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CoinDesk Quarterly Review

Fourth Quarter 2019

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INTRODUCTION2019: A year in suspended animation ...............................................................32019: The year giants faced off over crypto ...................................................4

INSTITUTIONAL PARTICIPATIONMeasuring institutional activity ...............................5Bitcoin whale population healthy .......................................................................6Institutional inflows heat up, then cool down .............................................. 7CME traders go short more than they go long .............................................8

Liquidity constraints ..................................................9Liquidity imbalances cause cascading effects ......................................... 10How shallow are component markets? .......................................................... 11

STORE OF VALUEBitcoin buy-and-holders .......................................... 12Bitcoin buy-and-hold activity stalls ................................................................. 13Who turns to bitcoin in a crisis? ........................................................................ 14

Who turns to bitcoin in a crisis, cont.? ........................................................... 15LocalBitcoins factors: inaccessibility & inflation .................................... 16

Bitcoin age distribution ............................................17On average, bitcoin transacted at a profit, barely .................................... 18... And not everyone who stood to profit, sold ............................................ 19

Bitcoin as a safe haven ............................................20Investors still aren’t treating bitcoin like gold ............................................ 21Investors still don’t think of bitcoin in times of fear ............................... 22Bitcoin still doesn’t fit in the risk picture...................................................... 23

SPECULATIONCapital flows ..............................................................24Exchanges’ bitcoin balances grew .................................................................. 25Why bitcoin when you could tether? ............................................................. 26

Exchange volumes ... ................................................27We still don’t know how much bitcoin volume is real ........................... 28Whose volume is real? ........................................................................................... 29

Excluded liquidity .....................................................................................................30

RETURNS ON INVESTMENT4 assets outperformed bitcoin in 2019 .......................................................... 32

WEB 3Decentralized app adoption ...................................33Dapp usage is on a downward trend ............................................................. 34ETH is proving more utility than currency ................................................... 35DeFi grows, plateaus & has yet to cover the gap ...................................36DeFi blooms in winter ..............................................................................................37

Ethereum competitors .............................................38Fewer users, more builders ................................................................................. 39Slow growth for ethereum competitors .......................................................40New entrants ................................................................................................................41

2020 PREVIEWEvents and issues to watch in 2020................................................................43

Contents

Contents

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Crypto assets end 2019 and their first decade in limbo. Narratives like “digital gold” have crystallized and believers have been recruited from among the most powerful people on the planet, but there are few measurable signs of life. The instruments that register user adoption are silent. If these assets are going to the moon, for now they must be in cryogenic hibernation. In this CoinDesk Quarterly Review, the performance of cryptocurrencies is evaluated on the basis of use case. Is bitcoin “digital gold”? While many of 2017’s bitcoin buyers chose to hold through the Q2 run-up, bitcoin’s correlation to gold remains weak. Is ethereum the infrastructure for a new internet? If so, the users of this internet

are getting discouraged. “Decentralized finance” (DeFi) is growing, but not enough to cover their attrition. Crypto’s strongest use case to date may be speculation. The asset category was good to risk-takers in 2019. There were winners among the top coins by trade volume and more bitcoin moved at a profit than at a loss. This journey is unpredictable. The dominant narrative of bitcoin could change drastically in the 2020s, fueled (or not) by the participation of mainstream financial institutions. This report begins with metrics that gauge professional investors’ interest in cryptocurrencies.

—CoinDesk Research, January 2020

2019: A year in suspended animationClear narratives have emerged to justify crypto’s existence; so far, they are unencumbered by data

Introduction

February 28Ethereum hard fork:“Constantinople”

May 7Binance hacked

May 17BitMEX flash crash

June 18Libra unveiled

July 11US Fed’s Powell discusses bitcoin

September 23Bakkt debuts bitcoin futures

September 30Block.one settles SEC charges

October 11SEC halts Telegram token o ering

November 10ERC20 transactions surpass ETH

ERC20

October 25China’s Xi embraces blockchain

January February March April May June July August September October November December

Price

Annual peak global search volume

for ‘bitcoin’ on Google (%)

BTC Price (USD)Search Volume

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

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The year 2019 may have seen little progress on defining crypto’s user narrative, but it saw governments and large firms betting on its future importance. State leaders such as China’s Xi Jinping put political capital behind a digital yuan. Facebook announced Libra and the US Congress took notice. Meanwhile, uses of blue-chip crypto assets evolved and regulatory battle lines were drawn. Here are 10 events we believe will impact crypto’s next decade.

