Ether Hodlers Remain Strong Despite Decreasing Activity
Plus: OpenSea’s “vampire attack” & NFTs vs ICOs
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This week, we dive into the latest on Ethereum on-chain data. Specifically, we cover the contrast between the network’s activity levels and Ether holders’ actions.
We follow this with an analysis of the recent dynamics of the NFT market as OpenSea sees another “Vampire Attack”, as well as some thoughts on the comparison of NFTs today vs ICOs in 2017/18.
Weekly Fees — Sum of total fees spent to use a particular blockchain in a week. This tracks the willingness to spend and demand to use Bitcoin or Ether.
- Ethereum’s network revenues plummeted 26.5% as NFT activity dropped along with average transaction fees
Exchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges over the past seven days. Crypto going into exchanges may signal selling pressure, while withdrawals potentially point to accumulation.
- Bitcoin recorded relatively modest inflows of $300M, the highest weekly netflows into exchanges thus far in 2022
- A net amount of over $1 billion worth of Ether was deposited into centralized exchanges, a multi-month high
Ether Hodlers Remain Strong Despite Decreasing Activity
As uncertainty on the global scale continues to reign over markets, crypto has taken a hit. Speculators have left the scene and network activity is dropping to bear market levels. By analyzing on-chain data for Ethereum we observe the contrast between this decline and the conviction of long-term investors.
6-Month Low — Ethereum’s revenue dropped sharply as network demand stalls.
- This is a common pattern where fees drop sharply following large corrections
- NFT activity had kept network activity relatively high, but as volumes declined recently, so did Ethereum fees
- These fees can be seen as Ethereum’s earnings as most of the ETH used here is burnt, analogous to the network’s dividend
Despite activity on Ethereum dropping, Ether investors continues to grow.
70M+ Addresses — Ether became the first crypto-asset to be held by over 70 million unique addresses.
- An address ≠ a user: as one person can have multiple addresses, but at the same time entities such as exchanges can operate one address with multiple users’ funds
- Still, the number of addresses with a balance > 0 acts as a proxy to the network’s adoption over time
- Interestingly, the number of addresses holding Ether declined slightly last summer along with fees, but this time around has continued climbing and reaching new highs
Diving deeper into on-chain data we observe that most of these Ethereum addresses have bee holding over a year, making them Hodlers.
Hodlers Accumulate 4M+ ETH in 2022 — Since the beginning of the year the total balance belonging to hodlers has grown significantly
- In November hodlers appeared to unload 2 million ETH after it failed to reach the $5,000 level, marking the most recent top
- Then in mid-January hodlers’ balance grew significantly as ETH’s price crashed to $2,200
While this does not necessarily mean this is the bottom, it does show long-term holders continue to have strong conviction in Ethereum. This mirrors Bitcoin’s historical distribution where main players with long-term horizons grow their holdings amid volatile times.
OpenSea’s “Vampire Attack” & NFTs vs ICOs
It has been two months thus far into 2022 and already (at least) two projects are taking a stab at taking market share from OpenSea. The largest NFT marketplace grew to a most recent valuation of $13.3B, but has had its fair share of criticism.
Particularly, many in crypto have criticized OpenSea’s decision to operate as a centralized company as opposed to an open protocol. This led to the emergence of community-owned NFT marketplaces such as LooksRare and more recently x2y2.
Both of these protocols executed “Vampire Attacks” by airdropping OpenSea users tokens and incentivizing trading on their marketplaces in the attempt to suck liquidity out of OpenSea. (For those wondering the term first surfaced following SushiSwap’s fork of Uniswap prior to the release of the UNI token).
Over $100M in Daily Volume — the native token of the x2y2 marketplace has been the most traded pool in Uniswap v2, only behind two ETH-stablecoin pools in v3
- The marketplace airdropped 12% of the total supply of X2Y2 to 860,000+ users that traded on OpenSea before January 2022
- 65% of the token’s supply was allocated to staking rewards, giving those staking over 7,000% APY at the moment
- Given the high rewards and vast distribution, it is not surprising X2Y2 became one of the highest traded tokens in DEXes this week
Meanwhile, the original vampire attack, LooksRare recorded a sharp decline in trading volumes and the price of its native token. LooksRare was not alone, as OpenSea’s volume has also declined this month, albeit to a lesser extent.
33% Decline — The 7-day average volume on OpenSea has dropped from $210M on February 1st to $141M on February 17
- NFT markets have previously witnessed delayed peaks after the rest of crypto tokens, likely due to a wealth effect were holders of ETH or other layer 1 assets are more willing to spend some of their assets after they have appreciated
- The recent decline in volume may be more due to market forces rather than vampire attacks as wealth effects subside amid further drop in prices
NFTs vs ICOs — in the past few months many have compared NFTs in 2021/22 to ICOs in 2017/18 mainly to their widespread speculation. In both cases teams fundraise large amounts of capital (often in the millions of dollars) with a roadmap on the vision. Another way they are similar is in their lag following crypto markets with ICO fundraising peaking two months after Ether’s high in January 2018.
However, NFTs differentiate on their community-focused approach. While with ICO teams could simply leave with raised funds (technically speaking, not legally of course) and the project would not advance, with NFTs, communities can continue evolving if they decide to. This type of community collaboration, in my personal opinion, will make NFTs as a category stick around and not die out like ICOs did.
Oh, and the cute JPEGs will also help.
Have a great weekend :)
