Ethereum at Five: One Billion, Two Billion, Three Billion ... Four?

DeFi's knocking on TradFi's door

I was sure Ethereum was finished in the summer of 2016. Hooo boy, was I wrong.

Like others, I thought the response to The DAO hack undermined the project's claim to be decentralized. From creator Vitalik Buterin’s infamous plea on the developer chat (“ok can you guys stop trading”) to the team’s decision to rewrite history with a network-wide software upgrade that reversed the transactions draining The DAO, it seemed that a dangerous precedent was being established.

What if next time, instead of a rascally coder, the founders of Ethereum had to contend with a government asking them to block dark-web drug purchases or freeze donations to a leaker of classified documents? The team had shown they were capable of intervening effectively with this supposedly leaderless currency; unlike Bitcoin’s mysterious Satoshi Nakamoto, this project had an identifiable figurehead still actively involved. Surely the value of ether, the network’s native currency, would tank, and with it any interest on building on top of Ethereum.

Instead, Ethereum not only survived the episode (and the defection of community members who founded Ethereum Classic) but served as the launchpad for several explosive innovations: initial coin offerings (ICOs), non-fungible tokens (NFTs) and decentralized finance (DeFi). Clearly, any danger of devs playing God again under pressure from outside forces didn’t deter boundary-pushing endeavors, for better or for worse (many ICOs were illegal securities offerings, for instance).

Perhaps it was unfair to expect Buterin and his colleagues to take a hands-off approach so early in Ethereum’s development, as one wouldn’t expect a child to ride a bike without practicing on training wheels. Alternatively, maybe the market doesn’t care as much about pure decentralization as those who have marinated in the Bitcoin philosophy assume.

As Ethereum turns five this week, it can claim the titles of second-largest blockchain by market cap and most popular among developers. In our cover story below, my colleague Brady Dale charts the progress of decentralized finance from the DAO-saster to today’s fecund DeFi ecosystem.

Turning back the clock remains a debated decision, but it was hardly fatal.

Marc Hochstein, Executive Editor, CoinDesk

Today on CoinDesk Live

$55 Million Shockwave: How The DAO Hack Changed Ethereum – Tuesday, July 28, 4 p.m. ET

Speakers: Griff Green, Emin Gun Sirer, Matt Leising, Taylor Monahan

The theft, the chain split, the legal aftermath – perhaps no single event shaped Ethereum’s trajectory as much as The DAO hack of 2016. Bloomberg’s Matt Leising sits down with the key protagonists to reflect on the events and their after-effects four years on.

Join our Discord community to chat during CoinDesk Live.

Missed yesterday’s broadcast? Watch the replay of Maker Foundation board member Tonya Evans and former ConsenSys chief marketing officer Amanda Cassatt discussing Ethereum’s ethos in an hourlong conversation moderated by CoinDesk senior reporter Leigh Cuen right here.

Cover Story: How Decentralized Finance Became Ethereum's Top Dog

By Brady Dale

In May 2018, a startup called Dharma Labs hosted a get-together at the San Francisco offices of investment firm Polychain. It was called the “Decentralized Finance Meetup.”

It included all the early companies – the Maker Foundation, Compound Labs, 0x, dYdX, Wyre – and roughly 150 people showed, said Dharma co-founder Brendan Forster. He credited the gathering with a dawning realization at the time that DeFi startups were a distinct "cohort" within the industry.

In 2020, that cadre of DeFi upstarts has become the best justification for Ethereum’s persistence.

The name from that meetup – "decentralized finance" – stuck, because "decentralized" was more specific (and perhaps aspirational) than terms like "open finance" or "crypto-finance."

Its shorthand, "DeFi," had that double entendre with "defy." Disruptors gonna disrupt.

And so, that small group of startups would build through the last Crypto Winter, making DeFi the narrative driver of the Ethereum protocol as it turns five.

From that Spring 2018 soiree, assets committed to DeFi broke $1 billion in February 2020, $2 billion on July 1 and $3 billion just 20 days later. At this pace, $4 billion is likely before August passes.

