COINDESK QUARTERLY REVIEW - FOURTH QUARTER 2019
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CoinDesk
Quarterly
Review
Fourth Quarter 2019
| 1Contents
INTRODUCTION Who turns to bitcoin in a crisis, cont.?............................................................15 Excluded liquidity......................................................................................................30
2019: A year in suspended animation................................................................3 LocalBitcoins factors: inaccessibility & inflation .....................................16
2019: The year giants faced off over crypto....................................................4 RETURNS ON INVESTMENT
Bitcoin age distribution.............................................17
4 assets outperformed bitcoin in 2019........................................................... 32
On average, bitcoin transacted at a profit, barely.....................................18
INSTITUTIONAL PARTICIPATION
... And not everyone who stood to profit, sold.............................................19 WEB 3
Measuring institutional activity................................5
Bitcoin as a safe haven.............................................20 Decentralized app adoption....................................33
Bitcoin whale population healthy........................................................................6
Investors still aren’t treating bitcoin like gold............................................. 21 Dapp usage is on a downward trend..............................................................34
Institutional inflows heat up, then cool down............................................... 7
Investors still don’t think of bitcoin in times of fear................................ 22 ETH is proving more utility than currency....................................................35
CME traders go short more than they go long..............................................8
Bitcoin still doesn’t fit in the risk picture...................................................... 23 DeFi grows, plateaus & has yet to cover the gap ....................................36
Liquidity constraints...................................................9
DeFi blooms in winter...............................................................................................37
Liquidity imbalances cause cascading effects..........................................10 SPECULATION
Ethereum competitors..............................................38
How shallow are component markets?........................................................... 11 Capital flows...............................................................24
Fewer users, more builders..................................................................................39
Exchanges’ bitcoin balances grew................................................................... 25
STORE OF VALUE Why bitcoin when you could tether?..............................................................26
Slow growth for ethereum competitors........................................................40
Bitcoin buy-and-holders........................................... 12 New entrants.................................................................................................................41
Exchange volumes ....................................................27
Bitcoin buy-and-hold activity stalls.................................................................. 13
We still don’t know how much bitcoin volume is real............................28 2020 PREVIEW
Who turns to bitcoin in a crisis?.........................................................................14 Events and issues to watch in 2020................................................................43
Whose volume is real?............................................................................................29
Contents | 22019: A year Crypto assets end 2019 and their first decade
in limbo. Narratives like “digital gold” have
crystallized and believers have been recruited
are getting discouraged. “Decentralized
finance” (DeFi) is growing, but not enough
to cover their attrition.
in suspended from among the most powerful people on
the planet, but there are few measurable
Crypto’s strongest use case to date may
be speculation. The asset category was
animation signs of life. The instruments that register
user adoption are silent. If these assets are
good to risk-takers in 2019. There were
winners among the top coins by trade
going to the moon, for now they must be in volume and more bitcoin moved at a profit
Clear narratives have emerged to cryogenic hibernation. than at a loss.
In this CoinDesk Quarterly Review, This journey is unpredictable. The
justify crypto’s existence; so far, the performance of cryptocurrencies dominant narrative of bitcoin could change
they are unencumbered by data is evaluated on the basis of use case. drastically in the 2020s, fueled (or not) by
Is bitcoin “digital gold”? While many the participation of mainstream financial
of 2017’s bitcoin buyers chose to institutions. This report begins with metrics
hold through the Q2 run-up, bitcoin’s that gauge professional investors’ interest
correlation to gold remains weak. in cryptocurrencies.
