Coin Metrics' State of the Network: Issue 29

Tuesday, December 10, 2019

Weekly Feature

Analyzing the Supply Distributions of Projects with On-Chain Governance

by Nate Maddrey and the Coin Metrics Team

It takes a whole network of people to make a public blockchain work. You need miners to validate and secure the ledger. You need developers to maintain and update the protocol’s code. And you need users and investors who use the blockchain and value its native crypto asset.

Often times, these different groups’ interests are aligned. For example, investors and miners typically both want the price of a cryptocurrency to increase. But in other cases, like in the debate over whether Bitcoin should adopt SegWit, different constituents can have vastly different opinions. 

Most people would probably agree that for a blockchain to be successful in the long run it needs some sort of process for aligning on things like protocol upgrades and economic policies. But beyond that, there are countless different opinions about how blockchains should be governed, and even if they should be governed at all. 

In this piece, we analyze a specific subset of blockchain governance called on-chain governance, and look at the supply distributions of three different projects that make use of it.

The Governance Debate

Broadly defined, blockchain governance refers to the processes used to manage how blockchains change over time. This includes changes to the core protocol, but can also include changes to any other part of the blockchain’s ecosystem. The specific governance rules and procedures are unique to each blockchain.

There are two general forms of blockchain governance: off-chain and on-chain governance. In on-chain governance, voting is recorded on the blockchain’s ledger and is therefore publicly viewable and auditable. There are different ways that this on-chain voting can be structured, but it typically involves staking cryptocurrency to express support for an issue. 

Off-chain governance, on the other hand, does not involve recording votes on the blockchain ledger itself. Off-chain governance is more nebulous than on-chain governance and can involve many different forms of coordination and signaling, including forum discussions, informal polls, and formalized debate. But ultimately off-chain governance comes down to one critical decision: “voting” through deciding whether or not to change the protocol. 

Bitcoin and Ethereum both use forms of off-chain governance. Whenever there is a protocol upgrade, full node maintainers must decide whether they want to adopt the new changes. If they agree with the changes, they update their software. The version of the software endorsed by the majority of the community is considered the “main chain.” Full nodes maintainers can decide at any time to use a different version of the protocol than the main chain and thus create a fork as long as miners also run that version of the protocol. 

Off-chain governance typically works relatively smoothly for scheduled protocol updates, like those introduced in Bitcoin Improvement Proposals (BIPs) or Ethereum Improvement Proposals (EIPs). But it can sometimes lead to drawn-out, contentious hard forks, where two (or more) different factions of the community have drastically different ideas of how the chain should proceed. Notably, this occurred after the Ethereum DAO hack, which resulted in the split between Ethereum and Ethereum Classic, and the split between Bitcoin and Bitcoin Cash over what maximum size, if any, blocks should have.

These contentious hard forks led other blockchains to search for new, alternative ways to structure blockchain governance. Partially as a response to the perceived ineffectiveness of off-chain governance, on-chain governance began to gain favor. Starting around 2016, blockchains like Decred and Tezos began to experiment with forms of on-chain governance.

On-Chain Voting 

On-chain governance allows users to vote directly for the changes they want made to the core protocol code. Additionally, some blockchains allow the option to vote for economic changes such as setting fee price. These votes can be polls, that serve as a way for the community to coordinate and signal their opinions, or they can be binding, and immediately be put into effect as soon as the vote ends. 

Most on-chain votes involve some form of staking. In order to vote, users must “stake” a certain amount of crypto assets, which locks the staked assets into escrow until the voting period ends. If users are caught cheating or committing voting fraud they lose some or all of their stake, depending on the specific rules of the blockchain.

On-chain governance is pitched as solving several problems with off-chain governance. It is described as being more efficient, allowing for quicker decisions on key issues (although it’s still up for debate whether this is a good or bad thing). It also, in theory, takes the power out of the hands of miners and other powerful node operators and puts it into the hands of the token holders. 

However, on-chain governance is not without its problems. Most staking protocols give some form of advantage towards large balance holders. This means that the degree of concentration in supply distribution takes on increasing importance for governance systems that rely on on-chain staking. If supply is mostly held by a small number of addresses, those addresses gain huge influence over the governance decision-making process, which can lead to a plutocracy.

In the following sections, we analyze the supply distributions for three different projects that use on-chain governance: MakerDAO, Decred, and Tezos. 

Supply Distributions


MakerDAO, the Ethereum-based decentralized finance platform, uses both polls and binding on-chain voting to govern the DAI stablecoin and to make other decisions for the MakerDAO ecosystem. MakerDAO polls are “symbolic votes used to poll community sentiment towards specific models or data sources.” The Maker Foundation uses polls to gauge community sentiment for different issues, like adjusting the DAI stability fee. MakerDAO also has “Executive Votes.” Executive votes are binding decisions, and the winning option is enacted once voting ends.  

Currently, MakerDAO votes are directly proportional to stake. When a poll or executive vote is opened, users vote by staking their MKR on a specific side of the issue. The side with the highest amount of MKR staked by the end of the voting period wins. For Executive Votes, the voting process continues until  “the number of votes surpasses the total in favor of the previous Executive Vote.”

MakerDAO’s most recent Executive Vote, which enabled the community to adjust the DAI debt ceiling and SAI stability fee, was executed on December 6th. The vote passed with a total of 51,910 MKR staked in support. Two addresses accounted for over 66% of the total MKR staked, according to Furthermore, MakerDAO has had several votes where a single address has accounted for over 90% of the winning stake, including a vote in October where a single address contributed over 94% of the winning vote

Therefore, supply distribution is an important consideration when analyzing MakerDAO’s governance. Holders with large balances can have an outsized influence on votes.

To analyze supply distribution, we look at the number of addresses that hold above a certain fraction of the total supply, ranging from 1/1,000th of supply to 1/10,000,000,000th of total supply. 

However, MKR’s distribution is a bit skewed, because there are several MKR addresses that pool a large number of tokens for staking. Specifically, the Maker MultiSig Contract and Maker Governance Contract hold 219,296 and 137,084 MKR, respectively. Therefore we excluded those two addresses to create the following adjusted supply distributions, which brings the total MKR supply from 999,999 to 643,609. 

After this adjustment, 1/1,000th of the total adjusted supply of MKR, is 643.61 MKR (equivalent to about $324K at current MKR price), and 1/10,000,000,000th of the total supply of MKR is 0.000064 MKR (equivalent to about $.03). 

The below table shows stats for addresses holding greater than or equal to 1/X of the total supply of MKR, where X ranges from 1,000 to 10,000,000,000. For example, there are 102 addresses that hold at least 1/1,000th of total MKR supply (i.e. at least 643.61 MKR). These 102 addresses, which are only 0.58% of the total amount of addresses, collectively hold over 509,991 MKR, which is over 79% of the total supply. Given that the most recent vote required 51,910 MKR, these top 0.58% of addresses could be able to control MakerDAO votes if they cooperated.

Note: MKR’s supply is adjusted in the following chart to exclude two Maker Foundation contracts, as explained above.

The number of addresses holding smaller amounts of MKR has been growing steadily over time. But the number of addresses holding greater than 1/100,000th of the total MKR supply (i.e. holding at least 6.44 MKR) has remained relatively flat. Therefore the majority of voting power has been concentrated in a relatively small number of addresses over the course of most of MakerDAO’s history.


Decred’s on-chain voting system also uses staking but does not have staking directly proportional to votes. Instead, Decred users stake DCR in exchange for voting tickets, which gives them an opportunity to both vote and validate the previous block. Every block randomly picks five tickets to vote. Staked DCR is locked until the ticket is selected to vote, and is then returned to its owner along with a PoS reward (source). 

Although votes are not directly proportional to the amount of DCR staked, there is still an advantage to having a relatively large amount of DCR. Decred voting tickets each currently cost 144.71 DCR each, which is equivalent to about $2,980. There are currently 28,158 addresses that hold at least 107.83 DCR (representing about 24% of the total DCR supply), which is a little less than the current price of a voting ticket.

Jumping up one level, there are only 792 addresses that hold at least 1/10,000th of DCR supply (i.e. at least 1,078 DCR) which is equivalent to about $22,260 at current price. These 792 addresses hold over 55% of total DCR supply. Given that this group of addresses holds over 50% of supply, they could conceivably control Decred voting if their owners cooperated. However, Decred’s voting ticket system makes this much more difficult to do than in MakerDAO. Since Decred voting tickets are randomly selected, a single user cannot come in and immediately dictate the vote.

