Coin Metrics' State of the Network: Issue 99

Tuesday, April 20th, 2021

Get the best data-driven crypto insights and analysis every week:

Read our latest in-depth research report here: The Crypto Futures Data Primer.

Weekly Research Focus

Introducing The Crypto Futures Data Primer

By Nate Maddrey and the Coin Metrics Team

After topping $63K last week bitcoin (BTC) came crashing back down to earth this weekend. Following Coinbase’s IPO on Wednesday market sentiment was at a high amidst a rush of new media coverage. But by the end of the week narratives began to shift. 

On Friday reports began to surface of regional blackouts in Northwest China causing mining operations to go offline and leading to a drop in Bitcoin’s hash rate. Bitcoin’s estimated hash rate indeed dropped on Friday to its lowest level since November 2020. But it has already started to rebound, and should continue to recover as miners come back online or relocate to other regions. 

Although the drop in hash rate may have contributed to an initial panic selloff, BTC’s drop was likely largely due to a cascade of liquidations on overleveraged BTC futures positions. Following the Coinbase IPO, BTC perpetual futures open interest surged to its highest levels ever. Open interest is a measurement of the total number of active futures contracts. Increasing open interest indicates that more contracts are being opened and additional money is coming into the market. 

Open interest can also serve as a proxy for measuring leverage. Leverage can be used to increase the potential returns of a futures contract. Using leverage effectively allows a trader to wager larger amounts of capital than they currently have in the account. But using leverage also amplifies risk.  

If there’s a relatively high amount of open interest there’s a good chance there’s a high amount of leverage in the futures market, as contracts are often opened using leverage. As large liquidations occur, open interest can quickly start to decrease as the market deleverages.   

After opening a leveraged futures contract, the trader must keep a certain level of maintenance margin at the risk of being liquidated and losing their investment. Price movements can cause a trader to fall below margin requirements and result in liquidation. Highly leveraged trades typically require high levels of maintenance margin, which means relatively small dips in price can lead to getting liquidated.

April 17th had the highest amount of BTC perpetual futures long liquidations so far in 2021. As price dropped, overleveraged positions began to get liquidated. Liquidations tend to be self-reinforcing - as long positions are liquidated and sold spot price drops, leading to more liquidations. This can lead to liquidation cascades, which can sometimes cause large, sudden movements in spot price. Liquidation cascades can be painful in the short-term, but are generally healthy in the long-term as leverage levels get reset. 

Derivatives like futures can get endlessly complex. But even just understanding the fundamentals can give you deeper insight into market dynamics and the forces pulling price in different directions.

To help better understand crypto futures and analyze the data behind them check out our latest in-depth research report: The Crypto Futures Data Primer

Network Data Insights

Summary Metrics

Source: Coin Metrics Network Data Pro

It was an eventful week for both Bitcoin and Ethereum. BTC and ETH market caps both reached new all-time highs over the past week. But Bitcoin hash rate dropped 12.2% week-over-week due to the aforementioned regional blackouts in Northwest China. As block production slowed, BTC fees surged, growing 58.7%. Fees on ETH also surged as traders rushed to react to market volatility and on-chain arbitrage bots kicked in. 

Stablecoins also saw a flurry of activity over the past week, likely due to investors moving to safety amidst the volatility over the weekend. Tether (USDT) and USDC active addresses grew by 13.9% and 33.9%, respectively. On-chain transfer value also surged for both, with USDT growing by 27.6% and USDC by 49.4%. 

Network Highlights

On Friday we released a special research report covering the recent OpenEthereum stoppage

At block number 12,244,000 the Berlin hard fork was activated on Ethereum. Among many changes, it paves the ground for the upcoming London hard fork which will revamp how fees work on Ethereum with the activation of EIP-1559.

294 blocks after the Berlin hard fork activated, the second most popular implementation of the Ethereum protocol, OpenEthereum (ex-Parity) refused to accept new blocks. According to Etherscan, around 16% of all nodes were OpenEthereum (and another 15% Parity).

Immediately, many exchanges and services (including Coin Metrics) either became effectively disconnected from the Ethereum network, or stopped broadcasting transactions out of caution. Around 5 hours after the stoppage, a fix was released by the OpenEthereum team and most of the affected services were back online 9 hours after the incident started.