Is ethereum the infrastructure for a new
internet? If so, the users of this internet —CoinDesk Research, January 2020
Introduction | 32019: The year
20
September 30
Block.one settles
giants faced June 18 SEC charges
Libra unveiled
ERC
off over crypto
May 17 November 10
BitMEX flash crash October 11 ERC20
SEC halts Telegram transactions
token offering surpass ETH
September 23
Bakkt debuts bitcoin
July 11 futures
US Fed’s Powell
discusses bitcoin
The year 2019 may have seen little Search Volume BTC Price (USD)
progress on defining crypto’s user 100% May 7
$14,000
Binance hacked October 25
narrative, but it saw governments 90% Price China’s Xi embraces
and large firms betting on its future $12,000
blockchain
80%
importance. State leaders such as
70% $10,000
China’s Xi Jinping put political capital February 28
behind a digital yuan. Facebook 60% Ethereum
hard fork: $8,000
announced Libra and the US Congress 50% “Constantinople”
took notice. Meanwhile, uses of 40% $6,000
Annual peak
blue-chip crypto assets evolved and 30% global search volume
for ‘bitcoin’ on Google (%) $4,000
regulatory battle lines were drawn. Here 20%
are 10 events we believe will impact $2,000
10%
crypto’s next decade.
0% $0
January February March April May June July August September October November December
Source: CoinDesk Bitcoin Price Index
Introduction | 4Institutional 2019 was a mixed year
• Continued growth in large on-chain holdings of bitcoin
• Regulated derivatives market activity is down on the
participation: year
• Liquidity constraints pose systemic risk and limit
investability for institutions
Measuring institutional activity
| 5Bitcoin whale population healthy
Bitcoin addresses holding more than 1,000 BTC continued a growth trend begun in 2018 at rates last seen before ASIC mining
(2013) and when bitcoin traded below $100. This metric is subject to noise created by changes in large holders’ account
management, and should be taken as a rough indicator of large investor participation, at best.
Bitcoin address balances > 1,000 & bitcoin price vs. time
Bitcoin Addresses (>1K Balance) Bitcoin Price (USD)
2,500 Price $20,000
2,000
$15,000
Addresses
1,500
$10,000
1,000
$5,000
500
0 $0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Coin Metrics Data Pro, CoinDesk Bitcoin Price Index
Institutional participation: Measuring institutional activity | 6CME + Bakkt bitcoin futures open interest
BTC Open Interest BTC Price (USD)
BTC Open Interest
35,000 BTC Price$16,000
(USD)
Institutional
35,000 $16,000
30,000 $14,000
30,000 Open Interest $14,000
Price $12,000
25,000 Open Interest Price $12,000
inflows heat
25,000 $10,000
20,000 $10,000
20,000 $8,000
15,000 $8,000
up, then cool
15,000 $6,000
10,000 CME & Bakkt $6,000
$4,000
10,000 max leverage: $4,000
5,000 2.7% $2,000
down
5,000 $2,000
0 $0
0 $0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
BitFlyer perpetual swap volume vs. time
US-regulated crypto derivatives Volume (USD Billion)
exchanges CME and Bakkt don’t Volume
$5 (USD Billion)
$5
offer high leverage, but they do offer
$4
regulated instruments for exposure $4 BitFlyer On May 28, BitFlyer cut maximum leverage
to bitcoin. The size of these markets $3 BitFlyer on perpetual swaps from 15x to 4x. Their
indicates the level of interest $3 resulting drop in volume shows the demand
among institutions that a) can’t hold
$2 for leveraged trading at higher ratios than
$2 CME or Bakkt provide.
bitcoin directly and b) can’t access $1
unregulated markets. $1
$0
$0 5/16/19 5/27/19 6/7/19
5/16/19 5/27/19 6/7/19
Source: CFTC and skew.com
Institutional participation: Measuring institutional activity | 7CME traders go short more than they go long
In CME bitcoin futures’ brief history, there is usually more short interest than long. The week-to-week net change in leveraged money’s
long-short ratio indicates broad shifts in traders’ positions. Leveraged money includes hedge funds, and is the largest group on CME’s
bitcoin futures market.
CME bitcoin futures leveraged money net-long change vs. 8-week average
Leveraged Money Net-Long (%) BTC Price (USD)
100% $16,000
80% $14,000
Price
$12,000
60%
$10,000
40%
$8,000
20%
$6,000
0%
$4,000
−20% $2,000
Leveraged money
−40% $0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Source: CFTC
Institutional participation: Measuring institutional activity | 8Institutional Crypto markets are still immature
• Liquidity in crypto is fragmented and interconnected,
creating systemic fragility that may be an obstacle to
participation:
institutional participation
• Illiquidity in significant markets shows up limits on
crypto assets’ investability as a category
Liquidity constraints
| 9Understanding auto-liquidations is important to
Liquidity imbalances
understanding how, in crypto’s fragmented markets, less-
liquid markets can trigger large moves on more-liquid
markets. Highly liquid derivatives markets depend on less-
liquid spot exchanges for index prices. Sudden index moves
result in auto-liquidations, on BitMEX frequently reaching cause cascading effects
more than $200 million a day.
