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| 1
CoinDesk Quarterly Review
Fourth Quarter 2019
| 2
INTRODUCTION2019: A year in suspended animation ...............................................................32019: The year giants faced off over crypto ...................................................4
INSTITUTIONAL PARTICIPATIONMeasuring institutional activity ...............................5Bitcoin whale population healthy .......................................................................6Institutional inflows heat up, then cool down .............................................. 7CME traders go short more than they go long .............................................8
Liquidity constraints ..................................................9Liquidity imbalances cause cascading effects ......................................... 10How shallow are component markets? .......................................................... 11
STORE OF VALUEBitcoin buy-and-holders .......................................... 12Bitcoin buy-and-hold activity stalls ................................................................. 13Who turns to bitcoin in a crisis? ........................................................................ 14
Who turns to bitcoin in a crisis, cont.? ........................................................... 15LocalBitcoins factors: inaccessibility & inflation .................................... 16
Bitcoin age distribution ............................................17On average, bitcoin transacted at a profit, barely .................................... 18... And not everyone who stood to profit, sold ............................................ 19
Bitcoin as a safe haven ............................................20Investors still aren’t treating bitcoin like gold ............................................ 21Investors still don’t think of bitcoin in times of fear ............................... 22Bitcoin still doesn’t fit in the risk picture...................................................... 23
SPECULATIONCapital flows ..............................................................24Exchanges’ bitcoin balances grew .................................................................. 25Why bitcoin when you could tether? ............................................................. 26
Exchange volumes ... ................................................27We still don’t know how much bitcoin volume is real ........................... 28Whose volume is real? ........................................................................................... 29
Excluded liquidity .....................................................................................................30
RETURNS ON INVESTMENT4 assets outperformed bitcoin in 2019 .......................................................... 32
WEB 3Decentralized app adoption ...................................33Dapp usage is on a downward trend ............................................................. 34ETH is proving more utility than currency ................................................... 35DeFi grows, plateaus & has yet to cover the gap ...................................36DeFi blooms in winter ..............................................................................................37
Ethereum competitors .............................................38Fewer users, more builders ................................................................................. 39Slow growth for ethereum competitors .......................................................40New entrants ................................................................................................................41
2020 PREVIEWEvents and issues to watch in 2020................................................................43
Contents
Contents
| 3
Crypto assets end 2019 and their first decade in limbo. Narratives like “digital gold” have crystallized and believers have been recruited from among the most powerful people on the planet, but there are few measurable signs of life. The instruments that register user adoption are silent. If these assets are going to the moon, for now they must be in cryogenic hibernation. In this CoinDesk Quarterly Review, the performance of cryptocurrencies is evaluated on the basis of use case. Is bitcoin “digital gold”? While many of 2017’s bitcoin buyers chose to hold through the Q2 run-up, bitcoin’s correlation to gold remains weak. Is ethereum the infrastructure for a new internet? If so, the users of this internet
are getting discouraged. “Decentralized finance” (DeFi) is growing, but not enough to cover their attrition. Crypto’s strongest use case to date may be speculation. The asset category was good to risk-takers in 2019. There were winners among the top coins by trade volume and more bitcoin moved at a profit than at a loss. This journey is unpredictable. The dominant narrative of bitcoin could change drastically in the 2020s, fueled (or not) by the participation of mainstream financial institutions. This report begins with metrics that gauge professional investors’ interest in cryptocurrencies.