At first glance, the number of transactions mined on Ethereum was barely, if at all, affected by the sudden disappearance of OpenEthereum nodes.

(approximate stoppage window shown in red)

Source: Coin Metrics Network Data

The best way to quantify the impact of the OpenEthereum stoppage is to look at how many distinct accounts created transactions. It usually hovers around 15,000 unique accounts creating transactions per hour, but dropped to around 9,000 during the outage. Knocking down 16% of nodes dropped the number of active network participants by 40%.

Source: Coin Metrics Network Data

Thankfully, no block was mined that would have split the network in two. Furthermore, there was no decrease in mining activity. This is an indication that miners were not running OpenEthereum.

Source: Coin Metrics Network Data

For more, read the full research report here: Analyzing the On-chain Impact of the OpenEthereum Stoppage.

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • Check out our new market-data focused newsletter State of the Market, featuring weekly updates on market conditions.

  • We’re excited to announce the new Coin Metrics mobile app. View real-time cryptoasset pricing and relevant on-chain data in a single app!  Download for free here: https://coinmetrics.io/mobile-app/

As always, if you have any feedback or requests please let us know here.

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 98

Tuesday, April 13th, 2021

Get the best data-driven crypto insights and analysis every week:

And check out our new market-data focused weekly newsletter State of the Market.

Weekly Research Focus

DAI’s Stabilizing Growth 

By Nate Maddrey and the Coin Metrics Team

Stablecoins are a key part of the crypto ecosystem. But despite the name, stablecoins aren’t always stable. On April 3rd Fei Labs launched FEI, a new algorithmic stablecoin. But just a week after launch price dropped as low as $0.75, after over $1B was trapped in the protocol

FEI is far from the first stablecoin to lose its stability. Following the sudden crypto price crash on March 12th 2020, many of the major stablecoins were thrown off their $1 price peg. As investors rushed to safety, demand for stablecoins suddenly increased, sending the price of many stablecoins above $1.

DAI, the decentralized stablecoin launched by MakerDAO, was hit particularly hard during March 2020. Events leading up to the crash led to an extreme ecosystem-wide shortage of DAI which caused DAI’s price to increase to over $1.06 on March 12th. DAI stayed well above its $1 peg for a good part of 2020, especially compared to the other major stablecoins.

Source: Coin Metrics Network Data Charts

That said, DAI’s price has stabilized since Dec. 2020. Over the last four month’s DAI has been noticeably closer to its $1 price peg. DAI’s price stabilization has also corresponded with a steep growth in supply.

Note: Supply figures only include the ERC-20 version of DAI.

Source: Coin Metrics Network Data Charts

DAI’s price first began to stabilize in late September after DAI to USDC-A collateralization ratio was lowered from 110% to 101%. This meant that users could lock 101 USDC to mint 100 DAI, which helped pull DAI’s price down to under $1.01. Shortly after DAI (ERC-20) supply grew to over 600M and price began to stabilize and descend towards the $1 peg. 

Then in late December 2020, MakerDAO developers introduced the Peg Stability Module (PSM) which allows users to swap other stablecoins for DAI at a fixed rate. Initially only a USDC-backed PSM was deployed, but other stablecoins may be added in the future. The USDC-backed PSM allows users to swap 100 USDC for 100 DAI (minus fees), which effectively prevents the peg from moving above $1.001. Since the introduction of the PSM DAI’s price has maintained its tightest peg ever.

These new mechanisms help facilitate arbitrage between stablecoins. Since most major stablecoins are pegged to $1, if price fluctuates too far above or below $1 an arbitrage trader can earn a profit. This ultimately helps align the price of different stablecoins and pull them all towards $1. 

With the growth of DeFi an increasing amount of arbitrage is also occurring on-chain on decentralized exchange (DEXs). Uniswap’s DAI/USDC pair increased in terms of both liquidity and volume starting in September 2020. Liquidity had a huge surge in late December as the PSM was introduced and DAI supply began to take off. 

