How is Ethereum performing amid the pandemic crisis? Let's look at it from 6 aspects including hash rate, Gas, DEX, etc.

In the midst of global market turmoil, Ethereum hash rate remains stable, Gas prices quickly returned to normal after a sharp increase, but the popularity of stablecoins also exposed the under-collateralization of DAI.

Original Title: "How Ethereum Performed During the Global Market Shocks of the Coronavirus Pandemic"
Author: ConsenSys
Translator: Zi Ming
Editor: Lisa

Over the past few weeks, decentralized finance protocols have experienced what many believe to be the only true test in the digital currency lifecycle. As the world continues to grapple with the impact and recovery from the COVID-19 pandemic, this test persists (for both DeFi and traditional finance).

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On February 12, the Dow Jones, Nasdaq, and S&P 500 all closed at historic highs. One month later, stock markets around the world triggered circuit breakers to curb panic selling, leading to the largest single-day percentage drop in the U.S. market since the 1987 crash. March 12 proved that traditional finance and decentralized finance are still significantly correlated. As traditional markets contracted on Black Thursday, the digital currency market also contracted, with ETH and BTC prices plummeting over 40% in less than 24 hours.

In recent weeks, numerous app, platform, and exchange teams have provided their own analysis and highlighted their efforts to ensure high availability for users during this tumultuous period. In the spirit of transparency, we aim to analyze the performance of the Ethereum network during this unique moment in economic history and identify some key points for the future of digital networks and finance.

Here are six data-driven conclusions drawn from the intense trading activities of the past month. These insights are derived in conjunction with ConsenSys' analytics platform Alethio, particularly utilizing Alethio's API and custom reporting tools.

Hashrate refers to the speed at which Ethereum mining machines operate, specifically the number of hashes guessed per second used to find a random number (nonce) for solving a block transaction. On the most volatile day of March 12, the Ethereum mainnet hashrate remained stable at around 170TH/s. Throughout the week of March 12-18, the daily average hashrate was approximately 165TH/s, almost in line with the daily average level of 167TH/s in March. Compared to other blockchains like Bitcoin, Ethereum's hashrate has remained stable, while Bitcoin's mining hashrate dropped by 20%. Overall, this indicates that during price fluctuations, most miners stayed on the network.

On March 12 and 13, due to users rushing to cash out ETH or exchange it for stablecoins (which increased transaction fees as miners prioritize pending transactions in this scenario), Gas daily average prices surged to 78Gwei and 85Gwei. However, in the following days, Gas prices returned to around the daily average of 12Gwei (with a slight increase on the 16th). The network effectively handled the surge in activity during those two days.

During the market downturn on March 12, DEXs processed remarkable trading volumes without any major issues, attacks, or interruptions. DEXs recorded a trading volume of 550,000 ETH (over 5 times the previous day) and 6,639 unique traders (nearly 50% increase from the previous day). Among the 17 active DEXs monitored by Alethio's dex.watch, approximately $70 million was traded on March 12 alone, with Uniswap accounting for $42 million, nearly 6 times the daily average trading volume in March. By March 17, ETH's daily trading volume and the number of unique traders on DEXs had returned to pre-crash levels. This indicates that while panic was real, it was also short-lived.

In contrast, U.S. stock exchanges halted trading four times in mid-March. The market circuit breaker mechanism was established after the 1987 Black Monday to allow the latest accurate information to flow into the market. The circuit breaker was last updated in 2013 to prevent flash crashes driven by high-frequency trading. However, this suppression mechanism may have unintended consequences, disrupting effective pricing and exacerbating panic selling by traders attempting to beat the circuit breakers. Another interesting data point: Robinhood, the commission-free trading platform, experienced technical issues in early March. This outage was unrelated to circuit breakers but rather due to stress on Robinhood's infrastructure.

On March 13, active users of DeFi protocols reached 9,267 within 24 hours, accounting for 11.5% of the total 80,000 independent users in Q1. However, more interesting than the overall number of DeFi users is the number of users interacting with multiple DeFi protocols, as it offers insights into future trends and interoperability between different platforms. Contrasting user behavior between January, February, and March, it is clear that during the mid-March market turmoil, users shifted from long-term games in lending to gathering around DEXs like Uniswap and Kyber, turning to safe-haven assets such as stablecoins.