The number of addresses holding greater than 1/100,000th of the total DCR supply (i.e. greater than 107.83 DCR) has almost doubled over the past year. Similarly, the number of addresses holding smaller amounts of DCR has also grown. The number of addresses holding more than 10,783 DCR (1/1,000th of the supply) decreased over the course of the year, dropping from 73 to 64. 


The Tezos governance process is more similar to Decred than to MakerDAO. Tezos bakers (which is Tezos’ version of miners) vote on issues by staking their tokens. Bakers validate blocks in addition to voting on governance issues, but we will be focusing solely on their voting duties for this analysis.

Additionally, Tezos users can delegate their tokens to bakers, which allows the baker to vote on that user’s behalf. This allows users with less than 8,000 XTZ to still participate (indirectly) in the baking process. 

In order to be eligible as a baker, Tezos users must stake a certain amount of XTZ, known as “rolls.” The more rolls a baker has, the higher the chance they have to be selected as a block validator. Tezos rolls currently cost 8,000 XTZ. 

There are currently 5,424 Tezos addresses that hold at least 7,399 XTZ (i.e. at least 1/100,000th). These 5,424 addresses collectively hold over 96% of the total Tezos supply. Furthermore, there are 883 addresses that hold at least 1/10,000th total supply (73,999 XTZ), equivalent to about $118K. These 883 addresses hold over 82% of the total supply.

The number of addresses holding greater than 1/100,000th of the total XTZ supply (i.e. greater than 7,399 XTZ) has grown at a slower pace than DCR, increasing from 4,625 at the start of the year to 5,424 today. The number of addresses holding more than 1/1,000,000,000th of the total supply of XTZ (i.e. at least .74 XTZ) has grown significantly faster, jumping from 24,556 on January 1st to over 44,000. 

Future of On-Chain Voting

Governance, in general, is an incredibly difficult problem to solve; societies have been trying to govern themselves for thousands of years, to varying degrees of success. 

On-chain governance is still at very early stages. MakerDAO, Decred, and Tezos are still in relatively experimental phases, and their governance systems will certainly evolve as the projects progress. 

Many people are currently working on ways to improve on-chain governance and blockchain governance in general. For example, quadratic voting has been put forth as one potential improvement.  Furthermore, several projects are working on solutions for online identities, which could also improve the on-chain voting process by aligning voting power to the individual rather than to their stake in the network.

Token distribution will likely continue to be an important metric to monitor, especially as long as staking is involved in on-chain voting. We will continue to track these projects moving forward.

Network Data Insights

Summary Metrics

Most major crypto networks stabilized over the past week, with BTC and ETH market cap dropping 0.3% and 1.7%, respectively. Transfer value and fees, however, dropped significantly over the past week. BTC and ETH fees both dropped to weekly lows at the end of the week. On December 8th, BTC had $108,452 total daily fees, while ETH had $39,987.

XRP transactions decreased by 34.1% over the past week, after staggering growth the two previous weeks: XRP transactions increased by over 50% last week after being up over 121% the week before. 

Network Highlights

Coin Metrics recently released updates and enhancements to our exchange flow metrics. The following two charts are generated using the updated metrics.

The PlusToken scam has been back in the news recently as the wallet continues to shed coins. Reports going back to August claim that Huobi has processed a large amount of PlusToken withdrawals, and on-chain data appears to back that up. 

The following chart shows our estimate of Huobi’s BTC supply over the past year. Huobi’s supply started increasing mid-year and shot up towards the end of the year, which coincides with reports of the PlusToken sell-off. 

Poloniex has also been in the news for spinning out of Circle, after being acquired in early 2018. Poloniex’s supply of BTC and ETH plummeted after Circle’s acquisition, and are now at their lowest levels since early 2016. It remains to be seen whether Poloniex can recover after the recent spin out. 

Ethereum recently completed its scheduled Istanbul hard fork. The protocol upgrade made several protocol changes, including changes to some gas costs, which some developers were apparently not fully prepared for. 

The below chart shows the percent of Ethereum contract calls that ran out of gas, from December 6th to December 9th. Contracts running out of gas spiked up to over 1% on December 8th, immediately after Istanbul went live.

Notably, this change appears to have affected Gemini. Gemini has not swept user deposits into its hot wallet since the launch of the Istanbul fork. Each of their attempts has resulted in an “out of gas” error, as noted by Coin Metrics’ resident data archaeologist Antoine Le Calvez. Gemini later fixed the issue, whose root cause was a bad estimate of post-fork gas cost to sweep user funds.

Market Data Insights

This week, ZCash (+5%) and Bitcoin Cash SV (-7%) saw significant moves in price while the other top assets remained unchanged, although brief periods of elevated intraday volatility were seen. 

Tezos, however, continues its track record of short-term outperformance with a +26% gain this week. 

The recent launch of Bakkt’s monthly Bitcoin options product marks an important step in the institutionalization of the asset class. Both CME and OKEx have announced they will offer Bitcoin options in the future, joining the ranks of Deribit who already offers option markets. A robust and liquid options market is significant because it allows portfolio managers additional tools to hedge away certain portfolio risks and opens the possibility of creating portfolios with a defined volatility target -- an attractive proposition for pension funds and large institutional investors. 

Options also allow market participants to implement specific market views that previously were not possible, namely the ability to bet on future levels of volatility. In time, an index calculated off option-implied volatility levels (similar to the VIX for U.S. equities) are possible. Opportunities in volatility trading will likely be present as market participants gain experience in accurately pricing Bitcoin options.

Current levels of realized volatility, measured over a trailing one-month period, are reaching levels rarely seen over the past three years. Historically, annualized volatility has rarely dipped below 50% and exhibits mean-reverting behavior. For crypto assets, low levels of volatility breed complacency and increase risk-taking through increased leverage or futures positions. Under such conditions, heightened future volatility is likely, as forced liquidations can exaggerate a price move in either direction. Currently, Bitfinex leveraged long positions are approaching all-time highs although BitMEX’s open interest are still at moderate levels. 

CM Bletchley Indexes (CMBI) Insights

Most Bletchley Indexes were up slightly over the week, returning 1%-2% as the whole crypto asset market remained relatively flat. Mid-cap assets were the exception with the Bletchley 20 falling 0.8%.

A testament to the stability and general uniformity across the market over the last month is the results of the Bletchley December rebalance. The only change to the large-cap, mid-cap, and small cap indexes was the promotion of Tezos (XTZ) to the Bletchley 10 and the demotion of Binance (BNB) to the Bletchley 20.

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • Coin Metrics is pleased to announce the release of CM Network Data Pro Daily Macro Version 4.4 and CM Network Data Pro Block-by-Block Version 2.1. These releases are centered around a large enhancement to our on-chain exchange-related metrics (including flows and transfers into/out of exchanges as well as the total supply of native units held on exchanges). Read more about the updates here.

  • Coin Metrics has also enhanced and improved the CM Real-Time Reference Rates methodology. Specifically, the methodology now incorporates inverse price variance weighting, in addition to volume weighting, which reduces the weighting of markets that contain extreme price outliers. Read more about the changes here.

  • Additionally, Coin Metrics has released version 2.0 of our CM Market Data Feed (MDF) product. CM MDF now includes Trades and Candles data for Futures instruments. Currently, BitMEX and Huobi futures for all available markets are supported. Read more about the release here

  • Coin Metrics is hiring! We recently opened up 6 new roles, including Blockchain Data Engineer and Data Quality and Operations Lead. Please check out our Careers page to view the openings.

As always, if you have any feedback or requests, don’t hesitate to reach out at

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Coin Metrics' State of the Network: Issue 28

Tuesday, December 3rd, 2019

Weekly Feature

The Psychology of Bitcoin Bubbles as Measured by Investor Cost Basis

by Kevin Lu and the Coin Metrics Team

Bubbles and subsequent crashes in financial assets occur with regular frequency in economic history, largely due to deeply-rooted cognitive biases in human psychology. In Bitcoin’s ten year history, at least three complete bubble-and-crash cycles have been observed. 

We examine the state of investor psychology at six critical moments in Bitcoin’s history (including its recent state) using the distribution of investor’s estimated cost basis, an extension of the realized capitalization concept. 

Understanding Estimated Cost Basis Distribution 

Unlike market capitalization, which values each coin at the current price, realized capitalization values each coin at the time of its last on-chain movement. We further extend this concept by using one important assumption: an on-chain transfer represents a trade between a willing buyer and a willing seller, such that the price at the time of the transfer represents the cost basis of the buyer. Thus, realized capitalization can be thought of as the aggregate cost basis of all holders.