2019: The year giants faced off over crypto

Introduction

Source: CoinDesk Bitcoin Price Index

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Institutional participation:Measuring institutional activity

2019 was a mixed year • Continued growth in large on-chain holdings of bitcoin• Regulated derivatives market activity is down on the

year• Liquidity constraints pose systemic risk and limit

investability for institutions

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Bitcoin address balances > 1,000 & bitcoin price vs. time

Bitcoin Price (USD)Bitcoin Addresses (>1K Balance)

Addresses

Price

0

500

1,000

1,500

2,000

2,500

$0

$5,000

$10,000

$15,000

$20,000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

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 whale population healthy

Source: Coin Metrics Data Pro, CoinDesk Bitcoin Price Index

Institutional participation: Measuring institutional activity

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BitFlyer perpetual swap volume vs. time

BTC Open Interest BTC Price (USD)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

Volume (USD Billion)

Price

BitFlyer

Open Interest

$0

$1

$2

$3

$4

$5

6/7/195/27/195/16/19

US-regulated crypto derivatives exchanges CME and Bakkt don’t offer high leverage, but they do offer regulated instruments for exposure to bitcoin. The size of these markets indicates the level of interest among institutions that a) can’t hold bitcoin directly and b) can’t access unregulated markets.

Institutional inflows heat up, then cool down

On May 28, BitFlyer cut maximum leverage on perpetual swaps from 15x to 4x. Their resulting drop in volume shows the demand for leveraged trading at higher ratios than CME or Bakkt provide.

BTC Open Interest BTC Price (USD)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

Volume (USD Billion)

Price

BitFlyer

Open Interest

$0

$1

$2

$3

$4

$5

6/7/195/27/195/16/19

CME & Bakkt max leverage:

2.7%

CME + Bakkt bitcoin futures open interest

Institutional participation: Measuring institutional activity

Source: CFTC and skew.com

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BTC Price (USD)

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000Leveraged Money Net-Long (%)

−40%

−20%

0%

20%

40%

60%

80%

100%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

Leveraged money

Price

CME traders go short more than they go longIn 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

Institutional participation: Measuring institutional activity

Source: CFTC

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Institutional participation:Liquidity constraints

Crypto markets are still immature• Liquidity in crypto is fragmented and interconnected,

creating systemic fragility that may be an obstacle to institutional participation

• Illiquidity in significant markets shows up limits on crypto assets’ investability as a category

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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

Daily Liquidations (USD Million)

Liquidations

BTC Price (USD)

Price

0

$100

$200

$300

$400

$500

$600

$700

$800

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

Understanding auto-liquidations is important to 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 more than $200 million a day.

Liquidity imbalances cause cascading effects

BitMEX total daily liquidations vs. time

Institutional participation: Liquidity constraints

Source: skew.com

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02:03 02:13 02:23 02:33 02:43 02:53 03:03 03:13 03:23 03:33 03:43 03:53 04:03

$6,000

$6,200

$6,400

$6,600

6800

$7,000

$7,200

$7,4az00

$7,600

$7,800

$8,000

$8,200

11,0002,0003,0004,000

Bid size at min ask price (USD) vs time, Bitstamp price (USD), May 17, 2019On May 17, an outsized sell order triggered a crash on Bitstamp, at the time one of three components of BitMEX’s bitcoin price index. It triggered hundreds of millions in auto-liquidations, illustrating the fragility of crypto market structure and the possibility of manipulation for handsome returns.

How shallow are component markets?