Uniswap DAI/USDC trading volume also hit all-time highs in late 2020 and the beginning of 2021.

Source: Uniswap.info

DAI’s on-chain transfer value began to grow in summer 2020, with the rise of DeFi. Although not all of this is due to the PSM and arbitrage, this is an additional sign that DAI on-chain activity has increased as price has stabilized.   

Source: Coin Metrics Network Data Charts

Stablecoins are a crucial part of DeFi and crypto at large. DAI plays a key role in many different protocols and applications, and improved DAI stability is a good sign for the stability of the entire ecosystem. As the infrastructure continues to mature, DAI will hopefully continue to mature along with it and stay on its path of consistent stability. 

To explore some of the data used in this piece and our other on-chain metrics check out our free charting tool, formula builder, correlation tool, and mobile apps.

Network Data Insights

Summary Metrics

Source: Coin Metrics Network Data Pro

Ether (ETH) market capitalization grew 6.2% week-over-week, with price topping $2K once again over the weekend. Most ETH usage and economic metrics were also up on the week with active addresses growing 3.4%. ETH adjusted transfer value saw a 35.6% jump week-over-week, a portion of which was due to the launch of the FEI protocol which accumulated over $1B worth of ETH

Bitcoin (BTC) also had a strong week with most metrics in the green. Usage continued positive growth with active addresses up 4.8%. Adjusted transfer value also increased by 16.4% for an average of $13.7B per day, maintaining a lead over ETH. 

Network Highlights

The amount of Tether launched on Tron (USDT_TRX) is catching up to the amount of Tether launched on Ethereum (USDT_ETH). As of April 11th there’s 21B USDT_TRX, compared to 23.42B USDT_ETH. USDT_ETH currently has about 52.7% of the combined supply share of the two, as shown in the following chart. 

Source: Coin Metrics Network Data Charts

But despite similar supplies, USDT_ETH and USDT_TRX seem to have different use cases. USDT_ETH appears to be used for relatively large transfers, while USDT_TRX is typically used for smaller transactions. For example, USDT_TRX’s median transfer size is currently $263 compared to $1,498 for USDT_ETH. This makes sense given that Tron’s fees are miniscule compared to Ethereum’s, making it more cost effective to send small transfers.

Source: Coin Metrics Network Data Charts

Despite having lower median transfer value, USDT_TRX has passed USDT_ETH in terms of daily active addresses. As of April 11th USDT_TRX has 262.54K active addresses compared to 89.65K for USDT_ETH.

Source: Coin Metrics Network Data Charts

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • Check out our new market-data focused newsletter State of the Market, featuring weekly updates on market conditions.

  • We’re excited to announce the new Coin Metrics mobile app. View real-time cryptoasset pricing and relevant on-chain data in a single app!  Download for free here: https://coinmetrics.io/mobile-app/

As always, if you have any feedback or requests please let us know here.

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 97

Tuesday, April 6th, 2021

Get the best data-driven crypto insights and analysis every week:

And check out our new market-data focused weekly newsletter State of the Market.

Weekly Research Focus

Bitcoin On-Chain Indicators Update

By Nate Maddrey and the Coin Metrics Team

Disclaimer: Market analysis with on-chain indicators is a relatively nascent field and indicators are still being developed and refined. It's Important to note that past success does not guarantee future success; although these indicators have historically been informative, it does not necessarily mean this will always be the case. The green and red indicator zones on each chart are based off of past performance, but are not an exact science. This article does not constitute investment advice - please conduct your own research and view these metrics as one piece in the larger picture.

In December 2020 we released the Bitcoin On-chain Indicators Primer, an in-depth introduction on how to use on-chain data to help gauge crypto market cycles.  A lot has happened since then, including several new all-time highs for both bitcoin (BTC) and ether (ETH). In this week’s State of the Network we update some of the charts featured in the report and look at how things have changed since the start of 2021. 

Market Value to Realized Value (MVRV)

Market value to realized value (MVRV) has historically been one of the most reliable on-chain indicators of bitcoin market tops and bottoms. MVRV is calculated by dividing bitcoin’s market capitalization by its realized capitalization. Realized capitalization can also be thought of as a gross approximation of bitcoin’s aggregate cost basis. In our variant of the MVRV calculation, we use free float market capitalization which is calculated using liquid supply as opposed to total supply.