BitMEX total daily liquidations vs. time
Daily Liquidations (USD Million) BTC Price (USD)
$800 $16,000
$700 Price $14,000
$600 $12,000
Liquidations
$500 $10,000
$400 $8,000
$300 $6,000
$200 $4,000
$100 $2,000
0 $0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Source: skew.com
Institutional participation: Liquidity constraints | 10Bid size at min ask price (USD) vs time, Bitstamp price (USD), May 17, 2019
On May 17, an outsized sell order
triggered a crash on Bitstamp, at Ask Price (USD)
the time one of three components $8,200
of BitMEX’s bitcoin price index. It Each circle is an order,
$8,000 most no larger than 10 BTC Ask Quantity
triggered hundreds of millions in 1
auto-liquidations, illustrating the 1,000
$7,800 2,000
fragility of crypto market structure 3,000
and the possibility of manipulation for 4,000
$7,600
handsome returns.
$7,4az00
How $7,200
shallow are
At 3:00 am UTC, someone At 3:22, the Bitstamp market
$7,000
places an order to sell 3,737 in USD had returned to a
BTC at $7,212, about $500 new normal: order sizes
below the market
component
6800 mostlyStore of value: We propose two markets as buy-and-hold
indicators, distinct from speculation
• Coinbase cash markets’ volumes are below their 2018
peak
Bitcoin buy-and-holders • LocalBitcoins shows mixed signals on global use of
bitcoin as a store of value against weak currencies and
instability
| 12Bitcoin buy-
and-hold
activity stalls
Coinbase BTC-fiat volume, by year
Coinbase’s bitcoin-fiat markets (USD,
GBP and EUR) are a bellwether for
6.45
interest in a store-of-value use of 5.91
$46.54
$44.92
bitcoin, as they are among the best- 5.54
$38.34
known fiat onramps for users outside
Asia, and Coinbase offers limited
pairs for trading. In 2019, their volume
fell below that of 2018.
Volume (Millions) Volume (USD Billions) Volume (Millions) Volume (USD Billions) Volume (Millions) Volume (USD Billions)
2017 2018 2019
Source: Nomics
Store of value: Bitcoin buy-and-holders | 13Heat map of BTC purchases, by YoY percentage change
“LocalBitcoins’ largest volumes in
2014 were concentrated in countries
like the UK and the USA, and now we
have e.g. Venezuela and Russia in the
list of countries with the highest trade
volumes. Overall, the most significant
difference we have detected in our
trade volume distribution over time is
the growing importance of developing
markets.”
-Sebastian Sonntag, LocalBitcoins CEO
Who turns to
bitcoin in a
crisis? 0–33%
-0–33%
33–66%
-33–66%
67–100%
-67–100%
100–133%
-100–133%
134–166%
-134–166%
>167%Who turns to
bitcoin in a
crisis, cont.?
Country/ 2018 total BTC 2019 total BTC YoY percentage change
LocalBitcoins volume is small, but region trade volume trade volume (min 50 BTC in 2019)
unlike other exchanges it provides
Indonesia 119.92 1,015.37 746.74%
a geo-targeted lens, which skews
Rwanda 8.34 57.17 585.36%
toward buy-and-hold, rather than
Georgia 30.11 179.99 497.81%
speculation. Among exchanges with
over 50 BTC annual volume, the Guatemala 12.22 61.48 402.94%
fastest-growing markets are a mixture Taiwan 206.77 933.25 351.35%
of stable and unstable, emerging and Kuwait 53.29 217.46 308.10%
developed economies. Bolivia 27.36 103.54 278.42%
Zambia 15.98 56.18 251.58%
Central African CFA 21.47 58.41 172.05%
Qatar 32.40 80.42 148.20%
Venezuela 21,563.51 52,144.02 141.82%
Source: Digital Assets Data
Store of value: Bitcoin buy-and-holders | 15The MSCI Market Classification Framework evaluates countries based
LocalBitcoins factors:
on three criteria: economic development, size and liquidity, as well as
market accessibility. Countries classified as Frontier or Standalone
saw the highest percentage growth in LocalBitcoins trading activity in
inaccessibility & inflation 2019. In contrast, countries with the highest levels of inflation (that is,
10 percent or more), saw the biggest decrease in LocalBitcoins trading
activity from 2018 to 2019, while mid-level inflation countries grew the
fastest.
