Ethereum is one of the most productive assets in the world, but does it have a new contender?
Ethereum is well on its way to becoming one of the most productive assets in the world, however soon there will be a new kid on the blockchain in the form of PulseChain. In this article I will explain why Ethereum, which is one of the most productive assets in the world, will have a new contender with the timely introduction of this new blockchain and ironically why this project has the potential to not only assist Ethereum but also go on to facilitate both the maturity as well as growth the of the cryptocurrency space as a whole.
The birth of Ethereum
The Ethereum blockchain began in 2015, offering 72 million Ethereum to just over 9,000 Bitcoin addresses that participated in the ICO. Fast forward to today, there is now 118 million Ethereum from block rewards across 135,734,686 recorded wallet addresses.
Of the initial ICO participants:
81% of these wallets have only 1% of their initial balances or less
9.5% have an unchanged balance (lost?)
Only 64% have actually increased their ETH holdings
So… where are all of the tokens now?
A large majority of ETH is placed in smart contracts on the network. To be exact, it’s upwards of 26.86% of the supply of ETH. That’s about 31,825,848 ETH, or $143 billion. This is significant not only because of the mere size, but for what they are being used in.
These are decentralized applications that power virtual economies, stable coins, and many other things home to Ethereum. Of that 26.86% in smart contracts, 77% is locked in DeFi. That’s an astounding 24.5 million ETH, representing 20.67% of the total supply.
Still not impressed? Let’s talk about exchanges next. The supply of ETH on exchanges is reaching levels near three year lows, a trend that has been continuing since late 2020. According to Glassnode, exchange balances for ETH have recently hit as low as just 14,246,767 ETH.
That’s about 12% the total supply of ETH, a figure down from 17.3% at the start of the year.
Low exchange balances suggest that investors do not have any plans to sell, driving illiquidity and volatility further into the mix.
Next we can take a look at staking…
With the ETH 2.0 deposit contract amassing upwards of 8,394,818 ETH, months before launch. That’s 7.08% of the ETH supply, and this is expected to grow significantly as APY increases following the merge, with transaction fees going to validators.
So… what do we have so far?
We’ve covered the amount of ETH in smart contracts, the amount locked in DeFi, ETH held across exchanges, and the total that is staked, combined making up around 45.94% of all ETH in existence.
This is where things get even more interesting…
Did you know, more than 50% of the supply of ETH hasn’t moved in over a year? The further we go back, the smaller this number gets. As little as 20% of the supply has been recorded as being active since October of 2017.
It’s fair to say the actual circulating supply of ETH is a lot lower than commonly believed. This will be even more evident with EIP-1559 burning a mind-blowing 1,016,743 ETH in just three months since being initiated. That is nearly 1% of the entire total supply burnt.
At some point we have to ask, with:
26% of ETH locked in smart contracts
$116B TVL in DeFi
5.5% of ETH staked
EIP-1559 on pace to burn $4.5 billion worth of ETH this year
Liquidity pools - exchange balances reaching 3 year lows
How much of ETH supply is actually circulating?
What about layer two?
There’s quite a bit of ETH there, as well. In fact, there is a respectable 5,807,590 ETH bridged on to layer two networks…which is about 4.9% of the total supply of ETH. As rollups continue to develop we can expect this number to grow exponentially
Let’s now talk about people using Bitcoin on Ethereum. Bitcoin holders are wrapping their coins on to Ethereum to participate in DeFi at a tremendous rate As of this writing, there are 312,566 Bitcoin on Ethereum. That’s a shocking 1.4% the total supply of Bitcoin.
I haven’t even mentioned NFTs yet, which are breaking records every day.
If we took just the floor price of Bored Apes, land in SAND, and CryptoPunks we would reach the combined valuation of $6.38 billion (at current floor price). That’s roughly 1,409,944 ETH, or 1.18% of all ETH. When you also start to consider the fact that there are 13,636 dApps, and more than 300,000 ERC20’s deployed on the network, I think you’ll start to get what I mean by a “𝘱𝘳𝘰𝘥𝘶𝘤𝘵𝘪𝘷𝘦 𝘢𝘴𝘴𝘦𝘵”
26.86% exchange balance
6.8% supply decrease
7.08% dormant (lost)
4% (annually) layer two
4.9% Bitcoin on ETH
That’s about 74.27% of the supply we can expect to HODL, and likely an underestimate.
My point of these statistics weren’t to shill ETH, but to point out the very simple laws of supply and demand at play.
