Review the history of Ethereum DEFI protocol from the perspective of Gas consumption

"Through the Looking Gas: A History of Ethereum Protocols"

Originally written by Ling Young Loon, Nansen

Lu Jiangfei, Chain Wen

Ethereum went live in July 2015. Over the past few years, the Etherium-based decentralized applications (DApps) ecosystem has seen amazing growth, such as:

The first OTC market of 1.0x was launched in 2017;

2.Uniswap was first launched and deployed in November 2018;

3.Yearn Finance has orchestrated a much-anticipated airdrop campaign in 2020.

Decentralized Finance (DEFI) has been a growing industry and, in retrospect, its growth seems inevitable.

As in other economies with competing products, many decentralised financial agreements have had their ups and downs, with some peaking in a short period of time and others falling fast. But in the process, the DEFI protocol never gave up on innovation, which is why we see the DEFI market structure today. Defi's history may be subjective, but the Ethereum blockchain is not. In this research article, we will tell the story of Ethereum through the data and examine the state of development of such protocols. The chart below shows the trend of total gas spending on the Ethereum blockchain over a period of four weeks from 2018 to the present, based on data from Metabase.

As you can see from the chart above, Ethereum blockchain activity was fairly quiet during 2018-19, with the total amount of gas spent hardly exceeding 40,000 ETH per month. However, since 2020, Ethereum blockchain activity has started to rise and gas expenditure has shown a parabolic growth. In September 2020, the total gas expenditure on Ethereum for 4 weeks reached a peak of 650,000 ETH. Back then ETH was only $400 a month -- time really went by!

Perhaps we can get a closer look at the data by analyzing the percentage of total gas expenditures by the various DEFI entities. In this article, we want to look at the percentage of the top 30 agreement entities in the aggregate historical data over time.

To be frank, the gas cost of the DEFI agreement depends on a number of factors, such as:

1. How many users interact with smart contracts;

2. Computational strength required to execute the function;

3. The overall price of gas on the Ethereum blockchain at the time.

Before we go any further, a note must be made: The 2018 -- 2019 Ethereum market landscape is very different. Many of the smart contracts that were very active at the time are no longer in use. We can see the top 30 gas consuming entities for the 2018 -- 2019 period in the figure below, based on Metabase.

In addition to the entities, we have also aggregated the total cost of gas spent on token contracts, which roughly account for around 10% of Ethereum activity. In 2018, many of the token contracts were Ponzi schemes and gambling games, and a good portion of them came from China. LastWinner is a good example of a protocol based on a very simple mechanism: Users deposit ETH into contracts until a certain ETH cap is reached, and once that is reached, the last person to deposit ETH wins all the ETH, and you can see the activity of this protocol on Ethereum peak in mid-2018.

More interesting is the chart below, which shows the relative percentage of gas spent by the top 30 entities since 2018, according to Metabase.

Those numbers tell an interesting story year after year, so let's start with 2018.

2018: The seeds of decentralization

0x cuts out the middleman. Many thought Uniswap was the first decentralised exchange, but it wasn't. The use of smart contracts to de-trust token exchanges goes back much further. The original DEX model was created in 2017. They initially wanted to mimic the order-book model of a centralized cryptocurrency exchange, but it turned out to be too computation-heavy and slow to actually use. However, in July 2017, 0X deployed a solution based on on-chain transaction settlement called 0X OTC. When people trade on the OTC market, there are usually two problems:

1. Price discovery occurs only between two parties;

2. No guaranteed offer negotiations occur (one party can withdraw at any time, but in the open market, an order placed by one party can be accepted immediately).

Users can place orders on off-chain platforms such as Twitter and then settle on the chain via 0x, which has averaged $4 million in daily transactions in 2018.

Next up is Bancor. In August 2018, Bancor mentioned the idea of building an automated market maker in a blog post aimed at revolutionizing the order-book-style trading market by pairing all tokens with BNT, a practice that continues to this day. In contrast, on the Uniswap platform, we can see a variety of matching trading pairs.

Kyber has also made its mark in the history of decentralized exchanges. Essentially, Kyber wants to promote a decentralised approach to acquiring and contributing liquidity, but it is not a decentralised exchange per se. Instead, it focuses on aggregating liquidity from a variety of pool sources -- including decentralised exchanges and centralised market makers. We can think of Kyber as a universal Uniswap router, where liquidity from all sides can be used by entities like payment networks, which was very groundbreaking at the time.

2019: The new financial economy

In 2019, Chainpnk has grown into a key part of the DEFI field. In 2017, ChainPNK launched its first Oracle (Oracle), which securely connects external off-chain data to Ethereum smart contracts. People don't realise how important the prognostics are for synthetic assets and margin products - BZX uses the ChainPNK prognostics for its margin trading platform and Synthetix is integrated with ChainPNK to provide feed information for real-world assets. In May 2019, Blockchain Media Decrypt  It has even published a list of DeFi protocols that have been integrated with Chainpnk.