Each circle is an order, most no larger than 10 BTC

At 3:22, the Bitstamp market in USD had returned to a new normal: order sizes

mostly <= 10 BTC, at about $7,300

Ask Quantity

Ask Price (USD)

By 3:09, the seller had dealt all but 831 of its

outsized order and pushed the market price

down near $6,276

At 3:00 am UTC, someone places an order to sell 3,737 BTC at $7,212, about $500

below the market

Institutional participation: Liquidity constraints

Source: CoinRoutes

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Store of value:Bitcoin buy-and-holders

We propose two markets as buy-and-hold indicators, distinct from speculation• Coinbase cash markets’ volumes are below their 2018

peak• LocalBitcoins shows mixed signals on global use of

bitcoin as a store of value against weak currencies and instability

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Coinbase BTC-fiat volume, by year Coinbase’s bitcoin-fiat markets (USD, GBP and EUR) are a bellwether for interest in a store-of-value use of bitcoin, as they are among the best-known fiat onramps for users outside Asia, and Coinbase offers limited pairs for trading. In 2019, their volume fell below that of 2018.

2019 20182017

6.455.91

5.54$38.34

$46.54$44.92

Volume (Millions) Volume (USD Billions) Volume (Millions) Volume (USD Billions) Volume (Millions) Volume (USD Billions)

Bitcoin buy-and-hold activity stalls

Source: Nomics

Store of value: Bitcoin buy-and-holders

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Who turns to bitcoin in a crisis?

Heat map of BTC purchases, by YoY percentage change

0–33% 33–66% 67–100% 100–133% 134–166% >167%

2019 data not available

-0–33% -33–66% -67–100% -100–133% -134–166% <-167%

Note: Uzbekistan, Mozambique, Liberia, Fiji, and Ethiopia excluded from this analysis, because BTC trading was 0 at 2018.Source: Digital Assets Data

Store of value: Bitcoin buy-and-holders

“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

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Country/ region

2018 total BTC trade volume

2019 total BTC trade volume

YoY percentage change (min 50 BTC in 2019)

Indonesia 119.92 1,015.37 746.74%

Rwanda 8.34 57.17 585.36%

Georgia 30.11 179.99 497.81%

Guatemala 12.22 61.48 402.94%

Taiwan 206.77 933.25 351.35%

Kuwait 53.29 217.46 308.10%

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%

Who turns to bitcoin in a crisis, cont.?

Source: Digital Assets Data

Store of value: Bitcoin buy-and-holders

LocalBitcoins volume is small, but unlike other exchanges it provides a geo-targeted lens, which skews toward buy-and-hold, rather than speculation. Among exchanges with over 50 BTC annual volume, the fastest-growing markets are a mixture of stable and unstable, emerging and developed economies.

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Median difference in total trade volume in BTC from the previous year (%), based on MSCI market

Median difference in total trade volume in BTC from the previous year (%), based on inflation rate

Frontier and Standalone Emerging

Developed Low Inflation (<=4%)

Medium Inflation (4–10%)

High Inflation (>=10%)

-31.8%

6.73%

-12.85%

27.3%

-2.85%

14.73%

Source: Digital Assets Data

LocalBitcoins factors: inaccessibility & inflation

Frontier and Standalone Emerging

Developed Low Inflation (<=4%)

Medium Inflation (4–10%)

High Inflation (>=10%)

-31.8%

6.73%

-12.85%

27.3%

-2.85%

14.73%

The MSCI Market Classification Framework evaluates countries based 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 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.

Store of value: Bitcoin buy-and-holders

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Store of value:Bitcoin age distribution

• 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

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Bitcoin spent output profit ratio & price vs. time

SOPR

SOPR Bitcoin Price (USD)

Price

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

0.90

0.95

1.00

1.05

1.10

1.15

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

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.