—CoinDesk Research, January 2020
2019: A year in suspended animationClear narratives have emerged to justify crypto’s existence; so far, they are unencumbered by data
Introduction
February 28Ethereum hard fork:“Constantinople”
May 7Binance hacked
May 17BitMEX flash crash
June 18Libra unveiled
July 11US Fed’s Powell discusses bitcoin
September 23Bakkt debuts bitcoin futures
September 30Block.one settles SEC charges
October 11SEC halts Telegram token o ering
November 10ERC20 transactions surpass ETH
ERC20
October 25China’s Xi embraces blockchain
January February March April May June July August September October November December
Price
Annual peak global search volume
for ‘bitcoin’ on Google (%)
BTC Price (USD)Search Volume
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
| 4
The year 2019 may have seen little progress on defining crypto’s user narrative, but it saw governments and large firms betting on its future importance. State leaders such as China’s Xi Jinping put political capital behind a digital yuan. Facebook announced Libra and the US Congress took notice. Meanwhile, uses of blue-chip crypto assets evolved and regulatory battle lines were drawn. Here are 10 events we believe will impact crypto’s next decade.
2019: The year giants faced off over crypto
Introduction
Source: CoinDesk Bitcoin Price Index
| 5
Institutional participation:Measuring institutional activity
2019 was a mixed year • Continued growth in large on-chain holdings of bitcoin• Regulated derivatives market activity is down on the
year• Liquidity constraints pose systemic risk and limit
investability for institutions
| 6
Bitcoin address balances > 1,000 & bitcoin price vs. time
Bitcoin Price (USD)Bitcoin Addresses (>1K Balance)
Addresses
Price
0
500
1,000
1,500
2,000
2,500
$0
$5,000
$10,000
$15,000
$20,000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Bitcoin addresses holding more than 1,000 BTC continued a growth trend begun in 2018 at rates last seen before ASIC mining (2013) and when bitcoin traded below $100. This metric is subject to noise created by changes in large holders’ account management, and should be taken as a rough indicator of large investor participation, at best.
Bitcoin whale population healthy
Source: Coin Metrics Data Pro, CoinDesk Bitcoin Price Index
Institutional participation: Measuring institutional activity
| 7
BitFlyer perpetual swap volume vs. time
BTC Open Interest BTC Price (USD)
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Volume (USD Billion)
Price
BitFlyer
Open Interest
$0
$1
$2
$3
$4
$5
6/7/195/27/195/16/19
US-regulated crypto derivatives exchanges CME and Bakkt don’t offer high leverage, but they do offer regulated instruments for exposure to bitcoin. The size of these markets indicates the level of interest among institutions that a) can’t hold bitcoin directly and b) can’t access unregulated markets.
Institutional inflows heat up, then cool down
On May 28, BitFlyer cut maximum leverage on perpetual swaps from 15x to 4x. Their resulting drop in volume shows the demand for leveraged trading at higher ratios than CME or Bakkt provide.
BTC Open Interest BTC Price (USD)
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Volume (USD Billion)
Price
BitFlyer
Open Interest
$0
$1
$2
$3
$4
$5
6/7/195/27/195/16/19
CME & Bakkt max leverage:
2.7%
CME + Bakkt bitcoin futures open interest
Institutional participation: Measuring institutional activity
Source: CFTC and skew.com
| 8
BTC Price (USD)
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000Leveraged Money Net-Long (%)
−40%
−20%
0%
20%
40%
60%
80%
100%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Leveraged money
Price
CME traders go short more than they go longIn CME bitcoin futures’ brief history, there is usually more short interest than long. The week-to-week net change in leveraged money’s long-short ratio indicates broad shifts in traders’ positions. Leveraged money includes hedge funds, and is the largest group on CME’s bitcoin futures market.
CME bitcoin futures leveraged money net-long change vs. 8-week average
Institutional participation: Measuring institutional activity
Source: CFTC
| 9
Institutional participation:Liquidity constraints
Crypto markets are still immature• Liquidity in crypto is fragmented and interconnected,
creating systemic fragility that may be an obstacle to institutional participation
• Illiquidity in significant markets shows up limits on crypto assets’ investability as a category
| 10
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Daily Liquidations (USD Million)
Liquidations
BTC Price (USD)
Price
0
$100
$200
$300
$400
$500
$600
$700
$800
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
Understanding auto-liquidations is important to understanding how, in crypto’s fragmented markets, less-liquid markets can trigger large moves on more-liquid markets. Highly liquid derivatives markets depend on less-liquid spot exchanges for index prices. Sudden index moves result in auto-liquidations, on BitMEX frequently reaching more than $200 million a day.
