ROHAS analysis of Ethereum
This report analyzes the Revenue, Organization, History, Algorithm, and Social (ROHAS) parameters of Ethereum.
Last updated: 14 July 2022
Note: This post presumes some background knowledge of these topics on the part of the reader:
Ethereum is NOT a blockchain. It's NOT a cryptocurrency either! It's actually a protocol (a set of rules or procedures) like "HTTP" or "HTTPS".
Multiple independent blockchains run on the Ethereum protocol. When most people talk about Ethereum, they are talking about Mainnet - the primary public Ethereum production blockchain. This is where actual-value transactions occur on the blockchain. The native crypto of this Ethereum is Ether (ETH).
In this report, the terms Ethereum and Mainnet are used interchangeably.
1. Revenue model & core metrics
The Ethereum Mainnet generates revenue from what is paid to the miners in the form of new tokens and gas fees.
The chart below shows the monthly price vs. supply-side revenue since launch:
The chart below shows the monthly price vs. protocol revenue since launch:
The chart below shows the monthly price vs. total revenue since launch:
The chart below shows the monthly price vs. P/S ratio since launch:
The chart below shows the monthly price vs. P/E ratio since launch:
Ethereum also enables Decentralized Finance (DeFi) which involves the creation of tokens that create their own revenue models. As of 14 July 2022, there are 512 protocols on Ethereum and the top tokens by TVL are:
Source: defillama.com
Maker DAO is a Collateralized Debt Position (CDP) platform; Lido is a Liquid Staking platform; Uniswap, Curve & Balancer are Decentralized Exchanges; Aave & Compound are lending platforms, Convex Finance is a Yield platform; Instadapp is a Services platform, and Frax is an Algorithmic Stablecoin platform.
The overall TVL of Ethereum has crashed from a high of US$ 160 billion on 9 Nov 2021 to US$ 45 billion on 14 July 2022 as depicted below:
Source: defillama.com
As of 14 July 2022, Ethereum's core metrics are:
Market Cap: US$ 131.64 billion
TVL: US$ 33.06 billion
MCap / TVL ratio: 3.98
Annualized Total Revenue: US$ 1.51 billion
Annualized Protocol Revenue: US$ 1.19 billion
P/S ratio: 82.61x
P/E ratio: 99.71x
Sources: tokenterminal.com, defillama.com, and coinmarketcap.com
Events to watch out for - the merge, decoupling of Staked Ether, and the collapse of DeFi projects.
2. Organization
According to the official Ethereum website:
The Ethereum Foundation (EF) is a non-profit organization dedicated to supporting Ethereum and related technologies.
The EF is not a company, or even a traditional non-profit. Their role is not to control or lead Ethereum, nor they are the only organization that funds critical development of Ethereum-related technologies. The EF is one part of a much larger ecosystem.
The Ethereum Foundation website lists 3 members of the Executive Board:
Aya Miyaguchi (Executive Director), who has 19.8K twitter Followers.
Vitalik Buterin (co-founder of Ethereum), who has 4M twitter followers.
Patrick Storcheneger (Board member) who does not appear to have a LinkedIn or Twitter account.
3. History
Let's go back to 2016.
A bunch of really smart people came up with the concept of decentralized autonomous organizations (DAO). That's kind of like a cooperative society - think co-op banks or even the Amul milk co-op. The difference is that a DAO exists only on a blockchain and its rules are coded in "smart contracts".
So anyway, this DAO raised about $150 million USD worth of ether (ETH) through a token sale. But a really smart hacker exploited a bug in the "smart contract" and siphoned out all the money!
Now, logically nothing should have been done about this. Blockchains are "immutable" and "censorship-resistant", right?
But a bunch of people proved that Ethereum is neither "immutable" nor "censorship-resistant". They implemented a "hard fork" and rolled back Ethereum's history to before the hack.
This reallocated the hacked ether to a different "smart contract" and allowed investors to withdraw their funds.
The purists hated this and that's what led to Ethereum splitting into 2 blockchains: Ethereum (ETH) and Ethereum Classic (ETC).
The chart below depicts the price movement of ETH as compared to the US dollar and Bitcoin (BTC):
Source: coinmarketcap.com
Ethereum has shown strong growth in:
transaction volume,
active users,
trading volume,
liquidity,
trade pairs, and
listing on credible exchanges.
The chart below depicts some core metrics of the top DeFi Blockchains by market cap:
Source: coinmarketcap.com
The chart below depicts price movements of the top DeFi Blockchains by market cap:
Source: coinmarketcap.com
4. Algorithm
Currently, Ethereum uses the Proof of Work consensus mechanism. This is by far the world’s most security-tested mechanism and is used by many blockchains including the Bitcoin family.
It is expected that over the next few months, the Ethereum Mainnet will "merge" with the Beacon Chain. This is the base on which the Ethereum ecosystem hopes to become secure, sustainable, and scalable. As of now, the Beacon Chain runs in parallel to the Mainnet and uses proof-of-stake.
When and if the marge takes place…
Ethereum Mainnet will move to proof-of-stake. In a proof-of-work blockchain, miners usually sell some of the newly mined cryptos to pay their bills. But in a proof of stake blockchain, holders can get paid to validate transactions. This incentivizes the "holding" of crypto and is good for the price.
Ethereum mining will stop and this will save the world a lot of energy. It is predicted that the Ethereum energy consumption will reduce by 99%.
It is hoped that once the environmental impact of Ethereum reduces, more financial institutions will want to use the Ethereum ecosystem and thereby buy more ETH.
Since a technical upgrade in August last year, over $6 billion worth of ETH has been burned and the issuance of new ETH has already slowed down. I believe that after the merge, ETH will become a deflationary crypto asset - one with a reducing supply.
However, it must be remembered that proof-of-stake is not a battle-tested mechanism.
5. Social Community
Ethereum has a very large, vibrant, active, engaged, and positive community with a fair share of fanatics.
@Rohas - thx for sharing your thoughts. There is much solid groundwork in it. Yet, your metrics to completely ignore forward valuations, which - in particularly - would need to factor in the MERGE. There are metrices out there to factor such developments in and particularly as the Ethereum community and analysts are waiting for years for that moment to happen, you should have factored that event into your expected ETH price, indicating that price being forward-oriented.
You might have observed the price move ETH has done since 2 weeks (up 60%). This was due to a date finally communicated when the merge would happen. And more important as the WHEN to me personally is, its meaning THAT it WILL HAPPEN.
Exiting times ... more to come ... stay tuned on https://www.linkedin.com/in/hammerblock/
Wonderful explanation, thanks