Ethereum (ETH) returned to its powerhouse status in February 2021. Briefly jumping above the $1,800 mark to score an all-time high, ETH is also the hub for a growing ecosystem of fees and virtual economic activity.
At one point, the Ethereum ecosystem was considered a dead end. However, the relative longevity of the network and the ability to create smart contracts proved functional enough for the current purposes of decentralized finance.
Despite the high gas fees (an average of $25 and possibly more for whale-sized transactions), the DeFi space managed to include the fees into the economic models of yield farming, offsetting the high cost of transactions. And while the Ethereum ecosystem did not scale as much as expected, the side projects within it could grow and produce revenues.
The biggest benefit of the Ethereum ecosystem is the presence of algorithmic trading, which can ensure immediate pair listings for new token projects.
Uniswap and Curve Finance are the biggest hubs for Ethereum-based liquidity, extending their network effects over older startups like Chainlink (LINK) that serves as an oracle, and to new and upcoming projects.
Despite Ethereum gas prices, the tokenomics and creative projects manage to create new value and offset costs.
We looked at how four recent DeFi projects are utilizing the Ethereum ecosystem.
Adventure Token uses a complex double-asset system, which harnesses two of the biggest Ethereum DeFi protocols - Uniswap and Balancer. Participation in this project involves buying the TWA Adventure token, which is then deposited in one of the Uniswap vaults, along with a balancing amount of ETH.
After deposits are made, the project issues another asset - the Liquidity Provider (LP) token. This token receives passive income by participating in the Balancer protocol. The Adventure LP token is part of the Luna Fund. This fund is open to all Adventure LP token owners, and exposes them to the curated risk of a five-asset portfolio. The portfolio is made up of TWA, ETH, UNI, LINK and renBTC, thus spreading out the potential sources of risks and rewards.
The Ethereum network is the central hub which makes those token and protocol interconnections possible. While limited possibilities exist for moving tokens between networks, using one wallet and connected protocols allows for the creation of projects like Adventure Token and the Luna fund.
World Token also uses the Ethereum network for a double-function token. As a source of liquidity and price discovery, WORLD has already built liquidity above $1.7M, and creates $3,118 in fees per day. In the future, the size of the liquidity pool may rise, redistributing more of the fees to WORLD holders.
WORLD is a transparent token, with currently above 3,100 holders and staking against close to 400 ETH. The token distribution through the initial sale is already well-established for Ethereum users. But WORLD goes beyond the usual ICO sale, ensuring immediate trading and price discovery.
WORLD has adopted the concepts of liquidity mining and staking, creating multiple revenue streams for its holders. The creation of both WORLD and Liquidity Provider tokens allows for staking and holding revenues, through a dedicated 3% transaction tax.
The presence of Uniswap LP tokens and additional WORLD tokens allows for an off-chain settlement for reward fees. This allows the token rewards to be verified once on Ethereum, and then arrive in users’ wallets without the need to pay unpredictable gas fees. For World Token Network, the Ethereum ecosystem is a backbone, but the additional functionalities allow the economy to expand with no limits from gas fees.
Fuzzy.One has an ambitious idea of building a token-based network for expert advice and worldwide connectivity. The Ethereum standard enables the tools to contact and pay gig workers, or to pay an expert fee for emergency questions.
The FLEx token is relatively new, distributed to 22,500 holders so far. The asset is building up its liquidity in several Uniswap pairings, with the most active one against USDC. The presence of multiple stablecoins on the Ethereum protocol also boosts the potential for price action and trading. FLEx was at the beginning of its trading phase as of February 2021.
Because of some of the inherent ERC-20 properties, the FLEx token can also serve as a means of payment for advice. Staking is also possible, adding to the potential for passive income. The token is essential to the system of collecting and publishing curated and specialized content.
The other goal of the Fuzzy.One project is to aggregate articles on specialized niches, especially gaming, logistics, supply chain and other business tokens. The articles will then be repaid in FLEx tokens. The marketing reach of Fuzzy.One extends over Southeast Asian markets, where ETH adoption is already widespread, while banking services may omit some of the countries.
The potential to reach markets already aware of the potential of ETH and crypto networks means new Ethereum-based projects are a step ahead, with infrastructure, wallets and awareness already at more significant levels.
Meme Ltd. is an example of projects combining the various types of tokens on the Ethereum network. Crypto collectibles have a double potential, as elements in decentralized finance and as rare digital items.
Meme Ltd. is just one of the series of meme-based, collectible image distributed apps. Its experimental model shows the potential to expand financial operations to non-fungible digital tokens. Images and collectibles offer a few potential branches for generating activity and fees. One is the creation of a marketplace, which expands the community. The other is the creation of a secondary asset, a Liquidity Provider token, which also flows back into the Meme Ltd. marketplace and economy.
Using non-fungible tokens started as a novelty game. But adding the boost of DeFi and the potential for passive income has grown the space, renewing interest in collectibles that are both appealing and offer access to passive income.
In theory, each new yield farming project can expand its business model with collectibles, which have proven to generate fees and value across the Ethereum network.
One of the boosts for decentralized finance on Ethereum will be the need to lock up a significant part of the coin supply. Some ETH will be locked in liquidity pools. Nearly 3M coins are currently waiting in the deposit smart contract for ETH 2.0, the new form of the network that will rely on proof-of-stake. The scarcity of ETH may help boost prices and hold coins within the crypto economy.
While the arrival of ETH 2.0 is delayed, it is still possible to further boost the DeFi ecosystem within the new network. When it comes to decentralized finance, networks like TRON and Binance Chain are growing rapidly, but for now, more new projects are choosing Ethereum and expanding its ecosystem.