Ethereum has been rising very strongly in recent times. After breaking through $3500 in the past few days and setting a new high since May 2022, it has exceeded $4000 in the past two days. Judging from the increase in the past 30 days, Ethereum surpassed Bitcoin with a 62% increase, which was unexpected by many people.

However, looking at the development of the Ethereum ecosystem, from the continuously growing deflationary data and the smooth testing of the upcoming London upgrade to the rising amounts of staked and re-staked ETH, and the expected approval of the Ethereum spot ETF in May, it is indeed a combination of multiple bullish factors. The skyrocketing price of ETH is also within expectations.

So, will these bullish factors be realized one by one? What is the current situation of the Ethereum ecosystem? Let’s look at the data.

01 Ethereum Deflation Situation

The inflation/deflation trend of Bitcoin and Ethereum over the past 532 days (Source: ultrasound.money)

Since January 16, 2023, Ethereum has officially entered the deflationary phase, where the daily newly generated ETH amount is less than the amount burned. Specifically, the annual deflation rate of ETH is 0.239%.

Comparing it with the industry leader Bitcoin, whose annual inflation rate is 1.716%, even though its total supply is limited, new Bitcoins are continuously produced every day. Therefore, when we say “Bitcoin’s total supply is limited, so every Bitcoin is very valuable,” it further highlights the value of ETH in the current deflationary state.

With the flourishing development of the Ethereum ecosystem, the total amount of burned Ethereum continues to increase, increasing the deflation rate of Ethereum, thereby reducing the amount of Ethereum circulating in the market.

02 Rapid Development of Re-Staking Track

It’s not just the increased deflation rate of Ethereum that is reducing the circulating supply of ETH. With the development of liquidity staking and re-staking tracks on Ethereum, a large amount of ETH is being locked on the chain, further drastically reducing the quantity of Ethereum in circulation.

Data related to Ethereum staking contracts from OKLink shows that the total staked amount of Ethereum has exceeded 40 million tokens, accounting for over 34% of Ethereum’s circulating market value, with the number of validators surpassing 1.26 million. While most validators are attracted by the appreciation of Ethereum and staking rewards, regardless, it is a significant bullish factor for the overall security of the Ethereum network.

Quantity of Ethereum Staking Contracts (Source: OKLink)

Moreover, according to data from Stakingrewards, as the leading public chain in terms of staked value, Ethereum has consistently seen net inflows of staking over the past 7 days, contrasting significantly with lower-ranked public chains. Currently, Ethereum staking is evidently attractive to investors.

Overview of the top five public chains by staking market value (Source: stakingrewards)

Of course, the recent surge in Ethereum staking cannot be separated from the development of the re-staking track.

Re-staking was first proposed by the founder of Eigenlayer, with its core allowing ETH already staked on the Ethereum main chain to be re-staked on other protocols, enabling these protocols to share Ethereum’s security and thus reducing their own security costs. Investors participating in re-staking not only receive rewards from staking Ethereum but also from re-staking.

Therefore, re-staking creates a triple-win situation:

For protocols using re-staking, they reduce security costs while enjoying almost the same level of security as Ethereum, attracting a large number of ETH holders to enter the ecosystem and participate in its development.

For ETH stakers, they not only enjoy rewards from staking and re-staking but also have high expectations for airdrops.

Furthermore, for the Ethereum main chain, the re-staking mechanism enables its assets to have more empowering scenarios, stimulating holders to lock ETH and bringing greater appreciation potential.

As a result, the re-staking track led by Eigenlayer has seen rapid development in recent months and has attracted more and more institutional capital. Taking Eigenlayer as an example, in less than two years from May 2022 to the present, it has completed four rounds of financing, with the latest round led by a16z injecting $100 million. The total cumulative financing for the four rounds has exceeded $160 million. As an emerging track, re-staking has indeed entered a period of rapid growth.

Currently, Eigenlayer’s total TVL has exceeded $11 billion, ranking third among all DeFi projects, behind only Lido and AAVE. The TVL of related projects in the liquidity re-staking track has grown significantly, with a growth rate of over 10% in the past 7 days.

Growth of TVL for projects related to liquidity re-staking track (Source: defillama)

The rapid development of re-staking protocols and the anticipation of ecosystem airdrops have stimulated more ETH holders to participate in ETH staking and re-staking. This can be seen from the rapid growth of ETH staking ratio and the TVL of re-staking protocols. These factors further reduce the quantity of ETH in circulation, providing new upward potential for ETH.

