracle front running, and Maker’s Black Thursday. Oracles are the way decentralized applications gather data that can’t be found on the blockchain itself, and needs to be sourced from the outside world, such as price feeds.
Uma’s “priceless” contracts incentivize traders to properly collateralize their tokens by including a liquidation and dispute process which rewards counterparties for identifying improperly collateralized positions. A position is assumed to be solvent, or properly collateralized, if it hasn’t been liquidated. Oracles are only used when a liquidation is disputed — which is designed to be rare.
Balancer Labs Raises $3 Million to Launch Programmable Liquidity Platform
Balancer Labs closed a $3 million seed round with venture funds Accomplice and Placeholder leading and with participation from CoinFund and Inflection.
Balancer is building a “flexible and trustless platform for programmable liquidity,” the project’s post said. “Anyone can now create their own self-balancing index fund, or invest in someone else’s.”
Balancer allows any token holder to provide liquidity by turning their whole portfolio into a Balancer pool or adding it to existing pools. Balancer allows pools with up to 8 tokens, with any custom %-distribution of value for each of them.
DeFi Saver Launches Platform for Anyone to Become a MakerDAO Liquidator
DeFi Saver released a MakerDAO collateral auctions dashboard with the goal of making it easier to liquidate underwater loans in the system.
Image source: DeFi Saver
The lack of competition among liquidators in MakerDAO’s auctions as the ether price was crashing recently led to one trader being able to get more than $5 million of ETH collateral for free, leaving the system under-capitalized. The only way to participate in the auction was by setting up a Keeper bot, a complicated process not suitable for non-technical traders.
“Today we’re introducing a new way to join collateral auctions that is accessible to anyone, just by loading a page and connecting your wallet,” DeFi Saver’s post said.
Coinbase Putting DeFi Interets on Your Cel Phone
Coinbase Wallet is integrating DeFi lending platforms with its mobile application, making it easier for users to start gaining up to 6% on their deposits. Coinbase users could previously access DeFi apps including Compound and dYdX through the wallet’s desktop-based dapp browser.
“You can now compare different rates from providers, easily deposit your crypto without opening a web browser, and view your balances on a simple, unified dashboard,” Coinbase’s post said.
Trust Spectrum: Multicoin Capital
Multicoin Capital’s Ton Sheng and Ben Sparagno compare centralized and decentralized crypto applications based on five properties that define the level of overall trust users have to have on the platforms — 1. custody, 2. immutability, 3. verifiable security, 4. legal and regulatory protections, 5. insurance. While DeFi scored higher on the firs three, CeFi was stronger on 4 and 5.
Decentralized Finance, On Blockchain- and Smart Contract-based Financial Markets: Fabian Schar
University of Basel professor Fabian Schar wrote an academic paper exploring decentralized finance. “We conclude that DeFi still is a niche market with certain risks, but also has interesting properties in terms of efficiency, transparency, accessibility and interoperability. As such, it may potentially contribute to a more robust and transparent financial infrastructure,” the abstract says.
Schar proposed a useful framework to understand DeFi architecture:
There’s increasing outrage over how the U.S. is handling the coronavirus crisis, with the Fed approving trillions in economic stimulus even as its effectiveness in boosting the economy is highly uncertain, while the government bails out big corporations. Meanwhile, most individuals are unlikely to benefit from those measures as jobless claims surge.
Pomp 🌪 @APomplianoSo let me get this straight. The government shut down small businesses and forced record levels of unemployment in a matter of weeks, but Wall Street gets majority of the aid? Average person gets $1,200 and still has to pay all their bills on time? What a joke.1:41 PM ∙ Mar 25, 202011,015Likes2,751Retweets
Meltem Demirors @Melt_Dem6/ if i seem like i'm angry, it's because I AM i am in my mid-thirties, and my government is selling my future to bail out their buddies who run banks, hedge funds, airlines, cruise lines, casino, and donate to their campaigns it's a load of horse shit1:46 PM ∙ Mar 25, 2020527Likes74Retweets
nic cartbrrrrr @nic__carterIf you're not radicalized, you're not paying attention12:24 AM ∙ Mar 26, 2020755Likes152Retweets
Erik Voorhees @ErikVoorheesIt takes a special kind of Government to spend $10,000 for every adult to give $1,200 to every adult. And it takes a special kind of public to cheer this Government into doing it. #America4:20 AM ∙ Mar 26, 20203,748Likes837Retweets
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The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money.
About the author: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. (Pre-order The Infinite Machine here). I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.