This assumption does not always hold in practice -- many transfers do not represent a change in ownership and instead are motivated by wallet maintenance, wallet shuffling, and other reasons. The majority of trading also occurs on centralized exchanges where coins are transferred between parties within an exchange’s internal ledger and do not require on-chain transfers. For these reasons, the idea of realized capitalization as a representation of aggregate cost basis should be taken as an imperfect estimate of the true value. 

Despite these important caveats, an analysis of an estimated cost basis for each native unit of a crypto asset allows for rich analysis of investor behavior in a way that is not possible for other financial assets. For example, data regarding the cost basis for each individual share of a company’s stock is not available. 

Cost basis data can be valuable because it provides insight into the degree of euphoria or pain that investors are experiencing (due to having either unrealized gains or unrealized losses), two fundamental emotions that affect investment decision-making during asset bubble formations and crashes. 

Six Critical Moments in Bitcoin’s History

We examine the state of investor psychology through snapshots of estimated cost basis distribution during the previous cycle and during the current market cycle. For each market cycle, three points are chosen: at bubble peak, at lows for the cycle after the bubble has been completely deflated, and at a mid-cycle correction that involved a significant decline in prices after a recovery. All six moments are annotated on the chart below. 

A brief description of each moment is described in this table and more fully explored in the sections below. 

  1. Peak of the Previous Cycle on November 29, 2013 

We first examine the distribution of estimated cost basis distribution on November 29, 2913, the peak of the previous cycle where prices increased from roughly $100 to $1,100 in the span of two months. Below we introduce a visualization that contains a snapshot of the estimated cost basis for each native unit of Bitcoin at this time. Units of Bitcoin are assigned to bins where each bin is segmented into a $50 price interval. 

For instance, almost 5.5 million Bitcoin had a cost basis between $0 and $50 (although some of these Bitcoin are presumed to be lost) and almost 400,000 Bitcoin were bought at bubble peak with a cost basis between $1,100 and $1,150. At the time this snapshot was taken, prices were at a new all-time high, such that 100% of the Bitcoin held had unrealized gains. 

Despite the explosive price growth observed at this stage in Bitcoin’s development, holdings of Bitcoin remained heavily concentrated in the hands of early adopters with approximately 6.4 million of the 12 million Bitcoin in existence at the time having a cost basis between $0 and $100. As prices exceeded the previous all-time high of $200, all holders sat on unrealized gains and investor sentiment reached its most positive phase. Although there was likely interest in buying more at this phase from new adopters, existing holders find few reasons to sell, leading to constricted available supply and few net transfers of Bitcoin into the $200 to $700 price intervals. 

As prices rapidly exceed $800, however, existing holders begin to be incentivized to sell some of their holdings as they experience a several hundred percent return in less than two months. Compared to the $200 to $700 price intervals, many more Bitcoin was transferred from early adopters into the $800 to $1,150 price intervals as prices peaked at approximately $1,129 on November 29, 2013. This indicates that for Bitcoin, bubbles exhaust themselves not from a lack of buying interest but because the large cohort of early adopters are incentivized to bring their previously dormant holdings to market. 

  1. Lows of the Previous Cycle on January 14, 2015 

Following the peak of the previous cycle on November 29, 2013, Bitcoin experienced an 84% decline over the course of slightly more than a year. Here we show the distribution of estimated cost basis on January 14, 2015 when Bitcoin prices reached a low of $176. On this date, 43% of Bitcoin held had unrealized gains and 57% had unrealized losses. 

The shape of the distribution of estimated cost basis changed substantially over the course of slightly more than one year. In contrast to the distribution seen at bubble peak, there are few holdings above $800 and the holdings of early adopters are significantly reduced. 

Here we introduce another visualization that shows the change in the distribution between two points in time instead of a snapshot of the distribution at one point in time. For instance, almost 1.5 million Bitcoin that was originally in the $0 to $50 price interval was sold between November 29, 2013 and January 14, 2015.

The change in distribution illustrates a picture of complete capitulation, a state of investor psychology that is necessary for prices to completely bottom. Early in the price declines, both investors that bought at bubble peak (above $800) and large numbers of early adopters (below $150) reach the point of maximum pain and sell massive existing holdings to investors who buy the dip. 

Although not easily seen in this visualization, subsequent waves of dip buyers are also seen to sell as prices continue to decline. Significant transfers are observed -- a total of 5.7 million Bitcoin out of the 13.7 million Bitcoin in existence moved from one price interval to another. Using this market cycle as a study of deeply-rooted investor psychology, prices do not bottom until capitulation is seen from investors that bought at the peak, large portions of early adopters (although not all), and from early dip buyers who represent investors with the most conviction but also reach a point of maximum pain as prices continue to decline. 

  1. Mid-Cycle Correction of the Previous Cycle on August 24, 2015 

Although usually not seen as a critical event in Bitcoin’s bubble-and-crash cycles, we examine a mid-cycle correction where prices declined significantly from recent highs. This market environment most closely resembles the current state of Bitcoin as prices have declined from around $13,000 during the summer to a low of $6,500 in late November of this year. During the previous cycle (November 2013 to January 2015), after bottoming at $176, prices recovered to around $310 over the next few months before correcting 35% to $200 over the course of two months. Here we show the snapshot of the distribution of estimated cost basis on August 24, 2015, immediately following the 35% correction. 

We also show the change in distribution between the lows of the cycle and immediately following the mid-cycle correction. Over the course of eight months, a significant change in the shape of the distribution is observed. We see some limited selling from early adopters with cost basis below $200, although the magnitude of selling is much less than was observed in the previous section, suggesting that capitulation of early adopters is near complete and even a 35% drawdown is not enough to cause this cohort of investors to bring more supply to market. 

Importantly, we see nearly zero selling pressure from investors who bought at bubble peak (above $800) indicating that capitulation for this cohort of investors is complete. Instead, we see most selling pressure coming from investors who bought the dip as prices declined from bubble peak and from recent investors who bought as prices increased off the bottom. This cohort of investors had not yet reached the point of maximum pain prior to the sharp decline in prices. 

A study of investor psychology suggests that prices cannot truly bottom until all investors have reached the point of maximum pain and capitulation is complete. An examination of the mid-cycle correction that occurred during the previous cycle indicates that selling pressure from investors who bought at the peak and most early adopters is complete. Significant capitulation was also observed from dip buyers and recent investors who had not yet reached the point of maximum pain. After this mid-cycle correction was complete, prices never declined to these levels again as the state of investor psychology had reached the point where most investors who wanted to sell had already sold. 

  1. Peak of the Current Cycle on December 17, 2017

Over the course of one year, prices passed the previous all-time high of around $1,100 and peaked at near $20,000 on December 16, 2017. Here we show again a snapshot of the distribution of estimated cost basis on this date but assign each native unit of Bitcoin to $500 bins. At this point in time, about 7.4 million out of the 16.75 million Bitcoin are held by early adopters with an estimated cost basis of between $0 and $1,000 and 98% of Bitcoin held have unrealized gains. 

The shape of the distribution at bubble peak of the current cycle looks similar to the distribution at bubble peak of the previous cycle with some important differences. A large amount of transfers were observed at prices between $1,000 and $7,000 whereas transfers at intermediate prices in the previous cycle were much lower. This caused the price appreciation to occur at a slower pace over a period of about 8 months, with many significant corrections along the way. 

On the other hand, we see very few transfers of Bitcoin into the $8,000 to $16,000 price intervals, not because of a lack of buying interest but because existing holders saw few reasons to sell. This coincided with an extremely rapid uninterrupted ascent in prices -- prices increased by $8,000 in only two weeks. We see increased transfers as the prices exceeded $16,000 as the high prices again incentivized early adopters to bring more supply to market. Several hundred percent increases in price in a short amount of time seem to draw early adopters, who hold significant amounts of Bitcoin, to sell their long-held Bitcoins.

  1. Lows of the Current Cycle on December 15, 2018

The speed and magnitude of drawdown during the current market cycle are remarkably similar to the previous cycle -- both experienced a drawdown of around 84% and required about one year for the bubble to completely deflate. At the lows of the current cycle, 39% of Bitcoin held had unrealized gains, also similar in magnitude to the 43% of Bitcoin that had unrealized gains during the previous cycle. This suggests that following a bubble, maximum pain and capitulation can only be reached when prices decline to a point where only roughly 40% of Bitcoin held have unrealized gains. 

Both a snapshot of the distribution of estimated cost basis and the change in the distribution also show strong similarities to the previous cycle, providing support for the assertion that bubbles-and-crashes in Bitcoin (and other financial assets) are driven by deeply-rooted cognitive biases which lead to repeating cycles. 