Block space on ETH is highly sought after, and new users are attempting to join the network every day. Layer two will help to onboard millions of users with badly needed low fees, but regardless of these new chains ETH is still the predominant smart contract blockchain that has battle tested code that has run successfully for several years on which many hundreds of projects have chosen to build. So it's a catch 22; projects have put their faith in Ethereum, they have built their infrastructure on it, but now they are struggling to grow and fulfill their potential primarily because of fees.
A new kid on the blockchain
So you can clearly see that Ethereum is a truly massive deal within the crypto space. However, it has in some respects become a victim of its own success, which has resulted in filled blocks on the blockchain and subsequently ridiculously high transaction fees, which many people object to pay.
An unprecedented development that will soon play out in the Ethereum ecosystem is the soon to be launched PulseChain. This will put some very interesting dynamics into play, which will not only help with the productivity of the Ethereum network, but it will most definitely help many new and existing users to be able to efficiently participate in the space.
If you're not familiar with PulseChain here is a high level overview:
PulseChain will be a hard fork of the entire ETH system state.
All ERC20 tokens will be copied over to the new blockchain. Literally thousands of tokens will be given to wallet holders for free.
This new gold rush will create the value discovery of all of these tokens and NFTs.
PulseChain will re-enable priced out use cases.
The new blockchain will replace miners with proof of stake validators, making it considerably more environmentally friendly than the current ETH network.
There will be increased throughput, meaning considerably faster transaction times - up to 4x faster.
Fees will be pennies and not tens or hundreds of dollars that are currently charged on ETH.
By PulseChain sharing the load from the ETH network this should help to lower its fees, helping it become more productive.
The native token PLS will have 0% inflation. Validators will earn fees and 25% of the fees will be burnt which will reduce the circulating supply which should lead to positive price appreciation over time.
There will be some intriguing game theory at play when this project launches.
What happens if the founders of an ERC20 project doesn't like PulseChain for some reason? Will they look to pull liquidity to stop people trading the coin on a quicker and much cheaper network?
Upon launch the PRC20 (Pulse ERC20) will be harvested and it will then not be possible to stop the code. To stop this the founders of the project would effectively have to rug pull their own project and withdraw all liquidity to cease all trading.
By having liquidity bonding (equal pools of ERC20s and PRC20s) it should make the PRC20's have a similar price.
Ultimately though the market will decide - will users want to continue to pay hundreds of dollars on what is ostensibly the same network, but instead be able to do so for a few pennies?
This has proven to work on ETH layer 2 networks, but in this scenario users will not need to use any bridging; they won't need to move any coins; and to transact all they will have to do is change a couple of settings in their Metamask wallets.
Projects that are currently non-functionable will all of a sudden become useable - games will be playable and you'll be able to mint NFTs for 10s of cents instead of 10 of thousands of dollars!
Those projects where functionality has been broken will be able to operate once again on PulseChain. The keys will already work, all the front-end developers will need to do is point the front-end to PulseChain and then they will have many very happy users. Only time will tell whether the developers have the best interests of their communities at heart.
Speculative tokens may actually become more valuable because people will actually be able to trade them.
There is other game theory no one knows the answer to because it will be entering unchartered territory.
What's going to happen with stable coins? Are they going to be given a different ticker?
USDC for example have admin keys meaning in theory they could invalidate everyone's coins whenever they want to.
Do they invalidate them and then run the risk of being sued by the users for destroying the value? Or do they let it float, find a price, and issue real USDC on the chain, as they have done with other chains. But what ticker will they then use?
Why is this such big deal?
As I have already mentioned, when Ethereum launched it did so with around 9,000 participants in its ICO who basically gave their Bitcoin and in return received the ETH coin when it launched. It then went on to achieve everything that is mentioned above and has become an asset that has appreciated by over 36,000%.
PulseChain will launch having had over 62,550 people participate in its equivalent ICO known as a sacrifice phase. It will then launch with a full copy of the Ethereum system state which will include thousands of tokens, NFTs, projects, smart contracts and stakes.
PulseChain will also launch with a Decentralised Exchange (a fork of the popular Pancake Swap), staking, yield farming, an innovative loan protocol and multiple bridges from the get go. As such it will be fascinating to see how this plays out in the coming months and how it will then impact the productivity of Ethereum.
So, in the near future perhaps we will very quickly move from the mindset of “I buy ETH because it appreciates,” to be able to have the mindset of “I buy ETH to do things,” especially when PulseChain has been successfully added into the mix!