Median difference in total trade volume in BTC from the previous Median difference in total trade volume in BTC from the previous
year (%), based on MSCI market year (%), based on inflation rate
27.3% 27.3%
14.73% 14.73%
6.73% 6.73%
DevelopedDeveloped High(>=10%)
High Inflation Inflation (>=10%) Low(Store of value:
• Long stretches between transactions are positive for
bitcoin’s store-of-value narrative
• “Hodlwaves” show bitcoins held when they could be
sold at a profit
Bitcoin age distribution
| 17On average, bitcoin transacted at a profit, barely
Each bitcoin is time-stamped with the date of its last transaction, indicating that more bitcoin transacted at a profit than at a loss. Although not all
transactions reflect economic activity, the chart points to speculators selling to lock in gains or minimize losses. Spent output profit ratio > 1 indicates
transactions made at a profit; < 1 indicates transactions made at a loss.
Bitcoin spent output profit ratio & price vs. time
SOPR Bitcoin Price (USD)
1.15 $14,000
Price
Average
daily SOPR SOPR $12,000
1.10 in 2019:
1.0025
$10,000
1.05
$8,000
$6,000
1.00
$4,000
0.95
$2,000
0.90 $0
1/1/19 2/1/19 3/1/19 4/1/19 5/1/19 6/1/19 7/1/19 8/1/19 9/1/19 10/1/19 11/1/19 12/1/19 1/1/20
Source: Glassnodes Insights
Store of value: Bitcoin age distribution | 18Percent of bitcoin supply by age since last transaction, vs. time
UTXOs show the age of every bitcoin
since its last transaction. In 2019, a 100%
pattern emerged suggesting some
2017 investors are long-term holders:
90%
a large group of bitcoins that last >5 year, %
transacted across the second half of Coins
80% that last The shift into
2017 shrank in the 2019 run-up, but 2–3 year holdings
moved in 2H 2017
some holdings stayed put through are held into the 3-5 year, % is not as
year end. (A series of cliffs in shorter- 18–24 -month pronounced
70% 2-3 year,%
band
term holdings likely represent a large
cold-storage transfer that Coinbase 18-24 month,%
60%
disclosed in December, 2018.)
50%
12-18 month,%
... And not 40%
everyone
6-12 month,%
30%
who stood to
3-6 month,%
20%
1-3 month, %
profit, sold 10%
1 week - 1 month,%Store of value: Bitcoin isn’t behaving like “digital gold,” yet
• No positive correlation with gold
• No positive correlation with “fear gauge”
Bitcoin as a safe haven • No negative correlation with risk-on assets
| 20Bitcoin price (USD) & LBMA gold price pm, 90-day correlation of daily returns vs. time
If bitcoin is “digital gold,” that should
mean it is a safe haven, and it should
0.4
show a strong correlation with
established safe havens, like...gold.
0.3
The gold narrative has taken hold
conceptually, but has yet to show
0.2
up in the data on how investors are
treating the asset. The bitcoin-gold
correlation is weak, at best. 0.1
Investors still 0
aren’t treating −0.1
bitcoin like −0.2
gold −0.3
−0.4
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Bloomberg, CoinDesk Bitcoin Price Index
Store of value: Bitcoin as a safe haven | 21Bitcoin price (USD) & VIX, 90-day correlation of daily returns vs. time
Based on the S&P 500, the Cboe
Volatility Index is known as Wall 0.4
Street’s “fear gauge.” A bet on it
would have had weak correlation
0.3
with a bet on bitcoin, at best, in the
past 8 years, and that didn’t change
0.2
in 2019: the 90-day correlation of
daily returns hit its all-time high this
past August at 0.31. 0.1
0
Investors still -0.1
don’t think -0.2
of bitcoin in -0.3
times of fear -0.4
-0.5
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Bloomberg, CoinDesk Bitcoin Price Index
Store of value: Bitcoin as a safe haven | 22Bitcoin price (USD) & SPX, 90-day correlation of daily returns vs. time
If bitcoin is digital gold, it should
show a negative correlation 0.4
with risk-on assets, like stocks.
