Why is 2024 a critical period in the history of Ethereum?

 On-chain activity is on the rise, and the deflationary trend is increasing

After Ethereum completed the Merge, ETH became deflationary during periods of high network usage. Since The Merge in September 2022, the supply of ETH has decreased by 369, 814, or 0.21% of the total, and Ethereum stakers have received more than 1.06 million rewards, but the burn mechanism has permanently burned more than 1.43 million ETH during the same period.

Recently, thanks to the bullish momentum in the cryptocurrency market, decentralized exchanges (DEXs) have seen an uptick in trading volumes, NFT sales have increased, and L2 network activity has also been noticeably active. Over 21,000 ETH worth $62.8 million have been burned in the past two weeks.

Defi Llama data shows that DEXs traded more than $5 billion on February 19, an increase of 134% from February 4. According to Dune Analytics, NFT sales rose to $33 million on Feb. 19, up 114% from Feb. 2. L2 BEAT data shows that on February 18, all L2 blockchains processed an average of more than 92.4 transactions per second, the second-highest ever.

It is worth noting that the launch of the ERC-404 token standard in early February also contributed to the rise in gas fees. ERC-404 allows multiple wallets to have ownership of a single NFT at the same time, fragmenting the ownership of NFTs. ERC-404 uses ERC-20 and ERC-721 tokens, facilitating NFT fragmentation, which leads to gas-intensive transactions. With the crypto market being active and on-chain activity on the rise, Ethereum's deflationary trend is expected to further strengthen in the coming months.

The Ethereum network is about to receive a major upgrade

 The next major update to the Ethereum network (EIP-4844) will be executed in March of this year, aiming to improve the efficiency, scalability, and security of the Ethereum blockchain. The update will reduce the cost of the L2 ecosystem built around Ethereum by 10x, which will lead to a significant increase in Ethereum and L2 adoption.

The Dencun upgrade marked the beginning of the era of "the Surge" in Ethereum's roadmap and became a major turning point in the cycle. Ethereum needs to scale with L2, and L2's child chains and professional business development teams are driving L2's rapid growth. In addition, the integration of the Verkle tree on the Ethereum blockchain is also highly anticipated, and it is expected that it will reduce disk space requirements, enhance the functionality of staking nodes, and improve the overall user experience.

Spot Ethereum ETF approval expected

On February 17, VanEck filed a revised S-1 A for its spot Ethereum ETF filing. ARK/21 Shares has also submitted a new 19 b-4 filing for its spot Ethereum ETF and a series of new analytical notes. BlackRock, Fidelity, Grayscale, Invesco, Galaxy, and Hashdex have all submitted applications. Dave LaValle, head of the Grayscale ETF, said there was a 50% chance that the SEC would approve the conversion of its Ethereum trust to a spot ETF in May this year.

In a Feb. 19 research report, U.S. investment bank Bernstein discussed Ethereum's outlook for the coming months in terms of staking rewards, potential institutional inflows, and spot ETF approvals. The report argues that Ethereum is poised to be adopted by mainstream institutions due to its staking yield power, eco-friendly design, and institutional utility for building a new financial market. According to the report, Ethereum could become the cryptocurrency to be approved by spot ETFs after Bitcoin, with a 50% probability of an Ethereum spot ETF being approved in May this year, and almost 100% by the end of the year.

Web3 project development has entered a new phase

Unlike Bitcoin, Ethereum is more than just an asset, and its intrinsic value is highly correlated with the functionality of its blockchain. Ethereum is more in line with the goals of a shared and programmable database or DApp development platform. Therefore, in order for the Ethereum network to have value, there must be valuable applications on its network.

At the moment, there are already programs that stand out from Web3 developments, but the vast majority of applications will come from traditional companies adapting their systems and integrating with the blockchain. Judging from the existing non-native mainstream Web3 killer applications on the chain, after the last bull market cycle, there are only a few projects that seriously maintain their on-chain applications.

In previous cycles, due to the broad and agnostic nature of blockchain, most blockchain participants, even the blockchain team itself or the business development teams of other Web3 companies, lacked adequate guidance, and had to compete with meme tokens and NFT hype for development space, so some technical operations were not feasible.

And the business development segmentation of teams is often done by region, resulting in these teams having to cater to dozens of different areas, each with different needs and complex applications. The end result is a lot of more than a lot of precision, and most projects can't be successful.

However, in 2024, the rules of the game will change. In terms of how to build on-chain, the blockchain ecosystem is entering a period of specialization. The largest L2 blockchains are currently segmenting specific configurations with dedicated teams and structures.

Blockchain development kits

 In the case of Polygon, instead of configuring a common blockchain and a regional business development team for all applications, Polygon uses multiple sub-chains for specific scenarios. Polygon is providing the market with a Blockchain Development Kit (CDK) to build child chains on top of it, while all liquidity is connected through an aggregation layer.

Currently, Polygon has announced the adoption of child chains including:

B 2 (CDK blockchain focused on building rollups for Bitcoin);

the OEV Network (a CDK blockchain designed to capture oracle extractable value OEVs);

Hypr (a game-focused CDK blockchain);

Libre, a CDK blockchain dedicated to issuing tokenized assets for institutions;

FireDrops (a CDK blockchain designed for loyalty behavior at Flipkart, India's largest e-commerce company).

In addition, other mainstream L2 blockchains are following the same path. For example, similar to Polygon's CDK is Optimism's "OP-Stack". A paradigm shift is underway, and many specialized subchains and business development teams of almost all major L2 blockchains will compete in the same space.

Thanks to Ethereum's L2 initiative, building a secure chain is very simple. As a result, 2024 is likely to be the year of Web2 killer applications in Web3, with numerous companies and users trying to incorporate blockchain into their daily lives.

brief summary

The year 2024 will be a pivotal period in the history of the Ethereum blockchain, marking a new cycle of development since The Merge in 2022. The rise in on-chain activity is driving Ethereum's deflationary trend. The Dencun upgrade will improve the efficiency, scalability, and security of the Ethereum blockchain. The expectation of Ethereum spot ETF approval will continue to drive interest in institutional adoption. Blockchain Development Kits (CDKs) are creating more possibilities for developers on the Ethereum network, and more valuable applications will in turn continue to drive the prosperity of the Ethereum network.