Ethereum (ETH): Q3 2024 Activity Report

Key Information

• Ether (ETH) lost 24.3% in value during the third quarter (Q3 2024), while the ETH/BTC ratio reached a historic low.
• Ethereum’s revenue dropped by 53.8%, reaching $170 million, due to transaction fees falling to their lowest level in five years. The protocol’s net income fell to -$573 million.
• The total value locked (TVL) in USD on Ethereum decreased by 7.4%, mainly due to the drop in Ether’s price. However, in terms of ETH quantity, TVL remained stable.
• Categories like Liquid Restaking continued to grow (+6% in Q3 2024), despite a decline in other sectors like Liquid Staking and DEX. Ether.fi was the big winner with a 19% increase in its TVL, while Pendle suffered the largest drop (-35%).

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Ethereum in a Nutshell

Ethereum is an open and decentralized first-layer (layer 1) blockchain whose goal is to serve as a technological foundation for anyone to build decentralized applications (dApps). Conceived in 2013 by Vitalik Buterin and officially launched in 2015, it is now a standard in the ecosystem.

Ethereum revolutionized the cryptocurrency world by introducing a major innovation: smart contracts. These are computer codes that can be implemented on the blockchain, making it programmable. They allow developers to design sophisticated applications on Ethereum.

Ethereum’s native cryptocurrency, Ether (ETH), is currently the second-largest cryptocurrency by market capitalization, behind the famous Bitcoin (BTC). It plays several roles within the ecosystem, including as fuel for transaction fees, as a governance element for the protocol, and as a reserve asset for decentralized applications.

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Ethereum Financial Analysis

Ether (ETH) in the Market

After an excellent start to 2024 (+48% in Q1 2024, +15.5% in Q2 2024), Ether (ETH) faced a relatively challenging third quarter (-24.3 % in Q3 2024). This decline occurred in a generally bearish environment for the entire cryptocurrency market.

ETH’s price dropped by nearly 40% from its cycle high (around $4,100), stabilizing around $2,450. Additionally, Ether significantly underperformed Bitcoin (-25% in Q3 2024), with the ETH/BTC ratio plunging to levels not seen since April 2021.

This ETH price drop was accompanied by a 44% decrease in trading volume during Q3 2024, reflecting a noticeable investor disinterest over the summer. Notably, the introduction of the first Ethereum spot ETFs in the U.S. has not yet managed to reverse the trend.

Despite the bearish market, the number of addresses holding ETH continues to grow, reaching 126 million in Q3 2024. This indicates that even in a downturn, Ether continues to attract a growing number of long-term investors.

Ethereum’s Financial Results

To preface, let’s review Ethereum’s economic model:

• The introduction of EIP-1559 on Ethereum resulted in a mechanism that burns a fraction of the fees spent by users in every transaction.
• Ethereum’s revenue corresponds to the total ETH burned during each transaction on the network. This reduces the total supply, directly benefiting ETH holders.
• Ethereum’s net income is calculated by subtracting expenses from revenue. Expenses correspond to the total amount of ETH distributed to network validators, representing freshly created ETH that increases the total circulating supply.

In line with previous metrics, Q3 2024 was a challenging period for the Ethereum protocol. Revenues reached $170 million, a 53.8% decline compared to the previous quarter.

This revenue decrease is largely due to the drop in transaction fees, which reached their lowest level in over five years (around 5 gwei). In fact, activity on Ethereum significantly slowed during Q3 2024, as we will explore further in the next section.

Thus, the protocol’s net income (i.e., for ETH holders, the true "shareholders" of Ethereum) also fell (-35% in Q3 2024). Already negative in the previous quarter, it worsened to -$573 million.

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Ethereum Activity Analysis

The number of daily transactions on the Ethereum network averaged 1.04 million in Q3 2024, a 10% drop compared to Q2 2024. This steady decline over the past three months is likely due to reduced activity during the summer across the cryptocurrency market.

Similarly, the number of daily active addresses fell by 18% from Q2 2024 to Q3 2024, averaging 406,000. This level hadn’t been seen since Q4 2023, a period when ETH’s price was below $2,000.

For comparison, the number of daily transactions on Solana is steadily increasing, averaging 40 million per day during Q3 2024 (compared to 1.04 million for Ethereum). The same applies to the number of active addresses, which reached about 1.7 million per day on average (compared to 406,000 for Ethereum).

Finally, the number of new addresses created daily on Ethereum fell by 28% from Q2 2024 to Q3 2024, dropping from 115,000 to an average of 82,000. However, the average daily transaction volume on the blockchain rose by 9%, surpassing $4.15 billion per day.

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Ethereum Ecosystem Analysis

General Overview

The total value locked (TVL) on Ethereum decreased by 7.4% during Q3 2024, dropping from an average of $57.9 billion to $53.6 billion. However, this reduction should be considered in perspective, given the substantial increases of 65% and 41% observed in Q1 and Q2 2024, respectively. Despite this drop, Ethereum’s DeFi TVL remains significantly higher since the start of the year, growing from $25 billion to around $53 billion, indicating solid growth.