Negative correlation with the S&P
500 has never dropped below 0.3
-0.34, a low it hit in 2019—before
bouncing back up into positive- 0.2
correlation territory, again.
0.1
Bitcoin still 0
doesn’t fit -0.1
in the risk -0.2
picture -0.3
-0.4
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Bloomberg, CoinDesk Bitcoin Price Index
Store of value: Bitcoin as a safe haven | 23Speculation:
• Exchanges’ bitcoin balances likely grew, in aggregate
• Tether volumes more than tripled
Capital flows
| 24Wallet labeling involves guesswork, but it provides a view of net
Exchanges’ bitcoin bitcoin flows onto exchanges, where speculators hold balances to
trade. This measure of speculative use of bitcoin likely increased in
balances grew 2019; only in the most conservative interpretation of the data did it
remain flat.
Percentage of bitcoin total supply held on exchange vs. time
Percent of Bitcoin Supply
35%
30% Upper bound
25%
20%
15%
10%
Lower bound
5%
0%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Source: Chainalysis
An earlier version of this report mislabeled the y axis of this chart
Speculation: Capital flows | 25Tether Volume (USD Bill., Adjusted)
$2.0
Why bitcoin $1.8
when you $1.6
could tether?
$1.4
$1.2
$1.0
$0.8
In 2019, growing transaction activity $0.6
involving tether (USDT), a stablecoin
pegged to the dollar, predated $0.4
its expansion onto the ethereum
network. It showcases the limitations $0.2
of volatile crypto assets as vehicles Ethereum volume
for speculative capital, as well as the $0
Omni volume
Tron volume
utility of more feature-rich networks
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
like ethereum for transacting in off-
chain value.
Tether on-chain transaction counts vs. time
Source: Coin Metrics Network Data Pro
Speculation: Capital flows | 26Speculation: ... could be a reliable indicator of speculative
activity in crypto, if we knew what they were
• Lists of “reliable” exchanges vary
Exchange volumes ... • Some major exchanges continue to show a mix of real
and fake, with no way to distinguish
| 27(USD billions)
$45
We still don’t
CoinMarketCap reported volume
$40
know how $35
much bitcoin $30
volume $25
is real $20
$15
Exchanges market themselves with
exaggerated numbers; aggregate $10
figures either include this puffery
or exclude real activity that is likely
$5
material to price discovery. Two
aggregators, Messari and Nomics, Nomic’s “transparent” volume Messari “real” volume
agree that most volume is fake, but $0
differ by a factor of two on how much 11/1 11/2 11/3 11/4 11/5 11/6 11/7 11/8 11/9 11/10 11/11 11/12 11/13 11/14 11/15 11/16 11/17 11/18 11/19 11/20 11/21 11/22 11/23 11/24 11/25 11/26 11/27 11/28 11/29 11/30
is real.
Bitcoin daily volume reported by major indices vs. time
Speculation: Exchange volumes | 28Whose volume
is real?
Messari relies on BitWise research, Messari “real” exchanges Nomics “transparent” exchanges
which limits “real” volume to 10
exchanges, based on:
Binance Belfrics Coinbase Pro New Capital
• trade size histogram Bitfinex Binance Delta Exchange Poloniex
• alignment of volume spikes Bitflyer Binance DEX Deribit Polyx
• spread-patterning analysis Bitstamp Binance Jersey FTX SparkDEX
Bittrex Bitfinex Gate.io Switcheo
• ...as well as factors such as capital Coinbase bitFlyer Gemini Vindax
controls. Gemini Bitmex HitBTC WBBExchange
itBit Bitshares IDEX WCX
Nomics’ “transparent” rating is given Kraken Bitso Kraken xFutures
to exchanges that provide complete Poloniex Bitstamp LGO ZEBITEX
historical order book data. Blocktrade Liquid
Speculation: Exchange volumes | 29Excluded
Regulators have noted that “fake-volume” exchanges such as Huobi
and OKEx are likely supporting real volume and price discovery, to
some extent. Traders testify that these markets are liquid. The chart
liquidity here shows that, at least on Huobi, some bitcoin-base pairs are
nearly as liquid as they are on Coinbase.
