Dapp Digest: June 2020

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All the hottest news from the world of decentralized applications.

We end June in the context of record-breaking DeFi market cap and volume figures becoming the norm and It is essential to look at the major stories affecting the dapp (decentralized application) sector in regards to user activity and value created.  

Adoption news

Its been a strong month for cryptocurrency adoption with a significant announcement from the American esports league. According to a press release, ConsenSys has helped the North American Collegiate League (NACL) build an Ethereum-based platform for ESports match reporting and to automate tournament payments in cryptocurrency. 

This move means that NACL players will now be able to receive their winnings to a crypto wallet that’s generated for them with the possibility to exchange to FIAT currency. According to NACL, future players will be able to choose between ETH and DAI.

Furthermore, adoption moved ever closer as one of the biggest online networks, Reddit, announced a new Community Points system based on the Ethereum blockchain. Community Points will be distributed in Reddit’s r/CryptoCurrency and r/FortNiteBR communities, also known as subreddits, which have about 1 million members each. Effectively, Reddit just brought over 2M people into crypto.

Early analysis using DappRadars custom Reddit tracking dashboard shows that the r/FortniteBR gaming community is more engaged, with over 19.4k Bricks holders compared to 4k Moon holders at the time of writing.

Analyze Reddit using the DappRadar OpenData Dashboard

Blockchain news

TRON founder Justin Sun officially announced the launch date of TRON 4.0 via their Medium channel. In an open letter to the community, Justin Sun confirmed the launch of the mainnet as the 7th of July 2020. 

Currently, and as stated by TRON, this is the safest and most productive protocol. Further describing TRON 4.0. The TRON Foundation says that it is not just about building dapps but more about becoming an onramp for users and financial institutions.

As TRON prepares for its 4.0 launch Ethereum GAS prices have been spiraling out of control in June. It’s always been well understood the daily activity of gamers is strongly related to the Ethereum gas price. Simply put, If you want to move $1 million of ETH or lock $100,000-worth of BAT into a MakerDAO Vault, paying – say – $10 in gas isn’t a big issue. 

However, if you want to buy a $10 character for your favorite game, or spend $20 a monthly in-game subscription, a $10 fee is a large additional cost. We can check this trend only impacts Ethereum games by comparing the activity of the top 5 Ethereum and non-Ethereum games. 

Clearly, we can see that during May, the top 5 non-Ethereum games have slightly increased their activity, up 14% to a combined total of 13,785 daily active unique wallets. 

Whilst Ethereum blockchain gamers are suffering. Korean gaming-specific blockchain BORA joined the list of protocols tracked by DappRadar in June taking the total to 14. Based in South Korea, BORA’s approach is novel as it’s working with game developers who have already launched successful mobile games. In total, the games it plans to integrate with its blockchain technology already have over 50 million players.

BORA first enables developers to use its social log-in and wallet service, called BORA Island, becoming a ‘with BORA’ game. For example, Dragon Raja 2 and Giants are now both available as ‘with BORA’ projects. Then developers integrate the blockchain elements including the BORA and SHELL cryptocurrencies becoming ‘for BORA’. 

A recent report has suggested not everything is well with EOS, the so-called ‘Ethereum Killer’, which launched on 2 June 2018. Highlighting the decline of Github commits for the protocol as well as dapp developer and user activity has resulted in a spate of headlines over the technology’s future. But it is in that context that EOS has become the top smart contract blockchain for gaming with three of the top 10 blockchain games in terms of daily activity running on EOS at the time of writing. 

Furthermore, if you include the WAX blockchain, which like EOS uses the EOSIO SDK those totals would be four of the top 1o. This flexibility is further demonstrated by a number of high profile games and projects in development which won’t run on the mainnet but are using the EOSIO code. 

In this way, while the future of the blockchain and the token remains unclear, the wider EOSIO ecosystem is only just getting started.

And finally, whatever you think about Steemit’s strategic partnership with the TRON Foundation as announced on 14 February 2020, the decision of some users to hard fork Steem to create Hive, has to-date been an unqualified success. 

Not only does the Hive cryptocurrency have a higher market cap than Steem, despite only being launched on 20 March. Dapps on the Hive dapp ecosystem already attract more daily activity than those on Steem

The crossover point between the two dapp ecosystems is easy to explain as Blockchain game Splinterlands, which was the most popular Steem dapp with over 4,500 daily active unique wallets, transitioned from Steem to Hive on 1 June 2020, resulting in those users moving from Steem to Hive. Not all Hive dapps have been so successful, though.

