Gas usage on the Ethereum network provides valuable insights into user demand and the major narratives that have shaped the ecosystem. By analyzing the trends, we can identify four significant storylines that have influenced Ethereum's journey, often resulting in new all-time highs for ETH prices during their peaks.
Let's explore these narratives:
🟢 Initial Coin Offerings (ICOs): ICOs, the crypto equivalent of IPOs, reached their zenith in 2017 and 2018. During this period, up to 40% of gas usage was attributed to ERC-20 token transfers. Although demand for ERC-20 token transfers has declined, it remains notable today due to the popularity of Memecoins and new token distribution methods like Yield Farming and Airdrops.
🟡 Decentralized Finance (DeFi): The rise of DeFi in 2020 promised to create on-chain financial primitives and instruments without traditional intermediaries. It experienced its peak usage from June 2020 to 2021, accounting for approximately 30% of gas usage. The DeFi wave continues today, albeit at a lower intensity.
🟠 Non-Fungible Tokens (NFTs): NFTs introduced unique representations of digital or real-world assets. While they have existed for years, it was in mid-2021 that they gained mainstream awareness. NFT demand fluctuated in 2022 but has recently seen a resurgence due to various factors (refer to our report in WoC 09).
🔵 Stablecoins: Stablecoins, particularly those pegged to the US dollar, have witnessed a surge in user demand since mid-2020. The decrease in gas usage from stablecoin transactions reflects a shift in utility rather than a decline in demand. Stablecoins are now predominantly used for hedging and as a store of value rather than for direct payments.
📝Overview
An interesting pattern emerges, where each new application experiences a boom-bust cycle, driving its gas consumption to around 30% to 40% of the total. Subsequently, there is a gradual decline to a baseline level of approximately 8% of gas consumption for these major application types.
🎯 Conlusion
Understanding these cycles and narratives helps us gain insights into the evolution of Ethereum and its various use cases. As the network continues to evolve, new narratives are likely to emerge, shaping the future of decentralized applications on Ethereum.