Blockchains (L1) – Weekly fundamentals #62
A walkthrough of the most interesting charts and trends in crypto, with a focus on key business drivers and protocol fundamentals.
This week’s newsletter focuses on the blockchains (L1) market sector, which has a designated dashboard on Token Terminal. Let’s dig in!
Blockchains (L1) are smart contract execution environments that allow for the permissionless creation of smart contract-based businesses or DAOs.
Below is visualized the daily fees for the top 20 projects in the blockchains (L1) market sector over the past year.
- Ethereum leads the way in the blockchain domain, with activity picking up after a turbulent 2022. Ethereum accounts for ~60% of the total fees paid on blockchains (L1). This year, total daily fees on blockchains (L1) have experienced a remarkable 608% growth, climbing from $3.7 million on January 1st to $26.2 million on May 2nd.
- The growth of Ethereum can be attributed to several factors, including network upgrades, increased DeFi activity, and an overall positive shift in sentiment due to recent equity market gains. When analyzing the trending contracts on Ethereum, we can see that activity is primarily driven by exchanges (DEX), NFT marketplaces, stablecoin issuers, and blockchains (L2). Among the top seven gas-consuming contracts, Uniswap holds three positions.
- Ethereum's progress signals the maturation of the blockchain industry. Ethereum completed its most recent upgrade, known as "Shapella", on April 12th, marking a step forward in the network's evolution towards a more scalable blockchain. As adoption and activity increase, it is likely to stimulate further innovation and development within the ecosystem. With the growth in blockchain (L1) activity, the development of scalability solutions such as blockchains (L2), are expected to gain traction, helping accommodate the increased demand and reduce fees.
- On average, Ethereum users pay a significantly higher gas fee, ~20x more than users on the second most expensive blockchain. In 2023, the typical Ethereum user paid an average of $17 per day in fees, while Gnosis Chain had the lowest ratio at only $0.017 per user. Considering all eight chains, the average daily fee per user was $2.5. Moreover, average fees per user on Ethereum have been on an upward trend, growing from $9.59 in January to $36.78 in the last two weeks.
- The increasing gas costs for Ethereum users suggest a growing interest in the blockchain. Since each block has limited space, more users lead to higher fees to ensure a spot in the next block. It’s worth noting that gas costs differ among blockchains, affected by factors like block size and time. For instance, Solana uses localized fee markets, ensuring that high demand for NFTs does not impact fees for a liquidation event on a perpetual trading protocol.
- Retail users migrate towards lower-cost blockchains (L2), such as Optimism and Arbitrum. With transaction fees increasing on Ethereum, small transactions become too costly for users. Blockchains (L2) bundle transactions on a sidechain and settle them on Ethereum, speeding up transactions and lowering fees. These improvements could lead to more users moving to blockchains (L2) as Ethereum's adoption grows, with Ethereum acting as the final settlement layer.
- Despite the higher fees, Ethereum continues to appeal to developers and users due to its widespread use and leading position in the market.
Below are visualized some of the most interesting trends for projects in the blockchains (L1) market sector.
Note that this chart and analysis only covers Avalanche C-Chain, it does not include Avalanche subnets.
- Activity on the Avalanche C-Chain has been on the rise during the first half of 2023. Daily fees have grown 420%, from an average of $17.33k in the first week of the year to an average of $90.87k in the most recent week. Similarly, daily active users have seen an 83% increase, rising from an average of 24.83k in the first week of 2023 to an average of 45.39k in the last week.
- The surge in Avalanche's activity reflects the overall recovery of the cryptocurrency market, fueled by new technology releases and partnership announcements. Like other crypto projects, Avalanche experienced a significant setback in 2022, but the chain has displayed signs of a resurgence in 2023 by revealing major partnerships and exciting features to generate momentum. Earlier this year, Avalanche joined forces with cloud providers AWS and Tencent Cloud, and introduced new developments such as HyperSDK, and Glacier API.
- HyperSDK: Tooling for developers to build high performance Virtual Machines on Avalanche and launch optimized blockchains (appchains). Blockchains built with HyperSDK are called HyperChains.
