As part of our layer 1 series we have broken down Avalanche, Fantom and Binance Smart Chain to understand whether they could take significant market share from Ethereum.
Today, we are going to finish this series by diving deeper into the layer 1 chain that first introduced smart contracts: Ethereum itself.
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⏰ In A Rush?
🥱 Bored Elite Yacht Club?
Crypto folk who watched The Tonight Show with Jimmy Fallon on Monday night may have fallen off their chair, when the host and Paris Hilton started promoting their Bored Ape Yacht Club (BAYC) NFTs to a rather confused audience. And they’re not the only celebs snapping up items from this collection. Here’s the lowdown:
BAYC NFTs were launched in April 2021 by four friends under the name Yuga Labs – there were 10,000 available to mint, each with different attributes and rarity, but all at a fixed price of 0.08 ETH.
They sold out within a day and the floor price rose rapidly over the summer, culminating with ape #2087 selling for 769 ETH in September.
Owning one doubles as a membership card to an exclusive club, the perks of which are being continuously developed – and the novelty of the club hasn’t gone unnoticed by celebrities.
Social media has had mixed reviews of this craze, with some bemoaning the elite pricing out genuinely interested collectors and others suggesting it signifies a top signal for NFTs in general.
What we can say is that there is a growing following of NFTs and as it reaches a critical mass the likelihood of it disappearing overnight becomes very small. For a basic introduction to NFTs and how to find them, check out the NFT section of our guide.
Our Market Meditations are longer format educational segments. Each letter features a Market Meditation which will deep dive and analyse a relevant crypto event, theme or tool.
🤝 Ethereum: Still the Top Smart Contact Platform?
Step 1: Establishing the Strength of the Layer 1 Chain
(1) Daily Active Addresses on Ethereum
Daily active addresses measure the number of wallets that carry out a transaction, on a blockchain, on any given day. Whilst many users have more than one wallet, we can use this measure to show how the number of users changes through time.
Nansen.ai: 19/01/2022 - Ethereum Active Addresses
Daily active addresses peaked at 650,000 at the end of 2021 but have since fallen to around 400,000, a lower number than we saw even at the peak of 2017.
We need to take into account however that Ethereum is significantly more expensive to use than in 2017. So whilst there are the same number of users, the amount of fees generated by the network is significantly higher.
(2) TVL Compared to Other Smart Contract Platforms
Total value locked (TVL) is simply the number of assets currently being staked on a network or protocol. It can be used to show how much money is currently taking advantage of a system.
The Block: 26/01/2022 - Gross Value Locked of Smart Contract Platforms
Whilst the dollar value locked in Ethereum has reduced dramatically in recent months (mostly due to price decreases across crypto), it remains significantly higher than any of the other layer 1 platforms.
This shows that whilst other layer 1s are gaining adoption, those with the most capital are still using Ethereum. This is likely due to its focus on decentralization and security over low cost, fast transactions adopted by some of its competitors such as Fantom.
Step 2: Diving Deep into Opportunities within Ethereum
Most Used Protocols over 7 days
Nansen.ai: 26/01/2022 - Most Used Protocols on Ethereum by Number of Users
Unknown: The fact that so many protocols remain unlabelled is an indication of how much opportunity there is still on the network.
Opensea: This is the biggest NFT trading platform on Ethereum and, notably, is ahead of Uniswap (the largest decentralized exchange) showing a high level of interest in the NFT space when compared to DeFi.
Uniswap: This is the largest decentralized exchange on Ethereum and facilitates trading of assets alongside yield opportunities through liquidity providing.
✅ Tip: Nansen’s hot contract feature allows us to find the hottest opportunities in real time by showing which smart contracts are receiving the most amount of capital. Currently the top 5 all relate to NFTs - another indication of its current popularity on the network.
Ethereum’s growth has certainly slowed down in recent months, and the number of daily users is now lower than even it’s peak in 2017. There is also no doubt that fast, low-cost smart contract networks have taken market share from Etheruem, especially when considering the number of users as the metric.
However, the $100 billion TVL shows how strong the ecosystem continues to be. Not only is this a vast sum of money, but it eclipses all other layer 1s indicating that those with the highest value of assets are looking for the network with the most security. As of today this is Ethereum, and no other network seems set to change this in the near future. Long term however, we will be keeping a close eye on how the layer 1 race develops.
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💸 The No-Limit Heist
Several crypto reports, released in December & January, mentioned the cross-chain future of crypto, but Vitalik Buterin, the creator of Ethereum disagrees.
In a recent interview on UpOnly, Buterin discussed his thesis and the security risks of cross-chain assets. On January 10th, just days after he tweeted his theory, the security firm Dedaub, disclosed their discovery of a multichain bug that has already seen more than $2 million of crypto theft. The recently discovered risk primarily focused on Multichain (formerly Anyswap) but affected the same contracts on other chains as well, including Binance Smart Chain, Polygon, Avalanche, and Fantom.
According to Dedaub, this bug had the potential to be a billion-dollar hack, which would have been the largest the crypto community has ever seen.
$367 million of WETH on the Anyswap Fantom bridge was at risk, and due to the same contracts being deployed on other chains, another $40 million was also vulnerable.
So far, there have been 3 main attackers, taking over 1150 WETH (totaling $431million). One hacker who stole 450 WETH, returned 320 of them after the victim reached out to him.
There have been several other attacks of much smaller sums of money.
The threat found by Dedaub led to two major vulnerabilities, one mainly in the WETH liquidity vault & the other one in the router contract that forwards tokens to other chains. Because of the way the Anyswap Fantom bridge works, the attacker could have moved the tokens to Fantom and 'stole them back on Ethereum.' The tokens on Fantom would have retained their value, making the attack theoretically infinite and allowing any 'investment' to be doubled.
It is important to keep these risks in mind, especially if you are new to crypto. If you have used MultiChain (formerly Anyswap), Dedaub advises that you check and revoke your token approvals immediately. You can read their full set of instructions here.
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