Historically, a high ratio of market capitalization to realized capitalization has signalled that bitcoin price was near a local maximum, while a low ratio has indicated that price is near a local minimum. The few times that MVRV has dropped below one have historically been some of the best times to buy bitcoin. An increasing MVRV indicates that current sentiment is increasing fast relative to estimated aggregate cost basis, while decreasing MVRV signals the opposite.

On January 8th, 2021 as BTC reached $40K for the first time, free float MVRV reached 2.96. This was a similar level to June 2017 when MVRV reached a high of 3.05. The following day BTC price began to decline, and dropped below $34K by January 12th.

MVRV topped 3.0 on February 20th for the first time since December 2017 and peaked at 3.09 on February 21st. This signalled another local peak, as BTC price reached about $57.5K on February 21st before falling to below $47K by February 28th. An MVRV of 3.0 has been a signal of local tops during the current market cycle (at least so far), as indicated by the red area in the below chart. 

On March 13th MVRV approached 3.0 once again, increasing to 2.96 as BTC briefly topped $61K. It has since dropped down to 2.65 as of March 31st. It still has not reached levels seen at the top of the last two bull runs. 

Source: Coin Metrics Network Data Pro

Spent Output Profit Ratio (SOPR)

Spent Output Profit Ratio (SOPR) gives another vantage point into bitcoin market cycles. Introduced by Renato Shirakashi in 2019, SOPR can act as a proxy for gauging whether holders are selling at a profit or at a loss.

SOPR is a ratio of bitcoin’s price at the time UTXOs are spent to its price at the time they were created. In other words, it’s a proxy for price sold divided by price paid. Every time a transaction occurs, we can compare bitcoin’s price at the time the UTXOs in that transaction were created to the price at which they were spent. Creating a ratio of the two gives a simple way to estimate whether the bitcoin in the UTXO was sold at a profit or loss. 

SOPR can be computed for individual UTXOs, but it can also be computed for a group of UTXOs. The following chart shows the combined SOPR ratio of all UTXOs spent, aggregated on a daily basis. The metric is also smoothed with a 7-day rolling average as SOPR tends to be relatively volatile.

Historically, a high SOPR has signalled that bitcoin price is reaching a local maximum. Conversely, a low SOPR theoretically signals that holders are selling at a loss, which has historically indicated a good time to buy. A SOPR of 1 is also particularly important to watch, as it signals the tipping point from selling in profit to selling at a loss.

On January 8th, as BTC price topped $40K, BTC SOPR (7-day average) reached 1.048, its highest level since December 2017. The following day BTC price began to decline, and SOPR bottomed out at 1.004 on January 26th with BTC price at $32.6K. It has since rebounded to about 1.015. 

Source: Coin Metrics Network Data Pro

HODL Waves

Bitcoin (BTC) age distribution bands, also known as “HODL waves,” show BTC’s supply grouped by the time since it was last moved on-chain. Introduced by Unchained Capital in 2018, HODL waves give a macro view of how BTC’s supply has shifted over the years. Bitcoin’s supply movements can be used as an indicator for market cycles.

Reading from the bottom of the chart up the red colored bands show the percent of supply that has been active relatively recently, ranging from less than a day to 90-180 days. The “1-7 Days” band is the percent of total supply that’s been held for at least 1 day but less than 7 days, “7-30 Days” is the percent of supply that’s been held for at least 7 days but less than 30 days, and so on. 

Historically, short-term supply movement has peaked during market cycle tops. For example, in December 2017, over 32% of BTC supply had moved on-chain within the previous 90 days as the price of bitcoin neared $20,000. By August 2018, the proportion of supply moved within 90 days had dropped to about 15%. 

Conversely, reading from the top of the chart down shows the supply that has not moved for relatively long periods. These long-term bands tend to grow wider as prices reach cycle lows and contract during cycle tops as long-terms holders begin to sell. The dark green band at the top represents coins that have never been moved on-chain apart from the transaction in which they were issued, constituting about 12% of the total supply. 

