Data & Insights: Ethereum On-Chain Activity Slumps as Base Sets New Records

ETH tu, Brute?

• On Wednesday, August 21, 2024, the 7-day moving average (7DMA) of daily onchain volume on the Ethereum network fell to $2.37 billion.
  • This represents a 9-month low, with it being the lowest recorded daily volume on the network since November 2023.
  • This new low is also a 54% dropoff from just two weeks ago when Ethereum had $5.17 billion in daily on-chain volume.
  • This dramatic fall in volume has led to multi-year lows in gas fees, as highlighted in last week’s newsletter, with figures not seen since 2020.
• To add insult to injury, this past week has also seen the 7DMA of transactions on the Ethereum network record its lowest figures since February 2024.
  • On Friday, 23 August 2024, the Ethereum network saw just 1.06 million transactions for the day, down 5% to the start of the week.
• This lull in activity on Ethereum could be attributed to seasonality, as the summer months and Q3 have historically seen a trend of suppressed on-chain activity.
  • The poor price performance of the ETH token itself hasn’t helped in improving the situation as the price of ETH has fallen by 20% since the ETH ETFs went live at the time of writing.
  • On a side note that may or may not further impact the ETH token price, on-chain analysis revealed that the Ethereum Foundation had deposited 35,000 ETH, roughly worth $100 million at the time of writing, into centralized exchange Kraken earlier this week, presumably to gradually sell to cover yearly operating costs.

Base-ically One of the Best

• Base, Coinbase’s ETH-based optimistic rollup, saw its highest-ever amount of active addresses on the network.
  • The L2 (layer 2) network recorded an all-time high of over 875,000 active addresses on Saturday, 24 August, 2024.
  • This follows a rapid rise that has been occurring over the past 3 weeks, with the network having just 545,000 active addresses on Thursday, 8 August.
  • This figure proceeded to increase by 60% at the time of writing, leading to the record high we witnessed on Saturday.
  • Although it is worth giving out a disclaimer that active addresses are not a direct representation of users, as one user may use multiple addresses. Not to mention bots and sybil activities, considering Base is one of the largest Ethereum L2s currently without a token.
• Moreover, active addresses aren't the only metric worth celebrating for Base, as the network’s transaction count has also seen record highs of 4.05 million on Saturday.
  • These two achievements further solidifies Base as the leading Ethereum L2 in terms of both the amount of addresses it accommodates, as well the number of transactions the network handles everyday.
  • This record high in active addresses for Base also follows the network surpassing Arbitrum’s active addresses last month.
  • Despite this, Base still lags behind Arbitrum in terms of daily on-chain volume and total value locked (TVL).
• Regardless, Base’s ascension to the top has been nothing short of impressive considering the network’s relative nascency, with it having launched just around this time last year, in August 2023.
  • This makes Base one of the most successful Ethereum L2s in terms of the activity and addresses it has garnered relative to its age
  • Reasons for Base’s rapid success could be attributed to the support it has received from Coinbase, as well as the successful on-chain initiatives and campaigns it has conducted over the past year, with their “on-chain summer” campaigns being some of the most notable.