Liquidity imbalances cause cascading effects
BitMEX total daily liquidations vs. time
Institutional participation: Liquidity constraints
Source: skew.com
| 11
02:03 02:13 02:23 02:33 02:43 02:53 03:03 03:13 03:23 03:33 03:43 03:53 04:03
$6,000
$6,200
$6,400
$6,600
6800
$7,000
$7,200
$7,4az00
$7,600
$7,800
$8,000
$8,200
11,0002,0003,0004,000
Bid size at min ask price (USD) vs time, Bitstamp price (USD), May 17, 2019On May 17, an outsized sell order triggered a crash on Bitstamp, at the time one of three components of BitMEX’s bitcoin price index. It triggered hundreds of millions in auto-liquidations, illustrating the fragility of crypto market structure and the possibility of manipulation for handsome returns.
How shallow are component markets?
Each circle is an order, most no larger than 10 BTC
At 3:22, the Bitstamp market in USD had returned to a new normal: order sizes
mostly <= 10 BTC, at about $7,300
Ask Quantity
Ask Price (USD)
By 3:09, the seller had dealt all but 831 of its
outsized order and pushed the market price
down near $6,276
At 3:00 am UTC, someone places an order to sell 3,737 BTC at $7,212, about $500
below the market
Institutional participation: Liquidity constraints
Source: CoinRoutes
| 12
Store of value:Bitcoin buy-and-holders
We propose two markets as buy-and-hold indicators, distinct from speculation• Coinbase cash markets’ volumes are below their 2018
peak• LocalBitcoins shows mixed signals on global use of
bitcoin as a store of value against weak currencies and instability
| 13
Coinbase BTC-fiat volume, by year Coinbase’s bitcoin-fiat markets (USD, GBP and EUR) are a bellwether for interest in a store-of-value use of bitcoin, as they are among the best-known fiat onramps for users outside Asia, and Coinbase offers limited pairs for trading. In 2019, their volume fell below that of 2018.
2019 20182017
6.455.91
5.54$38.34
$46.54$44.92
Volume (Millions) Volume (USD Billions) Volume (Millions) Volume (USD Billions) Volume (Millions) Volume (USD Billions)
Bitcoin buy-and-hold activity stalls
Source: Nomics
Store of value: Bitcoin buy-and-holders
| 14
Who turns to bitcoin in a crisis?
Heat map of BTC purchases, by YoY percentage change
0–33% 33–66% 67–100% 100–133% 134–166% >167%
2019 data not available
-0–33% -33–66% -67–100% -100–133% -134–166% <-167%
Note: Uzbekistan, Mozambique, Liberia, Fiji, and Ethiopia excluded from this analysis, because BTC trading was 0 at 2018.Source: Digital Assets Data
Store of value: Bitcoin buy-and-holders
“LocalBitcoins’ largest volumes in 2014 were concentrated in countries like the UK and the USA, and now we have e.g. Venezuela and Russia in the list of countries with the highest trade volumes. Overall, the most significant difference we have detected in our trade volume distribution over time is the growing importance of developing markets.”
-Sebastian Sonntag, LocalBitcoins CEO
| 15
Country/ region
2018 total BTC trade volume
2019 total BTC trade volume
YoY percentage change (min 50 BTC in 2019)
Indonesia 119.92 1,015.37 746.74%
Rwanda 8.34 57.17 585.36%
Georgia 30.11 179.99 497.81%
Guatemala 12.22 61.48 402.94%
Taiwan 206.77 933.25 351.35%
Kuwait 53.29 217.46 308.10%
Bolivia 27.36 103.54 278.42%
Zambia 15.98 56.18 251.58%
Central African CFA 21.47 58.41 172.05%
Qatar 32.40 80.42 148.20%
Venezuela 21,563.51 52,144.02 141.82%
Who turns to bitcoin in a crisis, cont.?
