Updates on Ethereum: Q3 2022 | TKX Weekly

by @Guaaronnnn
editor @FriedWagyuu

Part I. Where is Ethereum at?

This article is based on — State of Ethereum Q3 2022
Thanks to Messari for the data and the insights

TL;DR

• The price of Ether has a strong bounce back from Q2 lows. However, Ethereum the network didn’t fully recover to the same level of transaction volume, fee revenue, TVL, or user activity from previous events like Terra and the fall of Three Arrows Capital.
• High user activity on Layer-2s like Optimism and Arbitrum. TVL on both reached $1 billion.
• A successful transition to Proof-of-Stake set up a new era for Ethereum. With a 99% reduction in energy usage, a potentially deflationary underlying currency, and an investable yield, Ethereum may finally find some of the institutional adoption proponents have long clamoured for.

Key Metrics

Overall metrics have slightly improved compared with the last quarter. The key reason might be the strong bounce back in the price of Ether. Funded addresses, avg. active addresses and avg. daily transaction recovered from Q2 doom. One thing worth noting is that L2 TVL has increased from $1 billion to $1.9 billion, with an 87% increase.

Performance Analysis

The protocol revenue was brought down by the combination of another crypto bear market, increased volume on L2s, and the upgrades in protocol contracts for gas efficiency. Consequently, total fees fell off a cliff in Q3 from $457k to $101k, dropping to their lowest levels since 2020. If these fees continue to fall into the back half of the year, they will directly impact the staking yields in a post-Merge world.

Network Performance

Over the quarter, average daily transactions were 1.2 million, up 6% from the previous quarter. Growth was observed in ETH transfers and DeFi transactions growing 7% and 14% to 415,000 and 82,000 average daily transactions, respectively. On the other hand, NFT and bridge transactions declined. NFT transactions fell 17% over the quarter to 181,000 transactions per day, and bridge transactions fell by 41% to 9,000 transactions per day.

Layer-2 Analysis

Ethereum’s rollup-centric scaling plan is finally materializing. While the average transaction count for Ethereum may have remained range-bound, there was meaningful growth in L2 transactions. Average transactions on Arbitrum grew almost 3x, from 39,000 in January 2022 to 115,000 in August 2022. Over the same period, transactions on Optimism also grew almost 3.5x from 41,000 to 142,000. It is interesting who will win out in this L2 competition.

Emerging underlying ecosystems are driving L2 activities. L2 applications have attracted real usage and attention, namely GMX on Arbitrum and Synthetix on Optimism. These applications are also among the biggest drivers for TVL on their respective platforms because people start looking for “real yield” in such a market. However, some of this growth may be attributed to mercenary capital rather than organic users, as OP incentives went live and an Arbitrum airdrop is anticipated.

Sector Analysis — DEX

In Q2, DEXs had an average of $2.78 billion in daily transaction volume. In Q3, this dropped to $1.83 billion. YoY volumes are also down to the tune of roughly $800 million. Uniswap dominance increased from 60% at the end of Q2 to 72% at the end of August. Uniswap remained consistently at ~75% of the DEX market share throughout Q3. Notably, Curve’s volume share fell from 16% down to 8% despite continuing to issue higher incentives than the competition. Uniswap dominance reaches a concerning level, as its market share keeps eating up others.

Sector Analysis — Borrowing and Lending

Average lending volumes declined sharply in Q3. The daily average fell from $280 billion per day in Q2 to $116 billion. July was a notably slow month before volumes picked up slightly in August, as demand for spot ETH increased for individuals looking to farm the ETH POW airdrop.

Sector Analysis — NFT

Sales have averaged less than $1 billion per month in Q3 compared to $4.6 billion in Q2. The decline is not only to do with a slowing market for NFTs but also the drop in ETH price which most NFTs use as their base currency. OpenSea continued to dominate market share in Q3.

Sector Analysis — Stablecoins

Stablecoin movement and overall volumes were largely unchanged from Q2, numerous activities were important to note for this segment that could have important implications for DeFi moving forward:

• Circle, the organization behind USDC, banned 38 addresses after the U.S. Office of Foreign Assets Control (OFAC) sanctioned the smart contracts of the privacy protocol Tornado Cash.
• MakerDAO’s DAI plans to lower its exposure to centralized stablecoins after the Tornado Cash event, and its founder Rune Christensen laid out a plan for its “Endgame”.
• Circle also launched a euro-denominated stablecoin, EUROC. The Euro traded at ~1 US dollar because of the recent strong USD.
• Aave announced its USD-stablecoin GHO.

Summary

There is no doubt that we are in a crypto bear market, Ethereum remains the most vibrant ecosystem compared to others. A successful transition to PoS should only help serve as a tailwind to further interest in the protocol. The new upcoming L1 challengers Aptos, Sui, and Celestia will launch in Q4. We are looking forward to seeing how they impact the narrative of the crypto market.

Part II. Market Updates

Robinhood Releases Beta Version of Web3 Wallet to 10,000 Users
Robinhood is releasing the beta version of its Web3 wallet, allowing users to swap assets on its non-custodial wallet, named the Robinhood Wallet, the Polygon-based wallet is opening its doors to the first 10,000 users who signed up for the testing period in May ahead of its public release.

SWIFT, Chainlink Labs reveal work on cross-chain proof-of-concept
Interbank messaging service SWIFT has linked up with Chainlink Labs on a cross-chain interoperability proof-of-concept project. The proof-of-concept involves Chainlink’s Cross-Chain Interoperability Protocol, which allows for token transfers across blockchains as well as the development of cross-chain applications.

BlackRock launches ETF in Europe with blockchain and crypto company exposure
BlackRock is launching an ETF with exposure to blockchain and crypto companies for its European customers. The iShares Blockchain Technology UCITS ETF is designed to track the New York Stock Exchange FactSet Global Blockchain Technologies capped index.

Circle Announces Next Wave of USDC Support for Multi-chain Ecosystem
Circle announced the intent to make USDC available on five additional blockchain ecosystems including — Arbitrum, Cosmos, NEAR, Optimism and Polkadot. By the end of 2022, USDC intends to be available natively on Arbitrum One, NEAR, Optimism and Polkadot. USDC on Cosmos intends to go live in early 2023.

Apple’s App Store wants 30% cut on NFT sales
NFT application developers and others have balked at a decision by tech giant Apple to impose a 30% commission on NFTs sold through apps on its marketplace, effectively putting NFT purchases in the same boat as regular in-app purchases.

Part III. Fundraising News

OneKey — Сrypto hardware wallet
Raised $20M in a series A funding round led by Dragonfly and Ribbit Capital. Other investors include Coinbase Ventures, Framework Ventures, Sky9 Capital, Folius Ventures, Ethereal Ventures and other investors.

Backpack — a wallet for executable NFTs
Raised $20M in a strategic funding round led by FTX Ventures and Jump Crypto. Other investors include Multicoin Capital, Anagram, K5 Global and other investors.

Infinity Exchange — DeFi protocol
Raised $4.2M in seed funding round. Investors include GSR, SIG, CMS, C² Ventures, and Flow Traders.

Kwil — decentralized database solution
Raised $9.6M in a funding round. Investors include FTX Ventures and Digital Currency Group.

3Commas — an automated crypto trading bot platform
Raised $37M in a series B funding round led by Target Global, Alameda Research and Jump Crypto. Other investors include Dmitry Tokarev, founder and CEO of crypto custodian Copper.

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Note: TKX Capital do not offer any financial advice for retail investors and we have no affiliation with projects in this research.