On average, bitcoin transacted at a profit, barely

Source: Glassnodes Insights

Store of value: Bitcoin age distribution

Average daily SOPR

in 2019: 1.0025

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... And not everyone who stood to profit, sold

Percent of bitcoin supply by age since last transaction, vs. time UTXOs show the age of every bitcoin since its last transaction. In 2019, a pattern emerged suggesting some 2017 investors are long-term holders: a large group of bitcoins that last transacted across the second half of 2017 shrank in the 2019 run-up, but some holdings stayed put through year end. (A series of cliffs in shorter-term holdings likely represent a large cold-storage transfer that Coinbase disclosed in December, 2018.)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

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 day - 1 week, %

1 week - 1 month,%

1-3 month, %

3-6 month,%

6-12 month,%

12-18 month,%

18-24 month,%

2-3 year,%

3-5 year, %

>5 year, %

<1 day, %

Source: IntoTheBlock

Coins that last

moved in 2H 2017 are held into the

18–24 -month band

The shift into 2–3 year holdings

is not as pronounced

Store of value: Bitcoin age distribution

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Store of value:Bitcoin as a safe haven

Bitcoin isn’t behaving like “digital gold,” yet• No positive correlation with gold • No positive correlation with “fear gauge” • No negative correlation with risk-on assets

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Investors still aren’t treating bitcoin like gold

Bitcoin price (USD) & LBMA gold price pm, 90-day correlation of daily returns vs. time

−0.4

−0.3

−0.2

−0.1

0

0.1

0.2

0.3

0.4

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

If bitcoin is “digital gold,” that should mean it is a safe haven, and it should show a strong correlation with established safe havens, like...gold.

The gold narrative has taken hold conceptually, but has yet to show up in the data on how investors are treating the asset. The bitcoin-gold correlation is weak, at best.

Source: Bloomberg, CoinDesk Bitcoin Price Index

Store of value: Bitcoin as a safe haven

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Investors still don’t think of bitcoin in times of fear

Bitcoin price (USD) & VIX, 90-day correlation of daily returns vs. time

0

0.1

0.2

0.3

0.4

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

-0.5

-0.4

-0.3

-0.2

-0.1

Based on the S&P 500, the Cboe Volatility Index is known as Wall Street’s “fear gauge.” A bet on it would have had weak correlation with a bet on bitcoin, at best, in the past 8 years, and that didn’t change in 2019: the 90-day correlation of daily returns hit its all-time high this past August at 0.31.

Store of value: Bitcoin as a safe haven

Source: Bloomberg, CoinDesk Bitcoin Price Index

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Bitcoin still doesn’t fit in the risk picture

Bitcoin price (USD) & SPX, 90-day correlation of daily returns vs. time

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

0

0.1

0.2

0.3

0.4

-0.4

-0.3

-0.2

-0.1

If bitcoin is digital gold, it should show a negative correlation with risk-on assets, like stocks. Negative correlation with the S&P 500 has never dropped below -0.34, a low it hit in 2019—before bouncing back up into positive-correlation territory, again.

Store of value: Bitcoin as a safe haven

Source: Bloomberg, CoinDesk Bitcoin Price Index

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Speculation: Capital flows

• Exchanges’ bitcoin balances likely grew, in aggregate• Tether volumes more than tripled

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Percentage of bitcoin total supply held on exchange vs. time

Exchanges’ bitcoin balances grew

Lower bound

Upper bound

0%

5%

10%

15%

20%

25%

30%

35%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

Percent of Bitcoin Supply

Source: Chainalysis

An earlier version of this report mislabeled the y axis of this chart

Speculation: Capital flows

Wallet labeling involves guesswork, but it provides a view of net bitcoin flows onto exchanges, where speculators hold balances to trade. This measure of speculative use of bitcoin likely increased in 2019; only in the most conservative interpretation of the data did it remain flat.

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Why bitcoin when you could tether?

In 2019, growing transaction activity involving tether (USDT), a stablecoin pegged to the dollar, predated its expansion onto the ethereum network. It showcases the limitations of volatile crypto assets as vehicles for speculative capital, as well as the utility of more feature-rich networks like ethereum for transacting in off-chain value.

Tether Volume (USD Bill., Adjusted)

$0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

$1.8

$2.0

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

Omni volume

Ethereum volume

Tron volume

Tether on-chain transaction counts vs. time

Source: Coin Metrics Network Data Pro

Speculation: Capital flows

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Speculation: Exchange volumes ...