ETH ETFS’ Summer Break

• Just five weeks into their historic launch, spot Ethereum ETFs are facing an unexpected chill, with trading volumes hitting new weekly lows. This cooldown may come as a surprise to those who anticipated a BTC-like reception:
  • Daily trading volume has plummeted to a new low of $93.7 million, a far cry from the initial excitement surrounding these products.
  • Ethereum's price has taken a 15% hit since the ETFs' approval, potentially dampening investor enthusiasm and contributing to the volume decline.
    Despite the overall slump, a battle for market share is unfolding between industry giants.
• The current state of play reveals some interesting dynamics:
  • Grayscale's Ethereum Trust ETHE continues to lead the pack, clocking in $69 million in volume last Friday. This dominance isn't surprising given its still massive $7.8 billion in Ethereum holdings.
  • If you’ll recall, Greyscale was quick to sell off its similarly massive BTC holdings when that was approved earlier this year. 
  • Hot on ETHE's heels is BlackRock's ETHA, which recorded an impressive $66.8 million in volume over the same period. This neck-and-neck race echoes BlackRock's success in the Bitcoin ETF arena.
  • Other contenders are struggling to gain significant traction, highlighting the challenges of competing with established players in this nascent market.
• This tepid start raises several questions about the future of Ethereum ETFs:
  • Is the current volume slump merely growing pains, or does it signal a lack of sustained interest from institutional investors?
  • How might future Ethereum upgrades or broader crypto market trends impact ETF performance?
  • Will we see a similar consolidation of market share as observed in the Bitcoin ETF space, or will the Ethereum ecosystem support a more diverse range of products?
  • As the crypto ETF landscape continues to evolve, all eyes will be on these Ethereum products. Will they find their footing and reignite investor interest when tradfi returns to their desks? 

Bitcoin Has the Mining Blues

• Bitcoin miners are feeling the squeeze as revenue per terahash plummets to a 12-month low of 4 cents, painting a grim picture for the mining industry's profitability. This downturn is part of a larger trend that's been looming over miners for some time:
  • The current 4 cents per TH/s represents a significant drop from the peaks of over 10 cents seen earlier this year, highlighting the volatile nature of mining economics.
  • The recent halving event, which cut block rewards in half, has accelerated the pressure on miners to optimize their operations.
• Several factors are contributing to this perfect storm of declining profitability:
  • On-chain activity remains muted, with Bitcoin's price stagnation failing to inspire increased transactions.
  • The novelty of Inscriptions and Runes, which briefly boosted on-chain activity, has waned. As we noted a few weeks ago, these protocols are grappling with UX issues that hinder wider adoption.
  • Mining difficulty continues to rise as more efficient hardware enters the network, creating a race to the bottom for less efficient operators.
• This squeeze on mining profitability could have far-reaching implications:
  • Smaller, less efficient mining operations may be forced to shut down or consolidate, potentially leading to further centralization of hash power.
  • Miners might be incentivized to hold onto their mined Bitcoin rather than selling immediately, potentially affecting market supply dynamics.
  • Innovation in mining technology and renewable energy integration could accelerate as operators seek to cut costs and improve efficiency.
• As the mining landscape evolves, the industry faces a critical juncture. Will we see a shakeout of less efficient players, or will innovative solutions emerge to keep a diverse mining ecosystem alive? With the next halving still years away, miners will have plenty of time to consider their options.

Blast(ing) Off? 

• In a surprising turn of events, Blast the Layer 2 has suddenly rocketed past Arbitrum in daily transaction count. Despite its native token price plummeting 42% since its June 26 launch, Blast has managed to hit an all-time high of 1.85 million daily transactions, outpacing Arbitrum's 1.56 million.
• This unexpected surge raises eyebrows, especially considering Blast's rocky start:
  • Blast's transaction count has nearly doubled, defying the typical post-airdrop slump seen in many other protocols.
  • The surge propels Blast to the forefront of optimistic rollups, second only to Base.
    This growth comes despite the BLAST token's significant price decline, dropping 42% since the token distribution.
• What's fueling this transaction boom? A possible cause is the $HYPERS protocol, a project being built on Blast that promises to build “hypersound money” using a combination of mechanics from both ETH and BTC. 
  • The founder, Blastoshi claims that their project has been at the core of the transaction spike on Blast. 
  • Hypers protocol is designed for high transaction output with its frequent block creation every minute, low transfer fees, and the capacity to process up to 10 transfers per block.
• However, it's crucial to approach this surge with caution:
  • High transaction counts don't necessarily equate to genuine adoption or long-term sustainability.
  • Previous cycles have shown that short-term incentives can manipulate or inflate transaction counts.
• As we've seen with other Layer 2 solutions, sustained growth requires a diverse ecosystem of applications and genuine user adoption. While Blast's current performance is interesting, the real test will be maintaining this momentum and translating it into lasting ecosystem value.