CoinDesk Special Report ETHEthereum Update October 2020 As the world’s first general purpose and for investors who have been betting on Looking ahead platform, Ethereum has been the incubator for many the value proposition of ether (ETH) for some time innovations in the crypto space not least of which now, this report will also highlight some of the main to launch include smart contracts, decentralized applications trends within DeFi that have emerged on the platform (dapps), initial coin offerings (ICOs) and more recently this year. Finally, this report will look ahead to the (DeFi). launch of Ethereum 2.0 and the two (optional) ways users will be expected to participate. This report will focus mainly on the tumultuous events of 2020 and how Ethereum has fared in relation to both macro and other crypto assets. For investors who are just beginning to make their foray into

Invest: Ethereum Economy 2020 is proving to be a wildly Returns, volume, successful year for ETH as its performance in the markets volatility and outshines the performance of correlations traditional macro and most crypto assets. Performance of Ethereum & Macro Assets, Year-to-Date

Amid a global pandemic and 260% unprecedented market downturn, ETH 240% has so far tripled in value since January. 220% BTC has also seen positive gains year-to- date appreciating roughly 50%. These 200% ETH BTC returns far outpace the gains made by 180% Gold Bonds gold, bonds and stocks in 2020, which 160% Stocks have climbed 23%, 20% and 4% 140% respectively. 120% 100% 80% Returns 60% 40% 20% 0% -20% -40% 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 / / / / / / / / / / / / / / / / / / / / 1 1 1 7 2 4 4 4 9 9 9 5 5 6 3 3 8 8 0 0 1 1 3 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 3 3 / / / / / / / / / / / / / / / / / / / / 2 9 1 0 7 2 8 4 5 3 6 1 7 8 2 4 5 9 1 6 1 3

Source: Coin Metrics, FactSet; Stocks = S&P 500 Index; Bonds = iShares 20+ Year Treasury Bond ETF; Gold = SPDR Gold Trust. Ethereum Update October 2020 *Data as of Sept. 18, 2020 Year-to-Date Performance of Assets in the CoinDesk 20 (Excluding ) Asset ETH is the second-best performing crypto LINK 486.9% asset so far in 2020. It has more than ETH 176.6% doubled the gains made by BTC year-to- ZRX 130.5% date. The only other crypto asset that has performed better than ETH as of the end XMR 114.9% of September is the LINK token, which is ZEC 104.7% based on the Ethereum blockchain. TRX 99.0% BSV 73.9% XTZ 66.8% 65.0% Returns, XLM 64.3% crypto assets BTC 49.7% XRP 25.8% ETC 24.4% BCH 10.9% LTC 10.2% EOS -0.3% OXT -7.5%

Source: Coin Metrics, Nomics *Data as of Sept. 28, 2020.

Ethereum Update October 2020 Volume

Crypto spot market volumes for ETH soared in Q3 2020, as ether prices rose past $400 and even briefly exceeded $450 in early September. Compared to September 2019, dollar volume rose 150% from $17 billion to $43 billion. This chart features data from exchanges with a high granularity of trade data and full trade history, according to Nomics’ exchange transparency rating criteria (read more).

Verifiable Monthly Dollar Volume of ETH on Crypto Spot Exchanges

$50B

$40B

$30B

$20B

$10B

$0B 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 ------l t r r l y v c r r n n g p b y n n g p b u c a p u a e o a e e a p u u J a e e a u u J J J O A J F J S M D A N A F M S M A M

Source: Nomics ‘transparent’ volume; data through Sept. 29

Ethereum Update October 2020 Ethereum and Macro Assets: 30d Volatility of Daily Log Returns

The volatility of ETH is not only significantly higher than those of macro assets such as stocks and gold; it is also significantly higher than that of BTC, a sign of its relative immaturity as an investment asset. After months of a downward trend after the March crash, ETH’s 30d volatility trended up in the third quarter, to levels last seen in April.

Volatility

CoinDesk Research has a research note on volatility, its calculation and its role in crypto asset markets. You can download it for free here.

Source: Coin Metrics, FactSet

Ethereum Update October 2020 Ethereum and Macro Assets: 60d Correlation of Daily Log Returns

Correlations between ETH and macro assets such as stocks, bonds and gold tend to follow the pattern set by BTC: correlation with bonds is low to negative; correlation with the S&P 500 jumps up in times of market uncertainty; and the correlation to gold is typically relatively high and stable.

Correlations

Confused by correlations? CoinDesk Research picks apart the nuances and the calculation complications for correlations in crypto markets in this free Research Note.

Source: CoinDesk, FactSet - Stocks = S&P 500 Index; Bonds = iShares 20+ Year Treasury Bond ETF; Gold = SPDR Gold Trust.

Ethereum Update October 2020 Ethereum has become the epicenter of a new wave of decentralized applications (dapps) called ”Decentralized Decentralized Finance” or DeFi. As their name suggests, these dapps are Finance Boom created with a finance focus that aims to innovate on the traditional activities associated with banking, leverage, debt, capital and the like. Aggregate Monthly Volumes for Decentralized Trading Platforms

Trade volume on decentralized exchanges 11% (DEXs) increased dramatically in Q3 2020, $22B 10%

rising from $4 billion to over $22 billion. e

$20B % of Total Volume m u Monthly aggregate DEX volumes made up DEX Trade Volume 9% l o V less than 1% of total trade volume for

) $18B e s d crypto assets in the beginning of the year. n 8% a o r i l l $16B T i By the end of September, that figure had b o

t , 7% p increased to over 10%. Changpeng Zhao, D y

$14B r S C U the CEO of centralized exchange , ( l

6% a e said in an interview with CoinDesk that he $12B t o m T u

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expects DeFi apps to one day challenge o 5% o