Here we show the change in the distribution between the peak of the bubble and the lows of the current cycle. Similar to the previous cycle, strong capitulation is observed by investors who bought near the bubble peak (with cost basis above $16,000) and early adopters (with cost basis below $1,000). Few holdings remain with cost basis above $12,000 so investors belonging to this cohort are not likely to be a source of selling pressure going forward. 

A total of 5.4 million Bitcoin (out of 17.4 million Bitcoin in existence) moved price intervals over the course of this year. Although not clearly seen in this visualization, investors who bought near the bubble peak and early adopters were the first group of investors to capitulate. During the final decline between $6,000 and $3,000, selling pressure was observed from investors who bought the drip as prices declined. They represent the final group to experience maximum pain and reach the point of capitulation. 

One important caveat when looking at the change in distribution at this time is that Coinbase in early December 2018 migrated its holdings to an alternative set of cold wallets. According to their statements, they migrated 5% of all Bitcoin in existence, or almost 900,000 Bitcoin, most of which likely had a low cost basis. 

  1. Mid-Cycle Correction of the Current Cycle on November 25, 2019

The current state of the distribution illustrates that holdings are becoming less concentrated over time and at an increasingly higher cost basis. Whereas at bubble peak, early adopters held 7.4 million Bitcoin with cost basis between $0 and $1,000, these holdings have been gradually reduced to 5.0 million Bitcoin today. Excluding early adopters, cost basis now appears to be roughly normally distributed around $8,000, with a noticeable spike at $3,500 which coincides with the lows of the current cycle. Consistent with the lows of this cycle, holdings with a cost basis above $12,000 are at a very low level and represent a cohort of investors that have completely capitulated. 

Below we show the change in the distribution between June 26, 2019 (where prices reached a local peak of $12,863) and November 25, 2019 (where prices recently bottomed at $7,139). The complete peak-to-trough drawdown during this time period has approached 50%, a very steep decline for a bull market, which has caused many market observers to question the current market regime. 

Analysis of the sources of selling pressure reveals that investor concern is warranted. Unlike the mid-cycle correction observed in the previous cycle, selling pressure is broad-based and originates from many cohorts of investors. Investors that bought at the local peak with cost basis of around $12,000 to $12,500 have been heavy sellers. Dip buyers have also seen signs of capitulation with heavy selling observed from Bitcoin with cost basis between $7,500 and $8,000. Recent investors that bought after prices bottomed with cost basis between $3,000 and $6,000 also have sold significant amounts. And early adopters have been a source of small but not negligible selling pressure. 

Compared to the previous changes in distribution, the current change in distribution is most similar to when prices were reaching a bottom of the cycle. This interpretation may be bullish if the types of sellers have fully reached capitulation and are likely not to be a source of selling pressure going forward. Analysis of the current distribution supports this theory. However, seeing this broad-based selling pressure may reveal that capitulation, originally thought to be complete when prices bottomed in December 2018, may actually require more time or further price declines. 

Network Data Insights

Summary Metrics

BTC and ETH mining revenue are down significantly for the second straight week, mostly due to the large price decreases. Similarly, ETH fees came back down to earth, dropping 14.4% after growing by over 20% the week before (likely due to the launch of the Gods Unchained marketplace). 

After dipping to a six month low of 1.23 last week, BTC market value to realized value (MVRV) ratio, calculated by dividing market cap by realized cap, started to increase again over the past week. As of Sunday, December 1st, BTC MVRV was 1.32.

XRP transactions jumped by over 50% this past week, after being up over 121% the week before. Ripple recently completed a $50M investment in MoneyGram. However, it is unclear whether this directly led to the increased activity. Despite the increased usage, XRP’s market cap dropped by 6.8% over the past week, which is a larger decrease than both BTC and ETH.

Network Highlights

After reaching all-time highs in May, the amount of Bitcoin that has not moved in over one year has since been declining. As of Nov. 31st, 3,174,760 Bitcoin had not been moved in at least one year. Comparatively, there was 4,500,526 Bitcoin that had not been moved for at least a year on May 18th, 2019. 

The below chart shows the amount of Bitcoin not moved in over X years, where X ranges from one month to 5 years.

Decred daily active addresses are approaching new all-time highs. On November 16th, Decred had 25,315 active addresses, which is its highest daily total since April 23rd, 2016. The below chart shows Decred active addresses smoothed using a seven day rolling average.

Note: November’s active addresses appear to be all-time highs in the below chart because the all-time highs in April 2016 were outliers, surrounded by days with low relatively low active addresses.

Zcash, on the other hand, is trending in the opposite direction. Zcash active addresses are approaching all-time lows. As of December 1st, Zcash had 11,218 daily active addresses, which is the lowest since October, 2016. The below chart shows Zcash active addresses smoothed using a seven day rolling average.

Market Data Insights

As November concludes, we examine indexed prices over the past month. Bitcoin is down 20% for the month, although slightly higher than the lows that occurred on November 25. Most other major assets are down a similar magnitude. Over the past week, Monero, EOS, and Cardano have staged decent recoveries although all assets are down for the month. 

Among smaller assets, Tezos leads with a +44% return for the month of November, driven in part by the announcement that Coinbase would be offering staking rewards. Cosmos also had a positive return of +18%, but all other assets are down. Curiously, although almost all assets displayed high correlation to Bitcoin, UNUS SED LEO has exhibited unusually low correlation for an unknown reason. 

CM Bletchley Indexes (CMBI) Insights

This week crypto assets experienced a slight market wide recovery, with all Bletchley Indexes returning 6-9%, after the ~20% market wide drop in the prior week. Coincidentally the even indexes outperformed the market cap weighted indexes this week, indicating that the best weekly performers within each index were the lower market cap constituents.

Despite strong weekly performance of all indexes, it was not enough to overcome a bad November against the USD, with all indexes experiencing significant losses. The Bletchley 20 and Bletchley 40 performed best over the month, indicating that mid and small-cap crypto assets outperformed large-cap crypto assets for the second month in a row.

Large-cap assets seem to have largely moved in tandem with Bitcoin over November, evidenced by the negligible returns of the Bletchley 10 in BTC terms, whereas the Bletchley 20 and Bletchley 40 both had positive returns, 10% and 7.5% respectively, against a BTC pairing.

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • Coin Metrics is hiring! We recently opened up 6 new roles, including Blockchain Data Engineer and Data Quality and Operations Lead. Please check out our Careers page to view the openings.

As always, if you have any feedback or requests, don’t hesitate to reach out at

Subscribe and Past Issues

Coin Metrics’ State of the Network, is an unbiased, weekly view of the crypto market informed by our own network (on-chain) and market data.

If you'd like to get State of the Network in your inbox, please subscribe here. You can see previous issues of State of the Network here.

Check out the Coin Metrics Blog for more in depth research and analysis.

Coin Metrics' State of the Network: Issue 27

Tuesday, November 26, 2019

Note: There is no Weekly Feature this week due to the Thanksgiving break. Regular weekly features will return in next week’s issue.

Network Data Insights

Summary Metrics

Crypto markets took a significant downturn towards the tail end of last week, with BTC price dropping to six-month lows. As a result, most major assets are down by over 10% week over week. 

The crash came after the People’s Bank of China announced that they would begin cracking down on local crypto exchanges. This appears to have offset the gains experienced in October after Xi Jinping stated that China should increase blockchain research.   

Despite the significant market cap drop, BTC realized cap only dropped by 0.3%. BTC’s market value to realized value (MVRV) ratio (calculated by dividing market cap by realized cap) dropped to 1.22 on November 24th, which is the lowest it has been since May. A low MVRV is a potential signal that market participants are minimally in profit or not in profit (if MVRV is negative), and thus the asset may be undervalued, while a high MVRV ratio may signal overvaluation (market participants are well in profit). Note that this is not investment advice.   

Although ETH also experienced a large price drop, ETH fees rose by over 20%. We explore Ethereum’s fee rise in the “Network Highlights” section below.

Network Highlights

In late 2017, CryptoKitties burst onto the scene causing ERC-721 (non-fungible token) transactions to reach over 80,000 per day. But after a brief frenzy, CryptoKitty trading died off, and ERC-721 transactions have not topped over 25,000 per day since.

Now, another Ethereum game is starting to gain on CryptoKitties. On Friday, November 22nd, Ethereum ERC-721 transaction count shot up to over 20,000 per day. On the 24th, ERC-721 transaction count reached 29,222, which is the highest single day total since early 2018. 

The spike is caused by Gods Unchained, an Ethereum based trading card game that is a competitor of the popular game Hearthstone. As we wrote in State of the Network Issue 25, Gods Unchained recently gained widespread social media attention after Hearthstone banned a popular pro player due to supporting the Hong Kong protests.