- Glacier API: Allows developers to query on-chain data on Avalanche and Ethereum.
- The growing activity on Avalanche, coupled with a recent emphasis on developer tooling, indicates expanding adoption. Generally, a rise in applications leads to an increased user base on the platform. Avalanche has announced numerous developments to support a thriving developer ecosystem and promote the chain's mass adoption. As a result, it's likely that we'll see a growing number of dApps on Avalanche, potentially leading to more capital flowing into the ecosystem.
BNB’s steady growth
- The BNB Chain has been experiencing steady growth in fees and active users since the start of the year. Monthly fees on the BNB Chain have risen 21%, from $16.58 million in January to $20.04 million in April. Active users have seen even more impressive growth of 49%, increasing from an average of 794.24k in January to an average of 1.18 million in April.
- The BNB Chain is focusing on building infrastructure for widespread adoption, with its growing user base attracting developers. Its native EVM support makes it an appealing expansion option for projects deployed on other EVM-based chains, such as Uniswap, which launched its platform on the BNB chain on March 15th.
- BNB Chain's close ties with Binance, which has 120 million registered users, plays a significant role in onboarding new users. Binance's unique position at the intersection of traditional finance and crypto enables it to frictionlessly introduce users to the BNB Chain's decentralized ecosystem. Low fees, fast transactions, and native EVM support make the BNB Chain an appealing choice for developers and users alike. As more projects migrate to the BNB Chain and its user base expands, a snowball effect is likely to emerge, driving even more growth on the platform.
Solana fights back
- Solana is bouncing back from the repercussions caused by the collapse of FTX. Its daily fees have grown 130%, from $18.9k on January 1st to $43.3k on May 1st. The price of SOL has followed a similar trend, increasing 130% from $10 on January 1st to $23 on May 1st. This rebound was anticipated after the turbulent end to 2022, with SOL suffering a significant blow due to the collapse of the centralized exchange FTX.
- Despite the turbulence Solana experienced in 2022, it continues to perform. Solana has consistently reported throughputs of over 4,000 transactions per second in 2023. However, the network has also experienced issues resulting in downtime, with the network halting for over 18 hours on February 25th. Despite Solana's challenges with network outages, users and developers remain optimistic about the unique performance and potential global scalability of the Solana blockchain.
- Solana's unique design choices in its blockchain architecture enable rapid experimentation with new technologies and on-the-go fine-tuning. This double-edged sword allows for quick development but may also cause occasional issues, such as network outages. Currently, Solana is investigating various exciting developments. For instance, Jump Crypto is working on a Solana validator client, called Firedancer, to improve the network’s throughput, efficiency, and resiliency.
- For a more comprehensive overview of the most exciting developments happening on Solana right now, we recommend listening to our recent interview with Co-Founder, Anatoly Yakovenko.
Core developer activity
- Blockchains (L1) tend to have larger development teams compared to other market sectors. On average, the number of core developers in the blockchains (L1) market sector is 54, which is ~4x larger than the average across all projects on Token Terminal (14.5).
- Blockchain development is generally more resource-intensive than other market sectors. Historically, creating a blockchain has had a higher barrier to entry compared to building protocols on top of blockchains. Generally, blockchains (L1) have also raised larger amounts of funding than projects in other market sectors, which correlates with larger development teams.
- Platforms like Polkadot and Cosmos, which create a network of blockchains, are lowering the barrier to entry for new builders. More platforms for blockchain development and deployment are emerging every day. Teams with smaller budgets can now deploy chains tailored to their specific needs, which may lead to a landscape where applications launch on their own specialized blockchain instead of general ones like Solana or Ethereum. This has sparked the ongoing debate between appchains and monolithic blockchains.
Ethereum as a settlement layer
- Blockchains (L2) have started to emerge as some of the top gas consumers on Ethereum. Contracts from blockchains (L2) such as Arbitrum, Optimism, and zkSync are consuming a steadily increasing amount of gas to settle on Ethereum. This is a recent development, as the above chart of top gas consumers does not include any blockchains (L2) when analyzed on a 365d timeframe.