During the 2013 and 2017 bull runs, the percent of short-term held supply (held for 180 days or less) reached about 50% which coincided with market tops. Periods where long-term held supply has reached over 60% have typically been good times to buy.

Short-term supply activity spiked on January 8th, with about 5% of supply active within the last 1-7 days. As of March 31 only about 36% of supply was active within the last 180 days, still well below the peak of about 50% during January 2018. 

Source: Coin Metrics Network Data Pro

Full Report

Read the original full report here: the Bitcoin On-chain Indicators Primer.

And to explore our other on-chain metrics check out our free charting tool, formula builder, correlation tool, and mobile apps.

Network Data Insights

Summary Metrics

Source: Coin Metrics Network Data Pro

Ethereum on-chain activity surged this past week as ETH broke out to new all-time highs. ETH active addresses averaged 611.K per day over the last week, topping 600K for the first time since February. Transaction fees continued to climb, averaging $26M per day. And spurred on by the price and fees growth, Ethereum hash rate grew by 5.2% week-over-week and once again reached a new-all time high. 

Bitcoin (BTC) also had a mostly positive week, with market capitalization and realized capitalization growing 7.6% and 3.0%, respectively. Fees grew by 22.8% week-over-week with an average of $5.1M a day. Hash rate dropped slightly on the week, but still remains near all-time highs. 

Network Highlights

Ethereum’s on-chain transfer value, typically denominated in USD, has grown to new highs in 2021 as ETH price has climbed. Interestingly, the amount of value denominated in ETH has also surged. This differs from BTC, where the amount of on-chain transfer value denominated in BTC is significantly below 2017 highs. 

Source: Coin Metrics Network Data Charts

Ethereum’s median transfer value denominated in ETH has surged since summer 2020, likely due to the rise of decentralized finance (DeFi). Bitcoin’s median transfer value denominated in BTC had dropped in 2021 as price has risen.  

Source: Coin Metrics Network Data Charts

Since summer 2020 ETH has closed the gap in terms of daily transfer count compared to BTC. But BTC still averages about 926K daily transfers compared to about 854K for ETH. 

Source: Coin Metrics Network Data Charts

The amount of ETH transferred by smart contracts has also risen dramatically since July 2020, again likely due to DeFi. With an average of 3-5M of ETH transferred by smart contracts per day, this accounts for a majority of the surge in ETH on-chain transfer value.

Source: Coin Metrics Network Data Charts

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • Check out our new market-data focused newsletter State of the Market, featuring weekly updates on market conditions.

  • We’re excited to announce the new Coin Metrics mobile app. View real-time cryptoasset pricing and relevant on-chain data in a single app!  Download for free here: https://coinmetrics.io/mobile-app/

As always, if you have any feedback or requests please let us know here.

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 96

Tuesday, March 30th, 2021

Get the best data-driven crypto insights and analysis every week:

The State of the Network Q1 Wrap-Up

By Nate Maddrey and the Coin Metrics Team

Crypto has already undergone rapid expansion in 2021. We’ve seen new all-time highs and a new wave of adoption and excitement. In this special issue of State of the Network we look back at Q1 2021 and analyze the data behind the trends.  

Institutional Growth

Institutional investors have continued to enter crypto in Q1 2021, although many have done so relatively quietly compared to Q4 2020. The new wave of institutional interest helped push bitcoin’s (BTC) price past $50K in February, then past $60K in March. 

Source: Coin Metrics Reference Rates

The biggest news came in early February when Tesla announced a $1.5B purchase of BTC. The announcement sent BTC to a new all-time high of over $46K. In March Tesla followed up by saying that they will also accept BTC as payment and operate their own Bitcoin nodes, a signal that they are likely invested for the long-term. In addition to Tesla, Square and MicroStrategy announced purchases of more BTC in Q1 2021, adding to their growing reserves

Banks also began to get in on the act. On February 11th BNY Mellon became the first global bank to announce integrated services for BTC and other cryptoassets. On March 17th news came out that Morgan Stanley is planning to launch three funds that enable BTC ownership for their high-end clients. 