Ethereal Bestiary

By Doreen Wang

Ethereum Cat Herders is the tongue-in-cheek name for volunteers who help manage projects. The joke is that coordinating independent-minded people working in different parts of the globe is as hard as wrangling felines.

As more developers have started building on Ethereum, the projects have quickly become larger than the Ethereum Foundation could manage by itself. Cat Herders assist Ethereum developers by coordinating hard forks, monitoring Ethereum Improvement Proposals, relaying information between teams and more. The aim is to bring the minimum amount of order that chaos needs to move Ethereum forward.

By the Time They Got to Devcon They Were Half a Million Strong (Well, 400)

By Ian Allison

Ethereum’s Devcon 1, held in London in November 2015, was like Woodstock, except with proper sanitation and no mud.

Bankers and Big Four consultants disguised in hoodies shared space with dreadlocked Ethereum coders, sitting cross-legged in the corners, laptops open in front of them. 

Packed into a Victorian banking hall in the heart of the City of London, the audience listened as ConsenSys chief Joe Lubin predicted a new future for firms; cryptographer Nick Szabo talked about decentralization in the context of Francis Drake and the Aztecs; and chief scientist Vitalik Buterin assembled shards of the path that lay ahead.  

“The internet kind of sucks,” said Ethereum wallet designer Alex Van de Sande during his opening keynote. “It’s centralized, and it’s broken – but we can fix it this week.” 

Such was the optimism in the room.

Keeping with the Woodstock motif, this moment in time possessed a kind of prelapsarian innocence: The DAO debacle and hard fork decision that followed were at least six months away, and further off still was the ICO gold rush.

An earlier confab, Berlin’s Devcon 0, preceded Ethereum’s launch. In London, things were starting to get real.

Today I Learned

DAOs and Dapps: Ethereum’s Autonomous Engines

By Hoa Nguyen

Imagine a driverless car that functions in a completely self-sufficient way. After the initial setup, the car searches for passengers, picks them up, drops them off, then goes to a charging station, all without outside help. This is roughly analogous to what a decentralized autonomous organization (DAO) would do, except for corporate governance rather than transportation. 

In both cases, the machine does what it’s told, whether it’s the passenger saying “take I-87” or shareholders approving a takeover.

The idea of a DAO emerged shortly after the birth of Bitcoin in 2009, when people started to explore the possibility of doing away with financial middlemen, which later expanded to other sorts of intermediaries and agents.

A DAO is a type of decentralized application (dapp). There are three main types of dapps: apps that manage money, apps where money is involved and apps in other categories such as voting or governance. All run on smart contracts. Not all dapps are autonomous; some require a degree of control and maintenance that’s distributed among participants.

Blast From the Past

By Christie Harkin

On July 30, 2014, Ethereum launched with “Frontier.” This artwork accompanied the launch’s promotional materials. 

Ethereum History in 5 Charts

Part 2: Those Darned Cats

By Christine Kim and Shuai Hao

The first dapp on Ethereum to gain real user traction was a collectibles game known as CryptoKitties. Launched in November 2017, the “digital cats” became so popular they were covered by news outlets around the world including The Financial Post, BBC and The New York Times. 

At the height of their popularity, tokenized cats were trading on Ethereum for upwards of $200,000. However, the influx of users and a high volume of transactions from this one viral dapp clogged the Ethereum blockchain to unprecedented levels. A backlog of 30,000 transactions had piled up by December 2017, meaning that users would have to wait days for their transfers of ETH to be confirmed. 

The developers behind CryptoKitties hastened to help stem the tide of new users by increasing game fees. Shortly after CryptoKitties’ launch, Ethereum saw the highest total for daily transaction fees in its history, on Jan. 10, 2018. Over $4.5 million was collected in fees by Ethereum miners that day. The same month, CryptoKitties reached 250,000 registered users. 

In many respects, the CryptoKitties craze was the rude awakening that reminded Ethereum developers of the platform’s technical limitations. How could Ethereum become the world computer when one viral dapp was enough to overwhelm it? If the developers wanted to be serious about onboarding not thousands but millions of dapp users, they would need to come up with a concrete plan to increase throughput.

Next in Ethereum History: ICOs and DeFi test the limits…

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