- You can explore the data in more detail on our Trending contracts dashboard.
- Ethereum's gas fees are growing as the platform becomes more popular. As a result, user activity is increasingly shifting towards lower-cost rollup solutions, increasing the gas consumption of L2 sequencer contracts.
- The increase in sequencer gas consumption is another sign of a shift towards blockchains (L2). Rollup contracts on Ethereum are climbing the trending contracts ranks. If Ethereum's gas fees continue to rise, we can expect these contracts to consume an even larger portion of the total gas fees, and may eventually end up in a scenario where the majority of gas on Ethereum is consumed by rollups, while actual user activity takes place on blockchains (L2).
- Ethereum's Shapella upgrade was completed on April 12th. The Ethereum network consists of two layers – the execution layer and the consensus layer. The Shapella upgrade introduced multiple Ethereum Improvement Proposals (EIPs) for both layers, with the primary focus on EIP-4895. This particular improvement added support for validator withdrawals from the consensus layer to the execution layer. In the first ten days post upgrade, approximately 1.37 million ETH was withdrawn, consisting of 930k ETH in staking rewards and 440k ETH in principal.
- Before the upgrade, ETH validators couldn't unstake their assets from the consensus layer. Now, stakers can either fully or partially withdraw their balance. A full withdrawal unlocks the entire balance of a validator (principal + rewards), and the validator will no longer participate in the staking process. A partial withdrawal unlocks the earned rewards of a validator, and the validator will continue to be part of the staking process.
- The Shapella upgrade reduces the risk profile of ETH staking and brings more liquidity to stakers, impacting the entire Ethereum DeFi ecosystem. The successful implementation of the upgrade led to a positive market response, with the price of ETH increasing by ~15% within the first three days after the upgrade. For a short period, the ratio between ETH deposits and withdrawals shifted to a surplus of withdrawals following the Shapella upgrade. However, the trend has now returned to its baseline, and the total amount of ETH staked continues to grow steadily.
Tron’s increasing adoption
- Tron displays strong revenue growth, and user activity tends to dip on weekends. Over the past 180 days, Tron's revenue has consistently increased. Notably, both user activity and revenue seem to drop during weekends, which could be due to Tron being increasingly adopted for everyday retail payments like meals, travel, and other common purchases.
- Token transfers fuel growth on Tron, with TRX transfers leading the way. On May 2nd, there were around 4.8 million TRX transfers, more than 2.5x the 1.7 million USDT transfers. When excluding TRX, 80% of Tron contract calls involve USDT.
- Tron has seen strong adoption in emerging markets, with stablecoins providing a reliable way to transfer and store value. Currently, Tron leads other blockchains in daily active users (DAUs), boasting 1.9 million DAUs, while the runner-up, BNB Chain, has 1.2 million DAUs. According to Cuy Sheffield, Head of Crypto at Visa, emerging markets are driving much of Tron's activity, where a stable and user-friendly digital currency is particularly valuable. Although stablecoin payment adoption is still in its early stages, Tron is at the forefront, and the increasing use of stablecoins and related payment infrastructure could attract even more users and projects to the platform.
Other key highlights from the blockchains (L1) market sector
- Fantom Virtual Machine's tests on mainnet data showcase a throughput of 4500 transactions per second (400m daily) with 98% less storage required compared to the Ethereum Virtual Machine. The FVM is set to launch this year.
- Conflux Network announced a partnership with China Telecom to build blockchain-enabled SIM cards.
- Ronin announced RON staking.
- Tezos rolled out its “Mumbai” upgrade, which enables smart rollups integrated directly into the layer one. It aims to scale transactions per second on the blockchain without compromising on decentralization.
- The Helium Network successfully completed its migration to Solana.
- Mythical Games, a next-generation game technology company, has announced its plans to migrate its Mythical Chain to the Polkadot ecosystem, away from Ethereum.