Source: Digital Assets Data
Store of value: Bitcoin buy-and-holders
LocalBitcoins volume is small, but unlike other exchanges it provides a geo-targeted lens, which skews toward buy-and-hold, rather than speculation. Among exchanges with over 50 BTC annual volume, the fastest-growing markets are a mixture of stable and unstable, emerging and developed economies.
| 16
Median difference in total trade volume in BTC from the previous year (%), based on MSCI market
Median difference in total trade volume in BTC from the previous year (%), based on inflation rate
Frontier and Standalone Emerging
Developed Low Inflation (<=4%)
Medium Inflation (4–10%)
High Inflation (>=10%)
-31.8%
6.73%
-12.85%
27.3%
-2.85%
14.73%
Source: Digital Assets Data
LocalBitcoins factors: inaccessibility & inflation
Frontier and Standalone Emerging
Developed Low Inflation (<=4%)
Medium Inflation (4–10%)
High Inflation (>=10%)
-31.8%
6.73%
-12.85%
27.3%
-2.85%
14.73%
The MSCI Market Classification Framework evaluates countries based on three criteria: economic development, size and liquidity, as well as market accessibility. Countries classified as Frontier or Standalone saw the highest percentage growth in LocalBitcoins trading activity in 2019. In contrast, countries with the highest levels of inflation (that is, 10 percent or more), saw the biggest decrease in LocalBitcoins trading activity from 2018 to 2019, while mid-level inflation countries grew the fastest.
Store of value: Bitcoin buy-and-holders
| 17
Store of value:Bitcoin age distribution
• Long stretches between transactions are positive for bitcoin’s store-of-value narrative
• “Hodlwaves” show bitcoins held when they could be sold at a profit
| 18
Bitcoin spent output profit ratio & price vs. time
SOPR
SOPR Bitcoin Price (USD)
Price
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
0.90
0.95
1.00
1.05
1.10
1.15
1/1/19 2/1/19 3/1/19 4/1/19 5/1/19 6/1/19 7/1/19 8/1/19 9/1/19 10/1/19 11/1/19 12/1/19 1/1/20
Each bitcoin is time-stamped with the date of its last transaction, indicating that more bitcoin transacted at a profit than at a loss. Although not all transactions reflect economic activity, the chart points to speculators selling to lock in gains or minimize losses. Spent output profit ratio > 1 indicates transactions made at a profit; < 1 indicates transactions made at a loss.
On average, bitcoin transacted at a profit, barely
Source: Glassnodes Insights
Store of value: Bitcoin age distribution
Average daily SOPR
in 2019: 1.0025
| 19
... And not everyone who stood to profit, sold
Percent of bitcoin supply by age since last transaction, vs. time UTXOs show the age of every bitcoin since its last transaction. In 2019, a pattern emerged suggesting some 2017 investors are long-term holders: a large group of bitcoins that last transacted across the second half of 2017 shrank in the 2019 run-up, but some holdings stayed put through year end. (A series of cliffs in shorter-term holdings likely represent a large cold-storage transfer that Coinbase disclosed in December, 2018.)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1/1/19 2/1/19 3/1/19 4/1/19 5/1/19 6/1/19 7/1/19 8/1/19 9/1/19 10/1/19 11/1/19 12/1/19
1 day - 1 week, %
1 week - 1 month,%
1-3 month, %
3-6 month,%
6-12 month,%
12-18 month,%
18-24 month,%
2-3 year,%
3-5 year, %
>5 year, %
<1 day, %
Source: IntoTheBlock
Coins that last
moved in 2H 2017 are held into the
18–24 -month band
The shift into 2–3 year holdings
is not as pronounced
Store of value: Bitcoin age distribution
| 20
Store of value:Bitcoin as a safe haven
Bitcoin isn’t behaving like “digital gold,” yet• No positive correlation with gold • No positive correlation with “fear gauge” • No negative correlation with risk-on assets
| 21
Investors still aren’t treating bitcoin like gold
Bitcoin price (USD) & LBMA gold price pm, 90-day correlation of daily returns vs. time
−0.4
−0.3
−0.2
−0.1
0
0.1
0.2
0.3
0.4
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
If bitcoin is “digital gold,” that should mean it is a safe haven, and it should show a strong correlation with established safe havens, like...gold.