Another prophetic service to watch is Tellor, which saw a brief spike in usage in October 2019.

ChainPNK, with its share of Ethereum gas bills remaining above 4% until 2021, is a real big winner.

Since then, some of Defi's advanced trading features have taken root, such as managed lending trading platform DyDX, which launched margin trading in 2019 with a stylish user interface that allows for up to 4x leverage and a nearly CEX-like experience.

In addition, Synthetix found its own niche in 2019. Few people today know that Synthetix was originally called Havven. In fact, the synthetic asset protocol was originally designed as a stablecoin protocol similar to Maker. Looking at the chart of gas consumption trends, we can see that Maker has been the dominant player for many years. Synthetix works to create a market for synthetic crypto and inverse value assets, and in July 2019, Synthetix traded $60 million.

Interest in Compound is also starting to increase -- Compound V2 was launched in May 2019 with a new look. The money market of the Compound has barely changed over the years, but its stable gas charge throughput (1.5-5%) has proven the Compound's design to be very successful. Not surprisingly, over the years, borrowing under the DEFI agreement has consistently generated lower gas costs than DEX

2020: More champions emerge

In 2020, Uniswap began to dominate the automated market maker (AMM) market. Uniswap actually launched back in November 2018, but it wasn't until February 2019 that it officially surpassed Bancor in terms of transaction volume. While both Dex are based on the 50/50 reserve model, Uniswap's design is more efficient and user-friendly. Not only that, but Uniswap's design also supports permission-free cryptographic asset coinage, allowing it to build huge composability with the larger DEFI ecosystem. In 2019, a widely circulated blog post in the industry analyzed Uniswap this way

Our tokens had been on Bancor for a few months before we switched to Uniswap. The process of putting a token on Bancor requires us to contact and work with the Bancor team and then have to transfer the ETH and the equivalent amount of tokens to the address provided by the Bancor team. The Bancor team also asked us to transfer at least $60,000 worth of ETH during the setup process to provide liquidity. It took a day or two from the time we decided to list our coins until our tokens appeared on the Bancor website, and there was a lot of back-to-back communication with the Bancor team. By contrast, the process of creating a Uniswap contract is like filling out a short form that you can easily complete with the click of a button. Adding liquidity to the contract on Uniswap was equally easy, it took just a minute or two, we didn't have to contact the Uniswap team at all, and they didn't have to add any liquidity to the contract.

The decentralization of 1Inch's entry to the market in 2020 feels like -- quite a shock. It may have been the fastest growing DEFI deal last year, but it didn't close its early seed round until August 2020, and has since captured 6% of the gas market in just three months. 1Inch primarily provides a decentralized exchange aggregation service that analyzes various pools of liquidity to split and route orders to find the most cost-effective deals. The 1Inch was airdropped to customers at the end of 2020 and accounted for 10 percent of gas bills in December.

In the last year, Forsage has exploded in popularity. This is a strange phenomenon, because to use ForSage, users have to pay ETH to the platform. In addition, users can be rewarded with ETH tokens if they recommend the ForSage platform to others. From this perspective, the projects may seem like a pyramid scheme, but they are still in operation today.

In 2020, there's hardly a Defi user who hasn't heard of Yearn. Ethereum's history would not be complete without the spectacular Yearn Finance YFI airdrop, a "worthless governance token" that saw its price rise 35-fold in just seven days. Yearn has been at the forefront of DEFI since 2020, and its growing structure and form has also pointed the way for other newly created DEFI protocols today.

2021 and beyond

Tether and Center account for a large portion of the Ethereum blockchain activity -- they account for almost 12% of the current total gas bill. Tether and Center are like the best "proxies" that can be used to shift the amount of assets going in and out of Ethereum, since Gas is used to mint and destroy USDT and USDC stablecoins.

The Wrapped Ether contract, on the other hand, is still widely used and has gradually become the backbone of Defi. For now, ETH is a very revolutionary idea, a tokenized ETH that can be used as collateral, as a means of trading, and as a pricing benchmark for other tokens. Weth is a typical strength of Defi's Lego bricks, which meet a broad market demand, are already widely used, and have a fairly stable price. No, they are not governance tokens!

In fact, a living ecosystem of Ethereum products has emerged: a series of token exchange protocols now have their fair share of the Ethereum blockchain -- though Uniswap still dominates. Today, Nansen alone tracks at least 94 Dex protocols -- each with its own "quirks" and value propositions. Since the beginning of 2021, these agreements have deployed more than 2.8 million contracts. In addition, in the case of the ERC-20 contract, approximately 198,000 have been deployed to date.

Each of us is "contributing" to Ethereum, and every token exchange, pledge, deposit, withdrawal, and coinage you make is recorded on the Ethereum blockchain. Each of us is a participant in the Ethereum forest, helping the forest survive, grow, adapt, and thrive. So, where do you think Ethereum will go next?

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