Summary
DeFi, NFTs, and DAOs have huge addressable markets but are still in their early adoption phase.
The broad scale of the Ethereum network could capture much of the decentralized Web 3.0 value in the future.
EIP 1559 and PoS will continue to drain the Exchange Reserves of Ether.
After the recent Futures market flush out, the spot market will have increased influence on the prices.
Ether has the best risk/reward ratio of all crypto assets if the ERA 4 cycle lengthens.
matejmo/iStock via Getty Images Introduction
This article focuses on the investment case of Ether ( ETH-USD ). Specifically, the three primary application areas of the Ethereum network, the problems and opportunities I see in them, and the macro On-Chain metrics of Ether.
The use cases of the Ethereum network have huge addressable markets, but many applications are still in their infancy and early adoption phases. The On-Chain metrics of Ether picture a bullish outlook for the following months. Recent price action was dictated by the overleveraged futures market, but Open Interest was flushed out recently. On-Chain metrics suggest a continuation of the bull market.
If readers want to learn about the basics of the Ethereum network, I suggest reading the Ethereum whitepaper first. More introductory readings are available on Ethereum.org and Vitalik Buterin’s Website. A great economic introduction to Ethereum is the Seeking Alpha article from Lyn Alden Schwartzer, published earlier this year.
If there is enough reader interest, I may start a series of articles exploring and assessing some of the developments of the Ethereum Network more specifically. Let me know in the comment section. Ethereum in a Nutshell
The Ethereum network is trying to evolve to a decentralized world computer. The network created Ether as a native cryptocurrency to access its smart contracts. Smart contracts are computer protocols that autonomously facilitate the execution of an agreement. These agreements can be anything imaginable, fitting in a conditional instruction (if, then, else).
Bitcoin ( BTC-USD ) does one thing very well: Storing and settling value. Second layer solutions could provide more complex operations to the Bitcoin network, but the base layer is simplistic and secure. The Ethereum Network applies a broader scale of technology within the base layer of the blockchain. The network is experiencing rapid changes. Thus, an investment in Ether is riskier than an investment in Bitcoin but provides significantly more upside.
The broad scale of the Ethereum network could capture much of the decentralized Web 3.0 value. Web 3.0 is enormously hyped at the moment and years away from being implemented in the real world. Nobody knows how this space will develop or which use cases will emerge.
Currently, the Ethereum network is primarily used for decentralized finance (DeFi), non-fungible tokens (NFTs), and decentralized autonomous organizations (DAOs). Decentralized Finance
DeFi is a collective term for decentralized financial products and services. The segment has various advantages compared to the traditional banking system: The products and services are accessible to anyone with an internet connection. Markets are open 24/7, and there is (theoretically) no need for centralized authorities. Each market participant is responsible for their own money and controls how it’s spent. Transactions are completely transparent, but the underlying identities are pseudonymous. Transfers of funds are irreversible and settle within minutes.
DeFi can be separated into five segments: 1. Payments (Stablecoins), 2. Lending & Borrowing (Decentralized Lending), 3. Exchanging & Trading (DEXs), 4. Investing (STOs & ICOs) and 5. Store of Value (PoS/PoW). The sum of these segments could potentially lead to a decentralized banking system of the internet which could take over the traditional banking system and the coexisting fintech business. In 2021, the Gross value locked by Ethereum DeFi applications increased by 1.600%. But the huge addressable market doesn’t come without great risks and downsides.
DeFi needs significant improvements. Many services are still in their infancy and risky to use. There are regular reports about hacks and bug exploits of decentralized applications. The interface and general usability of most DeFi applications are terrible and not suited for broad adoption yet. As of now, the DeFi space provides a banking system of tokens to transfer tokens. There is not much value creation behind all this, and speculation remains the primary driving force of the segment. The DeFi segment is the wild west of the crypto asset space. There are many scams, almost no regulations, and high levels of uncertainty and emotionality.
The service providers of DeFi applications are often blamed for being centralized entities. I believe this criticism is misleading. Decentralization has the advantage […]
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