The gold narrative has taken hold conceptually, but has yet to show up in the data on how investors are treating the asset. The bitcoin-gold correlation is weak, at best.
Source: Bloomberg, CoinDesk Bitcoin Price Index
Store of value: Bitcoin as a safe haven
| 22
Investors still don’t think of bitcoin in times of fear
Bitcoin price (USD) & VIX, 90-day correlation of daily returns vs. time
0
0.1
0.2
0.3
0.4
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
-0.5
-0.4
-0.3
-0.2
-0.1
Based on the S&P 500, the Cboe Volatility Index is known as Wall Street’s “fear gauge.” A bet on it would have had weak correlation with a bet on bitcoin, at best, in the past 8 years, and that didn’t change in 2019: the 90-day correlation of daily returns hit its all-time high this past August at 0.31.
Store of value: Bitcoin as a safe haven
Source: Bloomberg, CoinDesk Bitcoin Price Index
| 23
Bitcoin still doesn’t fit in the risk picture
Bitcoin price (USD) & SPX, 90-day correlation of daily returns vs. time
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
0
0.1
0.2
0.3
0.4
-0.4
-0.3
-0.2
-0.1
If bitcoin is digital gold, it should show a negative correlation with risk-on assets, like stocks. Negative correlation with the S&P 500 has never dropped below -0.34, a low it hit in 2019—before bouncing back up into positive-correlation territory, again.
Store of value: Bitcoin as a safe haven
Source: Bloomberg, CoinDesk Bitcoin Price Index
| 24
Speculation: Capital flows
• Exchanges’ bitcoin balances likely grew, in aggregate• Tether volumes more than tripled
| 25
Percentage of bitcoin total supply held on exchange vs. time
Exchanges’ bitcoin balances grew
Lower bound
Upper bound
0%
5%
10%
15%
20%
25%
30%
35%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Percent of Bitcoin Supply
Source: Chainalysis
An earlier version of this report mislabeled the y axis of this chart
Speculation: Capital flows
Wallet labeling involves guesswork, but it provides a view of net bitcoin flows onto exchanges, where speculators hold balances to trade. This measure of speculative use of bitcoin likely increased in 2019; only in the most conservative interpretation of the data did it remain flat.
| 26
Why bitcoin when you could tether?
In 2019, growing transaction activity involving tether (USDT), a stablecoin pegged to the dollar, predated its expansion onto the ethereum network. It showcases the limitations of volatile crypto assets as vehicles for speculative capital, as well as the utility of more feature-rich networks like ethereum for transacting in off-chain value.
Tether Volume (USD Bill., Adjusted)
$0
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
$1.6
$1.8
$2.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Omni volume
Ethereum volume
Tron volume
Tether on-chain transaction counts vs. time
Source: Coin Metrics Network Data Pro
Speculation: Capital flows
| 27
Speculation: Exchange volumes ...
... could be a reliable indicator of speculative activity in crypto, if we knew what they were• Lists of “reliable” exchanges vary• Some major exchanges continue to show a mix of real
and fake, with no way to distinguish
| 28
We still don’t know how much bitcoin volume is real
Exchanges market themselves with exaggerated numbers; aggregate figures either include this puffery or exclude real activity that is likely material to price discovery. Two aggregators, Messari and Nomics, agree that most volume is fake, but differ by a factor of two on how much is real.