Decentralized finance news 

The real action (when it comes to value created) in the dapp ecosystem has been happening in the rapidly expanding decentralized finance sector. At the end of May DappRadar reported that total volume within DEXs had passed the 2B USD mark. Just under three weeks later and with the introduction of new trading pairs, native and some debatable tokens we observe a total volume of 3.2B USD, at this rate, DeFi is set to break records every few weeks! 

As Ethereum 2.0 continues to inch closer to the highly anticipated release of Ethereum 2.0, rivals struggle for an angle to draw dapp developers to their platforms. This is especially evident in the Ethereum DeFi sector, which has been holding the market’s attention for much of 2020.

Ethereum’s DeFi ecosystem has now weathered numerous storms from the DAO calamity to the MakerDAO crash and still continues to grow. Ethereum has the largest DeFi ecosystem, which provides additional utility for each individual component. For example, Sai/Dai is more useful than an alternative decentralized stable coin, because there are more dapps that accept it. Similar is true for Compound and its cTokens.

Moreover, it is important to remember that while Ethereum 2.0 may be ways away from being fully functional, second layer scalability protocols like Matic Network may be able to help sooner.

Still, the Ethereum DeFi sector is a developer’s playground and does not appear to have a coherent commercialization and expansion strategy. This opens the door for competitors to utilize partnerships, to promote and integrate their products outside the existing crypto market.

Another variable that brought about a noticeable impact in the DeFi space was something known as ‘The Coinbase Effect’. Coinbase currently boasts 30M users, 8M of which joined in 2020 so this move is a real positive for the growing DeFi space

The term broadly refers to the price effect felt by tokens once they become listed on the Coinbase exchange. As previously mentioned, with such a huge user-base Coinbase demands respect and authority in the crowded exchange space and has built trust with its users. Overall, there is simply something quite significant about being instantly visible to millions of users in multiple countries around the globe. 

The Coinbase effect occurred as the popular cryptocurrency exchange announced it may be soon be listing specific DeFi tokens such as Aave, Bancor, Compound, and Synthetix. Already we can see the announcement has triggered the so-called ‘Coinbase effect’ within the top DEX. 
Using DappRadar OpenData we can see that popular exchange protocols Uniswap and Kyber witnessed a significant increase in daily trading volume with spikes appearing in tandem with Coinbase’s announcement.

Another effect was felt in the DeFi space this month but of a different kind. Controversial crypto influencer and founder of McAfee cybersecurity John McAfee endorsed a new token called GHOST. 

Something Dappradar has labeled ‘The McAfee Effect’ took place. The Ghost token is up 100% since the start of the month, even though McAfee has now admitted it was a ripoff of the PIVX privacy coin. Furthermore, the Ghost token has seen particular success on the decentralized exchange (DEX) IDEX

The total trading volume of IDEX on the 10th of June 2020 was 10M USD. 8M USD of which has been contributed by the GHOST token. With trading pair, ETH/GHOST contributing  77% of the trading volume. Overall, Ghost is responsible for over $21 million in trading volume on decentralized exchange IDEX since the start of June.

COMPletly crazy 

DeFi dapp Compound has arguably caused the biggest waves in June. After a single day of trading Compound’s new COMP token became the largest decentralized finance (DeFi) token by market cap overtaking MakerDAO. 

Compound first unveiled the governance token in February 2020, kicking off its plan to transition control of the protocol from the company to token holders. During the initial period, some COMP was distributed among the company’s stakeholders with the token going live in mid-April.

In response to the addition of the native token and distribution week commencing 15th June 2020 COMP overtook MakerDAO’s MKR token by market cap as it increased by more than 60% in just a few hours. Compound’s market cap of 725M USD is approx 30% greater than Maker’s 560M USD, according to DeFiMarketCap.io.

COMP is allocated across all markets relative to the amount of interest being accrued. In other words, the assets bringing in the most interest receive the most COMP.

Tether (USDT) is quickly starting to gain a leadership position in the COMP farming prize. With 10% APY compared to the next highest return of 1% on DAI, USDT is drastically outperforming other supported assets in terms of COMP earned per day.

While the logical next step is to supply USDT to Compound to capture a 10% APY + some of the fastest rising tokens currently available, many hardcore DeFi advocates are taking things even further. For example, Maker currently lets users borrow DAI with a 0% stability fee. This means that you can lock ETH and receive a loan in DAI with no debt for the time being. Using a liquidity aggregator like Curve, users can then swap that DAI for USDT at minimal prices.

As a result of the above DeFi “yield farming” has become the latest trend in the cryptocurrency space. Simply put, yield farming is the act of leveraging DeFi protocols and products to generate high rates of return. In some instances reaching over 100% annualized yields. DeFi yield farming takes this basic concept and compounds returns by utilizing leverage to gain additional exposure to various cryptocurrency assets collateralized with USD-backed stablecoins.