Daily average bid-ask spread by market, November 2019
$20
Huobi BTC/HUSD
$15
$10
Coinbase BTC/USDC
$5
Huobi BTC/USDT Coinbase BTC/USD
$0
11/1 11/2 11/3 11/4 11/5 11/6 11/7 11/8 11/9 11/10 11/11 11/12 11/13 11/14 11/15 11/16 11/17 11/18 11 11/20 11/21 11/22 11/23 11/24 11/25 11/26 11/27 11/28 11/29 11/30
Source: Kaiko
Speculation: Exchange volumes | 30Speculation: The highest gains were upward of 300 percent
while the biggest losses amounted to roughly 75
percent
Returns on investment
| 314 assets outperformed bitcoin in 2019
There were 14 crypto assets (excluding stablecoins and assets that launched intra-year) with over $5 million in verified trade
volume (per Messari, whose “real” volume metric is among the most conservative). Half of the 14 saw positive returns in 2019.
Market performance of the top crypto assets by trade volume*
388.94%
167.58%
130.96%
112.75%
92.38%
39.48% 31.63%
0.53% EOS Ethereum TRON XRP Waves Ethos
Chainlink Tezos BNB ETHLend Bitcoin Bitcoin Cash Litecoin Monero -2.11%
-10.60%
-32.68%
-46.26%
-68.18% -74.35%
* Real” 24-hour volume > USD $5 million, according to Messari. Data as of Jan. 3, 2020.
Source: Messari
Speculation: Returns on investment | 32Web 3
• Fewer users
• Zombie dapps
• ETH is more infrastructure than currency
Decentralized app adoption • DeFi is growing as games and gambling decline
| 33Dapp usage is on a
Web 3’s killer application hasn’t emerged: decentralized applications, or dapps, closed
2019 with about the same number of users as they had at the beginning of the year,
according to one project that tracks dapp adoption. Meanwhile, the number of active
dapps (>=10 users) is up for the year, but has declined since mid-year highs, leaving a
cohort of userless “zombie dapps” on the ethereum blockchain. downward trend
Weekly active dapp users and weekly active dapps (>= 10 users) vs. time
No. of Dapp Users No. of Dapps
120,000 600
110,000
100,000 Dapps 500
90,000
80,000 400
70,000
60,000 Users 300
50,000
40,000 200
30,000
20,000 100
10,000
0 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Weekly active users are based on the number of accounts/addresses interacting with dapp smart contracts on each respective blockchain platform, which may be manipulated, especially when platform fees are low.
Source: DappRadar aggregate of users & dapps on EOS, Ethereum, IOST, Loom, NEO, Ontology, ThunderCode, Tron VeChain, and Waves
Web 3: Dapp adoption | 34Ethereum transactions are increasingly being initiated by smart contracts as
ETH is proving more
opposed to individual users. This suggests greater user momentum for ether (ETH)
in dapps and off-chain assets than is evidenced in the use of ether as a medium of
transaction.
utility than currency Note: ETH transaction count represents the non-contract related transactions that
do not call upon any smart contracts.
Token and non-token transaction counts vs. time
Transactions
800,000
ETH token
700,000
600,000
500,000
400,000
300,000
200,000 ETH non-token
100,000
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Source: Coin Metrics Network Data Pro
Web 3: Dapp adoption | 35DeFi grows, plateaus & Dapps’ dwindling user numbers are largely a story of stagnation or
has yet to cover the gap
decline in gambling and games, where Web 3’s initial enthusiasm ran
hottest. The number of decentralized finance, or DeFi, dapps is growing
more steadily, and the category’s user numbers ended 2019 basically flat.