The increased user overlap due to Black Thursday, represented by the dense yellow cloud of users interacting with Uniswap and Kyber in the above graph, reflects the ease with which DeFi users can swap assets and move between exchanges. DeFi protocols like Kyber also aggregate on-chain liquidity sources such as Uniswap and other DEXs, allowing users to access a single smart contract function for more efficient price discovery.

Stablecoins are digital currency assets whose value is pegged to fiat currency or a basket of assets to prevent drastic fluctuations. Digital currency stablecoins like Dai require Ether (the native token of the Ethereum network) as collateral assets held in smart contract custody. The market cap of stablecoins continues to rise as digital currency holders seek to reduce asset risk while maintaining liquidity. The chart below shows the days of the quarter with the highest traded volume on Uniswap. On March 13, Dai and USDC alone accounted for over 80% of the trading volume on Uniswap.

As many have analyzed, last month, Dai stablecoin experienced a unique stress test. On March 12, we observed a sharp decline in the DeFi score of the Dai pool through Codefi's DeFi rating (which rates DeFi lending platforms based on smart contract risk, collateral, liquidity, and centralization risk factors). During the market turmoil, users rushed to borrow Dai on platforms like Compound and dYdX to avoid their collateralized debt positions (CDPs) from being liquidated. As people borrowed Dai, the utilization rates of individual asset pools increased, reducing liquidity. Limited liquidity led to a decrease in the DeFi score of an asset pool (as the risk of lenders exiting positions increased). The mid-March price drop instantly liquidated Maker Vaults to collateral ratios below 150%, resulting in over $4 million worth of undercollateralized Dai, while stablecoins remained pegged at $1.00.

The increase in network gas fees had consequences for the Maker protocol. The MCD-Medianizer, or Maker's on-chain price feed, got stuck in the transaction queue, causing accurate price updates to stall. This allowed some Vault owners to save their CDPs, but for others, it meant potential immediate and complete liquidation once the price feed updated. Additionally, some liquidators took advantage of the stalled price feed to bid first in debt auctions by increasing transaction fees and obtained a total of over $8 million worth of ETH at 0 Dai bids.

These anomalies sparked discussions within the DeFi community, debating the necessity of circuit breaker mechanisms similar to traditional markets and whether these events were abnormal or part of the system's intended operation. In the days following the market turmoil, MakerDAO added fiat-backed, and more centralized USDC stablecoin as collateral on the platform, and recently auctioned $5 million worth of MKR tokens to cover losses, bringing Dai closer to the $1.00 price.

Last month's market turmoil proved that digital currencies and traditional assets are still interconnected, as seen in the volatility of the S&P 500 index, BTC, and ETH price correlation chart.

For many investors, digital currencies still fall under the category of "alternative investments" in a broader portfolio and are not fully embraced as a hedge asset against the unpredictability and opacity of traditional markets. Looking at user adoption and the continuous improvement of the DeFi macroeconomy (using Dai as an example), the decoupling and "recoupling" of traditional finance and decentralized finance still require further consideration.

If there is a significant lesson from last month's market turmoil, it is that the availability and transparency of data are crucial for the success of decentralized finance and global finance. The blockchain ecosystem emerged in 2008 as a direct response to the lack of transparency surrounding toxic assets, zombie banks, and rating agency opacity. The undercollateralization of Dai last month posed a challenge for DeFi but also drove development within the crypto community.

BlackRock's Global Chief Investment Officer of Fixed Income, Rick Reider, seems to best understand the confusion of global market participants. "If you don't know where the safest assets in the world are, then trying to figure out anything else becomes almost impossible." In these tumultuous times, Ethereum's network transparency aids in this search.

Lex Sokolin, Global Fintech Co-Head at ConsenSys, recently stated, "What we will get out of this crisis is a new belief system about trust, transparency, and perhaps most importantly, about the health of our systems."

This article is authorized for reproduction by ChainNews, article source: ChainNews (ID: chainnewscom)

Further Reading

• [Full Blog Post from MakerDAO] Market Crash on March 12th to 13th, 2020: How it Affected MakerDAO

• Grayscale Overview of Ethereum's History: Technological and Community Development Momentum, Competing Platforms Difficult to Replicate

• Is a Great Depression Happening? TED Asks Bridgewater Fund, Ray Dalio Says: No, it's a Big Collapse

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