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January 09, 2022

Ethereum in 2021

Ethereum has troubled everyone with high mining fees and general network congestion, but it remains the de facto chain of choice. When it hit its previous all-time high in May, Ethereum saw a spike across the board in active addresses, miner revenue, transactions and adjusted on-chain value. This spike was primarily driven by DeFi with strength across DeFi 1.0 names (also when Ember Defi Index peaked). Since then, we have seen a pull back in activity but resilience in price, TVL growth, NFT summer, and significant upgrades to the network. Let’s talk about it broad strokes:

  • Price

    : The price appreciated from ~$700 to start the year to its current price of ~$3,700 (All Time High ~$4,900 seen in November). Ethereum’s first ATH in 2021 was around $4,200 before pulling back to ~$1,500s. The second catalyst was the London fork (which we have talked about in prior Nuggets). The anticipation led to strong price recovery and has helped Ethereum trade between $3,000 and $4,000. The 2nd and actual ATH for the year was seen in November when Ethereum hit $4,800 this also coincided with Bitcoin’s price recovery on the tails of continued government adoption and high inflation numbers. Furthermore, the London fork coupled with increased network utilization saw the chain have deflationary tokenomics on high usage days.

  • London Fork:

    The largest upgrade for Ethereum in 2021, and the first step towards getting a more efficient, scalable ETH 2.0 in 2022. Thus far, $5B worth of Ethereum have been burned since the upgrade. Ethereum still remains inflationary, but the burn mechanisms have lowered the net issuance rate for the token and led to some deflationary days dependent upon network usage.

  • Total Value Locked (TVL)

    : Ethereum remains king with 60%+ market share. The chain saw its TVL grow from $18B to $156B in 2021. According to DeFi llama, total TVL across chains is at $255B.

  • Other fun commentary / KPIs:

  • On-chain monthly volume has remained stable, growing slightly from $231B to $243B. However, this isn’t the full story, since there was a large spike in May which saw transaction volume peak at $666B.

  • Transactions have hovered between 32M - 45M per a month over the course of the year.

  • Average transaction cost has grown from $4.24 to $27.22, peaking at around $50. This does not appropriately represent more complex transactions that are often seen on the network like AMM trading, liquidity mining, minting and other contract interactions that have seen fees in the $100s and $1000s. Transaction fees have increased the barrier to entry for many users, especially, low-income and one predominant reason for scaling and growth in other L1 chains. With the London fork and planned upgrades in 2022, ETH hopes to solve these issues in the near future.

  • The Top Gas Consuming Contracts: OpenSea (NFT marketplace), Uniswap (top DEX on ETH), and USDC (top ERC-20 stable available in the US, behind USDT which is not readily available in all countries).

We are excited to see what Ethereum has in store for us in 2022. The chain has the most protocols, TVL, and community/institutional support. The biggest thing to watch will be the network upgrades that help increase transaction speeds and lower costs.

Harsharn Singh
Investment Associate | Ember Fund

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