At around 4:30 AM UTC on November 22nd, Gods Unchained opened their trading card marketplace, which allowed users to begin buying, selling, and trading cards with each other. Since then there has been over 1,467 ETH (roughly $220K) worth of Gods Unchained trading volume on OpenSea.

Previously, users could only receive cards directly from Gods Unchained. These cards were usable in-game, but not tradable on the open market. Gods Unchained have been “activating” cards (i.e. turning them into tradable tokens) since early November, which led to over 3.7M ERC-721 transfers on November 17th (hundreds of transfers can be batched together in a single transaction).

CryptoKitties notoriously caused blockchain congestion, and caused ETH fees to spike. Gods Unchained appears to have caused temporary congestion on November 22nd. The blue points on the below chart each represent the gas used per individual block, for every block from November 21st through the 26th. 

There is a relatively large amount of whitespace between roughly 5:00 and 17:00 UTC on November 22nd because most blocks were close to full and therefore clustered towards the top of the chart. However, by November 23rd, things look to have mostly cleared up.

The congestion caused ETH fees to also temporarily spike on the 22nd. The following chart shows the mean fee per block over the same time period. The mean fee for some blocks reached over $30, but dropped back down to relatively normal levels by the 23rd.

Market Data Insights

Looking at the distribution of returns for Coin Metrics’ coverage universe (that consists of roughly the top 200 assets), most assets declined by between 20% and 30% over the past week. 

Diversification usually benefits a passive-held, long-only portfolio. After the bursting of the bubble in December 2017, however, Bitcoin has outperformed most smaller assets, with a few significant exceptions. 

Although nearly all crypto assets returns are normally directionally correlated with Bitcoin returns, we have previously seen high dispersion in returns, indicating that a portfolio of crypto assets still offers some limited diversification benefits. But dispersion of returns across assets has declined sharply over the past month, and each asset’s indexed price chart looks nearly identical. 

Among this sample of major assets, only Tezos has managed to secure a positive weekly return of +14%. UNUS SED LEO has also remained unusually stable with a decline of only 5%.

Recent price action has raised concerns about the continuation of the positive returns that started earlier this year. Looking at price drawdown from peak for major assets indicates that for most assets other than Bitcoin, drawdowns have returned to near all-time lows. Bitcoin’s drawdown from it’s all-time high sits at 63% and it’s drawdown from the highs we experienced during summer when Bitcoin briefly reached $13,000 s approaching 50%. 

Given the significant declines in prices, we examine current price performance in comparison to price performance coming out of other cycle bottoms. Below we annotate three cycle bottoms and tops, where each cycle bottom is a local minimum and each cycle top is a local maximum. A fourth cycle bottom is annotated and occurred on December 15, 2018 where Bitcoin prices briefly reached $3,200. 

Cycle bottoms and cycle tops were determined using subjective visual examination. This combined with the few historical instances of complete cycles suggests caution in drawing conclusions upon this data. With these caveats in mind, under the assumption that December 15, 2018 was the bottom of this cycle and that we will see a repeat of the bubble-and-crash cycles experienced before, current price performance does not seem abnormal. 

The three cycles previously identified show a pattern of lengthening where each cycle takes longer than the previous one to complete. This outcome is expected if cycles are driven by a new wave of adoption and awareness from a certain group of users, each bigger than the last. 

It also shows a pattern of less trough-to-peak price appreciation in each subsequent cycle. The total price appreciation in the first cycle is understated due to incomplete price history during the first year of Bitcoin’s existence. 

Under this lens, the local peak we experienced in the summer of this year (roughly 200 days since the cycle bottom) was abnormal as indexed prices exceeded where prices were in both the second and third cycle at similar stage during their recovery. Now, prices in this cycle have declined to a point where it is below the third cycle -- consistent with historical patterns. 

CM Bletchley Indexes (CMBI) Insights

As evidenced in the market data highlights above, crypto assets had an abysmal week. The uniformity of poor performance across large-cap, mid-cap and small-cap assets is reflected in the Bletchley Indexes below, which experienced falls between 19% and 24%. 

There was a small discrepancy in small-cap assets which performed the worst against their Bitcoin pairing, evidenced by the Bletchley 40 falling 6% compared to ~1% falls for the Bletchley 10 and Bletchley 20.

In previous issues we have discussed the improving performance of mid-cap and small-cap assets against Bitcoin and the large-cap assets. Another interesting trend is the increasing correlation of mid-cap and small-cap assets with Bitcoin. 

While the Bletchley 10 is predominantly highly correlated with Bitcoin (as Bitcoin is the major constituent), earlier in the year we witnessed Bitcoin’s correlation with mid and small-cap assets reduce significantly. However, since Bitcoin has started to stagnate and even fall in price, its correlation with mid and small-cap assets has started to increase again.

Historically, long and sustained high levels of correlation have not been prevalent in the market, but rather a phenomenon that has continued since the start of the bear market in 2018. 

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • Coin Metrics is hiring! We recently opened up 6 new roles, including Blockchain Data Engineer and Data Quality and Operations Lead. Please check out our Careers page to view the openings.

As always, if you have any feedback or requests, don’t hesitate to reach out at

Subscribe and Past Issues

Coin Metrics’ State of the Network, is an unbiased, weekly view of the crypto market informed by our own network (on-chain) and market data.

If you'd like to get State of the Network in your inbox, please subscribe here. You can see previous issues of State of the Network here.

Check out the Coin Metrics Blog for more in depth research and analysis.

Coin Metrics' State of the Network: Issue 26

Tuesday, November 19th, 2019

How Many Bitcoins Are Permanently Lost?

Bitcoin’s whitepaper, which recently turned 11 years old, is so concise that it makes only a passing mention of supply:

Once   a predetermined   number of coins   have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free. 

Diving into one of the earliest backups of Bitcoin’s code, we can find the now-legendary formula that sets the limit on block rewards. These simple lines of code effectively set Bitcoin’s supply at 21M BTC:

Unbeknownst to many, Bitcoin’s codebase does not contain any checks that BTC’s supply does not exceed 21M. Instead, the software checks that each block doesn’t claim more than the prescribed number. 

Applying the supply formula to get supply value at block 600,000 on October 19, 2019 gives us 18M BTC: 

210,000 blocks * 50 BTC + 210,000 blocks * 25 BTC + 180,000 blocks * 12.5 BTC = 18M BTC

The mining of this block was celebrated by the community as a milestone towards the end of the inflation process for Bitcoin. However, astute observers commented that Bitcoin’s supply didn't actually exceeded the 18M milestone at block 600,000. Pieter Wuille, Bitcoin Core developer, mentioned that the actual supply as of block 600,002 was 17,999,854.82192702 BTC. 

In this feature, we dive into why Bitcoin’s supply is lower than expected, and calculate how many coins are permanently lost. Furthermore, we analyze exactly why these coins are lost, and account for what happened to them. We first examine coins that are provably lost, and then analyze coins that are assumed to be lost, but could potentially eventually be found.

Provably Lost Bitcoins

Genesis Coins

Bitcoin’s ledger is made of a set of “unspent outputs” otherwise referred to as the Unspent Transaction Outputs set, or UTXO set. Summing up those outputs’ BTC values give you the Bitcoin supply as seen by a full node. 

Bitcoin’s first block, the genesis of its history, contains a transaction minting 50 BTC. However, this transaction’s 50 BTC output isn’t included in the UTXO set. It’s still unclear whether it was an oversight or done on purpose.

The result is that those 50 BTC are not present in Bitcoin’s ledger, even if they are visible in a transaction included in the main chain.

Duplicate Coinbase Transactions

Another oversight from Bitcoin’s designer is the handling of duplicate transactions. While at first glance, it doesn’t seem possible for them to occur (as they contain digital signatures and references to previous transactions which makes them unique), it is still possible to create duplicate transactions.

The easiest transactions to duplicate are the coinbase transactions, which are the first transactions of every block and allow the miner to claim their block reward (the company Coinbase is named after these coinbase transactions), because they do not contain digital signatures or references to previous transactions. If a miner were to create a coinbase transaction paying out the exact same amount of BTC to the same addresses and with the same extra nonce (a small space of the coinbase transaction used to help mining), the transaction would be identical.

This happened twice in Bitcoin’s early history:

  • Transaction d5d2..8599 was the coinbase output for blocks 91,812 and 91,842

  • Transaction e3bf...b468 was the coinbase output for blocks 91,722 and 91,880

In each case, the second time the transaction was included, its outputs overwrote the previous ones.

