Ethereum, the second-largest cryptocurrency by market capitalization, has experienced a stagnant number of active ERC-20 addresses in 2023. Despite fluctuations in Ethereum’s price, the activity has remained relatively low, indicating a potential shift from bullish to bearish in the medium term.
As of August 2, there were approximately 275,000 active ERC-20 addresses, showing minimal change compared to the range of 200,000 to 300,000 seen throughout the year. Interestingly, there was a significant surge in activity on June 11, with over 446,000 active ERC-20 addresses recorded. However, overall activity has remained low, indicating diminished demand for Ethereum in recent months.
The price of Ethereum has been volatile in line with the activity pattern of ERC-20 addresses. Despite a bullish trend in the past two months, Ethereum bears have prevented a breach of the $2,100 liquidation level set in the latter half of H1 2023. Currently, ETH prices hover around the $1,800 range, suggesting a potential drop in the near future.
With the stagnation of active ERC-20 addresses, the demand for ETH as a payment method for transaction fees has decreased. This has resulted in lower gas fees, as there is less competition for block space. In normal circumstances, reduced gas fees would encourage more participation in decentralized finance (DeFi) activities, including the deployment of complex contracts. However, the current low activity levels have limited the involvement of users in the DeFi space.
The implementation of EIP-1559 has been aimed at reducing the supply of ETH and creating a deflationary effect. However, the sustained low activity in the network means that fewer coins are being taken out of circulation. Each validated block in the Ethereum blockchain continues to issue 2 ETH, offsetting the intended deflationary impact of EIP-1559.
The decline in activity within ERC-20 addresses may be correlated with the diminishing interest in DeFi activities in recent months. The total value locked (TVL) in DeFi remains below $50 billion, with a significant portion of the assets tied up in Ethereum. Popular DeFi projects such as LidoDAO, Curve, and Uniswap have facilitated the trading of ERC-20 tokens, but the overall interest in DeFi has decreased.
On-chain data reveals that USDT, the stablecoin pegged to the US dollar, is the most actively transacted token in the ERC-20 ecosystem. Given its position as the third-largest cryptocurrency by market capitalization and its widespread circulation in Ethereum and Tron networks, this trend is expected.
Despite the temporary price increases witnessed between June and July 2023, on-chain ERC-20 activity has remained relatively stable. It remains uncertain whether there will be a change in activity levels as prices continue to drop. Lower prices may lead token holders to adopt a wait-and-see approach, resulting in decreased activity.
The stagnation of active ERC-20 addresses and the decline in Ethereum’s price indicate potential bearish sentiment in the medium term. The decreased demand for ETH as transaction fees has resulted in lower gas fees, but it has also limited the participation in decentralized finance activities. As prices continue to fluctuate, it remains to be seen whether a shift in on-chain activity will occur. The future of Ethereum and its ecosystem will heavily depend on market dynamics, technological advancements, and the evolving interests of the crypto community.
Feature image from Canva, chart from TradingView