03 Dencun upgrade

Of course, the Dencun upgrade is naturally a positive factor for Ethereum.

Many articles have been written about the Dencun upgrade before. Friends who are interested in exploring this in detail can read our article “What substantial benefits will the legendary Ethereum Dencun upgrade bring?”。For the Ethereum mainnet, the Dencun upgrade is an important hardware upgrade, which mainly improves the scalability, security and availability of the Ethereum mainnet.

Of course, the biggest perception for users is that after Ethereum undergoes the Dencun upgrade, its Layer 2 fees will be reduced significantly. On the current basis, the reduction may reach more than 14 times, which is roughly equivalent to the gas fee level of public chains such as Solana, and will also greatly increase the throughput of Layer 2. This is mainly because the EIP-4844 in the Dencun upgrade has greatly reduced the cost of data on the ETH main chain in the Layer 2 protocol, and promoted the progress of the Ethereum sharding plan.

An overview of the TVL growth of each Layer 2 project on the Ethereum chain, (Source: L2BEAT)

In addition, another important upgrade in this Dencun upgrade is EIP-4788, which optimizes the information exchange problem between the Ethereum consensus layer and the execution layer. This improvement is good for the liquidity staking and re-staking track, and cross-chain bridge-related projects, improving their security and operational efficiency.

Therefore, overall, the Dencun upgrade not only greatly reduces the fees of Layer 2 and increases throughput, benefiting the development of Layer 2 on Ethereum and facilitating the absorption of a large amount of new capital into Layer 2 for ecosystem construction, but also provides a significant boost to the liquidity staking and re-staking tracks. The successful Dencun upgrade will bring about another breakthrough in the Ethereum ecosystem.

Currently, the London upgrade has been successfully deployed on all Ethereum testnets (including Georli, Sepolia, and Holesky) and is scheduled to go live on the mainnet on March 13th this year. With the launch date approaching, the prices of Ethereum and related ecosystem projects also partly reflect the expectations for the Dencun upgrade.

04 Probability of Ethereum Spot ETF Approval

Since the SEC approved 10 Bitcoin spot ETFs on January 10th this year, people have started to shift their focus to Ethereum spot ETFs.

After all, the approval of Bitcoin spot ETFs is a significant bullish factor for Bitcoin and the Bitcoin ecosystem, as the short-term surge in Bitcoin’s price is the best proof.

However, will the Ethereum ETF be approved as scheduled?

Currently, seven institutions including BlackRock, Hashdex, ARK 21Shares, and VanEck have applied for Ethereum spot ETFs. After several delays in approval by the SEC, the decision on whether to approve the applications for Ethereum spot ETFs from relevant institutions will be made no later than May this year (see the chart below).

Ethereum spot/futures ETF applications (Source: blockworks)

Of course, the key to the approval of Ethereum spot ETFs lies in whether the SEC classifies Ethereum as a commodity or a security. The current disagreement stems from the fact that Ethereum’s mechanism is significantly different from Bitcoin’s. Ethereum does not have a fixed total supply, and Ethereum holders can stake it to earn rewards.

This has led many to believe that Ethereum carries the risk of being classified as a security.

However, in the SEC’s lawsuit against Ripple in June last year, the SEC listed 67 tokens as securities, but ETH was not among them. Additionally, the SEC has sued multiple centralized exchanges (CEXs) for listing tokens classified as securities by the SEC, and ETH was excluded. This indicates that the SEC has not publicly and explicitly designated ETH as a security.

More importantly, last year, the U.S. Securities and Exchange Commission approved Ethereum futures ETFs, implying that ETH is a commodity rather than a security. Therefore, the approval of Ethereum spot ETFs is likely a matter of time.

The approval of future Ethereum spot ETFs will likely bring in a significant amount of capital and resources to Ethereum and its ecosystem, opening up the development landscape and potential for the entire ecosystem.

05 Summary

If last year was a year with Bitcoin and the Bitcoin ecosystem as the focus of the entire crypto industry, then the Ethereum ecosystem in 2024, with the expectations for the Dencun upgrade, spot ETFs, continued deflation, and skyrocketing staking numbers, will surely also make a significant impact.

Whether the protagonist of this bull market charge will be the inscription and infrastructure of the Bitcoin ecosystem or the staking and re-staking tracks of the Ethereum ecosystem in 2024, we eagerly await to see.

Disclaimer：

1. This article is reprinted from [baihua blockchain]. Forward the Original Title‘比特币生态 VS以太坊生态，接下去的领头羊是谁’.All copyrights belong to the original author [Joyce]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
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