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Demand for Ethereum (ETH) is largely driven by the use of the token in on-chain transactions and token transfers, according to report by CoinShares.
Ethereum Use Cases Have Increased, But Long-Term Value Has Not
In a detailed report recently published, CoinShares’ Matthew Kimmell noted that despite Ethereum’s ability to handle popular requests in the future, investors are finding it difficult to see a significant value proposition in its ETH token.
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Since its inception in July 2015, Ethereum has made great progress as it has continuously seen the emergence of new use cases, from simple token transfers, used for on-chain applications, Decentralized financial agreements (DeFi), and, more recently. , non-sworn tokens (NFTs).
According to the report, Ethereum began to see wider use from 2018 onwards, when its main use shifted from token transfers to simple on-chain applications, digital ownership systems, and on-chain withdrawals.
From 2020 onwards, Ethereum has simplified complex use cases such as protocol staking, liquidity mining, MEV (maximum extractable value), bridges, oracles, and second-tier technologies. Although the increase use cases may sound favorable to Ethereum at a high level, the challenge lies in the use of ETH which is concentrated within a limited range of services.
The report reads:
However, the hard truth is that a very small set of services consistently make use of Ethereum, and these sets are mostly focused on speculating or transferring simple value, not the complex type of “real world resource” use cases that were originally envisioned. by the developers of the Ethereum Foundation.
The chart below confirms this observation, showing that simple token transfers and application interactions account for the largest share of ETH usage, followed by infrastructure, intermediary operations, and contract management.
Markets Lead Application Usage, Stablecoins Lead Token Transfers
The report highlights that on-chain markets – particularly decentralized exchanges (DEXes) such as Uniswap – dominate the interoperability of applications. Notably, more than 90% of transaction costs come from market activity.
In the first half of 2024, Uniswap alone accounted for about 15% of Ethereum’s transaction volume. This is not surprising, as the leading DEX lately what has been achieved a $50 million revenue milestone. In contrast, NFT trading platforms have suffered greatly refuse in user transactions from their peak in 2021.
Token transfers continue to play an important role in the operation of the Ethereum network. With an ever-growing ecosystem, the type of tokens being transferred has diversified. However, ETH, along with hard coins like USDT and USDC have emerged as the dominant tokens in terms of transaction finance.
The chart below shows the rise of stablecoins since mid-2017, when USDT began to see high adoption as a trading pair for almost all ERC-20 tokens listed on crypto exchanges. Circle’s entry into the market in late 2020 with its USDC stablecoin furthered the use of stablecoins within the wider Ethereum ecosystem.
An interesting observation made in the report concerns the increased use of Ethereum layer-2 solutions. While their adoption has addressed some of Ethereum’s limiting issues, they have inadvertently reduced the need for Ethereum’s base layer. Kimmel comments:
In our view, the most recent change, EIP-4844which heavily promoted Layer 2s, worked directly against the structural economic benefits of EIP-1559, which tied the value of ether to its demand for a Layer 1 platform.
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ETH is trading at $2,613 at press time, up 0.2% in the past 24 hours. Stablecoins such as USDT and USDC command a market cap of $119 billion and $36 billion, respectively.
Featured image from Unsplash, Charts from CoinShares.com and Tradingview.com