Number of ethereum dapp users by token category vs. time Number of daily active ethereum dapps (>=1 user) by token category vs. time
20,000 110
18,000 100
ETH DeFi (finance and exchange dapps) 90
16,000
ETH games
80
14,000
70
12,000
60
10,000 ETH games
50 ETH DeFi (finance and exchange dapps)
8,000
40
6,000
30
4,000 20
ETH gambling
2,000 10
ETH gambling
0 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
*Daily active users are based on the number of accounts/addresses interacting with dapp smart contracts on each respective blockchain platform. Number of accounts/addresses and therefore users may be easily manipulated due to low platform fees.
Source: dapp.com
Web 3: Dapp adoption | 36Locked in DeFi (%) ETH Price (USD)
3.00% $350.00
Price
$300.00
2.50%
DeFi blooms $250.00
in winter
2.00% dYdX
Instadapp
$200.00
1.50%
Compound
$150.00
1.00%
Decentralized finance (DeFi) $100.00
expanded in 2019 with Compound,
dYdX and InstaDApp gaining some
user traction alongside the DeFi 0.50%
$50.00
leader, MakerDAO, which launched
Maker
multi-collateral DAI. Combined, these
DeFi projects ended 2019 crossing 3
0.00% $0.00
percent of ETH locked as ETH’s price 1/1/19 2/1/19 3/1/19 4/1/19 5/1/19 6/1/19 7/1/19 8/1/19 9/1/19 10/1/19 11/1/19 12/1/19 1/1/20
fell to a loss on the year.
Percent ETH locked in DeFi lending platforms vs. time
Source: DeFi Pulse, Coin Metrics Network Data Pro, CoinDesk Ethereum Price Index
Web 3: Dapp adoption | 37Web 3
Ethereum competitors The competition has a long way to go
| 38Fewer users, Despite a lack of dapp growth this year, the ethereum blockchain in terms of usage and community has
remained steady. The number of pull request contributors for the most popular ethereum client implementation,
Geth, grew by over 50. This suggests that outside of dapp activity, the ethereum network is continuing to
more builders mature and develop as a blockchain platform.
No. of active addresses (‘000)* No. of transactions (‘000) Pull request contributors**
Accounts (’000) Transactions (’000) Pulls
450 1,000 450
400 900 400
800
350 350
700
300 300
600
250 250
500
200 200
400
150 150
300
100 200 100
50 100 50
0 0 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
*Per Coin Metrics, addresses that participated in at least one ledger change each day.
**Only reflective of the ethereum Geth Github page.”
Source: CoinGecko, Coin Metrics Community Data
Web 3: Ethereum competitors | 39Major smart contract platforms outside of ethereum such as EOS, Tron and IOST
Slow growth for saw high levels of transaction activity this year. The numbers were significantly
higher than that of ethereum, though the relative cost of transaction generation is
ethereum competitors lower and therefore more easily faked. In terms of active address numbers and the
growth of pull request contributors to core code, EOS Tron and IOST did not reach
levels as high as ethereum.
No. of active accounts/addresses (‘000)* No. of transactions (millions) Pull request contributors**
Accounts (’000) Transactions (Millions) Pulls
200 8 200
EOS EOS
7 EOS
150 Tron 6 150
5
100 4 Tron 100
3 Tron
50 2 50
1
IOST IOST
IOST
0 0 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
*Per Coin Metrics, addresses that participated in at least one ledger change each day.
**Reflective of one GitHub repository. In the case of multiple, the one with the largest contributors was chosen.
Source: CoinGecko, Coin Metrics Community Data, dapp.com
Web 3: Ethereum competitors | 40New entrants
Can dapps be Smart contract
Amount raised
New Mainnet deployed on the languages on
Short description of the network through token
entrant launch date platform, mainnet (built/
sales so far
as of Dec. 31? in-progress)
Oct 30, 2018 Launched in 2018, the Blockstack blockchain is a decentralized computing network Yes Clarity $75 million
and dapp ecosystem that aims to replace the current internet. It hosts roughly 270 (in-progress)
decentralized applications as of December 2019. In the new year, it expects to release
a mainnet version of its smart contract language, Clarity, and launch a process of
general mining to support increased computing resources independent of the bitcoin
blockchain.