The result is that the two overwritten outputs are not in the UTXO set. Those 100 BTC are not in Bitcoin’s ledger.

While appearing like an innocuous oversight, Russell O’Connor identified this as an attack vector back in 2012. Leveraging duplicate transactions, an attacker could remove other user’s past transactions from the ledger.

In response to this, BIP-30 was introduced in 2012 to forbid new duplicate transactions to be included until the older transaction’s outputs are all spent. However, the handling of the existing duplicates was not changed and they still remain in the chain to this day.

Later in 2012, BIP-34 also made duplicating coinbases much more difficult as they now had to include the height of the block they are part of.

Unclaimed Rewards

Another set of provably lost coins is linked to the verification of coinbase transactions by full nodes. 

Bitcoin’s protocol mandates that the miner of a valid block can credit themselves with a protocol-defined reward plus the fees from the transactions included in that block. Each full node checks that miners don’t try to claim more than they are allowed. However, they do not care if the miner claims less than their share.

Obviously, claiming less than their allotted reward would not be rational behavior from miners, but it has happened a surprisingly large number of times. The first time it occurred was at block 124,724 in May 2011 and the last time thus far at height 564,959 in late February 2019.

The most notable cases are listed in this table:

Broadly, this behavior happened in 3 distinct episodes, totaling 1,221 anomalies. The following chart shows the number of blocks that did not claim their full reward, bucketed by 1000 blocks:

One very intense episode occurred around height 162,000. Another more prolonged one occurred from 180,000 to 230,000 and a last one around block 530,000.

According to Bitcointalk user midnightmagic, the first instance was done on purpose as a tribute to Satoshi Nakamoto, on a suggestion of Bitcoin developer Matt Corallo. For the other cases, given the amounts lost by some miners, they are most likely attributable to bugs in the software used by miners to create the coin generation transaction.


There’s a special type of Bitcoin transaction output called OP_RETURN. They allow users to embed data in the blockchain (up to 80 bytes per output at the moment) without bloating the UTXO set (those outputs do not get added to the UTXO set − they are considered provably unspendable). 

While the great majority of such outputs are created with a value of 0 satoshis, some aren’t. As of block 600,000, there were 3.723039 BTC sent to OP_RETURN outputs, making them unspendable forever, and not part of Bitcoin’s supply.


In total, we can compute Bitcoin’s actual supply at block 600,000 working backwards from the expected 18M BTC value and subtracting what is provably lost.

This figure of 17,999,817 BTC as of block 600,000 is the “technically correct” view of Bitcoin’s supply. It’s what you would get by querying your full node. However, we can do better by looking at more cases that render bitcoins practically but not provably unspendable.

Assumed Lost Coins

Bogus Addresses

Prior to the standardization of OP_RETURN outputs, there was no easily accessible, provable way to burn Bitcoin. As a result, users resorted to “bogus addresses”, which is an address that does not have a known private key. 

When creating a Bitcoin address, we usually start from a known private key, then transform it to get the public key address it corresponds to. This process makes it very difficult to generate custom “vanity prefixes” (i.e. vanity public keys) − you basically have to “mine” private keys to find ones whose address starts with the desired prefix. 

However, in the case of bogus addresses, there’s no desire to ever actually spend from the address, so there’s no need to know what the private key is. Therefore the bogus address can start with any prefix (if it can be written using the Base58 alphabet). However, the last characters will be random (by design, the last characters of an address are a checksum to prevent against typos).

While it is impossible to draft a complete list of bogus addresses, we can list some notable ones:

Just those 3 addresses account for 2213.19538012 BTC lost as of block 600,000.

In theory, those coins are not lost forever − someone could find a private key for them. However, the only known way to find a private key given only an address is to randomly guess until you find the right combination (i.e. through bruteforce). In practice, the chance of that happening in the lifetime of our universe is pretty slim.


Beneath the beautiful veneers of today’s wallets, there are critical pieces of code responsible for crafting, signing and broadcasting our transactions to the Bitcoin network. Nowadays, it’s rare to find debilitating bugs in them, but that wasn’t always the case.

In November 2011, MtGox fell victim to a bug in this part of their software. They sent 2609.36304319 BTC to a bogus script, with no known way to spend it. The bogus script was what would happen if you tried to send money to an “empty” public key with software not programmed to detect that this is not desirable.

There have been other similar bugs in other assets that rendered coins unspendable, most notably in Ethereum with the Parity self-destruct issue (513k ETH lost).

Zombie Coins

Another source of lost coins are the ones that haven’t moved in many years. As it’s impossible to know whether their owners still have the keys or don’t, they are often called “zombie coins”, neither alive nor dead. With this category, we leave the domain of quasi-certainty about whether the coins are truly lost. 

To stay conservative in our estimate, we’ll only count coins last touched before Bitcoin was traded on the first exchanges (July 2010). The rationale is simple: people that acquired Bitcoins before they could be traded away had less of an incentive to back up their wallets as the perceived value of Bitcoins (at the time) was very low. 

At block 600,000, there were 1,496,907.88000 BTC last touched prior to July 2010. According to various estimates, Satoshi Nakamoto purportedly owns more than half of those coins due to their status as the dominant miner for most of Bitcoin’s very early history.

The last time coins last touched prior to July 2010 were moved was in July 2019, when 150 BTC were spent.

Overall, since the 2013 bull run, those coins have been very rarely spent. Given the price appreciation from 2013 to now, either the owners of those coins are very long-term oriented holders, or they don’t have access to these coins.

Encumbered Coins

There’s one final category of coins that could be considered lost, or at least out of circulation for the time being: known stolen coins. Until the advent of better mixing solutions (which is effectively similar to money laundering, making it much more difficult to follow the money trail), they will be difficult to insert back into circulation, especially for very large amounts.

There’s been many major hacks and thefts over Bitcoin’s history, but two jump to mind as “out of circulation” – the 2011 theft of 80k BTC from MtGox and the 2016 theft of 120k BTC from Bitfinex.

In March 2011, 79,956 BTC were withdrawn from MtGox’s wallet, and have not been touched to this day. As of today, it’s the 6th richest address.

Chat between Jeb McCaleb and Mark Karpelès following the theft’s discovery source

The reason why this haul (worth $73k at the time it was stolen, $700M today) was never spent is unknown. Most likely, the thief is unable to access the private key.

In August 2016, Bitfinex lost 119,756 BTC to a hack. To this day, very few of these stolen coins have been moved and only 22 BTC were recovered. As of block 600,000, the addresses where the stolen coins were sent to still held 117,091.31922097 BTC.


The common adage that there will only ever be 21M coins is an optimistic one. Over time, quirks, bugs and other events impact how many Bitcoins actually exist.

From those estimates of lost coins, we can construct three adjusted views of Bitcoin’s supply:

  1. A technically correct one, which counts all but provably lost coins.

  2. A supply that excludes provably lost coins and coins which are assumed to be long lost or burned.

  3. A supply that excludes stolen coins in addition to provably and assumed lost coins.

This analysis is just one of many ways to assess Bitcoin’s true supply. Depending on needs, different categories could be considered, ignored or expanded upon. It also uses a top-down approach, starting from the maximum possible supply and removing various classes of lost or encumbered coins. Another way to estimate Bitcoin’s supply would be to break it down by time of last activity with the expectation that coins untouched for years are probably lost. We will continue to monitor lost Bitcoins, and update our findings in the future.

Network Data Insights

Summary Metrics

After three weeks of growth, BTC fees dropped by over 30% over the past week. Although ETH fees only fell by 7.3%, BTC still had average daily fees of over $241K over the past week, compared to $85.1K for ETH.

BTC difficulty continued to drop over the last week, falling by over 4%. However, BTC hash rate bounced back over the past week, growing 2.8%. This signals that BTC difficulty is likely to be adjusted back upwards in the near future, after it was readjusted downward on November 7th.  

Network Highlights

DAI, the decentralized stablecoin created by MakerDAO, has a supply limit which is officially referred to as its “debt ceiling.”  After DAI reached its debt ceiling of 100M tokens (which is roughly equivalent to $100M) on November 6th, the Maker Foundation quickly proposed an executive vote to raise the DAI debt ceiling to 120M tokens. The vote was executed on November 7th. Since then the DAI supply peaked at 102,979,304 on November 13th, and was 101,640,989 as of November 17th.

In addition to the DAI debt ceiling vote, the MakerDAO community recently voted to approve and activate Multi-Collateral DAI (MCD), which went live on November 18th.  MCD introduces the ability to create DAI tokens backed by collateral from multiple different types of crypto assets, in addition to ETH. 