11/1 11/2 11/3 11/4 11/5 11/6 11/7 11/8 11/9 11/11 11/12 11/13 11/14 11/15 11/16 11/17 11/18 11/19 11/20 11/21 11/22 11/23 11/24 11/25 11/26 11/27 11/28 11/29 11/3011/10
CoinMarketCap reported volume
Nomic’s “transparent” volume Messari “real” volume
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45(USD billions)
Bitcoin daily volume reported by major indices vs. time
Speculation: Exchange volumes
| 29
Whose volume is real?
Messari relies on BitWise research, which limits “real” volume to 10 exchanges, based on: • trade size histogram• alignment of volume spikes• spread-patterning analysis• ...as well as factors such as capital
controls.
Nomics’ “transparent” rating is given to exchanges that provide complete historical order book data.
Messari “real” exchanges Nomics “transparent” exchanges
BinanceBitfinexBitflyerBitstampBittrexCoinbaseGeminiitBitKrakenPoloniex
BelfricsBinanceBinance DEXBinance JerseyBitfinexbitFlyerBitmexBitsharesBitsoBitstampBlocktrade
Coinbase ProDelta ExchangeDeribitFTXGate.ioGeminiHitBTCIDEXKrakenLGOLiquid
New CapitalPoloniexPolyxSparkDEXSwitcheoVindaxWBBExchangeWCXxFuturesZEBITEX
Speculation: Exchange volumes
| 30
Daily average bid-ask spread by market, November 2019
Excludedliquidity
Regulators have noted that “fake-volume” exchanges such as Huobi and OKEx are likely supporting real volume and price discovery, to some extent. Traders testify that these markets are liquid. The chart here shows that, at least on Huobi, some bitcoin-base pairs are nearly as liquid as they are on Coinbase.
$0
$5
$10
$15
$20
Coinbase BTC/USD
Coinbase BTC/USDC
Huobi BTC/USDT
Huobi BTC/HUSD
11/30 11/2911/2811/2711/2611/2511/2411/2311/2211/2111/201111/1811/1711/1611/1511/1411/1311/1211/1111/1011/911/811/711/611/511/411/311/211/1
Source: Kaiko
Speculation: Exchange volumes
| 31
Speculation: Returns on investment
The highest gains were upward of 300 percent while the biggest losses amounted to roughly 75 percent
| 32
Market performance of the top crypto assets by trade volume*
There were 14 crypto assets (excluding stablecoins and assets that launched intra-year) with over $5 million in verified trade volume (per Messari, whose “real” volume metric is among the most conservative). Half of the 14 saw positive returns in 2019.
4 assets outperformed bitcoin in 2019
EthosWavesXRPTRONEthereumEOSMoneroLitecoinBitcoin CashBitcoinETHLendBNBTezosChainlink
388.94%
167.58%
130.96%112.75%
92.38%
39.48% 31.63%0.53%
-2.11% -10.60%-32.68% -46.26%
-68.18% -74.35%
Speculation: Returns on investment
* Real” 24-hour volume > USD $5 million, according to Messari. Data as of Jan. 3, 2020.Source: Messari
| 33
Web 3Decentralized app adoption
• Fewer users• Zombie dapps• ETH is more infrastructure than currency• DeFi is growing as games and gambling decline
| 34Web 3: Dapp adoption
No. of Dapp Users No. of Dapps
Dapps
Users
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
120,000
0
100
200
300
400
500
600
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Web 3’s killer application hasn’t emerged: decentralized applications, or dapps, closed 2019 with about the same number of users as they had at the beginning of the year, according to one project that tracks dapp adoption. Meanwhile, the number of active dapps (>=10 users) is up for the year, but has declined since mid-year highs, leaving a cohort of userless “zombie dapps” on the ethereum blockchain.
