After rather chaotic previous years, Ethereum (ETH) exceeded many expectations in 2020. Not only the decentralized finance sector (DeFi), but also the non-fungible token market (NFT) recorded enormous growth. In addition, the first phase of the long-awaited Ethereum 2.0 upgrade began. We take a look at the most burning topics and review 2020.
The wait is finally over. Ethereum 2.0 has become a bit of a reality in 2020 and on December 1, the long-awaited upgrade by the community started in the first phase. As planned, the mainnet went live successfully at the first attempt and there were no major complications. On the contrary, the rush to the ETH-deposit contract, which makes the Punting ether possible was overwhelming.
Currently, over $ 1.2 billion worth of ethers are staked. Put simply, by staking, investors help secure the Ethereum network and receive an ETH return in return. However, it is not yet clear how long ethers will be bound in the so-called deposit contract — possibly years. The enormous amount of Ether that is already staked is a good demonstration of how optimistic many investors are about the future of the smart contract platform.
One of the most important functions of Ethereum 2.0 is known as “sharding.” “Sharding” allows transactions to be processed at the same time, which is intended to take the current speed of the Ethereum network to the next level. This will make it possible for developers of decentralized applications (dApp) to develop cheaper, more complex and more user-friendly dApps. Solving the scaling problem could therefore help emerging sectors like DeFi and the NFT space to innovate, and some of the most pressing problems that have plagued ETH for a long time may finally be solvable. In addition, completely new sectors could emerge, for which it did not make sense to build decentralized applications on Ethereum for reasons of cost.
2020 was, without a doubt, a successful year for Decentralized Finance. While a few crypto enthusiasts were already fairly familiar with the emerging sector in advance, DeFi experienced a huge hype in 2020.
DeFi shakes the traditional understanding of the financial world and redefines some rules of the game. There are no central institutions or intermediaries in DeFi. This means that banks, brokers, and all other middlemen are eliminated because the blockchain doesn’t need them to function. Everything is regulated decentrally via the Ethereum blockchain and smart contracts.
Still, the sector is in its infancy and can currently be considered experimental. Not all DeFi projects are 100 percent decentralized yet, but the way there is paved.
One of the most important indicators to analyze DeFi space growth is the Total Value Locked indicator. The indicator measures the total value of all ETH and all other ERC-20 tokens tied in the corresponding Smart Contracts of the DeFi protocols, in US dollars. For this reason, not only Ethereum is one of the assets that are in DeFi protocols, but also stablecoins, tokenized Bitcoin, and in some cases even NFTs.
Since the beginning of the year, the capital in DeFi protocols has grown from under $ 1 billion to currently more than $ 15 billion. But what kind of applications dominated the DeFi sector in 2020?
Tokenized Bitcoin (WBTC), in particular, gained importance in the past 12 months. WBTC enables users to use Bitcoin on the Ethereum blockchain to make it usable in DeFi space. For example, you can use WBTC in various lending protocols such as Aave (AAVE), Compound (COMP), or Maker (MKR) to generate returns with Bitcoin.
There was also a lot of drama in the Centralized Exchanges (CEX) this year. Worth mentioning are, for example, the Kucoin hack and the hack of the British exchange Cashaa, in which several million euros were stolen. However, not only hacks endangered some exchanges but also new challenges are coming to the centralized exchanges. Decentralized exchanges (DEX) showed rapid growth in 2020 and were among the main winners of the DeFi hype.
As DeFi has grown exponentially this year, the volume and number of users of the decentralized exchanges also grew. Decentralized exchanges such as UniSwap and SushiSwap are now recording trading volumes of over 100 billion US dollars almost every day. On September 1, 2020, UniSwap could even the 24-hour trading volume of Coinbase Pro outperform. DEX recorded a record volume of over $ 950 million and Coinbase Pro only $ 780 million over the same period. Anyone interested in a more detailed analysis of the DeFi sector should take a look at the sector review.
Not only Decentralized Finance experienced a hype this year, but also Non-Fungible Token.
NFTs became popular in 2017 thanks to the CryptoKitties, but a lot has happened since then and the NFT sector has matured significantly. Non-fungible tokens are unique, non-exchangeable tokens and can have many different uses. They can be used as collectibles, game items, insurance, or even as a digital counterpart to real-world assets. That is why NFTs are closely related to the concept of tokenization. It can currently be assumed that NFT space is still one of the most undervalued sectors on Ethereum and could therefore explode in 2021.
Everything in the real world can theoretically be tokenized in an NFT and mapped on the Ethereum blockchain. So it is conceivable in the future that real estate, works of art, securities, and much more will be tokenized. Only a few weeks ago the federal cabinet passed a law on the issue of electronic securities. That does not mean that you can tokenize shares from now on, but the law has set the course for tokenized shares and in the future, it would even be conceivable that real estate can also be tokenized.
If that is a reality, one could tokenize their house and then take out a loan that is covered by the house’s NFT. In addition, it would be possible to sell and lend properties via the blockchain and manage the whole thing with the security provided by the blockchain.
Currently, artists, in particular, use NFTs to create their digital works of art and sell them on the Ethereum blockchain. The most famous marketplaces for NFT artwork are Raribleand Opensea. According to NonFungible The all-time trading volume of all NFTs is currently $ 149,158,007.17.
The platforms responsible for much of this volume include Decentraland (MANA), CryptoKitties, Axie Infinity (AXS), SuperRare, and Sorare. The first three of the largest NFT apps are mostly concerned with collecting gaming items. Superare, on the other hand, is a platform on which one can create and trade works of art. Sorare concentrates on the sports sector and can be described as the digital counterpart to the Panini cards since on Sorare mainly trading cards for football players can be traded.
Some of the NFTs are already trading for several hundred thousand dollars. The artist Beeple even sold an entire NFT art collection for the equivalent of 3.5 million US dollars just a few weeks ago.
Not only Bitcoin is in the sights of institutional investors. On December 16, the Chicago Mercantile Exchange (CME) announced that they would be listing ETH Futures. As a result, it will be possible to trade Ethereum on the world’s largest futures exchange from February 8, 2020.
Ethereum is also growing up and being integrated into traditional financial markets. This event is another sign of the growing maturity of ETH and investments by institutional investors in the world’s second-largest cryptocurrency are becoming more likely.
2020 was an eventful year for Ethereum. The DeFi space has made huge strides and questions the way we look at traditional finance.
The most exciting thing this year was that Bitcoin and Ethereum hit new highs. The bear market appears to be over and the bulls have taken over.
With all the technical developments and the positive price development, it will be exciting to see the direction in which Decentralized Finance and the NFT Space will develop. It will also be interesting to see how the regulators will react to a financial system that is developing in parallel.
But not only NFTs and DeFi will shape 2021 because the advances in Ethereum 2.0 will also be of crucial importance for the future of the world’s largest smart contract platform.
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