Ethereum has been innovating in multiple different fields like raising capital, decentralized finance, and prediction markets.
One of the most popular use cases of Ethereum has been to raise capital. Initial Coin Offerings, commonly referred to as ICOs, have allowed projects to raise money by selling newly issued tokens against ETH (or other tokens like stablecoins).
Projects like Cardano, Tezos, or EOS have conducted some of the world’s largest ICOs, with each worth $ hundreds of millions.
Despite concerns about whether some of the ICOs could be considered unregistered security sales by regulators, the ability of any team to raise capital directly from investors has been a significant use case of Ethereum, which has even led to an ICO bubble in mid-2017.
The launch of the ERC-20 token standard in November 2015 has unleashed new opportunities for anyone to virtually issue a token that is interoperable with other third-party applications on the network.
Some tokens were created to represent units of values from real-world assets (e.g., stablecoin), others were used for unique niche use-cases (e.g., governance utility tokens, app discounts), and some exist simply for fun & other testing purposes.
One of the first utility tokens was created by Augur, whose team conducted an ICO in 2015 for its utility token ("REP"). This token is used within the Augur prediction market platform for several unique functions such as incentives for reporting the validity of a real-world event.
Stablecoins are utility tokens whose value is backed by collateral and pegged to a fixed unit. There are two primary types of stablecoins: collateralized stablecoins like USD Tether ("USDT") and USD Coin ("USDC") and crypto-backed stablecoins like DAI (from MakerDAO). These assets can be used to trade on exchanges, for individuals to pay for transactions, and for parties to transfer capital worldwide at a meager cost.
Collateralized stablecoins are backed by fiat that is stored in bank accounts in the real-world. For instance, USDC is pegged 1:1 with the US dollar, and funds are held in a bank account that is audited by a third party.
Crypto-backed stablecoins are backed by assets that are overcollateralized to the peg, often with a set of complex mechanisms to prevent the collateral from dropping below the face value of the supply.
Collateralized stablecoins dominate the stablecoin industry (more than 97% of the total stablecoin industry), and Ethereum is the leading platform for stablecoin, with more than $10 billion worth of stablecoins issued as of June 2020.
Decentralized Finance, referred to as DeFi, is a growing use case of Ethereum, relying on principles of decentralization and self-custody of assets. DeFi is built on the promise that (1) any individual should be granted access to essential financial services (2) that code is the law, (3) composability allows platforms to integrate each other, and (4) users should own their funds.
The leading DeFi platforms are MakerDAO, the crypto-backed stablecoin issuer, Compound, an algorithmic money market protocol, and Aave Protocol, another decentralized lending service (with both over-collateralized and under-collateralized services).
Despite some recent incidents leading to dramatic loss of funds (mostly due to smart contract issues), DeFi has been growing and has become a billion-dollar industry within its first year. New applications have been increasingly being developed, such as trustless exchanges for derivatives and automatic asset management solutions.
Ethereum has allowed developers to create non-custodial decentralized exchanges on the platform. These platforms, commonly called DEX, allow users not to give their assets the custody to a tier (e.g., Coinbase, Binance), while offering trading services. Through a complex set of smart contracts, these platforms allow users to trade without any intermediary.
There has been drastic improvement in how decentralized exchanges operate. Initially built with a matching engine at a block level, first-generation exchanges faced multiple issues such as front-running and high transaction fees.
Since then, two new categories of exchanges have emerged:
Like utility tokens, the growing interest in the tokenization of assets has led developers to create a native standardized method to issue Non Fungible Tokens (”NFT”), also referred to as collectibles. The primary standards on Ethereum are ERC-721 and ERC-1155.
NFT’s first commercial implementation was CryptoKitties, a simple blockchain game that allowed users to purchase, collect, breed, and sell virtual cats. This game became such a success in 2017 that it led to the congestion of the Ethereum blockchain.
Similar to utility tokens, Ethereum-based collectibles can be traded on centralized and decentralized exchanges like SpiderDEX. Amidst the spike in the price of CryptoKitties in late 2017, one unique CryptoKitty was sold for more than $150,000.
The concept of decentralized autonomous organizations (”DAO”) existed before Ethereum. A DAO refers to an organization built on a set of rules and encoded in a computer program that is (1) transparent, (2) controlled by shareholders, and (3) not influenced by any outside party.
The first and most controversial attempt of a DAO was The DAO: a “stateless fund” that was built in mid-2016, collecting more than 11 million ETH (approximately $50 million in 2016).
Despite the failure of The DAO due to a smart contract error (leading to funds being stolen), DAOs have since regained both interest and popularity. Developer best practices have also considerably improved and third-party code audits are now widely accepted.
Initiatives like Aragon and other projects are popular nowadays and attempt to build a framework for DAOs to operate and govern a range of activities on the blockchain and in the real world.
Predictions markets have existed for long before the creation of Ethereum. However, Ethereum properties such as decentralization and censorship-resistance have led to the creation of multiple prediction market platforms.
The most notables are Gnosis and Augur, where anyone can create a market for any event. Through an incentive-based system to report real-world outcomes, these platforms allow the creation of a free market for individuals to bet and hedge on future events (e.g., "who will win the World Cup?").
Despite some issues due to the nascency of Ethereum, prediction markets have garnered interest from media, mostly due to some of the infamous markets on unethical outcomes, raising exciting debates about whether platforms should practice some sort of self-censorship.
Since Ethereum allows a wide variety of decentralized applications, blockchain-based casinos have been developed on Ethereum. For instance, platforms like dice2.win offer betting services for users on the outcome of dice.
Thanks to smart contracts for their probabilistic logic, casinos on blockchains often offer greater transparency on the probabilities for each outcome.
With the growth of other competing programmable blockchains for retail use-cases, casinos have increasingly become popular on networks like Tron or EOS. In contrast, Ethereum developers have pivoted away from gambling applications.
Ethereum has also been used for multiple applications and services to record information. For instance, Peepeth is a Twitter-like system built on Ethereum, featuring signature authentification for users to post short messages that are shared on its platform (and immutable!).
Another example is the Ethereum Name Service (ENS), a human-readable lookup system, to register/transfer domain names linking to Ethereum addresses, which is by design difficult to read and to remember for humans.
Recently, the ERC-725 standard is a proposal for a blockchain-based identity system, composed of proxy smart contracts. It pushes users to own and manage their identity instead of letting third parties (i.e., "centralized organizations") handle the ownership of their identity.
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