2020 has been a year unlike any other. The Covid-19 pandemic led to an unprecedented crash across global markets with cryptocurrencies taking on huge losses in March and ETH suffering its worst decline since the 2017/18 bubble.
The recovery, however, has been astounding. Over the course of the year, Ethereum has not only grown fundamentally stronger but fiat currencies have been weakened by central bank money printers. The stable and trusted inflation rates of coins like ETH and BTC are even more desirable than ever. As a result, ETH has had the largest growth of all major cryptocurrencies with a 460% climb this year.
Last year I made a few predictions about what might happen in 2020. While I could pat myself on the back for aiming in the right direction, the scale at which things ended up growing was off by a long shot.
I predicted a trend that would see projects remodel their tokenomics, something we saw most dramatically in KNC and AAVE (formerly, LEND) but happened countless times with other coins whose governance systems tweaked parameters to boost the value capture of their token. Specifically, I looked at BAT as a prime candidate for doing this, which did nothing during 2020 and continued to underperform.
I also predicted a DeFi bubble, one that could “balloon from $650 million to $1.5 billion” or even “double”! This prediction was wildly wrong for two reasons. 1) The total value locked in DeFi climbed not to $1.5 billion, but to $14 billion and 2) we’re not at the bubble stage yet – DeFi’s growth has mostly been organic and I believe it’s so far been (somewhat) sustainable.
In a similar vein, I predicted a modest shift of ~$50 million Bitcoin onto Ethereum by the end of the year… In wrapped BTC (WBTC) alone, there is now $2.7 billion BTC residing on Ethereum. renBTC, $330 million and tBTC, $41 million. It’s fair to say that the growth here absolutely smashed my expectations. It also raises questions about Bitcoin’s long run security model, which is paid by transaction fees that are increasingly being harvested on ETH, and cements one of the fundamental value propositions of Ethereum which is its unrelenting capture of all blockchain liquidity.
My final prediction about Libra getting “the green light” was slightly misplaced. Libra has become a shell of its former self. Recently rebranded as “Diem”, the stablecoin is now subject to strict US regulation that risks rendering the project moot. While Diem will no doubt capture some interest, growth is likely to be a slow burn rather than the rocket ship for crypto that was first anticipated.
Unexpected Developments in 2020
Liquidity mining has sparked an entirely new mechanism for fundraising, token launches and token distribution. Yearn.finance sparked the concept of a “fair launch” and Uniswap turned the meaning of “airdrop” on its head after handing out UNI governance tokens valued at $1,200 to every single user of its exchange. This trend was made even more pronounced by the DEX aggregator and AMM, 1inch.exchange, whose 1INCH token airdrop handed out tens of thousands to some of its earliest power users.
AMPL also started a trend of algorithmic stablecoins – fiat-pegged assets that automatically adjust coin supply to oscillate and – eventually (hopefully) – hold their target value. And stablecoins have been the star of 2020, seeing an enormous surge of interest during the crash in March and providing billions of US Dollar liquidity for decentralized exchanges.
Stablecoin experiments are also now only just getting started with Empty Set Dollar, FRAX and others all building on AMPL’s elastic supply mechanism. The rate of financial experimentation on Ethereum is likely to only increase over the course of the next year.
Predictions for 2021
Looking ahead to next year there are a few events I have my eye on.
While ETH has grown more than BTC this year, it is still nearly 50% down from its all time high. The cryptocurrency has a lot of catching up to do but catching up it will. Here are a few fundamental reasons I expect ETH to achieve the remarkable and break its all time high in 2021.
- CME Group Futures launch in February
- EIP-1559 ETH burn implemented, moving Ethereum one step closer to becoming a sustainable deflationary (or ultra-low inflation) cryptocurrency
- SEC provides more regulatory clarity, confirming (again) that Ethereum is not a security
- Staking services help drive ETH staked to 10 million (or ~10% of circulating supply)
- Ethereum gains mainstream attention after forward-looking regulated fintech brands integrate Ethereum-based savings accounts.
Away from price speculation, there are also numerous other developments I expect to happen next year.
- Stablecoins in circulation grow to over $100 billion with algorithmic stablecoins taking a 20% market share thanks to their capital efficiency
- US Treasury goes after Tether sending markets tumbling 😬
- DeFi TVL surpasses $200 billion thanks, in part, to the introduction of Ethereum Layer 2 protocols
- Onchain identity and reputation protocols are used to privately KYC users for the first time
- Coinbase IPO leads to a massive repricing of decentralized exchange tokens as CBSE launches with a $50 billion+ valuation.
- ETH outperforms BTC against fiat by 5x 🚀
One thing is for certain, the Ethereum ecosystem will continue to grow at a staggering pace with new ideas and experiments that once again challenge our understanding of money and value.