Ethereum’s DeFi Domination: Understanding the Size and Role of Ethereum’s Largest dApps

In part I of this series, we showed readers how Ethereum’s applications layer sets it apart from The Bitcoin Network. This is achieved primarily through its smart contracts, which enable developers to build financial innovation through decentralised applications, also known as dApps. In part II, we will provide readers with a deep dive into the ecosystem of digital applications, analyse the potential value generated from financial dApps on the Ethereum network and their capabilities to disrupt traditional finance.

Ethereum Leads dApp Volume

Source: DappRadar. The distribution of dApp volume over different blockchains.

What is driving the Dapp Transaction Volume?

We are in the early adopter stage of digital financial instruments. To date, Ethereum applications have experienced mostly organic user growth, meaning that new users have found these applications through internet searches, online communities and word-of-mouth. DApp adoption has primarily originated from two main groups of digital asset participants; Bitcoin users who want to put their assets to work and native Ethereum users.

Source: Glassnode. A chart showing the 7-day moving average of new addresses on Ethereum’s Network. The black rectangle represents 2018 bull run, while the DeFi Summer is represented in red.
Source: Glassnode. The number of new Bitcoin addresses, from inception to present date.

Bitcoin Adoption Is Good for the Entire Ecosystem

Source: Glassnode. Total addresses for Bitcoin (pink), Ethereum (Green), and Litecoin.
Source: Dune Analytics. Number of tokenised Bitcoin on Ethereum.

DeFi holds the Most Valuable DApps

At present time, Decentralised Finance Applications, or “DeFi”, contribute the majority of trading volume within the dApp ecosystem. The main driver of this growth has been Compound.Finance, a lending and borrowing protocol on Ethereum, implemented at the start of summer 2020 (also known as the ‘DeFi Summer’).

Source: DappRadar. The distribution of incoming volume over each dApp sub-sector over the last year; DeFi (blue) and DEXs (green).
Source: DappRadar. DeFi Volume compared to other dApps.

DeFi Has Presented a Multitude of Investment Opportunities

With the current momentum and clear growth potential of the DeFi ecosystem, it is safe to say that there are a number of investment opportunities to be had for savvy investors.

Source: DeFi Pulse. Total Value locked (TVL) on DeFi dApps.
Source: Dune Analytics. Total number of DeFi users, from inception to present day.
Source: Dune Analytics. The total outstanding loans on DeFi. Reformatted into a table by ByteTree.
Source: Dune Analytics. Current outstanding loans on the top three DeFi projects. Reformatted into a table by ByteTree.
Source: ONS. Internet sales as a percentage of total retail sales.

Ethereum has Great Promise, but a Long way to go

Source: Glassnode. The graph shows the mean gas price per transaction (blue), plotted alongside the price of Ethereum.

Summary

Ethereum continues to lead the entire dApp ecosystem and, in particular, enables investors to put their digital cash to work in a market which is on course to disrupt open finance. While smaller sub-sectors like NFTs are moving away from the Ethereum Network, Ethereum continues to offer a great deal of value to investors through the financial dApps it supports. We recommend that enthusiasts and investors alike continue to follow developments on Ethereum closely.

Applied data for digital asset investors. ByteTree provides real-time data, fundamentals, technical and deep blockchain market analysis for Bitcoin, and more.

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