Supply and Demand of Ethereum v.2020

# 0x0001 Cambrian Explosion of Decentralized Finance

ETH, as the native Ethereum blockchain token, owned its greatest reputation after the flash-crash on March 12th, 2020. The fee market in that day rushes to 600Gwei due to the risk-exposure of ETH and BAT token position, which are saved in MakerDAO, to mint DAI tokens, which pumps DAI to 1.18USD and also boost Ethereum miners’ rewards. These rewards are mainly given to miners using graphic cards, and some to ASIC miners using InnoSilicon’s A10 series.

We call June-September 2020 “the Cambrian Explosion of Decentralized Finance”. Despite the 5-year evolution of MakerDAO, at the end of 2019, products like Compound.finance, Aave Flash-loan, KyberSwap, and Syntheix exchange/Synthetix Mintr are just showing tiny evidence of development in the domain of decentralized finance. Mainly in March and April in 2020, multiple projects suffered from the market crash ( MakerDAO had to make an auction, in order the sell MKR tokens to liquidize its DAI ), oracle or price attack ( BZRX losses money during hackers pump and dump in Uniswap ), hacking ( dForce losses almost all its Assets but get them returned after Singapore local police took investigation), non-standard ERC-20 abusing ( Balancer fully refunded the lost ETH of its’ pool establishers, ), and even unintentional wrong code (YAMv1 inflated itself thousands of times, caused mass dump immediately, lead to its later upgrade YAMv2/v3).

These events are only periodic staccato in the rhythm of De-Fi, which reminds people of ICO mania during 2017–2018. The core difference between these 2 waves of mania is the ETH fee market. “Which does not kill you just make you stronger.” On March 12, 2020, the gas fee rushed to 600Gwei, made mining ETH as profitable as usual. On Sep 1st, 2020, the Ethereum blockchain gas fee rushes to almost 1000Gwei at most, with 1.2m transactions that day, but only at ETH price of 488 USD. There’re at least 1m transactions thanks to tools like YFI to automatically seek chances between different liquidity mining pools, which brings scientists’ tools to ordinary people and made Ethereum world much fairer. An ordinary gas fee is 100Gwei, compared to 30Gwei in May 2020, and this trend is almost irreversible — You cannot shutdown YFI now, or stop any scientist to find opportunities of arbitrage between DEXs ( with atomic operation! ) day by day.

The panorama depicted by Nakamoto Satoshi is, “Fee market will play a dominant role in mining behaviors in the tail emission periodic ( of Bitcoin )”. On September 16, 2020, when Uniswap initiated a mass airdrop to its users ( DeFi’s №1 DEX product with 20K DAU at this time, and 45K DAU ATH) At, the block reward is reduced to 2 ETH ( compared to 5 ETH in 2015 ), but miners can easily acquire 7–9 ETH in every single block as miners’ service fee.

Mission achieved.

# 0x0010 Proof of Work, International Trading Services, Energy Industry and Semiconductor Industry

PoW coins like Bitcoin and Ethereum for Iranians are approaches to “store electricity virtually”. Since Mar 2020, in the physical world, A.K.A world with non-crypto finance just suffered an oil price crash, WTI index crashed from 45USD to 10USD. Our research made an assumption: POW crypto index stick to SOXX and WTI Index ( in some ratio ) and please do your own research in the past 5 years and 5 years in the future. OPEC countries like Iran mined their cryptos with old version BTC/ETH machines, but with very low electricity cost due to low oil cost.

The oil price crash in March 2020 had a deeper reason: Countries are afraid of the potential depression caused by COVID-19 since seriously infectious diseases might cause airlines to shut down in most areas on earth, which could lead to a shortage of power demand. But later this evolved into an unstoppable international trade dispute between the U.S. and other OPEC countries … and Russia too, leading an extremely easy monetary policy in the U.S. We can see USDT issuing surged at 2 points: end of March 2020, and end of April 2020, which pumped BTC to 7700USD and ETH to 175. At a cost, the USD index slowly dropped from 102 to 92.8, which is predicted to be 70 later, and making the “Short USD Index” itself a feasible arbitraging option. This also reminds people of the necessity of “More Stable Coin than USD” since USD is not SO stable pegging to the world economy.

Which is more astonishing, multiple information sources showed that a majority of USDT issued on ERC20, TRC20, and USDC ( they are very different from minted stable coins like DAI and sUSD) are basically not for ( some are not permitted to ) investing cryptos since 2018, but only for Fiat Services for international trading, which had great advantages over conventional banking’s wire services, in almost all aspects: Much faster speed, much less fee charged, and 0% tariff tax ( but 1% issuing fee and a 1% bulk service fee for over 1M USD international transaction, similar to VISA and MasterCard systems ).

Bitcoin rushed to 18K USD on Nov.17, 2020, which provide much faster, safer, and auditable international transaction rather than centralized services. Ethereum native tokens and ERC-20 USDT is a more economic choice if users are no more crypto-currency new-comers: it saves 80% or more transaction fees on an ordinary day but is responsible for 4 times or more transactions than the Bitcoin Blockchain system. You can always check etherscan.io to find more details in Ethereum Blockchain transactions: Most of the time, miners are providing services for ETH transactions, ERC-20 transactions, and Uniswap contracts’ calling. With the help of Curve.finance, a stable coin exchange protocol, and with the help of YFI, USDT and USDC are also shared high interests of DAI and sUSD, making the stable coins’ world more flat.

# 0x0011 What’s Your Portfolio In Ethereum Ecosystems?

DeFi liquidity providers usually had a 50–2000% APY reward in the earliest farming stages, which also pumps graphic card mining to a 30–500% APY return. Most DeFi projects allowed LP farming so that other investors and arbitragers can easily trade between DeFi tokens. If seeking arbitraging opportunities only in a small closed-loop, these tokens will inevitably go to an end of “Heat death of the DeFi universe”. Thanks to projects like MANA, ENJ, BAT, STORJ, ANKR, and many other NFT, they developed their own business, provided virtual property, virtual arts, advertising services, cloud storage services, and node services to form their own ecosystems, earn tokens and burn, or earn fiat money and repurchase tokens.

In Ethereum ecosystems and markets there are different strategies:

- Mine ETH with computer rigs and sell ( or short in advance )
- Farm DEX tokens with ETH or DAI and sell ( or short in advance )
- Hold an underestimated token

Any market in these 3 strategies has 1~10 billion market cap respectively, according to etherscan.io and defipulse.com

Market portfolio theory in CAPM reminds people that 1:1:1 of Stable coins/Ethereums/Altcoins.

Stable coins provide trading mediums, Ethereum is the de facto “crypto gas”, and Altcoins still play a vital role in the crypto world. One must not attend farming/mining without knowing his portfolio’s risk exposure, but miners and DeFi farmers will feel safer if his/her portfolio is close to the market portfolio, and reward distribution to a long enough time span.

xdefi.com, A Stack of Decentralized Finance Protocols