In order to vote on decisions about DAI (and other decisions involving the MakerDAO ecosystem), MKR holders need to stake their MKR to signal support for a specific proposal. MKR needs to be in a designated voting contract in order to be staked. 

Examining MKR unique daily active addresses shows that usage spiked on October 9th, when MakerDAO announced MCD, and again on November 15th when the Maker Foundation held a vote to officially approve MCD. Additionally, MKR active addresses spiked on both July 27th and July 28th after the Maker Foundation opened an executive vote on whether to lower the DAI stability fee after it had reached all-time highs.

Market Data Insights

Most of the major crypto assets dropped in price over the past week. BTC fell 6% over the course of the week, while ETH dipped 3%.

Stellar (XLM) had a particularly down week, dropping 9%. XLM price recently surged on November 5th after the Stellar Foundation burned over half of all XLM tokens. After another temporary spike on November 11th, XLM price has dropped, and is now back close to price levels before the November 5th burn. 

ChainLink (LINK) continues its meteoric rise, growing 5% over the week while almost every other major asset was down. Additionally, NEO continued to outperform and is now up 70% over the last 30 days. 

Cardano (ADA) also ended the week in the green due to strong growth towards the end of the week. On November 12th, Cardano announced they were beginning the roll out of their incentivized testnet, which is a step towards decentralizing the Cardano network.

CM Bletchley Indexes (CMBI) Insights

All Bletchley market cap weighted indexes were down this week. Once again it was the Large Cap index that performed the worst, falling 6% off the back of BTC and ETH’s performance. The Bletchley 20 (mid-cap) and Bletchley 40 (small cap) Indexes were slightly in the red against the USD, but both returned ~6% against Bitcoin, demonstrating their strong relative performance against Bitcoin and large-cap digital assets. 

Interestingly, whilst the Bletchley Total fell almost 6%, the Bletchley Total Even was up almost 5%, further highlighting the weakness of large cap assets this week.

After Bitcoin’s very strong first nine months of the year, it seems that mid and small cap assets have found resistance against their BTC pairs. This is evidenced below where it can be seen that the relative strength of the Bletchley 20, and less so the Bletchley 40 has now persisted for the better part of two months. 

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • Coin Metrics is hiring! We recently opened up 6 new roles, including Blockchain Data Engineer and Data Quality and Operations Lead. Please check out our Careers page to view the openings.

As always, if you have any feedback or requests, don’t hesitate to reach out at

Subscribe and Past Issues

Coin Metrics’ State of the Network, is an unbiased, weekly view of the crypto market informed by our own network (on-chain) and market data.

If you'd like to get State of the Network in your inbox, please subscribe here. You can see previous issues of State of the Network here.

Check out the Coin Metrics Blog for more in-depth research and analysis.

Coin Metrics' State of the Network: Issue 25

Tuesday, November 12th, 2019

The Evolution of Ethereum Tokens

In 2015, Ethereum ushered in a new era for blockchains: the age of the token.

Broadly defined, a “token” represents a utility or asset and is typically issued on an existing blockchain. In contrast, a “coin” is a crypto asset that is native to its own blockchain and is primarily used as a currency (“coin” and “token” are sometimes used interchangeably, but we will keep the distinction throughout this piece). For example, BTC and ETH are coins, while MKR and BAT are tokens.

The concept of crypto tokens has existed in various forms since well before Ethereum. For example, Bitcoin “colored coins” can be used to tokenize items using BTC, without the need to issue a new asset. This can be done by “coloring,” i.e. marking, specific coins using OP_RETURN. Alternatively, this can also be done by agreeing that specific Satoshis, which is the smallest unit of BTC, represent a real-world asset.

But Ethereum introduced a new, more user-friendly way to create tokens. Using a simple smart contract, Ethereum made it easy for anyone to launch their own token for just about anything.

Before long, thousands of tokens were launched on Ethereum. The explosion of tokens made standardization increasingly important, to ensure that the tokens could be exchanged for each other. ERC-20 implemented a standard interface that made it trivial to exchange any ERC-20 token for another, and to integrate ERC-20s within crypto wallets and decentralized applications (dapps). In early 2018, ERC-721, which are tokens that are specifically used to represent unique, non-fungible digitally scarce tokens (for example, a CryptoKitty or a one-of-a-kind piece of crypto art) was also adopted as an official standard.

Since then, the pace of Ethereum token change has increasingly accelerated. In this piece we explore the evolution of Ethereum tokens and look at where they might be headed.

Network Value to Token Value

One way to evaluate tokens is to look at the market cap of the smart contract platform’s native coin (i.e. ETH) compared to the aggregate market caps of tokens launched on that platform. We refer to this ratio as the “Network Value to Token Value” (NVTV) ratio, as proposed by Chris Burniske

In this case, we calculated the ratio by dividing ETH’s market cap by the aggregate market cap of a selection of the biggest ERC-20s. Although there are thousands of other tokens that have been launched on Ethereum, the selected tokens represent a large majority of the total ERC-20 token market cap. A full list of the tokens we used can be found as a footnote under the below chart. 

Ethereum’s NVTV ratio has been steadily declining. On April 1st, 2019, Ethereum’s NVTV ratio hit an all-time low of 1.57. As of November 10th, the ratio is 1.90.

ERC-20 Assets: ant, bat, bnb, cennz, ctxc, cvc, dai, fun, gnt, gusd, ht, icn, knc, leo_eth, link, loom, gno, lrc, mana, mkr, omg, pax, pay, poly, powr, ppt, qash,rep, salt, srn, tusd, usdc, usdt_eth, wtc, zrx

Realized cap tells a similar story. Realized capitalization is a metric created by Coin Metrics that is calculated by valuing each unit of supply at the price it last moved. This is in contrast to traditional market cap which values each coin uniformly at the current market price. Realized cap can be thought of as a measure of the average cost basis (cost basis is basically the total amount originally invested).

The realized cap version of Ethereum NVTV has also been steadily decreasing and is currently at an all-time low of 2.57. The decreasing NVTV ratios signify that tokens have steadily been gaining ground on ETH in terms of valuation. 

Most of this growth since mid-2018 has been coming from a specific subset of ERC-20 tokens: stablecoins. 

The below chart shows the share of market cap for utility tokens, exchange tokens, and stablecoins. We used a simple, high-level taxonomy for categorizing tokens; however, other groupings or taxonomies are possible. 

A “utility token” is a subset of tokens that are “used to finance the network by providing its buyers with a guarantee of being able to consume some of the network’s products” (definition via BitcoinWiki). Utility tokens were typically issued during the ICO boom to serve as a way to raise money as well as a way to make payments within a project’s ecosystem, access a particular service or feature, or participate in a particular activity such as voting.

“Exchange tokens” are a subset of utility tokens created by cryptocurrency exchanges (e.g. Binance’s BNB token). Exchange tokens are typically used to raise funds for exchanges and offer discounts on things like exchange fees. 

“Stablecoins” are tokens that are designed to fix their value to another asset, often a fiat currency such as the USD. Tether is currently the biggest stablecoin by most measures, but other stablecoins built on top of Ethereum include DAI, USDC, PAX, and TUSD. 

Although exchange tokens were gaining ground in early 2019, BNB switched over from an ERC-20 token to a mainnet version of the BNB token (on their own blockchain) in April, which caused Ethereum exchange coin market cap to plummet. 

On July 1st, 2018, Ethereum utility tokens had an aggregate market cap of $7.52B, compared to $2.98B for exchange tokens, and $109M for stablecoins. As of November 10th, 2019, utility tokens have a market cap of $5.19B, exchange tokens have a cap of $2.55B, and stablecoins have a market cap of $3B, up by over $2.8B from just a year and a half earlier.

The below chart shows the percent share of market cap for each of the three token categories. A complete list of the assets we used for each category can be found in the footnote under the below chart.

Utility tokens: ant, bat, cennz, ctxc, cvc, fun, link, loom, gno, gnt, icn, lrc, mana, mkr, omg, pay, poly, powr, ppt, qash, rep, salt, sr, wtc, zrx

Stablecoins: dai, gusd, tusd, usdc, pax, usdt_eth

Exchange Tokens: bnb, ht, knc, leo_eth

Furthermore, most of the growth has been coming from one specific stablecoin: Tether (USDT). 

As we’ve covered in past issues of State of the Network, Tether exists on multiple different protocols, the two biggest of which are the Omni protocol (which itself is built on top of Bitcoin) and Ethereum. Over the last several months, usage has been shifting from the Omni-based version to the Ethereum-based version of Tether. 