Dapp usage is on a downward trend
Weekly active dapp users and weekly active dapps (>= 10 users) vs. time
Weekly active users are based on the number of accounts/addresses interacting with dapp smart contracts on each respective blockchain platform, which may be manipulated, especially when platform fees are low. Source: DappRadar aggregate of users & dapps on EOS, Ethereum, IOST, Loom, NEO, Ontology, ThunderCode, Tron VeChain, and Waves
| 35
Ethereum transactions are increasingly being initiated by smart contracts as opposed to individual users. This suggests greater user momentum for ether (ETH) in dapps and off-chain assets than is evidenced in the use of ether as a medium of transaction.
Note: ETH transaction count represents the non-contract related transactions that do not call upon any smart contracts.
Token and non-token transaction counts vs. time
ETH is proving more utility than currency
Transactions
ETH token
ETH non-token
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Source: Coin Metrics Network Data ProWeb 3: Dapp adoption
| 36
Number of daily active ethereum dapps (>=1 user) by token category vs. timeNumber of ethereum dapp users by token category vs. time
DeFi grows, plateaus & has yet to cover the gap
*Daily active users are based on the number of accounts/addresses interacting with dapp smart contracts on each respective blockchain platform. Number of accounts/addresses and therefore users may be easily manipulated due to low platform fees. Source: dapp.com
Dapps’ dwindling user numbers are largely a story of stagnation or decline in gambling and games, where Web 3’s initial enthusiasm ran hottest. The number of decentralized finance, or DeFi, dapps is growing more steadily, and the category’s user numbers ended 2019 basically flat.
ETH games
ETH DeFi (finance and exchange dapps)
ETH gambling0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
ETH games
ETH DeFi (finance and exchange dapps)
ETH gambling
0
10
20
30
40
50
60
70
80
90
100
110
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Web 3: Dapp adoption
| 37
DeFi blooms in winter
Decentralized finance (DeFi) expanded in 2019 with Compound, dYdX and InstaDApp gaining some user traction alongside the DeFi leader, MakerDAO, which launched multi-collateral DAI. Combined, these DeFi projects ended 2019 crossing 3 percent of ETH locked as ETH’s price fell to a loss on the year.
Locked in DeFi (%) ETH Price (USD)
$0.00
$50.00
$100.00
$150.00
$200.00
$250.00
$300.00
$350.00
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
1/1/19 2/1/19 3/1/19 4/1/19 5/1/19 6/1/19 7/1/19 8/1/19 9/1/19 10/1/19 11/1/19 12/1/19 1/1/20
Compound
dYdX
Instadapp
Maker
Price
Percent ETH locked in DeFi lending platforms vs. time
Source: DeFi Pulse, Coin Metrics Network Data Pro, CoinDesk Ethereum Price Index
Web 3: Dapp adoption
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Web 3Ethereum competitors The competition has a long way to go
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No. of transactions (‘000) Pull request contributors**No. of active addresses (‘000)*
Fewer users, more builders
0
50
100
150
200
250
300
350
400
450
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov0
50
100
150
200
250
300
350
400
450
0
100
200
300
400
500
600
700
800
900
1,000Accounts (’000) Transactions (’000) Pulls
*Per Coin Metrics, addresses that participated in at least one ledger change each day. **Only reflective of the ethereum Geth Github page.” Source: CoinGecko, Coin Metrics Community Data
Web 3: Ethereum competitors
Despite a lack of dapp growth this year, the ethereum blockchain in terms of usage and community has remained steady. The number of pull request contributors for the most popular ethereum client implementation, Geth, grew by over 50. This suggests that outside of dapp activity, the ethereum network is continuing to mature and develop as a blockchain platform.