... could be a reliable indicator of speculative activity in crypto, if we knew what they were• Lists of “reliable” exchanges vary• Some major exchanges continue to show a mix of real

and fake, with no way to distinguish

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We still don’t know how much bitcoin volume is real

Exchanges market themselves with exaggerated numbers; aggregate figures either include this puffery or exclude real activity that is likely material to price discovery. Two aggregators, Messari and Nomics, agree that most volume is fake, but differ by a factor of two on how much is real.

11/1 11/2 11/3 11/4 11/5 11/6 11/7 11/8 11/9 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 11/3011/10

CoinMarketCap reported volume

Nomic’s “transparent” volume Messari “real” volume

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45(USD billions)

Bitcoin daily volume reported by major indices vs. time

Speculation: Exchange volumes

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Whose volume is real?

Messari relies on BitWise research, which limits “real” volume to 10 exchanges, based on: • trade size histogram• alignment of volume spikes• spread-patterning analysis• ...as well as factors such as capital

controls.

Nomics’ “transparent” rating is given to exchanges that provide complete historical order book data.

Messari “real” exchanges Nomics “transparent” exchanges

BinanceBitfinexBitflyerBitstampBittrexCoinbaseGeminiitBitKrakenPoloniex

BelfricsBinanceBinance DEXBinance JerseyBitfinexbitFlyerBitmexBitsharesBitsoBitstampBlocktrade

Coinbase ProDelta ExchangeDeribitFTXGate.ioGeminiHitBTCIDEXKrakenLGOLiquid

New CapitalPoloniexPolyxSparkDEXSwitcheoVindaxWBBExchangeWCXxFuturesZEBITEX

Speculation: Exchange volumes

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Daily average bid-ask spread by market, November 2019

Excludedliquidity

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 here shows that, at least on Huobi, some bitcoin-base pairs are nearly as liquid as they are on Coinbase.

$0

$5

$10

$15

$20

Coinbase BTC/USD

Coinbase BTC/USDC

Huobi BTC/USDT

Huobi BTC/HUSD

11/30 11/2911/2811/2711/2611/2511/2411/2311/2211/2111/201111/1811/1711/1611/1511/1411/1311/1211/1111/1011/911/811/711/611/511/411/311/211/1

Source: Kaiko

Speculation: Exchange volumes

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Speculation: Returns on investment

The highest gains were upward of 300 percent while the biggest losses amounted to roughly 75 percent

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Market performance of the top crypto assets by trade volume*

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.

4 assets outperformed bitcoin in 2019

EthosWavesXRPTRONEthereumEOSMoneroLitecoinBitcoin CashBitcoinETHLendBNBTezosChainlink

388.94%

167.58%

130.96%112.75%

92.38%

39.48% 31.63%0.53%

-2.11% -10.60%-32.68% -46.26%

-68.18% -74.35%

Speculation: Returns on investment

* Real” 24-hour volume > USD $5 million, according to Messari. Data as of Jan. 3, 2020.Source: Messari

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Web 3Decentralized app adoption

• Fewer users• Zombie dapps• ETH is more infrastructure than currency• DeFi is growing as games and gambling decline

| 34Web 3: Dapp adoption

No. of Dapp Users No. of Dapps

Dapps

Users

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

110,000

120,000

0

100

200

300

400

500

600

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

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.

Dapp usage is on a downward trend

Weekly active dapp users and weekly active dapps (>= 10 users) vs. time

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

| 35

Ethereum transactions are increasingly being initiated by smart contracts as 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.

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

ETH is proving more utility than currency

Transactions

ETH token

ETH non-token

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

Source: Coin Metrics Network Data ProWeb 3: Dapp adoption

| 36

Number of daily active ethereum dapps (>=1 user) by token category vs. timeNumber of ethereum dapp users by token category vs. time

DeFi grows, plateaus & has yet to cover the gap

*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

Dapps’ dwindling user numbers are largely a story of stagnation or 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.