New crypto investment vehicles are emerging and bitcoin ETFs are finally gaining real momentum. On March 25th Fidelity announced a new filing for a bitcoin ETF which they’ve named “Wise Origin” as a nod to Satoshi Nakomoto. Although we are still waiting on the first United States approved bitcoin ETF several have already launched in Canada. 

And on February 25th Coinbase filed their S1 in anticipation of their upcoming IPO. Other crypto exchanges may follow in Coinbase’ footsteps with Kraken’s CEO announcing that they may go public next year.  

There have been some bump points along the way, including selloffs after price reached $58K on February 21st and when it topped $61K on March 13th. With new money pouring into the market BTC futures open interest levels hit all-time highs preceding both major selloffs. Although painful in the short-term, these sell-offs helped close out some over-leveraged positions, clearing the path for further growth. 

Source: Coin Metrics Market Data

Despite the entrance of traditional investors, BTC’s correlation with traditional markets has dropped in Q1 2021. 

The following chart shows BTC’s correlation with the S&P 500, using SPY as a proxy. BTC-SPY correlation shot up to new all-time highs following the March 2020 crash as both markets sold off in unison. But BTC has historically had low correlation with the S&P 500. After increasing throughout 2020, in Q1 2021 BTC-SPY correlation has dropped back down closer to historic levels.

Source: Coin Metrics Correlation Charts

The change in BTC’s correlation with gold (using GLD as a proxy) has had an even steeper decline, although it rebounded a bit in March. This has led to commentary that BTC is eating into gold’s market share as the “bitcoin is digital gold” narrative gains momentum. 

Source: Coin Metrics Correlation Charts

Ethereum’s Surge

Ethereum (ETH) is also off to a strong start to 2021 with a frenzy of new activity. ETH price also broke new all-time highs in Q1 2021, peaking at over $2k on February 20th.

Source: Coin Metrics Reference Rates

Decentralized finance (DeFi) surged back into the spotlight in early 2021 following its initial rise in summer 2020. All of the major DeFi tokens had a great first quarter, with most up at least 100%. 

Uniswap (UNI) led the way amongst the large-cap DeFi tokens, rising 486% since January 1st, 2021. With Uniswap V3 and the introduction of concentrated liquidity officially scheduled for launch on May 5th it's shaping up to be a big year for Uniswap and decentralized exchanges (DEXs) in general. Other DEX tokens such as SUSHI, CRV, BAL, 1INCH, and ZRX were also up big this quarter, each growing by at least 250% since the start of the year.

Source: Coin Metrics Reference Rates

But Ethereum’s biggest Q1 storyline was undoubtedly the explosion of non-fungible tokens (NFTs). Ethereum has hit the mainstream media more than ever before thanks to huge cryptoart sales headlined by Beeple’s Christie’s auction, celebrity attention from Mark Cuban, Elon Musk, and others, and the explosion of digital collectibles like CryptoPunks and Hashmasks.

Driven by this new interest, there are about 800,000 more addresses holding at least 0.1 ETH than there were at the beginning of the year.  

Source: Coin Metrics Network Data Charts

The flurry of activity is great for Ethereum’s long-term prospects. But it has brought some short-term growing pains. 

Ethereum transaction fees have shot up to new highs in early 2021. For context, at the peak of the 2017/2018 bull run, average Ethereum transaction fee reached $5.70. Ethereum average transaction fee has been more than $5.70 every day since January 18th, 2021. The median transaction fee has been above $10 for most of the year. 

Part of the growth in transaction fees has been due to the sharp increase in ETH price. As ETH gets more valuable, transaction fees get more and more expensive when measured in USD. But it's also due to a large increase in gas prices caused by network congestion. 

Further complicating things, Ethereum’s fee structure is set to change this July now that Ethereum Improvement Proposal (EIP) 1559 is officially set for inclusion in the upcoming London hard fork

For a detailed overview of what’s causing Ethereum’s current high gas prices and how things will change with the launch of EIP-1559, check out our latest in-depth research report: The Ethereum Gas Report

Rising Tide 

Q1 2021 also saw the rise of many other projects and protocols, both old and new. Notably, potential Ethereum competitors had a big quarter as some investors grew concerned about Ethereum’s high transaction fees. This differs from Q4 2020, when BTC and ETH outperformed compared to most other major cryptoassets.