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No. of transactions (millions) Pull request contributors**No. of active accounts/addresses (‘000)*
Slow growth for ethereum competitors
Tron
Tron
Tron
EOS EOS EOS
IOST IOST
IOST
Transactions (Millions)
0
1
2
3
4
5
6
7
8Pulls
0
50
100
150
200
Accounts (’000)
0
50
100
150
200
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec JanJan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec JanJan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
*Per Coin Metrics, addresses that participated in at least one ledger change each day. **Reflective of one GitHub repository. In the case of multiple, the one with the largest contributors was chosen.Source: CoinGecko, Coin Metrics Community Data, dapp.com
Major smart contract platforms outside of ethereum such as EOS, Tron and IOST saw high levels of transaction activity this year. The numbers were significantly higher than that of ethereum, though the relative cost of transaction generation is lower and therefore more easily faked. In terms of active address numbers and the growth of pull request contributors to core code, EOS Tron and IOST did not reach levels as high as ethereum.
Web 3: Ethereum competitors
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*A secondary token sale is ongoing. **A secondary private token sale was closed in June but it was not disclosed how much was raised.
Correction: A previous version of this report labeled the amount raised through token sales and footnotes incorrectly
New entrant
Mainnet launch date Short description of the network
Can dapps be deployed on the
platform, as of Dec. 31?
Smart contract languages on
mainnet (built/ in-progress)
Amount raised through token
sales so far
Oct 30, 2018 Launched in 2018, the Blockstack blockchain is a decentralized computing network and dapp ecosystem that aims to replace the current internet. It hosts roughly 270 decentralized applications as of December 2019. In the new year, it expects to release a mainnet version of its smart contract language, Clarity, and launch a process of general mining to support increased computing resources independent of the bitcoin blockchain.
Yes Clarity (in-progress)
$75 million
Sept 29, 2017 It launched in 2017, but the proof-of-stake Cardano blockchain is set to add smart contract functionality in early 2020. Cardano is envisioned to be a technological platform capable of running new decentralized financial applications.
No Plutus Core (in-progress)
$63 million
March 13, 2019 Marketed as the “internet of blockchains,” Cosmos is a proof-of-stake network envisioned to connect disparate blockchain protocols. Blockchains to support smart contract functionality have not yet been built on Cosmos.
Yes Ethermint, Pact, SES (in-progress) Rust (built)
$17 million
Nov 4, 2019 Using a “braided” proof-of-work structure, Kadena aims to be a smart contract platform able to scale for enterprise-grade clients and app development.
Yes Pact (built)
$15 million*
TBD Like Cosmos, Polkadot is a blockchain interoperability project. While the main Polkadot network will not support smart contract execution natively, it is expected to support at least one “parachain” built by blockchain startup Edgeware with the ability to program and execute dapps.
No Wasm, Pact (in-progress), Ink!, Solidity (built)
$145 million**
New entrants
Web 3: Ethereum competitors
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2020 Preview
| 43
Ethereum 2.0 LaunchesCan “Proof-of-Stake” improve on bitcoin’s consensus model?
Institutional Inflows
Metrics like regulated derivatives volume have emerged
Libra Wallet LaunchFacebook plans to launch Calibra
SEC Versus Telegram
Impact on crypto regulation and token issuer outlook
Recession & Volatility
Will bitcoin’s response support “digital gold” narrative?
O�-Chain Assets
Tether has tilted markets toward o�-chain value; will it continue?
Central Bank Digital Currencies
Progress, competition, impact on crypto markets and regulation
Bitcoin Halving
May: quadrennial halving of miners’ block reward
US Political Parties
Pro- and no-coin election-year stances are likely on party lines
DeFi Adoption
Can “decentralized finance” show mainstream appeal?
| 43
On the cusp of a new year and a new decade, important narratives that began in 2019 (and even earlier) are likely to continue to impact the cryptocurrency industry and investor outlook.
Events and issues to watch in 2020
2020 Preview
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Special thank you to all the data providers who generously provided data for this report, some of which was not explicitly featured. We thank: Alethio, Bloomberg, Celsian, CFTC, Chainalysis, CoinGecko, Coin Metrics Data Pro, CoinRoutes, Dapp.com, DappRadar, DeFi Pulse, Digital Assets Data, Genesis Capital, IntotheBlock, Kaiko, Messari, Nomics, Santiment and Skew.
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