The Transaction Flippening 

Historically, aggregate token transaction count has been lower than Ethereum’s non-token transaction count (i.e. total transaction count minus ERC-20 and ERC-721 transaction count which was largely comprised of simple transfers of ETH). But since May 2019, token transactions have been threatening to pass non-token transactions. As of November 10th, ERC-20’s had about  303,000 daily transactions vs about 290,000 for ETH.

The below chart shows transaction counts for ERC-20s (red line), ERC-721s (green line), and non-token transactions (blue line, ETH transactions minus ERC-20 and ERC-721 transactions), smoothed using a 7-day rolling average.

A lot of ERC-20’s rapid transaction count rise has also been due to USDT. The below chart shows the market share of the ten ERC-20 tokens with the highest daily transaction counts (averaged over the last 30 days) over the course of 2019. USDT started gaining ground in May and now has over 80% of the share of transaction counts of the top ten tokens.

ERC-721s Unchained

While ERC-20s have been the dominant type of token up to this point, we may be on the cusp of the rise of ERC-721s. 

As of late October, ERC-721 transfer count has shot past both ERC-20 and ETH transfer counts. Previously, ERC-721 transfer count peaked during the CryptoKitty craze of late 2017. November ERC-721 transfer counts have already rocketed past peak CryptoKitty transfer counts.

Transfer count paints a slightly fuller picture than transaction count of the real trading activity of individual ERC-721 assets. Since ERC-721’s each represent unique tokens, many tokens are often bundled together and transferred as part of a single transaction. The below chart shows transfer counts for ERC-20s (red line), ERC-721s (green line), and ETH transfers (blue line), smoothed using a 7 day rolling average. 

This large spike in ERC-721 tokens is due almost entirely to an Ethereum-based card game called “Gods Unchained.” 

Gods Unchained is a trading card game that is similar to the popular game Hearthstone. However, unlike Hearthstone, Gods Unchained is built on the Ethereum blockchain, and each one of its cards is represented by an ERC-721 token. This means that users truly own their cards and can trade them freely on the open market, similar to any other cryptocurrency.

Gods Unchained has been in the news recently due to an incident related to the Hong Kong protests. On October 7th, Blizzard, the maker of Hearthstone, announced that they were rescinding the prize money from a champion pro player and suspending him for a year because he had spoken out in support of the Hong Kong protests. 

The next day, in a tweet that has since been retweeted over ten thousand times, Gods Unchained stated that Hearthstone cared “about money more than freedom.” They also offered to pay for all of the banned Hearthstone player’s lost winnings and offered a free entry ticket into a large Gods Unchained tournament. Subsequently, Gods Unchained sold out their Genesis Card Pack for a total of 33,333 ETH, equivalent to about $6.2 million.

Although still early, Gods Unchained could be an example of a real use case for crypto tokens in gaming. Blockchain-based games put gamers in control of their in-game assets, which means they cannot be revoked or censored. Gods Unchained is only one example of many games that are now being developed on blockchains using non-fungible tokens (NFTs). NFTs are also being used in applications like the Ethereum Name Service and in virtual worlds like Decentraland, and will soon likely be used for many other types of applications as well. 

Although there are still only about 4,600 ERC-721 contracts compared to over 184,000 ERC-20 contracts (and over 12 million non-token contracts), ERC-721 contracts have been growing rapidly over the course of 2019. Since January 1st, the number of deployed ERC-721 contracts has grown by almost 350%, compared to about 39% and 36% for ERC-21 contracts and non-token contracts, respectively. 

Furthermore, overall Ethereum smart contract usage is growing. Ethereum contracts calls have been steadily climbing upwards, and recently hit an all-time high thanks in large part to Gods Unchained. As the Ethereum smart contract economy continues to grow and evolve, tokens will likely become an increasingly important part of the ecosystem.

The below chart shows Ethereum contract calls count smoothed using a 7 day rolling average.

Ethereum tokens have already evolved tremendously over their short life span, and will undoubtedly change just as rapidly moving forward. We will continue to monitor Ethereum’s NVTV, the rise of Ethereum based stablecoins, and the potential breakout of ERC-721s.

Network Data Insights

Summary Metrics

After XRP daily average transaction value temporarily surged passed ETH last week, both XRP and BCH adjusted transfer values dropped significantly this week. LTC’s adjusted transfer value, however, shot up over 89% after being down by over 20% the previous week. Despite transfer value being up, LTC’s transfer and transaction count were both down, signifying that a relatively small number of addresses were likely moving around large amounts of crypto.

BTC’s daily fees gained over 10% for the second straight week, after growing by 16% last week. BTC continues to climb ahead of ETH in terms of daily fees; over the past week, BTC averaged $346.9k of daily fees compared to $91.8k for ETH. XRP fees grew by over 100% this past week, but still averaged less than $1k per day. 

Network Highlights

LTC’s hash rate and difficulty have both been in free fall since July. Both are now on the verge of reaching lows not seen since early 2018. 

After BTC’s hash rate dropped last week, as we reported in SOTN Issue 24’s Network Data Summary Metrics section and on Twitter, BTC’s difficulty readjusted downward on November 7th.

Market Data Insights

Bitcoin’s price has remained largely unchanged over the past week at -2% while Ethereum (+4%), Litecoin (+9%), and EOS (+9%) have experienced moderate gains. 

Among large-capitalization assets, Stellar has seen the largest gains at +19% after the Stellar Development Foundation effectively burned 55 billion tokens by sending them to an account that cannot sign transactions. 

Among smaller capitalization assets, Cosmos (+24%) saw a large increase, although there does not appear to be a specific catalyst. Tezos (+41%) has seen the strongest gains among this set of 24 assets largely due to Coinbase’s announcement that it would offer staking rewards on its platform. Maker was up +30%, perhaps in part due to the upcoming launch of multi-collateral Dai scheduled on November 18. 

Revisiting the Bitcoin Safe Haven Thesis 

For the majority of this year, gold and other haven assets have seen large capital inflows due to a confluence of factors: 

  1. An environment of heightened geopolitical instability, particularly with respect to U.S.-China trade tensions but also in other localized areas.

  2. Softness in several key macroeconomic indicators in most developed world economies, particularly in manufacturing, a sector traditionally viewed as a bellwether of the overall economy.

  3. A sharp and unexpected pivot to more monetary policy easing, most notably from the Federal Reserve and from the European Central Bank, and a fear that more extreme monetary policy tools will be necessary.

These factors caused gold to rally above $1,500, peaking in late August. Market commentators also drew comparisons to Bitcoin because of its attractive store-of-value properties. Indeed, short-term measures of correlation between Bitcoin and gold returns earlier this year reached one of the highest levels in history (almost +0.50). 

Recent developments have made it clear that we are now witnessing another shift. Based on (1) the increase in long-term sovereign bond yields across most developed world economies, (2) a shift in forward guidance from the Fed, and (3) a sell-off in gold, market participants now believe we are past the point of peak monetary policy easing. Any further easing appears to be appropriately priced in. Recent firmness in macroeconomic indicators confirm that fears of a global recession are overblown and optimism for a U.S.-China trade deal is rising. 

Bitcoin received intense media attention as the need for safe-haven assets increased but it has largely been ignored as this need has abated. Recent price action and short-term measures of correlation between Bitcoin and gold returns complicate the simple narrative that Bitcoin benefits from safe-haven capital flows. 

Gold recently had one of the largest single-day sell-offs in years, but the 30-day correlation between Bitcoin and gold returns stands at -0.22. Not only does this cast doubt on the narrative established earlier this year, it suggests the reaction function of Bitcoin to macroeconomic and geopolitical developments is complex and inconsistent. 

CM Bletchley Indexes (CMBI) Insights

For the second week running the Bletchley Mid Cap and Small Cap indexes have outperformed the larger cap indices, returning 5% and 2% respectively. As evidenced above in the Market Data Insights, the outperformance of the Mid Cap Index is largely due to the performance of Tezos, which makes up 10% of the index and returned 41% for the month.

Since Bitcoin is a major component of both the Bletchley 10 (69%) and Bletchley Total (64%), their performance relies a lot on the returns of Bitcoin over the period. Bitcoin was one of the weaker performing large-cap assets of this week, and its impact on the Bletchley 10 and Bletchley Total Indexes is highlighted by the difference in returns between the indexes market-cap-weighted (-0.5%) and the even weighted (4%) versions. 

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • Coin Metrics is hiring! We recently opened up 6 new roles, including Blockchain Data Engineer and Data Quality and Operations Lead. Please check out our Careers page to view the openings.

As always, if you have any feedback or requests, don’t hesitate to reach out at

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