V $10B

% his company’s reign as the world’s largest e

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a 4% s by trade r $8B a T

e volume. X E 3% m u D $6B l o V

$4B 2% X E D $2B 1% Decentralized $0B 0% 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 ------l r r y n n g p b u a p a e e a u u Exchanges J J J A F S M A M

Source: Dune Analytics, Nomics *Data as of Sept. 29, 2020. Ethereum Update October 2020 Percentage of Stablecoins Issued on the Ethereum Blockchain Percentage of Stablecoins Issued on the Ethereum Blockchain Stablecoins are crypto assets that track 100% the value of one or more base assets such as fiat currencies. While , the 90% earliest , was issued on the 80% Omni layer (built on top of ), most subsequent stablecoins (70% as at end of 70% September) have been issued on Ethereum. Since the beginning of the 60% year, stablecoin supply has more than tripled to reach almost $20 billion. This 50% surge in supply is one of the drivers of the recent strong growth in Ethereum 40% blockchain activity. 30%

20% Ethereum-based USDT Launches, 1/5/2018 Stablecoins 10%

0% 7 9 9 9 9 9 9 8 8 8 8 8 8 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 / / / / / / / / / / / / / / / / / / 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 / / / / / / / / / / / / / / / / / / 2 2 2 2 2 4 6 4 8 0 6 8 0 2 4 6 8 0 1 1 1 1 1 1

Source: Coin Metrics *Data as of Sept. 29, 2020. Ethereum Update October 2020 Growth in Off-Chain Bitcoin Supply (Ethereum & Other) It is not only the representation of fiat 120,000 currencies that is being issued on the Ethereum blockchain. “BTC on 110,000 Ethereum,” or Ethereum-based tokens 100,000 backed by BTC deposited into special accounts, has seen a surge in demand 90,000 Ethereum since the beginning of the year. This Other

) 80,000 allows BTC investors to use their holdings C T B in Ethereum-based applications such as (

y

l 70,000 decentralized finance and could boost p p u S demand for BTC beyond the store-of 60,000 n i

-value use case. a h C

- 50,000 ff O 40,000

30,000

Tokenized 20,000 Bitcoin 10,000 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 ------l r r y n n g p b u a p a e e a u u J J J A F S M A M

Source: Bitcoin Visuals, BTConEthereum.com, Liquid.net *Data as of Sept. 26, 2020. Ethereum Update October 2020 Since the release of our Ethereum 2.0 explainer report in July, the hotly anticipated upgrade has Ethereum 2.0 inched closer to launch. Expected Launch to go live sometime in the next 3 months, there will be two main ways for users to participate in this historic event. Eth 2.0: Software Clients

At launch, the main users of the Ethereum 2.0 network will be validators, which can be thought of as the equivalent of miners in a blockchain system. As an Eth 2.0 validator, you can choose to run your own specialized software called “clients” to connect to the network and earn rewards. Users have the option of downloading one of four clients. Each have been battle-tested on the Medalla and Spadina test networks, which went live in August and September respectively.

Prysm is the most popular Teku is an enterprise-focused Lighthouse is a security-focused Nimbus is an Eth 2.0 client Ethereum 2.0 client run on the client built by Ethereum venture client built by cyber security and envisioned to run on mobile Medalla and Spadina test capital studio ConsenSys. It is blockchain technology devices and IoT. It is intended networks. It is built by a non- targeted for use by large consulting company, Sigma to be lightweight and easily profit developer group called institutions and businesses who Prime. Like Prysm, Lighthouse is configurable for resource- Prysmatic Labs, based in New want to set up Eth 2.0 validator a project funded through restricted devices such as York. The group has received over operations in-house. Consensys community donations. smartphones and laptops. $1.5 million in grant funding from also maintains an enterprise- Lighthouse has undergone Nimbus is built by Status, an donors such as Vitalik Buterin and focused, Ethereum 1.0 client extensive code review by three Ethereum messaging startup the Ethereum Foundation. known as Besu. separate external auditors. founded in 2017.

Ethereum Update October 2020 Source: CoinDesk Research Eth 2.0: Staking-as-a-Service

The other way users can connect and participate in the Ethereum 2.0 network at launch is through a staking-as-a-service provider. These providers will run software clients on dedicated machines for users that have 32 ETH, which is the minimum amount required to be a validator on the network. In exchange, for taking on the bulk of a user’s operating expenses and cost, staking-as-a-service providers charge a fee or take a cut of the rewards earned by validators.

Founded in 2018, Staked operates across 24 Built by ConsenSys, Codefi Staking is a white-label Stakewise is a staking-as-a-service platform that different proof-of-stake and earns solution for staking-as-a-service on Ethereum 2.0. allows users with less than 32 ETH to pool together clients between 5 to 50 percent interest on their It is targeted for use by institutions and enterprise funds and share a validator on Eth 2.0. It also offers crypto asset holdings. Staked offers a non- businesses who are interested in reducing the users the flexibility of withdrawing funds before custodial solution for staking, meaning users technical risks of running Eth 2.0 software clients. transfers are officially enabled on the Eth 2.0 always retain full control over the deposit and Early participants who are testing out Codefi network. This is done by matching up users exiting withdrawal of their ETH funds. Staking are Binance, Wallet and Crypto.com. the staking pool with others who may be entering.

Source: CoinDesk Research

Ethereum Update October 2020 Thank you for reading!

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Monthly Review: Month 2020