Binance Coin (BNB) grew 610% since the start of the year with a big leg up in mid-February. Cardano (ADA) was also up over 500% in Q1 after new protocol updates and a Coinbase listing. And Polkadot (DOT) came bursting onto the scene to become the largest market-cap interoperability platform, growing 287% since January 1st. 

Source: Coin Metrics Reference Rates

But outdoing them all was Dogecoin (DOGE), which in a lot of ways captured the spirit of Q1 2021. Amidst GameStop (GME) mania and repeated Elon Musk Tweets, DOGE price rose over 10X in a 24 hour period from January 28th to 29th. It crashed soon after, but then climbed to another new all-time high on February 8th. 

Coin Metrics Q1 Wrap-Up

Q1 2021 has also been a big quarter for Coin Metrics. We’ve released several new metrics and updates to our data offerings:

  • New network data metrics include supply dispersion ratios, new hashrate estimates by ASIC types, and next-generation miner flow data that can be used to analyze the transfer of funds from miners to exchanges. 

  • Eleven new assets added to our reference rates coverage including 1INCH, GRT, and ALPHA.

  • We also released our trusted volume metric which aggregates the reported volume from exchanges that we consider to be the most trustworthy. 

Over the last several months we’ve published multiple in-depth research reports including:

And our data and analysis has been featured in the following: 

Lastly, we’ve partnered with industry leaders to launch new products:

To explore the data used in this piece and our other on-chain metrics check out our free charting tools and mobile apps, and view our full suite of products at coinmetrics.io.

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • We’re hiring! Check out our open positions on our careers page.

  • Check out our new market-data focused newsletter State of the Market, featuring weekly updates on market conditions.

As always, if you have any feedback or requests please let us know here.

Coin Metrics' State of the Network: Issue 95

Tuesday, March 23rd, 2021

Get the best data-driven crypto insights and analysis every week:

Weekly Research Focus

The Ethereum Gas Report

By Nate Maddrey and the Coin Metrics Team

Ethereum adoption is growing like never before. Decentralized finance (DeFi) continues its rapid rise, stablecoins are being adopted around the world, and NFTs are becoming an everyday topic of conversation. 

Ethereum’s usage is a great sign for the long-term prospects of the network. But in the short-term it’s caused some growing pains. Ethereum transaction fees have shot up to new highs in early 2021.

In a new report, we first take a look at Ethereum’s current fee mechanism and what’s driving the high fees. We’ll then look at EIP-1559, and how it will change Ethereum fees moving forward.

Below are a few highlights from the report. Check out the full report here: The Ethereum Gas Report.

Record Fees

At the peak of the 2017/2018 bull run, average Ethereum transaction fee reached $5.70. Ethereum average transaction fee has been more than $5.70 every day since January 18th, 2021. The median transaction fee has been above $10 for most of the year. 

Source: Coin Metrics Network Data Charts

Part of the growth in transaction fees has been due to the sharp increase in ETH price. As ETH gets more valuable, transaction fees get more and more expensive when measured in USD. But it's also due to a large increase in gas prices caused by network congestion. 

Rising Prices

Gas price tends to fluctuate and is dependent on demand for block space. Average gas price surged to its highest levels ever over the summer of 2020 due to the rise (and fall) of DeFi. The growth of decentralized trading, on-chain arbitrage, yield farming, and new token launches all contributed a sharp rise in competition for transaction priority, which led to escalating gas prices. 

Average prices peaked at over 500 GWEI on September 17th, 2020 following Uniswap’s unexpected UNI token airdrop. Gas prices have soared again in 2021 as DeFi continues to surge, and a sharp increase in ETH price has brought in new traders and speculators.

Source: Coin Metrics Network Data Charts

Full Blocks

Ethereum gas fees are ultimately paid to Ethereum miners, who earn their revenue through a combination of transaction fees and block rewards (i.e. newly issued ETH). With ETH fees surging, transaction fees now make up 50% of Ethereum miner revenue.

