- Ethereum ecosystem performance in 2022 could see ETH skyrocket in 2023.
- The network is also working to overcome its 2022 downsides in 2023.
Ethereum, the leading smart-contracts blockchain network, has seen massive ecosystem expansion during 2022 that could shoot ETH into a bull run in 2023.
One indicator of this, as noted by crypto market analyst Dynamo Patrick, is the growing dominance of Ethereum Layer twos. Per on-chain data he points out, Ethereum mainnet transactions are at their lowest in 2.5 years. But layer 2 rollups like Arbitrum and Optimism now process as many transactions as mainnet.
Daily transactions on Ethereum mainnet, Optimism, and Arbitrum since the start of 2020.
Ethereum mainnet transactions are at their lowest point in 2.5 years, but Layer 2 rollups now process as many transactions as mainnet. pic.twitter.com/3BilZvRUOh
— Patrick | Dynamo DeFi (@Dynamo_Patrick) December 26, 2022
Other Ethereum ecosystem metrics have also shown healthy growth in an eventful 2022 for the network. The Ethereum network has retained its position as the largest blockchain by total value locked (TVL) in DeFi protocols. Ethereum is closing the year with a TVL of $23.3 billion, equal to 60 percent of the total TVL of the entire crypto market per DefiLlama data.
The network also got a boost from its migration to being a proof-of-stake blockchain in 2022. The merge upgrade which had been in the works for years merged the Ethereum execution layer with the consensus layer (the beacon chain).
Leaving proof-of-work has cut Ethereum’s energy consumption by up to 99 percent. More benefits are also expected to come from the migration including improvements to scalability, gas fee reduction, and the inflation rate of the network. In the long term, Ethereum is even expected to become deflationary and take on the title of “Ultrasound money” entirely.
Meanwhile, the network is already gearing up for more upgrades to come in 2023. One of these is the Shanghai upgrade. Majorly, the upgrade will enable investors to withdraw their staked ETH. Presently, staked ETH are locked up to secure the network without the option to withdraw.
Ethereum’s downsides during 2022
Amidst the bullish events that took place in the Ethereum ecosystem during 2022, the network also experienced lowlights. ETH had a turbulent year in the market. The token fell to a one-year low price of around $880 following the Terra collapse back in Q2.
The asset is yet to fully recover from the drawdown. ETH currently trades at around $1,220, up less than 1 percent in the last 24 hours. The current price is an over 6o percent drop year to date and a 75 percent plunge from its all-time high price of $4,860 reached in November 2021.
Similarly, the ecosystem was also rocked by censorship compliance that became more prominent after the Merge upgrade. Validators enforcing OFAC compliance for the majority of blocks added to the Ethereum blockchain have raised serious questions about the network’s censorship resistance.
At the time of writing, 58 percent of all post-merge blocks were OFAC-compliant according to data from MEV Watch. The trends can undermine Ethereum’s neutrality reputation according to commentators. However, the network is also preparing an upgrade to solve the problem according to Buterin’s Ethereum roadmap update.
Big changes:
* The Verge✅ is not just about “verkle trees”, it’s about “verification”. Endgame: fully SNARKed ethereum
* The Scourge🧟(new): ensure reliable and fair credibly neutral transaction inclusion, solve MEV issues
* Single slot finality as stage 2 Merge🐼 milestone— vitalik.eth (@VitalikButerin) November 4, 2022
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