- MultiversX has recently announced partnerships with Opera, Tencent Cloud, ICI D|SERVICES, as well as listings on Coinbase and Upbit. Multiple important products were also launched on the chain, such as xExchange, xSpotlight, and MultiversX Explorer.
Video of the week
Anatoly Yakovenko, Co-Founder of Solana, joined us for an episode to discuss Solana’s core value proposition, the optimizations they have focused on, and how they’re positioned within a multi-chain ecosystem. Also, we discuss how blockchains can be valued, how economic sustainability should be addressed, the most exciting things happening on Solana right now, and more!
01:52 Solana’s core value propositions
03:37 Optimizations compared to previously launched blockchains
08:05 Solana’s position in the multichain blockchain landscape
11:22 The end game for Solana
14:22 What applications are best suited to be built on Solana?
19:21 The teams that contribute to the core development of the Solana blockchain
20:55 Economic sustainability
24:58 Solana as a venture-backed business
26:52 Are blockchains businesses?
29:42 What are the best metrics to measure/value a blockchain?
31:25 Solana Mobile
36:05 Current growth drivers
39:11 What’s next for Solana?
Tweet of the week
$BTC is experiencing its largest fee spike in over a YEAR!— Emperor Osmo🧪 (@Flowslikeosmo) May 3, 2023
Bitcoin fees have risen to $3.2M, a +64.0% increase in the past day.
Thanks to #Bitcoin Ordinals reaching all-time highs. pic.twitter.com/S9jbpuOGrx
Product tip of the week
Tips for getting the most out of Token Terminal
We’ve introduced the ability to filter any data table columns. This is especially helpful if you want to exclude data points over or under certain values.
The authors of this content, or members, affiliates, or stakeholders of Token Terminal may be participating or are invested in protocols or tokens mentioned herein. The foregoing statement acts as a disclosure of potential conflicts of interest and is not a recommendation to purchase or invest in any token or participate in any protocol. Token Terminal does not recommend any particular course of action in relation to any token or protocol. The content herein is meant purely for educational and informational purposes only, and should not be relied upon as financial, investment, legal, tax or any other professional or other advice. None of the content and information herein is presented to induce or to attempt to induce any reader or other person to buy, sell or hold any token or participate in any protocol or enter into, or offer to enter into, any agreement for or with a view to buying or selling any token or participating in any protocol. Statements made herein (including statements of opinion, if any) are wholly generic and not tailored to take into account the personal needs and unique circumstances of any reader or any other person. Readers are strongly urged to exercise caution and have regard to their own personal needs and circumstances before making any decision to buy or sell any token or participate in any protocol. Observations and views expressed herein may be changed by Token Terminal at any time without notice. Token Terminal accepts no liability whatsoever for any losses or liabilities arising from the use of or reliance on any of this content.
Stay in the loop
Join our mailing list to get the latest insights!
- Yearn Vaults V3
Yearn Vaults V3
This article provides an introduction to Yearn Vaults V3. Core contributor, corn, walks us through Yearn's go-to-market strategy with Vaults V3 and how they decided to go with Polygon PoS, the key differences between V2 and V3 Vaults, the purpose of Vaults V3, fees, and the first ever Yearn hackathon!
- Demystifying web3 gaming with Shima Capital – trends, challenges, opportunities | Fundamentals ep.80
Demystifying web3 gaming with Shima Capital – trends, challenges, opportunities | Fundamentals ep.80
In this episode, we’re joined by Alex Wettermann, the Head of Gaming at Shima Capital – an early stage VC firm investing in disruptive web3 companies. Alex gives us an overview of the current state of the web3 gaming market, and walk us through the key trends, challenges and potential opportunities within the space.
- MarketVector Indexes™ launches innovative Token Terminal Fundamental Index suite
MarketVector Indexes™ launches innovative Token Terminal Fundamental Index suite
While the cryptocurrency market rapidly evolves and investors seek innovative approaches to the sector, MarketVector Indexes™ (“MarketVector”), a pioneer provider in digital assets indexing, today announced the launch of the MarketVector™ Token Terminal Fundamental Index Suite, a groundbreaking approach to creating multi-token baskets.