Sept 29, 2017 It launched in 2017, but the proof-of-stake Cardano blockchain is set to add smart No Plutus Core $63 million
contract functionality in early 2020. Cardano is envisioned to be a technological (in-progress)
platform capable of running new decentralized financial applications.
March 13, 2019 Marketed as the “internet of blockchains,” Cosmos is a proof-of-stake network Yes Ethermint, Pact, $17 million
envisioned to connect disparate blockchain protocols. Blockchains to support smart SES (in-progress)
contract functionality have not yet been built on Cosmos. Rust (built)
Nov 4, 2019 Using a “braided” proof-of-work structure, Kadena aims to be a smart contract Yes Pact $15 million*
platform able to scale for enterprise-grade clients and app development. (built)
TBD Like Cosmos, Polkadot is a blockchain interoperability project. While the main No Wasm, Pact $145 million**
Polkadot network will not support smart contract execution natively, it is expected to (in-progress), Ink!,
support at least one “parachain” built by blockchain startup Edgeware with the ability Solidity (built)
to program and execute dapps.
*A secondary token sale is ongoing.
**A secondary private token sale was closed in June but it was not disclosed how much was raised.
Correction: A previous version of this report labeled the amount raised through token sales and footnotes incorrectly
Web 3: Ethereum competitors | 412020 Preview
| 42Events and Institutional Central
issues to
Inflows Bank Digital
Metrics like Currencies
Ethereum 2.0 regulated Libra Wallet Progress, Bitcoin Halving
watch in 2020
Launches derivatives volume Launch competition, impact
have emerged on crypto markets May: quadrennial
Can “Proof-of- Facebook plans to
launch Calibra and regulation halving of miners’
Stake” improve on
bitcoin’s block reward
consensus model?
On the cusp of a new year and a
new decade, important narratives
that began in 2019 (and even earlier)
are likely to continue to impact the
cryptocurrency industry and investor
outlook. DeFi Adoption SEC Versus Off-Chain Assets
Can “decentralized Telegram Tether has tilted
finance” show Impact on crypto markets toward
US Political Recession &
mainstream regulation and off-chain value; will
Parties Volatility
appeal? token issuer it continue?
Pro- and no-coin outlook Will bitcoin’s
election-year response support
stances are likely “digital gold”
on party lines narrative?
2020 Preview | 43Thank you
CoinDesk Research is an investor-focused team of crypto data analysts, engineers and
writers. Our aim is to build products, innovate metrics and create editorial content that
serve all types of cryptocurrency investors. For more reports on the crypto investing
landscape, visit coindesk.com/research. You can get in touch with us to learn more at:
E: research@coindesk.com
T: @coindeskdata
Special thank you to all the data providers who generously provided data for this report,
some of which was not explicitly featured. We thank: Alethio, Bloomberg, Celsian, CFTC,
Chainalysis, CoinGecko, Coin Metrics Data Pro, CoinRoutes, Dapp.com, DappRadar, DeFi
Pulse, Digital Assets Data, Genesis Capital, IntotheBlock, Kaiko, Messari, Nomics, Santiment
and Skew.
This report has been prepared by CoinDesk solely for informative purposes. It should not be taken as the basis for making investment decisions, nor for the formation of an investment strategy. It should not be construed as investment advice or as a
recommendation to engage in investment transactions. The information contained in this report may include or incorporate by reference forward-looking statements, which would include any statements that are not statements of historical fact. No
representations or warranties are made as to the accuracy of these forward-looking statements. Any data, charts or analysis herein should not be taken as an indication or guarantee of any future performance.
Information is based on sources considered to be reliable, but is not guaranteed to be accurate or complete. Any opinions or estimates expressed herein reflect a judgment made as of the date of publication and are subject to change without notice. Trading and
investing in digital assets involves significant risks including price volatility and illiquidity and may not be suitable for all investors. The authors may hold positions in digital assets, and this should be seen as a disclosure of potential conflicts of interest. CoinDesk
will not be liable whatsoever for any direct or consequential loss arising from the use of this information.
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