ETH games

ETH DeFi (finance and exchange dapps)

ETH gambling0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

ETH games

ETH DeFi (finance and exchange dapps)

ETH gambling

0

10

20

30

40

50

60

70

80

90

100

110

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

Web 3: Dapp adoption

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DeFi blooms in winter

Decentralized finance (DeFi) expanded in 2019 with Compound, dYdX and InstaDApp gaining some user traction alongside the DeFi leader, MakerDAO, which launched multi-collateral DAI. Combined, these DeFi projects ended 2019 crossing 3 percent of ETH locked as ETH’s price fell to a loss on the year.

Locked in DeFi (%) ETH Price (USD)

$0.00

$50.00

$100.00

$150.00

$200.00

$250.00

$300.00

$350.00

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

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

Compound

dYdX

Instadapp

Maker

Price

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

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Web 3Ethereum competitors The competition has a long way to go

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No. of transactions (‘000) Pull request contributors**No. of active addresses (‘000)*

Fewer users, more builders

0

50

100

150

200

250

300

350

400

450

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 Nov0

50

100

150

200

250

300

350

400

450

0

100

200

300

400

500

600

700

800

900

1,000Accounts (’000) Transactions (’000) Pulls

*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

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 mature and develop as a blockchain platform.

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No. of transactions (millions) Pull request contributors**No. of active accounts/addresses (‘000)*

Slow growth for ethereum competitors

Tron

Tron

Tron

EOS EOS EOS

IOST IOST

IOST

Transactions (Millions)

0

1

2

3

4

5

6

7

8Pulls

0

50

100

150

200

Accounts (’000)

0

50

100

150

200

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec JanJan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec JanJan 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

Major smart contract platforms outside of ethereum such as EOS, Tron and IOST 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 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.

Web 3: Ethereum competitors

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*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

New entrant

Mainnet launch date Short description of the network

Can dapps be deployed on the

platform, as of Dec. 31?

Smart contract languages on

mainnet (built/ in-progress)

Amount raised through token

sales so far

Oct 30, 2018 Launched in 2018, the Blockstack blockchain is a decentralized computing network and dapp ecosystem that aims to replace the current internet. It hosts roughly 270 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. 

Yes Clarity (in-progress)

$75 million

Sept 29, 2017 It launched in 2017, but the proof-of-stake Cardano blockchain is set to add smart contract functionality in early 2020. Cardano is envisioned to be a technological platform capable of running new decentralized financial applications.

No Plutus Core (in-progress)

$63 million

March 13, 2019 Marketed as the “internet of blockchains,” Cosmos is a proof-of-stake network envisioned to connect disparate blockchain protocols. Blockchains to support smart contract functionality have not yet been built on Cosmos.

Yes  Ethermint, Pact, SES (in-progress) Rust (built)

$17 million

Nov 4, 2019 Using a “braided” proof-of-work structure, Kadena aims to be a smart contract platform able to scale for enterprise-grade clients and app development.

Yes Pact (built)

$15 million*

TBD Like Cosmos, Polkadot is a blockchain interoperability project. While the main Polkadot network will not support smart contract execution natively, it is expected to support at least one “parachain” built by blockchain startup Edgeware with the ability to program and execute dapps.

No Wasm, Pact (in-progress), Ink!, Solidity (built)

$145 million**

New entrants

Web 3: Ethereum competitors

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2020 Preview

| 43

Ethereum 2.0 LaunchesCan “Proof-of-Stake” improve on bitcoin’s consensus model?

Institutional Inflows

Metrics like regulated derivatives volume have emerged

Libra Wallet LaunchFacebook plans to launch Calibra

SEC Versus Telegram

Impact on crypto regulation and token issuer outlook

Recession & Volatility

Will bitcoin’s response support “digital gold” narrative?

O�-Chain Assets

Tether has tilted markets toward o�-chain value; will it continue?

Central Bank Digital Currencies

Progress, competition, impact on crypto markets and regulation

Bitcoin Halving

May: quadrennial halving of miners’ block reward

US Political Parties

Pro- and no-coin election-year stances are likely on party lines

DeFi Adoption

Can “decentralized finance” show mainstream appeal?

| 43

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.

Events and issues to watch in 2020

2020 Preview

| 44

Thank youCoinDesk 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:

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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.

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