When mining a new block miners need to specify which transactions to include. Each block can only include a limited number of transactions due to the maximum block size. So miners naturally prioritize the transactions with the highest gas prices since they will earn them more money if these transactions are included.

Sending a transaction with a relatively high gas price will make it more likely that miners include it in the next block since they’re incentivized to include the transactions with the highest gas price. But there is no guarantee that it will be included. If there are a certain number of users willing to pay even higher gas prices, the transaction won’t get confirmed until a later block. 

This becomes even more problematic when blocks are consistently full. Full blocks escalate the intensity of the gas price auction as transaction senders are bidding for scarce space. Since the rise of DeFi in summer 2020, blocks have consistently been about 95% full or more. In March 2021, blocks have been 97%-98% full on average.

Source: Coin Metrics Network Data Charts

The UNI Airdrop Gas Surge

There are many benefits to on-chain trading used by Uniswap and other DEXs. But one drawback is that it puts upward pressure on gas prices. There are often immediate financial benefits to executing a trade faster than others, so many DEX users are willing to pay high gas prices.

The following chart shows gas prices per block before and after Uniswap’s UNI airdrop. Each dot represents the average gas price of an individual block, denominated in GWEI. Each dot’s color denotes the median transaction fee per block, denominated in USD. As gas prices skyrocketed the median transaction fee temporarily reached $12 and above. 

When the UNI token was launched, traders rushed to Uniswap to begin trading it. This led to a large, sudden increase in gas prices as traders competed for block space. This can be seen shortly after midnight UTC (00:00) on the below chart, where gas prices suddenly go vertical and remain elevated for the next 24 hours. 

If you had sent a transaction right before midnight with a 200 GWEI gas price, you would expect it to be included in a block relatively soon based on the average gas prices of the last 12 hours. But due to the sudden escalation in gas prices, your 200 GWEI transaction may not actually get included in a block for a day or more, until demand waned and the gas prices finally came back down. 

Source: Coin Metrics Network Data Pro

Full Report

Read the full report here: The Ethereum Gas Report.

And to explore the data used in this piece and our other on-chain metrics check out our free charting tool, formula builder, correlation tool, and mobile apps.

Network Data Insights

Summary Metrics

Source: Coin Metrics Network Data Pro

BTC and ETH continued to move sideways over the last week. Most on-chain metrics also flattened out, with modest gains or decreases in usage and economics. Notably, on-chain transfer value dropped by 12.4% and 12.0%, respectively, as overall activity dropped. But active addresses and transfers were close to even. 

Tether had a strong week amidst the relative calm. Tether’s total supply grew 5.7% week-over-week, passing 40B. Tether active addresses also grew close to 30% on the week.  

Network Highlights

The percentage of total BTC supply active within the last year has started to dip following March 12th, 2021. Although it's only dropped by a few percentage points it could signal a slight trend reversal considering how much the metric has grown so far throughout 2021. 

A year after the March 2020 crash, the decline could signal that investors who bought BTC after the crash are relatively long-term holders, as many have apparently held for over a year.    

Source: Coin Metrics Network Data Charts

Wrapped BTC (WBTC) supply has hit a new all-time high of 137.3K. Used heavily in DeFi, growing WBTC supply likely means that money is flowing from BTC into the DeFi ecosystem. 

Despite WBTC’s rise, RenBTC supply (another variant of wrapped BTC) has been declining in March 2021 and is currently 12.89K. 

Source: Coin Metrics Network Data Charts

The overall pace of Ethereum contract creation has slowed down in 2021. After peaking at over 100K new contracts a day at the end of 2020, there has been an average of 15K-25K new contracts per day in March 2021.  

Source: Coin Metrics Network Data Charts

The number of ERC-721 contracts has hit a new peak amidst NFT mania. But there are still about 19K ERC-721 contracts in total, a small fraction of the 17.84M smart contracts launched on Ethereum. 

Source: Coin Metrics Network Data Charts

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • Check out our new market-data focused newsletter State of the Market, featuring weekly updates on market conditions.

  • We’re excited to announce the new Coin Metrics mobile app. View real-time cryptoasset pricing and relevant on-chain data in a single app!  Download for free here: https://coinmetrics.io/mobile-app/

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