Warning signs

Vitalik Buterin had this to say. “I think we emphasize flashy DeFi things that give you fancy high-interest rates way too much. Interest rates significantly higher than what you can get in traditional finance are inherently either temporary arbitrage opportunities or come with unstated risks attached.” Further adding, “we should be solidifying and improving a few important core building blocks: synthetic tokens for fiat and a few other major assets (aka stablecoins), oracles (for prediction markets, etc), DEXes and privacy.”

Waves protocol founder and CEO Sasha Ivanov also recently warned against a potential “ICO bubble” occurring with DeFi projects. Ivanov calls DeFi the future but is concerned by the growing hype around the industry.

DeFi represents the first real tangible success of decentralized applications. If the sector creates an unsustainable bubble, its implosion may have significant negative effects on the industry as a whole.

The distribution of the COMP token has created a lot of excitement in the DeFi space. The perception of scarcity has driven the value of the asset and has propelled Compound into the top 30 on CoinMakretCap. Moreover, since Compound distributes COMP to those who supply and borrow on the dapp, transaction volumes have skyrocketed in June.

Much of this effect may be due to the nature of the distribution strategy and the interlinked nature of Ethereum DeFi. Since a user gets COMP tokens for both supplying and borrowing, in order to best “farm” the governance token, it is beneficial to borrow, convert the token on another dapp, and then send back to Compound this time as a liquidity supply. Consequently, this not only stimulates volumes on Compound but on the supplementary applications as well.

Compound has historically been a top-heavy project, with major whales generating most of the activity on the dapp. The skyrocketing volumes have only slightly diluted that effect. Over the last 30 days, the top 30 addresses (by generated volume) have accounted for over 70% of borrowing volume and over 53% of supply volume.

Ethereum DeFi ecosystem

Given that there have been over 10,000 addresses involved in supply operations and over 3000 addresses involved in borrowing operations, the centralization is staggering. These numbers refer to addresses. Not users, given that some users prefer operating multiple addresses, actually centralization may be even more pronounced.

Finally, it is unclear why the distribution of a token that is not algorithmically tied (it does not serve a function in the operation of the protocol) to the system will incentivize good behavior.

For earlier examples, like Decred, the token’s value is ultimately supposed to be linked to the economic value of the network. With respect to the COMP token, the nature of its valuation, even theoretical, at the moment, remains unclear. What is clear, the DeFi Ecosystem is at a truly pivotal point in existence and the coming weeks and months will be absolutely fascinating. 

Last but not least to have their effect on the space was DeFi dapp dYdX with their addition of perpetual trading. dYdX is one of the fastest-growing dapps within the Ethereum DeFi ecosystem. Users can borrow, lend, and margin trade across any supported asset and it is also a sector-leading margin-trading DEX. Recently, dYdX released BTC/USDC perpetual contracts, offering up to 10x leverage.

Ethereum DeFi ecosystem

When perpetual trading was originally released on dYdX on the 15th of April 2020. A volume of 50M USD was generated in less than 2 months. Impressively, in May 2020 total volume reached 39M USD and in June already we observed more than 10M USD generated.

Clouds forming

So amidst all this positivity and what is looking like a very bright future for Ethereum DeFi and the overall sector. A real contender to Ethereum has been patiently waiting in the shadows and it appears they are about to make their first play. 

Binance has been growing its footprint in the decentralized space and has now delved into the DeFi space. This may be the start of an important race between one of the key decentralized ecosystems and the more centralized behemoth.

While MakerDAO has been trailblazing across the decentralized space, Binance has been quietly growing its footprint. Most think of Binance as a centralized exchange, but the ecosystem also features its own blockchain, a DEX, a native cryptocurrency, and a stablecoin. 

With its own standard Binance token and a blockchain that lacks the core scalability and economic issues (like fees dropping activity levels) that Ethereum is trying to solve, the centralized player can prove to be a dangerous competitor.

Despite obvious challenges with scalability, Ethereum has remained attractive to users and developers because of its active ecosystem. Its dapps are numerous and their volumes are relatively trustworthy. The DeFi sector has been key in attracting the recent surge of interest.

However, these volume gains are all relative. If one of the biggest centralized players in blockchain was to bring its liquidity to its own native chain, it would instantly become the leader in the field. Binance has been very diplomatic in its relationship with different blockchain ecosystems, but the continued growth of its chain’s ecosystem may signal the impending race between the Ethereum and Binance brands.

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