Analysis & Opinions

This Week in Crypto: A Data Perspective (June 29-July 3)

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As developments in decentralized finance (DeFi) have grabbed headlines in the crypto space in the last few weeks, people have begun to discuss the impact it will have on the underlying blockchains. With a majority of the large DeFi protocols built on top of Ethereum, network activity has increased steadily throughout the year as monitored through IntoTheBlock’s network indicators. This has led Ethereum to recently surpass a major level of transactions that hadn’t been reached since January 2018. 

Asides from diving deep into recent Ethereum news, we will also cover developments in one of the top tokens that has recently “mooned”: Chainlink (LINK). Leveraging blockchain’s transparent nature, IntoTheBlock is able to extract key insights that provide a better understanding of major news moving the crypto space.

Ethereum Daily Transactions Surpass 1 Million

In terms of price, Ethereum has had a very positive year with the value of ETH increasing 88% year-to-date. Perhaps even more impressive, however, is the growth in some key on-chain indicators. As previously mentioned, the recent DeFi rally has been raising the demand to use the Ethereum blockchain. In response to this increase in demand, Ethereum miners are increasing the gas limit by 25%, as reported by The Block.

Source: The Block, Etherscan as of June 20, 2020

Contrary to Bitcoin — which has a fixed block size — Ethereum’s block size varies according to the block gas limits set collectively by miners. In theory, increasing the gas limit allows the Ethereum blockchain to process more transactions per second. In fact, according to Bitfly, Ethereum’s maximum transaction throughput is expected to to have increased to 44 transactions per second from 35 on average prior to the gas limit increase. 

Despite raising some concerns about potential denial-of-service attacks, the increase in gas limit managed to decrease the gas costs that end users have to pay to transact in the Ethereum blockchain, be it through a simple ETH transaction or a complex smart contract to interact with a decentralized application. The impact of this increase in transaction throughput was seen shortly after it took place, leading the number of Ethereum transactions to reach a level not seen since January 2018.

Taken June 23, 2020 at 11pm using IntoTheBlock’s network indicators

The last time Ethereum daily transactions surpassed one million, ETH’s price was at $1,033, over four times the current value. While there certainly was a large wave of speculation in the beginning of 2018 following the ICO bubble, the current increase in transactions appears to be led by network usage from smart contracts deployed on top of the Ethereum blockchain. 

Another key difference between the growth seen in Ethereum usage and now is that the major protocols using Ethereum already have a working product generating cash flows. With the total value locked in DeFi smart contracts surpassing $1.5 billion as per DeFi Pulse, there is a growing optimism that the value accrued by these protocols will increase demand for ETH and make it scarcer. 

One growing trend leading Ethereum adoption is the so-called “yield farming” — a process that enables a user of decentralized application to be rewarded with tokens and yield on top of liquidity supplied to dapp. The most notorious example of DApps where users are able to yield farm is Compound, which saw explosive growth following the release of its COMP token that can be earned through yield farming. 

Despite the recent hype that DeFi applications have attained, Vitalik Buterin — founder of Ethereum —  put out words for caution in the space:

This message may remind some people in the space of the one Vitalik tweeted in December 2017, raising the question of whether crypto’s market cap reaching $500 billion was “earned.” While there are similarities between the recent DeFi hype and the ICO bubble, major differences and on-chain patterns point to actual value being created this time around. 

Chainlink ‘Marines’ Are Back as Major Integrations Are Announced

Aside from COMP, another ERC-20 token that has been a must-watch for people in the crypto space has been Chainlink’s native token, LINK. Having increased by over 150% year-to-date and integrated with multiple reputable projects, Chainlink has developed a large community of followers known as Chainlink “Marines.” 

Recently, it was China’s Blockchain Service Network (BSN) that announced the integration of Chainlink’s oracle service, as reported by Cointelegraph. Recently formed by some of China’s leading technology companies, the BSN aspires to provide a blockchain infrastructure that offers cheap and accessible decentralized services worldwide. 

By using Chainlink’s oracles, companies integrate with a decentralized solution that brings credible external data on-chain. Given that most data is currently not hosted on a blockchain, decentralized oracle solutions such as Chainlink have been touted as a potential bridge between internet 2.0 and internet 3.0. Along with its integrations, Chainlink theoretically increases demand for its native LINK token, which is used as a utility token that facilitates the usage of oracle smart contracts. 

For example, by creating a Chainlink request, a user sends an on-chain transaction to an Oracle Contract, transferring LINK along with the data representing the user’s request. The Oracle Contract tracks LINK balances from requesters and emits an event after receiving LINK, which then notifies the off-chain Chainlink network that a request has been initiated. Once this request has been received, Chainlink performs the work of the request and returns the desired off-chain data to the Oracle Contract. Finally, the Oracle Contract updates the LINK balance to pay the node operator and returns the result to the Consumer Contract. This process is displayed in the image below:

Courtesy of IntoTheBlock’s CEO Jesus Rodriguez’s Medium post

Given that Chainlink integrations require LINK usage, Chainlink Marines tend to anticipate price growth following partnership news. An increasing amount of buzz and positive sentiment has been monitored through Twitter using IntoTheBlock’s social indicators, especially following the recent China BSN integration. Along with the sentiment, LINK managed to reach $4.80 for the first time since early March.

As of June 23, 1pm using IntoTheBlock Twitter Sentiment

While sentiment tends to be a lagging indicator — as opposed to a leading one — the recent rise highlights growth in prominence of Chainlink’s community. In fact, BSN co-founder Yifan He stated that one of the main reasons that they decided to integrate with Chainlink is that they saw that they have the best community. Overall, Chainlink’s bustling community has already proven to put it ahead of other decentralized oracle solutions.

This article is intended to be used and must be used for informational purposes only. It is important to do your own research and analysis before making any material decisions related to any of the products or services described. This article is not intended as, and shall not be construed as, financial advice. 

The views and opinions expressed in this article are the author’s own and do not necessarily reflect those of CoinMarketCap.

ITB is a tribe of data scientists, cryptocurrency experts and AI geeks that set out on a journey to unlock the mysteries of crypto assets and provide investors with relevant intelligence about the market.

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