It’s also relevant to examine the evolution of TVL in Ether (ETH). TVL on Ethereum decreased slightly by 0.06% during the third quarter, from 17.20 million to 17.19 million ETH. This shows that the USD TVL drop was primarily due to the decline in Ether’s price, not a massive capital withdrawal from the network.

This trend is observed across all blockchains, notably on Solana, where TVL dropped by 9.4% in Q3 2024. However, some blockchains like Tron recorded a slight increase in their USD TVL (+2.3% in Q3 2024).

By Categories

It’s important to note that there are several ways to calculate a blockchain’s TVL. The traditional method, also known as DeFi TVL, excludes certain protocol categories like Liquid Staking and Liquid Restaking. For a more comprehensive sectoral analysis, we will consider an expanded version of Ethereum’s TVL, which includes these two categories.

Here’s the evolution of TVL for the ten main protocol categories on Ethereum in Q3 2024:

• Liquid Staking: -8.9%
• Lending: +0.9%
• Restaking: -6%
• Liquid Restaking: +8%
• DEX: -13%
• CDP: -15%
• Yield: -31%
• Farm: -7%
• Derivatives: -18%
• Services: +3%

During Q3 2024, several sectors saw significant declines, notably Liquid Staking (-8.9%), Restaking (-6%), decentralized exchanges (DEX) (-13%), and collateralized debt protocols (CDP) (-15%). In contrast, Lending protocols remained stable (+0.9%), and Liquid Restaking applications continued to grow (+8%).

It’s worth taking a closer look at the Liquid Restaking sector. This category shows signs of structuring and organization, confirming a trend observed in Q3 2024. At the sector’s inception, in Q4 2023, Ether.fi dominated the market with a TVL of about $50 million.

However, by Q1 2024, the sector’s explosion led to the emergence of new players, quickly gaining market share. While Ether.fi remained the leader with a 38% market share, strong competitors like Puffer Finance (19%), Kelp (16%), and Renzo (13%) appeared, bringing the total TVL to around $3 billion.

Since then, a clear trend has emerged in Q3 2024: Ether.fi has strengthened its dominant position. While its market share hit a low in Q1, it has been steadily growing, now commanding 50% of the Liquid Restaking sector with a total TVL of $10.6 billion.

It’s also notable that, despite a slowdown in Restaking in Q3, this category continues to gain importance within the Ethereum ecosystem. As of January 1, 2024, Restaking and Liquid Restaking protocols represented $1.8 billion. By August 13, 2024, their value had soared to $28.3 billion, contributing to 43% of Ethereum’s TVL increase since the beginning of the year.

By Protocols

In Q3 2024, Ethereum’s ecosystem continued to diversify, with a growing number of protocols accumulating significant TVL. The top ten protocols by TVL are:

• Lido Finance: -8.2% in Q3, with $29 billion
• EigenLayer: -12.5% in Q3, with $14.5 billion
• AAVE: +3% in Q3, with $10 billion
• Ether.fi: +19% in Q3, with $6.5 billion
• MakerDAO: -13% in Q3, with $5.2 billion
• Uniswap: -12% in Q3, with $4.2 billion
• Rocket Pool: -10% in Q3, with $3.6 billion
• Spark: +4.5% in Q3, with $2.8 billion
• Pendle: -35% in Q3, with $2.8 billion
• Binance Staked ETH: -8% in Q3, with $2.2 billion

Collectively, these ten protocols account for $81 billion, or about 80% of Ethereum’s total TVL. During Q3, they experienced a cumulative loss of nearly $7 billion in TVL. However, it’s important to contextualize this decline: it represents only a 25% correction of the gains made in Q2 and just 12% of the total TVL increase since the start of 2024.

In other words, despite the drop observed in Q3, these protocols remain largely up compared to early 2024 levels.

Ether.fi stands out as the biggest beneficiary in terms of TVL gains in Q3, with a 19% increase, amounting to $1 billion. Conversely, Pendle recorded the sharpest decline, with a 35% loss, equivalent to a $1.5 billion decrease in TVL.

While Lido Finance remains the leader in terms of TVL on Ethereum, its relative share has significantly decreased, from 50% on January 1, 2024, to 35% on August 13, 2024. This decline reflects a redistribution of TVL towards other protocols, particularly in the Restaking and Liquid Restaking sectors, which are gaining popularity within the Ethereum ecosystem.

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Conclusion and Outlook

Q3 2024 was marked by challenges for Ethereum, with a noticeable drop in activity on the blockchain: fewer daily transactions, a decline in active addresses, and a decrease in new users. This trend can be partly attributed to seasonality, with summer typically being quieter, but also to investor disinterest in a relatively stagnant market. As a result of this lack of activity, Ethereum’s net income further decreased, marking the second consecutive quarter of losses.

However, the stability of TVL in terms of locked ETH and the growth of Restaking protocols indicate that the ecosystem remains solid and continues to evolve. The diversification of major protocols, with the rise of platforms like Ether.fi, shows a transformation underway that could set the stage for a recovery in Q4 2024.